CITIZENS UTILITIES COMPANY
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE YEAR ENDED DECEMBER 31, 1994
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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, 19931994 Commission file number 0-1291
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CITIZENS UTILITIES COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 06-0619596
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
High Ridge Park
P.O. Box 3801
Stamford, Connecticut 06905
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 329-8800
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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
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(Title of each class) (Name of exchange on
which registered)
Securities registered pursuant to Section 12(g) of the Act:
NONE
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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
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State the aggregate market value of the voting stock held by nonaffiliates
of the registrant as of January 31, 1994: $3,044,777,331.1995: $2,808,214,408.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of January 31, 1994.1995.
Common Stock Series A 129,785,690152,700,792
Common Stock Series B 52,505,45760,137,151
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement for the registrant's 19941995 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. [X]
[ ]
PART I
Item 1. Description of Business
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(a) General Development of Business
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The "company""Company" includes Citizens Utilities Company and its subsidiaries
except where the context or statement indicates otherwise. The companyCompany was
incorporated in Delaware in 1935 to acquire the assets and business of a
predecessor public utility corporation. Since then, the companyCompany 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 companyCompany directly, or through subsidiaries, provides
telecommunications, electric distribution, natural gas transmission and
water/distribution and water and wastewater treatment services to more than
1,000,0001,400,000 customer connections in areas of sixteen states: Arizona, California,
Colorado, Hawaii, Idaho, Illinois, Indiana, Louisiana, Ohio, Oregon,
Pennsylvania, Tennessee, Utah, Vermont, Washington and West Virginia.eighteen states. Other than the
acquisitiontransfer to the Company of the GTE Telephone Properties discussed below,
there have not been any material changes in the business of the companyCompany
during the past fiscal year. The company'sCompany'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.
The
company is aggressively and enthusiastically integrating continuous improvement
into every aspect of its business with the goal of exceeding customer
expectations, ensuring employee satisfaction and increasing shareholder value.
In keeping with its commitment to continuous improvement the company has
centralized the administration of its Mohave County, Arizona operations, which
provide five different utility services, resulting in the ability to enhance
customer service and to realize operating cost efficiencies.
On May 19, 1993, the companyCompany and GTE Corporation announced the signing
of ten definitive agreements underpursuant to which the company would purchaseCompany agreed to acquire
from GTE Corporation, for $1.1 billion, certain telephone properties serving
approximately $1,100,000,000 in cash, 500,000 local telephone access lines in nine states ("the GTE
Telephone Properties"). These
transactions are consistent with the company's growth strategy, will enable the
company to achieve operating economies of scale and increase the company's
annual revenues to more than $1,000,000,000 once the operations are fully
integrated. These transactions require the approval of the Federal
Communications Commission and the regulatory commissions of the nine states in
which the properties are located. On December 31, 1993, 189,000189,123 access lines in Idaho,
Tennessee, Utah and West Virginia were transferred to the company.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 access lines areGTE Telephone Property is located in Oregon and is
expected to be transferred during 1994.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
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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 companyCompany for the last three fiscal
years.
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(c) Narrative Description of Business
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TelecommunicationsTELECOMMUNICATIONS
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The companyCompany provides telecommunications services in Arizona,
California, Idaho, Montana, New York, Oregon, Pennsylvania, Tennessee, Utah,
Washington and West Virginia to primarily residential customers served by
approximately 340,000more than 706,000 access lines as of December 31, 1993.1994. The companyCompany will
provide telecommunications services to customers served by approximately
311,000126,000 additional access lines in Arizona, California, Montana,Nevada, New YorkMexico,
Oregon, Tennessee, Utah and OregonWest Virginia and cable television service to
approximately 7,000 subscribers in California upon completion of the transfer to the
Company of the remaining GTE and ALLTEL Telephone Properties in 1994.Properties.
Telecommunications services consist of local exchange service, centrex
service, network access service, long distance service, interexchange
service, competitive access service, competitive local exchange service,
cellular service, cable television service and other related services. The
company'sCompany's telecommunications services and/or rates are subject to the
jurisdiction of the Federal Communications Commission and state regulatory
agencies.
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 focussed on
removing the regulatory and legal barriers to competitive entry into the
interLATA toll, intrastate intraLATA toll and local exchange markets;
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 compete in
these markets while protecting the public's interest and access to
telecommunication services. Simultaneously, many states are investigating or
have implemented procedures for LECs 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 of the State of California ("CPUC")
continues with its efforts to open the California telecommunications markets to
competition. The proceedings call for, among other things, authorizedissued an order, effective January 1, 1995, authorizing competition for
intrastate intraLATA switched toll services; alternative
regulatory frameworksservices, rebalancing local exchange and
toll rates, establishing more specific procedures for local exchange carriers; less regulation of radio
telephone utilitiescarriers
to enter into incentive regulatory frameworks ("IRF") and providing a
timetable for the elimination of the intrastate toll settlement pools for
mid-
sizedmid-sized local exchange carriers. In support of these CPUC efforts which preceded
its order, the company'sCompany's California telephone subsidiary (the "Subsidiary")
exited the intrastate toll settlement pools in 1991 and entered into a transition
contract with Pacific Bell. Pursuant to thethis contract, Pacific Bell has agreed
to continuepay the Subsidiary $38,000,000 annually through the end of 1994 to
make payments topartially offset the company
through December 31, 1994, bydecline in revenues which timeresulted from exiting the companytoll
settlement pools. The Subsidiary expected to have concludedconclude a general rate case
permitting the implementation of new higher rates. Inrebalanced, competitive rates effective
January 1, 1995 intended to protect the event a general rate case is concluded prior to December 31, 1994,Subsidiary's overall revenues, other
than the Pacific
Bell payments would be reduced. Such a reduction, if any, would not materially
affect 1994 consolidated revenues or earnings. The$38,000,000 Pacific Bell contract was
designedpayment, by enabling it to
partially offset the declines in revenues and earnings which
resulted from exiting the intrastate toll settlement pools. The Pacific Bell
contract payments, which are received in lieu of revenues from the intrastate
toll settlement pools, are included in their entiretyeffectively compete in the company's
telecommunications revenues and income from operations. The introduction of
competition for intrastate intraLATA switched toll services
oncemarket. Although this general rate case has not been finalized, the CPUC's
decision to authorize intrastate intraLATA switched toll competition is
implemented could have a negative impact onCPUC has
issued an interim rate order which became effective January 1, 1995 and
authorizes rebalanced competitive rates for the California subsidiary's revenues
and earnings; however, the subsidiary's properties should be least effected by
such competition since they are located in small- and medium-size towns and
communities and the CPUC's decision will allow the company to compete for
switched toll revenues and earnings in markets that it is not currently allowed
to serve. The CPUC's decision, originally
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expected in 1993, is now expected in 1994. Thus, the time available to the
company to completeSubsidiary. In its general
rate case, and implement new higher rates and an
Incentive Regulatory Framework ("IRF") after the CPUC decision and prior to the
expirationSubsidiary requested approval of the Pacific Bell contract has been shortened. In order to have a
new rate design in effect prior to the expiration of the Pacific Bell contract,
the company proceeded with its general rate case filing on December 15, 1993.
The delay in the CPUC's decision is likely to have a negative impact on the
California subsidiary's revenues and earnings, since this delay could result in
a period in which intrastate intraLATA competition for switched toll services is
implemented, Pacific Bell contract payments would no longer be received and the
IRF and increased rates from the general rate case would not yet be implemented,
or, alternatively, interim rate relief would not be approved. The Pacific Bell
contract payments represent 6% of the company's 1993 consolidated revenues and
4% of the company's 1993 consolidated revenues pro forma for the acquisition of
all the GTE Telephone Properties (see Note 3 of Notes to Consolidated Financial
Statements). The company has taken the following measures to offset this
negative impact on revenues and earnings and simultaneously position itself for
a more competitive telecommunications environment: the company has pending
proposals before the CPUC to enter new and existing markets (including the
intrastate intraLATA toll market as a toll provider and the market for broadband
services, including two way interactive video applications such as distance
learning), to enter into an IRF under which the company would be allowedallow it
to earn rates of returnup to 5% in excess of those allowed under traditional rate baseits authorized rate of return regulation and to rebalance its rate structure to be more competitive;return. It is expected
that the company has implemented state-of-the-art operational cost control systems
and force management systems which provide for the ongoing monitoring and
improvement of business processes and will continue to generate cost reductions
which, under anapproved IRF will benefit shareholders and customers;be effective when the company's
acquisition of the GTE Telephone Properties positions the company for the new
competitive environment since these properties are locatedfinal rate order is issued
later in small-and medium-
size towns and communities which should be least affected by competition and
will provide growth opportunities; and the company is also investing in
competitive telecommunications services such as competitive access, cellular and
cable operations.1995.
The companyCompany continues to invest in its subsidiary,Electric Lightwave,
Inc. ("ELI"), a competitive access provider in Arizona, California, Oregon, and Washington, with planned
expansion to California,
Utah and Arizona.Washington. Through ELI, the Company has been granted authority in
Washington to provide competitive local exchange service and has filed
applications to provide competitive local exchange service in Utah and
Oregon. The Federal Communications CommissionCompany has granted the company a permit to constructcompleted 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 service for the company's
telecommunications customers in Arizona. This project will allow the company to
interface with any carrier desiring equal access in the service area and make it
possible for the company to enter the long
distance market as a competitor.carriers and will provide the Company with the fiber optic capacity
to provide transport services to other carriers along this route. The companyCompany
has contributed $29,120,000invested approximately $110,300,000 in ELI through the year ended
December 31, 1993
towards the expansion of Electric Lightwave, Inc.'s operations.
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In January 1993, the company, through its1994.
The Company's Mohave Cellular subsidiary asholds a one-third interest and
is general managing partner began the operation of a cellular limited partnership in
Arizona. The partnership currently owns fiveoperating six
cell sites in Arizona.
In 1993,On September 22, 1994, a subsidiary of the company conducted tests to determine the viabilityCompany and a subsidiary of Personal
Communications Networks ("PCN") and is exploring means to participate by either
acquiring a spectrum on its own or as part of a partnership or consortium.
In March 1993, the company signed an agreement to purchase, through a
joint venture with
Century Communications Corp. ("Century"), entered into a joint venture
agreement for the assetspurpose of acquiring, for approximately $89 million, and
operating two cable television systems serving approximately 45,000 subscribers in California.southern California (the
"Systems"). Century is a cable television company of which Leonard Tow, the
Chairman and Chief Executive Officer of the Company, is Chairman, Chief
Executive Officer, Chief Financial Officer and a director. In addition,
Claire Tow, a director of the Company is Senior Vice President and a director
of Century and Robert Siff, a director of the Company is a director of
Century. The joint venture will payis governed by a purchase price of up to approximately $89,000,000
formanagement board on which the
systemsCompany and intends to enterCentury are equally represented. The joint venture has entered
into an agreement with Century pursuant to which a subsidiary of Century (the "Manager")
will manage the systems.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
systems serving approximately 26,500 subscribers. The purchase isof the second
system, serving approximately 19,200 subscribers, remains subject to
regulatory approval for the transfer of licenseslicenses.
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. 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 be consummatedclose in 1994.1995.
The GTE Telephone Properties acquired and to be acquired increasesand the company'sALLTEL
Telephone Properties to be acquired increase the Company's number of local
exchange access lines serving customers byto approximately 500,000.832,000. To bestbetter
manage these new businesses, as well as the growth in its existingtelecommunications properties, the companyCompany is in the process of consolidating its
telecommunications operations support service
functionsservices and establishing a centralized
telecommunications infrastructure to carry outmanage these functions.
Natural Gasservices. In this regard,
the Company has entered into an agreement with ALLTEL's information services
subsidiary, ALLTEL Information Services, Inc. ("AISI"), pursuant to which
AISI will provide certain operational support systems in a service bureau
environment for all of the Company's local telephone exchange operations;
such support systems include customer billing and customer service 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 significantly the Company's management and operation 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 operating support
systems.
NATURAL GAS
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Operating divisions of the companyCompany provide natural gas transmission and
distribution services to primarily residential commercial and industrial customers in Arizona, Colorado
and Louisiana. TotalThe total number of natural gas customers served as of December
31, 19931994 was approximately 350,000.356,000. The provision of services and/or rates
charged are subject to the jurisdiction of federal and state regulatory
agencies. The companyCompany purchases all needed natural gas, supplies, 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 divisionsector 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 electricity 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.
Numerous opportunities for expansion are availableThe Company continues to the company in
connection withexpand its northern Arizona natural gas
transmission and distribution system
build out program. In addition, gas powered cogeneration opportunities with
industrialservice area. The service area has grown from
63,000 customers have emergedprior to expansion to 77,000 customers as a result of the relatively high price of
electricity. Natural gas heat pumps that also cool would generate large demand
during the Summer months when natural gas consumption is historically low.
On December 22, 1993, the company acquired Natural Gas Company of
Louisiana ("NGL") by merger. In the merger, NGL's 59,980 outstanding shares were
converted into 568,748 shares of the company's Series B common stock, for an
aggregate value of $10,522,000. NGL is a local gas distribution company serving
15,500 customers in Louisiana. NGL will operate as part of the company's
Louisiana gas division.
