CITIZENS UTILITIES COMPANY
--------------------------
FORM 10-K
---------
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
---------------------------------------------
OF THE SECURITIES EXCHANGE ACT OF 1934
--------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1994
------------------------------------1995
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 19941995 Commission file number 0-1291
----------------- ------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)
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) 329-8800
----------------
Securities registered pursuant to Section 12(b) of the Act:
Common Stock Series A, par value $.25 per share New York Stock Exchange
Common Stock Series B, par value $.25 per share New York Stock Exchange
- --------------------------------------------------------------------------
(Title of each class) (Name of exchange on which
registered)
Securities registered pursuant to Section 12(g) of the Act:
NONE
- --------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months, (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days.
Yes X No
----- -----
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant as of January 31, 1995: $2,808,214,408.1996: $2,721,397,606.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of January 31, 1995.1996.
Common Stock Series A 152,700,792154,679,357
Common Stock Series B 60,137,15173,326,013
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement for the registrant's 19951996 Annual Meeting of Stockholders is
incorporated by reference into Part III of this Report.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Item 1. Description of Business
-----------------------
(a) General Development of Business
------------------------------
The "Company" includes Citizens Utilities Company and its subsidiaries except
where the context or statement indicates otherwise. The Company is a diversified
operating public utility which provides, either directly or through
subsidiaries, telecommunications, electric distribution, natural gas
transmission and distribution and water or wastewater services to nearly
1,600,000 customer connections in areas of nineteen states.
The Company was incorporated in Delaware in 1935 to acquire the assets and
business of a predecessor public utility corporation. Since then, the Company has grown as a
result of investment in owned utility operations and numerous acquisitions of
additional utility operations. It continues to consider and carry out business
expansion through significant acquisitions and joint ventures in traditional public utility
and related fields and the rapidly evolving telecommunications and cable
television industries.
The Company directly, or through subsidiaries, provides
telecommunications, electric distribution, natural gas transmission and
distribution and water and wastewater treatment services to more than
1,400,000 customer connections in areas of eighteen states. Other than the
transfer to the Company of the GTE Telephone Properties discussed below,
there have not been any material changes in the business of the Company
during the past fiscal year. The Company's strong financial resources and consistent
operating performance enable it to make the investments and conduct the
operations necessary to serve growing areas and to expand through acquisitions.
On May 19,In 1993 the Company and GTE Corporation announced the signing
of ten definitive agreements pursuant to which1994, the Company agreed to acquire from GTE Corp. and ALLTEL
Corporation approximately 610,000 local telephone access lines and 7,000
cable subscribers in twelve states for $1.1 billion, certain telephone properties serving
approximately 500,000$1.4 billion. As of
December 31, 1995 all but approximately 23,000 local telephone access lines
in nine states ("the GTE
Telephone Properties"). On December 31, 1993, 189,123 access lines in Idaho,
Tennessee, Utah and West Virginia wereNevada have been transferred to the Company. On June
30, 1994, 270,883 local telephone access lines in New York were transferred
to the Company. On November 30, 1994, 37,802 local telephone access lines in
Arizona and Montana were transferred to the Company and on December 30, 1994,
5,440 local telephone access lines in California were transferred to the
Company. The remaining GTE Telephone Property is located in Oregon and is
expected to be transferred to Citizens in 1995.
On November 29, 1994, the Company and ALLTEL Corporation ("ALLTEL")
announced the signing of eight definitive agreements pursuant to which
Citizens agreed to acquire from ALLTEL for $292,000,000, certain telephone
properties servicing approximately 110,000 local telephone access lines and
certain cable television systems servicing approximately 7,000 subscribers.
The properties are located in eight states: Arizona, California, Nevada, New
Mexico, Oregon, Tennessee, Utah and West Virginia ("ALLTEL Telephone
Properties"). The closings are expected to occur state by state throughout
1995 and the first half of 1996.
(b) Financial Information about Industry Segments
---------------------------------------------
The Consolidated Statements of Income and Note 10 of the Notes to Consolidated
Financial Statements included herein sets forth financial information about
industry segments of the Company for the last three fiscal years.
(c) Narrative Description of Business
---------------------------------
TELECOMMUNICATIONS
------------------
The Company provides telecommunications services in Arizona,
California, Idaho, Montana, New York, Oregon, Pennsylvania, Tennessee, Utah,
Washington and West Virginia to primarily residential customers served by
more than 706,000 access lines as of December 31, 1994. The Company will
provide telecommunications services to customers served by approximately
126,000 additional access lines in Arizona, California, Nevada, New Mexico,
Oregon, Tennessee, Utah and West Virginia and cable television service to
approximately 7,000 subscribers in California upon the transfer to the
Companyall segments of the
remaining GTE and ALLTEL Telephone Properties.marketplace. Telecommunications services consist of local exchange service,
centrex service, network access service, long distance service, interexchange
service,intrastate and interstate toll
services, competitive access service, competitive local exchange service,
cellular service, cable television serviceservices and other relateddirectory services. The Company'sCompany
provides telecommunications services and/or rates are subject to the jurisdictionfollowing approximate number of
primarily residential customers in the Federal Communications Commission and state regulatory
agencies.following states:
State Customers
----- ---------
New York 295,600
West Virginia 139,400
Arizona 133,000
California 116,300
Tennessee 81,100
Idaho 18,600
Utah 18,300
Oregon 13,100
Montana 7,800
New Mexico 4,700
Louisiana 2,700
Washington 2,300
------------
Total 832,900
============
Various state regulatory agencies, state legislatures and the federal government
have initiated proceedings to promote the development of competition in
telecommunications markets. These proceedings are focussedfocused on removing the
regulatory and legal barriers to competitive entry into the interLATA toll,
intrastate intraLATA toll and local exchange markets;markets and developing rules to govern the
relationship between competitors; and
designing rebalanced rate structures for the incumbent local exchange company
("LEC") which would allow LECs the opportunity to effectively competeamong competitors in these markets while protecting the public's interest and access to
telecommunication services.markets. Simultaneously, many states are
investigating or have implemented procedures for LECslocal exchange companies to
enter into incentive regulatory frameworks ("IRF") as an alternative to
traditional rate base, rate of return regulation and/or classifying services on the basis
of the presence of competition and allowing deregulation or flexible pricing
regulation for the services deemed competitive. The Public Utility Commission ofLocal exchange competition has
been authorized in the State of California ("CPUC")
issued an order, effective January 1, 1995, authorizing competition for
intrastate intraLATA switched toll services, rebalancingfollowing states in which the Company currently provides
local exchange service: Arizona, California, New York, Oregon, Tennessee, Utah
and tollWest Virginia.
On November 8, 1995, the California Public Utilities Commission issued a final
order approving a restructuring of Citizens Telecom of California's ("CTCC")
rates establishing more specific procedures for local exchange carriers
to enter into incentive regulatory frameworksand an Incentive Regulatory Framework ("IRF"). The restructured rates
allow CTCC to compete more effectively. Under the IRF, CTCC can earn and providing a
timetable for the elimination of the intrastate toll settlement pools for
mid-sized local exchange carriers. In support of CPUC efforts which preceded
its order, the Company's California telephone subsidiary (the "Subsidiary")
exited the toll settlement pools in 1991 and entered into a transition
contract with Pacific Bell. Pursuant to this contract, Pacific Bell agreed
to pay the Subsidiary $38,000,000 annually through the end of 1994 to
partially offset the decline in revenues which resulted from exiting the toll
settlement pools. The Subsidiary expected to conclude a general rate case
permitting the implementation of rebalanced, competitive rates effective
January 1, 1995 intended to protect the Subsidiary's overall revenues, other
than the $38,000,000 Pacific Bell contract payment, by enabling it to
effectively compete in the intrastate intraLATA switched toll services
market. Although this general rate case has not been finalized, the CPUC has
issued an interim rate order which became effective January 1, 1995 and
authorizes rebalanced competitive rates for the Subsidiary. In its general
rate case, the Subsidiary requested approval of an IRF which would allow it
to earnkeep up
to 5% in excess of1.5% above its authorized rate of return. It is expected
that the approved IRFreturn while earned returns greater than
1.5% and up to 5% above its authorized rate of return will be effective whenshared equally
with customers.
The Company has developed, and is implementing, an aggressive growth strategy to
take advantage of opportunities in the final rateemerging telecommunications marketplace.
This strategy includes expansion of the Company's customer base and
telecommunications services. The Company's customer base expansion is
focused on its franchised service territories as well as markets adjacent to
these franchised service territories, and includes customers of affiliated
companies. The Company's expansion of telecommunications of services is with
the objective of becoming a full service telecommunications provider,
offering to customers an integrated package of products and services.
The Company will expand into additional markets by offering its long
distance service in combination with other value-added services such as
Internet access, messaging and Centrex. The Company sells its products
using multiple sales distribution channels and a marketing organization
structured around product management and customer segmentation. The
key products the Company offers or plans to offer are long-distance,
or toll, services, advanced CLASS, voice mail, Internet access, data,
cellular and paging services in addition to its traditional local exchange
services. As required, approvals have been and are received, the Company has
begun and intends to provide intrastate and interstate toll services in
those markets it currently serves as well as several adjacent markets. Toll
services include One plus, 800, calling card, 10XXX and prepaid calling
card services. The Company is investigating other value-added services
such as fax on demand, voice activated dialing, desktop video conferencing,
cable modem and direct broadcast satellite.
The Company currently contracts for advertising sales, printing and distribution
for its 77 telephone directories with a circulation of approximately 1.7
million.
The Company expects to expand and enhance its network in order is issued
later in 1995.to offer
distribution capability to interexchange carriers and potentially to other long
distance resellers, cellular companies, cable companies, and other independent
telephone companies. The Company currently sells access primarily to AT&T Corp.,
MCI Communications Corp. and Sprint Corp. and provides billing and collection
services to AT&T Corp.
The Company continues to invest inexpand its subsidiary, Electric Lightwave, Inc.
("ELI"), a competitive access provider in Arizona, California, Oregon, Utah and
Washington. Through ELI, the Company has been granted authority in Washington,
Utah and Oregon to provide competitive local exchange service and has filed
applications to provide competitive local exchange service in Utah and
Oregon.service. The Company has
completed construction of a fiber-optic route from Las Vegas, Nevada to Phoenix,
Arizona which will provide the Company's other
telecommunications operations in Arizona centralized equal access to long
distance carriers and will provideprovides the Company with the fiber optic capacity to provide transport services tofor its long
distance operations as well as for other carriers along this route.telecommunications carriers.
The Company has invested approximately $110,300,000 in ELI through the year ended
December 31, 1994.
The Company's Mohave Cellular subsidiary holdsowns a one-third interest and is general managing partner of
Mohave Cellular, a cellular limited partnership operating six cell sites in
Arizona.
On September 22, 1994, a subsidiary of the Company and a subsidiary of Century
Communications Corp. ("Century") entered into a joint venture agreement for the
purpose of acquiring, for approximately $89 million, and operating two cable
television systems in southern California (the "Systems"). Century is a cable
television company of which Leonard Tow, the Chairman, Chief Executive Officer
and Chief ExecutiveFinancial Officer of the Company, is Chairman, Chief Executive Officer
and Chief Financial Officer and a director.Officer. In addition, Claire Tow, a director of the Company,
is a Senior Vice President and a director of Century and Robert Siff, a director
of the Company is a director of Century. The joint venture is governed by a
management board on which the Company and Century are equally represented. The
joint venture has entered into an agreement pursuant to which a subsidiary of
Century (the "Manager") will manage the day-to-day operations of the Systems.
The Manager will not receive a management fee but will be reimbursed only for
the actual costs it incurs on behalf of the joint venture. With respect to the
purchase of any service or asset for the joint venture for use in the Systems,
the Manager is obligated to pass through to the joint venture any discount, up
to 5%, off the published prices of vendors and is entitled to retain any
discount in excess of 5%. On September 30, 1994, the joint venture acquired one of the
systemsfirst system serving approximately 26,500 subscribers. The purchase ofOn November 30, 1995, the
joint venture acquired the second system, serving approximately 19,200 subscribers, remains subject to
regulatory approval for the transfer of licenses.
Through a subsidiary, the Company intends to provide new
telecommunications toll services. State regulatory agencies have granted
authority for the Company to provide intrastate intraLATA and interLATA toll
services in New York and West Virginia and intrastate interLATA toll services
in California.20,700
subscribers.
The Company also intends to provide intrastate intraLATA and
interLATA toll services in Idaho, Tennessee and Utah where such authority is
not required. Upon receipt of required authority, the Company intends to
provide authorized intrastate toll services in Arizona, Montana, Nevada,
Oregon and Washington. The Company has authority and intends to provide
interstate toll services initially in its local telephone service areas.
In January 1995, the Company entered into a definitive agreement to
acquire Flex Communications by merger in a stock-for-stock transaction. Flex
is a switch-based, inter-exchange carrier providing long-distance, 800
Inbound long-distance, voice mail, paging, private data networks and cellular
services to approximately 3,500 customers in upstate New York. The
transaction is expected to close in 1995.
The GTE Telephone Properties acquired and to be acquired and the ALLTEL
Telephone Properties to be acquired increase the Company's number of local
exchange access lines serving customers to approximately 832,000. To better
manage its telecommunications properties, the Company is consolidating its
telecommunications operations support services and establishing a centralized
telecommunications infrastructure to manage these services. In this regard,
the Company has entered into ana systems integration agreement with ALLTEL's information services
subsidiary, ALLTEL
Information Services, Inc. ("AISI"), pursuantCorporation to which
AISI will provide certain operational support systems in a service bureau
environment forreengineer all of the Company's local telephone exchange operations;
such support systems include customertelephone billing and customer servicecare
business processes and engineering information data bases. AISI will also provide network
management, data center operations and ongoing software modernization for
existing systems to meet new business requirements. This agreement is
expected to enhance significantlydevelop the Company's management and operationnext generation of all of its local telephone exchange operations. Although such agreement
contemplates a multi-year arrangement, the Company has the unilateral right
to terminate such agreement if the parties do not execute a separate
agreement which involves the development of certain new operatingtelecommunications
support systems.
NATURAL GAS
- -----------
Operating divisions of the Company provide natural gas transmission and
distribution services to the following approximate number of primarily
residential customers in the following states.
State Customers
----- ---------
Louisiana 262,900
Arizona 88,100
Colorado and Louisiana. The total number of natural gas customers served as of December
31, 1994 was approximately 356,000.12,200
-------
Total 363,200
=======
The provision of services and/or rates charged are subject to the jurisdiction
of federal and state regulatory agencies. The Company purchases all needed
natural gas, the supply of which is believed to be adequate to meet current
demands and to provide for additional sales to new customers. The natural gas
industry is subject to seasonal demand, with the peak demand occurring during
the heating season of November 1 through March 31. The Company's natural gas
sector experiences third party competition from fuel oil, propane, and other
natural gas suppliers for most of its large consumption customers (of which
there are few) and from electricityelectric suppliers for all of its customer base. The
competitive position of natural gas at any given time depends primarily on the
relative prices of natural gas and these other energy sources.
Various federal and
state tax incentive programs call for replacing other fuels with compressed
natural gas. However, these regulations may, in certain circumstances, also
promote the use of other fuels to replace natural gas.
The Company continues to expand its northern Arizona natural gas transmission
and distribution service area. The service area has grown from 63,00065,000 customers
priorin 1991 to expansion to 77,00082,000 customers as of December 31, 1994.1995.
ELECTRIC
- --------
Operating divisions of the Company provide electric transmission and
distribution services to the following approximate number of primarily
residential customers in the following states:
State Customers
----- ---------
Arizona 58,500
Hawaii and Vermont.28,800
Vermont 20,000
------
Total number of electric customers served as of December 31, 1994 was
approximately 105,000.107,300
=======
The provision of services and/or rates charged are subject to the jurisdiction
of federal and state regulatory agencies. The Company purchases over 80% of needed
electric energy, the supply of which is believed to be adequate to meet current
demands and to provide for additional sales to new customers. As a whole, the
Company's electric sector does not experience material seasonal fluctuations.
There have been federal and state regulatory activities with the aim of creating
a more competitive environment in the electric utility industry. These federal
and state regulatory activities are still in the investigation stage. The
Company anticipates no material adverse impact on its electric sector should the
industry be opened to competition since the Company is not a large generator of
electric power and serves primarily residential customers. The advent of
competition would most likely provide opportunities for expansion. In response
to regulatory initiatives, the Company's electric sector is proceeding with
demand-side management programs and integrated resource planning techniques
designed to promote the most efficient use of electricity and to reduce the
environmental impacts associated with new generation facilities.
The Company's Kauai Electric Division ("KED") has restored all
transmission and distribution lines, poles and equipment that were damaged
asIn 1994, the Company filed for a result of Hurricane Iniki in September 1992. The$19,153,000 rate increase with the Hawaii
Public Utilities Commission ("HPUC") approved a stipulation on December 9, 1992 which
addresses. Part of the regulatory treatmentrequested increase is for the
recovery of certainrestoration and repair costs associated with Hurricane Iniki. In an
effort to reduce the rate impact on its customers, the Company subsequently
filed an application with the HPUC to recover $8,000,000 of the $19,153,000
through a statewide surcharge to partially recover Iniki restoration and repair
costs under the provisions of KED facilities. As partSubsection 269-16.3 of this stipulation, KED agreed to
defer its next generalthe Hawaii Revised
Statutes. If the HPUC approves the surcharge application, customers of
all electric utility companies in Hawaii would pay a portion of the approved
Iniki restoration and repair costs over a five year period and the
Company's rate increase application until 1994 with rates
becoming effective no earlier than January 1,request will be reduced by $8,000,000. The HPUC
issued an Interim Decision and Order which took effect on June 15, 1995
(the "deferredgranting the Company a $5,983,000 interim increase in annual revenues.
The second phase of the requested rate case"). Underincrease and the terms of this stipulation, KEDstatewide surcharge
is authorizedexpected to earn an
allowance for funds used during construction ("AFUDC") on the restoration
costs. The allowed restoration costs, plus associated AFUDC earnings, will be included in rate base and recovered in the deferred rate case. Restoration
costs plus associated AFUDC earnings not ultimately allowed in rate base
should be recovered by the Company in the deferred rate case over an
amortization period to be determined in that case. Depreciation expense on
the restoration plant is being deferred and will be amortized over the
remaining useful life of the restored plant when rates are approved in the
deferred rate case. Lost gross margin (unrecovered costs of service and the
allowed return on investment based on the rate award received by the KED in
November, 1992) and interest, compounded monthly, on the lost gross margin
is authorized to be accrued and is subject to recovery in the deferred rate
case. KED made final modifications to its filed deferred rate case in July
1994 using a future test year of 1995. The deferred rate case requested an
increase in rates of $23,600,000, with the rate increase to be phased-in over
three steps ending in April of 1996. A final order from the HPUC regarding
the deferred rate case is currently expected later in 1995.
Prior to 1992, the United States Environmental Protection Agency
("EPA") named the Company a potentially responsible party ("PRP") with
respect to three sites which have been designated for federally supervised
clean-up under the Comprehensive Environmental Response, Compensation and
Liability Act. These three sites are Missouri Electric Works in Cape
Girardeau, Missouri; Northwest Transformer in Everson, Washington; and Rose
Chemicals in Holden, Missouri. The EPA has determined that the Company's
electric sector's participation in each site is less than 0.5%. The number
of named PRP's ranges from 40 to 700 at each site. Significant parties have
accepted responsibility and are currently funding the clean-up activity as
required. The Company's remaining financial liability is estimated to be
approximately $140,000.
WATER/WASTEWATER
- ----------------HPUC. The Company
providedexpects a final order in the first half of 1996.
