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CITIZENS UTILITIES COMPANY
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1995
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 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
Securities registered pursuant to Section 12(b) of the Act:
Common Stock Series A, par value $.25 per share New York Stock Exchange
Common Stock Series B, par value $.25 per share New York Stock Exchange
(Title of each class) (Name of exchange on which
registered)
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months, (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days.
Yes X No
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant as of January 31, 1996: $2,721,397,606.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of January 31, 1996.
Common Stock Series A 154,679,357
Common Stock Series B 73,326,013
DOCUMENTS INCORPORATED BY REFERENCE
The Proxy Statement for the registrant's 1996 Annual Meeting of Stockholders is
incorporated by reference into Part III of this Report.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Item 1. Description of Business
(a) General Development of Business
The "Company" includes Citizens Utilities Company and its subsidiaries except
where the context or statement indicates otherwise. The Company is a diversified
operating public utility which provides, either directly or through
subsidiaries, telecommunications, electric distribution, natural gas
transmission and distribution and water or wastewater services to nearly
1,600,000 customer connections in areas of nineteen states.
The Company was incorporated in Delaware in 1935 to acquire the assets and
business of a predecessor corporation. Since then, the Company has grown as a
result of investment in owned utility operations and numerous acquisitions of
additional utility operations. It continues to consider and carry out business
expansion through acquisitions and joint ventures in traditional public utility
and related fields and the rapidly evolving telecommunications and cable
television industries. The Company's strong financial resources and consistent
operating performance enable it to make the investments and conduct the
operations necessary to serve growing areas and to expand through acquisitions.
In 1993 and 1994, the Company agreed to acquire from GTE Corp. and ALLTEL
Corporation approximately 610,000 local telephone access lines and 7,000
cable subscribers in twelve states for approximately $1.4 billion. As of
December 31, 1995 all but approximately 23,000 local telephone access lines
in Nevada have been transferred to the Company.
(b) Financial Information about Industry Segments
The Consolidated Statements of Income and Note 10 of the Notes to Consolidated
Financial Statements included herein sets forth financial information about
industry segments of the Company for the last three fiscal years.
(c) Narrative Description of Business
TELECOMMUNICATIONS
The Company provides telecommunications services to all segments of the
marketplace. Telecommunications services consist of local exchange service,
centrex service, network access service, intrastate and interstate toll
services, competitive access services and directory services. The Company
provides telecommunications services to the following approximate number of
primarily residential customers in the following states:
State Customers
----- ---------
New York 295,600
West Virginia 139,400
Arizona 133,000
California 116,300
Tennessee 81,100
Idaho 18,600
Utah 18,300
Oregon 13,100
Montana 7,800
New Mexico 4,700
Louisiana 2,700
Washington 2,300
------------
Total 832,900
============
Various state regulatory agencies, state legislatures and the federal government
have initiated proceedings to promote the development of competition in
telecommunications markets. These proceedings are focused on removing the
regulatory and legal barriers to competitive entry into the interLATA toll,
intraLATA toll and local exchange markets and developing rules to govern the
relationship among competitors in these markets. Simultaneously, many states are
investigating or have implemented procedures for local exchange companies to
enter into incentive regulatory frameworks ("IRF") as an alternative to
traditional 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. Local exchange competition has
been authorized in the following states in which the Company currently provides
local exchange service: Arizona, California, New York, Oregon, Tennessee, Utah
and West Virginia.
On November 8, 1995, the California Public Utilities Commission issued a final
order approving a restructuring of Citizens Telecom of California's ("CTCC")
rates and an Incentive Regulatory Framework ("IRF"). The restructured rates
allow CTCC to compete more effectively. Under the IRF, CTCC can earn and keep up
to 1.5% above its authorized rate of return while earned returns greater than
1.5% and up to 5% above its authorized rate of return will be shared equally
with customers.
The Company has developed, and is implementing, an aggressive growth strategy to
take advantage of opportunities in the emerging telecommunications marketplace.
This strategy includes expansion of the Company's customer base and
telecommunications services. The Company's customer base expansion is
focused on its franchised service territories as well as markets adjacent to
these franchised service territories, and includes customers of affiliated
companies. The Company's expansion of telecommunications of services is with
the objective of becoming a full service telecommunications provider,
offering to customers an integrated package of products and services.
The Company will expand into additional markets by offering its long
distance service in combination with other value-added services such as
Internet access, messaging and Centrex. The Company sells its products
using multiple sales distribution channels and a marketing organization
structured around product management and customer segmentation. The
key products the Company offers or plans to offer are long-distance,
or toll, services, advanced CLASS, voice mail, Internet access, data,
cellular and paging services in addition to its traditional local exchange
services. As required, approvals have been and are received, the Company has
begun and intends to provide intrastate and interstate toll services in
those markets it currently serves as well as several adjacent markets. Toll
services include One plus, 800, calling card, 10XXX and prepaid calling
card services. The Company is investigating other value-added services
such as fax on demand, voice activated dialing, desktop video conferencing,
cable modem and direct broadcast satellite.
The Company currently contracts for advertising sales, printing and distribution
for its 77 telephone directories with a circulation of approximately 1.7
million.
The Company expects to expand and enhance its network in order to offer
distribution capability to interexchange carriers and potentially to other long
distance resellers, cellular companies, cable companies, and other independent
telephone companies. The Company currently sells access primarily to AT&T Corp.,
MCI Communications Corp. and Sprint Corp. and provides billing and collection
services to AT&T Corp.
The Company continues to expand its subsidiary, Electric Lightwave, Inc.
("ELI"), a competitive access provider in Arizona, California, Oregon, Utah and
Washington. Through ELI, the Company has been granted authority in Washington,
Utah and Oregon to provide competitive local exchange service. The Company
completed construction of a fiber-optic route from Las Vegas, Nevada to Phoenix,
Arizona which provides the Company with fiber optic capacity for its long
distance operations as well as for other telecommunications carriers.
The Company owns a one-third interest and is general managing partner of
Mohave Cellular, a cellular limited partnership operating six cell sites in
Arizona.
On September 22, 1994, a subsidiary of the Company and a subsidiary of Century
Communications Corp. ("Century") entered into a joint venture agreement for the
purpose of acquiring, for approximately $89 million, and operating two cable
television systems in southern California (the "Systems"). Century is a cable
television company of which Leonard Tow, the Chairman, Chief Executive Officer
and Chief Financial Officer of the Company, is Chairman, Chief Executive Officer
and Chief Financial Officer. In addition, Claire Tow, a director of the Company,
is a Senior Vice President and a director of Century and Robert Siff, a director
of the Company is a director of Century. The joint venture is governed by a
management board on which the Company and Century are equally represented. The
joint venture has entered into an agreement pursuant to which a subsidiary of
Century (the "Manager") will manage the day-to-day operations of the Systems.
The Manager will not receive a management fee but will be reimbursed only for
the actual costs it incurs on behalf of the joint venture. With respect to the
purchase of any service or asset for the joint venture for use in the Systems,
the Manager is obligated to pass through to the joint venture any discount, up
to 5%, off the published prices of vendors and is entitled to retain any
discount in excess of 5%. On September 30, 1994, the joint venture acquired the
first system serving approximately 26,500 subscribers. On November 30, 1995, the
joint venture acquired the second system, serving approximately 20,700
subscribers.
The Company has entered into a systems integration agreement with ALLTEL
Corporation to reengineer all local exchange telephone billing and customer care
business processes and to develop the next generation of telecommunications
support systems.
NATURAL GAS
Operating divisions of the Company provide natural gas transmission and
distribution services to the following approximate number of primarily
residential customers in the following states.
State Customers
----- ---------
Louisiana 262,900
Arizona 88,100
Colorado 12,200
-------
Total 363,200
=======
The provision of services and/or rates charged are subject to the jurisdiction
of federal and state regulatory agencies. The Company purchases all needed
natural gas, the supply of which is believed to be adequate to meet current
demands and to provide for additional sales to new customers. The natural gas
industry is subject to seasonal demand, with the peak demand occurring during
the heating season of November 1 through March 31. The Company's natural gas
sector experiences third party competition from fuel oil, propane, and other
natural gas suppliers for most of its large consumption customers (of which
there are few) and from electric suppliers for all of its customer base. The
competitive position of natural gas at any given time depends primarily on the
relative prices of natural gas and these other energy sources.
The Company continues to expand its northern Arizona natural gas transmission
and distribution service area. The service area has grown from 65,000 customers
in 1991 to 82,000 customers as of December 31, 1995.
ELECTRIC
Operating divisions of the Company provide electric transmission and
distribution services to the following approximate number of primarily
residential customers in the following states:
State Customers
----- ---------
Arizona 58,500
Hawaii 28,800
Vermont 20,000
------
Total 107,300
=======
The provision of services and/or rates charged are subject to the jurisdiction
of federal and state regulatory agencies. The Company purchases 80% of needed
electric energy, the supply of which is believed to be adequate to meet current
demands and to provide for additional sales to new customers. As a whole, the
Company's electric sector does not experience material seasonal fluctuations.
There have been federal and state regulatory activities with the aim of creating
a more competitive environment in the electric utility industry. These federal
and state regulatory activities are still in the investigation stage. The
Company anticipates no material adverse impact on its electric sector should the
industry be opened to competition since the Company is not a large generator of
electric power and serves primarily residential customers. The advent of
competition would most likely provide opportunities for expansion. In response
to regulatory initiatives, the Company's electric sector is proceeding with
demand-side management programs and integrated resource planning techniques
designed to promote the most efficient use of electricity and to reduce the
environmental impacts associated with new generation facilities.
In 1994, the Company filed for a $19,153,000 rate increase with the Hawaii
Public Utilities Commission ("HPUC"). Part of the requested increase is for the
recovery of restoration and repair costs associated with Hurricane Iniki. In an
effort to reduce the rate impact on its customers, the Company subsequently
filed an application with the HPUC to recover $8,000,000 of the $19,153,000
through a statewide surcharge to partially recover Iniki restoration and repair
costs under the provisions of Subsection 269-16.3 of the Hawaii Revised
Statutes. If the HPUC approves the surcharge application, customers of
all electric utility companies in Hawaii would pay a portion of the approved
Iniki restoration and repair costs over a five year period and the
Company's rate increase request will be reduced by $8,000,000. The HPUC
issued an Interim Decision and Order which took effect on June 15, 1995
granting the Company a $5,983,000 interim increase in annual revenues.
The second phase of the requested rate increase and the statewide surcharge
is expected to be included in a final order from the HPUC. The Company
expects a final order in the first half of 1996.
WATER/WASTEWATER
The Company provides water and/or wastewater treatment services to the following
approximate number of primarily residential customers in the following states:
State Customers
----- ---------
Arizona 107,600
Illinois 68,700
California 59,600
Pennsylvania 27,200
Ohio 14,600
Indiana 1,300
----------
Total 279,000
==========
The provision of services and/or rates charged are subject to the jurisdiction
of federal, state and local regulatory agencies. A significant portion of the
Company's water/wastewater treatment sector construction expenditures necessary
to serve new customers are made under agreements with land developers who
generally advance funds for construction and/or plant to the Company that are
later refunded in part by the Company as new customers and revenues are added in
the respective land developments.
In addition to increasing customers through agreements with land developers, the
Company acquires ongoing water/wastewater operations from municipalities and
private companies. In 1995, the Company acquired approximately 4,300 customers
of the water/wastewater systems in Youngtown, Arizona and Douglasville,
Pennsylvania.
In September 1992, the EPA filed a complaint with the United States District
Court for the Northern District of Illinois relating to alleged violations by
the Company's Illinois subsidiary with respect to National Pollutant Discharge
Elimination System permit requirements. The Company settled this action on March
21, 1995 and paid a $490,000 fine. Under the settlement, the Company also agreed
to construct plant improvements, with an estimated cost of $2,200,000, which
would be required in order to comply with new discharge limits provided for by
the settlement. Shortly after the action was settled, the Company entered into a
tentative agreement with the Village of Bolingbrook to transfer flow from the
Company's to the Village's nearby facilities for treatment. If this agreement
with the Village is approved by the EPA and the Court, the Company's plant would
be converted to a flow transfer station. The Company's financial obligations
would be the same under either the plant improvement project or the flow
transfer project. The agreement with the Village of Bolingbrook is now pending
approval by the EPA and the court. As a regulated entity, the Company is
entitled to earn a fair rate of return on improvements that are placed in
service for the benefit of its customers. The Company believes that the cost of
the above discussed improvements will be recovered through customer rates.