Electric31,
1994.
ELECTRIC
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Operating divisions of the companyCompany provide electric distribution
services to approximately 98,000primarily residential commercial and industrial customers in Arizona, Hawaii and VermontVermont.
Total number of electric customers served as of December 31, 1993.1994 was
approximately 105,000. The provision of services and/or rates charged are
subject to the jurisdiction of federal and state regulatory agencies. The
companyCompany purchases over 80% of needed electric supplies,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'sCompany's electric segmentsector does not
experience material seasonal fluctuations. In response to regulatory
initiatives, the company'sCompany's electric divisions are allsector 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'sCompany's Kauai Electric Division ("KED") has restored all
transmission and distribution lines, poles and equipment that were damaged
as a result of Hurricane Iniki in September 1992. As of December 31, 1993, all
customers whose facilities were capable of receiving service (approximately
24,300 of the KED's 24,500 pre-hurricane customers) had been reconnected. Sales
volume has been slowly recovering as construction throughout the island
continues on residential homes, commercial establishments and hotels. The Hawaii Public Utilities
Commission ("HPUC") approved a stipulation on December 9, 1992 specifyingwhich
addresses the regulatory treatment of certain
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restoration of KED facilities. As part of this stipulation, KED agreed to
defer its next general rate increase application until 1994 with rates
becoming effective no earlier than January 1, 1995 (the "deferred rate
case"). Under the terms of this stipulation, KED is authorized 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 to beand recovered in the deferred rate case. Restoration
costs plus associated AFUDC earnings not ultimately allowed in rate base
should be recovered by the companyCompany 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 companydeferred 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 participatingcurrently expected later in research and development of electric
powered vehicles which could provide new opportunities1995.
Prior to expand its electric
business. At1992, the same time, the company is taking a leadership role toward
enhancing and protecting the environment by sponsoring a study to protect
endangered species of birds, employment of new technology to reduce emissions
from generating facilities at the company's Kauai electric division and
conducting extensive studies at the company's Vermont electric division to
protect and preserve waterways, while balancing the need for hydrogeneration.
The United States Environmental Protection Agency
("EPA") named the companyCompany 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 divisions'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'sCompany's remaining financial liability is estimated to be
less than $141,000.
During 1993, the company acquired Franklin Electric Light Company,
Incorporated whose operations are contiguous with its Vermont electric division.
The company issued 51,500 shares of Series B common stock to complete the
acquisition. This acquisition will allow for greater economies of scale and will
result in more efficient customer service.
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Water/Wastewaterapproximately $140,000.
WATER/WASTEWATER
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The companyCompany provided water and/or wastewater treatment services to
approximately 254,000270,000 primarily residential customer connections in Arizona,
California, Illinois, Indiana, Ohio and Pennsylvania as of December 31, 1993.1994.
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'sCompany'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 moniesand/or plant to
the companyCompany that are later refunded by the Company in part as developers add
new customers and revenues are added in their developments.
Water/The Company's water/wastewater treatment public utility property of the company, from time to
time, has beenproperties
can become subjected to condemnation proceedings initiated by municipalities
or utility districts seeking to acquire and take control of the operation of
such property. During 1992, one operation in Illinois became subject to such
proceeding; thisproceeding. This condemnation is being contested by the company.Company.
On August 31, 1994, RHC, Inc. ("Metro Utility Co."), an operator of
water 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.
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'sCompany's Illinois subsidiary with respect to
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Pollutant Discharge Elimination System permit requirements. The companyCompany has
negotiated a proposed settlement of this action. Such settlement is unablenow
undergoing the approval process within the EPA; once it is approved, it will
be submitted to estimate exposure at this time, butthe District Court for final approval. Under the settlement,
the Company will pay a fine of $490,000 and it will also make certain plant
improvements with an estimated cost of $2,200,000. These improvements are
presently under design. Construction is expected to begin in 1995 and be
completed before the end of 1996. The improvements are required in order to
comply with new discharge limits reached under the settlement. 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 Illinois
subsidiary has meritorious defenses. The company believes the riskcost of material
loss from this action is remote.these improvements will be recovered
through customer rates.
General
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The company'sCompany's public utility operations are conducted primarily in
small-
andsmall-and medium-size towns and communities. No material part of the
company'sCompany'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. As a result of its
diversification, the companyCompany 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
companyCompany accounting for more than 18%13% of its 19931994 revenues.
The companyCompany is subject to regulation by the respective state Public
Utility Commissionsregulatory
agencies and federal regulatory agencies. The companyCompany is not subject to the
Public Utility Holding Company Act. Order backlog is not a significant
consideration in the company'sCompany's business, and the companyCompany has no contracts or
subcontracts which may be subject to renegotiation of profits or termination
at the election of the federal government. The companyCompany holds franchises withfrom
local governmental bodies, which vary in duration. The companyCompany also holds
certificates of convenience and necessity granted by various state
commissions which are generally of indefinite duration. The companyCompany has no
special working capital practices. The company'sCompany's research and development
activities are not material. There are no patents, trademarks, licenses or
concessions held by the companyCompany that are material.
The company employed 2,917 full time and 50 part timeCompany had 4,294 employees at December 31, 1993 (includes employees of the GTE Telephone Properties acquired
December 31, 1993).1994.
(d) Financial Information about Foreign and Domestic Operations and ---------------------------------------------------------------
Export
Sales
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The companyCompany does not have any material foreign operations or material export
sales.
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Item 2. Description of Property
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The administrative offices of the companyCompany are located at High
Ridge Park, Stamford, Connecticut, 06905 and are leased. The companyCompany 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 asof which are necessary to provide services at the locations
listed below.
State Service(s) Provided
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State Service(s) Provided
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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
Ohio Water, Wastewater
Oregon Telecommunications
Montana Telecommunications
New York Telecommunications
Pennsylvania Telecommunications, Water
Tennessee Telecommunications
Utah Telecommunications
Vermont Electric
Washington Telecommunications
West Virginia Telecommunications
* Certain telecommunications properties are subject to a mortgage deed.deed pursuant to Rural
Electrification Administration and Rural Telephone Bank borrowings.
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Item 3. Legal Proceedings
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In September 1992, the United States Environmental Protection
Agency filed a complaint with the United States District Court for the
Northern District of Illinois relating to alleged violations by the company'sCompany's
Illinois subsidiary with respect to National Pollutant Discharge Elimination
System permit requirements. The companyCompany has negotiated a proposed settlement
of this action. Such settlement is unablenow undergoing the approval process within
the Environmental Protection Agency; once it is approved, it will be
submitted to estimate exposure at this time,
butthe District Court for final approval. Under the settlement, the
Company will pay a fine of $490,000 and it will also make certain plant
improvements with an estimated cost of $2,200,000. These improvements are
presently under design. Construction is expected to begin in 1995 and be
completed before the end of 1996. The improvements are required in order to
comply with new discharge limits reached under the settlement. 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 Illinois subsidiary has meritorious defenses.cost of these improvements will be recovered
through customer rates.
On February 19, 1993, the companyCompany 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,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'sCompany's motion to dismiss this action was granted and the
complaint was dismissed by an opinion and order of the court.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.
In June 1993, several stockholders commenced purported derivative
actions in the Delaware Court of Chancery against the company'sCompany'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'sCompany'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 companyCompany and Century Communications Corp.
("Century") benefitted Century to the detriment of the company. Certain of these stockholders have also asserted individual and
purported class claims based upon the company's alleged failure to disclose
facts relating to the Chairman's compensation and certain stock options granted
to members of the company's Board of Directors and the allegedly improper
accounting treatment with respect to Citizens' investment in Centennial Cellular
Corp. ("Centennial"). The company's Board of Directors has moved to dismiss the
complaints 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 November 1993, another purported derivative action was filed in the
Court of Chancery against the company's Board of Directors and Century.
Plaintiffs challenge both the Chairman's compensation and the merger which
resulted in the creation of Centennial.
Certain of the above actions, commenced in June 1993, were consolidated
(the "Consolidated Action").Company. In February
1994, a Memorandummemorandum of Understandingunderstanding was executed among counsel for several of the
stockholders in the Consolidated Action and counsel for the company'sCompany's Board
of Directors. The parties tomemorandum of understanding contemplates that the Memorandum of Understandingparties
will attempt to agree upon execute and present to
the Delaware Court of Chanceryexecute a stipulation of settlement resolving
all of the claims in the Consolidated Action. The Memorandum of Understanding sets forth
the contemplated terms of the stipulation of settlement. Consummation of the proposed
settlement will be subject to: (a) the drafting and execution of a
stipulation of settlement; (b) 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
-10-
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'sCompany's Board of Directors
arising out of the allegations in the Consolidated Action. It is also
contemplated that plaintiffs'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 it is
contemplated that the company will pay, on behalf ofCompany expects to recover the defendant directors,
the amount of
fees and expenses, if any, to be awarded by the Delaware Court of Chancery
to plaintiffs' counsel.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 companyCompany ("Berlin") commenced a
purported class action in the United States District Court for the District
of Delaware against the companyCompany and the company'sCompany's Board of Directors. The
stockholder's complaint, amended in July 1993, allegesalleged that the proxy
statements disseminated by the companyCompany from 1990 to 1993 failed to disclose
material information regarding, among other things, the Chairman's
compensation and certain purported related-
partyrelated-party transactions and thereby
violated federal and state disclosure requirements. The relief sought
includesincluded a declaration that the results of the 1993 Annual Meeting of the
stockholders are null and void, a declaration that the Chairman's employment agreementEmployment
Agreement is invalid and unspecified damages. Defendants have filed aIn September 1994, the District
Court granted in part and denied in part defendants' motion to dismiss this action. Thethe
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 companyproposed
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 1993.
1994.
-11-
Executive Officers
- ------------------
Information as to Executive Officers of the companyCompany as of January
31, 1994,1995, follows:
Name Age Current Position and Office
---- --- ---------------------------
Leonard Tow 65 Chairman of the Board, Chief Executive Officer
and Chief Financial Officer
Daryl A. Ferguson 55 President and Chief Operating Officer
Robert J. DeSantis 38 Vice President and Treasurer
Charles R. Aldrich 53 Vice President, Gas Operations
James P. Avery 37 Vice President, Electric Operations
Richard A. Faust,Jr. 47 Vice President, Mohave County, Arizona
Operations
J. Michael Love 42 Vice President, Corporate Planning
Robert L. O'Brien 51 Vice President, Regulatory Affairs
Donald K. Roberton 52 Vice President, Telecommunications
Livingston E. Ross 45 Vice President and Controller
Ronald E. Walsh 54 Vice President, Water and Wastewater
Operations
Name Age Current Position and Office
- ---------- --- ---------------------------
Leonard Tow 66 Chairman of the Board, Chief
Executive Officer and Chief
Financial Officer
Daryl A. Ferguson 56 President and Chief Operating
Officer
Robert J. DeSantis 39 Vice President, Treasurer and
Assistant Secretary
James P. Avery 38 Vice President, Energy
Richard A. Faust,Jr. 48 Vice President, Mohave County and
Assistant Secretary
J. Michael Love 43 Vice President, Corporate
Planning
Robert L. O'Brien 52 Vice President, Regulatory
Affairs
Donald K. Roberton 53 Vice President,
Telecommunications
Livingston E. Ross 46 Vice President and Controller
Ronald E. Walsh 55 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 CorporationCorp. 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.
-12-
CHARLES R. ALDRICH has been associated with the Registrant1991 and Assistant Secretary since December
1990 as Vice President of the Registrant's Gas Operations. He was associated
with Louisiana General Services, Inc. from 1971 until that company was merged
with the Registrant in December 1990. He served as President of LGS Pipeline,
Inc. from January 1983 through June 1988 and President of Louisiana Gas Service
Company from July 1988 through December 1990.May
1993.
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 Acting Vice
President, Electric from December 1990 through April 1991.May 1994. He has been Vice
President, Electric OperationsEnergy since May 1991.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 companyCompany 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 Operations(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 a 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.
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 and Water/Wastewater Operations since August 1992.
-13-
PART II
-------
Item 5. Market for the Registrant's Common Stock and Related Stockholder
----------------------------------------------------------------
Matters
-----------------------------------------------------------------------
PRICE RANGE OF COMMON STOCK
The company'sCompany'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 arehave been adjusted retroactively for intervening stock
dividends, the July 24,
1992 3-for-2 stock split 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 2nd 3rd 4th
Quarter Quarter Quarter Quarter
-------------- -------------- ------------- ---------------
High Low High Low High Low High Low
-------------- -------------- -------------- ---------------
1993:
----
Series A 17 5/1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ------------ ------------ -----------
High Low High Low High Low High Low
------------ ------------ ------------ ------------
1994:
- -----
Series A 17 1/8 14 15 7/8 13 1/4 14 1/2 13 1/4 13 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 18 3/8 15 7/8 18 1/8 13 1/4 19 7/8 16 1/8
Series B 17 5/8 13 1/2 18 3/8 15 3/4 18 1/8 13 1/4 19 3/4 16 1/8
1992:
----
Series A 12 3/8 10 1/2 12 1/8 11 13 5/8 10 3/4 14 1/2 12
Series B 12 1/8 10 3/8 12 1/8 10 5/8 13 5/8 10 5/8 14 1/2 12
The December 31, 199330, 1994 prices were: Series A $18.125$12.875 high, $17.875$12.50 low;
Series B $18.125$12.875 high, $17.875$12.625 low.
