SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 11-K
ANNUAL REPORT
Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1998
Citizens 401(k) Savings Plan
(Full title of the Plan)
Citizens Utilities Company
High Ridge Park, Stamford, Connecticut 06905
(Name of issuer of the securities held pursuant to the Plan
and address of its principal executive office)
Commission File Number 001-11001
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Plan Administrator has caused this Annual Report to be signed on
its behalf by the duly undersigned thereunto duly authorized.
Date: June 29, 1999 By: Citizens Utilities Company,
Plan Administrator of the
Citizens 401(k) Savings Plan
By: /s/ Livingston E. Ross
---------------------------
Livingston E. Ross
Vice President and
Chief Accounting Officer
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Citizens 401(k) Savings Plan
Notes to Financial Statements
December 31, 1998 and 1997
(1) Description of the Plan
-----------------------
The following brief description of the Citizens Utilities
Company (the "Company") 401(k) Savings Plan (the "Plan")
provides general information. Participants should refer to the
Plan document for a more comprehensive description of the
Plan's provisions.
a. Background. The Plan is a voluntary defined contribution
plan. Under the terms of the Plan, bargaining or
non-bargaining unit employees who have attained six months of
continuous service are eligible to participate in the Plan. At
December 31, 1998 there were 5,883 employees eligible to
participate in the Plan and 5,682 active employees
participating in the Plan.
On October 31, 1997, the Company purchased The Gas Company
("GASCO"). At that time, the non-union employees of GASCO were
participating in a GASCO sponsored 401(k) plan, the BHP USA
Retirement Savings Plan ("GASCO Plan"). The employees were
granted the option of remaining in the GASCO Plan or receiving
a full distribution of their respective
vested 401(k) plan account balances with the option of
reinvesting the distributed funds into the Company's 401(k)
Plan. No direct transfer of assets was made from the GASCO
Plan directly into either of the two plans sponsored by the
Company. During 1998, loans outstanding against the GASCO Plan
totaling $143,345 were transferred from the GASCO Plan into
the Citizens 401(k) Savings Plan.
Through December 31, 1997, the Company sponsored two 401(k)
defined contribution plans: the Citizens Utilities 401(k)
Savings Plans and the CUC 401(k) Employee Benefit Plan. As of
January 2, 1998, the assets in the Citizens Utilities 401(k)
Savings Plan aggregating $31,054,481 were transferred into
the CUC 401(k) Employee Benefit Plan; the name of the CUC
401(k) Employee Benefit Plan was then changed to Citizens
401(k) Savings Plan.
As of January 2, 1998, the Company changed administrative
service provider and trustee to Putnam Investments ("Putnam")
from PNC Bank ("PNC") and the assets in the PNC held invest-
ment funds were transferred to Putnam sponsored investment
funds based on employee directed instructions. If the
employee did not give specific instructions, the funds were
transferred into comparable Putnam funds.
b. Contributions. Eligible employees may contribute up to 16%
of their annual compensation through payroll deductions,
subject to certain maximum contribution restrictions. Prior to
January 1, 1992, participants had an option to elect life
insurance coverage as an investment vehicle. Beginning January
1, 1992, such option was discontinued, except that
participants who elected life insurance coverage prior to
January 1, 1992 could continue to make specific dollar
allocations to purchase additional life insurance coverage.
Contributions may be apportioned in 5% increments to any
combination of the six investment options specified below.
Participants may change salary deferral percentages and
investment options daily, by telephone, which generally become
effective with the first payroll of the following month. At
December 31, 1998 the number of accounts in each fund were as
follows:
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Citizens 401(k) Savings Plan
Notes to Financial Statements
December 31, 1998 and 1997
Number of
Accounts
---------
Investment Option:
Stock Fund 5,347
Putnam Income Fund 2,277
Putnam OTC & Emerging Growth Fund 2,436
Putnam Stable Value Fund 2,563
Putnam S & P 500 Index Fund 4,089
Putnam International Growth Fund 2,001
Loan Fund 1,036
Life Insurance 28
The Company contribution is determined for each Plan year by
the Board of Directors of the Company. The Company
contribution for the 1998 and 1997 Plan years amounted to 50%
of the first 6% of each Participant's annual base compensation
(as defined by the Plan) that a participant contributes to the
Plan. The Company contributions are invested entirely in the
Stock Fund unless a participant is age 55 or older in which
case the participant could elect to have the Company
contribution invested proportionately in the same investments
as his/her own contributions. In addition, at age 55 a
participant can request to transfer previous Company
contributions invested in the Stock Fund to other investment
options.
c. Participant accounts. Each participant's account is
credited with the participant's contribution and an allocation
of the Company contribution and plan earnings or losses.
Allocations are based on each participant's contribution, as
defined. The benefit to which a participant is entitled is the
amount which can be provided from the participant's account.
d. Vesting. Participants are at all times fully vested in
their own contributions and the allocated earnings thereon.
