-----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, DlYBSusU49gdN7Ot/VIs4KTdzsYS7AB1b7QTQm5gysNp/Q4ydfhv83Hf6F9RaL6C AoS29PofMRKiwzVBm2WsvQ== 0000020520-97-000013.txt : 19970808 0000020520-97-000013.hdr.sgml : 19970808 ACCESSION NUMBER: 0000020520-97-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970807 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11001 FILM NUMBER: 97653352 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 10-Q 1 FORM 10-Q FOR THE PERIODS ENDED JUNE 30, 1997 CITIZENS UTILITIES COMPANY FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 ------------- [] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission file number 001-11001 --------- CITIZENS UTILITIES COMPANY - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 06-0619596 - ------------------------------------- ----------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) High Ridge Park P.O. Box 3801 Stamford, Connecticut 06905 - ------------------------------------- ----------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (203) 329-8800 --------------------------- NONE - ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety days. Yes X No --- --- Indicate the number of shares outstanding of each of the registrant's classes of common stock as of July 31, 1997. Common Stock Series A 154,545,915 Common Stock Series B 90,895,428 CITIZENS UTILITIES COMPANY AND SUBSIDIARIES INDEX Page No. -------- Part I. Financial Information Consolidated Balance Sheets at June 30, 1997 and December 31, 1996 2 Consolidated Statements of Income for the Three Months Ended June 30, 1997 and 1996 3 Consolidated Statements of Income for the Six Months Ended June 30, 1997 and 1996 4 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1996 5 Notes to Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Part II. Other Information 16 Signature 18 1 PART I. FINANCIAL INFORMATION CITIZENS UTILITIES COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) June 30, 1997 December 31, 1996 ------------- ----------------- ASSETS - ------ Current assets: Cash $ 17,865 $ 24,230 Accounts receivable, net 240,826 281,650 Other 53,896 63,890 ------------- ----------- Total current assets 312,587 369,770 ------------- ----------- Property, plant and equipment 4,815,702 4,582,869 Less accumulated depreciation 1,537,330 1,444,817 ------------- ----------- Property, plant and equipment 3,278,372 3,138,052 ------------- ----------- Investments 443,663 539,152 Regulatory assets 158,218 174,196 Deferred debits and other assets 246,755 301,978 ------------- ----------- Total assets $ 4,439,595 $ 4,523,148 ============= =========== LIABILITIES AND EQUITY - ---------------------- Current liabilities: Long-term debt due within one year $ 8,700 $ 3,593 Accounts payable and current liabilities 336,075 405,896 ------------ ----------- Total current liabilities 344,775 409,489 ------------ ----------- Deferred income taxes 373,224 347,975 Customer advances for construction and contributions in aid of construction 240,597 238,453 Deferred credits 132,385 115,291 Regulatory liabilities 21,600 22,810 Long-term debt 1,557,155 1,509,697 ------------- ------------ Total liabilities 2,669,736 2,643,715 ------------- ------------ Company obligated mandatorily redeemable convertible preferred securities * 201,250 201,250 ------------- ------------ Shareholders' equity: Common stock issued, $.25 par value Series A 38,656 38,811 Series B 22,625 20,977 Additional paid-in capital 1,447,261 1,381,341 Retained earnings 65,934 244,066 Unrealized loss on securities classified as available for sale (5,867) (7,012) ------------ ----------- Total shareholders' equity 1,568,609 1,678,183 ------------ ----------- Total liabilities and shareholders' equity $ 4,439,595 $ 4,523,148 ============ =========== * Represents securities of a subsidiary trust, the sole assets of which are securities of a subsidiary partnership, substantially all the assets of which are convertible debentures of the Company. The accompanying Notes are an integral part of these Financial Statements. 2 PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996 (In thousands, except per-share amounts)
1997 1996 ------------- -------------- Revenues $ 306,141 $ 318,128 ------------- -------------- Expenses: Operating 406,249 196,845 Depreciation 58,013 47,200 ------------- -------------- Total expenses 464,262 244,045 ------------- -------------- Income (loss) from operations (158,121) 74,083 Other income, net 6,841 17,776 Interest expense 28,694 22,645 ------------- -------------- Income (loss) before income taxes and dividends on convertible preferred securities (179,974) 69,214 Income taxes (benefit) (57,949) 21,584 ------------- -------------- Income (loss) before dividends on convertible preferred securities (122,025) 47,630 Dividends on convertible preferred securities, net of income tax benefit 1,552 1,379 ------------- -------------- Net income (loss) $ (123,577) $ 46,251 ============= ============== Earnings (loss) per share of common stock Series A and B $ (.51) $ .19* ============= ============== Average number of Series A and B common shares outstanding for the period 243,708 246,676* ============= ============== Dividend rate declared on Series A and B common stock paid in Series A and B shares, respectively 1.60 % 1.60 % ============= ==============
*Adjusted for subsequent stock dividends. The accompanying Notes are an integral part of these Financial Statements. 3 PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (In thousands, except per-share amounts)
1997 1996 -------------- -------------- Revenues $ 678,633 $ 647,265 -------------- -------------- Expenses: Operating 660,094 407,962 Depreciation 114,579 94,229 -------------- -------------- Total expenses 774,673 502,191 -------------- ------------- Income (loss) from operations (96,040) 145,074 Other income, net 19,125 28,823 Interest expense 55,710 44,647 -------------- -------------- Income (loss) before income taxes and dividends on convertible preferred securities (132,625) 129,250 Income taxes (benefit) (42,322) 41,511 -------------- -------------- Income (loss) before dividends on convertible preferred securities (90,303) 87,739 Dividends on convertible preferred securities, net of income tax benefit 3,104 2,632 -------------- -------------- Net income (loss) $ (93,407) $ 85,107 ============== ============== Earnings (loss) per share of common stock Series A and B $ (.39) $ .35 * ============== ============== Average number of Series A and B common shares outstanding for the period 242,133 245,225 * ============== ============== Compounded dividend rate declared on Series A and B common stock paid in Series A and B shares, respectively 3.23% 3.23% ============== ==============
*Adjusted for subsequent stock dividends. The accompanying Notes are an integral part of these Financial Statements. 4 PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (In thousands)
1997 1996 --------------- ---------------- Net cash provided by operating activities $ 101,555 $ 149,813 --------------- ---------------- Cash flows used for investing activities: Capital expenditures (268,458) (143,605) Securities purchased (102,807) (175,489) Securities sold 183,656 33,837 Securities matured 16,282 22,639 Business acquisitions 0 (84,303) Other 39,878 (16,807) --------------- ---------------- Net cash used for investing activities (131,449) (363,728) --------------- ---------------- Cash flows from financing activities: Long-term debt borrowings 50,598 284,273 Long-term debt principal payments (2,018) (99,021) Short-term debt repayments 0 (140,650) Issuance of convertible preferred securities 0 201,250 Issuance of common stock 3,476 3,622 Common stock buybacks to fund stock dividends (28,867) (29,708) Other 340 3,233 --------------- ---------------- Net cash provided from financing activities 23,529 222,999 --------------- ---------------- Change in cash (6,365) 9,084 Cash at January 1, 24,230 17,922 --------------- ---------------- Cash at June 30, $ 17,865 $ 27,006 =============== ================
The accompanying Notes are an integral part of these Financial Statements. 5 PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (1) Basis of Presentation: --------------------- The unaudited consolidated financial statements include the accounts of Citizens Utilities Company and its subsidiaries (the "Company") and have been prepared in conformity with Generally Accepted Accounting Principles. The consolidated financial statements include all adjustments, which consist of normal recurring accruals and the second quarter charges to earnings discussed in Note 4, necessary to present fairly the results for the interim periods shown. Certain information and footnote disclosures have been condensed pursuant to Securities and Exchange Commission rules and regulations. The results of the interim periods are not necessarily indicative of the results for the full year. (2) Earnings (loss) Per Share: ------------------------- Earnings (loss) per share is based on the average number of outstanding shares adjusted for subsequent stock dividends. The effect on earnings (loss) per share of the exercise of options is immaterial for 1996 and antidilutive for 1997. (3) Regulatory Accounting: --------------------- In accordance with applicable regulatory systems of account, an allowance for funds used during construction is included in the cost of additions to property, plant and equipment and is allowed in rate base for rate making purposes. The allowance is not a cash item. The amount relating to equity is included in Other income, net and the amount relating to borrowings is offset against Interest expense. (4) Second Quarter, 1997 Charges to Earnings: ---------------------------------------- In the second quarter of 1997, the Company recorded approximately $197.3 million of charges to earnings. These charges are related to the following:
Curtailment of certain long distance service operations $ 34,600,000 Benefit plan curtailments and related regulatory assets 36,900,000 Telecommunications information systems and software 63,800,000 Regulatory commission orders 45,000,000 Other 17,000,000 ---------- Total $197,300,000