As of January 31, 1994,1995, the approximate number of record security
holders of the company'sCompany's Common Stock Series A and Series B Common Stock was 37,715.43,989. This
information was obtained from the company'sCompany's transfer agent.
DIVIDENDS
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. Quarterly stock dividends declared and issued on both Series A
and Series B Common Stock were 1.6% for the first quarter of 1992, 1.5% for the
second quarter of 1992 and 1.2% for each of the third and fourth quarters of
1992. An annual cash dividend equivalent
rate of $0.745.733 and $0.675.691 per share (adjusted for subsequentall stock splits and stock
dividends paid subsequent to all dividends declared through December 31, 1994
and stock splits)rounded to the nearest 1/8th) was considered by the company'sCompany's Board of
Directors in establishing the Series A and Series B stock dividends during
19931994 and 1992,1993, respectively. (See Note 7 of Notes to Consolidated Financial
Statements.)
-14-
Item 6. Selected Financial Data (In thousands, except for per-share -----------------------------------------------------------
amounts)
-------
Year Ended December 31,
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
Operating revenues $ 619,392 $ 580,464 $ 545,025 $ 528,251 $ 483,582
Income from continuing
operations $ 125,630 $ 115,013 $ 112,354 $ 105,624 $ 97,768
Earnings per-share of common
stock from continuing
operations:/--------------------------------------------------------------------
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
Stock dividends
declared on Common
Stock Series A and
Series B(2) 5.04% 4.37% 5.61% 7.93% 6.54%
Total assets $3,576,566 $2,627,118 $1,887,981 $1,721,452 $1,491,199
Long-term debt $ 994,189 $ 547,673 $ 522,699 $ 484,021 $ 412,348
(1)/
Series A $ 0.71 $ 0.66 $ 0.65 $ 0.60 $ 0.53
Series B $ 0.71 $ 0.66 $ 0.65 $ 0.60 $ 0.53
Dividends declared on common
stock:
Series A in stock/(2)/ 4.37% 5.61% 7.93% 6.54% 3.84%
Series B
In stock/(2)/ 4.37% 5.61% 7.93% 6.54% --
In cash/(3)/ $ -- $ -- $ -- $ 0.32 $ 1.32
Total assets $2,627,118 $1,887,981 $1,721,452 $1,491,199 $1,365,534
Long-term debt $ 547,673 $ 522,699 $ 484,021 $ 412,348 $ 379,729
/(1)/ Adjusted for interveningsubsequent stock dividends and splits; no adjustment has been
made for the company's 1.1%Company's 1.5% first quarter 19941995 stock dividend because
the effect is immaterial.
/(2)/(2) Annual rate of quarterly stock dividends compounded. /(3)/ The 1990 amount represents cash dividend paymentsCash dividends of
$.32 per share were paid by Louisiana General Services, Inc. in 1990
prior to its merger into the companyCompany on December 4, 1990.
The 1989 amount represents cash dividend payments by Louisiana General Services,
Inc. prior to its merger into the company in 1990 and payments by the company.
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
------------------------------------------------------------------------------------
(a) Liquidity and Capital Resources
-------------------------------
The company'sIn 1994, the Company's primary sourcesources of funds waswere from operations.operations
and borrowings. Funds requisitioned from the 1994, 1993, 1992 and 1991 Series
Industrial Development Revenue Bond construction fund trust accounts and funds from advances for specific
capital expenditures from parties desiring utility service were
used to pay for the construction of utility plant. Funds from the issuance of commercial paper
were used to repay $11,489,000 of higher-coupon first mortgage bonds on October
15, 1993. Commercial paper notes
payable in the amount of $438,953,000$703,000,000 were outstanding as of December 31,
1993,1994, of which $380,000,000$515,200,000 is 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 acquired on December
31, 1993. The $380,000,000 of commercial paperProperties; this debt is expected to be
repaid from maturing temporary investments, funds from operations and
proceeds from the planned issuance of equity securities in 1994.securities.
On March 10, 1993,April 26, 1994, the company arranged for the issuanceCompany issued $175,000,000 of
-15-
$42,560,000 of 1993 Series Industrial Development Revenue Bonds. The bonds were
issued as money market bondsdebentures at
par with an initial interest rate of 2.25%7.6% and a maturity date of June 1, 2006. On
October 6, 1994, the Company issued $100,000,000 of debentures at par with an
interest rate of 7.68% 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,
Citizens Utilities Rural Telephone Company, Inc., a subsidiary of the
Company, under its Rural Telephone Bank loan contract, was advanced
$2,394,000 and $3,848,000, respectively. These funds bear interest at a rate
of 5.3% and have an ultimate maturity date of December 1,31, 2027. On November 16, 1993,September
28, 1994, the companyCompany arranged for the composite issuance of $25,600,000$14,640,000 of
19931994 Series Industrial Development Revenue Bonds; the bonds were issued as
Demand Purchase Bonds bearingdemand purchase bonds with an interest
at a composite rate of approximately 5.8%6.6% and mature on November 15, 2028.May 1,
2029.
On December 15, 1993,August 16, 1994, the company arranged for the issuance of $35,700,000 of 1993
Series Special Purpose Revenue Bonds; these bonds were issued as Residual
Interest Bonds/Select Auction Variable Rate Securities and bear interest at a
fixed annual interest rate of 5.6% and mature on December 15, 2023. The company
has received approval from the Federal Energy Regulatory Commission to issue up
to $1,250,000,000 in various forms of additional securities over the next two
years to fund the acquisition of the GTE Telephone Properties and for other
corporate purposes. The company hasCompany filed a shelf-registration statement
with the Securities and Exchange Commission to offer, from time to time,register up to $1,000,000,000 in securities1,600,000
shares of common stock Series B to fund acquisitions, from which 504,807
shares were issued on August 31, 1994 to fund the acquisition of Metro
Utility Co. and 622,500 restricted shares, previously issued for the GTE Telephone
Properties1993
acquisitions of Natural Gas Company of Louisiana and for other corporate purposes.Franklin Electric Light
Company, Incorporated, were registered. 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.
The companyCompany 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'sCompany's liquidity, the companyCompany experienced a decrease in its working
capital at December 31, 1993.1994. The decrease is primarily due to the issuance
of short-term debt to temporarily and partially fund the acquisition of the
GTE Telephone Properties acquired on
December 31, 1993.Properties.
Capital expenditures for the years 1994, 1993 and 1992 were
$311,420,000, $182,480,000 and 1991,$148,027,000, respectively,
were $182,480,000, $148,027,000 and $115,884,000, and for 19941995 are
expected to be approximately $280,000,000.$262,000,000. These expenditures were, and in
19941995 will be, for utility and related facilities and properties, including
the GTE Telephone Properties.Properties acquired.
The companyCompany anticipates that the funds necessary for its 19941995 capital
expenditures will be provided from operations; from 1991, 19921993 and 19931994
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 financingfinancings at appropriate times; and, if deemed
advantageous, from short-term borrowings under bank credit lines.facilities. The
companyCompany has committed lines of credit with banks under which it may borrow
up to $1,200,000,000.
In March 1993,During 1994, the company signed an agreement to purchase, through a
joint venture with Century Communications Corp. ("Century"), the assets of two
cable television systems serving approximately 45,000 subscribersCompany was authorized net increases in California.
The joint venture will pay a purchase price of up to approximately $89,000,000
for the systems and intends to enter into an agreement with Century pursuant to
which Century will manage the systems. The purchase is subject to regulatory
approval for the transfer of licenses and is expected to be consummated in 1994.
On May 19, 1993, the company and GTE Corporation announced the signing
of ten definitive agreements under which the company would purchase from GTE
Corporation, for approximately $1,100,000,000 in cash, 500,000 local telephone
access lines in nine states ("the GTE
-16-
Telephone Properties"). These transactions are consistent with the company's
growth strategy, will enable the company to achieve operating economies of
scale, and will increase the company's annual
revenues to more than
$1,000,000,000 once the operations are fully integrated. These transactions
require the approval of the Federal Communications Commissionfor properties in Arizona, California, Pennsylvania and theVermont
totaling $7,206,000. The Company has requests for increases pending before
regulatory commissions of the nine states in which the properties are located. On December
31, 1993, 189,000 access lines in Idaho, Tennessee, UtahArizona, California, Hawaii and West Virginia were
transferred to the company. The remaining access lines are expected to be
transferred during 1994.
During 1993, the company acquired Franklin Electric Light Company,
Incorporated which operations are contiguous with its Vermont electric division.
The company issued 51,500 shares of Series B common stock to complete the
acquisition. This acquisition will allow for greater economies of scale and will
result in more efficient customer service.
On December 22, 1993, the company acquired Natural Gas Company of
Louisiana ("NGL") by merger. In the merger, NGL's 59,980 outstanding shares
were converted into 568,748 shares of the company's Series B common stock, for
an aggregate value of $10,522,000. NGL is a local gas distribution company
serving 15,500 customers in Louisiana, and will operate as part of the company's
Louisiana gas division.Ohio.
Regulatory Matters
- ------------------
Pursuant to the 1972 Clean Water Act, as amended, National Pollutant
Discharge Elimination System ("NPDES") permits are required for wastewater
treatment facilities which discharge to surface waters.
In September 1992, the United States Environmental Protection Agency
("EPA") filed a complaint with the United States District Court for the
Northern District of Illinois relating to alleged violations by the company'sCompany's
Illinois subsidiary with respect to NPDESNational Pollutant Discharge Elimination
System permit requirements. The companyCompany has negotiated a proposed settlement
of this action. Such settlement is unablenow undergoing the approval process within
the EPA; once it is approved, it will be submitted to estimate exposure at this time,
butthe District Court for
final approval. Under the settlement, the Company will pay a fine of $490,000
and it will also make certain plant improvements with an estimated cost of
$2,200,000. These improvements are presently under design. Construction is
expected to begin in 1995 and be completed before the end of 1996. The
improvements are required in order to comply with new discharge limits
reached under the settlement. 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 Illinois subsidiary has meritorious defenses. The company
believes the riskcost
of material loss from this action is remote.these improvements will be recovered through customer rates.
On February 19, 1993, the companyCompany 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,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'sCompany's motion to dismiss this action was granted and the
complaint was dismissed by an opinion and order of the court.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 companyCompany 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'sCompany'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'sCompany's remaining financial liability is estimated to be
less than $141,000.
-17-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;
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 effectively in
these markets while protecting the public's interest and access to
telecommunication services. Simultaneously, many states are investigating or
have implemented procedures for LECs 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 of the State of California ("CPUC")
continues with its efforts to open the California telecommunications markets to
competition. The proceedings call for, among other things, authorizedissued an order, effective January 1, 1995, authorizing competition for
intrastate intraLATA switched toll services; alternative
regulatory frameworksservices, rebalancing local exchange and
toll rates, establishing more specific procedures for local exchange carriers; less regulation of radio
telephone utilities;carriers
to enter into incentive regulatory frameworks ("IRF") and providing a
timetable for the elimination of the intrastate toll settlement pools for
mid-
sizedmid-sized local exchange carriers. In support of these CPUC efforts which preceded
its order, the company'sCompany's California telephone subsidiary (the "Subsidiary")
exited the intrastate toll settlement pools in 1991 and entered into a transition
contract with Pacific Bell. Pursuant to thethis contract, Pacific Bell has agreed
to continuepay the Subsidiary $38,000,000 annually through the end of 1994 to
make payments topartially offset the company
through December 31, 1994, bydecline in revenues which timeresulted from exiting the companytoll
settlement pools. The Subsidiary expected to have concludedconclude a general rate case
permitting the implementation of new higher rates. Inrebalanced, competitive rates effective
January 1, 1995 intended to protect the event a general rate case is concluded prior to December 31, 1994,Subsidiary's overall revenues, other
than the Pacific
Bell payments would be reduced. Such a reduction, if any, would not materially
affect 1994 consolidated revenues or earnings. The$38,000,000 Pacific Bell contract was
designedpayment, by enabling it to
partially offset the declines in revenues and earnings which
resulted from exiting the intrastate toll settlement pools. The Pacific Bell
contract payments, which are received in lieu of revenues from the intrastate
toll settlement pools, are included in their entiretycompete effectively in the company's
telecommunications revenues and income from operations. The introduction of
competition for intrastate intraLATA switched toll services
oncemarket. Although this general rate case has not been finalized, the CPUC's
decision to authorize intrastate intraLATA switched toll competition is
implemented, could have a negative impact onCPUC has
issued an interim rate order which became effective January 1, 1995 and
authorizes rebalanced competitive rates for the California subsidiary's
revenues and earnings; however, the subsidiary's properties should be least
affected by such competition since they are located in small-and medium-size
towns and communities and the CPUC's decision will allow the company to compete
for switched toll revenues and earnings in markets that it is not currently
allowed to serve. The CPUC's decision, originally expected in 1993, is now
expected in 1994. Thus, the time available to the company to completeSubsidiary. In its general
rate case, and implement new higher rates and an Incentive Regulatory
Framework ("IRF") after the CPUC decision and prior to the expirationSubsidiary requested approval of the
Pacific Bell contract has been shortened. In order to have a new rate design in
effect prior to the expiration of the Pacific Bell contract, the company
proceeded with its general rate case filing on December 15, 1993. The delay in
the CPUC's decision is likely to have a negative impact on the California
subsidiary's revenues and earnings, since this delay could result in a period in
which intrastate intraLATA competition for switched toll services is
implemented, Pacific Bell contract payments would no longer be received and the
IRF and increased rates from the general rate case would not yet be implemented,
or, alternatively, interim rate relief would not be approved. The Pacific Bell
contract payments represent 6% of the company's 1993 consolidated revenues and
4% of the company's 1993 consolidated revenues pro forma for the acquisition of
the GTE Telephone Properties (see Note 3 of Notes to Consolidated Financial
Statements). The company has taken the following measures to offset this
negative impact on revenues and earnings and simultaneously position itself for
a more competitive telecommunications environment: the company has pending
-18-
proposals before the CPUC to enter new and existing markets (including the
intrastate intraLATA toll market as a toll provider and the market for
broadband services, including two-way interactive video applications such as
distance learning), to enter into an IRF under which the company would be
allowedallow it
to earn rates of returnup to 5% in excess of those allowed under traditional
rate baseits authorized rate of return regulation and to rebalance its rate structure to be
more competitive;return. It is expected
that the company has implemented state-of-the-art operational cost
control systems and force management systems which provide for the ongoing
monitoring and improvement of business processes and will continue to generate
cost reductions which, under anapproved IRF will benefit shareholdersbe effective when the final rate order is issued
later in 1995.
