-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TOXA6dFSP6Akr68ReWUXK4OKFviGoGB69OLllHz0PWmk3xCf0TdUVB2YCfHZ/w7p HyJnIbcvSjnrFsjIysMltw== 0000020520-96-000010.txt : 19960613 0000020520-96-000010.hdr.sgml : 19960613 ACCESSION NUMBER: 0000020520-96-000010 CONFORMED SUBMISSION TYPE: 424B5 PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19960610 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CITIZENS UTILITIES CO CENTRAL INDEX KEY: 0000020520 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 060619596 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B5 SEC ACT: 1933 Act SEC FILE NUMBER: 033-51529 FILM NUMBER: 96579018 BUSINESS ADDRESS: STREET 1: HIGH RIDGE PK BLDG 3 STREET 2: P O BOX 3801 CITY: STAMFORD STATE: CT ZIP: 06905 BUSINESS PHONE: 2033298800 MAIL ADDRESS: STREET 1: HIGH RIDGE PARK BLDG NO 3 CITY: STAMFORD STATE: CT ZIP: 06905 424B5 1 PROSPECTUS SUPPLEMENT (To Prospectus Dated March 28, 1994) $100,000,000 [CITIZENS LOGO] 6.80% Debentures Due 2026 Interest payable February 15 and August 15 The Offered Debentures may not be redeemed prior to maturity by the Company and do not provide for any sinking fund. The Offered Debentures are redeemable at the option of the holder on August 15, 2003 at 100% of the principal amount plus accrued interest. The Offered Debentures will be represented by a global debenture registered in the name of a nominee of The Depositary Trust Company, New York, New York, as Depositary (the "Depositary"). Beneficial interests in the Offered Debentures will be shown on, and transfers thereof will be effected only through, records maintained by the Depositary and its participants. Except as described in the accompanying Prospectus, Offered Debentures in certificate form will not be issued in exchange for the global debenture. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PRICE 99.818% AND ACCRUED INTEREST, IF ANY Underwriting Price to Discounts and Proceeds to Public(1) Commissions(2) Company(1)(3) Per Debenture 99.818% .625% 99.193% Total $99,818,000 $625,000 $99,193,000 (1) Plus accrued interest, if any, from June 11, 1996 to date of delivery. (2) The Company has agreed to indemnify the Underwriter against certain liabilities, including liabilities under the Securities Act of 1933. (3) Before deducting expenses payable by the Company estimated to be $60,000. The Offered Debentures offered by this Prospectus Supplement are offered by the Underwriter subject to prior sale, withdrawal, cancellation or modification of the offer without notice, to delivery to and acceptance by the Underwriter and to certain further conditions. It is expected that delivery of the Offered Debentures will be made on or about June 11, 1996, through the book-entry facilities of the Depositary, against payment therefor in immediately available funds. MORGAN STANLEY & CO. (Incorporated) LEHMAN BROTHERS CHASE SECURITIES INC. June 6, 1996 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE DEBENTURES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934 ("1934 Act") and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "SEC"). Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at its regional offices at Northwestern Atrium Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and Suite 1300, 7 World Trade Center, New York, New York 10048. Copies of such material can also be obtained from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D. C. 20549, at prescribed rates. Certain securities of the Company are listed on the New York Stock Exchange, 20 Broad Street, New York, New York 10005, and reports, proxy material and other information concerning the Company may be inspected at the office of that Exchange. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCEN OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by the Company with the SEC pursuant to the 1934 Act are incorporated into this Prospectus Supplement and the Prospectus by reference: The Company's Annual Report on Form 10-K for the year ended December 31, 1995. The Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996. The Company's Current Reports on Form 8-K filed on March 29, and May 28, 1996. The Company hereby undertakes to provide, without charge, to each person to whom a copy of this Prospectus Supplement is delivered, upon written or oral request of such person, a copy of any or all of the documents referred to above which have been or may be incorporated by reference in this Prospectus Supplement, other than exhibits to such documents not specifically incorporated by reference herein. Requests for such copies should be directed to Office of the Treasurer, Citizens Utilities Company, High Ridge Park, Bldg. No. 3, Stamford, Connecticut 06905 (telephone 203-329-8800). Consolidated Summary Financial Information (In millions, except percentages, ratios and per-share amounts) Twelve Months Ended March 31, 1996 Year Ended December 31, --------------------- ---------------------- Pro Forma (1) Actual 1995 1994 1993 ---------- ------ ---- ---- ---- INCOME STATEMENT DATA - --------------------- Revenues $1,198 $1,131 $1,069 $906 $613 Net Income $176 $164 $160 $144 $126 Earnings Per Share of Common Stock Series A and Series B (2) $.79 $.74 $.72 $.71 $.63 Ratio of Earnings to Fixed Charges(3) 4.0 3.5 3.4 3.7 5.3 As at December 31, ------------------ As at March 31, 1996 1995 1994 1993 -------------------- ---- ---- ---- CAPITALIZATION DATA - ------------------- Long-Term Debt $1,194 $1,187 $994 $548 Equity (4) $1,785 $1,560 $1,157 $974 Long-Term Debt to Long-Term Debt and Equity 40% 43% 46% 36% (1) Combined Citizens' financial results with the financial results of the ALLTEL Telecommunications Properties assuming the acquisitions and related permanent financings were effective on April 1, 1995. These amounts should be read in conjunction with the Pro Forma Statements of Income beginning on page S-8 of this Prospectus Supplement. The Pro Forma Income Statement Data is not necessarily indicative of what the actual financial results would have been for the period had the transactions occurred on the date indicated and does not purport to indicate the financial results of future periods. The acquisition of the GTE Telephone Properties described in the accompanying Prospectus were completed by December 31, 1994 and are in Citizens' financial results from their dates of acquisition. (2) Common Stock Series A and Series B per-share amounts have been adjusted retroactively for subsequent stock dividends and stock splits through March 31,1996. No adjustment has been made for Citizens' 1.6% 1996 second quarter stock dividend, as this adjustment is immaterial. (3) "Earnings" consist of income before income taxes plus fixed charges."A Fixed Charges" consist of interest charges and an amount representing the interest factor included in rentals. (4) Includes shareholders= equity and Company Obligated Mandatorily Redeemable Convertible Preferred Securities. CITIZENS UTILITIES COMPANY Citizens Utilities Company (the "Company" or "Citizens") is a diversified operating company which provides, either directly or through subsidiaries, telecommunications, natural gas transmission and distribution, electric distribution, water or wastewater services to customers in areas of twenty states. Divisions of Citizens provide electric distribution and natural gas transmission and distribution public utility services, purchasing most of the electric power needed and all gas supplies. Telecommunications, water and wastewater services are provided either by divisions of Citizens or by its subsidiaries. Citizens holds a significant investment interest in Centennial Cellular Corp., a cellular telephone company, and owns Electric Lightwave, Inc., an alternative telecommunications service provider operating in five western states, and Citizens Long Distance. Beginning with 1945, the Company has increased its revenues, net income and earnings per share (as adjusted for subsequent stock dividends and stock splits) every year without interruption. The Company, with administrative offices at High Ridge Park, Bldg. No. 3, Stamford, Connecticut 06905 (telephone 203-329-8800), 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 its own operations and the acquisition of numerous additional operations. As a result of its diversification, the Company is not dependent upon any single geographic area or any one type of service for its revenues. The Company is not aware of any other utility company as fully diversified in both geographic areas served and variety of services provided. The Company's operations are conducted principally in small and medium-sized communities. No material part of the Company's business is dependent upon a single customer or a small group of customers. The loss of any single customer or a small group of customers would not have a materially adverse effect upon the Company. The Company's consumer connections have increased from 26,150 in 1945, to 225,389 in 1965, to 610,585 in 1985, and to approximately 1,600,000 as of March 31, 1996. The Company continually considers and is carrying out expansion through acquisitions and joint ventures in the rapidly evolving telecommuni- cations and cable television industries and in traditional public utility and related businesses. On November 29, 1994, Citizens and ALLTEL Corporation ("ALLTEL") announced the signing of definitive agreements pursuant to which Citizens agreed to acquire from ALLTEL at a net purchase price of $282 million, approximately 110,000 local telephone access lines and 7,000 cable television subscribers in eight states ("ALLTEL Telecommunications Properties"). In 1995, approximately 93,000 local telephone access lines and approximately 7,000 cable television subscribers were transferred to the