WATER/WASTEWATER
The Company provides water and/or wastewater treatment services to approximately 270,000the following
approximate number of primarily residential customer connectionscustomers in the following states:
State Customers
----- ---------
Arizona 107,600
Illinois 68,700
California Illinois,59,600
Pennsylvania 27,200
Ohio 14,600
Indiana Ohio and Pennsylvania as of December 31, 1994.1,300
----------
Total 279,000
==========
The provision of these services and/or rates charged are subject to the jurisdiction
of federal, state and local regulatory agencies. A significant portion of the
Company's water/wastewater treatment sector construction expenditures necessary
to serve new customers are made under agreements with land developers who
generally advance funds for construction and/or plant to the Company that are
later refunded in part by the Company in part as developers add new customers and revenues are added in
theirthe respective land developments.
The Company'sIn addition to increasing customers through agreements with land developers, the
Company acquires ongoing water/wastewater treatment public utility properties
can become subjected to condemnation proceedings initiated byoperations from municipalities or utility districts seeking to acquire and
take controlprivate companies. In 1995, the Company acquired approximately 4,300 customers
of the operation of
such property. During 1992, one operationwater/wastewater systems in Illinois became subject to such
proceeding. This condemnation is being contested by the Company.
On August 31, 1994, RHC, Inc. ("Metro Utility Co."), an operator of
waterYoungtown, Arizona and wastewater utilities serving portions of the suburban Chicago area,
was merged into the Company. The acquired operations serve approximately
10,000 customers, increasing the number of the Company's water/wastewater
treatment customers in Illinois to over 65,000. The Company issued 504,807
shares of Common Stock Series B in exchange for all of the common stock of
Metro Utility Co. The transaction was accounted for as a pooling of
interests.Douglasville,
Pennsylvania.
In September 1992, the EPA filed a complaint with the United States District
Court for the Northern District of Illinois relating to alleged violations by
the Company's Illinois subsidiary with respect to National Pollutant Discharge
Elimination System permit requirements. The Company has
negotiatedsettled this action on March
21, 1995 and paid a proposed settlement of this action. Such settlement is now
undergoing the approval process within the EPA; once it is approved, it will
be submitted to the District Court for final approval.$490,000 fine. Under the settlement, the Company will pay a fine of $490,000 and it will also make certainagreed
to construct plant improvements, with an estimated cost of $2,200,000. These improvements are
presently under design. Construction is expected to begin in 1995 and$2,200,000, which
would be
completed before the end of 1996. The improvements are required in order to comply with new discharge limits reachedprovided for by
the settlement. Shortly after the action was settled, the Company entered into a
tentative agreement with the Village of Bolingbrook to transfer flow from the
Company's to the Village's nearby facilities for treatment. If this agreement
with the Village is approved by the EPA and the Court, the Company's plant would
be converted to a flow transfer station. The Company's financial obligations
would be the same under either the settlement.plant improvement project or the flow
transfer project. The agreement with the Village of Bolingbrook is now pending
approval by the EPA and the court. As a regulated entity, the Company is
entitled to earn a fair rate of return on these improvements that are placed in
service for the benefit of its customers. The Company believes that the cost of
thesethe above discussed improvements will be recovered through customer rates.
General
- -------
The Company's public utility operations are conducted primarily in small-and medium-sizesmall and
medium size towns and communities. No material part of the Company's business is
dependent upon a single customer or upon a small group of customers. The loss of one or more of such customers would not have a
material adverse effect on operating income.for its revenues.
As a result of its diversification, the Company is not dependent upon any single
geographic area or upon any one type of utility service for its revenues. Due to
this diversity, no single regulatory body regulates a utility service of the
Company accounting for more than 13%10.3% of its 19941995 revenues.
The Company is subject to regulation by the respective state regulatory agencies
and federal regulatory agencies. The Company is not subject to the Public
Utility Holding Company Act. Order backlog is not a significant consideration in
the Company's business, and the Company has no contracts or subcontracts which
may be subject to renegotiation of profits or termination at the election of the
federal government. The Company holds franchises from local governmental bodies,
which vary in duration. The Company also holds certificates of convenience and
necessity granted by various state commissions which are generally of indefinite
duration. The Company has no special working capital practices. The Company's
research and development activities are not material. There are no patents,
trademarks, licenses or concessions held by the Company that are material.
The Company had 4,2944,760 employees at December 31, 1994.1995.
(d) Financial Information about Foreign and Domestic Operations and Export
Sales
----------------------------------------------------------------
The Company does not have any foreign operations or material export sales.sales except
for the following: In 1995, the Company made a $4,200,000 investment in and
entered into definitive agreements with Hungarian Telephone and Cable Corp.
("HTCC"), a Delaware corporation. Pursuant to these agreements (i) the Company
has rights to purchase up to 54% of HTCC common stock, (ii) provides certain
management services to HTCC on a cost-plus basis, (iii) has the right to and has
designated one member of the HTCC Board of Directors, and (iv) has provided HTCC
with guarantees and financial support. HTCC presently controls the rights to
own, operate and expand certain telecommunications services in certain
regions of Hungary. The management services fee payable by HTCC to the
Company is the greater of 5% of adjusted gross revenues of HTCC or a monthly
fixed amount. In addition, expenses incurred by the Company in providing such
services, including certain allocable overhead items, are to be reimbursed by
HTCC. A subsidiary of the Company is the guarantor of a $33,200,000 bank loan
to HTCC. The Company has agreed to provide HTCC with up to $20,000,000 of
additional financial support. The Company has been compensated for such
guarantees and financial support.
Item 2. Description of Property
-----------------------
The administrative offices of the Company are located at High Ridge Park,
Stamford, Connecticut, 06905 and are leased. The Company owns property
including: telecommunications outside plant, central office, microwave radio and
fiber-optic facilities; electric generation, transmission and distribution
facilities; gas transmission and distribution facilities; water production,
treatment, storage, transmission and distribution facilities; and wastewater
treatment, transmission, collection and discharge facilities; all of which are
necessary to provide services at the locations listed below.
State Service(s) Provided
- ----- -----------------------------------------
Arizona Electric, Natural Gas,
Telecommunications,*
Water, Wastewater treatment
California Telecommunications, Water
Colorado Natural Gas
Hawaii Electric
Idaho Telecommunications
Illinois Water, Wastewater
treatment
Indiana Water
Louisiana Natural Gas, Telecommunications
Montana Telecommunications
New Mexico Telecommunications
New York Telecommunications
Ohio Water, Wastewater
Oregon Telecommunications
Montana Telecommunications
New York Telecommunications
Pennsylvania Telecommunications, Water
Tennessee Telecommunications
Utah Telecommunications
Vermont Electric
Washington Telecommunications
West Virginia TelecommunicationsTelecommunications*
* Certain properties are subject to a mortgage deeddeeds pursuant to Rural Electrification AdministrationUtilities
Services and Rural Telephone Bank borrowings.
Item 3. Legal Proceedings
-----------------
In September 1992, the United States Environmental Protection
AgencyEPA filed a complaint with the United States District
Court for the Northern District of Illinois relating to alleged violations by
the Company's Illinois subsidiary with respect to National Pollutant Discharge
Elimination System permit requirements. The Company has negotiatedsettled this action on March
21, 1995 and paid a proposed settlement
of this action. Such settlement is now undergoing the approval process within
the Environmental Protection Agency; once it is approved, it will be
submitted to the District Court for final approval.$490,000 fine. Under the settlement, the Company will pay a fine of $490,000 and it will also make certainagreed
to construct plant improvements, with an estimated cost of $2,200,000. These improvements are
presently under design. Construction is expected to begin in 1995 and$2,200,000, which
would be
completed before the end of 1996. The improvements are required in order to comply with new discharge limits reachedprovided for by
the settlement. Shortly after the action was settled, the Company entered into a
tentative agreement with the Village of Bolingbrook to transfer flow from the
Company's to the Village's nearby facilities for treatment. If this agreement
with the Village is approved by the EPA and the Court, the Company's plant would
be converted to a flow transfer station. The Company's financial obligations
would be the same under either the settlement.plant improvement project or the flow
transfer project. The agreement with the Village of Bolingbrook is now pending
approval by the EPA and the court. As a regulated entity, the Company is
entitled to earn a fair rate of return on these improvements that are placed in
service for the benefit of its customers. The Company believes that the cost of
thesethe above discussed improvements will be recovered through customer rates.
On February 19, 1993, the Company was served with a summons and
complaint in an action brought by the Sun City Taxpayers' Association in the
United States District Court for the District of Connecticut. The plaintiff
alleged that the Company, through its Sun City Water Company and Sun City
Sewer Company subsidiaries, misrepresented rate-base investment in rate
applications submitted to the Arizona Corporation Commission ("ACC") between
1968 and 1978 and claimed damages of $65,000,000 before trebling. The
plaintiff made substantially the same allegations in a regulatory proceeding
before the ACC in 1986 and the ACC rejected those allegations. On February
1, 1994, the Company's motion to dismiss this action was granted and the
complaint was dismissed by an opinion and order of the District Court. On
February 9, 1994, plaintiff filed a notice of appeal seeking review of the
court's ruling by the United States Court of Appeals for the Second Circuit.
The Second Circuit denied the appeal on January 23, 1995 and the Plaintiff
filed a Writ of Certiorari to the United States Supreme Court on February 14,
1995.
In June 1993, several stockholders commenced purported derivative
actions in the Delaware Court of Chancery against the Company's Board of
Directors. These actions have since been consolidated (the "Consolidated
Action"). These stockholders allege that the compensation approved by the
Board of Directors for the Company's Chairman is excessive and seek, among
other things, an accounting for alleged corporate waste and a declaration
that the Chairman's employment agreement and existing stock options are
invalid. These stockholders further allege that certain corporate
transactions involving the Company and Century Communications Corp.
("Century") benefitted Century to the detriment of the Company. In February
1994, a memorandum of understanding was executed among counsel for the
stockholders in the Consolidated Action and counsel for the Company's Board
of Directors. The memorandum of understanding contemplates that the parties
will attempt to agree upon and execute a stipulation of settlement resolving
all of the claims in the Consolidated Action. Consummation of the proposed
settlement will be subject to: (a) the completion by plaintiffs of
appropriate confirmatory discovery in the Consolidated Action; (b) the
drafting and execution of a stipulation of settlement; (c) notice to all
stockholders of the Company of the terms of the proposed settlement; and (d)
final approval of the stipulation of settlement by the Delaware Court of
Chancery and dismissal of the Consolidated Action with prejudice. It is
contemplated that the stipulation of settlement will provide for certain
modifications to the Chairman's compensation arrangements and for the
complete release and settlement of all claims of the plaintiffs and all
derivative claims of the Company against the Company's Board of Directors
arising out of the allegations in the Consolidated Action. The plaintiffs in
the Consolidated Action have completed their confirmatory discovery, and the
terms of the stipulation of settlement are being negotiated. Plaintiffs'
counsel will seek an award of attorneys' fees and expenses in connection with
the settlement. No understanding has been reached with respect to the amount
of fees and expenses to be sought, but the Company expects to recover the
fees and expenses, if any, to be awarded by the Delaware Court of Chancery
to plaintiffs' counsel under the Company's Directors' and Officers' liability
insurance policy.
Another action ("Thorpe") was filed in June 1993 in the Delaware
Court of Chancery. Like the plaintiffs in the Consolidated Action, plaintiffs
in Thorpe allege derivative claims challenging the Chairman's compensation as
excessive and the validity of certain stock options granted to the Chairman
and other members of the Company's Board of Directors. The plaintiffs in
Thorpe also assert derivative claims challenging the fairness of the 1991
merger between the cellular subsidiaries of the Company and Century. In
addition, these plaintiffs have alleged that the Chairman and Century paid a
premium to purchase control of the Company from the former Chairman, Richard
L. Rosenthal, and others. The plaintiffs in Thorpe have also asserted
individual and purported class claims challenging the disclosures made by the
defendants relating to the above matters and the allegedly improper accounting
treatment with respect to the Company's investment in Centennial Cellular
Corp. These plaintiffs seek, among other things, an accounting for alleged
corporate waste, a declaration that the Chairman's employment agreement
and existing stock options are invalid and unspecified monetary damages from
the director defendants. In November 1993, another purported derivative
action ("Biggs") was filed in the Delaware Court of Chancery against the
Company's Board of Directors and Century. The plaintiffs in Biggs challenge the
Chairman's compensation, the grant of stock options to the Chairman and
other members of the Company's Board of Directors and the 1991 cellular
subsidiary merger and the service agreement between Century and Centennial.
The Company's Board of Directors has moved to dismiss the complaints in these
derivative actions for failure to state a claim and for failure to comply
with the demand requirements applicable to a derivative suit. The motions
are currently pending. In May 1994, the Delaware Court of Chancery stayed
proceedings in the Thorpe and Biggs actions pending presentation of the
proposed stipulation of settlement of the Consolidated Action for approval by
the Court.
In June 1993, a stockholder of the Company ("Berlin") commenced a
purported class action in the United States District Court for the District
of Delaware against the Company and the Company's Board of Directors. The
stockholder's complaint, amended in July 1993, alleged that the proxy
statements disseminated by the Company from 1990 to 1993 failed to disclose
material information regarding, among other things, the Chairman's
compensation and certain purported related-party transactions and thereby
violated federal and state disclosure requirements. The relief sought
included a declaration that the results of the 1993 Annual Meeting of the
stockholders are null and void, a declaration that the Chairman's Employment
Agreement is invalid and unspecified damages. In September 1994, the District
Court granted in part and denied in part defendants' motion to dismiss the
amended complaint and denied defendants' motion for summary judgment. In
October 1994, defendants moved for summary judgment dismissing the remainder
of the claim. This motion is currently pending. In November 1994, plaintiff
moved to supplement her amended complaint to add a claim seeking to
invalidate the results of the 1994 Annual Meeting of Citizens stockholders
on the grounds that the Company's 1994 proxy statement allegedly failed to
disclose the amount of the management fee then proposed to be paid to Century
in connection with a proposed cable television joint venture. The proposed
supplemental complaint also seeks unspecified monetary damages. This motion
is currently pending.
In October 1994, the Company and eight other companies were served with
a Summons and Complaint by the Town of Walkill, New York ("the Town") in the
United States District Court for the Southern District of New York. The Town
seeks to recover an unspecified amount representing response costs resulting
from the release or threatened release of hazardous substances at the Town's
Landfill, and damages and restitution under common law theories for other
costs associated with environmental conditions at the Town's Landfill. The
Town also seeks a declaratory judgement under CERCLA that the Defendants are
strictly, jointly and severally liable for future necessary response costs.
The Company notified GTE Corporation of this action since any potential
liability for this matter has been retained by GTE Corporation pursuant to
the Asset Purchase Agreement dated May 18, 1993. GTE Corporation has assumed
the Company's defense in this action.
The Company believes the risk of material loss from the above actions
is remote.
Item 4. Submission of Matters to Vote of Security Holders
-------------------------------------------------
None in fourth quarter 1994.1995.
Executive Officers
- ------------------
Information as to Executive Officers of the Company as of January 31, 1995,1996,
follows:
Name Age Current Position and Office
- ---------- --- ---------------------------
Leonard Tow 6667 Chairman of the Board, Chief
Executive Officer and Chief
Financial Officer
Daryl A. Ferguson 5657 President and Chief Operating
Officer
Robert J. DeSantis 3940 Vice President Treasurer and Assistant SecretaryTreasurer
James P. Avery 3839 Vice President, Energy
Richard A. Faust,Jr. 4849 Vice President, Mohave County
and
Assistant Secretary
J. Michael Love 4344 Vice President, Corporate
Planning
Robert L. O'Brien 5253 Vice President, Regulatory
Affairs
Donald K. Roberton 53 Vice President,
Telecommunications
Livingston E. Ross 4647 Vice President and Controller
David B. Sharkey 46 President, Electric
Lightwave, Inc.
Ronald E. Spears 47 Vice President,
Telecommunications
Ronald E. Walsh 5556 Vice President,
Water/Wastewater
and Assistant Secretary
There is no family relationship between any of the officers of the
Registrant. The term of office of each of the foregoing officers of the
Registrant will continue until the next annual meeting of the Board of Directors
and until a successor has been elected and qualified.
LEONARD TOW has been associated with the Registrant since April 1989 as a
Director. In June 1990, he was elected Chairman of the Board and Chief Executive
Officer. In October 1991, he was appointed to the additional position of Chief
Financial Officer of the Registrant. He has also been a Director, Chief
Executive Officer and Chief Financial Officer of Century Communications Corp.
since its incorporation in 1973, and Chairman of its Board of Directors since
October 1989.
DARYL A. FERGUSON has been associated with the Registrant since July 1989. He
was Vice President, Administration from July 1989 through March 1990 and Senior
Vice President, Operations and Engineering from March 1990 through June 1990. He
has been President and Chief Operating Officer since June 1990. During the
period April 1987 through July 1989, he was President and Chief Executive
Officer of Microtecture Corporation. He is currently a Director of Centennial
Cellular Corp.
ROBERT J. DeSANTIS has been associated with the Registrant since January
1986. He was Assistant to the Treasurer through May 1986 and Assistant Treasurer
from June 1986 through September 1991. He has been Vice President and Treasurer
since October 1991 and Assistant Secretary since May
1993.1991.
JAMES P. AVERY has been associated with the Registrant since August 1981. He
was Project Manager, Electric through June 1988, Assistant Vice President,
Electric Operations from June 1988 through December 1990 and Vice President,
Electric from December 1990 through May 1994. He has been Vice President, Energy
since June 1994.
RICHARD A. FAUST, JR. has been associated with the Registrant since December
1990. He was associated with Louisiana General Services, Inc. from 1972 until
that Company was merged with the Registrant in December 1990. He served as Vice
President, General Counsel and Secretary of Louisiana General Services, Inc.
from March 1984 through May 1993. He was elected Assistant
Secretary for the Registrant in June 1991 and Vice President, Mohave County,
(Arizona) in June 1993.
J. MICHAEL LOVE has been associated with the Registrant since May 1990 and
from November 1984 through January 1988. He was Assistant Vice President,
Regulatory Affairs and Community Relations from June 1986 through January 1988.
He left the Registrant in January 1988 to become President and General Counsel
of Southern New Hampshire Water Company. He rejoined the Registrant in April
1990 and was Assistant Vice President, Corporate Planning from June 1990 through
March 1991. He has been Vice President, Corporate Planning since March 1991.
ROBERT L. O'BRIEN has been associated with the Registrant since March 1975.
He has been Vice President, Regulatory Affairs since June 1981.
DONALD K. ROBERTON has been associated with the Registrant since
January 1991 and has been Vice President, Telecommunications since that date.
Prior to joining the Registrant, he was Vice President, Western Operations
at Henkels & McCoy from December 1989 through December 1990. From January
1984 through November 1989, he was Vice President with Centel
Communications Systems.
LIVINGSTON E. ROSS has been associated with the Registrant since August 1977.
He was Manager of Reporting from September 1984 through March 1988, Manager of
General Accounting from April 1988 through September 1990 and Assistant
Controller from October 1990 through November 1991. He has been Vice President
and Controller since December 1991.
DAVID B. SHARKEY has been associated with the Registrant since August 1994
and has been President of Electric Lightwave, Inc. since that date. Prior to
joining the Registrant, he was Vice President and General Manager of MobilMedia,
a wireless company headquartered in New Jersey from August 1989 through July
1994.
RONALD E. SPEARS has been associated with the Registrant since June 1995 and
has been Vice President, Telecommunications since that date. Prior to joining
the Registrant, he was Managing Director at Russell Reynolds Associates, an
executive recruiting firm from April 1994 to May 1995. He was Chairman and Chief
Executive Officer, and prior to that, President and Chief Operating Officer of
Videocart, Inc. from February 1991 to March 1994. He served as President, MCI
Midwest, an operating division of MCI Telecommunications from September 1984 to
January 1991.
RONALD E. WALSH has been associated with the Registrant since January 1986.
He was Attorney and Assistant Secretary from November 1987 through August 1992.
He has been Vice President, Water/Wastewater since August 1992.