Curtailment of certain long distance service operations includes expenses and costs related to a reduction in workforce, the curtailment of sales and marketing initiatives and network lease terminations, as well as, an additional reserve for uncollectable accounts receivable. Benefit plan curtailments and related regulatory assets includes expenses and costs associated with the curtailment of certain employee benefits and related regulatory assets no longer deemed recoverable as a result of the benefit plan curtailment and the current regulatory environment. Telecommunications information systems and software includes costs deemed no longer recoverable in the current regulatory environment. Regulatory commission orders include expenses and costs associated with recent orders issued by the Vermont, New York and Arizona public utilities commissions. 6 PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results ----------------------------------------------------------------------- of Operations ------------- This current report on Form 10-Q contains forward-looking statements relating to future expenses, capital expenditures, revenues, charges and earnings. These statements may differ from actual future results due to, but not limited to, the actual effects of the second quarter charges to earnings, the reduction in capital expenditures and other actions described herein, changes in the local and overall economy, the nature and pace of technological changes, the number and effectiveness of competitors in the Company's markets, success in marketing and selling expenditures and efforts, weather conditions, changes in legal and regulatory policy and the mix of products and services offered in the Company's target markets. Readers may wish to consider these important factors in evaluating any statements contained herein. The following information is unaudited and should be read in conjunction with the financial statements and related footnotes included in this report. The Company provides network access, local network, long distance, directory and other communication services as well as public services including electric transmission and distribution, natural gas transmission and distribution, water distribution and wastewater treatment services to primarily rural and suburban customers throughout the United States. The Company develops and expands its businesses through internal investment, acquisitions and joint ventures in the rapidly evolving telecommunications industry and in traditional public services and related fields. (a) Liquidity and Capital Resources ------------------------------- For the six months ended June 30, 1997, the Company used cash flow from operations and proceeds from net financings to fund capital expenditures and the Company's stock buyback program. Funds requisitioned from Industrial Development Revenue Bond construction fund trust accounts were used to partially pay for construction of utility plant. The Company considers its operating cash flows and its ability to raise debt and equity capital as the principal indicators of its liquidity. Although working capital is not considered to be an indicator of the Company's liquidity, the Company experienced an increase in its working capital at June 30, 1997 as compared to December 31, 1996. The Company has lines of credit with commercial banks under which it may borrow up to $600 million. There were no amounts outstanding under these lines at June 30, 1997. During May, 1997, the Company arranged for the issuances of approximately $31 million of Industrial Development Revenue Bonds and Environmental Facility Revenue Bonds with an initial interest rate of 4.15% and an ultimate maturity of May 1, 2032. Proceeds from the issuances will be used to fund construction of the Company's electric facilities and related equipment in Mohave and Navajo Counties in Arizona and for wastewater collection and treatment facilities and other pollution control purposes in the state of Illinois. In addition, Citizens Utilities Company of California, a subsidiary of the Company, under a Department of Water Resources Loan, was advanced approximately $1.5 million. Such funds bear a fixed interest rate of 2.42% and a maturity date of July 1, 2027. Proceeds from the issuance will be used to fund construction of treatment facilities to meet the requirements of the State of California's Safe Drinking Water Bond Law of 1988. During the second quarter, the Company received increases in annual revenues from regulatory commissions in Arizona and California totaling $1.2 million. 7 PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES The Company has been pursuing an aggressive growth strategy to take advantage of opportunities in the emerging communications marketplace and to become a full service communications provider to an expanded base of customers. This strategy included the initiation and expansion of long distance service which, in combination with other enhanced service offerings, would enable the Company to offer customers an integrated package of products and services. This strategy also included expansion activities of the Company's competitive local exchange subsidiary, Electric Lightwave, Inc. ("ELI") and continued expansion activities for its local exchange carrier business. Late in 1996, the Company began the transition of its long distance network primarily to fixed cost leases in order to achieve the lowest cost of providing long distance service in anticipation of its long distance service customer base expanding. The Company's customer base expansion plan was focused on its local exchange franchised service territories, markets adjacent to these local exchange franchised service territories and customers of affiliated companies. In addition, the Company implemented a brand recognition program and established a supporting sales and marketing organization to increase the Company's communications market share. The increase in revenues resulting from this communications expansion strategy, though significant, was less than planned, especially for its long distance service operations. As a result, the Company's long distance service operations generated higher than expected first and second quarter 1997 losses which had an adverse impact on Company earnings and cash flow. In light of this continuing impact on earnings and cash flow, management re-evaluated its communications growth strategy. It was decided that the Company would concentrate its communications expansion efforts on the further development and growth of ELI and its local exchange carrier business and curtail expansion of the Company's long distance service operations in adjacent markets. These decisions are expected to provide operating expense savings in the future; and in addition, the Company has reduced its 1997 capital expenditure program overall by $175 million. Expected operating expense savings will come from reductions in workforce and benefits, consolidation of call center operations, closure of sales offices, reduction of sales and marketing activities and reconfiguration of the Company's network cost structure from fixed to variable through new carrier contracts and network redesign. The Company's 1997 capital expenditure program has been reduced as follows:
1997 1997 1997 Original Revised Budget Sector Budget Budget Reduction ------ ----------- ----------- --------- ($ in thousands) Communications $463,000 $322,000 $141,000 Public Services: Natural gas 43,000 37,000 6,000 Electric 25,000 22,000 3,000 Water and wastewater 36,000 27,000 9,000 General 46,000 30,000 16,000 --------- ----------- --------- $613,000 $438,000 $175,000 ======== ======== ========
The Communications sector capital expenditure budget was reduced by $141 million primarily resulting from a reconsideration of expenditure levels due to recent Federal Communications Commission ("FCC") orders. The Public Services sector capital expenditure budget was reduced by $18 million to better match the timing of expenditures with expected regulatory relief. The general capital expenditure budget was reduced by $16 million primarily due to the elimination of the cost of a corporate aircraft which was to support the Company's communications expansion strategy, particularly its long distance service expansion to adjacent markets. In connection with the re-evaluation of the Company's communications growth strategy, the Company recorded $34.6 million of charges to earnings in the second quarter relating to the curtailment of certain long distance service operations. These charges include expenses and costs associated with the Communications sector workforce reductions, the curtailment of sales and marketing initiatives and the termination of fixed cost network leases associated with the reconfiguration of the Company's network cost structure from fixed to variable, as well as, an additional reserve for uncollectible accounts receivable. 