General
The Company's public utility operations are conducted primarily in small and
medium size towns and communities. No material part of the Company's business is
dependent upon a single customer or small group of customers for its revenues.
As a result of its diversification, the Company is not dependent upon any single
geographic area or upon any one type of utility service for its revenues. Due to
this diversity, no single regulatory body regulates a utility service of the
Company accounting for more than 10.3% of its 1995 revenues.
The Company is subject to regulation by the respective state regulatory agencies
and federal regulatory agencies. The Company is not subject to the Public
Utility Holding Company Act. Order backlog is not a significant consideration in
the Company's business, and the Company has no contracts or subcontracts which
may be subject to renegotiation of profits or termination at the election of the
federal government. The Company holds franchises from local governmental bodies,
which vary in duration. The Company also holds certificates of convenience and
necessity granted by various state commissions which are generally of indefinite
duration. The Company has no special working capital practices. The Company's
research and development activities are not material. There are no patents,
trademarks, licenses or concessions held by the Company that are material.
The Company had 4,760 employees at December 31, 1995.
(d) Financial Information about Foreign and Domestic Operations and Export
Sales
The Company does not have any foreign operations or material export sales except
for the following: In 1995, the Company made a $4,200,000 investment in and
entered into definitive agreements with Hungarian Telephone and Cable Corp.
("HTCC"), a Delaware corporation. Pursuant to these agreements (i) the Company
has rights to purchase up to 54% of HTCC common stock, (ii) provides certain
management services to HTCC on a cost-plus basis, (iii) has the right to and has
designated one member of the HTCC Board of Directors, and (iv) has provided HTCC
with guarantees and financial support. HTCC presently controls the rights to
own, operate and expand certain telecommunications services in certain
regions of Hungary. The management services fee payable by HTCC to the
Company is the greater of 5% of adjusted gross revenues of HTCC or a monthly
fixed amount. In addition, expenses incurred by the Company in providing such
services, including certain allocable overhead items, are to be reimbursed by
HTCC. A subsidiary of the Company is the guarantor of a $33,200,000 bank loan
to HTCC. The Company has agreed to provide HTCC with up to $20,000,000 of
additional financial support. The Company has been compensated for such
guarantees and financial support.
Item 2. Description of Property
The administrative offices of the Company are located at High Ridge Park,
Stamford, Connecticut, 06905 and are leased. The Company owns property
including: telecommunications outside plant, central office, microwave radio and
fiber-optic facilities; electric generation, transmission and distribution
facilities; gas transmission and distribution facilities; water production,
treatment, storage, transmission and distribution facilities; and wastewater
treatment, transmission, collection and discharge facilities; all of which are
necessary to provide services at the locations listed below.
State Service(s) Provided
Arizona Electric, Natural Gas,
Telecommunications,*
Water, Wastewater
California Telecommunications, Water
Colorado Natural Gas
Hawaii Electric
Idaho Telecommunications
Illinois Water, Wastewater
Indiana Water
Louisiana Natural Gas, Telecommunications
Montana Telecommunications
New Mexico Telecommunications
New York Telecommunications
Ohio Water, Wastewater
Oregon Telecommunications
Pennsylvania Water
Tennessee Telecommunications
Utah Telecommunications
Vermont Electric
Washington Telecommunications
West Virginia Telecommunications*
* Certain properties are subject to mortgage deeds pursuant to Rural Utilities
Services and Rural Telephone Bank borrowings.
Item 3. Legal Proceedings
In September 1992, the EPA filed a complaint with the United States District
Court for the Northern District of Illinois relating to alleged violations by
the Company's Illinois subsidiary with respect to National Pollutant Discharge
Elimination System permit requirements. The Company settled this action on March
21, 1995 and paid a $490,000 fine. Under the settlement, the Company also agreed
to construct plant improvements, with an estimated cost of $2,200,000, which
would be required in order to comply with new discharge limits provided for by
the settlement. Shortly after the action was settled, the Company entered into a
tentative agreement with the Village of Bolingbrook to transfer flow from the
Company's to the Village's nearby facilities for treatment. If this agreement
with the Village is approved by the EPA and the Court, the Company's plant would
be converted to a flow transfer station. The Company's financial obligations
would be the same under either the plant improvement project or the flow
transfer project. The agreement with the Village of Bolingbrook is now pending
approval by the EPA and the court. As a regulated entity, the Company is
entitled to earn a fair rate of return on improvements that are placed in
service for the benefit of its customers. The Company believes that the cost of
the above discussed improvements will be recovered through customer rates.
Item 4. Submission of Matters to Vote of Security Holders
None in fourth quarter 1995.
Executive Officers
Information as to Executive Officers of the Company as of January 31, 1996,
follows:
Name Age Current Position and Office
Leonard Tow 67 Chairman of the Board, Chief
Executive Officer and Chief
Financial Officer
Daryl A. Ferguson 57 President and Chief Operating
Officer
Robert J. DeSantis 40 Vice President and Treasurer
James P. Avery 39 Vice President, Energy
Richard A. Faust, Jr. 49 Vice President, Mohave County
J. Michael Love 44 Vice President, Corporate
Planning
Robert L. O'Brien 53 Vice President, Regulatory
Affairs
Livingston E. Ross 47 Vice President and Controller
David B. Sharkey 46 President, Electric
Lightwave, Inc.
Ronald E. Spears 47 Vice President,
Telecommunications
Ronald E. Walsh 56 Vice President,
Water/Wastewater
There is no family relationship between any of the officers of the
Registrant. The term of office of each of the foregoing officers of the
Registrant will continue until the next annual meeting of the Board of Directors
and until a successor has been elected and qualified.
LEONARD TOW has been associated with the Registrant since April 1989 as a
Director. In June 1990, he was elected Chairman of the Board and Chief Executive
Officer. In October 1991, he was appointed to the additional position of Chief
Financial Officer of the Registrant. He has also been a Director, Chief
Executive Officer and Chief Financial Officer of Century Communications Corp.
since its incorporation in 1973, and Chairman of its Board of Directors since
October 1989.
DARYL A. FERGUSON has been associated with the Registrant since July 1989. He
was Vice President, Administration from July 1989 through March 1990 and Senior
Vice President, Operations and Engineering from March 1990 through June 1990. He
has been President and Chief Operating Officer since June 1990. During the
period April 1987 through July 1989, he was President and Chief Executive
Officer of Microtecture Corporation. He is currently a Director of Centennial
Cellular Corp.
ROBERT J. DeSANTIS has been associated with the Registrant since January
1986. He was Assistant to the Treasurer through May 1986 and Assistant Treasurer
from June 1986 through September 1991. He has been Vice President and Treasurer
since October 1991.
JAMES P. AVERY has been associated with the Registrant since August 1981. He
was Project Manager, Electric through June 1988, Assistant Vice President,
Electric Operations from June 1988 through December 1990 and Vice President,
Electric from December 1990 through May 1994. He has been Vice President, Energy
since June 1994.
RICHARD A. FAUST, JR. has been associated with the Registrant since December
1990. He was associated with Louisiana General Services, Inc. from 1972 until
that Company was merged with the Registrant in December 1990. He served as Vice
President, General Counsel and Secretary of Louisiana General Services, Inc.
from March 1984 through May 1993. He was elected Vice President, Mohave County,
(Arizona) in June 1993.
J. MICHAEL LOVE has been associated with the Registrant since May 1990 and
from November 1984 through January 1988. He was Assistant Vice President,
Regulatory Affairs and Community Relations from June 1986 through January 1988.
He left the Registrant in January 1988 to become President and General Counsel
of Southern New Hampshire Water Company. He rejoined the Registrant in April
1990 and was Assistant Vice President, Corporate Planning from June 1990 through
March 1991. He has been Vice President, Corporate Planning since March 1991.
ROBERT L. O'BRIEN has been associated with the Registrant since March 1975.
He has been Vice President, Regulatory Affairs since June 1981.
LIVINGSTON E. ROSS has been associated with the Registrant since August 1977.
He was Manager of Reporting from September 1984 through March 1988, Manager of
General Accounting from April 1988 through September 1990 and Assistant
Controller from October 1990 through November 1991. He has been Vice President
and Controller since December 1991.
DAVID B. SHARKEY has been associated with the Registrant since August 1994
and has been President of Electric Lightwave, Inc. since that date. Prior to
joining the Registrant, he was Vice President and General Manager of MobilMedia,
a wireless company headquartered in New Jersey from August 1989 through July
1994.
RONALD E. SPEARS has been associated with the Registrant since June 1995 and
has been Vice President, Telecommunications since that date. Prior to joining
the Registrant, he was Managing Director at Russell Reynolds Associates, an
executive recruiting firm from April 1994 to May 1995. He was Chairman and Chief
Executive Officer, and prior to that, President and Chief Operating Officer of
Videocart, Inc. from February 1991 to March 1994. He served as President, MCI
Midwest, an operating division of MCI Telecommunications from September 1984 to
January 1991.
RONALD E. WALSH has been associated with the Registrant since January 1986.
He was Attorney and Assistant Secretary from November 1987 through August 1992.
He has been Vice President, Water/Wastewater since August 1992.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the New York Stock
Exchange under the symbols CZNA and CZNB for Series A and Series B,
respectively. The following table indicates the high and low prices
per share as taken from the daily quotations published in the "Wall
Street Journal" during the periods indicated. Prices have been
adjusted retroactively for subsequent stock dividends and the August
31, 1993 2-for-1 stock split, rounded to the nearest 1/8th. (See Note
7 of Notes to Consolidated Financial Statements.)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High Low High Low High Low High Low
1995:
Series A $13 5/8 $11 3/4 $12 3/8 $10 1/4 $11 1/2 $10 5/8 $13 1/4 $10 5/8
Series B 13 5/8 11 3/4 12 3/8 10 1/2 11 1/2 10 3/4 13 3/8 10 5/8
1994:
Series A 16 1/8 13 1/8 14 7/8 12 1/2 13 5/8 12 3/8 13 11 3/4
Series B 16 1/4 13 14 7/8 12 1/2 13 5/8 12 3/8 13 11 7/8
1993:
Series A 15 3/4 12 16 1/2 14 1/4 16 3/8 11 7/8 17 3/4 14 3/8
Series B 15 3/4 12 1/8 16 1/2 14 1/8 16 3/8 11 7/8 17 5/8 14 3/8
1992:
Series A 11 1/8 9 3/8 10 3/4 9 7/8 12 1/8 9 5/8 13 10 3/4
Series B 10 7/8 9 3/8 10 3/4 9 1/2 12 1/4 9 1/2 13 10 3/4
The December 29, 1995 prices were: Series A $12 7/8 high,
$12 5/8 low; Series B $12 7/8 high, $12 5/8 low. As of January
31, 1996, the approximate number of record security holders of the
Company's Common Stock Series A and Series B was 26,330 and 21,385,
respectively. This information was obtained from the Company's
transfer agent.
DIVIDENDS
Quarterly stock dividends declared and issued on both Common
Stock Series A and Series B were 1.5% for each the first and second
quarters and 1.6% for each the third and fourth quarters of 1995.
Quarterly stock dividends declared and issued on both Common Stock
Series A and Series B were 1.1% for the first quarter of 1994, 1.15%
for the second quarter of 1994, 1.3% for the third quarter of 1994 and
1.4% for the fourth quarter of 1994. An annual cash dividend
equivalent rate of 72 1/4 cents and 68 7/8 cents per share
(adjusted for all stock dividends paid subsequent to all dividends
declared through December 31, 1995 and rounded to the nearest
1/8th) was considered by the Company's Board of Directors in
establishing the Series A and Series B stock dividends during 1995 and
1994, respectively.
(See Note 7 of Notes to Consolidated Financial Statements.)