The Company continues to invest in its subsidiary, Electric Lightwave,
Inc. ("ELI"), a competitive access provider in Arizona, California, Oregon,
Utah and customers;Washington. Through ELI, the company's acquisitionCompany has been granted authority in
Washington to provide competitive local exchange service and has filed
applications to provide competitive local exchange service in Utah and
Oregon. The Company has completed construction of a fiber-optic route from
Las Vegas, Nevada to Phoenix, Arizona which will provide the GTE Telephone Properties positions the company
for the new competitive environment since these properties are locatedCompany's other
telecommunications operations in small-
and medium-size towns and communities which should be least affected by
competitionArizona centralized equal access to long
distance carriers and will provide growth opportunities;the Company with the fiber optic capacity
to provide transport services to other carriers along this route. The Company
has invested approximately $110,300,000 in ELI through 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, the companyCompany 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. The Company also intends to provide intrastate intraLATA and
interLATA toll services in Idaho, Tennessee and Utah where such authority is
also
investingnot required. Upon receipt of required authority, the Company intends to
provide authorized intrastate toll services in competitive telecommunicationsArizona, Montana, Nevada,
Oregon and Washington. The Company has authority and intends to provide
interstate toll services such as competitive access,
cellular and cable operations.initially in its local telephone service areas.
New Accounting Pronouncements
- -----------------------------
The Financial Accounting Standards Board ("FASB") has issuedEffective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 112, "Employers' Accounting for Postemployment
Benefits," effectiveBenefits" and SFAS 115, "Accounting for fiscal years beginning after December
15, 1993.Certain Investments in Debt and
Equity Securities". The Company applied the provisions of these accounting
standards prospectively. Adoption of SFAS No. 112 will require accrual of the expected cost of
providing benefits, if any, to former or inactive employees after termination of
employment for reasons other than retirement. Adoption of SFAS No. 112 willdid not have a material effect
on the Consolidated Financial Statements.
The FASB has issued SFAS No. 115 "Accounting for Certain Investments in
Debt and Equity Securities," effective for fiscal years beginning after December
15, 1993. Adoption of SFAS No. 115 will require Fair Valuerequires fair value reporting for certain investments in debt
and equity securities.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, the Financial Accounting Standards Board issued SFAS
119, "Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments", effective for fiscal years ending after December 15,
1994. The companyCompany has only limited involvement with gas futures contracts and
does not expect
the adoption of SFAS No. 115use these instruments for investment or trading purposes. Gas
futures contracts are used on a very limited and select basis to have a material impact on the Consolidated
Statements of Income, but does expect theremanage
well-defined commodity price risks associated with Company commitments to
be an increasedeliver natural gas to investments on
the Consolidated Balance Sheets with an accompanying increase in shareholders'
equity.customers at fixed prices. The Company's exposure
under such contracts at December 31, 1994 was immaterial.
(b) Results of Operations
---------------------
OperatingTelecommunications generated revenues forof $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 years endedGTE Telephone Properties acquired on
December 31, 1993, June 30, 1994 and 1992
increased compared toNovember 30, 1994. Operating the like prior year periods primarily due to increased
natural gas, electric, water/wastewater revenues.GTE
Telephone Properties during 1994 generated revenues of $261,700,000.
Telecommunications revenues decreased 5% in 1993, and 6% in 1992, primarily due to regulatory
changes in the state of California, as discussed in the "Regulatory Matters"
section.California. The decrease in 1993 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.
The acquisition of the GTE
Telephone Properties is expected to increase annual consolidated revenues to
more than $1,000,000,000 once the
-19-
operations are fully integrated. Natural gas revenues decreased $3,000,000 in 1994 due to a decrease in
transportation revenues. This decrease was partially offset by increased
industrial gas revenues and increased residential and commercial revenues
from the Company's Northern Arizona Gas operations. Natural gas revenues in
1993 increased 12% in 1993over 1992 primarily due to $7,089,000$7,100,000 of revenues from
Natural Gas Company of Louisiana ("NGL"), which was acquired by the companyCompany
in 1993; $3,624,000$3,600,000 from increased
average revenue per MCF of gas sold to industrial
customers; $5,229,000$5,200,000 from increased average revenue per MCF of gas sold to
residential and commercial customerscustomers; and $9,322,000$9,300,000 from pass-ons to
residential and commercial customers of increases in the wholesale costs of
commodities purchased. These increases
were partially offset by decreased consumption due to warmer weather conditions.
Pass-ons are required under tariff provisions and do
not affect net income.
Natural gasThe Company's electric sector revenues increased 25% in6% over 1993, and 1993
revenues increased 13% over 1992 primarily due to $29,333,000increased consumption of
revenues from northern Arizona gas properties acquired$11,900,000 in 1994 and $4,700,000 in 1993; these increases were primarily
as a result of customer growth.
Revenues earned by the company on
December 3, 1991, $5,430,000 fromCompany's water/wastewater treatment sector
increased rates and $11,463,000 from pass-ons
to residential and commercial customers of increases11% or $7,000,000 in the wholesale costs of
commodities purchased. These increases were partially offset by decreased
consumption due to warmer weather conditions. Electric revenues increased 13% in
19931994. This increase is primarily due to
$10,245,000 of increased unitfavorable rate increases which contributed $4,800,000 in water revenues and
$4,737,000 from
customer consumption. Electric revenues increased 5%of $2,800,000 generated by Metro Utility Co. acquired by merger in
1992 primarily because
of increased consumption resulting from increased customer usage due to warmer
weather conditions.August 1994. Water/wastewaterWastewater treatment sector revenues increased 10% in 1993
primarily due to $2,826,000$2,800,000 of rate increases; $2,018,000increases, $2,000,000 from customer growth and increased
customer usage; as well as $1,256,000usage and $1,300,000 of revenues received from a water/wastewaterwater property
acquiredacquisition in December 1992. Water/wastewater revenues
increased 3% in 1992 primarily due to rate increases.
Electric energy and fuel oil purchased costs increased 4% in 1994 and
9% in 1993 and 7%
in 1992.1993. Electric energy purchased costs for 1994 totaled $72,400,000, a
6% increase over the 1993 totaled $68,224,000amount of $68,200,000, which was a 6% increase over
the 1992 amount of $64,077,000, which was a 15% increase over the
1991 cost of $55,480,000.$64,100,000. The increased cost of electricity purchased in
19931994 and 19921993 was primarily due to increased customer demand anddemand; the increase
in 1993 was also partially due to increased supplier prices. The increase in 1992 was partially offset by a decline in customer
consumption at the company's Kauai electric division due to Hurricane Iniki. Fuel oil
purchased in 1994 of $14,200,000 decreased from the 1993 amount of
$14,895,000$14,900,000 primarily due to a decrease in supplier prices. Fuel oil
purchased costs in 1993 increased 22% from the 1992 amount of $12,209,000$12,200,000,
primarily due to higher supplier prices and increased volume to satisfy
increased customer consumption. Fuel oilNatural gas purchased costs decreased
$1,300,000 in 1992 of
$12,209,000 decreased 23% from the 1991 amount of $15,843,000,1994, primarily due to decreasinga decrease in supplier prices. Natural
gas purchased costs increased 15% in 1993, primarily due to higher supplier
prices. Natural gas purchased costs increased
26% in 1992, primarily due to the acquisition of northern Arizona gas
properties. Under tariff provisions, changesincreases and decreases in the company'sCompany's
wholesale costs of electric energy, fuel oil and natural gas purchased are
largely passed on to customers.
Operating and maintenance expenses increased .4%by 86% or $143,300,000 in
19931994, primarily due to the acquisition of Natural Gas Company of Louisiana. Operating and maintenance
expenses increased 2% in 1992 primarily due to the acquisition of northern
Arizona gas properties in December 1991. In addition, in 1992 the company's
operations were impacted by several natural disasters; forest fires in northern
California, Hurricane Andrew in Louisiana and Hurricane Iniki on
-20-
Kauai.GTE Telephone Properties.
Depreciation expense increased 9% inof $115,200,000 more than doubled the 1993 and 6% in 1992, primarily dueamount
of $54,700,000. The increase is attributable to increased investment in plant in service and increases in depreciable
plant as a result of the authorized
depreciation rates foracquisitions of the company's Arizona electric operations in 1993 and
California telephone operations in 1992.GTE Telephone Properties.
Taxes other than income increased 3% in$23,700,000 or 67% over the 1993
and 7% in 1992, primarilyperiod due to increased real estate taxes resulting from higher tax rates and
assessment values andon the newly acquired GTE Telephone Properties.
Interest expense for the year ended December 31, 1994 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 northern Arizona gas propertiesthe GTE Telephone Properties and an increase in 1992.industrial
development revenue bond borrowings. Interest expense decreased 4% in 1993,
primarily due to the refinancing of higher-coupon First Mortgage Bonds with
lower cost debentures and increased allowance for funds used during
construction related to borrowings, which is a reduction to interest expense.
TheInvestment income decreased to $40,500,000 from $42,100,000 in 1993,
representing a 4% decline. This decrease in interest expense wasis due to the liquidation of
investments to fund the GTE acquisition, partially offset by an increase in
industrial development revenue bond borrowings.
Interest expense increased 17% in 1992, primarily due to additional industrial
development revenue bond construction fund requisitions and interest on
debentures issued in January 1992,income from the proceeds of which were used to redeem
higher-coupon debt in February and March 1992.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'sCompany's Centennial investment;investment, partially
offset by lower investment balances and market yields.
Investment incomeIncome taxes increased 24%23% in 1992, primarily due to the temporary investment of debenture proceeds, increased
industrial development revenue bond proceeds held-in-trust,1994 and income from the
company's Centennial investment. Other income-net increased 66%19% in 1993, primarily due to
an increase in the allowance for funds used during construction
related to equity, as a result of increased property, plant and equipment.
Income taxes increased 19% in 1993 and 1% in 1992, primarily due to
increased taxable income and an increase in the effective tax rate resulting
from an increase in the federal corporate income tax rate.income.
Cost increases, including those due to inflation, are expected to be
offset in due course by increases in revenues obtained under established
regulatory procedures.
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
-21-
PART III
--------
The companyCompany intends to file with the Commission a definitive proxy
statement for the 19941995 Annual Meeting of Stockholders pursuant to Regulation
14A not later than 120 days after December 31, 1993.1994. 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 following documentsexhibits listed below are filed as part of this Report:
1. The financial statements indexed on page F-1 of this Report.
2. The financial statement schedules required to be filed by
Item 8 will be filed as an amendment to this Report on or
before April 29, 1994.
3. The Exhibits listed below:
Exhibit
No. Description
- ------- -----------
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, 1994
3.200.2 By-laws of the Company, as amended to-date of Citizens Utilities
Company, with all amendments to March 9, 1994
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 Trustee
4.100.7 Fourth Supplemental Indenture, dated October 1, 1994, to Chemical
Bank, as Trustee
The companyCompany 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
-22-
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,
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
10.10 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, 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. 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
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 numbers
3.2.1 and 10.17 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, 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. The Registrant's Annual Reports on Form
10-K and Form 8-K Current Reports bear SEC File Number Reference 0-
1291.