8 PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES After reviewing its employee benefit plans to determine if such plans were competitive with those provided in the industry, the Company decided to curtail certain of its employee benefit plans. This decision required a reassessment of the recoverability of certain related regulatory assets that were expected to be recovered in rates in the Company's current regulatory environment. The curtailment decision and assessment of recoverability required the Company to record a second quarter charge to earnings of approximately $36.9 million. Additionally, between 1993 and 1996, the Company completed acquisitions of over 620,000 telephone access lines from GTE Corp. ("GTE") and ALLTEL Corporation ("ALLTEL"). In connection with these acquisitions, the Company entered into transition services agreements with both GTE and ALLTEL to provide for customer care and billing services. These agreements resulted in the Company using numerous additional customer care and billing systems to serve its twelve-state telecommunications operation. In order to realize economies of scale and improve customer service, the Company, in 1994, decided to consolidate these customer care and billing systems. Through a strategic partnership, the Company, in 1995, began developing software and building new customer care and billing systems that would be used for all of the Company's local exchange telephone properties. As of June 30, 1997, the Company's Tennessee and New York local exchange telephone properties were using these customer care and billing systems. After reviewing the costs to develop this software and build these systems and the incremental billing and customer care requirements placed on local exchange companies by the Telecommunications Act of 1996 and subsequent FCC orders, the Company determined that it was not probable that all of the costs would be recoverable in the Company's rates. As a result, the Company recorded a $63.8 million charge to second quarter earnings. During the second quarter 1997, the public utility commissions in the states of Vermont, New York and Arizona issued orders which required the Company to record $45 million of charges to earnings. These orders affected the Company's electric, communications and water properties. More specifically, the Vermont order required refunds to customers and deemed certain regulatory assets no longer recoverable. The New York order required the Company to record an expense and liability for amounts paid by ratepayers to GTE to fund postretirement benefits prior to Citizens' acquisition of its New York local exchange properties from GTE. The Arizona order disallowed recovery of certain property, plant and equipment. New Accounting Pronouncement: - ---------------------------- In February, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 128 ("SFAS 128"), "Earnings Per Share," which is effective for periods ending after December 15, 1997. SFAS 128 supersedes APB Opinion No.15, "Earnings Per Share" and establishes new standards for computing and presenting earnings per share ("EPS"). The effect of SFAS 128 on the Company's EPS has not been calculated, however, it is expected that the new standards under SFAS 128 will not have a material effect. 9 PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES (b) Results of Operations --------------------- Revenues - -------- Operating revenues for the three months ended June 30, 1997 decreased $12 million, or 4%, primarily due to decreased communications, natural gas and electric revenues. Operating revenues for the six months ended June 30, 1997 increased $31.4 million, or 5%, primarily due to increased communications, natural gas and water and wastewater revenues. Communications revenues - -----------------------
For the three months For the six months ended June 30, ended June 30, ------------------------------------------ --------------------------------------------- ($ in thousands) ($ in thousands) Increase/ Increase/ 1997 1996 (Decrease) 1997 1996 (Decrease) ---------- ---------- ------------- ----------- ----------- ------------- Network access services $ 102,069 $ 107,044 (5%) $ 207,875 $ 207,389 0% Local network services 62,705 59,790 5% 123,580 115,338 7% Long distance services 10,883 11,144 (2%) 36,160 18,828 92% Directory services 8,066 7,693 5% 15,568 14,809 5% Other 15,682 15,578 1% 26,087 26,637 (2%) ---------- ---------- ------------- ------------ ----------- ------------- Total $ 199,405 $ 201,249 (1%) $ 409,270 $ 383,001 7% ========== ========== ============= ============ =========== =============
Network access services revenues for the second quarter decreased $5 million, or 5%,and were flat for the six months ended June 30, 1997 as compared with the prior year primarily due to a shift from network access revenues to long distance service revenues resulting from a reduction in network access revenues received from other long distance service companies as the Company captures in-territory long distance service market share and revenues from these other long distance service companies, partially offset by increased revenue as a result of the acquisition of Conference-Call USA ("Conference-Call") in December, 1996. Local network services revenues for the second quarter increased $2.9 million, or 5%, as compared with the prior year primarily due to internal access line growth and the acquisition of Conference-Call. Local network services revenues for the six months ended June 30, 1997 increased $8.2 million, or 7%, as compared with the prior year primarily due to the acquisitions of Citizens Telecommunications Company of Nevada ("Nevada") in March, 1996 and Conference-Call and internal access line growth. Long distance services revenues for the second quarter decreased $.3 million, or 2%, as compared with the prior year primarily due to the curtailment of long distance service operations in adjacent markets and a second quarter charge of approximately $14.2 million to provide an additional reserve for uncollectible accounts receivable due to the curtailment of long distance service operations in adjacent markets, partially offset by growth in customers and minutes of use. Long distance services revenues for the six months ended June 30, 1997 increased $17.3 million, or 92%, as compared with the prior year primarily due to growth in customers and minutes of use, partially offset by the curtailment of long distance service operations in adjacent markets and a second quarter charge to provide an additional reserve for uncollectible accounts receivable due to the curtailment of long distance operations in adjacent markets. 10 PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES Public services revenues - ------------------------
For the three months For the six months ended June 30, ended June 30, ---------------------------------------- ------------------------------------------ ($ in thousands) ($ in thousands) Increase/ Increase/ Natural gas revenues 1997 1996 (Decrease) 1997 1996 (Decrease) --------- --------- ------------- ----------- ----------- ----------- Residential $ 23,829 $ 25,484 (6%) $ 84,225 $ 76,900 10% Commercial 9,704 10,072 (4%) 30,767 27,751 11% Industrial 6,008 9,669 (38%) 14,298 20,045 (29%) Municipal 660 440 50% 2,044 1,469 39% --------- --------- ------------- ----------- ----------- ----------- Total distribution 40,201 45,665 (12%) 131,334 126,165 4% Transportation 302 305 (1%) 1,382 1,298 6% Other 2,211 2,306 (4%) 4,781 4,596 4% --------- --------- ------------- ----------- ----------- ----------- Total $ 42,714 $ 48,276 (12%) $ 137,497 $ 132,059 4% ========= ========= ============= =========== =========== ===========
Residential and commercial distribution revenues for the second quarter decreased $1.7 million, or 6%, and $.4 million, or 4%, respectively, as compared with the prior year primarily due to lower consumption and lower gas prices in Louisiana, partially offset by rate increases granted in Louisiana and Arizona in May, 1996 and November, 1996, respectively. Residential and commercial distribution revenues for the six months ended June 30, 1997 increased $7.3 million, or 10%, and $3 million, or 11%, respectively, as compared with the prior year primarily due to the rate increases granted in Louisiana and Arizona and higher consumption due to cooler weather conditions in 1997 in Arizona. Industrial distribution revenues for the second quarter decreased $3.7 million, or 38%, as compared with the prior year primarily due to lower consumption and lower gas prices. Industrial distribution revenues for the six months ended June 30, 1997 decreased $5.7 million, or 29%, as compared to the prior year primarily due to lower consumption, partially offset by the rate increases granted in Louisiana and Arizona. Municipal distribution revenues for the second quarter and the six months ended June 30, 1997, increased $.2 million, or 50%, and $.6 million, or 39%, respectively, as compared with the prior year periods primarily due to the rate increases granted in Louisiana and Arizona. 11 PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
For the three months For the six months ended June 30, ended June 30, --------------------------------------- ----------------------------------------- ($ in thousands) ($ in thousands) Increase/ Increase/ Electric revenues 1997 1996 (Decrease) 1997 1996 (Decrease) - ----------------- --------- --------- ------------- ---------- -------- ------------ Residential $ 15,856 $ 17,876 (11%) $ 36,510 $ 36,551 0% Commercial 12,618 13,539 (7%) 26,055 26,137 0% Industrial 9,438 10,884 (13%) 20,286 21,093 (4%) Municipal 1,775 2,107 (16%) 3,741 3,928 (5%) --------- --------- ------------ ---------- -------- ------------- Total distribution 39,687 44,406 (11%) 86,592 87,709 (1%) Transportation 766 659 16% 1,311 1,285 2% Other 1,477 1,875 (21%) 1,929 1,823 6% --------- --------- ------------ ---------- -------- ------------- Total $ 41,930 $ 46,940 (11%) $ 89,832 $ 90,817 (1%) ========= ========= ============ ========== ======== =============
Residential and commercial distribution revenues for the second quarter decreased $2 million, or 11%, and $.9 million, or 7%, respectively, as compared with the prior year primarily due to a second quarter charge to reflect a Vermont public utility commission order requiring refunds to customers of approximately $5 million, partially offset by a rate increase granted in Hawaii in August, 1996 and increased customers and consumption per customer in Arizona. Industrial distribution revenues for the second quarter and six months ended June 30, 1997 decreased $1.4 million, or 13%, and $.8 million, or 4%, respectively, as compared with prior year periods primarily due to a second quarter charge to reflect a Vermont public utility commission order requiring refunds to customers of approximately $1.3 million. Municipal distribution revenues for the second quarter and six months ended June 30, 1997 decreased $.3 million, or 16%, and $.2 million, or 5%, respectively, as compared with the prior year periods, primarily due to a second quarter charge to reflect a Vermont public utility commission order requiring refunds to customers of approximately $.3 million.