Item 6. Selected Financial Data (In thousands, except for per-share amounts)
Year Ended December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Operating revenues $1,069,032 $906,150 $613,099 $576,881 $545,025
Net income $159,536 $143,997 $125,630 $115,013 $112,354
Earnings per-share of Common
Stock Series A and Series B(1) $.73 $.72 $.63 $.59 $.58
Stock dividends declared
on Common Stock
Series A and Series B(2) 6.35% 5.04% 4.37% 5.61% 7.93%
Total assets $3,918,187 $3,576,566 $2,627,118 $1,887,981 $1,721,452
Long-term debt $1,187,000 $ 994,189 $ 547,673 $ 522,699 $ 484,021
(1) Adjusted for subsequent stock dividends and splits; no adjustment
has been made for the Company's 1.6% first quarter 1996 stock
dividend because the effect is immaterial.
(2) Annual rate of quarterly stock dividends compounded.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(a) Liquidity and Capital Resources
In 1995, the Company's primary source of funds was from
operations. Funds requisitioned from the 1995, 1994, 1993 and
1991 Series Industrial Development Revenue Bond construction fund
trust accounts were used to pay for the construction of
qualifying utility plant. Commercial paper notes payable in the
amount of $156,800,000 were outstanding as of December 31, 1995.
$140,650,000 of such commercial paper was classified as
short-term debt as it was issued to temporarily and partially
fund the acquisition of the GTE and ALLTEL Telecommunications
Properties (see Note 3) and was to be repaid with proceeds from
the issuance of equity securities. All such short-term debt has
been repaid with equity issuance proceeds.
On May 3, 1995, the Company arranged for the issuance of
$13,550,000 of Industrial Development Revenue Bonds; the bonds
were issued as demand purchase bonds bearing interest at 6.2% and
maturing on May 1, 2030. On May 12, 1995 and January 22, 1996,
Citizens Utilities Rural Telephone Company, Inc., a subsidiary of
the Company, under it's Rural Telephone Bank Loan Contract, was
advanced $8,793,000 and $4,464,000, respectively. Such funds bear
an initial interest rate of 6.52% and 5.83%, respectively, and
have an ultimate maturity date of December 31, 2027. On January
18, 1996, $10,000,000 of the Company's 1988 Series Special
Purpose Revenue Bonds, originally issued as 7.25% demand purchase
bonds, were converted and remarketed as money market municipals,
initially bearing interest at a rate of 3.31% and maturing on
September 1, 2018.
On June 15, 1995, the Company issued $125,000,000 of
debentures at a price of 99.918% with an interest rate of 7.45%
and a maturity date of July 1, 2035. On October 20, 1995, the
Company issued $150,000,000 of debentures at a price of 99.125%
with an interest rate of 7% and a maturity date of November 1,
2025.
On January 22, 1996, a subsidiary of the Company issued
4,025,000 shares of 5% Equity Providing Preferred Income
Convertible Securities ("EPPICS") having a liquidation preference
of $50 per security and a maturity date of January 15, 2036. Each
security is initially convertible into 3.252 shares of the
Company's Common Stock Series A at a conversion price of $15.375
per share. The $196,722,000 in net proceeds from the sale of
these securities were used to repay short-term debt, permanently
fund a portion of the ALLTEL Telecommunications Properties to be
acquired, and for other general corporate purposes.
On January 30, 1995, the Company, pursuant to an underwritten
public offering, issued 19,000,000 shares of its Common Stock
Series A at an issuance price of $13 3/8 per share and realized
$244,200,000 in net proceeds. These proceeds were used to repay
short-term debt.
On April 28, 1995, 31,928 shares of Series B Common Stock were
issued to effect the merger of Douglasville Water Company into a
subsidiary of the Company. On July 17, 1995, Flex Communications
was merged into the Company requiring the issuance of 855,953
shares of Citizens Series B Common Stock. In conjunction with the
acquisitions of the ALLTEL Telecommunications Properties, the
Company assumed $41,447,000 in debt at a weighted average
interest rate of 6.59%.
The Company considers its operating cash flows and its ability
to raise debt and equity capital as the principal indicators of
its liquidity. Although working capital is not considered to be
an indicator of the Company's liquidity, the Company experienced
an increase in its working capital at December 31, 1995. The
increase is primarily due to the repayment of short-term debt
from proceeds from the maturity and sale of investments and the
issuance of equity securities. The Company has committed lines of
credit with commercial banks under which it may borrow up to
$600,000,000. There were no amounts outstanding under these lines
at December 31, 1995.
In 1995, the Company made a $4,200,000
investment in and entered into definitive agreements with
Hungarian Telephone and Cable Corp. ("HTCC"), a Delaware
corporation. Pursuant to these agreements (i) the Company has
rights to purchase up to 54% of HTCC common stock, (ii) provides
certain management services to HTCC on a cost-plus basis, (iii)
has the right to and has designated one member of the HTCC Board
of Directors, and (iv) has provided HTCC with guarantees and
financial support. HTCC presently controls the rights to own,
operate and expand certain telecommunications services in certain
regions of Hungary. The management services fee payable by HTCC
to the Company is the greater of 5% of adjusted gross revenues of
HTCC or a monthly fixed amount. In addition, expenses incurred by
the Company in providing such services, including certain
allocable overhead items, are to be reimbursed by HTCC. A
subsidiary of the Company is the guarantor of a $33,200,000 bank
loan to HTCC. The Company has agreed to provide HTCC with up to
$20,000,000 of additional financial support. The Company has been
compensated for such guarantees and financial support. The
Company's investment in HTCC is accounted for using the cost
method of accounting.
Capital expenditures for the years 1995, 1994, and
1993 were $266,963,000, and $311,420,000, and $182,480,000,
respectively, and for 1996 are expected to be approximately
$340,000,000. These expenditures were, and in 1996 will be,
for utility and related facilities and properties.
The Company anticipates that the funds necessary for its 1996
capital expenditures will be provided from operations; from 1993,
1994 and 1995 Series Industrial Development Revenue Bond
construction fund trust account requisitions; from Rural
Telephone Bank loan contract advances; from commercial paper
notes payable; from parties desiring utility service; from debt,
equity and other financings at appropriate times; and, if deemed
advantageous, from short-term borrowings under bank credit
facilities.
During 1995, the Company was authorized increases in annual
revenues for properties in Hawaii, Illinois, Ohio and Vermont
totaling $13,445,000. The Company has requests for additional
increases pending before regulatory commissions in Arizona,
Hawaii, Louisiana and Pennsylvania.
Regulatory Matters
In September 1992, the EPA filed a complaint with the United
States District Court for the Northern District of Illinois
relating to alleged violations by the Company's Illinois
subsidiary with respect to National Pollutant Discharge
Elimination System permit requirements. The Company settled this
action on March 21, 1995 and paid a $490,000 fine. Under the
settlement, the Company also agreed to construct plant
improvements, with an estimated cost of $2,200,000, which would
be required in order to comply with new discharge limits provided
for by the settlement. Shortly after the action was settled, the
Company entered into a tentative agreement with the Village of
Bolingbrook to transfer flow from the Company's to the Village's
nearby facilities for treatment. If this agreement with the
Village is approved by the EPA and the Court, the Company's plant
would be converted to a flow transfer station. The Company's
financial obligations would be the same under either the plant
improvement project or the flow transfer project. The agreement
with the Village of Bolingbrook is now pending approval by the
EPA and the court. As a regulated entity, the Company is entitled
to earn a fair rate of return on improvements that are placed in
service for the benefit of its customers. The Company believes
that the cost of the above discussed improvements will be
recovered through customer rates.
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 focused on removing the regulatory and legal
barriers to competitive entry into the interLATA toll, intraLATA
toll and local exchange markets and developing rules to govern
the relationship between competitors in these markets.
Simultaneously, many states are investigating or have implemented
procedures for local exchange companies to enter into incentive
regulatory frameworks ("IRF") as an alternative to traditional
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.
Local exchange competition has been authorized in the following
states in which the Company currently provides local exchange
service: Arizona, California, New York, Oregon, Tennessee, Utah
and West Virginia.
The Company continues to expand its subsidiary, Electric
Lightwave, Inc. ("ELI"), a competitive access provider in
Arizona, California, Oregon, Utah and Washington. Through ELI,
the Company has been granted authority in Washington, Utah and
Oregon to provide competitive local exchange service. The
Company completed construction of a fiber-optic route from Las
Vegas, Nevada to Phoenix, Arizona which provides the Company
with fiber optic capacity for its long distance operations as
well as for other telecommunications carriers.
On November 8, 1995, the California Public Utilities
Commission issued a final order approving a restructuring of
Citizens Telecom of California's ("CTCC") rates and an Incentive
Regulatory Framework ("IRF"). The restructured rates allow CTCC
to compete more effectively. Under the IRF, CTCC can earn and
keep up to 1.5% above its authorized rate of return while earned
returns greater than 1.5% and up to 5% above its authorized rate
of return will be shared equally with customers.
There have been federal and state regulatory activities with
the aim of creating a more competitive environment in the
electric utility industry. These federal and state regulatory
activities are still in the investigation stage. The Company
anticipates no material adverse impact on its electric sector
should the industry be opened to competition since the Company is
not a large generator of electric power and serves primarily
residential customers. The advent of competition would most
likely provide opportunities for expansion. In response to
regulatory initiatives, the Company's electric sector is
proceeding with demand-side management programs and integrated
resource planning techniques designed to promote the most
efficient use of electricity and to reduce the environmental
impacts associated with new generation facilities.
In 1994, the Company filed for a $19,153,000 rate increase
with the Hawaii Public Utilities Commission ("HPUC"). Part of the
requested increase is for the recovery of restoration and repair
costs associated with Hurricane Iniki. In an effort to reduce the
rate impact on its customers, the Company subsequently filed an
application with the HPUC to recover $8,000,000 of the
$19,153,000 through a statewide surcharge to partially recover
Iniki restoration and repair costs under the provisions of
Subsection 269-16.3 of the Hawaii Revised Statutes. If the
HPUC approves the surcharge application, customers of all
electric utility companies in Hawaii would pay a portion of the
approved Iniki restoration and repair costs over a five year
period and the Company's rate increase request will be
reduced by $8,000,000. The HPUC issued an Interim Decision and
Order which took effect on June 15, 1995 granting the Company a
$5,983,000 interim increase in annual revenues. The second
phase of the requested rate increase and the statewide
surcharge is expected to be included in a final order from
the HPUC. The Company expects a final order in the first half
of 1996.
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"),
effective for fiscal years beginning after December 15, 1995. The
Company will adopt SFAS 121 in the first quarter of 1996. Based
on current facts and circumstances, the Company believes that
SFAS 121 will not adversely affect the Company.
In December 1995, the Financial Accounting Standards Board
issued Statement No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), effective for fiscal years beginning
after December 15, 1995. Under SFAS 123, the Company may elect
either a "fair value" based method or the current "intrinsic
value" based method of accounting for its stock-based
compensation arrangements. If the Company were to adopt the "fair
value" based method, the Company would be required to charge
compensation expense for all of its stock-based compensation
arrangements. If the Company were to elect the "intrinsic value"
based method, the Company would be required to disclose in the
footnotes to the financial statements net income and earnings per
share computed under the "fair value" based method. The Company
will elect the "intrinsic value" based method. Accordingly, the
adoption of SFAS 123 will not impact the Company's results of
operations or financial condition.
(b) Results of Operations
Revenues
Telecommunications revenues increased $159,872,000, or 35%, in
1995 and increased $279,378,000, or 157%, in 1994. These
increases are primarily attributable to the acquired GTE and
ALLTEL Telecommunications Properties. The increase in revenues in
1995 was offset in part by the loss of $38,000,000 of
discontinued subsidy revenues from Pacific Bell which had been
received annually through the end of 1994.
Natural gas revenues had a net decrease of $11,038,000, or 5%,
in 1995 primarily due to lower average revenue per MCF of gas
sold which resulted from pass-ons to customers of lower average
gas costs from suppliers; this decrease was partially offset by
increased consumption. Natural gas revenues decreased $2,952,000,
or 1%, in 1994 compared to 1993 due to a decrease in
transportation revenues; this decrease was partially offset by
increased residential and commercial revenues from the Company's
Northern Arizona Gas operations and increased industrial gas
revenues. Pass-ons are required under tariff provisions and do
not affect net income.
The Company's electric sector revenues had a net increase of
$7,411,000, or 4%, in 1995 and $9,718,000, or 6% in 1994
primarily due to increased consumption and rate increases,
partially offset by pass-ons to customers of lower commodity
prices.