(b) A Report on Form 8-K was filed as of December 15, 1993,
transmitting Financial Statements listed below of certain businesses
expected to be acquired for the periods indicated along with
exhibits showing consent of independent auditors KPMG Peat Marwick
and Arthur Andersen & Co.
-23-
- Contel of New York, Inc., for each of the three years ended
December 31, 1992
- Contel of West Virginia, Inc., for each of the three years ended
December 31, 1992
- West Virginia Division GTE South, Inc., for each of the two years
ended December 31, 1992
- Arizona Division Contel of the West, Inc., for the year ended
December 31, 1992
- Idaho Division Contel of the West, Inc., for the year ended
December 31, 1992
- Tennessee Division GTE South, Inc., for the year ended December
31, 1992
-24-
A Report on Form 8-K was filed as of December 20, 1993, transmitting Condensed
Financial Statements as of September 30, 1993 and10-K for the twelve month period
thenyear ended for certain ofDecember 31,
1984. Exhibit number 10.6.1 is incorporated by reference to the individual GTE Telephone Properties listed below
proposed to be acquired by Citizens Utilities Company.
- Contel of New York, Inc.
- Contel of West Virginia, Inc.
- West Virginia Division GTE South, Inc.
- Arizona Division Contel ofsame exhibit
designation in the West, Inc.
- Idaho Division Contel of the West, Inc.
- Tennessee Division GTE South, Inc.
ARegistrant's Annual Report on Form 8-K was filed as of10-K for the year ended
December 23, 1993 updating31, 1989. Exhibit number 10.9 is incorporated by reference to
Appendix A to the initiatives
ofRegistrant's Proxy Statement dated May 14, 1990.
Exhibit numbers 10.10, 10.11, 10.12 and 10.13 are incorporated by
reference to the Public Utility Commission ofsame exhibit designation in the State of California to open the
California Telecommunications market to competition and pending stockholders'
litigation.
ARegistrant's
Annual Report on Form 8-K/A was filed as of10-K for the year ended December 23, 1993, amending31, 1990.
Exhibit numbers 4.100.1, 4.100.2 and 4.100.3 are incorporated by
reference to the Form 8-K
filed December 15, 1993, to includesame exhibit designation in the Reports of Independent Public
Accountants.
ARegistrant's
Quarterly Report on Form 8-K was filed as of10-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, 1993, transmitting1991. 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 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
are incorporated by reference to the same exhibit designation in
the Registrant's Form S-3 filed December 16, 1993. The Registrant's
Annual Reports on Form 10-K and Form 8-K Current Reports bear SEC
File Number Reference 0-1291.
(b) The Company filed on Form 8-K dated December 7, 1994, under Item 5 "Other
Events", a press release dated January 3, 1994, announcing the transferproposed 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 GTE's 189,000 access
lines in southern Idaho, Tennessee, Utah and West Virginiathe ALLTEL properties to Citizens Utilities
Company effective December 31, 1993, pursuant to agreements dated May 19, 1993.be acquired.
-25-
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, 19941995
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
Registrantregistrant and in the capacities indicated on the 15th day of March 1994.1995.
Signature Title
- --------- -----
/s/ Robert J. DeSantis Vice President, Treasurer
__________________________________________ and Treasurer
- ------------------------------------------Assistant Secretary
(Robert J. DeSantis)
/s/ Livingston E. Ross
_________________________________________ Vice President and Controller
- ------------------------------------------
(Livingston E. Ross)
Norman I. Botwinik* Member, Executive Committee andDirector
- ------------------------------------------ Director-----------------------------------------
(Norman I. Botwinik)
Aaron I. Fleischman* Member, Executive Committee
and
- ----------------------------------------------------------------------------------- and Director
(Aaron I. Fleischman)
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* DirectorMember, Executive Committee
- ------------------------------------------ and Director
(John L. Schroeder)
Robert D. Siff* Director
- ------------------------------------------
(Robert D. Siff)
-26-
Robert A. Stanger* Director
- ------------------------------------------
(Robert A. Stanger)
Edwin Tornberg* Director
- ------------------------------------------
(Edwin Tornberg)
Claire L. Tow* Director
- ------------------------------------------
(Claire L. Tow)
*By: /s/ Robert J. DeSantis
--------------------------------------*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, 1993, 1992 and 1991 F-3
Consolidated statements of income for the three years ended
December 31, 1993 F-4
Consolidated statements of shareholders' equity for the three
years ended December 31, 1993 F-5
Consolidated statements of cash flows for the three years
ended December 31, 1993 F-6
Notes to consolidated financial statements F-7 - F-24
F-1Independent Auditors' Report F-2
Consolidated balance sheets as of December 31, 1994, 1993 and 1992 F-3
Consolidated statements of income for the years ended
December 31, 1994, 1993 and 1992 F-4
Consolidated statements of shareholders' equity for the years
ended December 31, 1994, 1993 and 1992 F-5
Consolidated statements of cash flows for the years
ended December 31, 1994, 1993 and 1992 F-6
Notes to consolidated financial statements F-7 - F-21
Independent Auditors' Report
----------------------------
The Board of Directors and Shareholders
Citizens Utilities Company:
We have audited the accompanying consolidated balance sheetsfinancial statements of Citizens Utilities
Company and subsidiaries as of December 31, 1994, 1993 1992 and 1991,1992, 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'sCompany'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, 1994, 1993 1992 and 1991,1992, 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 91 and 13 to the consolidated financial
statements, the company hasCompany adopted Statements of Financial Accounting Standards No.SFAS 109, "Accounting for Income Taxes", and
No.SFAS 106, "Employers' Accounting for Postretirement Benefits Other Thanthan
Pensions", effective January 1, 1993.
KPMG Peat Marwick LLP
New York, New York
March 9, 1994
F-28, 1995
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994, 1993 and 1992
(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 1991
(In thousands)
1993 1992 1991
---------- ---------- ----------
ASSETS
------
Current assets:
Cash $ 21,738 $ 19,752 $ 42,229
Temporary investments 89,752 0 0
Accounts receivable:
Utility service 99,684 75,754 60,668
Other 15,088 15,932 18,559
Less allowance for doubtful accounts 459 441 354
---------- ---------- ----------
Total accounts receivable 114,313 91,245 78,873
---------- ---------- ----------
Materials and supplies 18,330 10,061 7,794 10,842
Other current assets 5,887 4,873 4,400 4,908
---------- ---------- ----------
Total current assets 240,737 123,191 136,852
---------- ---------- ----------
Property, plant and equipment 2,153,891 1,503,471 1,399,176
Less accumulated depreciation 461,924 406,833 371,880
---------- ---------- ----------
Net property, plant and equipment 1,691,967 1,096,638 1,027,296
---------- ---------- ----------
Investments 411,022 561,062 480,727
Regulatory assets 146,207 0 0
Deferred debits and other assets 137,185 107,090 76,577
---------- ----------
---------- --------- ----------
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
---------- --------- ----------
Total assets $3,576,566 $2,627,118 $1,887,981 $1,721,452
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 84,015 $ 87,298 $ 88,682
Income taxes accrued 82,632 59,947 42,466
Long-term debt due within one year 1,620 10,850 11,784
Customers' deposits 19,436 17,150 17,709
Interest accrued 12,731 12,943 10,776
Other current liabilities 47,791 36,300 34,871
Short-term debt 380,000 0 0
---------- ---------- ----------
Total current liabilities 628,225 224,488 206,288
---------- ---------- ----------
Customer advances for construction 137,012 140,309 134,878
Contributions in aid of construction 47,241 39,549 41,620
Deferred income taxes 213,471 95,222 107,767
Regulatory liabilities 28,376 0 0
Deferred credits 50,634 28,443 27,202
Long-term debt 547,673 522,699 484,021
Shareholders' equity 974,486 837,271 719,676
---------- ---------- ----------
$2,627,118 $1,887,981 $1,721,452LIABILITIES 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
============= =========== ========== ========== ==========
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
F-3
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
(In thousands, except for per-share amounts)
1993 1992 1991
-------- -------- --------
Revenues:
Telecommunications $177,497 $186,232 $197,958
Natural gas 211,892 189,812 151,257
Electric 164,515 145,032 138,168
Water/Wastewater 65,488 59,388 57,642
-------- -------- --------
619,392 580,464 545,025
-------- -------- --------
Operating expenses:
Natural gas purchased 117,724 102,556 81,402
Electric energy and fuel oil
purchased 83,119 76,286 71,323
Operating expenses 142,718 141,954 135,924
Maintenance expenses 24,816 24,893 28,376
Depreciation 54,698 50,127 47,212
Taxes other than income 35,157 34,174 31,935
-------- -------- --------
458,232 429,990 396,172
-------- -------- --------
Income from operations 161,160 150,474 148,853
Investment income 42,097 40,072 32,248
Other income - net 12,102 7,278 8,073
-------- -------- --------
Income before interest expense
and income taxes 215,359 197,824 189,174
Interest expense 37,431 39,044 33,249
-------- -------- --------
Income before income taxes 177,928 158,780 155,925
Income taxes 52,298 43,767 43,571
-------- -------- --------
Net income $125,630 $115,013 $112,354
======== ======== ========
Earnings per share of common stock:
Series A $0.71 $0.66 $0.65
===== ===== =====
Series B $0.71 $0.66 $0.65
===== ===== =====
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 $.63
==== ==== ====
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
F-4
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
(In thousands, except for per-share amounts)
Additional
Common Stock ($.25) Paid-in Retained
Series A Series B Capital Earnings Other Total
--------- --------- ------------------ -------- ---------- -------- --------------- -----
Balance December 31, 1990 $ 9,607 $ 3,005 $369,471 $ 229,019 ($4,873) $606,229
Adjustment to change fiscal
year-end of merged company 261 (4,092) 1,297 (2,534)
Net income 112,354 112,354
Stock dividends in shares of
Common Stock Series A and
Series B 760 215 97,088 (100,621) (2,558)
Stock plan 40 1,690 1,730
Tax benefit arising from stock
options exercised 977 977
Cancelled treasury shares (13) (1,380) (1,393)
Conversions of Series A to
Series B (76) 76 0
Other 4,871 4,871
------- ------- -------- --------- -------- --------
Balance December 31, 1991 $10,291 $ 3,323$3,323 $468,107 $ 236,660 $ 1,295$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$5,651 $582,299 $233,282 $ 0 $837,271
NGL merger 142 497 2,949 3,588
Franklin merger 13 505 (35) 483
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) 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 1,224
Conversions of Series A to
Series B (776) 776 0
-------- ----- ------- ------- -------- -------- --------- ---------------- -------
Balance December 31, 1993 $32,447 $13,119 $698,688 $230,232$ 32,447 $ 13,119 $ 698,688 $ 230,232 $ 0 $974,486
Metro Utility Co. merger 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 2,015
Conversions of Series A to
Series B (570) 570 0
Unrealized gain on securities
classified as available-for-
sale, net of taxes 9,130 9,130
------- ----- ------ --------- ----- -----
Balance December 31, 1994 $33,586 $14,782 $861,981 $237,417 $9,130 $1,156,896
======= ======= ======== ======== ======= =============== ==========
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
F-5
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
(In thousands)
1993 1992 1991
--------- --------- ---------
Net cash provided by operating
activities $ 187,863 $ 150,795 $ 165,013
--------- --------- ---------
Cash flows from investing activities:
Construction expenditures (175,308) (148,563) (113,981)
Customer advances for
construction and contributions
in aid of construction 6,959 5,033 15,144
Securities purchases (254,203) (356,816) (253,018)
Securities sales and maturities 324,089 285,285 180,943
Business acquisitions (481,257) 0 (41,893)
Change in net assets of
discontinued operations 0 0 4,226
--------- --------- ---------
(579,720) (215,061) (208,579)
--------- --------- ---------
Cash flows from financing
activities:
Long-term debt borrowings 34,733 135,672 119,371
Long-term debt principal payments (26,644) (95,365) (56,731)
Issuance of short-term debt 380,000 0 0
Other 5,754 1,482 (4,963)
--------- --------- ---------
393,843 41,789 57,677
--------- --------- ---------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
-------- ------- --------
Increase (decrease) in cash (7,514) 1,986 (22,477) 14,111
Cash at January 1, 21,738 19,752 42,229 28,118
--------- --------- ---------
Cash at December 31, $ 21,738 $ 19,752 $ 42,229
-------- ------- --------
Cash at December 31, $ 14,224 $ 21,738 $ 19,752
======== ========= ========= =========
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
F-6
CITIZENS UTILITIES COMPANY ANDand SUBSIDIARIES
Notes to Consolidated Financial Statements
------------------------------------------
(1) Summary of Significant Accounting Policies:
-------------------------------------------------------------------------------------
(a) Principles of Consolidation:
----------------------------
The Consolidated Financial Statements include the accounts of Citizens
Utilities Company and all subsidiaries after elimination of intercompany
balances and transactions. The Consolidated Balance Sheet at December 31, 1993,
includes $469,487,000 of property, plant and equipment representing the GTE
Telephone Properties acquired on December 31, 1993, in a purchase transaction
(See Note 3 of Notes to Consolidated Financial Statements). Certain reclassifications of balances previously
reported have been made to conform to current presentation.