For the three months For the six months ended June 30, ended June 30, --------------------------------------- ----------------------------------------- ($ in thousands) ($ in thousands) Increase/ Increase/ Water and wastewater revenues 1997 1996 (Decrease) 1997 1996 (Decrease) - ----------------------------- -------- ---------- ------------ ---------- --------- ----------- Residential distribution $ 17,623 $ 17,827 (1%) $ 33,861 $ 33,777 0% Commercial distribution 3,379 3,192 6% 6,098 5,995 2% Industrial distribution 224 218 3% 433 335 29% Other 866 426 103% 1,642 1,281 28% -------- ---------- ------------ ----------- ---------- ------------ Total $ 22,092 $ 21,663 2% $ 42,034 $ 41,388 2% ======== ========== ============ =========== ========== ============
Water and wastewater revenues for the second quarter and six months ended June 30, 1997 are comparable with prior year periods. 12 PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES Expenses - --------
For the three months For the six months ended June 30, ended June 30, ------------------------------------------ ------------------------------------------ ($ in thousands) ($ in thousands) Increase/ Increase/ 1997 1996 (Decrease) 1997 1996 (Decrease) ---------- ---------- ------------- ---------- ---------- ------------ Natural gas purchased $ 19,610 $ 26,911 (27%) $ 78,179 $ 75,112 4% Depreciation 58,013 47,200 23% 114,579 94,229 22% Network expenses 39,232 14,360 173% 68,326 22,139 209% Taxes other than income 23,603 20,625 14% 47,915 42,706 12% Electric energy and fuel oil purchased 22,980 23,707 (3%) 45,170 43,867 3% Sales and marketing 25,190 12,212 106% 39,324 17,548 124% Other operating expenses 275,634 99,030 178% 381,180 206,590 85% ---------- ---------- ------------- ---------- ---------- ------------ Total $ 464,262 $ 244,045 90% $ 774,673 $ 502,191 54% ========== ========== ============= ========== ========== ============
Natural gas purchased for the second quarter decreased $7.3 million, or 27%, as compared with the prior year primarily due to lower prices and lower consumption in Louisiana, partially offset by higher prices and higher consumption in Arizona. Depreciation expense for the second quarter and the six months ended June 30, 1997 increased $10.8 million, or 23%, and $20.4 million, or 22%, respectively, as compared with the prior year periods primarily due to increased property, plant and equipment. Network expenses for the second quarter and six months ended June 30, 1997 increased $24.9 million, or 173%, and $46.2 million, or 209%, respectively, as compared with the prior year periods primarily due to higher long distance network access costs and a second quarter charge of approximately $11.1 million related to fixed cost lease terminations as a result of the curtailment of certain long distance service operations. Taxes other than income for the second quarter and the six months ended June 30, 1997 increased $3 million, or 14%, and $5.2 million, or 12%, respectively, as compared with the prior year periods primarily due to increased payroll, property and franchise taxes as a result of the acquisitions of Nevada in March, 1996 and Conference-Call in December, 1996. Sales and marketing expenses for the second quarter and six months ended June 30, 1997 increased $13 million, or 106%, and $21.8 million, or 124%, respectively, as compared with the prior year periods primarily due to the Citizens Communications' branding initiative and a second quarter charge of approximately $8.6 million as a result of the curtailment of certain long distance service operations. Other operating expenses for the second quarter and six months ended June 30, 1997, increased $176.6 million, or 178%, and $174.6 million, or 85%, respectively, as compared with the prior year periods primarily due to second quarter charges of approximately $150.6 million, which includes approximately $.7 million related to the curtailment of certain long distance service operations, approximately $36.9 million related to benefit plan curtailments and related regulatory assets, approximately $63.8 million related to telecommunications information systems and software, approximately $32.2 million related to regulatory commission orders in New York, Vermont and Arizona and approximately $17 million related to other. 13 PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES Other income, net/Interest expense/Income taxes - -----------------------------------------------
For the three months For the six months ended June 30, ended June 30, --------------------------------------- ------------------------------------------ ($ in thousands) ($ in thousands) Increase/ Increase/ 1997 1996 (Decrease) 1997 1996 (Decrease) ---------- --------- ----------- ---------- --------- ------------ Investment income $ 8,569 $ 13,853 (38%) $ 18,284 $ 22,482 (19%) Other (1,728) 3,923 (144%) 841 6,341 (87%) ---------- --------- ----------- ---------- --------- ------------ Total $ 6,841 $ 17,776 (62%) $ 19,125 $ 28,823 (34%) ========== ========= =========== ========== ========= ============
Investment income for the second quarter and six months ended June 30, 1997 decreased $5.3 million, or 38%, and $4.2 million, or 19%, respectively, as compared with the prior year periods primarily due to income earned in 1996 for financial support provided to Hungarian Telephone and Cable Corporation. Other income for the second quarter and six months ended June 30, 1997 decreased $5.7 million, or 144%, and $5.5 million, or 87%, respectively, as compared with the prior year periods primarily due to a second quarter charge of approximately $4.5 million related to an Arizona public utility commission order disallowing recovery of certain amounts of the equity component of the Allowance for Funds Used During Construction ("AFUDC").
For the three months For the six months ended June 30, ended June 30, ----------------------------------------- ------------------------------------------ ($ in thousands) ($ in thousands) Increase/ Increase/ 1997 1996 (Decrease) 1997 1996 (Decrease) --------- ---------- ------------- ---------- ---------- ----------- Interest expense $ 28,694 $ 22,645 27% $ 55,710 $ 44,647 25%
Interest expense for the second quarter and six months ended June 30, 1997 increased $6.0 million, or 27%, and $11.1 million, or 25%, respectively, as compared with the prior year periods primarily due to the issuance of debentures in June and December, 1996 and a second quarter charge of approximately $1.7 million related to an Arizona public utility commission order disallowing recovery of certain amounts of the interest component of AFUDC.
For the three months For the six months ended June 30, ended June 30, --------------------------------------------- ---------------------------------------- ($ in thousands) ($ in thousands) Increase/ Increase/ 1997 1996 (Decrease) 1997 1996 (Decrease) ------------ ------------- ------------- ---------- --------- ------------ Income taxes $ (57,949) $ 21,584 (368%) $ (42,322) $ 41,511 (202%)
Income taxes for the second quarter and six months ended June 30, 1997 decreased $79.5 million, or 368%, and $83.8 million, or 202%, respectively, as compared with the prior year periods primarily due to the tax benefit associated with the second quarter charges to earnings. The effective annual tax rate (benefit) for each period is approximately 32%. 14 PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES Net income/Earnings per share - -----------------------------
For the three months For the six months ended June 30, ended June 30, -------------------------------------------- ------------------------------------------ ($ in thousands) ($ in thousands) Increase/ Increase/ 1997 1996 (Decrease) 1997 1996 (Decrease) ------------- ---------- ------------- ---------- ----------- ------------ Net income (loss) $ (123,577) $ 46,251 (367%) $ (93,407) $ 85,107 (210%) Earnings (loss) per share $ (.51) $ .19 (368%) $ (.39) $ .35 (211%)
Net income for the second quarter and six months ended June 30, 1997 decreased $169.8 million, or 367%, and $178.5 million, or 210%, respectively, as compared with the prior year periods primarily due to approximately $197.3 million of pre-tax charges recorded in the second quarter of 1997. Absent such charges, net income for the second quarter and six months ended June 30, 1997 would have decreased $34.7 million, or 75% , and $43.4 million, or 51%, respectively, as compared with the prior year periods primarily related to increased network, sales and marketing and other operating expenses related to the Company's expansion of its communications activities. Earnings per share for the second quarter and six months ended June 30, 1997 decreased $.70, or 368%, and $.74, or 211%, respectively, as compared with the prior year periods primarily due to the approximately $197.3 million of pre-tax second quarter charges, partially offset by a decrease in shares outstanding resulting from the Company's stock buyback program. Absent such charges, earnings per share would have decreased $.14, or 74%, and $.18, or 51%, for the second quarter and six months ended June 30, 1997, respectively, as compared with the prior year periods primarily due to increased network, sales and marketing and operating expenses related to the Company's expansion of its communications activities. 15 PART II. OTHER INFORMATION CITIZENS UTILITIES COMPANY AND SUBSIDIARIES Item 1. Legal Proceedings ----------------- In November 1995, the Company's Vermont electric division was permitted an 8.5% rate increase. Subsequently, the Vermont Public Service Board (the "Board") called into question the level of rates awarded the Company in connection with its formal review of allegations made by the Department of Public Service (the "DPS"), the consumer advocate in Vermont and a former Citizens employee. The major issues in this proceeding involved classification of certain costs to property, plant and equipment accounts and the Company's Demand Side Management ("DSM") program. In addition, the DPS believed that the Company should have sought and received regulatory approvals prior to construction of certain facilities in prior years. On June 16, 1997, the Board ordered the Company to reduce its rates for Vermont electric service by 14.65% retroactive to November 1, 1995 and to refund to customers, with interest, all amounts collected since that time in excess of the rates authorized by the Board. The Company estimates that the future annual effect of the rate reduction ordered by the Board is approximately $3.9 million and that its refund obligation is approximately $6.6 million. The Company plans to make the refund to its customers, by September, 1997, by issuing a credit to the utility bills of each customer. In addition, the Board assessed statutory penalties totaling $60,000 and placed the Company on regulatory probation for a period of at least five (5) years. The Company has filed a motion for clarification and reconsideration with the Board. In January 1997, the Company's Illinois subsidiary was served with a complaint in an action commenced by the Illinois Attorney General (the "State"). The complaint alleges violations of