Revenues earned by the Company's water/wastewater treatment
sector increased $6,637,000, or 9%, in 1995, primarily due to
increased consumption and rate increases. In 1994, revenues
increased $6,907,000, or 11%, due to rate increases of $4,800,000
and $2,800,000 from acquired properties.
Expenses
Natural gas purchased costs decreased $8,034,000, or 7%, in
1995 and $1,305,000, or 1%, in 1994 primarily due to a decrease
in supplier prices. Under tariff provisions, increases and
decreases in the Company's wholesale costs of electric energy,
fuel oil and natural gas purchased are passed on to customers.
Electric energy purchased costs for 1995 totaled $68,900,000,
an increase of $2,185,000, or 3% ,over the 1994 amount of
$66,715,000 which was a $4,784,000, or 8%, increase over the 1993
cost of $61,931,000. The increase in electric energy purchased
was primarily due to customer growth. The increased cost of
electric energy purchased in 1994 was primarily due to increased
customer demand. Fuel oil purchased in 1995 of $16,268,000
increased $2,052,000, or 14%, from the 1994 amount of $14,216,000
primarily due to an increase in supplier prices and increased
volume to satisfy increased consumption. Fuel oil purchased cost
in 1994 decreased $679,000, or 5%, from the 1993 amount of
$14,895,000 due to a decrease in supplier prices.
Operating and maintenance expenses increased $87,333,000, or
28%, in 1995 and $139,122,000, or 83%, in 1994 primarily due to
operating expenses related to the telecommunications properties
acquired.
Depreciation expense increased $43,760,000, or 38%, in 1995
and $60,477,000, or 111%, in 1994 primarily due to increases in
depreciable plant assets as a result of acquisitions.
Taxes other than income increased $9,537,000, or 16%, in 1995
and $23,688,000, or 67% in 1994 primarily due to increased taxes
on the newly acquired telecommunications properties.
Interest expense for the year ended December 31, 1995
increased $15,031,000, or 21%, in 1995 and $35,313,000, or 94%,
in 1994 primarily due to interest paid on the additional debt
securities issued to finance the acquisitions of
telecommunications properties as well as increased Industrial
Development Revenue Bonds.
Cost increases, including those due to inflation, are expected
to be offset in due course by increases in revenues obtained
under established regulatory procedures.
Investment Income
Investment income increased $1,213,000, or 3%, in 1995
primarily due to gains realized on investments sold to
permanently fund telecommunications acquisitions. Investment
income decreased $1,643,000, or 4%, in 1994 due to the
liquidation of investments to fund the acquisitions of the
telecommunications properties.
Net Income and Earnings Per Share
Net Income increased $15,539,000, or 11%, in 1995 despite the
loss of $23,000,000 of net income reported in 1994 which was
derived from the discontinued subsidy revenues from Pacific Bell
which had been received annually through the end of 1994.
Earnings per share increased $.01 in 1995 despite the loss of
$.12 per share reported in 1994 which was derived from the
discontinued Pacific Bell subsidy and despite the issuance in
January 1995 of 19,000,000 additional shares of Common Stock
Series A.
Item 8. Financial Statements and Supplementary Data
The following documents are filed as part of this Report:
1. Financial Statements:
See Index on page F-1.
2. Supplementary Data:
Quarterly Financial Data is included in the Financial
Statements (see 1. above).
Item 9. Disagreements with Auditors on Accounting and Financial Disclosure
None
PART III
The Company intends to file with the Commission a definitive proxy statement for
the 1996 Annual Meeting of Stockholders pursuant to Regulation 14A not later
than 120 days after December 31, 1995. The information called for by this Part
III is incorporated by reference to that proxy statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The exhibits listed below are filed as part of this Report:
Exhibit
No. Description
3.1 Certificate of Incorporation
3.2 By-laws
3.2.1 Amendment dated April 14, 1992, to the By-laws
3.200.1 Restated Certificate of Incorporation of Citizens Utilities
Company, with all amendments to March 4, 1996
3.200.2 By-laws of the Company, as amended to-date of Citizens
Utilities Company, with all amendments to March 4, 1996
4.100.1 Copy of Indenture of Securities, dated as of August 15,
1991, to Chemical Bank, as Trustee
4.100.2 First Supplemental
Indenture, dated August 15, 1991
4.100.3 Letter of Representations, dated August 20, 1991, from
Citizens Utilities Company and Chemical Bank, as Trustee, to
Depository Trust Company ("DTC") for deposit of securities with
DTC
4.100.4 Second Supplemental Indenture, dated January 15, 1992, to
Chemical Bank, as Trustee
4.100.5 Letter of Representations,
dated January 29, 1992, from Citizens Utilities Company and
Chemical Bank, as Trustee, to DTC, for deposit of securities
with DTC
4.100.6 Third Supplemental Indenture, dated April 15, 1994, to Chemical
Bank, as Trustee.
4.100.7 Fourth Supplemental Indenture, dated October 1, 1994, to
Chemical Bank, as Trustee.
10.1 Incentive Deferred Compensation Plan, dated April 16, 1991
10.6 Deferred Compensation Plans for Directors, dated November 26,
1984 and December 10, 1984
10.6.1 Directors' Retirement Plan, effective January 1, 1989
10.6.2 Non-Employee Directors' Deferred Fee Equity Plan dated as of
June 28, 1994
10.9 Management Equity Incentive Plan, effective June 22, 1990
10.13 LGS Supplemental Executive Retirement Plan
10.16 Employment Agreement between Citizens Utilities Company and
Leonard Tow, as amended effective September 28, 1995
10.17 1992 Employee Stock Purchase Plan
10.18 Amendment dated May 21, 1993, to the 1992 Employee Stock
Purchase Plan
10.20 Asset Purchase Agreements, dated November 28, 1994
12. Computation of ratio of earnings to fixed charges (this item is
included herein for the sole purpose of incorporation by
reference)
21. Subsidiaries of the Registrant
23. Auditors' Consent
24. Powers of Attorney
27. Financial Data Schedule
Exhibits 10.1, 10.6, 10.6.1, 10.6.2, 10.9, 10.16, 10.17 and 10.18
are management contract or compensatory plans or arrangements.
The Company agrees to furnish to the Commission upon request
copies of the Realty and Chattel Mortgage, dated as of March 1, 1965, made by
Citizens Utilities Rural Company, Inc., to the United States of America
(the Rural Electrification Administration and Rural Telephone Bank) and the
Mortgage Notes which that mortgage secures; and the several subsequent
supplemental Mortgages and Mortgage Notes; copies of the instruments
governing the long-term debt of Louisiana General Services, Inc.; and
copies of separate loan agreements and indentures governing various Industrial
development revenue bonds; and copies of documents relating to indebtedness of
subsidiaries acquired during 1995.
Exhibit number 10.6 is incorporated by reference to the same
exhibit designation in the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1984. Exhibit number 10.6.1 is incorporated by reference to
the same exhibit designation in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1989. Exhibit number 10.9 is incorporated by
reference to Appendix A to the Registrant's Proxy Statement dated May 14, 1990.
Exhibit numbers 10.10, 10.11, 10.12 and 10.13 are incorporated by reference to
the same exhibit designation in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1990. Exhibit numbers 4.100.1, 4.100.2 and 4.100.3
are incorporated by reference to the same exhibit designation in the
Registrant's Quarterly Report on Form 10-Q for the nine months ended September
30, 1991. Exhibit numbers 3.1, 3.2, 4.100.4, 4.100.5, 10.1 and 10.16 are
incorporated by reference to the same exhibit designation in the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991. Exhibit number
3.2.1 and 10.17 is incorporated by reference to the same exhibit designation in
the Registrant's Annual Report on Form 10-K for the year ended December 31,
1992. Exhibit number 10.18 is incorporated by reference to the Registrant's
Proxy Statement, dated March 31, 1993. Exhibit number 10.19 is incorporated by
reference to exhibit number 2.1 in the Registrant's Form 8-K Current Report
filed June 30, 1993. Exhibit numbers 3.200.1 and 3.200.2 are incorporated by
reference to the same exhibit designation in the Registrant's Form S-3 filed
December 16, 1993. Exhibit numbers 4.100.6 and 4.100.7 are incorporated by
reference to the Registrant's Form 8-K Current Reports filed on July 5, 1994 and
January 3, 1995, respectively. Exhibit number 10.20 is incorporated by
reference to the same exhibit designation in the Registrant's Form 10-K for the
year ended December 31, 1994. Exhibit number 10.6.2 is incorporated by
reference to the Registrant's Proxy Statement, dated April 4, 1995.
(b) No Form 8-K was required during the three months ended December 31,
1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CITIZENS UTILITIES COMPANY
(Registrant)
By:___________________________________________
Leonard Tow
Chairman of the Board; Chief Executive Officer;
Chief Financial Officer; Member, Executive Committee
and Director
March 6, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 6th day of March 1996.
Signature Title
________________________________ Vice President and Treasurer
(Robert J. DeSantis)
________________________________ Vice President and Controller
(Livingston E. Ross)
Norman I. Botwinik* Director
- --------------------------------
(Norman I. Botwinik)
Aaron I. Fleischman* Member, Executive Committee and
- -------------------------------- Director
(Aaron I. Fleischman)
James C. Goodale* Director
- --------------------------------
(James C. Goodale)
Stanley Harfenist* Member, Executive Committee and
- -------------------------------- Director
(Stanley Harfenist)
Andrew N. Heine* Director
- --------------------------------
(Andrew N. Heine)
Elwood A. Rickless* Director
- --------------------------------
(Elwood A. Rickless)
John L. Schroeder* Member, Executive Committee and
- -------------------------------- Director
(John L. Schroeder)
Robert D. Siff* Director
- --------------------------------
(Robert D. Siff)
Robert A. Stanger* Director
- --------------------------------
(Robert A. Stanger)
Edwin Tornberg* Director
- --------------------------------
(Edwin Tornberg)
Claire L. Tow* Director
- --------------------------------
(Claire L. Tow)
Charles H. Symington, Jr* Director
- --------------------------------
(Charles H. Symington, Jr.)