Participants become 100% vested in the Company contributions
and the related earnings on the Company contributions upon
disability, death, attainment of normal retirement age or
after five years of service. For any other termination of
employment, the vesting schedule is as follows:
Vested Percentage
of Company Contribution
Years of Service and Related Earnings
---------------- --------------------
Less than 2 years 0%
2 years but less than 3 years 40%
3 years but less than 4 years 60%
4 years but less than 5 years 80%
5 years or more 100%
e. Investment Options. As of January 2, 1998, participants may
elect to invest their contributions and savings in one or a
combination of the following options: the Stock Fund, Putnam
Income Fund, Putnam OTC & Emerging Growth Fund, Putnam Stable
Value Fund, Putnam S & P 500 Index Fund, Putnam International
Growth Fund, and Life Insurance.
A description of each fund follows:
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Citizens 401(k) Savings Plan
Notes to Financial Statements
December 31, 1998 and 1997
Stock Fund:
The Stock Fund invests in shares of the Company's Common
Stock. Stock dividends are paid on Common Stock shares in
additional full and fractional shares. Stock dividends are not
reported as dividend income in the Statements of Changes in
Net Assets Available for Benefits; rather, stock dividends are
reported as capital transactions which have the effect of
increasing plan shares and decreasing per share cost. Shares
received from stock dividends were 222,484 in 1998 and 251,664
in 1997. Effective January 1, 1999 the Company has
discontinued the issuance of stock dividends until further
notice.
Putnam Income Fund:
This fund seeks current income consistent with prudent risk by
investing primarily in corporate bonds from creditworthy
companies.
Putnam OTC & Emerging Growth Fund:
This fund invests mainly in stocks of small to medium-sized
emerging growth companies traded on the over-the-counter
market and on national exchanges.
Putnam Stable Value Fund:
This fund seeks a stable rate of return with safety of
principal and liquidity as primary objectives. The fund
invests in investments backed by the U. S. Government and
other high quality fixed-income securities. In addition,
guaranteed investment contracts (GIC's) previously held by PNC
are being held in this fund until their maturity dates. As the
currently held GIC's mature, the funds will be reinvested in
U.S. Government backed securities and other fixed-income
securities.
Putnam S&P 500 Index Fund:
This fund seeks a return, before the assessment of fees, that
closely approximates the return of the Standard & Poor's 500
Index, which is an indicator of U.S. stock market performance.
Putnam International Growth Fund:
This fund seeks capital appreciation by investing primarily in
a diversified portfolio of stock of companies located outside
the United States. International investing involves certain
risks, such as currency fluctuations, economic instability,
and political developments, not present with domestic
investments.
Prior to January 1, 1998, participants could have elected to
invest their contributions and savings into one or a
combination of the additional following funds:
Guaranteed Income Fund:
Participants in the Guaranteed Income Fund received a blended
interest rate calculated using a weighted average of the
contract assets and their annual compounded rates of return.
The blended interest rate was projected using assets in the
contracts and varied as contracts matured, as new contracts
were purchased and with deposit and withdrawal experience.
Equity Fund:
Contributions to the Equity Fund were invested in the Index
Trust 500 Portfolio managed by the Vanguard Group. This fund
is a passive equity management vehicle which seeks to
replicate the total return of the Standard and Poor's 500
index with dividends reinvested.
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Citizens 401(k) Savings Plan
Notes to Financial Statements
December 31, 1998 and 1997
Bond Fund:
Contributions to the Bond Fund were invested in the GNMA Bond
Fund managed by Vanguard Group. The GNMA Bond Fund is
primarily comprised of securities backed by the full faith and
credit of the U.S. Government. Dividends were received in cash
and were reinvested in additional Bond Fund shares.
Life Insurance:
Prior to 1992, a life insurance option was provided to
participants. Effective January 1, 1992 the life insurance
option was no longer offered to newly eligible participants.
However, Participants who maintained life insurance policies
prior to January 1, 1992 had their coverage remain intact and
these Participants could continue to have up to 25% of their
contributions used to pay premiums on a selected amount of
life insurance coverage. Insurance certificates are issued to
all Participants selecting this option and insurance policies
are issued to Participants upon their retirement or
termination.
As of January 2, 1998, unless directly instructed by the
participant to do otherwise, the investment fund balances
previously included in the GIC, Equity Fund, and Bond Fund
were transferred into three mutual funds available through
Putnam. The Guaranteed Income Fund balance was transferred
into the Putnam Stable Value Fund; the Equity Fund balance was
transferred into the Putnam S&P 500 Index Fund; and the Bond
Fund balance was transferred into the Putnam Income Fund.
Other investment options that became available to Plan members
included the Putnam OTC & Emerging Growth Fund and the Putnam
International Growth Fund. In addition, the Stock Fund and
Loan Fund balances were transferred into comparative funds
created by Putnam.
f. Participant Loans. Participants in the Plan may request to
borrow up to the lesser of 50% of his/her vested account
balance or $50,000. The loans are allocated to a Loan Fund.