National Pollution Discharge Elimination System permits issued to three wastewater treatment plants, acquired in mid-1994 through a merger with Metro Utility Company ("Metro"), as well as related allegations. The majority of the alleged violations predate the Company's acquisition of the plants, one of which has been taken out of service to foster regionalization. The Company filed its answer denying the allegations of the complaint and raised the affirmative defense of failure of the State to comply with certain provisions of the Illinois Environmental Protection Act. The Company has completed settlement negotiations with the State and believes that a settlement will be executed in the near future. The cost of the settlement is expected to be less than $70,000. The Company has contractual rights of indemnification from the former shareholders of Metro and expects to recover any settlement cost in full. On June 30, 1997, Electric Lightwave Inc. ("ELI"), a subsidiary of the Company, filed a lawsuit in the U.S. District Court in Seattle, Washington, against US West Communications, Inc. ("US West") alleging that US West is illegally blocking local telephone service competition. The lawsuit charges US West with violating federal and state antitrust laws, as well as various federal and state regulatory statutes, by failing to provide adequate interconnection services and facilities to enable ELI to provide quality services to its customers. ELI is seeking an unspecified amount of damages to be determined by a jury. In addition, ELI is seeking an injunction to prohibit US West from discriminating against ELI and its customers when it provides interconnection facilities and equipment. 16 PART II. OTHER INFORMATION CITIZENS UTILITIES COMPANY AND SUBSIDIARIES Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- (a) The Registrant held its 1997 Annual Meeting of the Stockholders on May 22, 1997. (b) Proxies for the Annual Meeting were solicited pursuant to Regulation 14; there was no solicitation in opposition to management's nominees for directors as listed in the Proxy Statement and all such nominees were elected. The stockholders voted to elect all nominees as directors. Directors elected along with their respective percentage of total outstanding shares voted in the affirmative were: N.I. Botwinik(78%), A.I. Fleischman(79%), J.C. Goodale(79%),S. Harfenist(79%), A.N. Heine (79%), E.A.Rickless (79%), J.L.Schroeder(79%), R.D. Siff(79%), R.A. Stanger(79%), C.H. Symington, Jr. (79%), E.Tornberg(79%), C. Tow (77%) and L. Tow (78%). Stockholders voted only 5% of outstanding shares in the negative for one or more of the nominees. The stockholders voted 68% of total outstanding shares in the affirmative for the approval of the Amendment to Non-Employee Directors' Deferred Fee Equity Plan. Stockholders voted only 14% of the outstanding shares against the approval of the plan. The stockholders voted 73% of total outstanding shares in the affirmative for the approval of the Amendment to the 1992 Employee Stock Purchase Plan. Stockholders voted only 9% of the outstanding shares against the approval of the plan. The stockholders voted 74% of total outstanding shares in the affirmative for the approval of the Amendment to the Citizens Utilities Company 1996 Equity Incentive Plan. Stockholders voted only 8% of the outstanding shares against the approval of the plan. Item 6. Exhibits and Reports on Form 8-K --------------------------------- (a) The following exhibits are filed as part of this report: Exhibit No. Description 10.6.2 Amendment dated May 22, 1997, to the Non-Employee Directors' Deferred Fee Equity Plan. 10.18 Amendment dated May 22, 1997, to the 1992 Employee Stock Purchase Plan. 10.21 Amendment dated May 22, 1997, to the 1996 Equity Incentive Plan. (b) On May 1, 1997, the Company filed Form 8-K dated March 31, 1997, under Item 7, "Exhibits," announcing first quarter ended March 31, 1997 earnings and earnings per share. On May 2, 1997, the Company filed on Form 8-K/A dated March 31, 1997, under Item 7, "Exhibits," Chairman's Letter to Shareholders regarding first quarter 1997 results. On July 11, 1997, the Company filed on Form 8-K, dated the same date, under Item 5, "Other Events," and Item 7, "Exhibits," announcing actions to be taken by the Company to improve earnings and slow the pace of its telecommunications expansion; and that it would be taking a second quarter charge to earnings. 17 CITIZENS UTILITIES COMPANY AND SUBSIDIARIES SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CITIZENS UTILITIES COMPANY -------------------------- (Registrant) Date: August 7, 1997 By: /s/ Livingston E. Ross ---------------------- Livingston E. Ross Vice President and Controller 18 EX-10 2 EXHIBIT 10.6.2 EXHIBIT 10.6.2 A - 1 AMENDMENT TO NON-EMPLOYEE DIRECTORS' DEFERRED FEE EQUITY PLAN The Non-Employee Directors' Deferred Fee Equity Plan is proposed to be amended by the addition of the following Article 12: ARTICLE 12 Formula Plan 12.1 Eligibility. All Directors of the Company shall automatically participate in the Formula Plan. 12.2 Shares subject to the Formula Plan. Shares of Common Stock which shall have been purchased or which may be issued upon the exercise of the Options under the Formula Plan shall be included as shares "which shall have been purchased by Participants pursuant to Options and which may be issued pursuant to outstanding Options under the Option Plan" for purposes of the maximum share limitation of Section 11.2. 12.3 Terms, Conditions and Form of Options. Each Option granted under the Formula Plan shall be evidenced by written agreement in such form and containing such terms, consistent with the Plan, as the Committee shall from time to time approve. All Options and said agreements shall be subject to the terms and conditions set forth in this Article 12 and to the other applicable terms and conditions of the Plan. 12.4 Grant. On the first day of each Plan Year starting with the calendar 1997 and continuing through 2002 (and for successive years thereafter if the Plan is extended by the Board of Directors), Options to purchase 5,000 shares of Common Stock, as adjusted pursuant to Section 11.5, shall be awarded to each Director in office on such date, without the need for further corporate action. The Grant Date for such Options shall be the first day of each year. In addition, on September 1, 1996, Options to purchase 2,500 shares of Common Stock shall be granted to each Director of the Company in office on such date. In each Plan Year, the Board of Directors may change the number of shares of Common Stock which will be subject to purchase upon exercise of the Options to be awarded during the succeeding Plan Year subject to a maximum of 10,000 shares of Common Stock per year, as adjusted pursuant to Section 11.5. 12.5 Subsequently Elected Directors. For years subsequent to 1996, individuals who are not Directors on the first day of a Plan Year but who become Directors of the Company on or before the date of the annual meeting of stockholders for the election of directors shall be awarded, as of the Grant Date, without need for further corporate action, Options to purchase 5,000 shares of Common Stock. The Grant Date for such Options shall be the date upon which such individual first becomes a Director. Individuals who become a Director or who become eligible to participate in the Plan during a Plan Year, but after the date of the annual meeting of stockholders, shall not be eligible to receive options until the first day of the next Plan Year. 12.6 Exercise Price. The purchase price per share of Common Stock for which each Option is exercisable shall be 100% of the Fair Market Value per share of Common Stock on the Grant Date for such Option. "Fair Market Value" shall have the meaning as defined in Article 2 assuming that the Grant Date is a date specified in the definition. 12.7 Exercisability; Term of Options. Each Option under the Formula Plan will vest and become exercisable six months after the Grant Date (provided that the Participant is a Director at that time) or on such earlier date that a Participant ceases to be a Director by reason of retirement (which for these purposes shall mean retirement pursuant to Board policy), death or disability. Except as otherwise provided in this Section, each Option granted under the Formula Plan shall remain exercisable until the 10th anniversary of its Grant Date. 12.8 Other. To the extent not inconsistent with the provisions set forth in this Article 12, Options awarded pursuant to the Formula Plan, Participant's rights and the Company's obligations shall be subject to the provisions of Sections 4.5, 4.6, 4.7 and 4.8 and Articles 2, 9, 10 and 11 of the Plan. 12.9 Compliance with law. All Options granted pursuant to the Formula Plan will be subject to compliance with all applicable laws, rules and regulations of any regulatory or other governmental body having jurisdiction, and with any rules or policies of any stock exchange on which shares of Common Stock may be listed, and each option agreement shall provide that the validity of the Options and the Company's obligation to issue Shares of Common Stock upon exercise of the Option are subject to such compliance. 12.10 Duration of the Formula Plan; Effective Date. Amendment No. I to the Plan shall become effective on August 20, 1996, provided that the effectiveness of the Formula Plan and the amendment to the Plan modifying Section 4.7 shall be subject to approval of the stockholders of the Company at the first annual meeting of the stockholders held after the end of the 1996 to the extent, in each case, that such approval is called for by the rules or policies of the New York Stock Exchange or is otherwise deemed advisable by the Company. The period during which Option awards may be made under the Formula Plan shall terminate on December 31, 2002. Such termination shall not effect the terms of any then outstanding Options. The Board of Directors of the Company shall have the right to extend the effectiveness of the Formula Plan, with such amendments to the Plan as they may deem appropriate, for an additional six-year period until December 31, 2008 without any additional approval by the stockholders of the Company being required, it being understood that if any approval of stockholders of the Company is obtained during 1997, such approval shall include the Plan as and if so extended by the Board of Directors. Certain provisions of the Plan which are referred to in proposed Article 12 read as follows: "2.10 "Director" means any director of the Company who is not a full-time employee of the Company. For the purposes of the Plan, an individual who is both a full-time employee of the Company and a director of the Company and therefore ineligible to participate in the Plan and who ceases to be a full-time employee but remains in office as a director shall become eligible to participate in the Plan as a Director as of the termination of his or her service as a full-time employee." "2.13 "Fair Market Value" of the Common Stock as of any...Effective Date...shall be the average of the daily high and low prices of shares of Common Stock reported on a composite tape for securities listed on The New York Stock Exchange or, if such shares are not listed for trading on such exchange, on any other established securities market for which quotations are readily available, for the third, fourth, fifth and sixth trading days of the month which follow each ... Effective Date . . . Participants will be credited with fractional share interests. If required, an appropriate adjustment will be made for record dates, payment dates and ex-distribution trading. The ... Option Plan Committee or the Board of Directors may select in advance different trading days of the month for determining Fair Market Value, in their discretion." 