*By: ---------------------------
(Robert J. DeSantis)
Attorney-in-Fact
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
Index to Financial Statements
Independent Auditors' Report F-2
Consolidated balance sheets as of December 31, 1995, 1994 and 1993 F-3
Consolidated statements of income for the years ended
December 31, 1995, 1994 and 1993 F-4
Consolidated statements of shareholders' equity for the years
ended December 31, 1995, 1994 and 1993 F-5
Consolidated statements of cash flows for the years
ended December 31, 1995, 1994 and 1993 F-6
Notes to consolidated financial statements F-7 - F-23
Independent Auditors' Report
The Board of Directors and Shareholders
Citizens Utilities Company:
We have audited the consolidated financial statements of Citizens Utilities
Company and subsidiaries as of December 31, 1995, 1994 and 1993, and the related
consolidated statements of income, shareholders' equity and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Citizens Utilities
Company and subsidiaries at December 31, 1995, 1994 and 1993, and the results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
March 1, 1996
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995, 1994 and 1993
(In thousands)
1995 1994 1993
---- ---- ----
ASSETS
Current assets:
Cash $ 17,922 $ 14,224 $ 21,738
Temporary investments 0 108,818 89,752
Accounts receivable:
Utility service 146,561 134,510 99,684
Other 55,991 34,713 15,088
Less allowance for doubtful accounts 2,739 2,428 459
--------------- -------------- ---------------
Total accounts receivable 199,813 166,795 114,313
Materials and supplies 18,191 18,330 10,061
Other current assets 16,776 5,887 4,873
-------------- -------------- --------------
Total current assets 252,702 314,054 240,737
------------- ------------ ------------
Property, plant and equipment 4,187,354 3,583,723 2,153,891
Less accumulated depreciation 1,279,324 1,014,068 461,924
------------ ----------- ------------
Net property, plant and equipment 2,908,030 2,569,655 1,691,967
------------ ----------- -----------
Investments 329,090 325,011 411,022
Regulatory assets 180,572 177,414 146,207
Deferred debits and other assets 247,793 190,432 137,185
------------- ------------ ------------
Total assets $ 3,918,187 $3,576,566 $2,627,118
=========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt $ 140,650 $ 515,200 $ 380,000
Long-term debt due within one year 3,865 13,986 1,620
Accounts payable 178,384 122,404 84,015
Income taxes accrued 72,494 92,366 82,632
Interest accrued 22,527 15,841 12,731
Customers' deposits 20,501 19,919 19,436
Other current liabilities 65,257 72,105 47,791
-------------- -------------- -------------
Total current liabilities 503,678 851,821 628,225
Deferred income taxes 314,094 248,150 213,471
Regulatory liabilities 28,279 30,830 28,376
Deferred credits 101,300 77,950 50,634
Customer advances for construction 150,000 145,150 137,012
Contributions in aid of construction 73,923 71,580 47,241
Long-term debt 1,187,000 994,189 547,673
Shareholders' equity 1,559,913 1,156,896 974,486
------------- --------------- -------------
Total liabilities and shareholders' equity $ 3,918,187 $ 3,576,566 $ 2,627,118
============ =============== ===========
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
(In thousands, except for per-share amounts)
1995 1994 1993
---- ---- ----
Revenues:
Telecommunications $616,747 $456,875 $177,497
Natural gas 197,902 208,940 211,892
Electric 175,351 167,940 158,222
Water/Wastewater 79,032 72,395 65,488
--------- ---------- ---------
Total revenues 1,069,032 906,150 613,099
---------- --------- --------
Operating expenses:
Natural gas purchased 108,385 116,419 117,724
Electric energy and fuel oil purchased 85,168 80,931 76,826
Operating expenses 306,734 244,877 142,718
Maintenance expenses 87,255 61,779 24,816
Depreciation 158,935 115,175 54,698
Taxes other than income 68,382 58,845 35,157
--------- ---------- ---------
Total operating expenses 814,859 678,026 451,939
-------- --------- --------
Income from operations 254,173 228,124 161,160
Investment income 41,667 40,454 42,097
Other income - net 18,288 12,486 12,102
Interest expense 87,775 72,744 37,431
--------- ---------- ---------
Income before income taxes 226,353 208,320 177,928
Income taxes 66,817 64,323 52,298
--------- ---------- ----------
Net income $159,536 $143,997 $125,630
======== ======== ========
Earnings per share of Common Stock
Series A and Series B $.73 $.72 $.63
==== ==== ====
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
(In thousands, except for per-share amounts)
Unrealized gain
Additional on Available-
Common Stock ($.25) Paid-in Retained for-Sale
Series A Series B Capital Earnings Securities Total
Balance January 1, 1993 $ 16,039 $ 5,651 $ 582,299 $ 233,282 $ 0 $ 837,271
Acquisitions 155 1,002 2,914 4,071
Net income 125,630 125,630
Stock dividends in shares of
Common Stock Series A and
Series B 1,029 387 129,963 (131,594) (215)
Stock split (2 for 1) 16,155 6,036 (22,191) 0
Stock plans 114 7,615 7,729
Conversions of Series A to Series B (776) 776 0
--------- --------- ---------- --------- ---------- -----------
Balance December 31, 1993 $ 32,447 $ 13,119 $ 698,688 $230,232 $ 0 $ 974,486
--------- --------- ---------- ---------- ---------- -----------
Acquisitions 126 4,646 3,231 8,003
Net income 143,997 143,997
Stock dividends in shares of
Common Stock Series A and
Series B 1,621 686 137,736 (140,043) 0
Stock plans 88 281 20,911 21,280
Conversions of Series A to Series B (570) 570 0
Change in unrealized gain on
securities classified as available-
for-sale, net of income taxes 9,130 9,130
--------- -------- ---------- --------- --------- ----------
Balance December 31, 1994 $ 33,586 $ 14,782 $ 861,981 $ 237,417 $ 9,130 $1,156,896
--------- -------- ---------- --------- --------- ----------
Acquisitions 222 (4,485) 374 (3,889)
Net income 159,536 159,536
Stock dividends in shares of
Common Stock Series A and
Series B 2,374 1,024 158,693 (162,091) 0
Common stock buybacks (115) (352) (21,561) (22,028)
Stock issuance 4,750 238,830 243,580
Stock plans 150 475 30,236 30,861
Conversions of Series A to Series B (1,906) 1,906 0
Change in unrealized gain on
securities classified as available-
for-sale, net of income taxes (5,043) (5,043)
--------- ---------- ---------- ---------- --------- -----------
Balance December 31, 1995 $38,839 $18,057 $1,263,694 $235,236 $ 4,087 $1,559,913
========= ========== ========== ========== ========= ===========
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
(In thousands)
1995 1994 1993
---- ---- ----
Net cash provided by operating activities $ 338,374 $ 262,316 $ 194,949
--------- --------- ---------
Cash flows used for investing activities:
Business acquisitions (223,926) (700,222) (481,257)
Construction expenditures (245,004) (263,162) (168,349).
Securities purchased (86,058) ( 18,219) (254,203)
Securities sold 92,224 23,478 269,624
Securities matured 120,691 89,885 54,465
Other 55 (13,795) (7,086)
--------- ---------- -----------
(342,018) (882,035) (586,806)
---------- --------- ----------
Cash flows from financing activities:
Long-term debt borrowings 321,280 458,589 34,733
Long-term debt principal payments (192,030) ( 1,268) (26,644).
Short-term debt (repayments) borrowings (374,550) 135,200 380,000
Issuance of common stock 272,687 18,465 3,780
Common stock buybacks (22,028) 0 0
Other 1,983 1,219 1,974
----------- -------- -----------
7,342 612,205 393,843
----------- --------- --------
Increase (decrease) in cash 3,698 (7,514) 1,986
Cash at January 1, 14,224 21,738 19,752
----------- --------- --------
Cash at December 31, $ 17,922 $ 14,224 $ 21,738
=========== ========= ========
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
CITIZENS UTILITIES COMPANY AND SUBSIDIARES
Notes to Financial Statements
(1) Summary of Significant Accounting Policies:
(a) Description of Business:
Citizens Utilities Company is a diversified operating public utility
providing telecommunications , electric distribution, natural gas
transmission and distribution and water/wastewater treatment services
to nearly 1,600,000 customer connections in areas of nineteen states
in the United States. The Company is not dependent upon any single
customer, geographic area or upon any one type of utility service for
its revenues.
(b) Principles of Consolidation and Use of Estimates:
The consolidated financial statements have been prepared in
accordance with Generally Accepted Accounting Principles and include
the accounts of Citizens Utilities Company and all of its
subsidiaries, after elimination of intercompany balances and
transactions. Certain reclassifications of balances previously
reported have been made to conform to current presentation.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(c) Revenues:
The Company records revenues from telecommunications, natural gas,
electric, and water/wastewater treatment customers when billed. The
Company accrues unbilled revenues earned from the dates customers
were last billed to the end of the accounting period. Natural gas,
electric and water/wastewater treatment customers are billed on a
cycle basis based on monthly meter readings.
Certain telecommunications 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.
(d) Construction Costs and Maintenance Expense:
Property, plant and equipment are stated at original cost,
including general overhead and an allowance for funds used during
construction ("AFUDC"). AFUDC represents the borrowing costs and a
return on common equity of funds used to finance construction. AFUDC
is capitalized as a component of additions to property, plant and
equipment and is credited to income. AFUDC does not represent current
cash earnings; however, under established regulatory rate-making
practices, after the related plant is placed in service, the Company
is permitted to include in the rates charged for utility services a
fair return on and depreciation of such AFUDC included in plant in
service. The amount relating to equity is included in other income
($10,783,000, $11,402,000 and $10,123,000 for 1995, 1994 and 1993,
respectively) and the amount relating to borrowings is included as a
reduction of interest expense ($4,193,000, $3,031,000 and $2,678,000
for 1995, 1994 and 1993, respectively). The weighted average rates
used to calculate AFUDC were 11% in 1995 and 12% in 1994 and 1993.
Maintenance and repairs are charged to operating expenses as
incurred. The book value, net of salvage, of routine property, plant
and equipment dispositions is charged against accumulated
depreciation.
(e) Depreciation Expense:
Depreciation expense, calculated using the straight-line method, is
based upon the estimated service lives of various classifications of
property, plant and equipment and represented approximately 4% of the
gross depreciable property, plant and equipment for 1995, 1994 and
1993.
(f) Regulatory Assets and Liabilities:
The Company's regulated operations are subject to the provisions of
Statement of Financial Accounting Standards ("SFAS") 71; "Accounting
for the Effects of Certain Types of Regulation". SFAS 71 requires
regulated entities to record regulatory assets and liabilities as a
result of actions of regulators. Regulatory assets of $25,006,000,
$24,669,000 and $1,601,000 at December 31, 1995, 1994 and 1993,
respectively, were related to Postretirement Benefits Other than
Pensions (see Note 13). Regulatory assets of $155,566,000,
$152,745,000 and $143,813,000 and regulatory liabilities of
$28,279,000, $30,830,000 and $28,376,000 at December 31, 1995, 1994
and 1993, respectively, were recorded to offset deferred income taxes
(see note 1(i)).
The Company continuously monitors the applicability of SFAS 71 to
its regulated operations. SFAS 71 may, at some future date, be
deemed inapplicable due to changes in the regulatory and competitive
environments and/or a decision by the Company to accelerate
deployment of new technology. If the Company were to discontinue the
application of SFAS 71 to one or more of its regulated operations,
the Company would be required to write off its regulatory assets and
regulatory liabilities associated with such operation(s) and
would be required to adjust the carrying amount of any property,
plant and equipment that would be deemed not recoverable. The
Company believes its regulated operations continue to meet the
criteria for SFAS 71 and that the carrying value of its property,
plant and equipment is recoverable in accordance with established
rate-making practices.
(g) Accounting for Investments, Temporary Investments and Short-Term
Debt:
Investments include high credit quality, short- and intermediate-
term fixed-income securities (primarily state and municipal
debt obligations) and equity securities. The Company adopted SFAS
115, "Accounting for Certain Investments in Debt and Equity
Securities" as of January 1, 1994. Under SFAS 115, the Company is
required to classify its investments at acquisition as available-
for-sale, held-to-maturity or trading. The Company does not invest
in securities which would be designated as trading. Prior to
the adoption of SFAS 115, fixed income securities were
stated at amortized cost and marketable equity securities were
stated at the lower of cost or market.
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. Interest,
dividends and gains and losses realized on sales of securities are
reported in Investment income.
Temporary investments in 1994 and 1993 represented investments in
state and municipal securities which matured in less than one year,
the proceeds of which were used to repay a portion of the short-term
debt issued to partially and temporarily fund the acquisition of the
GTE and ALLTEL Telecommunications Properties (see Note 3). Such
investments were considered held-to-maturity and carried at
amortized cost. Short-term debt outstanding was issued in the form
of commercial paper notes payable to temporarily and partially
fund the acquisition of the telecommunications properties. This
short-term debt had a weighted average interest rate of 5.73% at
December 31, 1995 and was repaid in early 1996 with proceeds
from the issuance of Equity Providing Preferred Income Convertible
Securities (see Note 7).
(h) Investment in Centennial Cellular Corp.:
The Company recorded its initial investment in 102,187 shares of
Centennial Cellular Corp. ("Centennial") Convertible Redeemable
Preferred Stock (the "Preferred Security") at $49,842,000 and
1,367,099 shares of Centennial Class B Common Stock at $19,826,000
which in the aggregate represented the historical cost of the
Company's investment in Citizens Cellular Company, prior to its
merger with Century Cellular Corp. During 1994, the Company purchased
615,195 additional shares of Centennial Class B Common Stock for
$8,613,000 pursuant to a Centennial rights offering.
The terms of the Preferred Security provide that the Preferred
Security may be converted by the holder into Centennial common
stock and accretes a liquidation value preference at a fixed
dividend rate of 7.5%, compounded quarterly, on an initial
liquidation value preference of $125,700,000 until the Preferred
Security reaches a liquidation value preference of $186,000,000 on
August 31, 1996. Commencing on September 1, 1996, Centennial
may elect to pay an 8.5% cash dividend on the Preferred Security's
$186,000,000 liquidation value preference or to redeem the
Preferred Security for $186,000,000 in cash or in Centennial
common stock. The Preferred Security is mandatorily redeemable
on August 30, 2006.