(b) Revenues:
---------
Electric, natural gas and water/wastewater treatment - The companyCompany records
revenues from electric, natural gas and water/wastewater treatment customers
when billed. These customers are billed on a cycle basis based on monthly
meter readings. The companyCompany accrues unbilled revenues earned from the dates
customers were last billed to the end of the accounting period.
Telecommunications - The companyCompany records revenues from telecommunications
services when earned. Revenues from local service are primarily derived from
providing local telephone services. Revenues from long-
distancelong-distance service are
derived from charges for access to the company'sCompany'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) 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-
making practices, after the related plant is placed in service, the companyCompany
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 ($10,123,000,11,402,000,
$10,123,000 and $6,398,000 for 1994, 1993 and $7,250,000 for 1993, 1992, and 1991, respectively) and the
amount relating to borrowings is a reduction of interest expense ($2,678,000,3,031,000,
$2,678,000 and $1,805,000 for 1994, 1993 and $2,045,000 for 1993, 1992, and 1991, respectively). The
weighted average rates used to calculate AFUDC were 12%, in 1994 and 1993, and
14% and 13% in 1993, 1992 and 1991,
respectively.1992. Maintenance and repairs are charged to operating expenses as
incurred. The cost,book value, net of salvage, of routine property, plant and
equipment dispositions is charged against accumulated depreciation.
F-7
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(d) 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 1994, 1993 1992 and 1991.1992.
(e) 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 $24,669,000 at December 31, 1994 were
recorded in connection with the provisions of SFAS 106, "Employers' Accounting
for Postretirement Benefits Other than Pensions" (see Note 13 ). In
connection with the provisions of SFAS 109, "Accounting for Income Taxes", the
Company's regulatory assets were $152,745,000 and regulatory liabilities were
$30,830,000 at December 31, 1994. The regulatory assets and liabilities
related to SFAS 109 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.
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) Accounting for Investments, Temporary Investments and Short-Term
Debt:
----------------------------------------------------------------
Investments include high credit quality, short- and intermediate-term
fixed-income securities (primarily state and municipal debt obligations) and
equity securities.
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. 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 includeare investments in state and municipal securities
held by the company which mature in 1994 andless than one year, the proceeds of which are to be used to
repay a portion of the short-term debt issued to partially financeand temporarily
fund the acquisition of the GTE Telephone Properties (see Note 3 of
Notes to Consolidated Financial Statements)3). Such
investments are considered held-to-maturity and are carried at amortized
cost. The fair value of temporary investments at December 31, 1994 and 1993
was $93,438,000.$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 acquired on December 31, 1993.Properties. This short-term debt had a weighted average interest
rate of 3.26%5.75% at December 31, 19931994 and is expected to be repaid from maturing
temporary investments, funds from operations and proceeds from the planned issuance
of equity securities in 1994.securities. The fair value of short-term debt at December 31, 1994
and 1993, was $380,000,000.
(f)$515,200,000 and $380,000,000, respectively.
(g) Investment in Centennial Cellular Corp.:
----------------------------------------
The companyCompany recorded its initial investment in Centennial Cellular Corp.
("Centennial") Convertible Redeemable Preferred Stock (the "Preferred
Security") and Class B Common Stock at the historical cost of the company'sCompany's
investment in Citizens Cellular Company.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 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$186,000,000of $186,000,000 on August 31,
1996. The companyCompany 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. On a quarterly basis, the companyCompany 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 book value of the Preferred
Security would be deemed impaired to the extent that such book value exceeds
the estimated realizability of the Preferred Security based on all existing
facts and circumstances, including the company'sCompany's assessment of its ability
to realize the book value of the Preferred Security through mandatory
redemption. (See Notes 3 and 5 of Notes to Consolidated Financial Statements)
(g) Deferredredemption (see Note 5).
(h) Income Taxes and Investment Tax Credits:
----------------------------------------
The Financial Accounting Standards Board ("FASB") issued StatementCompany and its subsidiaries are included in a consolidated federal
income tax return using a calendar year reporting period.
The Company adopted SFAS 109 in 1993 without restating prior years'
financial statements; the adoption of Financial Accounting Standards ("SFAS") No.SFAS 109 "Accounting for Income Taxes,"
effective for fiscal years beginning after December 15, 1992.had no material effect on net
income in 1993. SFAS No. 109 required a change from the deferred to the liability
method of computing deferred income taxes. The company adopted the provisions of SFAS No. 109 in
1993 without restating the prior years financial statements; there was no
material effect of the adoption of SFAS No. 109 on net income in 1993. Adoption of SFAS No. 109 resulted in
recording a net increase in the liability for deferred income taxes of
$115,437,000.$115,437,000 at December 31, 1993. Such increase resulted principally from
income tax benefits previously flowed through to customers and to the
allowance for funds used during construction; partially offsetting these
items were the effects of tax law changes and the tax benefit associated with
the unamortized deferred F-8
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
investment tax credits. Due to the effects of
utility regulation, the companyCompany recorded regulatory assets and liabilities
of $143,813,000 and $28,376,000, respectively, as offsets to the increase in
the deferred income taxes.taxes at December 31, 1993. Prior to the adoption of SFAS No.
109, deferred income taxes resulted from the tax effect of using accelerated
depreciation methods and certain other timing differences between income
reported on the Consolidated Financial Statements and taxable income reported
on the company'sCompany's income tax returns.
The investment tax credits relating to utility properties, as defined by
applicable regulatory authorities, have been deferred and are being amortized
to income over the lifelives of the related properties.
(h)(i) Earnings Per Share:
-------------------
Earnings per share is based on the average number of outstanding shares.
Earnings per share is presented for each series separately, with
historical adjustment for subsequent stock
dividends and stock splits for each series.splits. The calculation has not been adjusted for the
1.1%1.5% stock dividend declared on February 8, 1994,7, 1995, because its effect is
immaterial. The effect on earnings per share of the exercise of dilutive
options is immaterial.
F-9
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Property, Plant and Equipment:
------------------------------
The components of property, plant and equipment at December 31, 1994,
1993 1992 and 19911992 are as follows:
Classifications 1993 1992 1991
--------------- ---------- ---------- --------
($ in thousands)
Transmission and distribution
facilities $1,417,320 $1,032,426 $968,717
Production and generating facilities 414,743 222,594 209,540
Pumping, storage and purification
facilities 80,175 71,238 67,967
Intangibles 5,968 3,145 2,507
Other 166,817 128,452 126,737
Construction work in progress 68,868 45,616 23,708
1994 1993 1992
---- ---- ----
($ 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
========== ========== ==========
(3) Mergers and Acquisitions:
-------------------------
On May 19, 1993, the companyThe Company and GTE Corporation announced the signing of ten10 definitive
agreements underpursuant to which the company would purchaseCompany agreed to acquire from GTE
Corporation, for $1.1 billion, certain telephone properties serving
approximately $1,100,000,000 in cash, 500,000 local telephone access lines in nine states ("the GTE
Telephone Properties"). These
transactions require the approval of the Federal Communications Commission and
the regulatory commissions of the nine states in which the properties are
located. On December 31, 1993, 189,000189,123 local telephone access
lines in Idaho, Tennessee, Utah and West Virginia were transferred to the
company.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. On
December 30, 1994, 5,440 local telephone access lines in California were
transferred to the Company. The remaining access lines
areGTE Telephone Property is located in
Oregon and is expected to be transferred during 1994. No revenuesto Citizens in 1995. The acquisitions
were recorded during
1993 since this acquisition was accounted for byusing the purchase method.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.
The following unaudited pro forma financial information presents the
combined results of operations of the companyCompany and the GTE Telephone
Properties acquired and to be acquired as if the acquisitionacquisitions had occurred at the beginning
of the respective periods.on January 1, 1993.
The pro forma financial information does not necessarily reflect the results
of operations that would have occurred had the companyCompany and the GTE Telephone
Properties constituted a single entity during such periods.
All GTE GTE Telephone Properties Acquired
Telephone Properties December 31, 1993
1993 1993 1992
------------------- ---------------- -------------
Revenues $1,016,289 $784,586 $741,030
Net Income 151,724 139,617 126,882
Earnings per share $ 0.77 $ 0.75 $ 0.69
F-10
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes1994 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 Consolidatedover 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 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 and Chief Executive Officer of the Company, is Chairman, Chief
Executive Officer, Chief Financial StatementsOfficer and a director. In addition,
Claire Tow, a director of the Company is 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
systems serving approximately 26,500 subscribers. The purchase of the second
system, serving approximately 19,200 subscribers, remains subject to
regulatory approval for the transfer of licenses. The Company's interest
in the joint venture is accounted for under 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 companyCompany separately acquired Natural Gas Company of Louisiana
("NGL") and Franklin Electric Light Company, Incorporated ("Franklin") by
merger. In thethese mergers, the companyCompany issued 568,748 shares and 51,500 shares
of Series B common stockCommon 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.
On December 3, 1991, the company acquired Southern Union Company's
northern Arizona gas utility operations, which serve more than 65,000 customers,
for a purchase price of $46,000,000. The purchase price was comprised of
approximately $39,000,000 in cash, allocated to utility plant, and $7,000,000 in
net liabilities assumed.
On August 30, 1991, the company and Century Communications Corp.
("Century") completed the merger of their respective interests in the cellular
telephone field. The combination was effected through a merger of Citizens
Cellular Company, a subsidiary of the company having an adjusted book value of
$69,668,000, with and into Century Cellular Corp., a wholly owned subsidiary of
Century Communications Corp. In connection with the merger, the company received
Centennial Cellular Corp. (formerly Century Cellular Corp.) Convertible
Redeemable Preferred Stock with an initial liquidation value preference of
$125,700,000 and Class B Common Stock representing 12% of the currently
outstanding common equity of Centennial Cellular Corp. These securities are
included in the investments caption of the Consolidated Balance Sheets.
In March 1993, the company signed an agreement to purchase, through a
joint venture with Century the assets of two cable television systems serving
approximately 45,000 subscribers in California. The joint venture will pay a
purchase price of up to approximately $89,000,000 for the systems and intends to
enter into an agreement with Century pursuant to which Century will manage the
systems. The purchase is subject to regulatory approval for the transfer of
licenses and is expected to be consummated in 1994.
The chairman and chief executive officer of the company is also
chairman and chief executive officer of Century Communications Corp.
(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 companyCompany 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 companyCompany 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 otherOther income - net.
During 1992, the companyCompany disposed of two water properties in California.
One property was transferred to a municipality through condemnation
proceedings. The companyCompany 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'sCompany's net investment was $4,160,000. In December 1992,
the companyCompany disposed of its Idaho electric operations. The companyCompany received
$1,177,500 and had a net investment of $706,000. The resulting gains on
dispositions are included in other income-net.
F-11
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Investments:
-----------
Investments include high-grade, short-------------
The components of investments at December 31, 1994, 1993 and intermediate-term fixed-1992 are as
follows:
1994 1993 1992
---- ---- ----
($ in thousands)
State and municipal securities $174,790 $296,371 $448,605
Investment in Centennial 117,982 90,628 81,034
Other fixed income securities (primarily state and municipal debt obligations) and equity
securities. Fixed-income securities are stated at cost.411 7,670 10,680
Marketable equity securities are stated at the lower of cost or market.31,828 13,282 13,934
Other 0 3,071 6,809
-------- -------- --------
Total $325,011 $411,022 $561,062
======== ======== ========
The company'sCompany's investment in Centennial Cellular Corp. (See Note 3 of
Notes to Consolidated Financial Statements)at December 31, 1994, includes
102,187 shares of Convertible Redeemable Preferred SharesStock ("the Preferred
Security") and 1,367,0991,982,294 Class B Common Shares. The liquidation value
preference earned on the Convertible Redeemable Preferred StockSecurity for 1994, 1993 and 1992 was
$13,481,000, $9,594,000 and 1991 was $9,594,000, $8,803,000, and $2,563,000, respectively, and was recorded as
investment income. The bookcarrying value of the investment in Centennial at
December 31, 1993,1994, as presented in the table below,above, represents the historical
book value of the investmentPreferred Security of $69,668,000 ($19,826,000 of which relates to the
Class B common shares)$49,842,000 plus $20,960,000$34,441,000 of
liquidation value preference earned on the Preferred Security bythrough
December 31, 1994 and the company to date.market value of the Class B Common Stock of
Centennial of $33,699,000. The Preferred Security is mandatorily redeemable
in the year 2007.2006. The companyCompany 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. Total$27,492,000 and total unrealized gains on marketable equity
securities at December 31, 1993 were $14,210,000. Net
realized gains on marketable equity securities included in the determination
of net income for the years 1994, 1993 1992 and 1991,1992, respectively, were
$3,760,000, $0 $259,000 and $670,000.$259,000. The cost of securities sold was based on the
actual cost of the shares of each security held at the time of sale.