11.2 Shares Subject to the Plan. 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 Options 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. Any Common Stock transferred by the Company to a Stock Plan Account or to the Trustee or delivered by the Company upon exercise of an Option hereunder may consist, in whole or in part, of authorized and unissued shares or treasury shares as the Company shall determine. Cash transferred to the Trustee may be used to purchase Common Stock in the open market or from the Company. In the event that the total number of shares of Common Stock subject to, or issued pursuant to, the Plan at any one time is in excess of the above-stated limit, the number need not be reduced if such excess has resulted from a reduction in the amount of issued and outstanding shares of Common Stock subsequent to the time that such Options were granted or such shares were issued. If any shares of Common Stock subject to purchase by a Participant under an Option under the Plan are not purchased, such shares of Stock shall be deemed not to have been purchased pursuant to the Plan for purposes of this Section. Shares of Common Stock received or retained by the Company in payment of the exercise price of Options or in payment, or in lieu of payment, of withholding taxes shall not reduce the number of shares deemed to have been purchased pursuant to the Plan." "11.5 Adjustments in Event of Change in Common Stock". Subject to the provisions of Sections 6.1 and 7.3, in the event of any stock dividend, stock split, recapitalization, or reclassification of shares of Common Stock, merger or consolidation of the Company or sale by the Company of all or a portion of its assets, or tender offer for its securities, or other event which could distort the implementation of the Plan or the realization of its objectives, the Administrator shall make such appropriate adjustments in the number and kind of securities which a Plan Unit will represent or which may be paid out under the Plan, and in the number of shares of Common Stock or other securities or number and kind of securities, and the purchase price therefor, for which an Option may be exercisable or in terms, conditions or restrictions on securities as the Administrator deems equitable. In the event of a stock split or stock dividend, the number of shares purchasable upon exercise of an Option shall be increased to the new number of shares which result from the shares covered by the Option immediately before the split or dividend. The purchase price per share shall be reduced proportionately and the total purchase price will remain the same. In the case of a distribution in property other than cash the number of shares covered shall be increased to reflect, in shares valued at the then current market, the fair value of the distribution. All events occurring between the Effective Date of the Option and its exercise shall result in an adjustment to the Option terms." The following provisions of the Plan referred to in proposed Article 12 are omitted herein. They are contained in the Plan, a copy of which can be obtained from the Company as described in the Proxy Statement: Section 4.5 dealing with notice of exercise; Section 4.6 covering the payment of the Purchase Price for an Option either in cash or in shares of Common Stock; Section 4.7 covering the exercisability of an Option upon termination of a Participant's directorship; Section 4.8 covering the non-transferability of an Option and the exceptions thereto; Article 9 covering Option exercise matters; Article 10 covering administrative matters; and Article 11 covering term of the Plan, the non-alienation of benefits under the Plan, and amendments of the Plan. EX-10 3 EXHIBIT 10.18 EXHIBIT 10.18 CITIZENS UTILITIES COMPANY 1992 Employee Stock Purchase Plan CITIZENS UTILITIES COMPANY 1992 Employee Stock Purchase Plan As Amended May 22, 1997 ----------------------- 1. Purpose The purpose of the 1992 Employee Stock Purchase Plan (the "Plan") is to enable eligible employees of Citizens Utilities Company (the "Company") to acquire Proprietary interests in the Company through the ownership of common stock of the Company. The Company believes that employees who participate in the Plan will have a closer identification with the Company by virtue of their ability as stockholders to participate in the Company's growth and earnings. It is the intention of the Company to have the Plan qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986 (the "Code"). Accordingly, the provisions of the Plan shall be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. 2. Definitions The following terms have the following meanings: (a) "Common Stock" shall mean shares of the $.25 par value Series B common stock of the Company. (b) "Subsidiary" shall mean any present or future corporation which is or would be a "subsidiary corporation" of the Company as the term is defined in Section 424 of the Code. (c) "Eligible Employee" shall mean a person regularly employed by the Company or a Subsidiary on the effective date of any offering of stock pursuant to the Plan; provided, however, that no person shall be considered an Eligible Employee unless that person is customarily employed by the Company or a Subsidiary for more than twenty hours per week and more than five months in a calendar year, and provided further, that the Board of Directors may exclude the employees of any specified Subsidiary from any offering under the Plan. (d) "Purchase Period" shall mean the period set by the Committee for each offering commencing on the date on which options are granted pursuant to such offering to participating Eligible Employees and ending on the last date on which installment payments for stock to be purchased under the Plan for such offering may be made. (e) "Option" shall mean the right granted to Eligible Employees to purchase the Company's Common Stock under an offering made under the Plan. (f) "Subscription Period" shall mean that period of time prescribed in any offer of stock under the Plan beginning on the first day employees may elect to purchase shares and ending on the last day such elections to purchase are authorized to be received and accepted. (g) "Average Market Price" shall mean the mean between the high and low prices for the Company's shares of Common Stock on the New York Stock Exchange as reported by such exchange, or if the Company's Common Stock is not traded on such exchanges, the high and low prices for the Company's shares of Common Stock in the over-the-counter market, as reported by the National Association of Securities Dealers Automated Quotation System (NASDAQ) or other quotation service. (h) "Annual Pay" shall mean an amount equal to the annual basic rate of pay of an Eligible Employee as determined from the payroll records of the Company or a Subsidiary on the effective date of an offer of stock made pursuant to the Plan. 3. Shares Reserved For The Plan The shares of the Company's Common Stock to be sold to Eligible Employees under the Plan may, at the election of the Company, be either treasury shares or shares originally issued for such purpose. The maximum number of shares of Common Stock which shall be reserved and made available for sale under the Plan shall be 6,000,000. The shares reserved may be issued and sold pursuant to one or more offerings under the Plan. With respect to each offering, the Committee referred to in Paragraph 4 will specify the number of shares to be made available, the length of the Subscription Period, the length of the Purchase Period and such other terms and conditions not inconsistent with the Plan as may be appropriate. In no event shall the Subscription Period and the Purchase Period together exceed 27 months for any offering. In the event of a subdivision or combination of the Company's shares, including a stock dividend, stock split or similar event, the maximum number of shares which may thereafter be issued and sold under the Plan and the number of shares under elections to purchase at the time of such subdivision or combination will be proportionately increased or decreased, the terms relating to the price at which shares under elections to purchase will be sold will be appropriately adjusted, and such other action will be taken as in the opinion of the Board of Directors is appropriate under the circumstances. In case of a reclassification or other change in the Company's shares, the Board of Directors also will make appropriate adjustments. 4. Administration Of The Plan The Plan shall be administered by a Committee consisting of not less than three directors of the Company who shall be appointed by the Board of Directors. Each Committee member shall be a "disinterested person" as such term is defined in Rule 16b-3 of the rules of the Securities and Exchange Commission. The Committee shall be vested with full authority to make, administer and interpret such rules and regulations regarding the Plan or to make amendments to the Plan itself as it may deem advisable; provided, however, that no such amendment shall increase the maximum number of shares available for sale under the Plan, otherwise than as required to reflect a subdivision or a combination as provided in Paragraph 3 hereof, nor shall any such amendment act to expand the persons eligible to participate in the Plan beyond the employees of the Company and its Subsidiaries. Any determination, decision, or action of the Committee in connection with the construction, interpretation, administration, or application of the Plan shall be binding upon all Eligible Employees and all persons claiming under an Eligible Employee. 5. Participation In The Plan Options to purchase the Company's Common Stock under the Plan shall be granted only to Eligible Employees. Options to purchase shares shall be granted to all Eligible Employees of the Company or any of its subsidiaries whose Eligible Employees are granted such rights; provided, however, that the Committee may determine that any offering of Common Stock under the Plan will not be extended to directors, officers, or highly paid employees of the Company or its Subsidiaries as defined in Code Section 414(g) or to those employees whose principal duties consist of supervising the work of other employees, and provided further that in no event may an employee be granted an option under this Plan if such employee, immediately after the option is granted, owns stock possessing 5% or more of the total combined voting power or value of all classes of capital stock of the Company or of its Subsidiaries. For the purpose of determining stock ownership under this paragraph, the rules of Section 424(d) of the Code shall apply and stock which the employee may purchase under all outstanding options shall be treated as stock owned by the employee. 