Company. On March 31, 1996, the remainder of the local telephone access lines were transferred to the Company. APPLICATION OF PROCEEDS The net proceeds from the sale of the Offered Debentures will be used to repay outstanding commercial paper issued to fund capital expenditures for the construction, extension and improvement of the Company's facilities and services. RATINGS OF COMPANY SECURITIES Standard & Poor's Ratings Group, a division of McGraw-Hill ("Standard & Poor's"), and Fitch Investors Services, Inc. ("Fitch") have rated the Offered Debentures "AA+" and Moody's Investors Service, Inc. ("Moody's") has rated the Offered Debentures "Aa3". Standard & Poor's has also rated the Company's outstanding publicly held Debentures and Industrial Development Revenue Bonds "AA+"; its Company Obligated Mandatorily Redeemable Convertible Preferred Securities "AA"; its commercial paper "A-1+"; and has ranked the Company's Common Stock "A+". Fitch has also rated the Company's outstanding publicly held Debentures and Industrial Development Revenue Bonds "AA+"; its Company Obligated Mandatorily Redeemable Convertible Preferred Securities "AA"; and its commercial paper "F-1+". Moody's has assigned ratings of "Aa3" to the Company's outstanding publicly held Debentures; aa3 to its Company Obligated Mandatorily Redeemable Convertible Preferred Securities; and "P-1" to the Company's commercial paper. Moody's and Fitch do not rank or rate Common Stock. Each of the commercial paper ratings and the Common Stock ranking is the highest rating of such rating agency. An explanation of the significance of ratings may be obtained from the rating agencies. Generally, rating agencies base their ratings on such material and information, and such of their own investigation, studies and assumptions, as they deem appropriate. A credit rating of a security is not a recommendation to buy, sell or hold securities. There is no assurance that any rating will apply for any given period of time or that a rating may not be adjusted or withdrawn. CAPITAL REQUIREMENTS AND FINANCING The Company carries out a continuous construction program to maintain reliable and safe service and to meet future customer service requirements. The Company estimates that expenditures for construction, extension and improvement of service will require approximately $340 million in 1996. The Company's construction program is under continuous review and may be revised depending on business and economic conditions, regulatory action, governmental mandates, customer demand and other factors. Capital requirements will be financed from internally generated funds, other offered securities, the issuance of taxable and tax-exempt long-term debt, short-term borrowings, customer advances, and contributions in aid of construction. The Company maintains $600 million of committed bank lines of credit for general corporate purposes under which there were no amounts outstanding as of June 6, 1996. DESCRIPTION OF OFFERED DEBENTURES The following description of the particular terms of the Offered Debentures supplements the description of the general terms and provisions of the Offered Debentures set forth in the accompanying Prospectus under the caption "Description of Debt Securities -- Debentures and other Unsecured Debt Securities". General The Offered Debentures will be issued under the Company's Indenture with Chemical Bank, as Trustee, dated August 15, 1991 as supplemented by a Seventh Supplemental Indenture, dated as of June 1, 1996, creating the Offered Debentures (the "Indenture"). The Offered Debentures will be issued in the aggregate principal amount of $100,000,000 and will bear the designation "6.80% Debentures Due 2026". The Offered Debentures will bear interest at the annual rate of 6.80% payable on February 15 and August 15 of each year, commencing August 15, 1996, to the person in whose name the Offered Debentures are registered at the close of business on the preceding February 1 or August 1, as the case may be. The Offered Debentures will mature on August 15, 2026. The Offered Debentures will not be secured and will rank equally with any other indebtedness which is issued under the Indenture and not specifically subordinated to the Offered Debentures. The Offered Debentures will also rank equally with the unsecured obligations of the Company except as noted in the accompanying Prospectus. The Offered Debentures will be held by the owners as book-entry securities (see "Description of Debt Securities - Debentures and Other Unsecured Debt Securities" in the accompanying Prospectus). Redemption at Option of Holder The Offered Debentures will not be redeemable by the Company prior to maturity and do not provide for any sinking fund. The Offered Debentures are redeemable, in whole or in part, at the option of the registered holders thereof, on August 15, 2003 (the "Redemption Date"), at a price equal to their principal amount plus all accrued interest thereon to the Redemption Date (the "Redemption Amount"). If the Redemption Date is not a Business Day, the Company will pay the Redemption Amount for the Offered Debentures for which it has received a notice of election on the next succeeding Business Day. In order to exercise such an election, (i) each beneficial owner must follow the procedures described below if the Offered Debentures are then represented by a global debenture, and (ii) each registered holder must deliver to Chemical Bank, at its corporate trust office in the City of New York, the Offered Debenture(s), or such portion(s) thereof, as to which an election is being made, together with a duly signed and completed notice of election to have such Offered Debenture(s), or such portion(s) thereof, redeemed by the Company. Such Offered Debenture(s) and such notice of exercise by the registered holder of the redemption option must be delivered to Chemical Bank no earlier that June 15, 2003 and no later than July 15, 2003. Owners of beneficial interests in the Offered Debentures who wish to effectuate the redemption and repayment of their Offered Debenture, or a portion thereof, must give instructions to their respective Depositary participant or participants a reasonable period of time in advance of July 15, 2003. Once made, the exercise of the redemption option by a holder of an Offered Debenture will be irrevocable. Such option may be exercised with respect to less that the entire principal amount of an Offered Debenture, but any such redemption in part will be in increments of the minimum denomination of the Offered Debentures. If an Offered Debenture is then represented by a global debenture ("Global Debenture"), the Depositary's nominee will be the registered holder thereof entitled to exercise a right to redemption. In order to ensure that the Depositary's nominee will exercise in a timely manner a right to repayment with respect to a particular Offered Debenture, the beneficial owner of an interest in such Offered Debenture must instruct the broker or other direct or indirect participant through which it holds an interest in such Offered Debenture to notify the Depositary of its desire to exercise a right to repayment. Different firms have different cut-off times for accepting instructions from their customers and, accordingly, each such beneficial owner should consult the broker or other direct or indirect participant through which it holds an interest in a Global Debenture in order to ascertain the cut-off time by which such an instruction must be given in order for timely notice to be delivered to the Depositary. All questions, as to the validity, form, eligibility (including time of receipt) and acceptance of any Offered Debenture for redemption will be determined by the Company, whose determination will be final and binding. Concerning the Trustee Chemical Bank, the Trustee under the Indenture under which the Offered Debentures and currently outstanding Debentures are issued, has periodically engaged in transactions with, or performed services for, the Company in the ordinary course of business. Chemical Bank is also the trustee under an indenture dated January 15, 1996, as supplemented, pursuant to which $211,756,050 of principal amount of debentures issued to a wholly owned subsidiary of the Company are outstanding. Chemical Bank is also the agent and a participant lender under the Company's committed bank lines of credit arrangements, under which no amounts were outstanding as of the date hereof. PRO FORMA STATEMENTS OF INCOME Citizens Utilities Company and ALLTEL Telecommunications Properties Pro Forma Condensed Combined Statement of Income (In thousands, except for per-share amounts) The following Pro Forma Condensed Combined Statement of Income for the twelve months ended March 31, 1996 combines the historical statements of income of Citizens and the ALLTEL Telecommunications Properties giving effect to the acquisitions as if the acquisitions and the related permanent financings had been effective on April 1, 1995. The Pro Forma Condensed Combined Statement of Income should be read in conjunction with the historical financial statements and related notes thereto of Citizens. The Pro Forma Condensed Combined Statement of Income is not necessarily indicative of what the actual results of operations would have been for the period had the transactions occurred at the date indicated and do not purport to indicate the results of future operations. Twelve Months Ended March 31, 1996 ---------------------------------------------- Pro Forma ------------------- Citizens ALLTEL(*)(1) Adjustments Combined -------- ------------ ----------- -------- Revenues $1,131,136 $ 66,542 $1,197,678 Expenses: Operating Expenses 698,302 27,540 725,842 Depreciation and Amortization 166,571 13,836 $ 400(2) 180,807 ---------- ------------- ----------- --------- Total Operating Expenses 864,873 41,376 400 906,649 Income from Operations 266,263 25,166 (400) 291,029 Other Income, net 58,147 925 (3,900)(3) 55,172 Interest Expense 87,081 3,285 (8,400)(4) 81,966 Income before Income Taxes 237,329 22,806 4,100 264,235 Income Taxes 71,588 8,408 3,200 (5) 83,196 -------- -------- --------- -------- Income before Dividends on Company Obligated Mandatorily Redeemable Convertible Preferred Securities 165,741 14,398 900 181,039 Dividends on Company Obligated Mandatorily Redeemable Convertible Preferred Securities 1,253 - 4,047(6) 5,300 -------- ------- -------- ------- Net Income $ 164,488 $ 14,398 $ (3,147) $ 175,739 ========== ========== ========== ======== Earnings Per Share of Common Stock Series A and Series B(**) $ .74 $ .79 Weighted Average Common Shares(**) 223,577 223,577 * Represents the financial results from April 1, 1995 to the dates of acquisition for the ALLTEL Telecommunications properties, net of the financial results for a property transferred to ALLTEL as part of the transactions. Financial results for the ALLTEL Telecommunications Properties from their dates of acquisition through March 31, 1996, are included in Citizens= financial results for the twelve months ended March 31, 1996. ** No adjustment has been made for Citizens= 1.6% 1996 second quarter stock dividend, as this adjustment is immaterial. See Notes to Pro Forma Statements of Income on page S-10. STATEMENTS OF INCOME (continued) Citizens Utilities Company and ALLTEL Telecommunications Properties Pro Forma Condensed Combined Statement of Income (In thousands, except for per-share amounts) The following Pro Forma Condensed Combined Statement of Income for the year ended December 31, 1995 combines the historical statements of income of Citizens and the ALLTEL Telecommunications Properties giving effect to the acquisitions as if the acquisitions and the related permanent financings had been effective on January 1, 1995. The Pro Forma Condensed Combined Statement of Income should be read in conjunction with the historical financial statements and related notes thereto of Citizens. The Pro Forma Condensed Combined Statement of Income is not necessarily indicative of what the actual results of operations would have been for the period had the transactions occurred at the date indicated and do not purport to indicate the results of future operations. Year Ended December 31, 1995 ----------------------------------------------- Pro Forma ------------------------ Citizens ALLTEL(*)(1) Adjustments Combined -------- ------------ ----------- -------- Revenues $1,069,032 $ 90,039 $1,159,071 Expenses: Operating Expenses 655,924 38,654 694,578 Depreciation and Amortization 158,935 18,680 $ 500 (2) 178,115 --------- ----------- ----------- --------- Total Operating Expenses 814,859 57,334 500 872,693 Income from Operations 254,173 32,705 (500) 286,378 Other Income, net 59,955 1,087 (5,200) (3) 55,842 Interest Expense 87,775 4,467 (12,300) (4) 79,942 Income before Income Taxes 226,353 29,325 6,600 262,278 Income Taxes 66,817 10,851 4,600 (5) 82,268 ---------- ------------ ------------ -------- Income before Dividends on Company Obligated Mandatory Redeemable Convertible Preferred Securities 159,536 18,474 2,000 180,010 Dividends on Company Obligated Mandatorily Redeemable Convertible Preferred Securities - - 5,300 (6) 5,300 -------- -------- ---------- -------- Net Income $ 159,536 $ 18,474 $ (3,300) $ 174,710 ========== =========== ============ ========= Earnings Per Share of Common Stock Series A and Series B(**) $ .72 $ .78(7) Weighted Average Common Shares(**) 222,373 224,867(7) * Represents the financial results from January 1, 1995 to the dates of acquisition for all the ALLTEL Telecommunications Properties acquired from January 1, 1995 through December 31, 1995 and the financial results for the entire twelve month period for the ALLTEL Telecommunications property acquired after December 31, 1995, net of the financial results for a property transferred to ALLTEL as part of the transaction. Financial results for the ALLTEL Telecommunications Properties acquired during 1995 are included in Citizens' financial results for the twelve months ended December 31, 1995. ** No adjustments has been made for Citizens' 1.6% 1996 second quarter stock dividend, as this adjustment is immaterial. See Notes to Pro Forma Statements of Income on page S-10. PRO FORMA STATEMENTS OF INCOME (continued) Citizens Utilities Company and ALLTEL Telecommunications Properties Notes to Pro Forma Condensed Combined Statement of Income (1) On November 29, 1994, Citizens and ALLTEL Corporation ("ALLTEL") announced the signing of definitive agreements pursuant to which Citizens agreed to acquire from ALLTEL at a net purchase price of $282 million, approximately 110,000 local telephone access lines and 7,000 cable television subscribers in eight states ("ALLTEL Telecommunications Properties"). From June 30, 1995 to December 31, 1995, approximately 93,000 local telephone access lines and approximately 7,000 cable television subscribers were transferred to the Company. On March 31, 1996, the remainder of the local telephone access lines were transferred to the Company. (2) Represents an adjustment to reflect the amortization associated with the $17 million of excess purchase price over net book value of assets acquired or to be acquired. Pursuant to Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation", the amortization of the remaining $55 million of excess of purchase price over net book value of assets acquired will be deferred. The Company intends to seek from the public utilities commissions maximum recovery of the excess of purchase price over net book value in future rate proceedings. (3) Represents an adjustment to reflect the elimination from Other Income of tax-exempt investment income associated with the cash and investments used to partially fund the acquisitions of the ALLTEL Telecommunications Properties and other properties previously acquired. (4) Represents an adjustment to reflect the inclusion in Interest Expense of the interest expense on debt securities issued or assumed to partially finance the acquisition of the ALLTEL Telecommunications Properties and other properties previously acquired, net of the elimination of interest expense on borrowings used to temporarily finance the acquisitions and the elimination of interest expense on debt not assumed by the Company. (5) Represents an adjustment to Income Taxes based on Income before Income Taxes using the applicable incremental income tax rate. (6) Represents an adjustment to reflect the annual Dividends on Company Obligated Mandatorily Redeemable Convertible Preferred Securities, net of income taxes, issued in January 1996 to partially finance the acquisition of the ALLTEL Telecommunications Properties and other properties previously acquired. (7) The Pro Forma Earnings Per Share calculation and Pro Forma Weighted Average Common Shares are based on the weighted average number of common shares outstanding for the period including the number of additional shares issued to partially finance the acquisition of the ALLTEL Telecommunications Properties and other properties previously acquired, assuming such additional shares were outstanding for the entire twelve month period. Fully diluted earnings per share are not presented because the difference is immaterial. UNDERWRITERS Under the terms and subject to conditions set forth in the Underwriting Agreement dated the date hereof, the Company has agreed to sell to each of the Underwriters named below, severally, and each of the Underwriters has severally agreed to purchase the principal amount of the Offered Debentures set forth opposite its name below: Principal Amount of Underwriters Debentures ------------ ---------- Morgan Stanley & Co. Incorporated............................. $ 45,000,000 Lehman Brothers Inc........................................... 45,000,000 Chase Securities Inc.......................................... 10,000,000 ------------ Total......................................... $100,000,000 ============ The Underwriting Agreement provides that the obligations of the Underwriters to pay for and accept delivery of the Offered Debentures are subject to the approval of certain legal matters by counsel and to certain other conditions. The nature of the Underwriters' obligations is such that they are committed to take and pay for all the Offered Debentures if any are taken. The Underwriters propose to offer part of the Offered Debentures directly to the public at the public offering price set forth on the cover page hereof and in part to selected dealers at a price which represents a concession not in excess of .40% of the principal amount of the Offered Debentures under the public offering price. The Underwriters may allow, and such dealers may reallow, a concession not in excess of .25% of the principal amount of the Offered Debentures to certain other dealers. After the initial offering of the Offered Debentures, the public offering price and concessions may be changed. The Company does not intend to apply for listing of the Offered Debentures on a national securities exchange, but has been advised by the Underwriters that they presently intend to make a market in the Offered Debentures, as permitted by applicable laws and regulations. The Underwriters are not obligated, however, to make a market in the Offered Debentures and any such market-making may be discontinued at any time at the sole discretion of each of the Underwriters. Accordingly, no assurance can be given as to the liquidity of the trading market for the Offered Debentures. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. LEGAL OPINIONS The validity of the Securities will be passed upon by Winthrop, Stimson, Putnam & Roberts, One Battery Park Plaza, New York, New York, counsel for the Company, and by Simpson Thacher & Bartlett (a partnership which includes professional corporations), 425 Lexington Avenue, New York, New York, counsel for the Underwriters. Legal matters relating to required authorization, if any, of the Securities by the public utilities commissions in the various states will be passed upon by local counsel to the Company in the states of Arizona, Colorado, Hawaii, Louisiana and Vermont. Winthrop, Stimson, Putnam & Roberts and Simpson Thacher & Bartlett may rely upon such counsel as to certain matters governed by the laws of such states. EXPERTS The consolidated financial statements of the Company as of December 31, 1995, 1994 and 1993, and for each of the years then ended, incorporated by reference in this Prospectus Supplement from the Company's Annual Report on Form 10-K, have been so incorporated by reference in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. EX-99 2 PROSPECTUS CITIZENS UTILITIES COMPANY SECURITIES -------------------------------------- Citizens Utilities Company (the "Company" or "Citizens") may offer, from time to time, debt securities consisting of unsecured debentures, in one or more series (the "Debt Securities"); preferred stock, in one or more series (the "Preferred Stock"); and its Common Stock, Series A and/or Series B (the "Common Stock" and together with the Debt Securities and Preferred Stock, the "Securities") in amounts, at prices and on terms to be determined at the time of sale. The aggregate offering price of the Securities will not exceed $1,000,000,000. For each offering of Securities for which this Prospectus is being delivered there will be an accompanying Prospectus Supplement (the "Prospectus Supplement") that will set forth, with respect to Debt Securities, the designation, principal amount, interest rate, interest payment dates, maturity (not less than nine months nor more than fifty years), public offering price, any redemption or sinking fund provisions, and any other specific terms; with respect to Preferred Stock, the specific number of shares, liquidation value, dividend rate (or method of calculation thereof), public offering price, any redemption and sinking fund terms and other specific terms; and, with respect to Common Stock, the specific number of shares, the designation, the public offering price and other specific terms of the offering. The outstanding shares of Common Stock are, and the new Common Stock will be, listed on the New York Stock Exchange. -------------------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. -------------------------------------- The Company may offer the Securities through underwriters, through dealers, directly to one or more institutional purchasers or through agents. See "Plan of Distribution." The Prospectus Supplement will set forth the names of the underwriters, dealers or agents, if any, any applicable commissions or discounts and the gross and net proceeds to the Company from the sale of Securities. -------------------------------------- The date of this Prospectus is March 28, 1994 No dealer, salesperson or other person has been authorized to give any information or to make any representations other than those contained or incorporated by reference in this Prospectus or any Prospectus Supplement in connection with an offer made by this Prospectus or any Prospectus Supplement and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or by any other person, underwriter, dealer or agent. Neither the delivery of this Prospectus or any Prospectus Supplement nor any sale made hereunder shall under any circumstances create an implication that there has been no change in the affairs of the Company since the date hereof or thereof or that the information contained herein is current as of any time subsequent to the date hereof. This Prospectus and any Prospectus Supplement do not constitute an offer or solicitation by anyone in any State in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation. ---------------------------- AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934 (the "1934 Act") and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "SEC"). Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. and at its regional offices at Northwestern Atrium Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661, and Suite 1300, 7 World Trade Center, New York, New York 10048. Copies of such material can also be obtained from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Certain securities of the Company are listed on the New York Stock Exchange, 20 Broad Street, New York, New York 10005 and reports, proxy material and other information concerning the Company may be inspected at the office of that Exchange. ---------------------------- INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by the Company with the SEC pursuant to the 1933 Act are incorporated into this Prospectus by reference: The Company's Annual Report on Form 10-K for the year ended December 31, 1993 as amended on March 23 and March 25, 1994 by Forms 10-K/A and the schedules to the Company's Annual Report on Form 10-K for the year ended December 31, 1992 included in Form 8 filed on April 27, 1993. The Company's Current Report on Form 8-K filed on December 15, and December 20, 1993 and the Current Report on Form 8-K/A amending the Form 8K filed on December 23, 1993 amending the Form 8-K filed December 15, 1993. All documents subsequently filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the 1934 Act prior to the termination of the offering of the Securities shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents. The Company hereby undertakes to provide without charge to each person to whom a copy of this Prospectus is delivered, upon written or oral request of such person, a copy of any or all of the documents referred to above which have been or may be incorporated by reference in this Prospectus, other than exhibits to such documents not specifically incorporated by reference herein. Requests for such copies should be directed to Office of the Secretary, Citizens Utilities Company, High Ridge Park, Bldg. No. 3, Stamford, Connecticut 06905 (telephone (203) 329-8800). 2 INFORMATION CONCERNING CITIZENS UTILITIES COMPANY THE COMPANY Citizens is a diversified operating public utility providing telecommunications, natural gas, electric, water and wastewater services to customers in sixteen states: Arizona, California, Colorado, Hawaii, Idaho, Illinois, Indiana, Louisiana, Ohio, Oregon, Pennsylvania, Tennessee, Utah, Vermont, Washington and West Virginia. Citizens also holds a significant investment interest in Centennial Cellular Corp., a cellular telephone company serving markets with a population of approximately 4.2 million. Beginning with 1945, the Company has increased its revenues, net income and earnings per share (adjusted for intervening stock dividends and stock splits) every year without interruption. The Company, with administrative offices at High Ridge Park, Stamford, Connecticut 06905, 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 significant acquisitions and joint ventures in traditional public utility and related fields and the rapidly evolving telecommunications and cable television industries. As a result of its diversification, the Company is not dependent upon any single geographic area for its revenues, nor is the Company dependent upon any one type of utility service. Because of this diversity, no single regulatory body regulates a utility service of the Company accounting for more than 18% of its 1993 revenues. The Company is not aware of any other utility company as fully diversified in both geographic areas served and variety of services provided. The Company's operations are conducted principally in smaller communities and non-urban areas. No material part of the Company's business is dependent upon a single customer or a small group of customers. The loss of any single customer or a small group of customers would not have a materially adverse effect upon the Company. The Company's consumer connections have increased from 26,150 in 1945 to 225,389 in 1965, to 610,585 in 1985, and to more than 1,000,000 as of December 31, 1993. On May 19, 1993, Citizens and GTE Corporation ("GTE") announced the signing of ten definitive agreements pursuant to which Citizens agreed to acquire from GTE, for $1.1 billion in cash, approximately 500,000 local telephone exchange access lines in nine states: Arizona, California, Idaho, Montana, New York, Oregon, Tennessee, Utah and West Virginia ("GTE Telephone Properties"). The purchases require the approval of the Federal Communications Commission and the regulatory commissions of the states in which the properties are located. On December 31, 1993, 189,000 local telephone access lines in Idaho, Tennessee, Utah and West Virginia were transferred to the Company. The remaining GTE Telephone Properties are expected to be transferred in 1994. THE BUSINESS Operating divisions of Citizens provide electric and gas public utility services, purchasing most of electric power needed and all gas supplies. Telecommunications, water and wastewater public utility services are provided either by divisions of Citizens or by its subsidiaries. 3 FINANCIAL INFORMATION The following financial information including Pro Forma financial information reflecting the acquisition of GTE Telephone Properties is qualified in its entirety by, and should be read in conjunction with, the information appearing elsewhere herein and the documents and financial statements incorporated by reference herein.