Marketable equity securities at December 31,
1993, includes 1,758,428for each year include 1,807,095 shares
(adjusted(1,500,000 original shares adjusted for stock dividends) of Class A Common
Stock of Century Communications Corp.Century. These shares represent less than 2% of the total
outstanding common stock of Century Communications Corp.Century. The chairmanChairman and chief executive officerChief Executive Officer
of the companyCompany is also chairmanChairman and chief
executive officerChief Executive Officer of Century Communications Corp.Century.
Pursuant to the provisions of SFAS 115, the Company classified its
Investments into two categories: "held-to-maturity" and "available-for-sale"
at January 1, 1994. The components of investments at December 31, 1993, 1992 and 1991 areCompany recorded unrealized holding gains on
securities classified as follows:
1993 1992 1991
---- ---- ----
State and municipal securities $296,371,000 $448,605,000 $369,170,000
Investment in Centennial 90,628,000 81,034,000 72,231,000
Other fixed income securities 7,670,000 10,680,000 21,807,000
Marketable equity securities 13,282,000 13,934,000 10,968,000
Other 3,071,000 6,809,000 6,551,000
------------ ------------ ------------
Total $411,022,000 $561,062,000 $480,727,000
============ ============ ============
available-for-sale as an increase to Investments.
The fair value of investments, presented as required by SFAS No. 107,
was $501,273,000 and $649,366,000Investments at December 31, 1993 and 1992 were $534,496,000
and $649,366,000, respectively, based on relative market information about
each financial instrument.
F-12
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial StatementsThe following summarizes the cost, unrealized gains and fair market value
for investments at December 31, 1994.
Unrealized Aggregate Fair
Investment Classification Amortized Cost Holding Gains Value
- ------------------------- -------------- ------------- --------------
($ 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 $336,722
======== =========
The Company sold $19,335,000 of securities classified as held-to-maturity
during 1994 for the purpose of financing the acquisition of the GTE Telephone
Properties; gains and losses of $372,000 and $94,000, respectively, were
realized on such sales. The amortized cost and related gains on available-
for-sale securities sold during 1994 were $384,000 and $3,760,000,
respectively.
(6) Long-term Debt:
---------------
Weighted average
interest rate at December 31,
December 31, 1993 Maturities 1993 1992 1991
----------------- ----------- -------- -------- --------
($ in thousands)
Industrial development
revenue bonds 6.07% 2015 - 2028 $284,777 $242,391 $209,208
Debentures 7.78% 2001 & 2004 150,000 150,000 50,000
Commercial paper notes
payable 3.30% Variable 58,953 62,680 77,565
Rural Electrification
Administration and Rural
Telephone Bank notes 6.50% 2006 - 2015 42,237 43,494 44,851
Subordinated notes 10.84% 1995 - 1998 11,692 12,261 20,784
First Mortgage and first
mortgage and collateral
trust bonds - - -- 11,489 81,215
Other long-term debt 7.00% 1999 14 384 398
-------- -------- -------- --------
6.38% $547,673 $522,699 $484,021Weighted average
interest rate at December 31,
December 31, 1994 Maturities 1994 1993 1992
----------------- ---------- ---- ---- ----
($ in thousands)
Debentures 7.68% 2001-2034 $425,000 $150,000 $150,000
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
Administration 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
======= ======== ======== ======== ========
Certain commercial paper notes payable have been classified as long-term
debt because these obligations are expected to be refinanced ultimately through
the issuance ofwith long-term
debt securities. The companyCompany has available lines of credit with commercial
banks in the amounts of $1,000,000,000 and $200,000,000, which expire on
December 14, 199413, 1995 and December 16, 1996,1997, respectively, and have associated
facility fees of one-twentieth of one percent per annum and one-
twelfthone-twelfth of
one percent per annum, respectively. The terms of the lines of credit provide
the companyCompany with certain extension options.
The total principal amounts of industrial development revenue bonds at
December 31, 1994, 1993 and 1992, were $392,530,000, $377,890,000 and
1991, respectively, were $377,890,000, $274,030,000, and $264,030,000.respectively. Amounts presented in the preceding table above have been
reduced by funds held by trustees to be used for payment of qualifying
construction expenditures. 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 1994, 1993
1992 and 1991,1992, respectively, interest payments on short- and long-term debt were
$74,803,000, $40,217,000 $37,913,000 and $34,645,000.$37,913,000.
The fair value of long-term debt, presented as required by SFAS No. 107 at
December 31, 1994, 1993 and 1992, respectively, was $992,349,000, $602,710,000
and $550,724,000 based on relative market information and information about
each financial instrument.
F-13
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The installment principal payments and maturities of long-term debt for the
next five years are as follows:
1994 1995 1996 1997 1998
----- ----- ---- ---- ----
($ in thousands)
Installment principal
payments $1,620 $ 1,329 $1,410 $1,498 $1,591
Maturities 0 9,814 779 112 1,243
------ ------- ------ ------ -------
$1,620 $11,143 $2,189 $1,610 $2,8341995 1996 1997 1998 1999
---- ---- ---- ---- ----
($ 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
======= ====== ====== ======= ====== ====== =======
(7) Capital Stock:
--------------
The common stock of the companyCompany is in two series, Series A and Series B.
The companyCompany is authorized to issue up to 200,000,000 shares of Common Stock
Series A common stock and 300,000,000 shares of Common Stock Series B common stock.B. Quarterly stock
dividends are declared and issued at the same rate on both Series A and
Series B. The series
differ in that, since 1992, 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 quarterly 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 however, are not
convertible into Series A. InBoth series are the same in all other respects, the
shares of both series have the same voting rights and participate ratably in
liquidation.respects.
On April 14, 1992, the companyCompany declared a 3-for-2 stock split of its Series
A and Series B common stock.Common Stock. The stock split was distributed on July 24,
1992, to shareholders of record on July 1, 1992. On May 21, 1993, the companyCompany
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.
QuarterlyOn 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. The $244,200,000 of net proceeds from the
issuance were used to permanently fund the acquisition of the GTE Telephone
Properties.Quarterly stock dividend rates declared on Common Stock Series A and
Series B common
stock are based upon cash equivalent rates and share market prices, and have
been as follows:
Dividend Rates
-------------------
1993 1992 1991
----- ----- -----
First quarter 1.2% 1.6% 2.0%
Second quarter 1.0% 1.5% 1.9%
Third quarter 1.1% 1.2% 1.9%
Fourth quarter 1.0% 1.2% 1.9%
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%
===== ===== =====
Compounded Total 5.04% 4.37% 5.61%
===== ===== =====
Annualized stock dividend cash equivalent rates considered by the company'sCompany's
Board of Directors in establishing thedeclaring stock dividends duringfor 1994, 1993 1992 and 1991,1992,
respectively, were $0.745, $0.675.733, .691 and $0.585.624 per share (adjusted for subsequentall stock
splits and stock dividends paid subsequent to all dividends declared through
December 31, 1994 and stock splits).
F-14
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notesrounded to Consolidated Financial Statementsthe nearest 1/8th).
The activity in shares of outstanding common stock for Series A and Series B
during 1994, 1993 1992 and 19911992 is summarized as follows:
Number of Shares
Series A Series B
---------- ----------
Balance at December 31, 1990 38,430,000 12,019,000
Stock dividends 3,039,000 860,000
Stock plan 0 159,000
Cancelled treasury shares 0 (52,000)
Conversions of Series A to Series B (303,000) 303,000
----------- ----------
Balance at December 31, 1991 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, 1992 64,156,000 22,604,000
NGL merger 0 569,000
Franklin merger 0 52,000
Stock dividends 4,114,000 1,548,000
Stock split (2-for-1) 64,620,000 24,142,000
Stock plans 0 457,000
Conversions of Series A to Series B (3,105,000) 3,105,000
----------- ----------
Balance at December 31, 1993 129,785,000 52,477,000
===========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, 1992 64,156,000 22,604,000
NGL merger 0 569,000
Franklin merger 0 52,000
Stock dividends 4,114,000 1,548,000
Stock split (2-for-1) 64,620,000 24,142,000
Stock plans 0 457,000
Conversions 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. merger 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
============ ==========
The companyCompany 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 ("MEIP") in partial payment of the 1993 stock
dividend. These shares had a cost of $215,000.
The company purchased 93,000
Series B shares (not adjusted for subsequent stock dividends and stock splits)
at a cost of $2,558,000 for use in partial payment of the 1991 stock dividend.
The companyCompany has 50,000,000 authorized shares of preferred stock ($.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 approved the Citizens Utilities Company
Management Equity Incentive Plan ("MEIP"). Under the MEIP, awards of the
company'sCompany's Series A or Series B common stock may be granted to eligible
officers, management employees and other managementnon-management exempt employees of the
companyCompany and its subsidiaries in the form of incentive stock options, non-qualifiednon-
qualified stock
F-15
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements 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'sCompany's common stock outstanding from time to
time;
provided that no more than 8,147,0008,558,000 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 ten10 years after the effective
date of the MEIP. The exercise price of stock options and stock appreciation rights
("SARs")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. During 1993, thereThere were no SARs granted.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 decreases the average exercise price of outstanding options.
The following summary of shares subject to option under the MEIP reflects the
original options granted, adjusted for subsequent stock splits, at original
option prices which have also been adjusted for subsequent stock splits.
Average option
Shares subject Average option
to option price per share
--------------- ---------------
Balance at January 1, 1991 2,126,000 $ 6.20
Options granted 1,194,000 10.72
Options exercised (477,000) 3.62
Options cancelled or lapsed (93,000) 6.73
Adjustment for stock dividends* 181,000 -
---------- ------
Balance at December 31, 1991 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
F-16
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
==========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 at
end of year 1,667,000 $11.85
=========== ======
Options exercisable at end of year 885,000 $ 9.79
========== ======
* Represents adjustment to outstanding option shares to reflect stock
dividends.
During 1993 and 1992, the companyCompany granted restricted stock awards to key
employees in the form of the company'sCompany's Common Stock Series B common stock.B. There were no
restricted stock awards during 1994. The number of Series B shares issued as
restricted stock awards during 1993 and 1992 was 142,000149,000 and 754,000,792,000,
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. The restrictions
lapse on 20% of the restricted stock awards each year over a five-
year period.three- and five-year periods. At December 31, 1993, 701,0001994, 482,618 shares
(adjusted for subsequent stock dividends and stock splits) of restricted stock
were outstanding.
The company'sCompany's Employee Stock Purchase Plan ("ESP Plan") was approved by
shareholders on June 12, 1992 and amended on May 21, 1993. Under the ESP
Plan, eligible employees of the companyCompany and its subsidiaries may subscribe
to purchase shares of Series B common stock at 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, 1993,1994, there are 1,217,0001,278,000 shares (adjusted for stock dividends and stock splits) of 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
1,217,0001,278,000 shares reserved have been subscribed for, unless terminated earlier
by the Board of Directors. The ESP Plan is administered by a committee of the
Board of Directors. As of January 1, 1993,December 31, 1994, the number of employees
participating in the ESP Plan was 1,0581,561 and the total number of shares
subscribed for under the ESP Plan was 182,000 at a price of $11.63 per share (which reflects the 15% discount and
is adjusted for stock dividends and stock splits).
F-17240,640.
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Income Taxes:
-------------------------
The following is a reconciliation of the provision for income taxes at
federal statutory rates to the reported provision for income taxes:
1993 1992 1991
--------------- --------------- ---------------
($ in thousands)
Consolidated tax
provision at
federal statutory
rate $62,275 35.0% $53,985 34.0% $53,014 34.0%
Allowance for funds
used during
construction (4,480) (2.5%) (2,789) (1.8%) (3,160) (2.0%)
Amortization of
investment tax
credits (2,086) (1.2%) (2,140) (1.3%) (2,292) (1.5%)
State income tax
provisions, net of
federal income tax
benefit 6,432 3.6% 4,989 3.1% 5,399 3.4%
Nontaxable investment
income (8,339) (4.7%) (8,490) (5.3%) (8,229) (5.3%)
All other - net (1,504) (0.8%) (1,788) (1.1%) (1,161) (0.8%)
------- ------ ------- ------ ------ -----
$52,298 29.4% $43,767 27.6% $43,571 27.8%
======= ==== ======= ==== ======= ====
For1994 1993 1992
------------- --------------- ----------------
($ 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%)
State income tax
provisions, net of
federal income tax
benefit 5,262 2.5% 6,432 3.6% 4,989 3.1%
Nontaxable investment
income (6,032) (2.9%) (8,339) (4.7%) (8,490) (5.3%)
All other - net (819) (0.4%) (1,504) (0.8%) (1,788) (1.1%)
-------- ------ -------- ------ -------- ------
$64,323 30.9% $52,298 29.4% $43,767 27.6%
======== ====== ======== ====== ======== ======
For 1994, 1993 and 1991,1992, accumulated deferred income taxes amounted to
$230,556,000, $194,165,000 $72,969,000 and $83,157,000,$72,969,000, respectively, and the unamortized
deferred investment tax credits amounted to $17,594,000, $19,306,000 $22,253,000 and
$24,610,000,$22,253,000, respectively. Income taxes paid during the year were
$30,395,000, $24,139,000 and $22,798,000 for 1994, 1993 and $29,309,000 for 1993, 1992,
and 1991, respectively.