6. Purchase Price The purchase price for shares of Common Stock purchased pursuant to the Plan (except as otherwise provided herein) will be the lesser of 85% of the Average Market Price on the first day of the Purchase Period or 85% of the Average Market Price on the last day of the Purchase Period. If no shares were traded on either or both of those days, the purchase price shall be established based upon 85% of the Average Market Price on the last day prior thereto on which shares were traded. 7. Method Of Payment Payment for shares purchased pursuant to the Plan shall be made in installments through payroll deductions, with no right of prepayment except as provided in Paragraph 15 and 16 hereof. Each Eligible Employee electing to purchase shares will authorize the Company to withhold a designated amount from the Employee's regular weekly, biweekly, semimonthly or monthly pay for each payroll period during the Purchase Period. All such payroll deductions made for an Eligible Employee shall be credited to the Employee's account under the Plan. At the end of the Purchase Period, each Eligible Employee shall receive in cash the balance remaining in the Employee's account, if any, after the purchase of the number of shares covered by the option to purchase shares. 8. Employee's Election To Purchase-Grant Of Options In order to participate in the Plan, an Eligible Employee must sign an election to purchase shares on a form provided by the Company, stating the Eligible Employee's desire to purchase shares under the Plan and showing the amount which the Eligible Employee elects to have withheld from the Employee's pay for such payroll period during the Purchase Period designated by the Committee. Before each new Purchase Period designated by the Committee, each Eligible Employee shall have the right to either continue the payroll withholding in effect from the previous Purchase Period or increase or decrease such withholding, subject to the limitations of the Plan or such other limitations set by the Committee for such offering. If an Eligible Employee fails to make a new election within the period specified by the Committee for such new offering, the Eligible Employee shall be deemed to have elected to continue the same payroll withholding that he or she elected for the previous Purchase Period. The election to purchase shares must be delivered on or before the last day of the Subscription Period to the person or office designated to receive and accept such elections. Subject to the limitations set forth in Paragraph 9, each participating Eligible Employee shall be granted an option to subscribe to purchase a number of shares to be determined by the following procedure: Step 1. Determine the aggregate amount which will be withheld from the Eligible Employee's pay during the Purchase Period; Step 2. Determine the amounts which represent the lower of 85% of Average Market Price on the first day of the Purchase Period or the last day of the Purchase Period; Step 3. Divide the figure determined in Step 1 by the figure determined in Step 2 and round off the quotient to the nearest whole number. This final figure shall be the fixed maximum number of shares for which the Eligible Employee will be entitled to purchase. The date on which the option is granted to each participating Eligible Employee shall be the first day of the Purchase Period. Notice that an option has been granted shall be given to each participating Eligible Employee and shall show the withholding from such Eligible Employee's pay for each payroll period during the Purchase Period. In the event the total maximum number of shares resulting from all elections to purchase under any offering of shares under the Plan exceeds the number of shares offered, the Company reserves the right to reduce the maximum number of shares which Eligible Employees may purchase pursuant to their elections to purchase, to allot the shares available in such manner as it shall determine, but generally pro rata to subscriptions received. All shares included in any offering under the Plan in excess of the total number of shares which all Eligible Employees elect to purchase and all shares with respect to which elections to purchase are canceled as provided in Paragraph 12 shall continue to be reserved for the Plan and shall be available for inclusion in any subsequent offering under the Plan. 9. Limitations On Number Of Shares Which May Be Purchased The following limitations shall apply with respect to the number of shares which may be purchased by each Eligible Employee who elects to participate in an offering under the Plan. (a) No Eligible Employee may purchase shares during any one offering pursuant to the Plan for an aggregate purchase price (which shall be computed on an annual basis in the event the Purchase Period is more or less than 12 months) in excess of 20% of the Employee's Annual Pay; and (b) No Eligible Employee shall be granted an option to purchase shares under the Plan if such option would violate the 5% limitation described in the second provision contained in Section 5 hereof; and (c) No Eligible Employee may be granted an option to purchase shares which permits the Employee's rights to purchase stock under the Plan and all other stock option plans of the Company and of any Subsidiary pursuant to Section 423 of the Internal Revenue Code to accrue at a rate which exceeds in any one calendar year $25,000 of the fair market value of such stock (determined on the date the option to purchase is granted). An Eligible Employee may elect to purchase less than the total number of shares which he or she is entitled to elect to purchase. 10. Rights As Stockholder An Eligible Employee will become a stockholder of the Company with respect to shares for which payment has been completed at the close of business on the last business day of the Purchase Period or on such earlier date on which the Eligible Employee has completed payment of the purchase plan shares. An Eligible Employee will have no rights as a stockholder with respect to shares under an election to purchase shares until the Employee has become a stockholder as provided above. A certificate for the shares purchased will be issued as soon as practicable after an Eligible Employee becomes a stockholder. 11. Rights To Purchase Shares Not Transferable All rights of an Eligible Employee under the Plan may be exercised only by the Eligible Employee during his or her lifetime. An Eligible Employee's rights under an election to purchase shares may not be sold, pledged, assigned or transferred in any manner otherwise than by will or the laws of descent and distribution. If this provision is violated the right of the Eligible Employee to purchase shares shall terminate and the only right remaining under such Eligible Employee's election to purchase will be to have paid over to the person entitled thereto the amount then credited to the Eligible Employee's account. 12. Cancellation Of Election To Purchase An Eligible Employee who has elected to purchase shares may cancel that election in its entirety or may partially cancel that election by reducing the amount which he or she has authorized the Company to withhold from his or her pay for each payroll period during the Purchase Period. Any such full or partial cancellation shall be effective upon the delivery by the Eligible Employee of written notice of cancellation to the office or person designated to receive elections. Such notice of cancellation must be so delivered before the close of business on the last business day of the Purchase Period. If an Eligible Employee partially cancels an original election by reducing the amount authorized to be withheld from the Employee's pay, he or she shall continue to make installment payments at the reduced rate for the remainder of the Purchase Period. Only one partial cancellation may be made during a Purchase Period. An Eligible Employee's rights upon the full or partial cancellation of an election to purchase shares shall be limited to the following: (a) The Employee may receive in cash, as soon as practicable after delivery of the notice of cancellation, the amount then credited to the Employee's account, except, in the case of a partial cancellation, the Employee must retain in his or her account an amount equal to the amount of the new payroll deduction times the number of payroll periods in the Purchase Period through the date of cancellation, or (b) The Employee may have the amount credited to the Employee's account at the time the cancellation becomes effective applied to the purchase of the number of shares such amount will then purchase. If option (b) is elected, installment payments must be continued for the month in which the notice of cancellation is given. The cancellation and purchase of shares will become effective at the close of business on the last day of business of such month. The purchase price of the shares so purchased will be 85% of the Average Market Price on the first day of the Purchase Period. The credit in an Employee's account shall be the aggregate of the amounts withheld from the Employee's pay and any amounts paid pursuant to Paragraphs 13, 14, 15 and 16. 13. Leave Of Absence Or Layoff An Eligible Employee purchasing stock under the Plan who is granted a leave of absence (including a military leave) during the Purchase Period and such absence is for a period of 90 days or less (or if for a period in excess of 90 days, the Employee's right of reemployment with the Company is guaranteed either by statute or by contract) may during such period of absence make payments in cash to the Company in amounts equal to what such payments would have been pursuant to corresponding payroll deductions. 14. Effect Of Failure To Make Payments When Due If in any payroll period, for any reason not set forth in Paragraph 13, an Eligible Employee who has filed an election to purchase shares under the Plan has no pay or the Employee's pay is insufficient (after other authorized deductions) to permit deduction of the installment payment, such payment may be made in cash at the time. If not so made, the Eligible Employee, when his or her pay is again sufficient to permit the resumption of installment payments, must pay in cash the amount of the deficiency in his or her account or arrange for uniformly increased installment payments so that, assuming the maximum purchase price per share, payment for the maximum number of shares covered by the Employee's option will be completed in the last month of the Purchase Period. If the Eligible Employee elects to make increased installment payments, he or she may, nevertheless, at any time make up the remaining deficiency by a lump sum payment. Subject to the above and other provisions of the Plan permitting postponement, the Company may treat the failure by an Eligible Employee to make any payment as a cancellation of his or her election to purchase shares. Such cancellation will be effected by mailing notice to the Employee at the Employee's last known business or home address. Upon such mailing, the Employee's only right will be to receive in cash the amount credited to his or her account. 