PART II
-------
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
----------------------------------------------------------------
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the New York Stock
Exchange under the symbols CZNA and CZNB for Series A and Series B,
respectively. The following table indicates the high and low prices
per share as taken from the daily quotations published in the "Wall
Street Journal" during the periods indicated. Prices have been
adjusted retroactively for interveningsubsequent stock dividends and the August
31, 1993 2-for-1 stock split, rounded to the nearest 1/8th. (See Note
7 of Notes to Consolidated Financial Statements.)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ------------ ------------ -----------
High Low High Low High Low High Low
------------ ------------ ------------ ------------
1994:
- -----
Series A 17
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High Low High Low High Low High Low
1995:
Series A $13 5/8 $11 3/4 $12 3/8 $10 1/4 $11 1/2 $10 5/8 $13 1/4 $10 5/8
Series B 13 5/8 11 3/4 12 3/8 10 1/2 11 1/2 10 3/4 13 3/8 10 5/8
1994:
Series A 16 1/8 13 1/8 14 15 7/8 13 1/4 14 7/8 12 1/2 13 5/8 12 3/8 13 11 3/4
Series B 16 1/4 13 14 7/8 12 1/2 13 5/8 12 3/8 13 11 7/8
1993:
Series A 15 3/4 12 16 1/2 14 1/4 16 3/8 11 7/8 17 3/4 14 3/8
Series B 15 3/4 12 1/8 16 1/2 14 1/8 16 3/8 11 7/8 17 5/8 14 3/8
1992:
Series A 11 1/8 9 3/8 10 3/4 9 7/8 12 1/8 9 5/8 13 10 3/4
Series B 10 7/8 9 3/8 10 3/4 9 1/2 12 1/4 9 1/2 13 10 3/4
12 1/2
Series B 17 1/4 13 7/8 15 7/8 13 1/4 14 1/2 13 1/4 13 3/4 12 5/8
1993:
- -----
Series A 16 3/4 12 3/4 17 1/2 15 1/8 17 1/4 12 5/8 18 7/8 15 3/8
Series B 16 3/4 12 7/8 17 1/2 15 17 1/4 12 5/8 18 3/4 15 3/8
The December 30, 199429, 1995 prices were: Series A $12.875$12 7/8 high,
$12.50$12 5/8 low; Series B $12.875$12 7/8 high, $12.625$12 5/8 low. As of January
31, 1995,1996, the approximate number of record security holders of the
Company's Common Stock Series A and Series B was 43,989.26,330 and 21,385,
respectively. This information was obtained from the Company's
transfer agent.
DIVIDENDS
Quarterly stock dividends declared and issued on both Common
Stock Series A and Series B were 1.5% for each the first and second
quarters and 1.6% for each the third and fourth quarters of 1995.
Quarterly stock dividends declared and issued on both Common Stock
Series A and Series B were 1.1% for the first quarter of 1994, 1.15%
for the second quarter of 1994, 1.3% for the third quarter of 1994 and
1.4% for the fourth quarter of 1994. Quarterly stock dividends declared and issued on both
Common Stock Series A and Series B were 1.2% for the first quarter of 1993,
1.0% for the second quarter of 1993 and 1.1% for the third quarter of 1993
and 1.0% for the fourth quarter of 1993. An annual cash dividend
equivalent rate of .73372 1/4 cents and .69168 7/8 cents per share
(adjusted for all stock splits and stock dividends paid subsequent to all dividends
declared through December 31, 19941995 and rounded to the nearest
1/8th) was considered by the Company's Board of Directors in
establishing the Series A and Series B stock dividends during 19941995 and
1993,1994, respectively.
(See Note 7 of Notes to Consolidated Financial Statements.)
Item 6. Selected Financial Data (In thousands, except for per-share amounts)
--------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Operating revenues $916,014 $619,392 $580,464 $545,025 $528,251
Income from continuing
operations $143,997 $125,630 $115,013 $112,354 $105,624
Earnings per-share of
Common Stock Series A
and Series B(1) $.77 $.67 $.63 $.62 $.57
Year Ended December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Operating revenues $1,069,032 $906,150 $613,099 $576,881 $545,025
Net income $159,536 $143,997 $125,630 $115,013 $112,354
Earnings per-share of Common
Stock Series A and Series B(1) $.73 $.72 $.63 $.59 $.58
Stock dividends declared
on Common Stock
Series A and Series B(2) 6.35% 5.04% 4.37% 5.61% 7.93% 6.54%
Total assets $3,918,187 $3,576,566 $2,627,118 $1,887,981 $1,721,452 $1,491,199
Long-term debt $1,187,000 $ 994,189 $ 547,673 $ 522,699 $ 484,021
$ 412,348
(1) Adjusted for subsequent stock dividends and splits; no adjustment
has been made for the Company's 1.5%1.6% first quarter 19951996 stock
dividend because the effect is immaterial.
(2) Annual rate of quarterly stock dividends compounded.
Cash dividends of
$.32 per share were paid by Louisiana General Services, Inc. in 1990
prior to its merger into the Company on December 4, 1990.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
---------------------------------------------------------------
(a) Liquidity and Capital Resources
-------------------------------
In 1994,1995, the Company's primary sourcessource of funds werewas from
operations
and borrowings.operations. Funds requisitioned from the 1995, 1994, 1993 1992 and
1991 Series Industrial Development Revenue Bond construction fund
trust accounts were used to pay for the construction of
qualifying utility plant. Commercial paper notes payable in the
amount of $703,000,000$156,800,000 were outstanding as of December 31, 1994,1995.
$140,650,000 of which $515,200,000 issuch commercial paper was classified as
short-term debt as it represents
the balance of the amount that was issued to temporarily and partially
fund the acquisition of the GTE Telephone Properties; this debt is expectedand ALLTEL Telecommunications
Properties (see Note 3) and was to be repaid from maturing temporary investments, funds from operations andwith proceeds from
the issuance of equity securities. All such short-term debt has
been repaid with equity issuance proceeds.
On April 26, 1994,May 3, 1995, the Company arranged for the issuance of
$13,550,000 of Industrial Development Revenue Bonds; the bonds
were issued $175,000,000 of debenturesas demand purchase bonds bearing interest at par with an interest rate of 7.6%6.2% and
a maturity date of Junematuring on May 1, 2006.2030. On October 6, 1994, the Company issued $100,000,000 of debentures at par with an
interest rate of 7.68%May 12, 1995 and a maturity date of October 1, 2034. The proceeds
from the sale of the debentures were used to permanently fund the acquisition
of the GTE Telephone Properties. On June 16, 1994 and on September 9, 1994,January 22, 1996,
Citizens Utilities Rural Telephone Company, Inc., a subsidiary of
the Company, under itsit's Rural Telephone Bank loan contract,Loan Contract, was
advanced $2,394,000$8,793,000 and $3,848,000,$4,464,000, respectively. TheseSuch funds bear
an initial interest at a rate of 5.3%6.52% and 5.83%, respectively, and
have an ultimate maturity date of December 31, 2027. On January
18, 1996, $10,000,000 of the Company's 1988 Series Special
Purpose Revenue Bonds, originally issued as 7.25% demand purchase
bonds, were converted and remarketed as money market municipals,
initially bearing interest at a rate of 3.31% and maturing on
September 28, 1994,1, 2018.
On June 15, 1995, the Company arranged for the composite issuanceissued $125,000,000 of
$14,640,000debentures at a price of 1994 Series Industrial Development Revenue Bonds; the bonds were issued as
demand purchase bonds99.918% with an interest rate of 6.6%7.45%
and mature on Maya maturity date of July 1, 2029.2035. On August 16, 1994,October 20, 1995, the
Company filedissued $150,000,000 of debentures at a shelf-registration statementprice of 99.125%
with an interest rate of 7% and a maturity date of November 1,
2025.
On January 22, 1996, a subsidiary of the Securities and Exchange Commission to register up to 1,600,000Company issued
4,025,000 shares of common stock5% Equity Providing Preferred Income
Convertible Securities ("EPPICS") having a liquidation preference
of $50 per security and a maturity date of January 15, 2036. Each
security is initially convertible into 3.252 shares of the
Company's Common Stock Series BA at a conversion price of $15.375
per share. The $196,722,000 in net proceeds from the sale of
these securities were used to repay short-term debt, permanently
fund acquisitions, from which 504,807
shares were issued on August 31, 1994a portion of the ALLTEL Telecommunications Properties to fund the acquisition of Metro
Utility Co.be
acquired, and 622,500 restricted shares, previously issued for the 1993
acquisitions of Natural Gas Company of Louisiana and Franklin Electric Light
Company, Incorporated, were registered.other general corporate purposes.
On January 30, 1995, the Company, pursuant to an underwritten
public offering, issued 19,000,000 shares of its Common Stock
Series A at an issuance price of $13 3/8 per share and realized
$244,200,000 in net proceeds. These proceeds were used to repay
short-term debt.
On April 28, 1995, 31,928 shares of Series B Common Stock were
issued to effect the merger of Douglasville Water Company into a
subsidiary of the Company. On July 17, 1995, Flex Communications
was merged into the Company requiring the issuance of 855,953
shares of Citizens Series B Common Stock. In conjunction with the
acquisitions of the ALLTEL Telecommunications Properties, the
Company assumed $41,447,000 in debt at a weighted average
interest rate of 6.59%.
The Company considers its operating cash flows and its ability
to raise debt and equity capital as the principal indicators of
its liquidity. Although working capital is not considered to be
an indicator of the Company's liquidity, the Company experienced
a decreasean increase in its working capital at December 31, 1994.1995. The
decreaseincrease is primarily due to the issuancerepayment of short-term debt
from proceeds from the maturity and sale of investments and the
issuance of equity securities. The Company has committed lines of
credit with commercial banks under which it may borrow up to
temporarily$600,000,000. There were no amounts outstanding under these lines
at December 31, 1995.
In 1995, the Company made a $4,200,000
investment in and partially fundentered into definitive agreements with
Hungarian Telephone and Cable Corp. ("HTCC"), a Delaware
corporation. Pursuant to these agreements (i) the acquisitionCompany has
rights to purchase up to 54% of HTCC common stock, (ii) provides
certain management services to HTCC on a cost-plus basis, (iii)
has the right to and has designated one member of the GTE Telephone Properties.HTCC Board
of Directors, and (iv) has provided HTCC with guarantees and
financial support. HTCC presently controls the rights to own,
operate and expand certain telecommunications services in certain
regions of Hungary. The management services fee payable by HTCC
to the Company is the greater of 5% of adjusted gross revenues of
HTCC or a monthly fixed amount. In addition, expenses incurred by
the Company in providing such services, including certain
allocable overhead items, are to be reimbursed by HTCC. A
subsidiary of the Company is the guarantor of a $33,200,000 bank
loan to HTCC. The Company has agreed to provide HTCC with up to
$20,000,000 of additional financial support. The Company has been
compensated for such guarantees and financial support. The
Company's investment in HTCC is accounted for using the cost
method of accounting.
Capital expenditures for the years 1995, 1994, and
1993 were $266,963,000, and 1992 were
$311,420,000, $182,480,000 and $148,027,000,$182,480,000,
respectively, and for 19951996 are expected to be approximately
$262,000,000.$340,000,000. These expenditures were, and in 19951996 will be,
for utility and related facilities and properties, including
the GTE Telephone Properties acquired.properties.
The Company anticipates that the funds necessary for its 19951996
capital expenditures will be provided from operations; from 1991, 1993,
1994 and 19941995 Series Industrial Development Revenue Bond
construction fund trust account requisitions; from Rural
Telephone Bank loan contract advances; from commercial paper
notes payable; from parties desiring utility service; from debt,
equity and other financings at appropriate times; and, if deemed
advantageous, from short-term borrowings under bank credit
facilities.
The
Company has committed lines of credit with banks under which it may borrow
up to $1,200,000,000.
During 1994,1995, the Company was authorized net increases in annual
revenues for properties in Arizona, California, PennsylvaniaHawaii, Illinois, Ohio and Vermont
totaling $7,206,000.$13,445,000. The Company has requests for additional
increases pending before regulatory commissions in Arizona,
California, Hawaii, Louisiana and Ohio.Pennsylvania.
Regulatory Matters
- ------------------
In September 1992, the United States Environmental Protection Agency
("EPA")EPA filed a complaint with the United
States District Court for the Northern District of Illinois
relating to alleged violations by the Company's Illinois
subsidiary with respect to National Pollutant Discharge
Elimination System permit requirements. The Company has negotiatedsettled this
action on March 21, 1995 and paid a proposed settlement
of this action. Such settlement is now undergoing the approval process within
the EPA; once it is approved, it will be submitted to the District Court for
final approval.$490,000 fine. Under the
settlement, the Company will pay a fine of $490,000
and it will also make certainagreed to construct plant
improvements, with an estimated cost of $2,200,000. These improvements are presently under design. Construction is
expected to begin in 1995 and$2,200,000, which would
be completed before the end of 1996. The
improvements are required in order to comply with new discharge limits reachedprovided
for by the settlement. Shortly after the action was settled, the
Company entered into a tentative agreement with the Village of
Bolingbrook to transfer flow from the Company's to the Village's
nearby facilities for treatment. If this agreement with the
Village is approved by the EPA and the Court, the Company's plant
would be converted to a flow transfer station. The Company's
financial obligations would be the same under either the settlement.plant
improvement project or the flow transfer project. The agreement
with the Village of Bolingbrook is now pending approval by the
EPA and the court. As a regulated entity, the Company is entitled
to earn a fair rate of return on these improvements that are placed in
service for the benefit of its customers. The Company believes
that the cost of thesethe above discussed improvements will be
recovered through customer rates.
On February 19, 1993, the Company was served with a summons and
complaint in an action brought by the Sun City Taxpayers' Association in the
United States District Court for the District of Connecticut. The plaintiff
alleged that the Company, through its Sun City Water Company and Sun City
Sewer Company subsidiaries, misrepresented rate-base investment in rate
applications submitted to the Arizona Corporation Commission ("ACC") between
1968 and 1978 and claimed damages of $65,000,000 before trebling. The
plaintiff made substantially the same allegations in a regulatory proceeding
before the ACC in 1986 and the ACC rejected those allegations. On February
1, 1994, the Company's motion to dismiss this action was granted and the
complaint was dismissed by an opinion and order of the District Court. On
February 9, 1994, plaintiff filed a notice of appeal and is seeking review
of the court's ruling by the United States Court of Appeals for the Second
Circuit. The Second Circuit denied the appeal on January 23, 1995 and the
Plaintiff filed a Writ of Certiorari to the United States Supreme Court on
February 14, 1995.
Prior to 1992, the EPA named the Company a potentially responsible
party ("PRP") with respect to three sites which have been designated for
federally supervised clean-up under the Comprehensive Environmental Response,
Compensation and Liability Act. These three sites are Missouri Electric Works in
Cape Girardeau, Missouri; Northwest Transformer in Everson, Washington; and Rose
Chemicals in Holden, Missouri. The EPA has determined that the Company's
electric sector's participation in each site is less than 0.5%. The number
of named PRP's ranges from 40 to 700 at each site. Significant parties have
accepted responsibility and are currently funding the clean-up activity as
required. The Company's remaining financial liability is estimated to be
approximately $140,000.
Various state regulatory agencies, state legislatures and the
federal government have initiated proceedings intending to promote the
development of competition in telecommunications markets. These
proceedings are focused on removing the regulatory and legal
barriers to competitive entry into the interLATA toll, intrastate intraLATA
toll and local exchange markets;markets and developing rules to govern
the relationship between competitors; and
designing rebalanced rate structures for the incumbent local exchange company
("LEC") which would allow LECs the opportunity to compete effectivelycompetitors in these markets while protecting the public's interest and access to
telecommunication services.markets.
Simultaneously, many states are investigating or have implemented
procedures for LECslocal exchange companies to enter into incentive
regulatory frameworks ("IRF") as an alternative to traditional rate base,
rate of return regulation and/or classifying services on the
basis of the presence of competition and allowing deregulation or
flexible pricing regulation for the services deemed competitive.
The Public Utility Commission ofLocal exchange competition has been authorized in the State of California ("CPUC")
issued an order, effective January 1, 1995, authorizing competition for
intrastate intraLATA switched toll services, rebalancingfollowing
states in which the Company currently provides local exchange
service: Arizona, California, New York, Oregon, Tennessee, Utah
and toll rates, establishing more specific procedures for local exchange carriers
to enter into incentive regulatory frameworks ("IRF") and providing a
timetable for the elimination of the intrastate toll settlement pools for
mid-sized local exchange carriers. In support of CPUC efforts which preceded
its order, the Company's California telephone subsidiary (the "Subsidiary")
exited the toll settlement pools in 1991 and entered into a transition
contract with Pacific Bell. Pursuant to this contract, Pacific Bell agreed
to pay the Subsidiary $38,000,000 annually through the end of 1994 to
partially offset the decline in revenues which resulted from exiting the toll
settlement pools. The Subsidiary expected to conclude a general rate case
permitting the implementation of rebalanced, competitive rates effective
January 1, 1995 intended to protect the Subsidiary's overall revenues, other
than the $38,000,000 Pacific Bell contract payment, by enabling it to
compete effectively in the intrastate intraLATA switched toll services
market. Although this general rate case has not been finalized, the CPUC has
issued an interim rate order which became effective January 1, 1995 and
authorizes rebalanced competitive rates for the Subsidiary. In its general
rate case, the Subsidiary requested approval of an IRF which would allow it
to earn up to 5% in excess of its authorized rate of return. It is expected
that the approved IRF will be effective when the final rate order is issued
later in 1995.West Virginia.
The Company continues to invest inexpand its subsidiary, Electric
Lightwave, Inc. ("ELI"), a competitive access provider in
Arizona, California, Oregon, Utah and Washington. Through ELI,
the Company has been granted authority in Washington, Utah and
Oregon to provide competitive local exchange service and has filed
applications to provide competitive local exchange service in Utah and
Oregon.service. The
Company has completed construction of a fiber-optic route from Las
Vegas, Nevada to Phoenix, Arizona which will provide the Company's other
telecommunications operations in Arizona centralized equal access to long
distance carriers and will provideprovides the Company
with the fiber optic capacity for its long distance operations as
well as for other telecommunications carriers.
On November 8, 1995, the California Public Utilities
Commission issued a final order approving a restructuring of
Citizens Telecom of California's ("CTCC") rates and an Incentive
Regulatory Framework ("IRF"). The restructured rates allow CTCC
to provide transport servicescompete more effectively. Under the IRF, CTCC can earn and
keep up to other carriers along this route.1.5% above its authorized rate of return while earned
returns greater than 1.5% and up to 5% above its authorized rate
of return will be shared equally with customers.
There have been federal and state regulatory activities with
the aim of creating a more competitive environment in the
electric utility industry. These federal and state regulatory
activities are still in the investigation stage. The Company
has invested approximately $110,300,000 in ELI throughanticipates no material adverse impact on its electric sector
should the year ended
December 31, 1994.
The Company's Mohave Cellular subsidiary holds a one-third interest
and is general managing partner of a cellular limited partnership operating
six cell sites in Arizona.
Through a subsidiary,industry be opened to competition since the Company intendsis
not a large generator of electric power and serves primarily
residential customers. The advent of competition would most
likely provide opportunities for expansion. In response to
provideregulatory initiatives, the Company's electric sector is
proceeding with demand-side management programs and integrated
resource planning techniques designed to promote the most
efficient use of electricity and to reduce the environmental
impacts associated with new telecommunications toll services. State regulatory agencies have granted
authoritygeneration facilities.