Revenues Year Ended December 31, 1993 ----------------------------- (In thousands) Business Sector Pro Forma Actual --------------- ----------- ------ Telecommunications $574,394 $177,497 Natural Gas 211,892 211,892 Electric 164,515 164,515 Water and Wastewater 65,488 65,488 ---------- -------- Total $1,016,289 $619,392 ========== ========
4 CONSOLIDATED SUMMARY FINANCIAL INFORMATION (In thousands, except for per-share amounts)
Year Ended December 31, 1993 Year Ended December 31, -------------------- ----------------------------------- Pro Actual 1992 1991 1990 1989 Forma/(1)/ -------------------- ----------------------------------- INCOME STATEMENT - ---------------- Revenues $1,016,289 $619,392 $580,464 $545,025 $528,251 $483,582 Income from Continuing Operations $ 151,724 $125,630 $115,013 $112,354 $105,624 $ 97,768 Earnings Per Share of Common Stock from Continuing Operations /(2)/ Series A and B $ .77 $ .71 $ .66 $ .65 $ .60 $ .53 Ratio of Earnings to Fixed Charges /(3)/ 4.4 5.3 4.8 5.3 5.3 5.2
As at December 31, 1993 As at December 31, ----------------------- ---------------------------------------------- Pro Actual 1992 1991 1990 1989 Forma/(4)/ ----------------------- ---------------------------------------------- BALANCE SHEET - ------------- Total Assets $2,983,118 $2,627,118 $1,887,981 $1,721,452 $1,491,199 $1,365,534 Long-Term Debt $ 915,673 $ 547,673 $ 522,699 $ 484,021 $ 412,348 $ 379,729 Shareholders' Equity $1,342,486 $ 974,486 $ 837,271 $ 719,676 $ 606,229 $ 541,318 Long-Term Debt to Total Capital Ratio 40.5% 36.0% 38.4% 40.2% 40.5% 41.2% Shareholders' Equity Per Share Series A and Series B $ 6.77 $ 5.52 $ 4.76 $ 4.15 $ 3.43 $ 2.94 - -------------------
(1) Combined Citizens' financial results with the financial results pertaining to the GTE Telephone Properties assuming the acquisitions were effective on January 1, 1993. These amounts should be read in conjunction with the Pro Forma Financial Statements presented on pages 16 and 17 this Prospectus. (2) Series A and Series B per-share amounts have been adjusted retroactively for intervening stock dividends and stock splits. No adjustment has been made for Citizens' 1.1% 1994 first quarter stock dividend, as this adjustment is immaterial. (3) "Earnings" consist of income from continuing operations plus fixed charges and income taxes. "Fixed Charges" consist of interest charges and an amount representing the interest factor included in rentals. (4) Citizens' balance sheet data giving effect to the acquisitions of the GTE Telephone Properties assuming the acquisitions were effective as at December 31, 1993. These amounts should be read in conjunction with the Pro Forma Financial Statements presented on pages 16 and 17 of this Prospectus. 5 APPLICATION OF PROCEEDS Approximately $750 million of proceeds from the sale of the Securities is expected to be used to partially fund the acquisition of the GTE Telephone Properties. The remainder of proceeds is expected to be used to reimburse the Company's treasury for expenditures for the construction, extension, completion and improvement of utility facilities, to acquire additional public utility and related property and property in the rapidly evolving telecommunications and cable television industries, to improve service and to provide funds for the repayment of outstanding debt on such date or dates as the Company may determine from time to time. CAPITAL REQUIREMENTS AND FINANCING The total purchase price for the GTE Telephone Properties is $1.1 billion in cash. The Company intends to permanently finance the acquisition of the GTE Telephone Properties approximately one-third from the issuance of equity securities, one-third from the issuance of debt securities and one-third from Company investments. In addition, the Company is engaged in a continuous acquisition program and expects, from time to time, to acquire additional public utility and related property and property in the rapidly evolving telecommunications and cable television industries. The Company carries out a continuous construction program to maintain reliable and safe service and to meet future customer service requirements. In 1994, the Company anticipates that construction, extension and improvement of service relating to existing properties and the GTE Telephone Properties will require approximately $280,000,000. The Company's construction program is under continuous review and may be revised depending on business and economic conditions, regulatory action, governmental mandates, customer demand and other factors. These capital requirements will be met from internally generated funds, the sale of Securities covered by this Prospectus, the issuance of tax- exempt debt securities and short-term borrowings. The Company maintains $1,200,000,000 committed bank lines of credit for general corporate purposes. As of March 24, 1994 no amounts were outstanding under the existing lines of credit. DESCRIPTION OF DEBT SECURITIES GENERAL Debt Securities may consist of any one or more of the following types of securities: unsecured debentures, debentures convertible into equity, medium term notes, and other 6 unsecured notes, with a maturity of not less than nine months nor more than fifty years from the date of issuance. For each offering of Debt Securities there will be an accompanying Prospectus Supplement that will set forth the aggregate principal amount or amounts, public offering price or prices, maturity or maturities, rate or rates and times of payment of interest, any sinking fund provisions, any redemption terms and any other special terms of such Debt Securities. If the Debt Securities are to be convertible to shares of equity securities, the accompanying Prospectus Supplement will set forth the terms of conversion. The following statements, which are qualified in their entirety by reference to the Indenture described below, are brief summaries of the provisions of the Indenture. DEBENTURES AND OTHER UNSECURED DEBT SECURITIES Debentures and other unsecured Debt Securities will be issued under the Company's Indenture dated as of August 15, 1991, supplemented to cover two earlier issuances of debentures and as may be further supplemented by one or more supplemental indentures creating the respective series of Debentures and other unsecured Debt Securities. Chemical Bank, New York, is the trustee (the "Trustee") under the Indenture. Copies of the Indenture and any supplemental indentures (collectively hereinafter called the "Indenture") are or will be filed as exhibits to the Registration Statement. The Indenture provides generally for the issuance of Debt Securities in series. Securities issued under this Indenture are herein called the "Indenture Securities". Debt Securities will not be secured. Debt Securities will rank equally, unless otherwise specified in the Prospectus Supplements, with any other indebtedness which may be issued under the Indenture and other unsecured obligations of the Company except as noted. As of December 31, 1993, there was outstanding approximately $505,422,000 principal amount of unsecured indebtedness of the Company, including obligations under loan agreements relating to industrial development revenue bonds issued on behalf of the Company to finance the construction of specified property, all of which ranks equally in right of payment with the Indenture Securities, except for approximately $11,692,000 principal amount of such unsecured indebtedness which is subordinate to all other unsecured indebtedness. In the future, the Company may incur additional unsecured indebtedness, including obligations under industrial development revenue bond loan agreements, and secured indebtedness under mortgages or other security arrangements. At December 31, 1993 there was $380,000,000 of short-term debt outstanding, issued in the form of commercial paper notes, to temporarily and partially fund the GTE Telephone Properties acquired on December 31, 1993. This short-term debt is expected to be repaid from maturing temporary investments and proceeds from the planned issuance of Securities in 1994. Utility properties of a subsidiary of the Company in the state of Arizona are subject to the lien of a mortgage securing $43,486,000 principal amount of indebtedness from federal agencies as of December 31, 1993. 7 Unless otherwise stated in the accompanying Prospectus Supplement, it is intended that Debt Securities will be held by the owners as book-entry securities. See below under "Description of Debt Securities -- Book-Entry Debt Securities." ISSUANCE OF ADDITIONAL SECURITIES Additional Debt Securities may be issued under the Indenture. The Indenture does not contain any limitation on the issuance by the Company of other securities, either secured or unsecured. MERGER, CONSOLIDATION, TRANSFER OF ASSETS In the event of a merger, consolidation or transfer of assets of the Company with or to another corporation or entity, in which the Company is not the surviving corporation, the surviving entity shall assume the obligations of the Company for Indenture Securities under the Indenture by execution of a supplemental indenture, and such merger, consolidation or transfer of assets is conditioned upon the surviving entity having a consolidated net worth immediately subsequent to such event at least equal to that of the Company immediately prior to such event. MODIFICATION OF INDENTURE; DEFEASANCE The Indenture provides that, with the consent of the holders of not less than 66 2/3% in principal amount of all series of Indenture Securities affected thereby which are at the time outstanding, the Company and the Trustee may enter into supplemental indentures for the purpose of amending or modifying, in any manner, provisions of the Indenture; provided, however, that no such supplemental indenture, without the consent of the holder of each outstanding Indenture Security affected thereby, shall, among other things, (i) change the maturity of the principal of, or any installment of interest on, any Indenture Security, or reduce the principal amount thereof or the interest thereon or any premium payable upon the redemption thereof, or (ii) reduce the amount of the principal of an original issue discount security that would be payable upon acceleration, or (iii) impair the right to institute suit for the enforcement of any such payment on or after the maturity or redemption date, or (iv) reduce the aforesaid percentage of the Indenture Securities, the consent of the holders of which is required for the execution of any such supplemental indenture or the waiver of compliance with certain covenants (Indenture Section 902). The Indenture provides for the defeasance of the Indenture with regard to one or more series of Indenture Securities, or the defeasance of specified covenants of the Indenture applicable to one or more series, upon the deposit in trust of cash or U.S. government securities in an amount sufficient to pay principal, premium, if any, and interest on such series of Indenture Securities and upon satisfaction by the Company of other conditions (Indenture Sections 1302, 1303 and 1304). 