F-18
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The components of the net deferred income tax liability at December 31,
1993
are as follows:
1994 1993
---- ----
($ in thousands)
Deferred tax liabilities
- ------------------------
Property, plant and equipment basis
differences $177,549 $148,756
Regulatory assets 62,578 57,134
Other-net 28,704 25,365
-------- --------
268,831 231,255
-------- --------
Deferred tax assets
- -------------------
Deferred investment tax credits 7,183 6,649
Regulatory liabilities 13,498 11,135
-------- -------
20,681 17,784
-------- -------
Valuation Allowance 0 0*
--------
Deferred tax liabilities ($ in thousands)
- ------------------------ ----------------
Property, plant and equipment
bases differences $148,756
Regulatory assets 57,134
Other-net 25,365
--------
231,255
Deferred tax assets
- -------------------
Deferred investment tax credits 6,649
Regulatory liabilities 11,135
--------
17,784
--------
Valuation Allowance* 0 --------
Deferred income taxes $248,150 $213,471
========
========
* There was no change in the valuation allowance during 1993.
The provision for federal and state income taxes, as well as the taxes
charged or credited to Shareholders equity, includes amounts both payable
currently and deferred for payment in future periods. The company and
its subsidiaries areperiods as indicated below.
1994 1993 1992
---- ---- ----
Income Taxes Included in
the Income Statements: ($ in thousands)
- ------------------------
Current
Federal $28,347 $39,571 $37,501
State 3,595 8,682 7,118
------- ------- -------
31,942 48,253 44,619
------- ------- -------
Deferred
Federal 29,829 4,917 847
Investment tax credits (1,949) (2,086) (2,140)
State 4,501 1,214 441
------- ------ ------
32,381 4,045 (852)
------- ------ ------
Income taxes included in a consolidated federalthe
Income Statement 64,323 52,298 43,767
------- ------ ------
Income Taxes Included in
Shareholders' Equity:
- ------------------------
Deferred income tax return using
a calendar year reporting period.
1993 1992 1991
-------- --------- --------
($ in thousands)
Current
- ------- $ 39,571 $ 37,501 $ 38,863
Federal 8,682 7,118 8,377
State -------- -------- --------
48,253 44,619 47,240
-------- -------- --------
Deferred
- -------- 4,917 847 (1,178)
Federal (2,086) (2,140) (2,293)
Investment tax credits 1,214 441 (198)
State -------- -------- --------
4,045 (852) (3,669)
-------- -------- --------
$ 52,298 $ 43,767 $ 43,571
Total ========taxes on
unrealized gains on
securities classified
as available-for-sale 5,588 - -
Current benefit arising
from stock options exercised (137) (537) (531)
-------- -------- --------
Income taxes included in
Shareholders' Equity 5,451 (537) (531)
-------- -------- --------
Total income taxes $69,774 $51,761 $43,236
======== ========
F-19=========
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Segment Information:
--------------------
Year Ended December 31,
------------------------------
1993 1992 1991
-------- -------- --------
($ in thousands)
Telecommunications:
- ------------------
Revenues $177,497 $186,232 $197,958
Assets 980,988* 325,618 326,568
Depreciation 22,744 22,452 20,117
Capital expenditures 66,619 20,672 29,344
Operating income before
income taxes 85,934 85,994 95,824
Natural gas:
- -----------
Revenues $211,892 $189,812 $151,257
Assets 281,257 243,582 233,189
Depreciation 10,646 10,106 10,138
Capital expenditures 25,677 22,280 8,922
Operating income before
income taxes 28,971 26,952 20,009
Electric:
- --------
Revenues $164,515 $145,032 $138,168
Assets 457,366 356,829 286,661
Depreciation 12,924 11,038 10,171
Capital expenditures 43,673 74,502 41,268
Operating income before
income taxes 30,660 18,999 22,364
Water/Wastewater:
- ----------------
Revenues $ 65,488 $ 59,388 $ 57,642
Assets 326,358 320,985 308,527
Depreciation 8,384 6,531 6,786
Capital expenditures 37,426 25,456 21,979
Operating income before
income taxes 15,595 18,529 10,656
*$469,487,000 of which constitutes a portion of the GTE Telephone Properties.
These properties were acquired on December 31,
-----------------------------------
1994 1993 1992
---- ---- ----
($ in a transaction accounted
for under the purchase method.
F-20thousands)
Telecommunications:
- -------------------
Revenues $461,094 $177,497 $186,232
Assets 1,805,893 910,276 325,618
Depreciation 81,659 22,744 22,452
Capital expenditures 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 17,978 15,595 18,529
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Quarterly Financial Data (unaudited):
------------------------------------
Net Income
--------------------------------
($ in thousands) Per Share
-------------------
1993 Revenues Amount Series A Series B
---- ----------- ---------- -------- --------
First quarter $165,915 $ 28,239 $ 0.16 $0.16
Second quarter 146,170 34,682 0.19 0.19
Third quarter 145,315 34,269 0.19 0.19
Fourth quarter 161,992 28,440 0.16 0.16
Net Income
--------------------------------
($ in thousands) Per Share
-------------------
1992 Revenues Amount Series A Series B
---- -------- ---------- -------- --------
First quarter $153,133 $ 25,396 $ 0.14 $0.14
Second quarter 133,695 32,430 0.18 0.18
Third quarter 139,384 31,723 0.18 0.18
Fourth quarter 154,252 25,464 0.14 0.14
-------------------------------------
Net Income
----------------------------------
($ 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 $.15
Second quarter 146,170 34,682 .18 .18
Third quarter 145,315 34,269 .18 .18
Fourth quarter 161,992 28,440 .15 .15
The quarterly net income per share amounts are rounded to the nearest
cent. Annual earnings per share may vary depending on the effect of such
rounding.
(12) Supplemental Cash Flow Information:
---------------------------------------------------------------------
Schedule of net cash provided by operating activities for the years
ended December 31,
1993 1992 1991
-------- -------- --------
($ in thousands)
Net income $125,630 $115,013 $112,354
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 54,698 50,127 47,212
Deferred income taxes and
amortization of investment
tax credits 4,045 (852) (3,669)
Centennial investment income (9,594) (8,803) (2,563)
Allowance for equity funds used
during construction (10,123) (6,398) (7,250)
Change in accounts receivable (23,068) (12,372) (14,615)
Change in accounts payable (3,773) (4,607) 5,298
Change in accrued taxes and
accrued interest 24,960 19,672 20,643
Other 25,088 (985) 7,603
-------- -------- --------
$187,863 $150,795 $165,013
-------- --------1994 1993 1992
---- ---- ----
($ 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 amortization 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)
--------- --------
F-21
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements---------
Net cash provided
by operating
activities $262,316 $194,949 $131,040
========= ======== =========
(13) Pension and Retirement Plans:
---------------------------------------------------------
The companyCompany and its subsidiaries have noncontributory pension plans
covering all employees who have met certain service and age requirements. The
benefits are based on years of service and final average pay or pay rate.
Contributions are made in amounts sufficient to fund the plans' current
service costs and to provide for benefits expected to be earned in the
future. Plan assets are invested in a diversified portfolio of equity and
fixed-income securities.
Pension costs for 1994, 1993 1992 and 19911992 include the following components:
1993 1992 1991
------- ------- -------
($ in thousands)
Service cost $ 3,585 $ 3,277 $ 3,481
Interest cost on projected
benefit obligations 5,038 4,544 4,704
Net amortization and deferral 1,751 132 5,091
Return on plan assets (6,945) (5,438) (9,897)
------- ------- -------
Net pension cost $ 3,429 $ 2,515 $ 3,379
======= =======1994 1993 1992
---- ---- ----
($ in thousands)
Service cost $5,777 $3,585 $3,277
Interest cost on projected
benefit obligations 8,166 5,038 4,544
Net amortization and deferral 172 1,751 132
Return on plan assets (9,754) (6,945) (5,438)
-------- ------- -------
Net pension cost $4,361 $3,429 $2,515
======== =======
========
Assumptions used in the computation of pension costs and the actuarial
present value of projected benefit obligations included the following:
1994 1993 1992 1991
---- ---- ----
Discount rate 8% 7.5% 8% 8%
Expected long-term rate of
return on plan assets 8.5% 8% 8.5% 9%
Rate of increase in
compensation levels 4.5% 4.5% 5% 5-6%
As of December 31, 1994, 1993 1992 and 1991,1992, respectively, the fair values of
plan assets were $133,964,000, $73,233,000 $68,506,000 and $63,654,000.$68,506,000. The actuarial
present values of the accumulated benefit obligations were $86,186,000,
$57,216,000 and $48,661,000 for 1994, 1993 and $44,513,000 for 1993, 1992, and 1991, respectively. The
actuarial present values of the vested accumulated benefit obligation for
1994, 1993 1992 and 1991,1992, respectively, were $77,053,000, $54,591,000 $46,819,000 and
$43,484,000.$46,819,000. The total projected benefit obligations for 1994, 1993 1992 and 1991,1992,
respectively, were $125,943,000, $75,531,000 $63,199,000 and $62,915,000.$63,199,000.
The company has agreed to assume the
pension liabilities associated with employees of the GTE Telephone Properties
acquired on December 31, 1993. GTE Corporation has agreed to transfer to the
company plan assets in an amount equal to the assumed liabilities. Such amounts
will be determined in 1994.
The companyCompany provides certain medical, dental and life insurance benefits
for retired employees and their beneficiaries and covered dependents. In
January 1993, the companyCompany implemented SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions". SFAS No. 106 requires the companyCompany
to accrue the expected costs of
F-22
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements providing postretirement benefits to
employees and to employees' beneficiaries and covered dependents during the
years the employee renders the necessary service. The company'sCompany's 1994 and 1993
annualized costs were approximately $6,605,000 and $3,671,000, respectively,
of which approximately $4,261,000 and $1,601,000 were recorded 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 accumulated
postretirement benefit obligation at December 31, 1993, was approximately
$24,000,000. The company'sCompany's annual cost includes 20-year prospective recognition of the
transition obligation. The companyCompany's accumulated postretirement benefit
obligation at December 31, 1994 was approximately $54,986,000. The Company
is currently assessing the costs and benefits of alternative funding methods.
For measurement purposes, the companyCompany used a 7.5%an 8% discount rate and a 9%
annual rate of increase in the per capitaper-capita cost of covered health carehealth-care
benefits, gradually decreasing to 6% in the year 2030 and remaining at that
level thereafter. The effect of a 1% increase in the assumed health carehealth-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 $314,000$529,000
and the effect on the accumulated postretirement benefit obligation for
health benefits would be $2,609,000.$5,332,000. The Company recorded $27,357,000 of
accumulated postretirement benefit obligation pursuant to the acquisition of
the GTE Telephone Properties.
The components of the net periodic postretirement benefit cost for the
yearyears ended December 31, 1994 and 1993 isare as follows:
1993
-----
($ in thousands)
Service cost-benefits earned during year $ 845
Interest cost 1,710
Amortization of transition obligation 1,116
======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 $3,671
======
======
The following table sets forth the accrued postretirement benefit costliability
recognized in the company'sCompany's balance sheetsheets at December 31, 1994 and 1993:
1994 1993
---- ----
($ 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)
---------
(23,996)
Unrecognized net loss 1,563
Unrecognized prior service cost (1,477)
Unrecognized transition obligation 21,201 --------
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)
========= ========
F-23
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Commitments and Contingencies:
------------------------------
The companyCompany has budgeted expenditures for facilities in 19941995 of
approximately $280,000,000$262,000,000 and certain commitments have been entered into in
connection therewith. On May 19, 1993,November 29, 1994, the companyCompany and GTEALLTEL
Corporation announced the signing of teneight definitive agreements underpursuant to
which the company would
purchaseCitizens agreed to acquire from GTE Corporation,ALLTEL, for $292,000,000, certain
properties servicing approximately $1,100,000,000 in cash
($469,487,000 of the total purchase price has been paid to date), 500,000110,000 local telephone access lines, in nine states. These transactions are consistent with the company's
growth strategy, will enable the company to achieve operating economies of scale
and
will increase the company's annual revenues to more than $1,000,000,000 once
the operations are fully integrated. These transactions require the approval of
the Federal Communications Commission and the regulatory commissions of the nine
states in which thecertain cable television systems servicing approximately 7,000 subscribers.
The properties are located. On December 31, 1993, 189,000
access lineslocated in Idaho,eight states: Arizona, California, Nevada, New
Mexico, Oregon, Tennessee, Utah and West Virginia were transferred to the
company.Virginia. The remaining access linesclosings are expected
to be transferred during 1994.
F-24
CITIZENS UTILITIES COMPANY
EXHIBITS TO FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1993
Exhibit
No. Description
- ------- -----------
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
occur state by state throughout 1995 and the first half of 1996.