In 1994, the Company filed for a $19,153,000 rate increase
with the Hawaii Public Utilities Commission ("HPUC"). Part of the
requested increase is for the recovery of restoration and repair
costs associated with Hurricane Iniki. In an effort to reduce the
rate impact on its customers, the Company subsequently filed an
application with the HPUC to provide intrastate intraLATArecover $8,000,000 of the
$19,153,000 through a statewide surcharge to partially recover
Iniki restoration and interLATA toll
servicesrepair costs under the provisions of
Subsection 269-16.3 of the Hawaii Revised Statutes. If the
HPUC approves the surcharge application, customers of all
electric utility companies in New YorkHawaii would pay a portion of the
approved Iniki restoration and West Virginiarepair costs over a five year
period and intrastate interLATA toll servicesthe Company's rate increase request will be
reduced by $8,000,000. The HPUC issued an Interim Decision and
Order which took effect on June 15, 1995 granting the Company a
$5,983,000 interim increase in California.annual revenues. The second
phase of the requested rate increase and the statewide
surcharge is expected to be included in a final order from
the HPUC. The Company also intends to provide intrastate intraLATA and
interLATA toll servicesexpects a final order in Idaho, Tennessee and Utah where such authority is
not required. Upon receiptthe first half
of required authority, the Company intends to
provide authorized intrastate toll services in Arizona, Montana, Nevada,
Oregon and Washington. The Company has authority and intends to provide
interstate toll services initially in its local telephone service areas.1996.
New Accounting Pronouncements
- -----------------------------
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") 112, "Employers' Accounting for Postemployment
Benefits" and SFAS 115, "Accounting for Certain Investments in Debt and
Equity Securities". The Company applied the provisions of these accounting
standards prospectively. Adoption of SFAS 112 did not have a material effect
on the Consolidated Financial Statements.
SFAS 115 requires fair value reporting for certain investments in debt
and equity securities with the unrealized gain or loss, net of tax effect,
recorded as a separate element of Shareholders' Equity. See Note 5 of Notes
to the Consolidated Financial Statements.
In October 1994,March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" ("SFAS 119, "Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments"121"),
effective for fiscal years endingbeginning after December 15, 1994.1995. The
Company has only limited involvement with gas futures contractswill adopt SFAS 121 in the first quarter of 1996. Based
on current facts and doescircumstances, the Company believes that
SFAS 121 will not use these instrumentsadversely affect the Company.
In December 1995, the Financial Accounting Standards Board
issued Statement No. 123, "Accounting for investmentStock-Based
Compensation" ("SFAS 123"), effective for fiscal years beginning
after December 15, 1995. Under SFAS 123, the Company may elect
either a "fair value" based method or trading purposes. Gas
futures contracts are used on a very limitedthe current "intrinsic
value" based method of accounting for its stock-based
compensation arrangements. If the Company were to adopt the "fair
value" based method, the Company would be required to charge
compensation expense for all of its stock-based compensation
arrangements. If the Company were to elect the "intrinsic value"
based method, the Company would be required to disclose in the
footnotes to the financial statements net income and select basis to manage
well-defined commodity price risks associated withearnings per
share computed under the "fair value" based method. The Company
commitments to
deliver natural gas to customers at fixed prices. Thewill elect the "intrinsic value" based method. Accordingly, the
adoption of SFAS 123 will not impact the Company's exposure
under such contracts at December 31, 1994 was immaterial.results of
operations or financial condition.
(b) Results of Operations
---------------------
Telecommunications generated revenues of $461,094,000 in 1994 compared
with $177,500,000 in 1993 and $186,200,000 in 1992. The 1994 results reflect
revenues derived from operating the GTE Telephone Properties acquired on
December 31, 1993, June 30, 1994 and November 30, 1994. Operating the GTE
Telephone Properties during 1994 generated revenues of $261,700,000.Revenues
Telecommunications revenues decreasedincreased $159,872,000, or 35%, in
1995 and increased $279,378,000, or 157%, in 1994. These
increases are primarily attributable to the acquired GTE and
ALLTEL Telecommunications Properties. The increase in revenues in
1995 was offset in part by the loss of $38,000,000 of
discontinued subsidy revenues from Pacific Bell which had been
received annually through the end of 1994.
Natural gas revenues had a net decrease of $11,038,000, or 5%,
in 1993,1995 primarily due to regulatory
changes in the statelower average revenue per MCF of California. Thegas
sold which resulted from pass-ons to customers of lower average
gas costs from suppliers; this decrease was partially offset by
$2,626,000 of increased local revenues as a result of customer growth and
$2,548,000 of increased toll revenues as a result of increased toll volume.consumption. Natural gas revenues decreased $3,000,000$2,952,000,
or 1%, in 1994 compared to 1993 due to a decrease in
transportation revenues. Thisrevenues; this decrease was partially offset by increased
industrial gas revenues and
increased residential and commercial revenues from the Company's
Northern Arizona Gas operations. Naturaloperations and increased industrial gas
revenues in
1993 increased 12% over 1992 primarily due to $7,100,000 of revenues from
Natural Gas Company of Louisiana ("NGL"), which was acquired by the Company
in 1993; $3,600,000 from increased revenue per MCF of gas sold to industrial
customers; $5,200,000 from increased average revenue per MCF of gas sold to
residential and commercial customers; and $9,300,000 from pass-ons to
residential and commercial customers of increases in the wholesale costs of
commodities purchased.revenues. Pass-ons are required under tariff provisions and do
not affect net income.
The Company's electric sector revenues increasedhad a net increase of
$7,411,000, or 4%, in 1995 and $9,718,000, or 6% over 1993, and 1993
revenues increased 13% over 1992in 1994
primarily due to increased consumption and rate increases,
partially offset by pass-ons to customers of $11,900,000 in 1994 and $4,700,000 in 1993; these increases were primarily
as a result of customer growth.lower commodity
prices.
Revenues earned by the Company's water/wastewater treatment
sector increased 11%$6,637,000, or $7,000,0009%, in 1994. This increase is primarily due to
favorable rate increases which contributed $4,800,000 in water revenues and
revenues of $2,800,000 generated by Metro Utility Co. acquired by merger in
August 1994. Water/Wastewater treatment sector revenues increased 10% in 1993
primarily due to $2,800,000 of rate increases, $2,000,000 from increased
customer usage and $1,300,000 of revenues received from a water property
acquisition in December 1992.
Electric energy and fuel oil purchased costs increased 4% in 1994 and
9% in 1993. Electric energy purchased costs for 1994 totaled $72,400,000, a
6% increase over the 1993 amount of $68,200,000, which was a 6% increase over
the 1992 cost of $64,100,000. The increased cost of electricity purchased in
1994 and 1993 was1995, primarily due to
increased customer demand; the increase
in 1993 was also partiallyconsumption and rate increases. In 1994, revenues
increased $6,907,000, or 11%, due to increased supplier prices. Fuel oil
purchased in 1994rate increases of $14,200,000 decreased$4,800,000
and $2,800,000 from the 1993 amount of
$14,900,000 primarily due to a decrease in supplier prices. Fuel oil
purchased costs in 1993 increased 22% from the 1992 amount of $12,200,000,
primarily due to higher supplier prices and increased volume to satisfy
increased customer consumption.acquired properties.
Expenses
Natural gas purchased costs decreased $1,300,000$8,034,000, or 7%, in
1995 and $1,305,000, or 1%, in 1994 primarily due to a decrease
in supplier prices. Natural
gas purchased costs increased 15% in 1993, primarily due to higher supplier prices. Under tariff provisions, increases and
decreases in the Company's wholesale costs of electric energy,
fuel oil and natural gas purchased are passed on to customers.
Electric energy purchased costs for 1995 totaled $68,900,000,
an increase of $2,185,000, or 3% ,over the 1994 amount of
$66,715,000 which was a $4,784,000, or 8%, increase over the 1993
cost of $61,931,000. The increase in electric energy purchased
was primarily due to customer growth. The increased cost of
electric energy purchased in 1994 was primarily due to increased
customer demand. Fuel oil purchased in 1995 of $16,268,000
increased $2,052,000, or 14%, from the 1994 amount of $14,216,000
primarily due to an increase in supplier prices and increased
volume to satisfy increased consumption. Fuel oil purchased cost
in 1994 decreased $679,000, or 5%, from the 1993 amount of
$14,895,000 due to a decrease in supplier prices.
Operating and maintenance expenses increased by 86%$87,333,000, or
$143,300,00028%, in 1995 and $139,122,000, or 83%, in 1994 primarily due to
operating expenses related to the acquisition of the GTE Telephone Properties.telecommunications properties
acquired.
Depreciation expense of $115,200,000 more than doubled the 1993 amount
of $54,700,000. The increase is attributableincreased $43,760,000, or 38%, in 1995
and $60,477,000, or 111%, in 1994 primarily due to increases in
depreciable plant assets as a result of the acquisitions of the GTE Telephone Properties.acquisitions.
Taxes other than income increased $23,700,000$9,537,000, or 16%, in 1995
and $23,688,000, or 67% over the 1993
periodin 1994 primarily due to increased taxes
on the newly acquired GTE Telephone Properties.telecommunications properties.
Interest expense for the year ended December 31, 19941995
increased $35,300,000 over the 1993 period as a result of the issuance of debt
securities, the proceeds of which were used to partially finance the
acquisition of the GTE Telephone Properties$15,031,000, or 21%, in 1995 and an increase$35,313,000, or 94%,
in industrial
development revenue bond borrowings. Interest expense decreased 4% in 1993,1994 primarily due to interest paid on the refinancingadditional debt
securities issued to finance the acquisitions of
higher-coupon First Mortgage Bonds with
lower cost debentures andtelecommunications properties as well as increased allowance for funds used during
construction related to borrowings, which is a reduction to interest expense.
Investment income decreased to $40,500,000 from $42,100,000 in 1993,
representing a 4% decline. This decrease is due to the liquidation of
investments to fund the GTE acquisition, partially offset by an increase in
income from the Company's Centennial investment. Investment income increased
5% in 1993, primarily due to the realization of gains on sales of securities
and an increase in income from the Company's Centennial investment, partially
offset by lower investment balances and market yields.
Income taxes increased 23% in 1994 and 19% in 1993, primarily due to
increased taxable income.Industrial
Development Revenue Bonds.
Cost increases, including those due to inflation, are expected
to be offset in due course by increases in revenues obtained
under established regulatory procedures.
Investment Income
Investment income increased $1,213,000, or 3%, in 1995
primarily due to gains realized on investments sold to
permanently fund telecommunications acquisitions. Investment
income decreased $1,643,000, or 4%, in 1994 due to the
liquidation of investments to fund the acquisitions of the
telecommunications properties.
Net Income and Earnings Per Share
Net Income increased $15,539,000, or 11%, in 1995 despite the
loss of $23,000,000 of net income reported in 1994 which was
derived from the discontinued subsidy revenues from Pacific Bell
which had been received annually through the end of 1994.
Earnings per share increased $.01 in 1995 despite the loss of
$.12 per share reported in 1994 which was derived from the
discontinued Pacific Bell subsidy and despite the issuance in
January 1995 of 19,000,000 additional shares of Common Stock
Series A.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
The following documents are filed as part of this Report:
1. Financial Statements:
See Index on page F-1.
2. Supplementary Data:
Quarterly Financial Data is included in the Financial
Statements (see 1. above).
Item 9. Disagreements with Auditors on Accounting and Financial Disclosure
------------------------------------------------------------------
None
PART III
--------
The Company intends to file with the Commission a definitive proxy statement for
the 19951996 Annual Meeting of Stockholders pursuant to Regulation 14A not later
than 120 days after December 31, 1994.1995. The information called for by this Part
III is incorporated by reference to that proxy statement.
PART IV
---------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a) The exhibits listed below are filed as part of this Report:
Exhibit
No. Description
- -------- -----------------
3.1 Certificate of Incorporation
3.2 By-laws
3.2.1 Amendment dated April 14, 1992, to the By-laws
3.200.1 Restated Certificate of Incorporation of Citizens Utilities
Company, with all amendments to March 9, 19944, 1996
3.200.2 By-laws of the Company, as amended to-date of Citizens
Utilities Company, with all amendments to March 9, 19944, 1996
4.100.1 Copy of Indenture of Securities, dated as of August 15,
1991, to Chemical Bank, as Trustee
4.100.2 First Supplemental
Indenture, dated August 15, 1991
4.100.3 Letter of Representations, dated August 20, 1991, from
Citizens Utilities Company and Chemical Bank, as Trustee, to
Depository Trust Company ("DTC") for deposit of securities with
DTC
4.100.4 Second Supplemental Indenture, dated January 15, 1992, to
Chemical Bank, as Trustee
4.100.5 Letter of Representations,
dated January 29, 1992, from Citizens Utilities Company and
Chemical Bank, as Trustee, to DTC, for deposit of securities
with DTC
4.100.6 Third Supplemental Indenture, dated April 15, 1994, to Chemical
Bank, as TrusteeTrustee.
4.100.7 Fourth Supplemental Indenture, dated October 1, 1994, to
Chemical Bank, as TrusteeTrustee.
10.1 Incentive Deferred Compensation Plan, dated April 16, 1991
10.6 Deferred Compensation Plans for Directors, dated November 26,
1984 and December 10, 1984
10.6.1 Directors' Retirement Plan, effective January 1, 1989
10.6.2 Non-Employee Directors' Deferred Fee Equity Plan dated as of
June 28, 1994
10.9 Management Equity Incentive Plan, effective June 22, 1990
10.13 LGS Supplemental Executive Retirement Plan
10.16 Employment Agreement between Citizens Utilities Company and
Leonard Tow, as amended effective September 28, 1995
10.17 1992 Employee Stock Purchase Plan
10.18 Amendment dated May 21, 1993, to the 1992 Employee Stock
Purchase Plan
10.20 Asset Purchase Agreements, dated November 28, 1994
12. Computation of ratio of earnings to fixed charges (this item is
included herein for the sole purpose of incorporation by
reference)
21. Subsidiaries of the Registrant
23. Auditors' Consent
24. Powers of Attorney
27. Financial Data Schedule
Exhibits 10.1, 10.6, 10.6.1, 10.6.2, 10.9, 10.16, 10.17 and 10.18
are management contract or compensatory plans or arrangements.
The Company agrees to furnish to the Commission upon request
copies of the Realty and Chattel Mortgage, dated as of March 1, 1965, made by
Citizens Utilities Rural Company, Inc., to the United States of America
(the Rural Electrification Administration and Rural Telephone Bank) and the
Mortgage Notes which that mortgage secures; and the several subsequent
supplemental Mortgages and Mortgage Notes; copies of the instruments
governing the long-
termlong-term debt of Louisiana General Services, Inc.; and
copies of separate loan agreements and indentures governing various Industrial
development revenue bonds.
10.1 Incentive Deferred Compensation Plan, dated April 16, 1991
10.6 Deferred Compensation Plans for Directors, dated November 26,
1984bonds; and December 10, 1984
10.6.1 Directors' Retirement Plan, effective January 1, 1989
10.6.2 Non-Employee Directors' Deferred Fee Equity Plan, dated ascopies of June 28, 1994
10.9 Management Equity Incentive Plan, effective June 22, 1990
10.10 LGS 1979 Option Incentive Plan, as amended
10.11 LGS 1981 Incentive Option Plan, as amended
10.12 LGS 1981 Stock Option Plan, as amended
10.13 LGS Supplemental Executive Retirement Plan
10.16 Employment Agreement between Citizens Utilities Company and
Leonard Tow
10.17 1992 Employee Stock Purchase Plan
10.18 Amendment dated May 21, 1993,documents relating to the 1992 Employee Stock Purchase
Plan
10.19 Asset Purchase Agreements, dated May 18, 1993
10.20 Asset Purchase Agreements, dated November 28, 1994
12. Computationindebtedness of
ratio of earnings to fixed charges (this item is
included herein for the sole purpose of incorporation by
reference)
21. Subsidiaries of the Registrant
23. Auditors' Consent
24. Powers of Attorneysubsidiaries acquired during 1995.
Exhibit number 10.6 is incorporated by reference to the same
exhibit designation in the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1984. Exhibit number 10.6.1 is incorporated by reference to
the same exhibit designation in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1989. Exhibit number 10.9 is incorporated by
reference to Appendix A to the Registrant's Proxy Statement dated May 14, 1990.
Exhibit numbers 10.10, 10.11, 10.12 and 10.13 are incorporated by reference to
the same exhibit designation in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1990. Exhibit numbers 4.100.1, 4.100.2 and 4.100.3
are incorporated by reference to the same exhibit designation in the
Registrant's Quarterly Report on Form 10-Q for the nine months ended September
30, 1991. Exhibit numbers 3.1, 3.2, 4.100.4, 4.100.5, 10.1 and 10.16 are
incorporated by reference to the same exhibit designation in the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991. Exhibit number
3.2.1 and 10.17 is incorporated by reference to the same exhibit designation in
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1992. Exhibit number 10.18 is incorporated by reference to the Registrant's
Proxy Statement, dated March 31, 1993. Exhibit number 10.19 is incorporated by
reference to exhibit number 2.1 in the Registrant's Form 8-K Current Report
filed June 30, 1993. Exhibit numbers 3.200.1 and 3.200.2 are incorporated by
reference to the same exhibit designation in the Registrant's Form S-3 filed
December 16, 1993. Exhibit numbers 4.100.6 and 4.100.7 are incorporated by
reference to the Registrant's Form 8-K Current Reports filed on July 5, 1994 and
January 3, 1995, respectively. Exhibit numbers 3.200.1 and 3.200.2
arenumber 10.20 is incorporated by
reference to the same exhibit designation in the Registrant's Form S-3 filed10-K for the
year ended December 16, 1993. The31, 1994. Exhibit number 10.6.2 is incorporated by
reference to the Registrant's Annual Reports on Form 10-K andProxy Statement, dated April 4, 1995.
(b) No Form 8-K Current Reports bear SEC
File Number Reference 0-1291.
(b) The Company filed on Form 8-K datedwas required during the three months ended December 7, 1994, under Item 5 "Other
Events", a press release announcing the proposed ALLTEL acquisitions.
The Company filed on Form 8-K dated December 21, 1994, under Item 5 "Other
Events", and Item 7 "Financial Statements and Exhibits", the financial
statements of the ALLTEL properties to be acquired.31,
1995.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CITIZENS UTILITIES COMPANY
--------------------------
(Registrant)
By: /s/ Leonard Tow
-----------------___________________________________________
Leonard Tow
Chairman of the Board; Chief Executive Officer;
Chief Financial Officer; Member, Executive Committee
and Director
March 15, 19956, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 15th6th day of March 1995.1996.
Signature Title
- --------- -----
/s/ Robert J. DeSantis________________________________ Vice President Treasurer
__________________________________________ and Assistant SecretaryTreasurer
(Robert J. DeSantis)
/s/ Livingston E. Ross
_________________________________________________________________________ Vice President and Controller
(Livingston E. Ross)
Norman I. Botwinik* Director
- -------------------------------------------------------------------------
(Norman I. Botwinik)
Aaron I. Fleischman* Member, Executive Committee and
- ----------------------------------------- and-------------------------------- Director
(Aaron I. Fleischman)
James C. Goodale* Director
- --------------------------------
(James C. Goodale)
Stanley Harfenist* Member, Executive Committee and
- ------------------------------------------ and-------------------------------- Director
(Stanley Harfenist)
Andrew N. Heine* Director
- --------------------------------------------------------------------------
(Andrew N. Heine)
Elwood A. Rickless* Director
- --------------------------------------------------------------------------
(Elwood A. Rickless)
John L. Schroeder* Member, Executive Committee and
- ------------------------------------------ and-------------------------------- Director
(John L. Schroeder)
Robert D. Siff* Director
- --------------------------------------------------------------------------
(Robert D. Siff)
Robert A. Stanger* Director
- --------------------------------------------------------------------------
(Robert A. Stanger)
Edwin Tornberg* Director
- --------------------------------------------------------------------------
(Edwin Tornberg)
Claire L. Tow* Director
- --------------------------------------------------------------------------
(Claire L. Tow)
/s/ Robert J. DeSantisCharles H. Symington, Jr* Director
- --------------------------------
(Charles H. Symington, Jr.)