The interest rate paid by the participant is equal to the
prime interest rate in effect at the beginning of the month in
which the loan is processed and remains fixed at that rate for
the term of the loan. Loan repayments are made through payroll
deductions, after tax, and are credited to each Participant's
account as the payments are made. A participant may repay a
loan in full at anytime by remitting his/her payoff check
directly to Putnam. In the event of termination of employment,
a Participant's loan note may be repaid in full or the loan
will be canceled and the Participant's final distribution will
be reduced by the amount of the outstanding loan balance.
g. Payment of Benefits. Upon termination of employment, a
Participant is entitled to receive payment in full of the
vested portion of his/her account. If the value of the
terminating Participant's vested account balance exceeds
$5,000, the Participant may elect to defer his/her
distribution. The distribution then must begin either on or
before April 1st of the year following the year the
participant attains age 70 1/2. If the Participant is still
employed by the Company at age 70 1/2 , he/she must take a
minimum distribution of his/her balance on or before April 1st
of the calendar year after the participant attains age 70 1/2.
h. Forfeitures. At December 31, 1998 and 1997, forfeited
nonvested Company contributions totaled $273,099 and $215,247,
respectively. These amounts are used to reduce the future
obligation of the Company to make contributions to the Plan.
i. Administrative Costs. Plan administration costs are
paid by the Company.
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Citizens 401(k) Savings Plan
Notes to Financial Statements
December 31, 1998 and 1997
(2) Summary of Accounting Policies
------------------------------
(a) Basis of Accounting
-------------------
The financial statements of the Plan are prepared under the
accrual method of accounting. The Fund Information reflected in
the Statement of Changes in Net Assets includes the application of
assets to the applicable funds as directed by the participants as
of December 31, 1998 and 1997.
(b) Use of Estimates
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of
assets and liabilities at the date of the financial statements and
the reported amount of additions and deductions during the
reporting period. Actual results could differ from these
estimates.
(c) Investment Valuation, Income Recognition and Payment of Benefits
------------------------------------------------------------------
The Plan's investments are stated at fair value, except for
Guaranteed Investment Contracts in the Putnam Stable Value Fund,
which are valued at contract value. Shares of registered invest-
ment companies are valued at quoted market prices, which represent
the net asset value of shares held by the Plan. The Company stock
is valued at its quoted market price. Participant notes receivable
are valued at cost, which approximates fair value. The net
depreciation/appreciation in the fair value of investments
consists of the net realized gains and losses on the disposal of
investments and the unrealized depreciation/appreciation of the
market value over their original cost for the investments
remaining in the Plan. Loans are valued at cost plus interest,
which approximates fair value.
Purchases and sales of securities are recorded on a trade-date
basis. Interest income and dividends are recorded on the accrual
basis. Benefits are recorded when paid.
(d) Risks and Uncertainty
---------------------
Investment securities are exposed to various risks such as
interest rate, market and credit. Due to uncertainties inherent
in the estimates and assumptions process and in the value of
investment securities, it is at least reasonably possible that
changes in these estimates, and risk factors in the near term
could be material to the financial statements.
(d) Reclassifications
-----------------
Certain 1997 balances have been reclassified to conform to the
1998 presentation.
(3) Investment of 5% or more of the Net Assets Available for Plan Benefits
----------------------------------------------------------------------
At December 31, 1998 the Plan had $60,836,981, $8,666,098, $27,161,413 and
$52,976,513 invested in the Stock Fund, Putnam Income Fund, Putnam Stable
Value Fund and Putnam S&P 500 Index Fund, respectively, which represents
an investment of 5% or more of the Net Assets Available for Plan Benefits.
(4) Related Party Transactions
--------------------------
Certain Plan assets are invested in shares of mutual funds that are
managed by Putnam. As Putnam is the trustee as defined by the Plan, these
transactions qualify as party-in-interest transactions. Fees paid by the
Company to Putnam for investment management services amounted to $88,546
in 1998. Fees paid by the Company to PNC for investment management
services amounted to $134,294 in 1997.
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Citizens 401(k) Savings Plan
Notes to Financial Statements
December 31, 1998 and 1997
(5) Termination of Plan
-------------------
The Company's Board of Directors has the right under the terms of the Plan
to discontinue Company contributions at any time and may terminate the
Plan, subject to the terms of the Employee Retirement Income Security Act
of 1974 ("ERISA").
(6) Tax Status
----------
As of January 2, 1998, the Citizens Utilities 401(k) Savings Plan was
terminated and the assets in the Citizens Utilities 401(k) Savings Plan
were transferred into the CUC 401(k) Employee Benefit Plan. The name of
the CUC 401(k) Employee Benefit Plan was then changed to Citizens 401(k)
Savings Plan. Both the Citizens Utilities 401(k) Savings Plan and the CUC
401(k) Employee Benefit Plan received determination letters from the
Internal Revenue Service dated January 25, 1995 and October 26, 1994,
respectively, stating that the plans were qualified under Section 401(a)
of the Internal Revenue Code (the "Code") and the related trusts were tax
exempt under Section 501(a) of the Code. The Company has not yet applied
for a determination letter for the Citizens 401(k) Savings Plan, however,
the Company intends to file and fully expects the plan to qualify under
Section 401(a) of the Code and the related trusts to be tax exempt under
Section 501(a) of the Code.