The Company recognizes the non-cash accretion as it is earned
in each period as investment income and increases the book value
of its investment in Centennial by the same amount. The
liquidation value preference earned on the Preferred Security for
1995, 1994 and 1993 was $14,353,000, $13,481,000 and
$9,594,000. From inception through December 31, 1995, $48,794,000 of
such accretion has been accounted for in this manner. Pursuant to
SFAS 115, beginning January 1, 1994, the investment in the Centennial
Class B Common Stock has been classified as available-for-sale and is
carried at fair market value while the Preferred Security has been
classified as held-to-maturity and is carried at amortized cost. The
fair market value of the Centennial Class B Common Stock at December
31, 1995 and 1994, was $33,947,000 and $33,699,000, respectively.
On a quarterly basis, the Company assesses whether the book value
of the Preferred Security can be realized by comparing such book
value to the market value of Centennial's common equity and by
evaluating other relevant indicators of realizability including
Centennial's ability to redeem the Preferred Security. The carrying
value of the Preferred Security would be deemed impaired to the
extent that such carrying value exceeds the estimated realizability
of the Preferred Security based on all existing facts and
circumstances including the Company's assessment of its ability to
realize the carrying value of the Preferred Security through
mandatory redemption. The Company believes it can realize its
investment in Centennial either by cash redemption by the issuer
funded through refinancing by the issuer, by temporary conversion
to common equity securities followed by the sale of the common
equity securities, or by sale of its current investment holdings.
(i) Income Taxes, Deferred Income Taxes and Investment Tax Credits:
The Company and its subsidiaries are included in a
consolidated federal income tax return. The Company utilizes
the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred income taxes
reflect the tax effect of temporary differences between the
financial statement and the tax bases of assets and liabilities
using presently enacted tax rates. Regulatory assets and
liabilities represent income tax benefits previously flowed
through to customers and from the allowance for funds used during
construction, the effects of tax law changes and the tax benefit
associated with unamortized deferred investment tax credits.
These regulatory assets and liabilities represent the
probable net increase in revenues that will be reflected through
future ratemaking proceedings.
The investment tax credits relating to utility properties, as
defined by applicable regulatory authorities, have been deferred
and are being amortized to income over the lives of the related
properties.
(j) Earnings Per Share:
Earnings per share is based on the average number of outstanding
shares. Earnings per share is presented with adjustment for
subsequent stock dividends and stock splits. The calculation has not
been adjusted for the 1.6% stock dividend declared on February 16,
1996, because its effect is immaterial. The effect on earnings per
share of the exercise of dilutive options is immaterial.
(2) Property, Plant and Equipment:
The components of property, plant and equipment at December 31, 1995,
1994 and 1993 are as follows:
1995 1994 1993
---- ---- ----
($ in thousands)
Transmission and distribution facilities $2,641,594 $2,159,452 $1,417,320
Production and generating facilities 868,119 818,927 414,743
Pumping, storage and purification facilities 107,653 93,942 80,175
Construction work in progress 212,892 210,213 68,868
Administrative facilities 337,196 285,445 160,423
Intangibles and other 19,900 15,744 12,362
------------- ------------- -------------
$4,187,354 $3,583,723 $2,153,891
=========== ========== ==========
(3) Mergers and Acquisitions:
In July 1995, the Company acquired Flex Communications by merger. The
Company issued 855,953 shares of Common Stock Series B for all of the
outstanding shares of Flex. This transaction was accounted for using the
pooling of interests method of accounting. Prior year financial
statements were not restated as the amounts are not significant. Flex is
a switch-based, inter-exchange carrier providing long distance, 800
Inbound long-distance, voice mail, paging, private data networks and
cellular services to approximately 5,500 customers in upstate New York.
In March 1995, the Company acquired Douglasville Water Company for
$173,000 and 31,928 shares of Common Stock Series B. Douglasville
provides water utility services in Pennsylvania to approximately 870
customers. This transaction was accounted for using the purchase method
of accounting and the results of operations of Douglasville have been
included in the accompanying financial statements from the date of
acquisition.
In February 1995, the Company acquired from the town of Youngtown,
Arizona, the town's water and wastewater systems for $1,192,000, serving
approximately 3,400 customers. This acquisition was accounted for using
the purchase method of accounting and the results of operations of
Youngtown have been included in the accompanying financial statements
from the date of acquisition.
In November 1994, the Company and ALLTEL Corporation signed definitive
agreements pursuant to which the Company agreed to acquire from ALLTEL
certain telecommunications properties in eight states serving
approximately 110,000 local telephone access lines and certain cable
television systems serving approximately 7,000 subscribers ("ALLTEL
Telecommunications Properties"). The purchase price of the ALLTEL
Telecommunications Properties (net of 3,600 of the Company's telephone
access lines which were valued at $10 million and transferred to ALLTEL
in a tax free exchange) is $282 million. On June 30, 1995, approximately
36,000 local telephone access lines in West Virginia and Oregon were
transferred to the Company. On September 30, 1995, approximately 19,000
local telephone access lines in Tennessee were transferred to the
Company. On October 31, 1995, approximately 18,000 local telephone access
lines in Arizona, New Mexico and Utah and approximately 7,000 cable
television lines in Arizona, New Mexico and California were transferred
to the Company. On December 31, 1995, approximately 20,000 local
telephone access lines in California were transferred to the Company and
the Company's 3,600 local telephone access lines in Pennsylvania were
transferred to ALLTEL. The remaining 23,000 local telephone access lines
are located in Nevada and are expected to be transferred to the Company
in early 1996.
In August 1994, the Company acquired RHC, Inc. ("Metro Utility Co.").
Metro Utility Co. provides water and wastewater treatment services to
approximately 10,000 customers in the suburban Chicago area. The Company
issued 504,807 shares of Common Stock Series B for all of the outstanding
shares of Metro Utility Co. This transaction was accounted for using the
pooling of interests method of accounting. Prior year financial
statements were not restated as the amounts are not significant.
In May 1993, the Company and GTE Corp. ("GTE") signed definitive
agreements pursuant to which the Company agreed to acquire from GTE, for
approximately $1.1 billion in cash, certain GTE telecommunications
properties serving approximately 500,000 local telephone access lines in
eight states ("GTE Telecommunications Properties"). On December 31, 1993,
189,123 local telephone access lines in Idaho, Tennessee, Utah and West
Virginia were transferred to the Company. On June 30, 1994, 270,883
access lines in New York were transferred to the Company. On November 30,
1994, 37,802 access lines in Arizona and Montana were transferred to the
Company and on December 30, 1994, 5,440 local telephone access lines in
California were transferred to the Company.
In 1993, the Company separately acquired Natural Gas Company of
Louisiana ("NGL") and Franklin Electric Light Company, Incorporated
("Franklin") by merger. In these mergers, the Company issued 568,748
shares and 51,500 shares of Common Stock Series B for all of the common
stock of NGL and Franklin, respectively. The acquisitions were accounted
for using the poolings of interests method of accounting.
The following unaudited pro forma financial information presents the
combined results of operations of the Company and the GTE and ALLTEL
Telecommunications Properties acquired to date as if the acquisitions had
occurred on January 1 of the year preceding the respective dates
acquired. The effects of the other acquisitions described above would not
significantly impact the pro forma results. The pro forma financial
information does not necessarily reflect the results of operations that
would have occurred had the Company and the GTE and ALLTEL
Telecommunications Properties constituted a single entity during such
periods.
1995 1994 1993
($ in thousands, except for per-share amounts)
Revenues $1,141,000 $1,138,000 $1,016,000
Net Income $173,000 $172,000 $153,000
Earnings per share $.78 $.78 $.68
In September 1994, a subsidiary of the Company and a subsidiary of
Century Communications Corp. ("Century") entered into a joint venture
agreement for the purpose of acquiring, for approximately $89 million,
and operating two cable television systems in southern California (the
"Systems"). Century is a cable television company of which Leonard Tow,
the Chairman, Chief Executive Officer and Chief Financial Officer of the
Company, is Chairman, Chief Executive Officer and Chief Financial
Officer. In addition, Claire Tow, a director of the Company, is a Senior
Vice President and a director of Century and Robert Siff, a director of
the Company is a director of Century. The joint venture is governed by a
management board on which the Company and Century are equally
represented. The joint venture has entered into an agreement pursuant to
which a subsidiary of Century (the "Manager") will manage the day-to-day
operations of the Systems. The Manager will not receive a management fee
but will be reimbursed only for the actual costs it incurs on behalf of
the joint venture. With respect to the purchase of any service or asset
for the joint venture for use in the Systems, the Manager is obligated to
pass through to the joint venture any discount, up to 5%, off the
published prices of vendors and is entitled to retain any discount in
excess of 5%. On September 30, 1994, the joint venture acquired the first
system serving approximately 26,500 subscribers. On November 30, 1995,
the joint venture acquired the second system, serving approximately
20,700 subscribers. These joint ventures are being accounted for using
the equity method of accounting.
(4) Investments:
The components of investments at December 31, 1995, 1994 and 1993 are
as follows:
1995 1994 1993
---- ---- ----
($ in thousands)
State and municipal securities $172,518 $174,790 $296,371
Investment in Centennial 132,583 117,982 90,628
Other fixed income securities 408 411 7,670
Marketable equity securities 23,581 31,828 13,282
Other 0 0 3,071
-------- -------- --------
Total $329,090 $325,011 $411,022
======== ======== ========
The Company's investment in Centennial at December 31, 1995, includes
102,187 shares of Convertible Redeemable Preferred Stock (the "Preferred
Security") and 1,982,294 Class B Common Shares (see Note 1(h)).
Centennial is a publicly traded subsidiary of Century.
Net realized gains on marketable equity securities included in the
determination of net income for the years 1995, 1994 and 1993,
respectively, were $13,904,000, $3,760,000 and $0. The amortized cost of
marketable equity securities sold during 1995, 1994 and 1993 were
$9,863,000, $384,000 and $0. The cost of
securities sold was based on the actual cost of the shares of each
security held at the time of sale. The aggregate fair market value of
marketable equity securities at December 31, 1993 was $27,492,000 and
total unrealized gains were $14,210,000.
Marketable equity securities for each year include 1,807,095 shares
(1,500,000 original shares adjusted for stock dividends) of Class A
Common Stock of Century. These shares represent less than 2% of the total
outstanding common stock of Century. The Chairman, Chief Executive
Officer and Chief Financial Officer of the Company is also Chairman,
Chief Executive Officer and Chief Financial Officer of Century.
Pursuant to the provisions of SFAS 115, the Company classified its
Investments into two categories at January 1, 1994: "held-to-maturity"
and "available-for-sale". The Company recorded unrealized holding gains
on securities classified as available-for-sale as an increase to
Investments and as a separate component of shareholders equity.
The following summarizes the amortized cost, gross unrealized holding
gains and losses and fair market value for investments.
Unrealized Holding Aggregate Fair
Investment Classification Amortized Cost Gains (Losses) Market Value
($ in thousands)
As of December 31, 1995
Held-To-Maturity $244,982 $ 79,808 $ (59) $ 324,731
Available-For-Sale $ 77,485 $ 8,422 $(1,799) $ 84,108
As of December 31, 1994
Held-To-Maturity $259,484 $ 80,293 $(3,055) $ 336,722
Available-For-Sale $ 50,809 $ 14,718 $ 0 $ 65,527
The maturities of debt securities and redeemable preferred securities
classified as held to maturity were as follows at December 31, 1995:
Held-to-Maturity Securities
Investment Maturities Amortized Cost Fair Market Value
--------------------- ----------------------------- ------------------------
($ in thousands)
Due within 1 year $ 46,465 $ 46,724
Due after 1 through 5 years 72,505 73,627
Due after 5 through 10 years 22,565 23,500
Due after 10 years 103,447 180,880
--------- ---------
$244,982 $324,731
======== ========
The Company sold $68,458,000, and $19,335,000 of securities
classified as held-to-maturity during 1995 and 1994, respectively, for
the purpose of financing a portion of the acquisition of the GTE and
ALLTEL Telecommunications Properties; gross realized gains on such sales
for 1995 and 1994, respectively, were $474,000 and $372,000, gross
realized losses were $8,000 and $94,000 for 1995 and 1994, respectively.
(5) Fair Value of Financial Instruments:
The following table summarizes the carrying amounts and estimated
fair values for certain of the Company's financial instruments at
December 31, 1995, 1994 and 1993. For the other financial instruments,
representing cash and cash equivalents, accounts and notes receivables,
short-term debt, accounts payable and other accrued liabilities, the
carrying amounts approximate fair value due to the relatively short
maturities of those instruments.