*By: ----------------------------------------------------------
(Robert J. DeSantis)
Attorney-in-Fact
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Index to Financial Statements
Independent Auditors' Report F-2
Consolidated balance sheets as of December 31, 1995, 1994 1993 and 19921993 F-3
Consolidated statements of income for the years ended
December 31, 1995, 1994 1993 and 19921993 F-4
Consolidated statements of shareholders' equity for the years
ended December 31, 1995, 1994 1993 and 19921993 F-5
Consolidated statements of cash flows for the years
ended December 31, 1995, 1994 1993 and 19921993 F-6
Notes to consolidated financial statements F-7 - F-21F-23
Independent Auditors' Report
----------------------------
The Board of Directors and Shareholders
Citizens Utilities Company:
We have audited the consolidated financial statements of Citizens Utilities
Company and subsidiaries as of December 31, 1995, 1994 1993 and 1992,1993, and the related
consolidated statements of income, shareholders' equity and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Citizens Utilities
Company and subsidiaries at December 31, 1995, 1994 1993 and 1992,1993, and the results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards (SFAS) 115, "Accounting
for Certain Investments in Equity and Debt Securities", effective January 1,
1994. As discussed in Notes 1 and 13 to the consolidated financial
statements, the Company adopted SFAS 109, "Accounting for Income Taxes", and
SFAS 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions", effective January 1, 1993.
KPMG Peat Marwick LLP
New York, New York
March 8, 19951, 1996
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995, 1994 1993 and 19921993
(In thousands)
1994 1993 1992
---- ---- ----
ASSETS
- ------
Current assets:
Cash $ 14,224 $ 21,738 $ 19,752
Temporary investments 108,818 89,752 0
Accounts receivable:
Utility service 134,510 99,684 75,754
Other 34,713 15,088 15,932
Less allowance for
doubtful accounts 2,428 459 441
---------- --------- ----------
Total accounts receivable 166,795 114,313 91,245
---------- --------- ----------
Materials and supplies 18,330 10,061 7,794
Other current assets 5,887 4,873 4,400
---------- --------- ----------
Total current assets 314,054 240,737 123,191
---------- --------- ----------
Property, plant and equipment 3,583,723 2,153,891 1,503,471
Less accumulated depreciation 1,014,068 461,924 406,833
---------- --------- ----------
Net property, plant and
equipment 2,569,655 1,691,967 1,096,638
---------- --------- ----------
Investments 325,011 411,022 561,062
Regulatory assets 177,414 146,207 0
Deferred debits and other
assets 190,432 137,185 107,090
---------- --------- ----------
1995 1994 1993
---- ---- ----
ASSETS
Current assets:
Cash $ 17,922 $ 14,224 $ 21,738
Temporary investments 0 108,818 89,752
Accounts receivable:
Utility service 146,561 134,510 99,684
Other 55,991 34,713 15,088
Less allowance for doubtful accounts 2,739 2,428 459
--------------- -------------- ---------------
Total accounts receivable 199,813 166,795 114,313
Materials and supplies 18,191 18,330 10,061
Other current assets 16,776 5,887 4,873
-------------- -------------- --------------
Total current assets 252,702 314,054 240,737
------------- ------------ ------------
Property, plant and equipment 4,187,354 3,583,723 2,153,891
Less accumulated depreciation 1,279,324 1,014,068 461,924
------------ ----------- ------------
Net property, plant and equipment 2,908,030 2,569,655 1,691,967
------------ ----------- -----------
Investments 329,090 325,011 411,022
Regulatory assets 180,572 177,414 146,207
Deferred debits and other assets 247,793 190,432 137,185
------------- ------------ ------------
Total assets $ 3,918,187 $3,576,566 $2,627,118 $1,887,981
========== ========== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
- -----------------------------
Current liabilities:
Accounts payable $ 122,404 $ 84,015 $ 87,298
Income taxes accrued 92,366 82,632 59,947
Long-term debt due
within one year 13,986 1,620 10,850
Customers' deposits 19,919 19,436 17,150
Interest accrued 15,841 12,731 12,943
Other current liabilities 99,461 47,791 36,300
Short-term debt 515,200 380,000 0
------------ ---------- ----------
Total current liabilities 879,177 628,225 224,488
Customer advances
for construction 145,150 137,012 140,309
Contributions in aid of
construction 71,580 47,241 39,549
Deferred income taxes 248,150 213,471 95,222
Regulatory liabilities 30,830 28,376 0
Deferred credits 50,594 50,634 28,443
Long-term debt 994,189 547,673 522,699
Shareholders' equity 1,156,896 974,486 837,271
------------- ----------- ----------
Total liabilities and
shareholders' equity $3,576,566 $2,627,118 $1,887,981
=============
=========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 140,650 $ 515,200 $ 380,000
Long-term debt due within one year 3,865 13,986 1,620
Accounts payable 178,384 122,404 84,015
Income taxes accrued 72,494 92,366 82,632
Interest accrued 22,527 15,841 12,731
Customers' deposits 20,501 19,919 19,436
Other current liabilities 65,257 72,105 47,791
-------------- -------------- -------------
Total current liabilities 503,678 851,821 628,225
Deferred income taxes 314,094 248,150 213,471
Regulatory liabilities 28,279 30,830 28,376
Deferred credits 101,300 77,950 50,634
Customer advances for construction 150,000 145,150 137,012
Contributions in aid of construction 73,923 71,580 47,241
Long-term debt 1,187,000 994,189 547,673
Shareholders' equity 1,559,913 1,156,896 974,486
------------- --------------- -------------
Total liabilities and shareholders' equity $ 3,918,187 $ 3,576,566 $ 2,627,118
============ =============== ===========
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 1993 and 19921993
(In thousands, except for per-share amounts)
1994 1993 1992
---- ---- ----
Revenues:
Telecommunications $461,094 $177,497 $186,232
Natural gas 208,940 211,892 189,812
Electric 173,585 164,515 145,032
Water/Wastewater treatment 72,395 65,488 59,388
-------- -------- --------
Total revenues 916,014 619,392 580,464
-------- -------- --------
Operating expenses:
Natural gas purchased 116,419 117,724 102,556
Electric energy and fuel
oil purchased 86,576 83,119 76,286
Operating expenses 249,096 142,718 141,954
Maintenance expenses 61,779 24,816 24,893
Depreciation 115,175 54,698 50,127
Taxes other than income 58,845 35,157 34,174
-------- -------- -------
Total operating expenses 687,890 458,232 429,990
-------- -------- -------
Income from operations 228,124 161,160 150,474
Investment income 40,454 42,097 40,072
Other income - net 12,486 12,102 7,278
Interest expense 72,744 37,431 39,044
-------- ------- -------
Income before income taxes 208,320 177,928 158,780
Income taxes 64,323 52,298 43,767
-------- ------- -------
Net income $143,997 $125,630 $115,013
======== ======== ========
Earnings per share of
Common Stock Series A
and Series B $.77 $.67
1995 1994 1993
---- ---- ----
Revenues:
Telecommunications $616,747 $456,875 $177,497
Natural gas 197,902 208,940 211,892
Electric 175,351 167,940 158,222
Water/Wastewater 79,032 72,395 65,488
--------- ---------- ---------
Total revenues 1,069,032 906,150 613,099
---------- --------- --------
Operating expenses:
Natural gas purchased 108,385 116,419 117,724
Electric energy and fuel oil purchased 85,168 80,931 76,826
Operating expenses 306,734 244,877 142,718
Maintenance expenses 87,255 61,779 24,816
Depreciation 158,935 115,175 54,698
Taxes other than income 68,382 58,845 35,157
--------- ---------- ---------
Total operating expenses 814,859 678,026 451,939
-------- --------- --------
Income from operations 254,173 228,124 161,160
Investment income 41,667 40,454 42,097
Other income - net 18,288 12,486 12,102
Interest expense 87,775 72,744 37,431
--------- ---------- ---------
Income before income taxes 226,353 208,320 177,928
Income taxes 66,817 64,323 52,298
--------- ---------- ----------
Net income $159,536 $143,997 $125,630
======== ======== ========
Earnings per share of Common Stock
Series A and Series B $.73 $.72 $.63
==== ==== ====
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 1993 and 19921993
(In thousands, except for per-share amounts)
Unrealized gain
Additional on Available-
Common Stock ($.25) Paid-in Retained for-Sale
Series A Series B Capital Earnings OtherSecurities Total
-------- -------- ---------- -------- ----- -----
Balance December 31, 1991 $10,291 $3,323 $468,107 $236,660 $1,295 $719,676
Net income 115,013 115,013
Stock dividends in shares of
Common Stock Series A and
Series B 700 237 117,454 (118,391) 0
Stock split (3-for-2) 5,270 1,783 (7,053) 0
Stock plans 86 9,853 9,939
Tax benefit arising from stock
options exercised 531 531
Non-vested restricted stock (6,593) (6,593)
Conversions of Series A to
Series B (222) 222 0
Other (1,295) (1,295)
-------- -------- --------- ------- -------- --------
Balance December 31, 1992 $16,039 $5,651 $582,299 $233,282January 1, 1993 $ 16,039 $ 5,651 $ 582,299 $ 233,282 $ 0 $837,271
NGL merger 142 497 2,949 3,588
Franklin merger 13 505 (35) 483$ 837,271
Acquisitions 155 1,002 2,914 4,071
Net income 125,630 125,630
Stock dividends in shares of
Common Stock Series A and
Series B 1,029 387 129,963 (131,594) (215)
Stock split (2-for-1)(2 for 1) 16,155 6,036 (22,191) 0
Stock plans 114 5,854 5,968
Tax benefit arising from stock
options exercised 537 537
Non-vested restricted stock 1,224 1,2247,615 7,729
Conversions of Series A to Series B (776) 776 0
-------- ----- ------- ------- ------- ---------------- --------- ---------- --------- ---------- -----------
Balance December 31, 1993 $ 32,447 $ 13,119 $ 698,688 $ 230,232$230,232 $ 0 $974,486
Metro Utility Co. merger$ 974,486
--------- --------- ---------- ---------- ---------- -----------
Acquisitions 126 4,646 3,231 8,003
Net income 143,997 143,997
Stock dividends in shares of
Common Stock Series A and
Series B 1,621 686 137,736 (140,043) 0
Stock plans 88 281 18,759 19,128
Tax benefit arising from stock
options exercised 137 137
Non-vested restricted stock 2,015 2,01520,911 21,280
Conversions of Series A to Series B (570) 570 0
UnrealizedChange in unrealized gain on
securities classified as available-for-
sale,available-
for-sale, net of income taxes 9,130 9,130
------- ----- ------ --------- ----- ------------- ---------- --------- --------- ----------
Balance December 31, 1994 $33,586 $14,782 $861,981 $237,417 $9,130$ 33,586 $ 14,782 $ 861,981 $ 237,417 $ 9,130 $1,156,896
======= ======= ======== ======== ======--------- -------- ---------- --------- --------- ----------
Acquisitions 222 (4,485) 374 (3,889)
Net income 159,536 159,536
Stock dividends in shares of
Common Stock Series A and
Series B 2,374 1,024 158,693 (162,091) 0
Common stock buybacks (115) (352) (21,561) (22,028)
Stock issuance 4,750 238,830 243,580
Stock plans 150 475 30,236 30,861
Conversions of Series A to Series B (1,906) 1,906 0
Change in unrealized gain on
securities classified as available-
for-sale, net of income taxes (5,043) (5,043)
--------- ---------- ---------- ---------- --------- -----------
Balance December 31, 1995 $38,839 $18,057 $1,263,694 $235,236 $ 4,087 $1,559,913
========= ========== ========== ========== ========= ===========
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 1993 and 19921993
(In thousands)
1994 1993 1992
---- ---- ----
Net cash provided by
operating activities $262,316 $194,949 $131,040
-------- -------- --------
Cash flows used for
investing activities:
Business acquisitions (700,222) (481,257) 0
Construction expenditures (287,708) (175,308) (148,563)
Securities purchases (18,219) (254,203) (356,816)
Securities sales 23,478 269,624 212,634
Securities maturities 89,885 54,465 72,651
Customer advances for
construction and
contributions in aid
of construction 24,546 6,959 5,033
Other (13,795) (7,086) 19,755
-------- -------- -------
(882,035) (586,806) (195,306)
-------- -------- -------
Cash flows from financing
activities:
Long-term debt borrowings 458,589 34,733 135,672
Long-term debt principal
payments (1,268) (26,644) (95,365)
Short-term debt borrowings 135,200 380,000 0
Issuance of Common Stock 18,465 3,780 989
Other 1,219 1,974 493
-------- ------- --------
612,205 393,843 41,789
-------- -------
1995 1994 1993
---- ---- ----
Net cash provided by operating activities $ 338,374 $ 262,316 $ 194,949
--------- --------- ---------
Cash flows used for investing activities:
Business acquisitions (223,926) (700,222) (481,257)
Construction expenditures (245,004) (263,162) (168,349).
Securities purchased (86,058) ( 18,219) (254,203)
Securities sold 92,224 23,478 269,624
Securities matured 120,691 89,885 54,465
Other 55 (13,795) (7,086)
--------- ---------- -----------
(342,018) (882,035) (586,806)
---------- --------- ----------
Cash flows from financing activities:
Long-term debt borrowings 321,280 458,589 34,733
Long-term debt principal payments (192,030) ( 1,268) (26,644).
Short-term debt (repayments) borrowings (374,550) 135,200 380,000
Issuance of common stock 272,687 18,465 3,780
Common stock buybacks (22,028) 0 0
Other 1,983 1,219 1,974
----------- -------- -----------
7,342 612,205 393,843
----------- --------- --------
Increase (decrease) in cash 3,698 (7,514) 1,986 (22,477)
Cash at January 1, 14,224 21,738 19,752 42,229
-------- ------- --------
Cash at December 31, $ 14,224 $ 21,738 $ 19,752
----------- --------- --------
Cash at December 31, $ 17,922 $ 14,224 $ 21,738
=========== ========= ========
========= =========
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
CITIZENS UTILITIES COMPANY and SUBSIDIARIESAND SUBSIDIARES
Notes to Consolidated Financial Statements
------------------------------------------
(1) Summary of Significant Accounting Policies:
-------------------------------------------
(a) Description of Business:
Citizens Utilities Company is a diversified operating public utility
providing telecommunications , electric distribution, natural gas
transmission and distribution and water/wastewater treatment services
to nearly 1,600,000 customer connections in areas of nineteen states
in the United States. The Company is not dependent upon any single
customer, geographic area or upon any one type of utility service for
its revenues.
(b) Principles of Consolidation:
----------------------------Consolidation and Use of Estimates:
The Consolidated Financial Statementsconsolidated financial statements have been prepared in
accordance with Generally Accepted Accounting Principles and include
the accounts of Citizens Utilities Company and all of its
subsidiaries, after elimination of intercompany balances and
transactions. Certain reclassifications of balances previously
reported have been made to conform to current presentation.
(b)The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(c) Revenues:
---------
Electric, natural gas and water/wastewater treatment -
The Company records revenues from electric,telecommunications, natural gas,
electric, and water/wastewater treatment customers when billed. These customers are billed on a cycle basis based on monthly
meter readings. The
Company accrues unbilled revenues earned from the dates customers
were last billed to the end of the accounting period. Telecommunications - The Company records revenues fromNatural gas,
electric and water/wastewater treatment customers are billed on a
cycle basis based on monthly meter readings.
Certain telecommunications
services when earned. Revenues from local service are primarily derived from
providing local telephone services. Revenues from long-distance service are
derived from charges for access to the Company's local exchange network,
subscriber line charges and contractual arrangements. Certain toll and access services revenues are
estimated under cost separation procedures that base revenues on
current operating costs and investments in facilities to provide such
services.
(c)(d) Construction Costs and Maintenance Expense:
-------------------------------------------
Property, plant and equipment are stated at original cost,
including general overhead and an allowance for funds used during
construction ("AFUDC"). AFUDC represents the borrowing costs and a
return on common equity of funds used to finance construction. AFUDC
is capitalized as a component of additions to property, plant and
equipment and is credited to income. AFUDC does not represent current
cash earnings; however, under established regulatory rate-
makingrate-making
practices, after the related plant is placed in service, the Company
is permitted to include in the rates charged for utility services a
fair return on and depreciation of such AFUDC included in plant in
service. The amount relating to equity is included in other income
($11,402,000,10,783,000, $11,402,000 and $10,123,000 for 1995, 1994 and $6,398,000 for 1994, 1993, and 1992,
respectively) and the amount relating to borrowings is included as a
reduction of interest expense ($3,031,000,4,193,000, $3,031,000 and $2,678,000
for 1995, 1994 and $1,805,000 for 1994, 1993, and 1992, respectively). The weighted average rates
used to calculate AFUDC were 11% in 1995 and 12% in 1994 and 1993, and
14% in 1992.1993.
Maintenance and repairs are charged to operating expenses as
incurred. The book value, net of salvage, of routine property, plant
and equipment dispositions is charged against accumulated
depreciation.
(d)(e) Depreciation Expense:
---------------------
Depreciation expense, calculated using the straight-line method, is
based upon the estimated service lives of various classifications of
property, plant and equipment and represented approximately 4% of the
gross depreciable property, plant and equipment for 1995, 1994 1993 and
1992.
(e)1993.
(f) Regulatory Assets and Liabilities:
----------------------------------
The Company's regulated operations are subject to the provisions of
Statement of Financial Accounting Standards ("SFAS") 71; "Accounting
for the Effects of Certain Types of Regulation". SFAS 71 requires
regulated entities to record regulatory assets and liabilities as a
result of actions of regulators. Regulatory assets of $25,006,000,
$24,669,000 and $1,601,000 at December 31, 1995, 1994 and 1993,
respectively, were recorded in connection with the provisions of SFAS 106, "Employers' Accounting
forrelated to Postretirement Benefits Other than
Pensions"Pensions (see Note 13 ). In
connection with the provisions13). Regulatory assets of SFAS 109, "Accounting for Income Taxes", the
Company's regulatory assets were$155,566,000,
$152,745,000 and $143,813,000 and regulatory liabilities wereof
$28,279,000, $30,830,000 and $28,376,000 at December 31, 1994. The regulatory assets1995, 1994
and liabilities
related to SFAS 1091993, respectively, were recorded to offset deferred income taxes
which
were recorded primarily as a result of the income tax benefits that were
previously flowed through to customers and to the allowance for funds used
during construction, partially offset by the effects of tax law changes and
the tax benefit of unamortized deferred investment tax credits.(see note 1(i)).
The Company continuously monitors the applicability of SFAS 71 to
its regulated operations. SFAS 71 may, at some future date, be
deemed inapplicable due to changes in the regulatory and competitive
environments and/or a decision by the Company to accelerate
deployment of new technology. If the Company were to discontinue the
application of SFAS 71 to one or more of its regulated operations,
the Company would be required to write off its regulatory assets and
regulatory liabilities associated with such operation(s) and
would be required to adjust the carrying amount of any property,
plant and equipment that would be deemed not recoverable. The
Company believes its regulated operations continue to meet the
criteria for SFAS 71.
(f)71 and that the carrying value of its property,
plant and equipment is recoverable in accordance with established
rate-making practices.
(g) Accounting for Investments, Temporary Investments and Short-Term
Debt:
----------------------------------------------------------------
Investments include high credit quality, short- and intermediate-termintermediate-
term fixed-income securities (primarily state and municipal
debt obligations) and equity securities. The Company adopted SFAS
115, "Accounting for Certain Investments in Debt and Equity
Securities" as of January 1, 1994. Under SFAS 115, the Company is
required to classify its investments at acquisition as available-
for-sale, held-to-maturity or trading. The Company does not invest
in securities which would be designated as trading. Prior to
the adoption of SFAS 115, fixed income securities were
stated at amortized cost and marketable equity securities were
stated at the lower of cost or market. The Company adopted SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities" as of January 1, 1994. SFAS 115
requires, among other things, that securities be designated as available-for-
sale, held-to-maturity or trading.