8 A condition to defeasance with respect to the entire amount of any series of Indenture Securities is an opinion of counsel to the effect that the holders of such series will not realize income for federal income tax purposes as a result of such defeasance. EVENTS OF DEFAULT The Indenture defines an Event of Default with respect to any series of Indenture Securities as being: a default for 60 days in the payment of any interest upon any Indenture Security of such series; a default in the payment of any principal of or premium on any Indenture Security of such series when due; a default in the deposit of any sinking fund payment with respect to such series; a default in the performance of any other covenant in the Indenture applicable to such series which goes unremedied for 90 days after notice of default given by the Trustee or the holders of not less than a majority of principal amount of such series; and includes certain events of bankruptcy, insolvency or reorganization. The Company may add, delete or modify any Event of Default or other similar event with respect to one or more series of Indenture Securities at the time of establishing such series (Indenture Section 501). The Company is required to file with the Trustee all reports required by the Trust Indenture Act of 1939, which includes an annual officer's certificate as to compliance with all conditions and covenants under the Indenture (Indenture Sections 704 and 1006). The Indenture provides that, if an Event of Default with respect to a series of Indenture Securities occurs and is continuing, the Trustee or the holders of not less than a majority of principal amount of the outstanding Indenture Securities of such series may declare the principal of the Indenture Securities of such series to be due and payable immediately. The holders of a majority of principal amount of the outstanding Indenture Securities of such series may rescind any such declaration if such Event of Default has been cured or waived and all amounts then due on the Indenture Securities of such series have been paid (Indenture Section 502). The Indenture further provides that, if an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce the rights of the Trustee and the rights of the holders of Indenture Securities by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights (Indenture Section 503). The Indenture provides that the Trustee shall give to the holders of the Indenture Securities of any series notice of any default relating to such series under the Indenture within 90 days of its occurrence, except that in the ------ case of a default by the Company in the performance of any covenant in the Indenture other than those with respect to the payment of principal, premium or interest or deposit of sinking fund payment, no such notice shall be given until at least 30 days after the occurrence thereof, provided that the Trustee may -------- withhold notice to holders of Indenture Securities of any series of any default (except in payment of the principal of, or premium, if any, or interest on, any Indenture Security or in 9 the making of any sinking fund or similar payment) if it considers it in the interest of the holders of Indenture Securities to do so (Indenture Section 602; and Trust Indenture Act of 1939, Section 315(b)). The Indenture provides that the holders of a majority of principal amount of the outstanding Indenture Securities of a series have the right, subject to certain conditions, to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee and the right to waive past defaults, other than defaults in, or relating to, the payment of principal, premium or interest (Indenture Sections 512 and 513). The Trustee will not be required to comply with any request or direction of the holders of Indenture Securities pursuant to the Indenture unless offered indemnity against costs, expenses and liabilities which might be incurred by the Trustee as a result of such compliance (Indenture Section 603(d)). Holders of Indenture Securities of a series have no right to enforce any remedy under the Indenture unless the Trustee has failed to institute proceedings in respect of an Event of Default relating to such series within 90 days after notice thereof and has received a written request by the holders of not less than a majority of principal amount of the outstanding Indenture Securities of such series with an offer of reasonable indemnity against costs, expenses and liabilities that may be incurred in complying with such request (Indenture Section 507). CONCERNING THE INDENTURE TRUSTEE Chemical Bank, the Trustee, is one of the lending banks on the Company's bank line of credit arrangements. BOOK-ENTRY DEBT SECURITIES Unless otherwise stated in the accompanying Prospectus Supplement, it is intended that the Debt Securities will be held by the owners as book-entry securities and will be issued in the form of one or more fully registered global securities. The global securities will be deposited with, or on behalf of, and will be registered in the name of, the Depository Trust Company, New York, NY, (the "Depositary") or its nominee (Indenture Section 311). Except as set forth below, the global securities may be transferred only to a nominee of the Depositary or to a name designated by an authorized representative of the Depositary or its nominee. The Depositary has advised as follows: it is a limited-purpose trust company organized under the banking laws of the State of New York and a "banking organization" within the meaning of that law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the 1934 Act. The Depositary holds securities deposited by its participating organizations ("participants") and 10 facilitates settlement of securities transactions in such securities between participants through electronic book-entry changes in accounts of its participants. Participants include securities brokers and dealers, banks and trust companies, clearing corporations and certain other organizations. Access to the Depositary's system is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial re- lationship with a participant, either directly or indirectly ("indirect participants"). Persons who are not participants may beneficially own securities held by the Depositary only through participants or indirect participants. The Depositary has advised that pursuant to its procedures: (i) upon issuance of the Indenture Securities by the Company, the Depositary will credit the accounts of participants and indirect participants designated by any underwriters, dealers or agents with the principal amount of the Debt Securities purchased and (ii) ownership of beneficial interests in the global debt securities will be shown on, and the transfer of that ownership will be effected only through, records maintained by the Depositary, the participants and the indirect participants. The laws of some states require that certain persons take physical delivery in definitive form of securities which they own. Consequently, the ability to transfer beneficial interests in the global debentures is limited to such extent. So long as the Depositary or a nominee of the Depositary is the registered owner of the global debt securities, such Depositary or nominee for all purposes will be considered the sole owner or holder of the Debt Securities under the applicable indenture. Except as provided below, owners of beneficial interests in the global debt securities will not be entitled to have Debt Securities registered in their names, will not receive or be entitled to receive physical delivery of Debt Securities, and will not be considered the owners or holders thereof under the applicable indenture. Neither the Company nor the Trustee will have any responsibility or obligation for any aspect of the records relating to or payments made on account of beneficial ownership interests in the global debt securities or for maintaining any records relating to such beneficial ownership interests. Principal and interest payments on Debt Securities registered in the name of the Depositary (or its successor or nominee) will be made by the paying agent for the related series under the applicable indenture to the Depositary (or its successor or nominee) as the registered owner of the global debt securities. Under the terms of the Indenture and, unless otherwise stated in the Prospectus Supplement, under the terms of any other applicable indenture the Company and the Trustee will treat the persons in whose names the Debt Securities are registered as the owners of such Debt Securities for the purpose of payment of principal and interest on such Debt Securities, giving any notice permitted or required to be given to holders of Debt Securities, registering the transfer of the global debt securities, and for all other purposes whatsoever. Therefore, neither the Company, the Trustee nor any paying agent has any direct responsibility or liability for the payment of principal or interest on the Debt Securities, or the giving of any such notice, to owners of 11 beneficial interests in the global debt securities, as the case may be, or, in the event of any sinking fund payment or redemption, the selection of the owners of beneficial interests to receive payment. The Depositary has advised that its present practice is, upon receipt of any payment of principal or interest, to credit immediately the accounts of the participants and indirect participants with such payment in amounts proportionate to their respective holdings in principal amount of beneficial interests in the global debt securities as shown on the records of the Depositary. Payments by participants and indirect participants to owners of beneficial interests in the global debt securities will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in "street name", and will be the responsibility of the participants or indirect participants. Global debt securities are exchangeable for definitive Debt Securities in registered form only if (i) the Depositary notifies the Company that it will not continue its services as Depositary for the global debt securities, (ii) the Depositary ceases to be a clearing agency registered under the 1934 Act, (iii) the Company in its sole discretion determines that all such global debt securities shall be exchangeable for definitive debt Securities in registered form, or (iv) an Event of Default (as hereinabove described) with respect to the debt Securities represented by such global debt securities has occurred and is continuing. Any global debt securities that are exchangeable pursuant to the preceding sentence shall be exchangeable for definitive Debt Securities in registered form in denominations of $1,000 and integral multiples thereof. Such definitive Debt Securities shall be registered in the names of the owners of the beneficial interests in such global debt securities as provided by the Depositary's participants (as identified by the Depositary holding such global debt securities). In the event that Debt Securities which are held as book-entry debt securities cease to be book-entry debt securities, such Debt Securities will be delivered as registered debt securities without coupons in denominations of $1,000 or any authorized multiple of $1,000. No service charge will be made for any exchange or registration of transfer of any Debt Securities, except that the Company may require payment sufficient to cover any tax or governmental charge in connection therewith (Indenture Sections 302 and 305). DESCRIPTION OF PREFERRED STOCK The Company is authorized to issue up to 50,000,000 shares of Preferred Stock, par value $.01 per share. Under the Company's Restated Certificate of Incorporation, as amended, the Board of Directors is empowered to fix, by resolution, or resolutions, the designations, powers, preferences and relative, participating, optional, conversion and other rights and the qualifications, limitations and restrictions of such Preferred Stock, including dividend rates and payment dates, liquidation preferences, conversion prices, voting rights, redemption and sinking fund terms, and other specific terms. Preferred Stock may be issued in one or more classes and in one or more series. In the event that the Directors shall 12 create a class or series of Preferred Stock, the terms shall be as set forth in the resolution of the Directors creating such stock. None of the Company's authorized Preferred Stock has been issued. The statements with respect to the Company's Preferred Stock contained in this Prospectus and in any Prospectus Supplement, are summaries of the Company's Restated Certificate of Incorporation and the aforesaid resolutions. Such statements are in all respects subject to and qualified in their entirety by reference by the Restated Certificate and the resolutions fixing the terms of the Preferred Stock. DIVIDEND RIGHTS The holders of Preferred Stock in respect of which an accompanying Prospectus Supplement is being delivered will be entitled to receive dividends when and as declared by the Board of Directors of Citizens, as specified in such accompanying Prospectus Supplement. The date that the initial dividend on such Preferred Stock is expected to be payable will be as set forth in such accompanying Prospectus Supplement. There are no limitations in any existing indentures or any other agreements on the payments of dividends on Preferred Stock. VOTING RIGHTS Any rights of the holders of the shares of any series or class of Preferred Stock will be as set forth in an accompanying Prospectus Supplement. REDEMPTION AND LIQUIDATION RIGHTS Redemption provisions and Liquidation Rights and preferences for the Preferred Stock in respect of which an accompanying Prospectus Supplement is being delivered will be set forth in such accompanying Prospectus Supplement. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Preferred Stock will be as set forth in an accompanying Prospectus Supplement. DESCRIPTION OF COMMON STOCK SERIES A AND SERIES B Citizens' common equity capital consists of two series: Common Stock Series A and Common Stock Series B. The Company has authorized 200,000,000 shares of Common Stock Series A and 300,000,000 shares of Common Stock Series B. The Company as of March 10, 1994 had outstanding 129,321,066 shares of Common Stock Series A and 13 53,507,044 shares of Common Stock Series B. The holders of Common Stock Series A and Common Stock Series B are entitled to one vote for each share on all matters voted on by stockholders. Pursuant to Citizens' Restated Certificate of Incorporation, the holders of Common Stock Series A and the holders of Common Stock Series B vote together as a single class on all matters to be voted on by stockholders, unless otherwise expressly required by applicable law. Common Stock Series A is convertible, on a share-for-share and a tax free basis, into Common Stock Series B at all times. Common Stock Series B is not convertible into Common Stock Series A. The Board of Directors of Citizens may, in its sole discretion and at any time, require all of the holders of Common Stock Series A to exchange all of their shares of Common Stock Series A for shares of Common Stock Series B on a share-for-share basis. The holders of Common Stock Series A and Series B participate ratably in liquidation. COMMON STOCK DIVIDENDS The holders of Common Stock are entitled to receive dividends when and as declared by the Board of Directors of Citizens out of funds legally available therefor. Dividends have been paid to holders of Common Stock every year without interruption beginning in 1939, with increases in cash dividends or cash value equivalents every year without interruption beginning in 1946. Beginning in 1956, when the two-series common stock capitalization of Citizens was initiated, through 1989, only stock dividends were paid on Common Stock Series A and only cash dividends were paid on Common Stock Series B. Commencing in 1990, Citizens declared and paid stock dividends on shares of both Common Stock Series A and Common Stock Series B. Under present Federal tax law, stock dividends on Common Stock Series A and Common Stock Series B, if paid and received pro-rata and otherwise in the same manner as they have been since 1990, will continue to be free of current federal income taxation on receipt. To the extent that stock dividends are declared on Common Stock Series B, the same stock dividend must be declared on Common Stock Series A. To the extent that cash dividends are paid out of funds that are legally available on Common Stock Series B, stock dividends with an equivalent fair value must be paid during the same calendar year on Common Stock Series A, unless cash dividends are declared on Common Stock Series A at the same time and in an equal amount as on Common Stock Series B. As noted herein, the Company's Board of Directors may determine the power, preferences and rights of holders of Preferred Stock which may be issued in the future, which may impact the powers and rights of holders of outstanding Common Stock, without any further action by the stockholders of the Company. The holders of Common Stock have no preemptive rights. STOCK DIVIDEND SALE PLAN The Company has a Stock Dividend Sale Plan (the "Plan") offered by a separate prospectus that permits holders of shares of Common Stock Series B to have their stock 14 dividends sold quarterly by the Plan Broker with the cash proceeds of the sale distributed to them. The Company absorbs all expenses of the Plan, except for specified brokerage charges incurred in connection with selling the Series B dividend shares. The Company reserves the right to discontinue the Plan at any time. TRANSFER AGENT The Transfer Agent for the Company's Common Stock is the Illinois Stock Transfer Company. 15 COMMON STOCK PRICE RANGE Prior to February 24, 1992, the Company's common stock was traded on the over-the-counter market as a National Market Issue under NASDAQ symbols CITUA for Series A and CITUB for Series B shares. On February 24, 1992, Citizens commenced trading on the New York Stock Exchange under the symbols CZNA and CZNB for Common Stock Series A and Common Stock Series B, respectively. The table below indicates the high and low prices per share for the periods shown. From January 2, 1991, through February 21, 1992, the last day the stock was traded on the over-the-counter market, the prices were taken from the NASDAQ/NMS Monthly Statistical Report. The high and low prices per share from February 24, 1992, through December 31, 1993, were taken from the daily quotations published in The Wall Street Journal during the periods indicated. Prices have been adjusted retroactively for intervening stock dividends, the July 24, 1992 3-for-2 stock split and the August 31, 1993 2-for-1 stock split, rounded to the nearest 1/8th. No adjustment has been made for the 1.1% 1994 first quarter stock dividend, as this adjustment is immaterial.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter -------------- ------------- ------------ ------------- High Low High Low High Low High Low ------ ------ ----- ------ ---- ------ ------ ----- 1993: Series A $17 5/8 13 3/8 18 3/8 15 7/8 18 1/8 13 1/4 19 7/8 16 1/8 Series B $17 5/8 13 1/2 18 3/8 15 3/4 18 1/8 13 1/4 19 3/4 16 1/8 1992: Series A $12 3/8 10 1/2 12 1/8 11 13 5/8 10 3/4 14 1/2 12 Series B $12 1/8 10 3/8 12 1/8 10 5/8 13 5/8 10 5/8 14 1/2 12 1991: Series A $8 1/2 6 1/2 8 1/4 7 3/8 9 5/8 7 3/8 11 1/4 9 Series B $8 1/2 6 1/2 8 1/8 7 3/8 9 5/8 7 1/8 11 1/4 8 3/4
The reported high and low prices for 1994 through March 24, 1994 were $18 and $15 1/4 per share of Common Stock Series A and $18 1/8 and $15 1/4 per share of Common Stock Series B, respectively. The reported last sale prices on the New York Stock Exchange on March 24, 1994 were $15 1/4 per share of Common Stock Series A and $15 1/4 per share of Common Stock Series B. 16 PRO FORMA FINANCIAL STATEMENTS CITIZENS UTILITIES COMPANY PRO FORMA CONDENSED BALANCE SHEET At December 31, 1993 (In thousands) The following Pro Forma Condensed Balance Sheet represents the historical condensed balance sheet of Citizens giving effect to the acquisitions of the GTE Telephone Properties under the purchase accounting method as if the acquisitions had become effective on December 31, 1993. The Pro Forma Condensed Balance Sheet should be read in conjunction with the historical financial statements and related notes thereto of Citizens which are incorporated by reference herein. The Pro Forma Condensed Balance Sheet is not necessarily indicative of what the actual financial position would have been had the transactions occurred at the dates indicated and do not purport to indicate future financial position.
Pro Forma ----------------------------- Citizens Adjustments (1) Adjusted --------- ----------- ----------- ASSETS Current Assets: Cash $ 21,738 $ 636,000 (2) $ 21,738 (636,000)(3) Temporary Investments 89,752 (89,752)(2) 0 Accounts Receivable 114,313 114,313 Other 14,934 14,934 ---------- ---------- Total Current Assets 240,737 150,985 ---------- ---------- Net Property, Plant and Equipment 1,691,967 636,000 (3) 2,327,967 ---------- ---------- Investments 411,022 (190,248)(2) 220,774 Regulatory Assets 146,207 146,207 Deferred Debits and Other Assets 137,185 137,185 ---------- ---------- ---------- $2,627,118 $ 356,000 $2,983,118 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Long-Term Debt Due Within One Year $ 1,620 $ 1,620 Other 246,605 246,605 Short-Term Debt 380,000 $(380,000)(2) 0 ---------- ---------- Total Current Liabilities 628,225 248,225 Customer Advances for Construction and Contributions in Aid of Construction 184,253 184,253 Deferred Income Taxes 213,471 213,471 Regulatory Liabilities 28,376 28,376 Deferred Credits and Other Liabilities 50,634 50,634 Long-Term Debt 547,673 368,000 (2) 915,673 ---------- ---------- 1,652,632 1,640,632 ---------- ---------- Shareholders' Equity Common Stock Issued, $.25 Par Value Series A 32,447 32,447 Series B 13,119 13,119 Additional Paid-In Capital 698,688 368,000 (2) 1,066,688 Retained Earnings 230,232 230,232 ---------- ---------- 974,486 1,342,486 ---------- ----------- ---------- $2,627,118 $ 356,000 $2,983,118 ========== =========== ==========
(1) The Company and GTE have signed ten definitive agreements in which the Company will purchase from GTE, for $1.1 billion in cash, certain GTE Telephone Properties serving approximately 500,000 access lines in nine states. On December 31, 1993, 189,000 local telephone access lines in Idaho, Tennessee, Utah and West Virginia were transferred to the Company. The $468 million purchase price for the properties that were transferred on December 31, 1993 was permanently funded with $88 million of Investments and temporarily funded with $380 million of Short-Term Debt. The remaining GTE Telephone Properties are expected to be transferred in 1994. (2) When added to the $88 million of permanent funding described in Note (1) above, these adjustments reflect the permanent funding of the $1.1 billion purchase price with equal components of Investments (including Temporary Investments), Long-Term Debt and Equity. (3) Reflects the acquisition of the remaining GTE Telephone Properties expected to be transferred in 1994. 17 PRO FORMA FINANCIAL STATEMENTS (continued) CITIZENS UTILITIES COMPANY AND GTE TELEPHONE PROPERTIES PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME (In thousands, except for per-share amounts) The following Pro Forma Condensed Combined Statements of Income for the year ended December 31, 1993 combine the historical statements of income of Citizens and the GTE Telephone Properties giving effect to the acquisitions as if the acquisitions had been effective on January 1, 1993. The Pro Forma Condensed Combined Statements of Income should be read in conjunction with historical financial statements and related notes thereto of Citizens and those of the GTE Telephone Properties that have been audited which are incorporated by reference herein. The Pro Forma Condensed Statements of Income are not necessarily indicative of what the actual results of operations would have been for the period had the transactions occurred at the date indicated and do not purport to indicate the results of future operations .
