CITIZENS UTILITIES COMPANY FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 June 30, 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 July 31, 1996. Common Stock Series A 154,442,966 Common Stock Series B 78,498,381
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES INDEX Page No. Part I. Financial Information Consolidated Condensed Balance Sheets June 30, 1996 and December 31, 1995 2 Consolidated Condensed Statements of Income for the Three Months Ended June 30, 1996 and 1995 3 Consolidated Condensed Statements of Income for the Six Months Ended June 30, 1996 and 1995 4 Consolidated Condensed Statements of Cash Flows for the Six Months Ended June 30, 1996 and 1995 5 Notes to Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Part II. Other Information 9 Signature 10
PART I. FINANCIAL INFORMATION CITIZENS UTILITIES COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (In thousands) June 30, 1996 December 31, 1995 -------------- ----------------- ASSETS Current assets: Cash $ 27,006 $ 17,922 Accounts receivable 218,627 199,813 Other 46,905 34,967 ------------- -------------- Total current assets 292,538 252,702 ------------- -------------- Property, plant and equipment 4,372,058 4,187,354 Less accumulated depreciation 1,386,268 1,279,324 ------------- -------------- Net property, plant and equipment 2,985,790 2,908,030 ------------- -------------- Investments 446,752 329,090 Regulatory assets 180,705 180,572 Deferred debits and other assets 262,521 247,793 ------------- -------------- Total assets $ 4,168,306 $ 3,918,187 ============= ============== LIABILITIES AND EQUITY Current liabilities: Long-term debt due within one year $ 3,067 $ 3,865 Short-term debt - 140,650 Other 289,254 359,163 ------------- --------------- Total current liabilities 292,321 503,678 Customer advances for construction and contributions in aid of construction 226,882 223,923 Deferred income taxes 337,182 314,094 Regulatory liabilities 27,214 28,279 Deferred credits and other liabilities 103,710 101,300 Long-term debt 1,366,749 1,187,000 ------------ ------------- Total liabilities 2,354,058 2,358,274 ------------- ------------- Company Obligated Mandatorily Redeemable Convertible Preferred Securities * 201,250 - ------------- ------------- Shareholders' Equity: Common stock issued, $.25 par value Series A 38,751 38,839 Series B 19,424 18,057 Additional paid-in capital 1,314,319 1,263,694 Retained earnings 237,607 235,236 Unrealized gain on securities classified as available for sale 2,897 4,087 ------------- ------------- Total shareholders' equity 1,612,998 1,559,913 ============= ============= Total liabilities and equity $ 4,168,306 $ 3,918,187 ============= ============= * Represents securities of a subsidiary trust, the sole assets of which are securities of a subsidiary partnership substantially all the assets of which are convertible debentures of the Company. The accompanying Notes are an integral part of these Financial Statements.
PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995 (In thousands, except per-share amounts) 1996 1995 ------------ ------------ Revenues $ 318,128 $ 251,678 ------------ ------------ Expenses: Operating expenses 196,845 151,443 Depreciation 47,200 38,103 ------------ ------------ 244,045 189,546 ------------ ------------ Income from operations 74,083 62,132 Other income, net 17,776 14,924 Interest expense 22,645 21,007 ----------- ------------ Income before income taxes and dividends on Convertible preferred securities 69,214 56,049 Income taxes 21,584 14,110 ------------ ------------ Income before dividends on Convertible preferred securities 47,630 41,939 Dividend on Convertible preferred securities, net of income tax benefit 1,379 - ------------ ------------ Net Income $ 46,251 $ 41,939 ============ ============ Earnings per share of common stock Series A and Series B $ .20 $ .18* ============ ============ Average number of common shares outstanding for the period Series A Common Stock 154,999 164,857* Series B Common Stock 76,501 68,351* 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 INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (In thousands, except per-share amounts) 1996 1995 ------------ ------------ Revenues $ 647,265 $ 518,712 ------------ ------------ Expenses: Operating expenses 407,962 320,182 Depreciation 94,229 77,496 ------------ ------------ 502,191 397,678 ------------ ------------ Income from operations 145,074 121,034 Other income, net 28,823 27,779 Interest expense 44,647 43,704 ------------ ------------ Income before income taxes and dividends on Convertible preferred securities 129,250 105,109 Income taxes 41,511 29,266 ------------ ------------ Income before dividends on Convertible preferred securities 87,739 75,843 Dividend on Convertible preferred securities, net of income tax benefit 2,632 - ------------ ------------ Net Income $ 85,107 $ 75,843 ============ ============ Earnings per share of common stock Series A and Series B $ .37 $ .33* ============ ============ Average number of common shares outstanding for the period Series A Common Stock 155,177 161,037* Series B Common Stock 74,962 66,463* Dividend rate declared on common stock compounded: Paid in Series A shares on Series A Common Stock and in Series B shares on Series B Common Stock 3.23% 3.02% ============ ============ *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 SIX MONTH ENDED JUNE 30, 1996 AND 1995 (In thousands) 1996 1995 ----------- ----------- Net cash provided by operating activities $ 149,813 $ 97,987 ----------- ----------- Cash flows from investing activities: Construction expenditures (143,605) (94,788) Securities purchased (175,489) (14,738) Securities sold 33,837 82,785 Securities matured 22,639 64,764 Business acquisitions (84,303) (111,470) Other, net (16,807) (5,084) ----------- ----------- (363,728) (78,531) ----------- ----------- Cash flows from financing activities: Long-term debt borrowings 284,273 185,333 Long-term debt principal payments (99,021) (126,332) Short-term debt repayments (140,650) (354,600) Issuance of convertible preferred securities 201,250 - Employee stock purchase and option plans 3,622 267,262 Common stock buybacks (29,708) - Other 3,233 12,228 ----------- ----------- 222,999 (16,109) ----------- ----------- (Decrease) increase in cash 9,084 3,347 Cash at January 1, 17,922 14,223 ----------- ----------- Cash at March 31, $ 27,006 $ 17,570 =========== =========== 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 six months ended June 30, 1996, the Company used proceeds from operations and net financings to fund investments and construction. On January 22, 1996, Citizens Utilities Rural Telephone Company, Inc., a subsidiary of the Company, under its Rural Telephone Bank Loan Contract, was advanced $4,464,000. These funds bear an initial interest rate of 5.83% and have an ultimate maturity date of December 31, 2027. 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 3.357 shares of the Company's Common Stock Series A at a conversion price of $14.895 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. On June 11, 1996, the Company issued $100,000,000 of debentures at a price of 99.818% with an interest rate of 6.8% and a maturity date of August 15, 2026. The debentures are redeemable at par at the option of the holders on August 15, 2003. The proceeds from the sale of the debentures were used to repay outstanding commercial paper. On August 1, 1996, the Company arranged for the issuance of $16,700,000 of Industrial Development Revenue Bonds. The Bonds were issued as money market bonds with an initial interest rate of 3.67% and an ultimate maturity date of July 1, 2031. Proceeds from the issuance will be used to fund the construction of the Company's water utility facilities in the State of Pennsylvania. The Company considers its operating cash flows and its ability to raise debt and equity capital as the principal indicators of its liquidity. Although working capital is not considered to be an indicator of the Company's liquidity, the Company experienced an increase in its working capital at June 30, 1996 as compared to December 31, 1995. The increase is primarily due to the repayment of outstanding commercial paper with the proceeds from the issuances of the EPPICS and debentures. 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 June 30, 1996. During 1996 to date, the Company was authorized increases in annual revenues for properties in Pennsylvania, Louisiana and Hawaii totaling $20,017,000, $5,983,000 of which was granted in an interim order as of June 1995. The Company has requests for increases in annual revenues pending before the regulatory commission in Arizona. (b) Results of Operations Operating revenues increased for the three and six months ended June 30, 1996 in comparison to the like 1995 periods primarily due to an increase in telecommunications revenues. Telecommunications revenues for the 1996 second quarter totaled $201,249,000, a 33% increase over the $151,088,000 for the second quarter of 1995. Telecommunications revenues for the six months ended June 30, 1996 totaled $383,001,000, a 31% increase over the 1995 amount of $291,538,000. For both the quarter and the six months ended June 30, 1996, the increase in revenues was primarily due to increased customers and usage.
PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES Natural gas revenues for the 1996 second quarter totaled $48,276,000, a 19% increase over the $40,691,000 for the second quarter of 1995. Natural gas revenues for the six months ended June 30, 1996 totaled $132,059,000, a 20% increase over the 1995 amount of $109,778,000. For both the quarter and the six months ended June 30, 1996, the increase in revenues was primarily the result of increased consumption per customer in Louisiana due to colder than normal weather conditions which was partially offset by decreased usage in Arizona due to milder than expected weather conditions. In addition to consumption increases, there was also a rate increase in Louisiana which took effect on May 1, 1996. Electric revenues for the 1996 second quarter totaled $46,940,000, a 15% increase over the $40,990,000 for the second quarter of 1995. Electric revenues for the six months ended June 30, 1996 totaled $90,817,000, an 11% increase over the 1995 amount of $81,636,000. For both the quarter and the six months ended June 30, 1996, the increase in revenues was primarily the result of an interim rate increase in Kauai, Hawaii which took effect on June 15, 1995 and increased consumption at the Company's Arizona electric operations. Water and Wastewater revenues for the 1996 second quarter totaled $21,663,000, a 15% increase over the $18,909,000 for the second quarter of 1995. Water and Wastewater revenues for the six months ended June 30, 1996 totaled $41,388,000, a 16% increase over the 1995 amount of $35,760,000. For both the quarter and six months ended June 30, 1996, the increase in revenues was primarily the result of rate increases in Illinois, Pennsylvania and Ohio as well as increased consumption at the Company's California and Arizona water properties. Operating expenses for the three months ended June 30, 1996 increased 30% to $196,845,000 from $151,443,000 for the like 1995 period and for the six months ended June 30, 1996 increased 27% to $407,962,000 from $320,182,000 compared to the like 1995 period primarily due to increased telecommunications operating expenses. Depreciation expense for the three and six month periods ended June 30, 1996 increased by 24% and 22%, respectively, over the corresponding 1995 periods. These increases were due to increased depreciable telecommunications plant. Other income, net for the three month period ended June 30,1996 increased by 19% over the corresponding 1995 period primarily due to an increase in the allowance for funds used during construction associated with increases in construction expenditures. Income taxes for the three and six month periods ending June 30, 1996 increased 53% and 42%, respectively, compared to the like 1995 periods due to increases in taxable income.
PART II. OTHER INFORMATION CITIZENS UTILITIES COMPANY AND SUBSIDIARIES Item 4. Submission of Matter to a Vote of Security Holders (a)The Registrant held its 1996 Annual Meeting of the Stockholders on May 23, 1996. (b)Proxies for the Annual Meeting were solicited pursuant to Regulation 14; there was no solicitation in opposition to management's nominees for directors as listed in the Proxy Statement and all such nominees were elected. The stockholders voted to elect all the nominees as directors. Directors elected along with their respective percentage of total outstanding shares voted in the affirmative were: N. I. Botwinik (80%), A. I. Fleischman (81%), J. C. Goodale (81%), S. Harfenist (81%), A. N. Heine (81%), E. A. Rickless (81%), J. L. Schroeder (81%), R. D. Siff (80%), R. A. Stanger (81%), C. H. Symington, Jr.(81%), E. Tornberg (81%), C. Tow (78%) and L. Tow (80%). Stockholders voted only 5% of outstanding shares in the negative for one or more of the nominees. The stockholders voted 69% of total outstanding shares in the affirmative for the approval of the Citizens Utilities Company 1996 Equity Incentive Plan. Stockholders voted only 15% of outstanding shares against the approval of the plan. The stockholders voted 75% of total outstanding shares in the affirmative for the approval of Amendment to the Restated Articles of Incorporation to increase the authorized amount of common stock. Stockholders voted only 8% of outstanding shares against the approval of the Amendment. Item 6. Reports on Form 8-K (b)The Company filed on Form 8-K dated May 28, 1996 under Item 7 "Financial Statements and Exhibits", the exhibits previously filed on Form S-3 on October 23, 1995 related to the registration of Company Obligated Convertible Preferred Securities.
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 August 14, 1996 By: Livingston E. Ross ------------------------------------ -------------------- Livingston E. Ross Vice President and Controller