Securities which the Company will hold for an indefinite period of
time, but which might be sold in the future as changes in market
conditions or economic factors occur, are classified as
available-for-sale and are carried at estimated fair market value.
Net aggregate unrealized gains and losses related to such securities,
net of taxes, are included as a separate component of Shareholders'
Equity.equity. Securities for which the Company has the intent and ability
to hold to maturity are designated as held-to-maturity and are
carried at amortized cost, adjusted for amortization of premiums and
accretion of discounts over the period to maturity. Securities are designated
as available-for-sale or held-to-maturity at the time of acquisition.
Interest,
dividends and gains and losses realized on sales of securities are
reported in Investment income.
The Company does not invest in securities
which would be designated as trading.
Temporary investments arein 1994 and 1993 represented investments in
state and municipal securities which maturematured in less than one year,
the proceeds of which are to bewere used to repay a portion of the short-term
debt issued to partially and temporarily fund the acquisition of the
GTE Telephoneand ALLTEL Telecommunications Properties (see Note 3). Such
investments arewere considered held-to-maturity and are carried at
amortized cost. The fair value of temporary investments at December 31, 1994 and 1993
was $108,935,000 and $93,438,000, respectively. Short-term debt outstanding was issued in the form
of commercial paper notes payable to temporarily and partially
fund the acquisition of the GTE
Telephone Properties.telecommunications properties. This
short-term debt had a weighted average interest rate of 5.75%5.73% at
December 31, 19941995 and is expected to bewas repaid from maturing
temporary investments, funds from operations andin early 1996 with proceeds
from the issuance of equity securities. The fair value of short-term debt at December 31, 1994
and 1993, was $515,200,000 and $380,000,000, respectively.
(g)Equity Providing Preferred Income Convertible
Securities (see Note 7).
(h) Investment in Centennial Cellular Corp.:
----------------------------------------
The Company recorded its initial investment in 102,187 shares of
Centennial Cellular Corp. ("Centennial") Convertible Redeemable
Preferred Stock (the "Preferred Security") at $49,842,000 and
1,367,099 shares of Centennial Class B Common Stock at $19,826,000
which in the aggregate represented the historical cost of the
Company's investment in Citizens Cellular Company, prior to its
merger with Century Cellular Corp. During 1994, the Company purchased
615,195 additional shares of Centennial Class B Common Stock for
$8,613,000 pursuant to a Centennial rights offering.
Pursuant to SFAS 115, beginning January 1, 1994, the
investment in the Centennial Class B Common Shares was classified as
available-for-sale and is carried at fair market value. The terms of the Preferred Security provide that the Preferred
Security may be converted by the holder into Centennial common
stock and accretes a liquidation value preference at a fixed
dividend rate of 7.5%, compounded quarterly, on an initial
liquidation value preference of $125,700,000 until the Preferred
Security reaches a liquidation value preference of $186,000,000 on
August 31, 1996. Commencing on September 1, 1996, Centennial
may elect to pay an 8.5% cash dividend on the Preferred Security's
$186,000,000 liquidation value preference or to redeem the
Preferred Security for $186,000,000 in cash or in Centennial
common stock. The Preferred Security is mandatorily redeemable
on August 30, 2006.
The Company recognizes the non-cash accretion as it is earned
in each period as investment income and increases the book value
of its investment in Centennial by the same amount. The
liquidation value preference earned on the Preferred Security for
1995, 1994 and 1993 was $14,353,000, $13,481,000 and
$9,594,000. From inception through December 31, 1995, $48,794,000 of
such accretion has been accounted for in this manner. Pursuant to
SFAS 115, beginning January 1, 1994, the investment in the Centennial
Class B Common Stock has been classified as available-for-sale and is
carried at fair market value while the Preferred Security has been
classified as held-to-maturity and is carried at amortized cost. The
fair market value of the Centennial Class B Common Stock at December
31, 1995 and 1994, was $33,947,000 and $33,699,000, respectively.
On a quarterly basis, the Company assesses whether the book value
of the Preferred Security can be realized by comparing such book
value to the market value of Centennial's common equity and by
evaluating other relevant indicators of realizability including
Centennial's ability to redeem the Preferred Security. The bookcarrying
value of the Preferred Security would be deemed impaired to the
extent that such bookcarrying value exceeds the estimated realizability
of the Preferred Security based on all existing facts and
circumstances including the Company's assessment of its ability to
realize the bookcarrying value of the Preferred Security through
mandatory redemption. The Company believes it can realize its
investment in Centennial either by cash redemption (see Note 5).
(h)by the issuer
funded through refinancing by the issuer, by temporary conversion
to common equity securities followed by the sale of the common
equity securities, or by sale of its current investment holdings.
(i) Income Taxes, Deferred Income Taxes and Investment Tax Credits:
----------------------------------------
The Company and its subsidiaries are included in a
consolidated federal income tax return using a calendar year reporting period.return. The Company adopted SFAS 109 in 1993 without restating prior years'
financial statements;utilizes
the adoption of SFAS 109 had no material effect on net
income in 1993. SFAS 109 required a change from the deferred to theasset and liability method of computing deferredaccounting for income taxes.
Adoption of SFAS 109 resulted in
recording a net increase inUnder the asset and liability formethod, deferred income taxes
reflect the tax effect of $115,437,000 at December 31, 1993. Such increase resulted principally fromtemporary differences between the
financial statement and the tax bases of assets and liabilities
using presently enacted tax rates. Regulatory assets and
liabilities represent income tax benefits previously flowed
through to customers and tofrom the allowance for funds used during
construction; partially offsetting these
items wereconstruction, the effects of tax law changes and the tax benefit
associated with the unamortized deferred investment tax credits.
Due to the effects of
utility regulation, the Company recordedThese regulatory assets and liabilities of $143,813,000 and $28,376,000, respectively, as offsets torepresent the
probable net increase in the deferred income taxes at December 31, 1993. Prior to the adoption of SFAS
109, deferred income taxes resulted from the tax effect of using accelerated
depreciation methods and certain other timing differences between income
reported on the Consolidated Financial Statements and taxable income reported
on the Company's income tax returns.revenues that will be reflected through
future ratemaking proceedings.
The investment tax credits relating to utility properties, as
defined by applicable regulatory authorities, have been deferred
and are being amortized to income over the lives of the related
properties.
(i)(j) Earnings Per Share:
-------------------
Earnings per share is based on the average number of outstanding
shares. Earnings per share is presented with adjustment for
subsequent stock dividends and stock splits. The calculation has not
been adjusted for the 1.5%1.6% stock dividend declared on February 7, 1995,16,
1996, because its effect is immaterial. The effect on earnings per
share of the exercise of dilutive options is immaterial.
(2) Property, Plant and Equipment:
------------------------------
The components of property, plant and equipment at December 31, 1995,
1994 1993 and 19921993 are as follows:
1994 1993 1992
---- ---- ----
($ in thousands)
Transmission and distribution
facilities $2,159,452 $1,417,320 $1,032,426
Production and generating
facilities 818,927 414,743 222,594
Pumping, storage and
purification facilities 93,942 80,175 71,238
Construction work in progress 210,213 68,868 45,616
Intangibles 7,773 5,968 3,145
Other 293,416 166,817 128,452
---------- ---------- ----------
$3,583,723 $2,153,891 $1,503,471
1995 1994 1993
---- ---- ----
($ in thousands)
Transmission and distribution facilities $2,641,594 $2,159,452 $1,417,320
Production and generating facilities 868,119 818,927 414,743
Pumping, storage and purification facilities 107,653 93,942 80,175
Construction work in progress 212,892 210,213 68,868
Administrative facilities 337,196 285,445 160,423
Intangibles and other 19,900 15,744 12,362
------------- ------------- -------------
$4,187,354 $3,583,723 $2,153,891
=========== ========== ==========
==========
(3) Mergers and Acquisitions:
-------------------------In July 1995, the Company acquired Flex Communications by merger. The
Company issued 855,953 shares of Common Stock Series B for all of the
outstanding shares of Flex. This transaction was accounted for using the
pooling of interests method of accounting. Prior year financial
statements were not restated as the amounts are not significant. Flex is
a switch-based, inter-exchange carrier providing long distance, 800
Inbound long-distance, voice mail, paging, private data networks and
cellular services to approximately 5,500 customers in upstate New York.
In March 1995, the Company acquired Douglasville Water Company for
$173,000 and 31,928 shares of Common Stock Series B. Douglasville
provides water utility services in Pennsylvania to approximately 870
customers. This transaction was accounted for using the purchase method
of accounting and the results of operations of Douglasville have been
included in the accompanying financial statements from the date of
acquisition.
In February 1995, the Company acquired from the town of Youngtown,
Arizona, the town's water and wastewater systems for $1,192,000, serving
approximately 3,400 customers. This acquisition was accounted for using
the purchase method of accounting and the results of operations of
Youngtown have been included in the accompanying financial statements
from the date of acquisition.
In November 1994, the Company and ALLTEL Corporation signed definitive
agreements pursuant to which the Company agreed to acquire from ALLTEL
certain telecommunications properties in eight states serving
approximately 110,000 local telephone access lines and certain cable
television systems serving approximately 7,000 subscribers ("ALLTEL
Telecommunications Properties"). The purchase price of the ALLTEL
Telecommunications Properties (net of 3,600 of the Company's telephone
access lines which were valued at $10 million and transferred to ALLTEL
in a tax free exchange) is $282 million. On June 30, 1995, approximately
36,000 local telephone access lines in West Virginia and Oregon were
transferred to the Company. On September 30, 1995, approximately 19,000
local telephone access lines in Tennessee were transferred to the
Company. On October 31, 1995, approximately 18,000 local telephone access
lines in Arizona, New Mexico and Utah and approximately 7,000 cable
television lines in Arizona, New Mexico and California were transferred
to the Company. On December 31, 1995, approximately 20,000 local
telephone access lines in California were transferred to the Company and
the Company's 3,600 local telephone access lines in Pennsylvania were
transferred to ALLTEL. The remaining 23,000 local telephone access lines
are located in Nevada and are expected to be transferred to the Company
in early 1996.
In August 1994, the Company acquired RHC, Inc. ("Metro Utility Co.").
Metro Utility Co. provides water and wastewater treatment services to
approximately 10,000 customers in the suburban Chicago area. The Company
issued 504,807 shares of Common Stock Series B for all of the outstanding
shares of Metro Utility Co. This transaction was accounted for using the
pooling of interests method of accounting. Prior year financial
statements were not restated as the amounts are not significant.
In May 1993, the Company and GTE Corporation announced the signing of 10Corp. ("GTE") signed definitive
agreements pursuant to which the Company agreed to acquire from GTE, Corporation, for
approximately $1.1 billion in cash, certain telephoneGTE telecommunications
properties serving approximately 500,000 local telephone access lines in
nineeight states ("the GTE TelephoneTelecommunications Properties"). On December 31, 1993,
189,123 local telephone access lines in Idaho, Tennessee, Utah and West
Virginia were transferred to the Company. On June 30, 1994, 270,883
local telephone access lines in New York were transferred to the Company. On November 30,
1994, 37,802 local telephone
access lines in Arizona and Montana were transferred to the
Company. OnCompany and on December 30, 1994, 5,440 local telephone access lines in
California were transferred to the Company.
The remaining GTE Telephone Property is located in
OregonIn 1993, the Company separately acquired Natural Gas Company of
Louisiana ("NGL") and is expected to be transferred to Citizens in 1995.Franklin Electric Light Company, Incorporated
("Franklin") by merger. In these mergers, the Company issued 568,748
shares and 51,500 shares of Common Stock Series B for all of the common
stock of NGL and Franklin, respectively. The acquisitions were accounted
for using the purchasepoolings of interests method of accounting and the results of
operations of the GTE Telephone Properties acquired have been included in the
accompanying financial statements from the dates of their acquisition.accounting.
The following unaudited pro forma financial information presents the
combined results of operations of the Company and the GTE Telephoneand ALLTEL
Telecommunications Properties acquired to date as if the acquisitions had
occurred on January 1 1993.of the year preceding the respective dates
acquired. The effects of the other acquisitions described above would not
significantly impact the pro forma results. The pro forma financial
information does not necessarily reflect the results of operations that
would have occurred had the Company and the GTE Telephoneand ALLTEL
Telecommunications Properties constituted a single entity during such
periods.
1994 1993
---- ----
($ in thousands, except for per-share amounts)
Revenues $1,054,000 $1,016,000
Net Income $165,000 $153,000
Earnings per share $.77 $.72
On August 31, 1994, RHC, Inc. ("Metro Utility Co."), an operator of water
and wastewater treatment utilities serving portions of the suburban Chicago
area, was merged into the Company. The acquired operations serve
approximately 10,000 customers, increasing the number of the Company's
water/wastewater treatment customers in Illinois to over 65,000. The
transaction was accounted for as a pooling of interests. Prior year financial
statements were not restated as the amounts are not significant.
On November 29, 1994, the Company and ALLTEL Corporation ("ALLTEL")
announced the signing of eight definitive agreements pursuant to which
Citizens agreed to acquire from ALLTEL, for $292,000,000, certain telephone
properties servicing approximately 110,000 local telephone access lines and
certain cable television systems servicing approximately 7,000 subscribers.
The properties are located in eight states: Arizona, California, Nevada, New
Mexico, Oregon, Tennessee, Utah and West Virginia. The closings are expected
to occur state by state throughout 1995 and the first half of 1996.
On
1995 1994 1993
($ in thousands, except for per-share amounts)
Revenues $1,141,000 $1,138,000 $1,016,000
Net Income $173,000 $172,000 $153,000
Earnings per share $.78 $.78 $.68
In September 22, 1994, a subsidiary of the Company and a subsidiary of
Century Communications Corp. ("Century") entered into a joint venture
agreement for the purpose of acquiring, for approximately $89 million,
and operating two cable television systems in southern California (the
"Systems"). Century is a cable television company of which Leonard Tow,
the Chairman, Chief Executive Officer and Chief ExecutiveFinancial Officer of the
Company, is Chairman, Chief Executive Officer and Chief Financial
Officer and a director.Officer. In addition, Claire Tow, a director of the Company, is a Senior
Vice President and a director of Century and Robert Siff, a director of
the Company is a director of Century. The joint venture is governed by a
management board on which the Company and Century are equally
represented. The joint venture has entered into an agreement pursuant to
which a subsidiary of Century (the "Manager") will manage the day-to-day
operations of the Systems. The Manager will not receive a management fee
but will be reimbursed only for the actual costs it incurs on behalf of
the joint venture. With respect to the purchase of any service or asset
for the joint venture for use in the Systems, the Manager is obligated to
pass through to the joint venture any discount, up to 5%, off the
published prices of vendors and is entitled to retain any discount in
excess of 5%. On September 30, 1994, the joint venture acquired one of the systemsfirst
system serving approximately 26,500 subscribers. The purchase ofOn November 30, 1995,
the joint venture acquired the second system, serving approximately
19,200 subscribers, remains subject to
regulatory approval for the transfer of licenses. The Company's interest
in the20,700 subscribers. These joint venture isventures are being accounted for underusing
the equity method of accounting.
In January 1995, the Company entered into a definitive agreement to acquire
Flex Communications by merger in a stock-for-stock transaction. Flex is a
switch-based, inter-exchange carrier providing long-distance, 800 Inbound
long-distance, voice mail, paging, private data networks and cellular
services to approximately 3,500 customers in upstate New York. The
transaction is expected to close in 1995.
In 1993, the Company separately acquired Natural Gas Company of Louisiana
("NGL") and Franklin Electric Light Company, Incorporated ("Franklin") by
merger. In these mergers, the Company issued 568,748 shares and 51,500 shares
of Series B Common Stock for all of the common stock of NGL and Franklin,
respectively. The acquisitions were accounted for as poolings of interests.
Prior years' financial statements were not restated for the effects of these
transactions because the amounts were not significant.
(4) Dispositions:
-------------
The Company has agreed to transfer, in the form of a tax-free exchange, its
Pennsylvania Telephone property as partial consideration in the acquisition
of the ALLTEL Telephone Properties. The agreed-upon value for this property
is approximately $10,000,000.
During 1993, the Company disposed of its Santa Cruz County, Arizona water
and wastewater treatment properties, Idaho water property and Aalert Paging
Company. The sale of the Santa Cruz properties yielded net proceeds of
$1,694,000 and had a net investment of $94,000. The Company received net
proceeds of $1,221,000 from the sale of the Idaho water property and had a
net investment of $1,249,000. The sale of Aalert Paging Company yielded net
proceeds of $5,498,000 and had a net investment of $5,287,000. The resulting
gains and losses are included in Other income - net.
During 1992, the Company disposed of two water properties in California.
One property was transferred to a municipality through condemnation
proceedings. The Company received net proceeds of $3,400,000 and had a net
investment of $1,877,000. The other property was sold for net proceeds of
$6,618,000; the Company's net investment was $4,160,000. In December 1992,
the Company disposed of its Idaho electric operations. The Company received
$1,177,500 and had a net investment of $706,000. The resulting gains on
dispositions are included in other income-net.
(5) Investments:
------------
The components of investments at December 31, 1995, 1994 1993 and 19921993 are
as follows:
1995 1994 1993 1992
---- ---- ----
($ in thousands)
State and municipal securities $172,518 $174,790 $296,371 $448,605
Investment in Centennial 132,583 117,982 90,628 81,034
Other fixed income securities 408 411 7,670 10,680
Marketable equity securities 23,581 31,828 13,282
13,934
Other 0 0 3,071 6,809
-------- -------- --------
Total $329,090 $325,011 $411,022 $561,062
======== ======== ========
The Company's investment in Centennial at December 31, 1994,1995, includes
102,187 shares of Convertible Redeemable Preferred Stock ("the Preferred(the "Preferred
Security") and 1,982,294 Class B Common Shares. The liquidation value
preference earned on the Preferred Security for 1994, 1993 and 1992 was
$13,481,000, $9,594,000 and $8,803,000, respectively, and was recorded as
investment income. The carrying valueShares (see Note 1(h)).
Centennial is a publicly traded subsidiary of the investment in Centennial at
December 31, 1994, as presented in the table above, represents the historical
book value of the Preferred Security of $49,842,000 plus $34,441,000 of
liquidation value preference earned on the Preferred Security through
December 31, 1994 and the market value of the Class B Common Stock of
Centennial of $33,699,000. The Preferred Security is mandatorily redeemable
in the year 2006. The Company believes it can realize its investment in
Centennial either by cash redemption by the issuer funded through refinancing
by the issuer, by temporary conversion to common equity securities followed
by the sale of the common equity securities, or by sale of its current
investment holdings.
The aggregate market value of marketable equity securities at December 31,
1993 was $27,492,000 and total unrealized gains were $14,210,000.Century.
Net realized gains on marketable equity securities included in the
determination of net income for the years 1995, 1994 1993 and 1992,1993,
respectively, were $13,904,000, $3,760,000 $0 and $259,000.$0. The amortized cost of
marketable equity securities sold during 1995, 1994 and 1993 were
$9,863,000, $384,000 and $0. The cost of
securities sold was based on the actual cost of the shares of each
security held at the time of sale. The aggregate fair market value of
marketable equity securities at December 31, 1993 was $27,492,000 and
total unrealized gains were $14,210,000.
Marketable equity securities for each year include 1,807,095 shares
(1,500,000 original shares adjusted for stock dividends) of Class A
Common Stock of Century. These shares represent less than 2% of the total
outstanding common stock of Century. The Chairman, Chief Executive
Officer and Chief ExecutiveFinancial Officer of the Company is also Chairman,
Chief Executive Officer and Chief ExecutiveFinancial Officer of Century.
Pursuant to the provisions of SFAS 115, the Company classified its
Investments into two categories:categories at January 1, 1994: "held-to-maturity"
and "available-for-sale"
at January 1, 1994.. The Company recorded unrealized holding gains
on securities classified as available-for-sale as an increase to
Investments.