1995 1994 1993
---- ---- ----
Carrying Carrying Carrying
Amount Fair Value Amount Fair Value Amount Fair Value
($ in thousands)
Temporary Investments $ 0 $ 0 $108,818 $108,935 $89,752 $93,438
Investments 329,090 408,839 325,011 402,249 411,022 534,496
Long-Term Debt 1,187,000 1,263,000 994,189 992,349 547,673 602,710
The fair value of the above financial instruments, except for the
investment in the Centennial Preferred Securities, are based on quoted
prices at the reporting date for those financial instruments. The fair
value of the Centennial Preferred Security is estimated to be its
accreted value at the respective reporting dates (see Note 1(h)).
(6) Long-term Debt:
Weighted average
interest rate at December 31,
--------------------------------
December 31, 1995 Maturities 1995 1994 1993
----------------- ---------- ---- ---- ----
($ in thousands)
Debentures 7.50% 2001-2034 $ 700,000 $425,000 $150,000
Industrial development
revenue bonds 5.87% 2015-2030 374,089 325,125 284,777
Rural Utility Services
and Rural Telephone
Bank notes 5.60% 1996-2027 71,609 47,106 42,237
Senior unsecured notes 8.05% 2012 23,000 0 0
Commercial paper notes
payable 5.73% Variable 16,100 187,800 58,953
Other long-term debt 8.66% 1996-1998 2,202 9,158 11,706
------- ------------ ----------- ---------
6.86% $1,187,000 $994,189 $547,673
===== ========== ======== ========
The total principal amounts of industrial development revenue bonds at
December 31, 1995, 1994 and 1993, were $406,080,000, $392,530,000 and
$377,890,000, respectively. Industrial development revenue bond funds
issued are held by a trustee until used for payment of qualifying
construction. The amounts presented in the table above represent funds
that have been used for construction through December 31, 1995, 1994 and
1993, respectively.
Certain commercial paper notes payable have been classified as
long-term debt because these obligations are expected to be refinanced
with long-term debt securities.
The Company has available lines of credit with commercial banks in the
amounts of $400,000,000 and $200,000,000, which expire on December 14,
1996 and December 16, 2000, respectively, and have associated facility
fees of one-twentieth of one percent (.05%) per annum and one-thirteenth
of one percent (.075%) per annum, respectively. The terms of the lines of
credit provide the Company with extension options.
The installment principal payments and maturities of long-term debt for
the next five years are as follows:
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
($ in thousands)
Installment principal payments $ 2,965 $2,935 $2,604 $2,710 $2,839
Maturities 900 125 1,428 - -
--------- -------- ------- ---------- -----------
$ 3,865 $ 3,060 $4,032 $2,710 $2,839
======== ======= ====== ====== ======
Holders of certain industrial development revenue bonds may tender at par
prior to maturity. The next tender date is August 1, 1997 for $30,350,000
of principal amount of bonds. In the years 1995, 1994 and 1993,
respectively, interest payments on short- and long-term debt were
$78,659,000, $74,803,000 and $40,217,000.
(7) Capital Stock:
The common stock of the Company is in two series, Series A and Series
B. The Company is authorized to issue up to 200,000,000 shares of Common
Stock Series A and 300,000,000 shares of Common Stock Series B. Quarterly
stock dividends are declared and issued at the same rate on both Series A
and Series B. Series B shareholders have the option of enrolling in the
"Series B Common Stock Dividend Sale Plan." The Plan offers Series B
shareholders the opportunity to have their stock dividends sold by the
Plan Broker and the net cash proceeds of the sale distributed to them
quarterly. Series A shares are convertible share-for-share into Series B
shares. Series B shares are not convertible into Series A. Both series
are the same in all other respects.
On May 21, 1993, the Company declared a 2-for-1 stock split of its
Series A and Series B common stock. The stock split was distributed on
August 31, 1993, to shareholders of record on August 16, 1993.
On January 30, 1995, the Company, pursuant to an underwritten public
offering, issued 19,000,000 shares of its Common Stock Series A at an
issuance price of $13 3/8 per share (not adjusted for subsequent stock
dividends). The $244,200,000 of net proceeds from the issuance was used
to permanently fund a portion of the acquisition of the GTE
Telecommunications Properties.
Quarterly stock dividend rates declared on Common Stock Series A and
Series B are based upon cash equivalent rates and share market prices,
and have been as follows:
Dividend Rates
1995 1994 1993
First quarter 1.5% 1.1% 1.2%
Second quarter 1.5% 1.15% 1.0%
Third quarter 1.6% 1.3% 1.1%
Fourth quarter 1.6% 1.4% 1.0%
----- ---- ----
Total 6.2% 4.95% 4.3%
==== ===== ====
Compounded Total 6.35% 5.04% 4.37%
===== ===== =====
Annualized stock dividend cash equivalent rates considered by the
Company's Board of Directors in declaring stock dividends for 1995, 1994
and 1993, respectively, were 72 1/4 cents, 68 7/8 cents and 65 cents
per share (adjusted for all stock splits and stock dividends paid
subsequent to all dividends declared through December 31, 1995 and
rounded to the nearest 1/8th).
In May 1995, the Board of Director's authorized the buyback of up to
$50 million of Common Stock Series A and Series B shares. Shares have
been and will be purchased on the open market from time to time. The
Company purchased 1,865,000 shares at a cost of $22,028,000 in 1995.
Purchased shares are used to pay stock dividends. The Company used 7,000
shares (not adjusted for subsequent stock dividends and a stock split)
acquired from employees pursuant to the Management Equity Incentive
Plan in partial payment of the 1993 stock dividend. These shares had a
cost of $215,000.
The activity in shares of outstanding common stock for Series A and
Series B during 1995, 1994 and 1993 is summarized as follows:
Number of Shares
Series A Series B
Balance at January 1, 1993 64,156,000 22,604,000
Acquisitions 0 621,000
Stock dividends 4,114,000 1,548,000
Stock split (2 for 1) 64,620,000 24,142,000
Stock plans 0 457,000
Conversion of Series A to Series B (3,105,000) 3,105,000
------------ ------------
Balance at December 31, 1993 129,785,000 52,477,000
Acquisitions 0 505,000
Stock dividends 6,484,000 2,744,000
Stock plans 355,000 1,122,000
Conversions of Series A to Series B (2,278,000) 2,278,000
----------- -----------
Balance at December 31, 1994 134,346,000 59,126,000
Acquisitions 0 888,000
Stock issuance 19,000,000 0
Stock dividends 9,499,000 4,098,000
Common stock buybacks (462,000) (1,403,000)
Stock plans 601,000 1,894,000
Conversions of Series A to Series B (7,626,000) 7,626,000
------------ -----------
Balance at December 31, 1995 155,358,000 72,229,000
============ ===========
The Company used 7,000 Series B shares (not adjusted for subsequent
stock dividends and a stock split) acquired from employees pursuant to
the Management Equity Incentive Plan in partial payment of the 1993 stock
dividend. These shares had a cost of $215,000.
On January 22, 1996, pursuant to an underwritten public offering, a
subsidiary of the Company issued 4,025,000 shares of 5% Equity Providing
Preferred Income Convertible Securities ("EPPICS") having a liquidation
preference of $50 per security and a maturity date of January 15, 2036.
Each security is initially convertible into 3.252 shares of the Company's
Common Stock Series A at a conversion price of $15.375 per share. The
$196,722,000 in net proceeds from the sale of these securities were used
to repay short-term debt, permanently fund a portion of the ALLTEL
Telecommunications Properties to be acquired, and for other general
corporate purposes.
The Company has 50,000,000 of authorized but unissued shares of
preferred stock ($.01 par).
(8) Employee Stock Plans:
Under the Citizens Utilities Company Management Equity Incentive Plan
("MEIP"), awards of the Company's Series A or Series B common stock may
be granted to eligible officers, management employees and non-management
exempt employees of the Company and its subsidiaries in the form of
incentive stock options, non-qualified stock options, stock appreciation
rights ("SARs"), restricted stock or other stock-based awards. The MEIP
is administered by the Compensation Committee of the Board of Directors.
The maximum number of shares of common stock which may be issued
pursuant to awards at any time is 5% of the Company's common stock
outstanding provided that no more than 9,100,000 shares (adjusted for
subsequent stock dividends and stock splits) will be issued pursuant to
incentive stock options under the MEIP. No awards will be granted more
than 10 years after the effective date (June 22, 1990) of the MEIP. The
exercise price of stock options and SARs shall be equal to or greater
than the fair market value of the underlying common stock on the date of
grant. Stock options are generally not exercisable on the date of grant
but vest over a period of time.
Under the terms of the MEIP, subsequent stock dividends and stock
splits have the effect of increasing the option shares outstanding, which
correspondingly decrease the average exercise price of outstanding
options.
The following summary of shares subject to option under the MEIP
presents option share activity adjusted for subsequent stock splits and
dividends through the end of the respective year presented.
Weighted
Average option
Shares subject to option price per share
Balance at January 1, 1993 3,920,000 $12.54
Options granted 1,862,000 18.06
Options exercised (239,000) 7.62
Options canceled or lapsed (25,000) 5.44
Adjustment for stock dividends* 201,000 -
------------
Balance at December 31, 1993 5,719,000 14.14
Options granted 1,562,000 13.06
Options exercised (149,000) 8.04
Options canceled or lapsed (69,000) 14.17
Adjustment for stock dividends* 287,000 -
-------------
Balance at December 31, 1994 7,350,000 14.07
Options granted 99,000 11.06
Options exercised (260,000) 6.75
Options canceled or lapsed (107,000) 14.16
Adjustment for stock dividends* 456,000 -
-------------
Balance at December 31, 1995 7,538,000 $14.30
=============
Options exercisable at end of year 4,472,000 $12.59
=============
* Represents adjustment to outstanding option shares to reflect stock
dividends.
During 1995 and 1993, the Company granted restricted stock awards to
key employees in the form of the Company's Common Stock Series B. There
were no restricted stock award grants in 1994. The number of Series B
shares issued as restricted stock awards during 1995 and 1993 were 9,000
and 158,000, respectively, (adjusted for subsequent stock dividends and
stock splits). None of the restricted stock awards may be sold, assigned,
pledged or otherwise transferred, voluntarily or involuntarily, by the
employee until the restrictions lapse. The restrictions lapse over six
months, three year and five year periods. At December 31, 1995, 347,000
shares (adjusted for subsequent stock dividends and stock splits) of
restricted stock were outstanding.
The Company's Employee Stock Purchase Plan ("ESP Plan") was approved by
shareholders on June 12,1992 and amended on May 21, 1993. Under the ESP
Plan, eligible employees of the Company and its subsidiaries may
subscribe to purchase shares of Common Stock Series B at 85% of the lower
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-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, 1995, there were 1,813,000 shares of Common
Stock Series B 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 1,813,000 shares reserved have been
subscribed for, unless terminated earlier by the Board of Directors. The
ESP Plan is administered by the Compensation Committee of the Board of
Directors. As of December 31, 1995, the number of employees participating
in the ESP Plan was 1,768 and the total number of shares subscribed for
under the ESP Plan was 400,923.
The Company's non-employee Directors' Deferred Fee Equity Plan (the
"Directors Plan") was approved by shareholders on May 19, 1995. The
Directors Plan includes an Option Plan and a Stock Plan. Through the
Option Plan, an eligible director may elect to receive his or her
director's fees for a period of up to five years in the form of options
to purchase Company common stock, the number of such options being equal
to such fees divided by 20% of the fair market value of Company common
stock on the effective date of the options. Through the Stock Plan,
an eligible director may elect to receive his or her director's fees in
the form of Plan Units, the number of such Plan Units being equal to such
fees divided by the fair market value of Company common stock on certain
specified dates. In the event of termination of Directorship, a Stock
Plan participant will receive the value of such Plan Units in either
stock or cash or installments of cash as selected by the Participant at
the time of the related Stock Plan election. As of any date the maximum
number of shares of Common Stock which the Plan may be obligated to
deliver pursuant to the Stock Plan and the maximum number of shares of
Common Stock which shall have been purchased by Participants pursuant
to the Option Plan and which may be issued pursuant to outstanding
options under the Option Plan shall not be more than one (1%) percent
of the total outstanding shares of Common Stock Series A and Series B
of the Company as of such date, subject to adjustment in the event of
changes in the corporate structure of the Company affecting capital
stock. There are currently 9 directors participating in the Directors
Plan. In 1995, the total Options and Plan Units earned were 96,246,
and 3,416, respectively. At December 31, 1995, 40,595 options were
exercisable at a weighted average exercise price of $12.127.