Year Ended December 31, 1993 ------------------------------------------------ Pro Forma ------------------------- CITIZENS GTE(1) Adjustments Combined -------- --------- ----------- ----------- Operating Revenues $619,392 $396,897 $1,016,289 Operating Expenses: Operating Expenses 403,534 226,054 ($11,000)(2) 618,588 Depreciation and Amortization 54,698 77,108 8,000 (3) 139,806 -------- -------- -------- ---------- Total Operating Expenses 458,232 303,162 (3,000) 758,394 Net Operating Income 161,160 93,735 3,000 257,895 Other Income (Deductions) 54,199 (166) (18,400)(4) 35,633 Interest Expense 37,431 26,517 200 (5) 64,148 -------- -------- -------- ---------- Income Before Income Taxes 177,928 67,052 (15,600) 229,380 Income Taxes 52,298 24,758 600 (6) 77,656 -------- -------- -------- ---------- Net Income $125,630 $42,294 ($16,200) $151,724 ======== ======== ======== ========== Earnings Per Share of Common Stock: Series A and Series B* $ .71 $ .77 (7) Weighted Average Common Shares* 176,564 198,211 (7)
* No adjustment has been made for Citizens' 1.1% 1994 first quarter stock dividend, as this adjustment is immaterial. - -------------------- See Notes to Pro Forma Financial Statements on page 18. 18 PRO FORMA FINANCIAL STATEMENTS (continued) CITIZENS UTILITIES COMPANY AND GTE TELEPHONE PROPERTIES NOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME (1) The Company and GTE have signed ten definitive agreements in which the Company will purchase from GTE for $1.1 billion in cash, certain GTE Telephone Properties serving approximately 500,000 access lines in nine states. On December 31, 1993, 189,000 local telephone access lines in Idaho, Tennessee, Utah and West Virginia were transferred to the Company. The remaining GTE Telephone Properties are expected to be transferred in 1994. (2) Elimination of certain corporate overhead expenses allocated by GTE to the GTE Telephone Properties which will not have a continuing impact on the combined entity. (3) Represents amortization of the $175 million of excess of purchase price over net book value of assets acquired for the states in which the public utilities commissions have required amortization. In accordance with Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation", the remaining $158 million of excess of purchase price over net book value of assets acquired in states where the public utilities commissions have not required amortization will be deferred. The Company intends to seek from the public utilities commissions maximum recovery of the excess of purchase price over net book value in future rate proceedings. (4) Elimination of tax exempt investment income earned on $368 million of the Company's investments which will be used to partially finance the acquisition of the GTE Telephone Properties. (5) Represents interest expense on $368 million of additional long-term debt to be issued to partially finance the acquisition of the GTE Telephone Properties, net of the elimination of interest expense on long-term debt associated with the GTE Telephone Properties which will not be assumed by the Company. The Company anticipates that cash flow from operations generated by the acquired properties will be more than sufficient to fund the capital expenditure requirements of the acquired properties. (6) Adjustment to income tax expense based on taxable income and the applicable effective tax rate. (7) The pro forma earnings per share is based on the weighted average number of common shares outstanding plus the number of additional shares assumed to have been issued to finance $368 million of the acquisition purchase price assuming such shares were outstanding for the entire respective periods. 19 EXPERTS The consolidated financial statements of the Company as of December 31, 1993 1992, and 1991, and for each of the years then ended, incorporated by reference in this Prospectus from the Company's Annual Report on Form 10-K as amended, have been so incorporated by reference in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. The financial statements of the West Virginia and Tennessee Operations of GTE South Incorporated, and of the Arizona and Idaho Operations of Contel of the West, Inc., incorporated by reference in this Prospectus, have been examined by KPMG Peat Marwick LLP to the extent and for the periods indicated in their reports, and have been so incorporated by reference in reliance upon the reports of KPMG Peat Marwick LLP, also incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. The financial statements of Contel of New York, Inc. and Contel of West Virginia, Inc., incorporated by reference in this Prospectus, have been examined by Arthur Andersen LLP to the extent and for the periods indicated in their reports, and have been so incorporated by reference in reliance upon the reports of Arther Andersen LLP, also incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. LEGAL OPINIONS The validity of the Securities will be passed upon by Boulanger, Hicks, Stein & Churchill, P.C., 135 East 57th Street, New York, New York, counsel for the Company, and by Simpson Thacher & Bartlett (a parternship which includes professional corporations), 425 Lexington Avenue, New York, New York, counsel for the Underwriters. Legal matters relating to required authorization, if any, of the Securities by the public utilities commissions in the various states will be passed upon by local counsel to the Company in the states of Arizona, Colorado, Hawaii, Louisiana, Tennessee, Vermont and West Virginia. Boulanger, Hicks, Stein & Churchill and Simpson Thacher & Bartlett may rely upon such counsel as to certain matters governed by the laws of such states. PLAN OF DISTRIBUTION The Company may sell the Securities (i) through underwriters; (ii) through dealers; (iii) directly to one or more institutional purchasers; or (iv) through agents. Securities may be sold outside the United States. An accompanying Prospectus Supplement will set forth the terms of the offering of Securities including the name or names of any underwriters, dealers, purchasers or agents, the purchase price of such Securities and the proceeds to the Company from such sale, any underwriting discounts and other items constituting underwriters' compensation, any initial public offering price, any discounts or concessions allowed or reallowed or paid to dealers and any securities exchanges on which wuch Securities may be listed. Any initial public offering price and any discounts or concessions allowed or reallowed or paid to dealers may be changed from time to time. Only firms named in the Prospectus Supplement are deemed to be underwriters dealers or agents in connection with the Securities offered thereby. If underwriters are used in the sale, Securities will be acquired by the underwriters for their own account and may be resold from time to time in one or more transactions, including negotiated trnasactions, at a fixed public offering price or at varying prices determined at the time of sale. Unless otherwise set forth in the Prospectus Supplement, the obligations of the underwriters to purchase the Securities will be subject to certain conditions precedent, and the underwriters will be obligated to purchase all such Securities if any are purchased. Securities may be sold directly by the Company or through any firm designated by the Company from time to time, acting as principal or as agent. The Prospectus Supplement will set forth the name of any dealer or agent involved in the offer or sale of the Securities in respect of which the Prospectus Supplement is delivered and the price payable to the Company by such dealer or any commissions payable by the Company to such agent. Unless otherwise indicated in the Prospectus Supplement, any such agent will be acting on a best efforts basis for the period of its appointment. Underwriters, dealers and agents may be entitled under agreements entered into with the Company to indemnification by the Company against certain civil liabilities, including liabilities under the Securities Act of 1933, or to contribution with respect to payments for such liabilities which underwriters, dealers or agents may be required to make Underwriters, dealers and agents may engage in transactions with or perform services for the Company in the ordinary course of business. The anticipated date of delivery of Securities will be as set forth in the Prospectus Supplement relating to such offering. -----END PRIVACY-ENHANCED MESSAGE-----