The fair valueInvestments and as a separate component of Investments at December 31, 1993 and 1992 were $534,496,000
and $649,366,000, respectively, based on relative market information about
each financial instrument.shareholders equity.
The following summarizes the amortized cost, gross unrealized holding
gains and losses and fair market value for investmentsinvestments.
Unrealized Holding Aggregate Fair
Investment Classification Amortized Cost Gains (Losses) Market Value
($ in thousands)
As of December 31, 1995
Held-To-Maturity $244,982 $ 79,808 $ (59) $ 324,731
Available-For-Sale $ 77,485 $ 8,422 $(1,799) $ 84,108
As of December 31, 1994
Held-To-Maturity $259,484 $ 80,293 $(3,055) $ 336,722
Available-For-Sale $ 50,809 $ 14,718 $ 0 $ 65,527
The maturities of debt securities and redeemable preferred securities
classified as held to maturity were as follows at December 31, 1994.
Unrealized Aggregate Fair
Investment Classification Amortized Cost Holding Gains Value
- ------------------------- -------------- ------------- --------------
($ in thousands)
Held-To-Maturity $259,484 $77,238 $336,722
Available-For-Sale 50,809 14,718 65,527
Held-to-Maturity Securities
---------------------------
Investment Maturities Amortized Cost Fair Value
- --------------------- -------------- ----------
($ in thousands)
2-5 years $141,030 $139,567
6-10 years 34,171 33,656
Thereafter 84,283 163,499
-------- ---------
$259,484 $336,7221995:
Held-to-Maturity Securities
Investment Maturities Amortized Cost Fair Market Value
--------------------- ----------------------------- ------------------------
($ in thousands)
Due within 1 year $ 46,465 $ 46,724
Due after 1 through 5 years 72,505 73,627
Due after 5 through 10 years 22,565 23,500
Due after 10 years 103,447 180,880
--------- ---------
$244,982 $324,731
======== ========
=========
The Company sold $68,458,000, and $19,335,000 of securities
classified as held-to-maturity during 1995 and 1994, respectively, for
the purpose of financing a portion of the acquisition of the GTE Telephoneand
ALLTEL Telecommunications Properties; gross realized gains on such sales
for 1995 and 1994, respectively, were $474,000 and $372,000, gross
realized losses of $372,000were $8,000 and $94,000 respectively, were
realizedfor 1995 and 1994, respectively.
(5) Fair Value of Financial Instruments:
The following table summarizes the carrying amounts and estimated
fair values for certain of the Company's financial instruments at
December 31, 1995, 1994 and 1993. For the other financial instruments,
representing cash and cash equivalents, accounts and notes receivables,
short-term debt, accounts payable and other accrued liabilities, the
carrying amounts approximate fair value due to the relatively short
maturities of those instruments.
1995 1994 1993
---- ---- ----
Carrying Carrying Carrying
Amount Fair Value Amount Fair Value Amount Fair Value
($ in thousands)
Temporary Investments $ 0 $ 0 $108,818 $108,935 $89,752 $93,438
Investments 329,090 408,839 325,011 402,249 411,022 534,496
Long-Term Debt 1,187,000 1,263,000 994,189 992,349 547,673 602,710
The fair value of the above financial instruments, except for the
investment in the Centennial Preferred Securities, are based on such sales.quoted
prices at the reporting date for those financial instruments. The amortized cost and related gains on available-
for-sale securities sold during 1994 were $384,000 and $3,760,000,
respectively.fair
value of the Centennial Preferred Security is estimated to be its
accreted value at the respective reporting dates (see Note 1(h)).
(6) Long-term Debt:
---------------
Weighted average
interest rate at December 31,
--------------------------------
December 31, 1995 Maturities 1995 1994 1993
----------------- ---------- ---- ---- ----
($ in thousands)
Debentures 7.50% 2001-2034 $ 700,000 $425,000 $150,000
Industrial development
revenue bonds 5.87% 2015-2030 374,089 325,125 284,777
Rural Utility Services
and Rural Telephone
Bank notes 5.60% 1996-2027 71,609 47,106 42,237
Senior unsecured notes 8.05% 2012 23,000 0 0
Commercial paper notes
payable 5.73% Variable 16,100 187,800 58,953
Other long-term debt 8.66% 1996-1998 2,202 9,158 11,706
------- ------------ ----------- ---------
6.86% $1,187,000 $994,189 $547,673
===== ========== ======== ========
The total principal amounts of industrial development revenue bonds at
December 31, December 31,1995, 1994 Maturities 1994and 1993, 1992
----------------- ---------- ---- ---- ----
($ in thousands)
Debentures 7.68% 2001-2034 $425,000 $150,000 $150,000were $406,080,000, $392,530,000 and
$377,890,000, respectively. Industrial development revenue bonds 5.93% 2015-2029 325,125 284,777 242,391
Commercial paper notes
payable 5.75% Variable 187,800 58,953 62,680
Rural Electrification
Administrationbond funds
issued are held by a trustee until used for payment of qualifying
construction. The amounts presented in the table above represent funds
that have been used for construction through December 31, 1995, 1994 and
Rural
Telephone Bank notes 5.80% 2006-2027 47,106 42,237 43,494
Subordinated notes 10.83% 1995-1998 2,045 11,692 12,261
Other long-term debt 8.18% 1998-2000 7,113 14 11,873
------- -------- -------- --------
6.67% $994,189 $547,673 $522,699
======= ======== ======== ========1993, respectively.
Certain commercial paper notes payable have been classified as
long-term debt because these obligations are expected to be refinanced
with long-term debt securities.
The Company has available lines of credit with commercial banks in the
amounts of $1,000,000,000$400,000,000 and $200,000,000, which expire on December 13, 199514,
1996 and December 16, 1997,2000, respectively, and have associated facility
fees of one-twentieth of one percent (.05%) per annum and one-twelfthone-thirteenth
of one percent (.075%) per annum, respectively. The terms of the lines of
credit provide the Company with extension options.
The totalinstallment principal amountspayments and maturities of industrial development revenue bonds at
December 31, 1994, 1993 and 1992, were $392,530,000, $377,890,000 and
$274,030,000, respectively. Amounts presented inlong-term debt for
the table above have been
reduced by funds held by trustees to be used for payment of qualifying
construction expenditures.next five years are as follows:
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
($ in thousands)
Installment principal payments $ 2,965 $2,935 $2,604 $2,710 $2,839
Maturities 900 125 1,428 - -
--------- -------- ------- ---------- -----------
$ 3,865 $ 3,060 $4,032 $2,710 $2,839
======== ======= ====== ====== ======
Holders of certain industrial development revenue bonds may tender at par
prior to maturity. The next tender date is August 1, 1997 for $30,350,000
of principal amount of bonds. In the years 1995, 1994 1993
and 1992,1993,
respectively, interest payments on short- and long-term debt were
$78,659,000, $74,803,000 $40,217,000 and $37,913,000.
The fair value of long-term debt, presented as required by SFAS 107 at
December 31, 1994, 1993 and 1992, respectively, was $992,349,000, $602,710,000
and $550,724,000 based on relative market information and information about
each financial instrument.
The installment principal payments and maturities of long-term debt for the
next five years are as follows:
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
($ in thousands)
Installment principal
payments $ 4,233 $4,311 $3,963 $3,021 $2,156
Maturities 9,753 845 118 1,334 -
------- ------ ------ ------ ------
$13,986 $5,156 $4,081 $4,355 $2,156
======= ====== ====== ====== ======$40,217,000.
(7) Capital Stock:
--------------
The common stock of the Company is in two series, Series A and Series
B. The Company is authorized to issue up to 200,000,000 shares of Common
Stock Series A and 300,000,000 shares of Common Stock Series B. Quarterly
stock dividends are declared and issued at the same rate on both Series A
and Series B. Series B shareholders have the option of enrolling in the
"Series B Common Stock Dividend Sale Plan." The Plan offers Series B
shareholders the opportunity to have their stock dividends sold by the
Plan Broker and the net cash proceeds of the sale distributed to them
quarterly. Series A shares are convertible share-for-share into Series B
shares. Series B shares are not convertible into Series A. Both series
are the same in all other respects.
On April 14, 1992, the Company declared a 3-for-2 stock split of its Series
A and Series B Common Stock. The stock split was distributed on July 24,
1992, to shareholders of record on July 1, 1992. On May 21, 1993, the Company declared a 2-for-1 stock split of its
Series A and Series B common stock. The stock split was distributed on
August 31, 1993, to shareholders of record on August 16, 1993.
On January 30, 1995, the Company, pursuant to an underwritten public
offering, issued 19,000,000 shares of its Common Stock Series A at an
issuance price of $13 3/8 per share.share (not adjusted for subsequent stock
dividends). The $244,200,000 of net proceeds from the issuance werewas used
to permanently fund a portion of the acquisition of the GTE
Telephone
Properties.QuarterlyTelecommunications Properties.
Quarterly stock dividend rates declared on Common Stock Series A and
Series B are based upon cash equivalent rates and share market prices,
and have been as follows:
Dividend Rates
--------------
1994 1993 1992
---- ---- ----
First quarter 1.1% 1.2% 1.6%
Second quarter 1.15% 1.0% 1.5%
Third quarter 1.3% 1.1% 1.2%
Fourth quarter 1.4% 1.0% 1.2%
----- ----- -----
Total 4.95% 4.3% 5.5%
Dividend Rates
1995 1994 1993
First quarter 1.5% 1.1% 1.2%
Second quarter 1.5% 1.15% 1.0%
Third quarter 1.6% 1.3% 1.1%
Fourth quarter 1.6% 1.4% 1.0%
----- ---- ----
Total 6.2% 4.95% 4.3%
==== ===== ====
Compounded Total 6.35% 5.04% 4.37%
===== ===== =====
Compounded Total 5.04% 4.37% 5.61%
===== ===== =====
Annualized stock dividend cash equivalent rates considered by the
Company's Board of Directors in declaring stock dividends for 1995, 1994
1993 and 1992,1993, respectively, were .733, .69172 1/4 cents, 68 7/8 cents and .62465 cents
per share (adjusted for all stock splits and stock dividends paid
subsequent to all dividends declared through December 31, 19941995 and
rounded to the nearest 1/8th).
In May 1995, the Board of Director's authorized the buyback of up to
$50 million of Common Stock Series A and Series B shares. Shares have
been and will be purchased on the open market from time to time. The
Company purchased 1,865,000 shares at a cost of $22,028,000 in 1995.
Purchased shares are used to pay stock dividends. The Company used 7,000
shares (not adjusted for subsequent stock dividends and a stock split)
acquired from employees pursuant to the Management Equity Incentive
Plan in partial payment of the 1993 stock dividend. These shares had a
cost of $215,000.
The activity in shares of outstanding common stock for Series A and
Series B during 1995, 1994 1993 and 19921993 is summarized as follows:
Number of Shares
----------------
Series A Series B
-------- --------
Balance at January 1, 1992 41,166,000 13,289,000
Stock dividends 2,799,000 950,000
Stock split (3-for-2) 21,078,000 7,134,000
Stock plans 0 344,000
Conversions of Series A
to Series B (887,000) 887,000
----------- ----------
Balance at December 31, 19921993 64,156,000 22,604,000
NGL mergerAcquisitions 0 569,000
Franklin merger 0 52,000621,000
Stock dividends 4,114,000 1,548,000
Stock split (2-for-1)(2 for 1) 64,620,000 24,142,000
Stock plans 0 457,000
ConversionsConversion of Series A to Series B (3,105,000) 3,105,000
------------ ----------------------
Balance at December 31, 1993 129,785,000 52,477,000
Metro Utility Co. mergerAcquisitions 0 505,000
Stock dividends 6,484,000 2,744,000
Stock plans 355,000 1,122,000
Conversions of Series A to Series B (2,278,000) 2,278,000
------------ --------------------- -----------
Balance at December 31, 1994 134,346,000 59,126,000
Acquisitions 0 888,000
Stock issuance 19,000,000 0
Stock dividends 9,499,000 4,098,000
Common stock buybacks (462,000) (1,403,000)
Stock plans 601,000 1,894,000
Conversions of Series A to Series B (7,626,000) 7,626,000
------------ -----------
Balance at December 31, 1995 155,358,000 72,229,000
============ =====================
The Company used 7,000 Series B shares (not adjusted for subsequent
stock dividends and a stock split) acquired from employees pursuant to
the Management Equity Incentive Plan in partial payment of the 1993 stock
dividend. These shares had a cost of $215,000.
On January 22, 1996, pursuant to an underwritten public offering, a
subsidiary of the Company issued 4,025,000 shares of 5% Equity Providing
Preferred Income Convertible Securities ("EPPICS") having a liquidation
preference of $50 per security and a maturity date of January 15, 2036.
Each security is initially convertible into 3.252 shares of the Company's
Common Stock Series A at a conversion price of $15.375 per share. The
$196,722,000 in net proceeds from the sale of these securities were used
to repay short-term debt, permanently fund a portion of the ALLTEL
Telecommunications Properties to be acquired, and for other general
corporate purposes.
The Company has 50,000,000 of authorized but unissued shares of
preferred stock ($.01 par),
none of which has been issued. The preferred stock may be issued by the
Board of Directors (without further approval by shareholders) in one or
more series, having such attributes as may be designated by the Board
of Directors at the time of issuance..
(8) Employee Stock Plans:
---------------------
On June 22, 1990, shareholders approvedUnder the Citizens Utilities Company Management Equity Incentive Plan
("MEIP"). Under the MEIP,, awards of the Company's Series A or Series B common stock may
be granted to eligible officers, management employees and non-management
exempt employees of the Company and its subsidiaries in the form of
incentive stock options, non-
qualifiednon-qualified stock options, stock appreciation
rights ("SARs"), restricted stock or other stock-based awards. The MEIP
is administered by the Compensation Committee of the Board of Directors.
The maximum number of shares of common stock which may be issued
pursuant to awards at any time is 5% of the Company's common stock
outstanding provided that no more than 8,558,0009,100,000 shares (adjusted for
subsequent stock dividends and stock splits) will be issued pursuant to
incentive stock options under the MEIP. No awards will be granted more
than 10 years after the effective date (June 22, 1990) of the MEIP. The
exercise price of stock options and SARs shall be equal to or greater
than the fair market value of the underlying common stock on the date of
grant. Stock options are generally not exercisable on the date of grant
but vest over a period of time.
Some options were awarded in tandem with related SARs. SARs provide the
MEIP participant with the alternative of electing not to exercise the related
stock option, but to receive instead an amount in cash or in common stock
equal to the difference between the option price and the fair market value
of the common stock on the date the SAR is exercised. Either the SAR or the
related option may be exercised, but not both. There were no SARs granted
during 1994 or 1993. During 1992, 613,000 SARs were exercised at an average
exercise price of $12.21 per share (not adjusted for subsequent stock
dividends and stock splits). This resulted in the cancellation of the 613,000
tandem stock options. At December 31, 1994, 1993 and 1992, no SARs were
outstanding.
Under the terms of the MEIP, subsequent stock dividends and stock
splits have the effect of increasing the option shares outstanding, which
correspondingly decreasesdecrease the average exercise price of outstanding
options.
The following summary of shares subject to option under the MEIP
reflects the
original options granted,presents option share activity adjusted for subsequent stock splits at original
option prices which have also been adjusted for subsequent stock splits.
Average option
Shares subject to option price per share
------------------------ ---------------
Balance at January 1, 1992 2,931,000 $ 8.06
Options granted 2,367,000 14.90
Options exercised (257,000) 6.60
Options cancelled or lapsed (1,294,000) 6.28
Adjustment for stock dividends* 173,000 -
------------ ------
Balance at December 31, 1992 3,920,000 12.54
Options granted 1,862,000 18.06
Options exercised (239,000) 7.62
Options cancelled or lapsed (25,000) 5.44
Adjustment for stock dividends* 201,000 -
------------ -----
Balance at December 31, 1993 5,719,000 14.14
Options granted 1,562,000 13.06
Options exercised (149,000) 8.04
Options cancelled or lapsed (69,000) 14.17
Adjustment for stock dividends* 287,000 -
----------- ------
Balance at December 31, 1994 7,350,000 $14.07
=========== ======
Options exercisable atand
dividends through the end of the respective year 1,667,000 $11.85
=========== ======presented.
Weighted
Average option
Shares subject to option price per share
Balance at January 1, 1993 3,920,000 $12.54
Options granted 1,862,000 18.06
Options exercised (239,000) 7.62
Options canceled or lapsed (25,000) 5.44
Adjustment for stock dividends* 201,000 -
------------
Balance at December 31, 1993 5,719,000 14.14
Options granted 1,562,000 13.06
Options exercised (149,000) 8.04
Options canceled or lapsed (69,000) 14.17
Adjustment for stock dividends* 287,000 -
-------------
Balance at December 31, 1994 7,350,000 14.07
Options granted 99,000 11.06
Options exercised (260,000) 6.75
Options canceled or lapsed (107,000) 14.16
Adjustment for stock dividends* 456,000 -
-------------
Balance at December 31, 1995 7,538,000 $14.30
=============
Options exercisable at end of year 4,472,000 $12.59
=============
* Represents adjustment to outstanding option shares to reflect stock
dividends.
During 19931995 and 1992,1993, the Company granted restricted stock awards to
key employees in the form of the Company's Common Stock Series B. There
were no restricted stock awards duringaward grants in 1994. The number of Series B
shares issued as restricted stock awards during 1995 and 1993 were 9,000
and 1992 was 149,000 and 792,000,158,000, respectively, (adjusted for subsequent stock dividends and
stock splits). None of the restricted stock awards may be sold, assigned,
pledged or otherwise transferred, voluntarily or involuntarily, by the
employee.employee until the restrictions lapse. The restrictions lapse over three-six
months, three year and five-yearfive year periods. At December 31, 1994, 482,6181995, 347,000
shares (adjusted for subsequent stock dividends and stock splits) of
restricted stock were outstanding.
The Company's Employee Stock Purchase Plan ("ESP Plan") was approved by
shareholders on June 12, 199212,1992 and amended on May 21, 1993. Under the ESP
Plan, eligible employees of the Company and its subsidiaries may
subscribe to purchase shares of Common Stock Series B common stock at 85% of the lower of 85%
of the average market price on the first day of the purchase period or on
the last day of the purchase period. An employee may elect to have up to
20% of annual base pay withheld in equal installments throughout the
designated payroll-
deductionpayroll-deduction period for the purchase of shares. The value
of an employee's subscription may not exceed $25,000 in any one calendar
year. As of December 31, 1994,1995, there are 1,278,000were 1,813,000 shares of Common
Stock Series B common stock reserved for issuance under the ESP Plan. These shares
will be adjusted for any future stock dividends or stock splits. The ESP
Plan will terminate when all 1,278,0001,813,000 shares reserved have been
subscribed for, unless terminated earlier by the Board of Directors. The
ESP Plan is administered by a committeethe Compensation Committee of the Board of
Directors. As of December 31, 1994,1995, the number of employees participating
in the ESP Plan was 1,5611,768 and the total number of shares subscribed for
under the ESP Plan was 240,640.400,923.
The Company's non-employee Directors' Deferred Fee Equity Plan (the
"Directors Plan") was approved by shareholders on May 19, 1995. The
Directors Plan includes an Option Plan and a Stock Plan. Through the
Option Plan, an eligible director may elect to receive his or her
director's fees for a period of up to five years in the form of options
to purchase Company common stock, the number of such options being equal
to such fees divided by 20% of the fair market value of Company common
stock on the effective date of the options. Through the Stock Plan,
an eligible director may elect to receive his or her director's fees in
the form of Plan Units, the number of such Plan Units being equal to such
fees divided by the fair market value of Company common stock on certain
specified dates. In the event of termination of Directorship, a Stock
Plan participant will receive the value of such Plan Units in either
stock or cash or installments of cash as selected by the Participant at
the time of the related Stock Plan election. As of any date the maximum
number of shares of Common Stock which the Plan may be obligated to
deliver pursuant to the Stock Plan and the maximum number of shares of
Common Stock which shall have been purchased by Participants pursuant
to the Option Plan and which may be issued pursuant to outstanding
options under the Option Plan shall not be more than one (1%) percent
of the total outstanding shares of Common Stock Series A and Series B
of the Company as of such date, subject to adjustment in the event of
changes in the corporate structure of the Company affecting capital
stock. There are currently 9 directors participating in the Directors
Plan. In 1995, the total Options and Plan Units earned were 96,246,
and 3,416, respectively. At December 31, 1995, 40,595 options were
exercisable at a weighted average exercise price of $12.127.
