CITIZENS UTILITIES COMPANY FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 Commission file number 001-11001 -------------- --------- CITIZENS UTILITIES COMPANY (Exact name of registrant as specified in its charter) Delaware 06-0619596 (State or other jurisdiction of (I.R.S.Employer Identification No.) incorporation or organization) High Ridge Park P.O. Box 3801 Stamford, Connecticut 06905 (Address of principal executive offices) (Zip Code) Registrant's telephone number,including area code(203)329-8800 NONE Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes X No Indicate the number of shares outstanding of each of the registrant's classes of common stock as of May 1, 1996. Common Stock Series A 154,534,996 Common Stock Series B 76,188,062
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES INDEX Page No. Part I. Financial Information Consolidated Condensed Balance Sheets March 31, 1996 and December 31, 1995 2 Consolidated Condensed Statements of Income for the Three Months Ended March 31, 1996 and 1995 3 Consolidated Condensed Statements of Cash Flows for the Three Months Ended March 31, 1996 and 1995 4 Notes to Financial Statements 5 Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Part II. Other Information 7 Signature 8
PART I. FINANCIAL INFORMATION CITIZENS UTILITIES COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands) March 31, 1996 December 31, 1995 ASSETS -------------- ---------------- Current assets: Cash $ 9,724 $ 17,922 Accounts receivable 205,872 199,813 Other 36,774 34,967 ------------- -------------- Total current assets 252,370 252,702 ------------- -------------- Property, plant and equipment 4,296,854 4,187,354 Less accumulated depreciation 1,342,895 1,279,324 ------------- -------------- Net property, plant and equipment 2,953,959 2,908,030 ------------- -------------- Investments 364,678 329,090 Regulatory assets 180,639 180,572 Deferred debits and other as 261,348 247,793 ------------- -------------- Total assets $ 4,012,994 $ 3,918,187 ============= ============== LIABILITIES AND EQUITY Current liabilities: Long-term debt due within one year $ 3,027 $ 3,865 Short-term debt - 140,650 Other 348,229 359,163 ------------ -------------- Total current liabilities 351,256 503,678 ------------- ------------- Customer advances for construction and contributions in aid of construction 225,388 223,923 Deferred income taxes 326,329 314,094 Regulatory liabilities 27,746 28,279 Deferred credits and other liabilities 103,028 101,300 Long-term debt 1,194,114 1,187,000 ------------- ------------- Total liabilities 2,227,861 2,358,274 ------------- ------------- Company Obligated Mandatorily Redeemable Convertible Preferred Securities * 201,250 - ------------- ------------- Shareholders' Equity: Common stock issued, $.25 par value Series A 38,749 38,839 Series B 18,827 18,057 Additional paid-in capital 1,290,617 1,263,694 Retained earnings 230,122 235,236 Unrealized gain on securities classified as available for sale 5,568 4,087 ------------- ------------- Total equity 1,583,883 1,559,913 ------------- ------------- Total liabilities and shareholders' $ 4,012,994 $ 3,918,187 ============= ============= * Represents securities of a subsidiary trust, the sole assets of which are are securities of a subsidiary partnership substantially all the assets of which are convertible debentures of the Company. The accompanying Notes are an integral part of these Financial Statements.
PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (In thousands, except per-share amounts) 1996 1995 ---------- --------- Revenues $ 329,138 $ 267,034 ---------- --------- Expenses: Operating expenses 211,116 168,738 Depreciation 47,030 39,394 ---------- ---------- 258,146 208,132 ---------- ---------- Income from operations 70,992 58,902 Other income, net 11,047 12,855 Interest expense 22,003 22,697 ---------- ---------- Income before income taxes and dividends on Company Obligated Mandatorily Redeemable Convertible Preferred Securities 60,036 49,060 Income taxes 19,927 15,156 ---------- --------- Income before dividends on convertible preferred securities 40,109 33,904 Dividends on Company Obligated Mandatorily Redeemable Convertible Preferred Securities, net of income tax benefit 1,253 - ---------- --------- Net Income $ 38,856 $ 33,904 ========== ========= Earnings per share of common stock Series A and Series B $ .17 $ .15* ========== ========= Average number of common shares outstanding for the period: Series A Common Stock 155,173 156,941* Series B Common Stock 73,769 64,826* Dividend rate declared on common stock: Paid in Series A shares on Series A Common Stock and in Series B shares on Series B Common Stock 1.6% 1.5% ========== ========= *Adjusted for subsequent stock dividends The accompanying Notes are an integral part of these Financial Statements.
PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (In thousands) 1996 1995 ----------- ----------- Net cash provided by operating activities 72,991 $ 58,722 ----------- ----------- Cash flows from investing activities: Construction expenditures (51,622) (43,523) Securities purchased (75,088) - Securities sold 20,132 51,086 Securities matured 17,710 34,423 Business acquisitions (44,200) (4,597) Other, net 304 758 ----------- ----------- (132,764) 38,147 ----------- ----------- Cash flows from financing activities: Long-term debt borrowings 20,548 12,277 Long-term debt principal payments (15,218) (12,247) Short-term debt repayments (140,650) (350,900) Issuance of Company Obligated Mandatorily Redeemable Convertible Preferred Securities 201,250 - Issuance of common stock 1,019 258,823 Common stock buybacks (14,477) - Other (897) 435 ----------- ----------- 51,575 (91,612) ----------- ----------- (Decrease) increase in cash (8,198) 5,257 Cash at January 1, 17,922 14,224 ----------- ----------- Cash at March 31, $ 9,724 $ 19,481 =========== =========== The accompanying Notes are an integral part of these Financial Statements.
PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (1) The consolidated financial statements include the accounts of Citizens Utilities Company and all subsidiaries after elimination of intercompany balances and transactions. All adjustments, which consist of only normal recurring accruals, necessary for a fair statement of the results for the interim periods have been made. (2) Earnings per share is based on the average number of outstanding shares, adjusted for subsequent stock dividends. The effect on earnings per share of outstanding stock options is immaterial. (3) In accordance with applicable regulatory systems of account, an allowance for funds used during construction is included in the cost of additions to property, plant and equipment and is allowed in rate base for rate making purposes. The allowance is not a cash item. The amount relating to equity is included in Other income, net and the amount relating to borrowings is offset against Interest expense. (4) During the first quarter of 1996 a consolidated wholly-owned subsidiary of the Company, Citizens Utilities Trust (the "Trust"), issued, in an underwritten public offering, 4,025,000 shares of 5% Company Obligated Mandatorily Redeemable Convertible Preferred Securities due 2036 ("Trust Convertible Preferred Securities"), representing preferred undivided interests in the assets of the Trust, with a liquidation preference of $50 per security (for a total liquidation amount of $201,250,000). The proceeds from the issuance of the Trust Convertible Preferred Securities and a Company capital contribution were used to purchase $207,475,000 aggregate liquidation amount of 5% Partnership Convertible Preferred Securities due 2036 from another wholly owned consolidated subsidiary, Citizens Utilities Capital L.P. (the "Partnership"). The proceeds from the issuance of the Partnership Convertible Preferred Securities and a Company capital contribution were used to purchase from the Company $211,756,050 aggregate principal amount of 5% Convertible Subordinated Debentures Due 2036. The sole assets of the Trust are the Partnership Convertible Preferred Securities, and the Company's Convertible Subordinated Debentures are substantially all the assets of the Partnership. The Company's obligations under the agreements related to the issuances of such securities, taken together, constitute a full and unconditional guarantee by the Company of the Trust's obligations relating to the Trust Convertible Preferred Securities and the Partnership's obligations relating to the Partnership Convertible Preferred Securities.
PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (a) Liquidity and Capital Resources For the three months ended March 31, 1996, the primary source of funds was from operations. Funds requisitioned from the 1995, 1994 and 1993 Series Industrial Development Revenue Bond construction fund trust accounts were used to partially pay for construction of utility plant. On January 22, 1996, a subsidiary of the Company issued 4,025,000 shares of 5% Company Obligated Mandatorily Redeemable Convertible Preferred Securities (also known as Equity Providing Preferred Income Convertible Securities or "EPPICS") having a liquidation preference of $50 per security and a maturity date of January 15, 2036. Each security is currently convertible into 3.304 shares of the Company's Common Stock Series A at a conversion price of $15.133 per share (as adjusted for subsequent stock dividends paid on Series A Common Stock. The $196,722,000 of net proceeds from the sale of these securities was used to repay short-term debt, permanently fund a portion of the acquisition of 23,000 telephone access lines in Nevada from ALLTEL Corporation on March 31, 1996 and for other general corporate purposes. The Company considers its operating cash flows and its ability to raise debt and equity capital as the principal indictors of its liquidity. Although working capital is not considered to be an indicator of the Company's liquidity, the Company experienced an increase in its working capital at March 31, 1996 as compared to December 31, 1995. The increase is primarily due to the repayment of outstanding commercial paper with the proceeds from the issuance of the EPPICS. The company has lines of credit with commercial banks under which it may borrow up to $600,000,000. There were no amounts outstanding under these lines at March 31, 1996. During the first quarter of 1996, the Company was authorized increases in annual revenues for properties in Pennsylvania and Louisiana totaling $6,317,000. The Company has requests for increases in annual revenues pending before regulatory commissions in Arizona and Hawaii. (b) Results of Operations Operating revenues for the three months ended March 31,1996 increased $62,104,000, or 23%, compared to the like 1995 period primarily due to increased telecommunications revenues. Telecommunications revenues totaled $181,753,000, a 29% increase over the 1995 amount of $140,449,000 primarily due to revenues derived from operating properties acquired since June 30, 1995. Natural gas revenues increased 21% over the prior year amount primarily due to increased consumption per customer for the Louisiana Gas Division as a result of colder than normal weather conditions. Operating expenses of $211,116,000 for the three months ended March 31, 1996 increased 25% over the 1995 amount of $168,738,000 primarily due to operating expenses related to the the telecommunications properties acquired. The increase was also attributable to an increase in natural gas purchased due to increased consumption and higher gas costs. Depreciation expense of $47,030,000 for the three months ended March 31, 1996 increased 19% compared to the like 1995 period primarily due to increased depreciable plant from the telecommunications property acquisitions. Other income, net, of $11,000,000 for the three months ended March 31, 1996 decreased 14% from $12,855,000 reported for the first quarter of 1995 primarily due to a reduction in investment income. Investment income decreased due to gains taken on the sale of securities in 1995, the proceeds of which were used to reduce short-term debt.
PART II. OTHER INFORMATION CITIZENS UTILITIES COMPANY AND SUBSIDIARIES Item 6. Reports on Form 8-K (b) The Company filed on Form 8-K dated March 29, 1996, under Item 5 "Other Events" and Item 7 "Exhibits", describing the Fifth and Sixth Supplemental Indentures, supplemental to the Indenture dated as of August 15, 1991 between Citizens Utilities Company and Chemical Bank (Trustee).
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CITIZENS UTILITIES COMPANY (Registrant) Date May 14, 1996 By: Livingston E.Ross ------------------------ ------------------ Livingston E. Ross Vice President and Controller -7-