(9) Income Taxes
The following is a reconciliation of the provision for income taxes at
federal statutory rates to the effective rates:
1995 1994 1993
----------- ----------- -----------
Consolidated tax provision at
federal statutory rate 35.0% 35.0% 35.0%
State income tax provisions,
net of federal income tax
benefit 2.1% 2.5% 3.6%
Allowance for funds used
during construction (2.3%) (2.4%) (2.5%)
Amortization of
investment tax credits (0.9%) (0.9%) (1.2%)
Nontaxable investment income (1.7%) (2.9%) (4.7%)
Accrual adjustment (2.9%) (0.2%) (0.3%)
All other - net 0.2% (0.2%) (0.5%)
----- ------ -----
29.5% 30.9% 29.4%
===== ====== =====
For 1995, 1994 and 1993, accumulated deferred income taxes amounted to
$298,424,000, $230,556,000 and $194,165,000, respectively, and the
unamortized deferred investment tax credits amounted to $15,670,000,
$17,594,000 and $19,306,000, respectively. Income taxes paid during the
year were $39,425,000, $30,395,000 and $24,139,000 for 1995, 1994 and 1993,
respectively.
The components of the net deferred income tax liability at December 31, are
as follows:
1995 1994 1993
---- ---- ----
($ in thousands)
Deferred income tax liabilities
Property, plant and equipment basis
differences $246,128 $177,549 $148,756
Regulatory assets 63,871 62,578 57,134
Other-net 22,741 28,704 25,365
---------- ----------- ------------
332,740 268,831 231,255
--------- ---------- -----------
Deferred income tax assets
Deferred investment tax credits 6,231 7,183 6,649
Regulatory liabilities 12,415 13,498 11,135
---------- ----------- -----------
18,646 20,681 17,784
---------- ----------- -----------
Net deferred income tax liability $314,094 $ 248,150 $ 213,471
======== ========= =========
The provision for federal and state income taxes, as well as the taxes
charged or credited to Shareholders' equity, includes amounts both
payable currently and deferred for payment in future periods as indicated
below:
1995 1994 1993
---- ---- ----
Income taxes charged (credited) to the income statement: ($ in thousands)
--------------------------------------------------------
Current:
Federal $13,297 $28,347 $39,571
State 1,014 3,595 8,682
--------- ---------- ---------
Total current 14,311 31,942 48,253
-------- ---------- ---------
Deferred:
Federal 48,168 29,829 4,917
Investment tax credits (2,057) (1,949) (2,086)
State 6,395 4,501 1,214
-------- ---------- ---------
Total deferred 52,506 32,381 4,045
-------- ---------- ---------
Income taxes charged (credited) to the income statement $66,817 $64,323 $52,298
======== ========== =========
Income taxes charged (credited) to shareholders' equity:
Deferred income taxes on unrealized gains
on securities classified as available-for-sale ($3,052) $5,588 $ 0
Current benefit arising from stock
options exercised (406) (137) (537)
-------- --------- ----------
Income taxes charged (credited) to shareholders' equity ($3,458) $5,451 $ (537)
======== ========= ==========
Total income taxes $63,359 $69,774 $51,761
======== ========= ==========
(10) Segment Information:
Year Ended December 31,
1995 1994 1993
($ in thousands)
Telecommunications:
Revenues $616,747 $456,875 $177,497
Assets 2,097,277 1,805,893 910,276
Depreciation 120,608 81,659 22,744
Capital expenditures 144,613 177,419 66,619
Operating income before
income taxes 174,196 148,720 85,934
Natural gas:
Revenues $197,902 $208,940 $211,892
Assets 344,036 306,979 289,121
Depreciation 12,155 10,827 10,646
Capital expenditures 31,056 31,235 25,677
Operating income before
income taxes 25,874 30,205 28,971
Electric:
Revenues $175,351 $167,940 $158,222
Assets 487,893 458,457 446,284
Depreciation 17,035 15,251 12,924
Capital expenditures 39,829 43,132 43,673
Operating income before
income taxes 30,060 31,221 30,660
Water/Wastewater:
Revenues $ 79,032 $ 72,395 $ 65,488
Assets 505,851 455,312 400,288
Depreciation 9,137 7,438 8,384
Capital expenditures 41,261 38,884 37,426
Operating income before
income taxes 24,043 17,978 15,595
(11) Quarterly Financial Data (unaudited):
Net Income
($ in thousands) Per Share
---------------- -------------------
1995 Revenues Amount Series A Series B
---- -------- ------ -------- --------
First quarter $267,034 $33,903 $.16 $.16
Second quarter 251,678 41,939 .19 .19
Third quarter 259,732 45,061 .20 .20
Fourth quarter 290,588 38,633 .18 .18
Net Income
($ in thousands) Per Share
---------------- --------------------
1994 Revenues Amount Series A Series B
---- -------- ------ -------- --------
First quarter $222,156 $31,655 $.16 $.16
Second quarter 187,130 38,016 .19 .19
Third quarter 241,005 38,687 .19 .19
Fourth quarter 255,859 35,639 .17 .17
The quarterly net income per share amounts are rounded to the nearest
cent. Annual earnings per share may vary depending on the effect of such
rounding.
(12) Supplemental Cash Flow Information:
The following is a schedule of net cash provided by operating
activities for the years ended December 31, 1995, 1994 and 1993.
1995 1994 1993
---- ---- ----
($ in thousands)
Net income $159,536 $143,997 $125,630
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation expense 158,935 115,175 54,698
Deferred income taxes and
amortization of investment
tax credits 52,506 32,381 4,045
Centennial investment income (14,353) (13,481) (9,594)
Allowance for equity funds used
during construction (10,783) (11,402) (10,123)
Change in accounts receivable (22,684) (20,663) (23,068)
Change in accounts payable 11,247 21,520 (3,773)
Change in accrued taxes and
accrued interest (6,923) 13,024 24,960
Other 10,893 (18,235) 32,174
----------- --------- ---------
Net cash provided by operating activities $338,374 $262,316 $ 194,949
=========== ========= =========
In conjunction with the acquisitions of the ALLTEL
Telecommunications Properties, the Company assumed $41,447,000 in debt
at a weighted average interest rate of 6.59%.
(13) Retirement Plans:
Pension Plan
The Company and its subsidiaries have a noncontributory pension plan
covering all employees who have met certain service and age requirements.
The benefits are based on years of service and final average pay or
career average pay. Contributions are made in amounts sufficient to fund
the plan's net periodic pension cost while considering its tax
deductibility and the minimum funding requirement. Plan assets are
invested in a diversified portfolio of equity and fixed-income
securities.
Pension costs for 1995, 1994 and 1993 include the following components:
1995 1994 1993
---- ---- ----
($ in thousands)
Service cost $6,549 $ 5,777 $ 3,585
Interest cost on projected
benefit obligations 10,735 8,166 5,038
Net amortization and deferral 335 172 1,751
Return on plan assets (11,784) (9,754) (6,945)
-------- ------- --------
Net pension cost $5,835 $4,361 $ 3,429
======== ======= ========
Assumptions used in the computation of pension costs/actuarial present
value of projected benefit obligations included the following:
1995 1994 1993
---- ---- ----
Discount rate 8.25% /7.50% 8.00% 7.50%
Expected long-term rate of
return on plan assets 8.75% 8.50% 8.00%
Rate of increase in
compensation levels 4.50%/4.00% 4.50% 4.50%
As of December 31, 1995, 1994 and 1993, respectively, the fair values
of plan assets were $133,700,000, $133,964,000 and $73,233,000. The
actuarial present values of the accumulated benefit obligations were
$100,367,000, $86,186,000 and $57,216,000 for 1995, 1994 and 1993,
respectively. The actuarial present values of the vested accumulated
benefit obligation for 1995, 1994 and 1993, respectively, were
$86,260,000, $77,053,000 and $54,591,000. The total projected benefit
obligations for 1995, 1994 and 1993, respectively, were $145,008,000,
$125,943,000 and $75,531,000. In 1994, the Company recorded $34,199,000
of accumulated benefit obligation, $28,069,000 of vested accumulated
benefit obligation and $54,166,000 of projected benefit obligation
pursuant to the acquisition of the GTE Telecommunications Properties.
Assets sufficient to fully fund these obligations were transferred to
the plan from the GTE pension plan.
Other Post-Retirement Benefit Plans
The Company provides certain medical, dental and life insurance
benefits for retired employees and their beneficiaries and covered
dependents. The components of the net periodic postretirement benefit
cost for the years ended December 31, 1995 , 1994 and 1993 are as
follows:
1995 1994 1993
---- ---- ----
($ in thousands)
Service cost $2,038 $1,826 $ 845
Interest cost 4,023 3,418 1,710
Amortization of transition obligation 1,038 1,048 1,116
Other 467 313 0
------- ------ ------
Net periodic postretirement
benefit cost $7,566 $6,605 $3,671
======= ====== ======
The following table sets forth the accrued postretirement benefit
liability recognized in the Company's balance sheets at December 31,
1995, 1994 and 1993:
1995 1994 1993
---- ---- ----
($ in thousands)
Accumulated postretirement benefit obligation:
Retirees ($19,736) ($14,946) ($13,919)
Fully eligible active plan participants (9,964) (7,158) (2,749)
Other active plan participants (30,304) (32,882) (7,328)
------------ ---------- ----------
Total accumulated postretirement
benefit obligation (60,004) (54,986) (23,996)
Plan assets at fair value 912
Unrecognized net (gain) loss (2,961) (1,914) 1,563
Unrecognized prior service cost 3,480 2,932 (1,477)
Unrecognized transition obligation 17,638 18,676 21,201
---------- ---------- ---------
Net accumulated postretirement benefit
obligation ($40,935) ($35,292) ($2,709)
========== ========== =========
Of the net periodic post retirement benefit cost presented above, the
Company recorded $2,781,000, $4,621,000 and $1,601,000 in 1995, 1994 and
1993, respectively, as regulatory assets for states whose regulatory
commissions to date have not but will likely allow recovery of accrued
costs in future rate proceedings. The Company's annual cost includes
20-year prospective recognition of the transition obligation. In those
states in which regulatory commissions have permitted recovery of accrued
costs, the Company has established trusts to fund these future
liabilities. For measurement purposes, the Company used the same discount
rates as were used for the pension plan and a 7% annual rate of increase
in the per-capita cost of covered health-care benefits, gradually
decreasing to 5% in the year 2040 and remaining at that level thereafter.
The effect of a 1% increase in the assumed health-care cost trend rates
for each future year on the aggregate of the service and interest cost
components of the total postretirement benefit cost would be $606,000 and
the effect on the accumulated postretirement benefit obligation for
health benefits would be $6,000,000. In 1994, the Company recorded
$27,357,000 of accumulated postretirement benefit obligation pursuant to
the acquisition of the GTE Telecommunications Properties.
(14) Commitments and Contingencies:
The Company has budgeted expenditures for facilities in 1996 of
approximately $340,000,000 and certain commitments have been entered into
in connection therewith.
The Company conducts certain of its operations in leased premises and
also leases certain equipment and other assets pursuant to operating
leases. Terms of the leases, including purchase option and
obligations, renewals and maintenance costs, vary by lease.
Future minimum rental commitments for all long-term noncancellable
operating leases are as follows:
Year Amount
---- ------
1996 $9,762,000
1997 8,830,000
1998 8,196,000
1999 7,819,000
2000 7,890,000
2001 to 2020 30,215,000
-----------
Total $72,712,000
===========
Total rental expense included in the Company's results of operations
for the years ended December 31, 1995, 1994 and 1993 was $6,778,000,
$3,913,000 and $2,098,000, respectively.
A subsidiary of the Company was the guarantor of a $33,200,000
bank loan to Hungarian Telephone and Cable Corp. ("HTCC"). In
addition, the Company has agreed to provide up to
$20,000,000 of additional financial support to HTCC. No amount has
been accrued for the guarantee and financial support commitments.