(9) Income Taxes:
-------------Taxes
The following is a reconciliation of the provision for income taxes at
federal statutory rates to the reported provision for income taxes:effective rates:
1995 1994 1993
1992
------------- --------------- ----------------
($ in thousands)----------- ----------- -----------
Consolidated tax provision at
federal statutory rate $72,912 35.0% $62,275 35.0% $53,985 34.0%
Allowance for funds
used during
construction (5,051) (2.4%) (4,480) (2.5%) (2,789) (1.8%)
Amortization of
investment tax
credits (1,949) (0.9%) (2,086) (1.2%) (2,140) (1.3%)35.0%
State income tax provisions,
net of federal income tax
benefit 5,2622.1% 2.5% 6,432 3.6%
4,989 3.1%Allowance for funds used
during construction (2.3%) (2.4%) (2.5%)
Amortization of
investment tax credits (0.9%) (0.9%) (1.2%)
Nontaxable investment income (6,032)(1.7%) (2.9%) (8,339) (4.7%)
(8,490) (5.3%Accrual adjustment (2.9%) (0.2%) (0.3%)
All other - net (819) (0.4%0.2% (0.2%) (1,504) (0.8%(0.5%)
(1,788) (1.1%)
------------- ------ -------- ------ -------- ------
$64,323-----
29.5% 30.9% $52,298 29.4%
$43,767 27.6%
============= ====== ======== ====== ======== ===========
For 1995, 1994 1993 and 1992,1993, accumulated deferred income taxes amounted to
$298,424,000, $230,556,000 $194,165,000 and $72,969,000,$194,165,000, respectively, and the
unamortized deferred investment tax credits amounted to $15,670,000,
$17,594,000 $19,306,000 and $22,253,000,$19,306,000, respectively. Income taxes paid during the
year were $39,425,000, $30,395,000 and $24,139,000 for 1995, 1994 and $22,798,000 for 1994, 1993,
and 1992,
respectively.
The components of the net deferred income tax liability at December 31, are
as follows:
1994 1993
---- ----
($ in thousands)
Deferred tax liabilities
- ------------------------
Property, plant and equipment basis
differences $177,549 $148,756
Regulatory assets 62,578 57,134
Other-net 28,704 25,365
-------- --------
268,831 231,255
-------- --------
Deferred tax assets
- -------------------
Deferred investment tax credits 7,183 6,649
Regulatory liabilities 13,498 11,135
-------- -------
20,681 17,784
-------- -------
Valuation Allowance 0 0*
-------- --------
Deferred income taxes $248,150 $213,471
======== ========
* There was no change in the valuation allowance during 1993.
1995 1994 1993
---- ---- ----
($ in thousands)
Deferred income tax liabilities
Property, plant and equipment basis
differences $246,128 $177,549 $148,756
Regulatory assets 63,871 62,578 57,134
Other-net 22,741 28,704 25,365
---------- ----------- ------------
332,740 268,831 231,255
--------- ---------- -----------
Deferred income tax assets
Deferred investment tax credits 6,231 7,183 6,649
Regulatory liabilities 12,415 13,498 11,135
---------- ----------- -----------
18,646 20,681 17,784
---------- ----------- -----------
Net deferred income tax liability $314,094 $ 248,150 $ 213,471
======== ========= =========
The provision for federal and state income taxes, as well as the taxes
charged or credited to ShareholdersShareholders' equity, includes amounts both
payable currently and deferred for payment in future periods as indicated
below.
1994 1993 1992
---- ---- ----
Income Taxes Included in
the Income Statements: ($ in thousands)
- ------------------------
Current
Federal $28,347 $39,571 $37,501
State 3,595 8,682 7,118
------- ------- -------
31,942 48,253 44,619
------- ------- -------
Deferred
Federal 29,829 4,917 847
Investment tax credits (1,949) (2,086) (2,140)
State 4,501 1,214 441
------- ------ ------
32,381 4,045 (852)
------- ------ ------
Income taxes included in the
Income Statement 64,323 52,298 43,767
------- ------ ------
Income Taxes Included in
Shareholders' Equity:
- ------------------------
Deferred income taxes on
unrealized gains on
securities classified
as available-for-sale 5,588 - -below:
1995 1994 1993
---- ---- ----
Income taxes charged (credited) to the income statement: ($ in thousands)
--------------------------------------------------------
Current:
Federal $13,297 $28,347 $39,571
State 1,014 3,595 8,682
--------- ---------- ---------
Total current 14,311 31,942 48,253
-------- ---------- ---------
Deferred:
Federal 48,168 29,829 4,917
Investment tax credits (2,057) (1,949) (2,086)
State 6,395 4,501 1,214
-------- ---------- ---------
Total deferred 52,506 32,381 4,045
-------- ---------- ---------
Income taxes charged (credited) to the income statement $66,817 $64,323 $52,298
======== ========== =========
Income taxes charged (credited) to shareholders' equity:
Deferred income taxes on unrealized gains
on securities classified as available-for-sale ($3,052) $5,588 $ 0
Current benefit arising from stock
options exercised (406) (137) (537)
-------- --------- ----------
Income taxes charged (credited) to shareholders' equity ($3,458) $5,451 $ (537) (531)
-------- -------- --------
Income taxes included in
Shareholders' Equity 5,451 (537) (531)
-------- -------- --------
Total income taxes $69,774 $51,761 $43,236
========
======== ========= ==========
Total income taxes $63,359 $69,774 $51,761
======== ========= ==========
(10) Segment Information:
--------------------
Year Ended December 31,
-----------------------------------
1994 1993 1992
---- ---- ----
($ in thousands)
Telecommunications:
- -------------------
Revenues $461,094
Year Ended December 31,
1995 1994 1993
($ in thousands)
Telecommunications:
Revenues $616,747 $456,875 $177,497 $186,232
Assets 2,097,277 1,805,893 910,276 325,618
Depreciation 120,608 81,659 22,744 22,452
Capital expenditures 144,613 177,419 66,619 20,672
Operating income before
income taxes 148,720 85,934 85,994
Natural gas:
- ------------
Revenues $208,940 $211,892 $189,812
Assets 306,979 289,121 243,582
Depreciation 10,827 10,646 10,106
Capital expenditures 31,235 25,677 22,280
Operating income before
income taxes 30,205 28,971 26,952
Electric:
- ---------
Revenues $173,585 $164,515 $145,032
Assets 458,457 446,284 356,829
Depreciation 15,251 12,924 11,038
Capital expenditures 43,132 43,673 74,502
Operating income before
income taxes 31,221 30,660 18,999
Water/Wastewater:
- -----------------
Revenues $ 72,395 $ 65,488 $ 59,388
Assets 455,312 400,288 320,985
Depreciation 7,438 8,384 6,531
Capital expenditures 38,884 37,426 25,456
Operating income before
income taxes 174,196 148,720 85,934
Natural gas:
Revenues $197,902 $208,940 $211,892
Assets 344,036 306,979 289,121
Depreciation 12,155 10,827 10,646
Capital expenditures 31,056 31,235 25,677
Operating income before
income taxes 25,874 30,205 28,971
Electric:
Revenues $175,351 $167,940 $158,222
Assets 487,893 458,457 446,284
Depreciation 17,035 15,251 12,924
Capital expenditures 39,829 43,132 43,673
Operating income before
income taxes 30,060 31,221 30,660
Water/Wastewater:
Revenues $ 79,032 $ 72,395 $ 65,488
Assets 505,851 455,312 400,288
Depreciation 9,137 7,438 8,384
Capital expenditures 41,261 38,884 37,426
Operating income before
income taxes 24,043 17,978 15,595
18,529
(11) Quarterly Financial Data (unaudited):
-------------------------------------
Net Income
----------------------------------
($ in thousands) Per Share
- ---------------- --------------------
1994 Revenues Amount Series A Series B
---- -------- ------ -------- --------
First quarter $223,896 $31,655 $.17 $.17
Second quarter 188,674 38,016 .20 .20
Third quarter 242,309 38,687 .20 .20
Fourth quarter 261,135 35,639 .19 .19
Net Income
-----------------------------------
($ in thousands) Per Share
- ---------------- --------------------
1993 Revenues Amount Series A Series B
---- -------- ------ -------- --------
First quarter $165,915 $28,239 $.15 $.15
Second quarter 146,170 34,682 .18 .18
Third quarter 145,315 34,269 .18 .18
Fourth quarter 161,992 28,440 .15 .15
Net Income
($ in thousands) Per Share
---------------- -------------------
1995 Revenues Amount Series A Series B
---- -------- ------ -------- --------
First quarter $267,034 $33,903 $.16 $.16
Second quarter 251,678 41,939 .19 .19
Third quarter 259,732 45,061 .20 .20
Fourth quarter 290,588 38,633 .18 .18
Net Income
($ in thousands) Per Share
---------------- --------------------
1994 Revenues Amount Series A Series B
---- -------- ------ -------- --------
First quarter $222,156 $31,655 $.16 $.16
Second quarter 187,130 38,016 .19 .19
Third quarter 241,005 38,687 .19 .19
Fourth quarter 255,859 35,639 .17 .17
The quarterly net income per share amounts are rounded to the nearest
cent. Annual earnings per share may vary depending on the effect of such
rounding.
(12) Supplemental Cash Flow Information:
-----------------------------------
ScheduleThe following is a schedule of net cash provided by operating
activities for the years ended December 31, 1995, 1994 and 1993.
1995 1994 1993 1992
---- ---- ----
($ in thousands)
Net income $159,536 $143,997 $125,630
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation expense 158,935 115,175 54,698
Deferred income taxes and
amortization of investment
tax credits 52,506 32,381 4,045
Centennial investment income (14,353) (13,481) (9,594)
Allowance for equity funds used
during construction (10,783) (11,402) (10,123)
Change in accounts receivable (22,684) (20,663) (23,068)
Change in accounts payable 11,247 21,520 (3,773)
Change in accrued taxes and
accrued interest (6,923) 13,024 24,960
Other 10,893 (18,235) 32,174
----------- --------- ---------
Net cash provided by operating activities $338,374 $262,316 $ 194,949
=========== ========= =========
In conjunction with the acquisitions of the ALLTEL
Telecommunications Properties, the Company assumed $41,447,000 in thousands)
Net income $143,997 $125,630 $115,013
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 115,175 54,698 50,127
Deferred income taxes
and amortizationdebt
at a weighted average interest rate of investment tax credits 32,381 4,045 (852)
Centennial investment
income (13,481) (9,594) (8,803)
Allowance for equity
funds used during
construction (11,402) (10,123) (6,398)
Change in accounts
receivable (20,663) (23,068) (12,372)
Change in accounts
payable 21,520 (3,773) (4,607)
Change in accrued
taxes and accrued
interest 13,024 24,960 19,672
Other (18,235) 32,174 (20,740)
--------- -------- ---------
Net cash provided
by operating
activities $262,316 $194,949 $131,040
========= ======== =========6.59%.
(13) Pension and Retirement Plans:
-----------------------------Pension Plan
The Company and its subsidiaries have a noncontributory pension plansplan
covering all employees who have met certain service and age requirements.
The benefits are based on years of service and final average pay or
pay rate.career average pay. Contributions are made in amounts sufficient to fund
the plans' current
service costsplan's net periodic pension cost while considering its tax
deductibility and to provide for benefits expected to be earned in the future.minimum funding requirement. Plan assets are
invested in a diversified portfolio of equity and fixed-income
securities.
Pension costs for 1995, 1994 1993 and 19921993 include the following components:
1995 1994 1993 1992
---- ---- ----
($ in thousands)
Service cost $5,777 $3,585 $3,277$6,549 $ 5,777 $ 3,585
Interest cost on projected
benefit obligations 10,735 8,166 5,038 4,544
Net amortization and deferral 335 172 1,751 132
Return on plan assets (11,784) (9,754) (6,945)
(5,438)
-------- ------- ---------------
Net pension cost $5,835 $4,361 $3,429 $2,515$ 3,429
======== ======= ========
Assumptions used in the computation of pension costs and the costs/actuarial present
value of projected benefit obligations included the following:
1995 1994 1993 1992
---- ---- ----
Discount rate 8% 7.5% 8%8.25% /7.50% 8.00% 7.50%
Expected long-term rate of
return on plan assets 8.5% 8% 8.5%8.75% 8.50% 8.00%
Rate of increase in
compensation levels 4.5% 4.5% 5%4.50%/4.00% 4.50% 4.50%
As of December 31, 1995, 1994 1993 and 1992,1993, respectively, the fair values
of plan assets were $133,700,000, $133,964,000 $73,233,000 and $68,506,000.$73,233,000. The
actuarial present values of the accumulated benefit obligations were
$100,367,000, $86,186,000 and $57,216,000 for 1995, 1994 and $48,661,000 for 1994, 1993, and 1992,
respectively. The actuarial present values of the vested accumulated
benefit obligation for 1995, 1994 1993 and 1992,1993, respectively, were
$86,260,000, $77,053,000 $54,591,000 and $46,819,000.$54,591,000. The total projected benefit
obligations for 1995, 1994 1993 and 1992,1993, respectively, were $145,008,000,
$125,943,000 $75,531,000 and $63,199,000.$75,531,000. In 1994, the Company recorded $34,199,000
of accumulated benefit obligation, $28,069,000 of vested accumulated
benefit obligation and $54,166,000 of projected benefit obligation
pursuant to the acquisition of the GTE Telecommunications Properties.
Assets sufficient to fully fund these obligations were transferred to
the plan from the GTE pension plan.
Other Post-Retirement Benefit Plans
The Company provides certain medical, dental and life insurance
benefits for retired employees and their beneficiaries and covered
dependents. In
January 1993,The components of the Company implemented SFAS 106, "Employers' Accountingnet periodic postretirement benefit
cost for
Postretirement Benefits Other than Pensions". SFAS 106 requires the Company
to accrue the expected costs of providing postretirement benefits to
employees and to employees' beneficiaries and covered dependents during the years the employee renders the necessary service. The Company'sended December 31, 1995 , 1994 and 1993 annualized costs were approximately $6,605,000are as
follows:
1995 1994 1993
---- ---- ----
($ in thousands)
Service cost $2,038 $1,826 $ 845
Interest cost 4,023 3,418 1,710
Amortization of transition obligation 1,038 1,048 1,116
Other 467 313 0
------- ------ ------
Net periodic postretirement
benefit cost $7,566 $6,605 $3,671
======= ====== ======
The following table sets forth the accrued postretirement benefit
liability recognized in the Company's balance sheets at December 31,
1995, 1994 and $3,671,000, respectively,
of which approximately $4,261,0001993:
1995 1994 1993
---- ---- ----
($ in thousands)
Accumulated postretirement benefit obligation:
Retirees ($19,736) ($14,946) ($13,919)
Fully eligible active plan participants (9,964) (7,158) (2,749)
Other active plan participants (30,304) (32,882) (7,328)
------------ ---------- ----------
Total accumulated postretirement
benefit obligation (60,004) (54,986) (23,996)
Plan assets at fair value 912
Unrecognized net (gain) loss (2,961) (1,914) 1,563
Unrecognized prior service cost 3,480 2,932 (1,477)
Unrecognized transition obligation 17,638 18,676 21,201
---------- ---------- ---------
Net accumulated postretirement benefit
obligation ($40,935) ($35,292) ($2,709)
========== ========== =========
Of the net periodic post retirement benefit cost presented above, the
Company recorded $2,781,000, $4,621,000 and $1,601,000 were recordedin 1995, 1994 and
1993, respectively, as regulatory assets for states whose regulatory
commissions to date have not but will likely allow recovery of accrued
costs in future rate proceedings. The Company's annual cost includes
20-year prospective recognition of the transition obligation. The Company's accumulated postretirement benefit
obligation at December 31, 1994 was approximately $54,986,000. TheIn those
states in which regulatory commissions have permitted recovery of accrued
costs, the Company is currently assessing the costs and benefits of alternative funding methods.has established trusts to fund these future
liabilities. For measurement purposes, the Company used an 8%the same discount
raterates as were used for the pension plan and a 9%7% annual rate of increase
in the per-capita cost of covered health-care benefits, gradually
decreasing to 6%5% in the year 20302040 and remaining at that level thereafter.
The effect of a 1% increase in the assumed health-care cost trend rates
for each future year on the aggregate of the service and interest cost
components of the total postretirement benefit cost would be $529,000$606,000 and
the effect on the accumulated postretirement benefit obligation for
health benefits would be $5,332,000. The$6,000,000. In 1994, the Company recorded
$27,357,000 of accumulated postretirement benefit obligation pursuant to
the acquisition of the GTE TelephoneTelecommunications Properties.
The components of the net periodic postretirement benefit cost for the
years ended December 31, 1994 and 1993 are as follows:
1994 1993
---- ----
($ in thousands)
Service cost $1,826 $ 845
Interest cost 3,418 1,710
Amortization of transition obligation 1,048 1,116
Other 313 0
------ ------
Net periodic postretirement
benefit cost $6,605 $3,671
====== ======
The following table sets forth the accrued postretirement benefit liability
recognized in the Company's balance sheets at December 31, 1994 and 1993:
1994 1993
---- ----
($ in thousands)
Accumulated postretirement benefit obligation:
Retirees ($14,946) ($13,919)
Fully eligible active plan participants (7,158) (2,749)
Other active plan participants (32,882) (7,328)
--------- --------
Total accumulated postretirement benefit
obligation (54,986) (23,996)
Unrecognized net (gain) loss (1,914) 1,563
Unrecognized prior service cost 2,932 (1,477)
Unrecognized transition obligation 18,676 21,201
--------- --------
Net accumulated postretirement benefit
obligation ($35,292) ($2,709)
========= ========
(14) Commitments and Contingencies:
------------------------------
The Company has budgeted expenditures for facilities in 19951996 of
approximately $262,000,000$340,000,000 and certain commitments have been entered into
in connection therewith.
On November 29,The Company conducts certain of its operations in leased premises and
also leases certain equipment and other assets pursuant to operating
leases. Terms of the leases, including purchase option and
obligations, renewals and maintenance costs, vary by lease.
Future minimum rental commitments for all long-term noncancellable
operating leases are as follows:
Year Amount
---- ------
1996 $9,762,000
1997 8,830,000
1998 8,196,000
1999 7,819,000
2000 7,890,000
2001 to 2020 30,215,000
-----------
Total $72,712,000
===========
Total rental expense included in the Company's results of operations
for the years ended December 31, 1995, 1994 and 1993 was $6,778,000,
$3,913,000 and $2,098,000, respectively.
A subsidiary of the Company was the guarantor of a $33,200,000
bank loan to Hungarian Telephone and ALLTEL
Corporation announcedCable Corp. ("HTCC"). In
addition, the signing of eight definitive agreements pursuant to
which CitizensCompany has agreed to acquire from ALLTEL,provide up to
$20,000,000 of additional financial support to HTCC. No amount has
been accrued for $292,000,000, certain
properties servicing approximately 110,000 local telephone access lines,the guarantee and certain cable television systems servicing approximately 7,000 subscribers.
The properties are located in eight states: Arizona, California, Nevada, New
Mexico, Oregon, Tennessee, Utah and West Virginia. The closings are expected
to occur state by state throughout 1995 and the first half of 1996.financial support commitments.