15. Retirement If an Eligible Employee retires in accordance with Company policy and has an election to purchase shares in effect at the time of the Employee's retirement, he or she may, within three months after the date of retirement (but, in no event later than the end of the Purchase Period), by delivering written notice to the office or person designated to receive elections, elect to: (a) Complete the remaining installment payments in cash, (b) Make a lump sum payment in the amount of any deficiency for the remaining portion of the Purchase Period, or (c) Cancel the election to purchase shares in accordance with the provisions of Paragraph 12. If no such notice is given within such period, the election will be deemed canceled as of the date of retirement and the only right of the Eligible Employee will be to receive in cash the amount credited to his or her account. 16. Death If an Eligible Employee, including a retired Eligible Employee, dies and has an election to purchase shares in effect at the time of death, the legal representative of the deceased Eligible Employee may, within three months from the date of death (but in no event later than the end of the Purchase Period by delivering written notice to the office or person designated to receive elections, elect to: (a) Complete the remaining installment payments in cash, (b) Make a lump sum payment in the amount of any deficiency for the remaining portion of the Purchase Period, or (c) Cancel the election to purchase shares in accordance with the provisions of Paragraph 12. If no such notice is given within such period, the election will be deemed canceled as of the date of death, and the only right of such legal representative will be to receive in cash the amount credited to the deceased Eligible Employee's account. 17. Termination Of Employment Other Than For Retirement Or Death If an Eligible Employee is terminated for any reason other than retirement or death prior to the end of the Purchase Period, the Employee's election to purchase shall thereupon be deemed canceled as of the date on which employment ended. In such an event, no further payments under such election will be permitted, and the Eligible Employee's only right will be to receive in cash the amount credited to his or her account. 18. Application Of Funds All funds received by the Company in payment for shares to be purchased under the Plan and held at any time by the Company may be used for any valid corporate purpose. 19. Governmental Approvals Or Consents The Plan shall not be effective unless it is approved by the stockholders of the Company within 12 months after the Plan is proposed for approval by the Board of Directors of the Company. The Plan and any offerings and sales to Eligible Employees under it are subject to any governmental approvals or consents that may be or become applicable in connection therewith. The Board of Directors of the Company may make such changes in the Plan and include such terms in any offering under the Plan as may be necessary or desirable, in the opinion of counsel, so that the Plan will comply with the rules and regulations of any governmental authority and so that Eligible Employees participating in the Plan will be eligible for tax benefits under the United States Internal Revenue Code or the laws of any state. (a) Allocate the Designated Shares on a pro rata basis among the participating Eligible Employees in proportion to the number of shares otherwise purchasable by each participating Eligible Employee prior to the allocation contemplated by this Paragraph; and (b) Return to each participating Eligible Employee any amount credited to their accounts which is not utilized to purchase shares. Interest at a rate to be set by the Committee shall be paid on all amounts returned to Eligible Employees pursuant to this Paragraph 19(b) only. For the purpose of computing interest, it will be assumed that shares were purchased with the earlier credits or payments and that all to-be-returned funds resulted from payments closest to the end of the Purchase Period. IN WITNESS WHEREOF, the Committee for the Plan has caused this instrument to be duly executed by the authorized members of the Committee this 22nd day of May, 1997. EX-10 4 EXHIBIT 10.21 EXHIBIT 10.21 B - 1 AMENDMENT TO THE CITIZENS UTILITIES COMPANY 1996 EQUITY INCENTIVE PLAN The 1996 Equity Incentive Plan is proposed to be amended by the restatement of subsections 6(a) and 6(b). The remaining subsections of Section 6 are to be unchanged, but are set forth for the reader's convenience. Section 6, as proposed to be amended, is set forth below: Section 6. Performance Shares (a) The Committee may award Performance Shares to Participants under the Plan, which may be denominated in Stock or in dollars. The Committee shall determine the performance periods (the "Performance Periods") and the performance objectives relating to each Performance Share Award. Performance objectives may vary from Participant to Participant and between groups of Participants, and shall only be based upon any one or more of the following performance criteria, any combination and/or specifics of which shall be determined by the Committee as it may deem appropriate: (i) stock price; (ii) market share; (iii) sales; (iv) earnings per share; (v) operating cash flow; (vi) free cash flow; (vii) net income or loss; (viii) net income or loss adjusted to exclude specified items such as gain or losses from extraordinary or non-recurring items and non-cash expense and income, and before specified expense items such as interest, depreciation, amortization and income taxes; (ix) EBITDA; (x) revenues; (xi) return on equity or assets; or (xii) cost control. Performance objectives may be in respect to the performance of the Company and its subsidiaries or a particular subsidiary or division and may be expressed in absolute terms or in relation to another company or companies or a division thereof. Performance Periods may overlap and Participants may participate simultaneously with respect to Performance Shares for which different Performance Periods are prescribed. (b) At the beginning of each Performance Period, (but in any event prior to the earlier of the elapsing of 90 days or 25% of such Performance Period) the Committee shall determine and set forth in writing for each Participant or group of Participants the number of Performance Shares or the dollar value of the Performance Share Awards made and the applicable performance objectives, each of which may be fixed or may be expressed in terms of a progression within a specified range. At the end of each Performance Period, the Committee shall certify in writing the extent to which the prescribed performance objectives have been satisfied. An Eligible Employee shall be eligible to be awarded, in any calendar year, Performance Share Awards up to the maximum number of shares contemplated in Section 4(e) and shall also be eligible to be awarded Performance Share Awards denominated in dollars subject to a maximum limitation of $500,000 for all such dollar-denominated Awards granted to any Eligible Employee in any calendar year. (c) If during the course of a Performance Period there shall occur significant events as determined by the Committee, including, but not limited to, a reorganization of the Company, which the Committee expects to have a substantial effect on a performance objective during such period, the Committee may revise such objective. (d) If a Participant terminates service with all Participating Companies during a Performance Period because of death, Total Disability, or a significant event, as determined by the Committee, that Participant shall be entitled to payment in settlement of each Performance Share for which the Performance Period was prescribed (i) based upon the performance objectives satisfied at the end of such period and (ii) prorated for the portion of the Performance Period during which the Participant was employed by any Participating Company; provided, however, the Committee may provide for an earlier payment in settlement of such Performance Share in such amount and under such terms and conditions as the Committee deems appropriate or desirable with the consent of the Participant. If a Participant terminates service with all Participating Companies during a Performance Period for any other reason, then such Participant shall not be entitled to any payment with respect to that Performance Period unless the Committee shall otherwise determine. e) Each Performance Share may be paid in whole shares of Stock, including Restricted Stock or Deferred Stock (together with any cash representing fractional shares of Stock), or cash, or a combination of Stock and cash either as a lump sum payment or in annual installments, all as the Committee shall determine, at the time of grant of the Performance Share or otherwise, commencing as soon as practicable after the end of the relevant Performance Period. Any dividends or distributions payable on Performance Shares (or the equivalent as specified in the grant), other than cash dividends representing the periodic distribution of profits which shall be retained by the Company, shall be paid over to the Participant when and if payment is made of the underlying Performance Shares, unless the grant provides otherwise. Except as otherwise provided in this Section 6, no Performance Shares awarded to Participants shall be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of during the Performance Period unless the Committee determines that an Award may be transferred to a Family Member or Family Trust or other transferee. A copy of the Plan as amended may be obt EX-27 5 SCHEDULE UT FDS FOR THE THREE MONTHS ENDED 6/30/97
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CITIZENS UTILITIES COMPANY AND SUBSIDIARIES' CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000020520 CITIZENS UTILITIES COMPANY 1,000 3-MOS 6-MOS DEC-31-1997 DEC-31-1997 JUN-30-1997 JUN-30-1997 PER-BOOK PER-BOOK 3,278,372 3,278,372 443,663 443,663 312,587 312,587 158,218 158,218 246,755 246,755 4,439,595 4,439,595 61,281 61,281 1,447,261 1,447,261 65,934 65,934 1,568,609 1,568,609 201,250 201,250 0 0 1,557,155 1,557,155 0 0 0 0 0 0 8,700 8,700 0 0 0 0 0 0 2,669,736 2,669,736 4,439,595 4,439,595 306,141 678,633 (57,949) (42,322) 42,590 123,349 464,262 774,673 (158,121) (96,040) 6,841 19,125 (151,280) (76,915) 28,694 55,710 (123,577) (93,407) 1,552 3,104 (123,577) (93,407) 0 0 0 0 0 101,555 (.51) (.39) (.51) (.39) REPRESENTS INVESTMENT FUNDS. REPRESENTS REGULATORY ASSETS. DEFERRED DEBITS AND OTHER ASSETS. COMPANY OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES OF A SUBSIDIARY TRUST, THE SOLE ASSETS OF WHICH ARE SECURITIES OF A SUBSIDIARY PARTNERSHIP, SUBSTANTIALLY ALL THE ASSETS OF WHICH ARE CONVERTIBLE DEBENTURES OF THE COMPANY. REPRESENTS COMMODITIES PURCHASED
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