-----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, E1TsoyZ/GPXcszH7ZcsTF7FpfTGrWGYLddwGTnOcWjo3mI3eAauZ9j3KuQhaqXo/ srJy8ojGpShwd3BhF5k3zw== 0000020520-97-000016.txt : 19971117 0000020520-97-000016.hdr.sgml : 19971117 ACCESSION NUMBER: 0000020520-97-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 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: SEC FILE NUMBER: 001-11001 FILM NUMBER: 97721211 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 ENDING 9/30/97 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 SEPTEMBER 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 September 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) 614-8800 ---------------- 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 November 7, 1997. Common Stock 247,011,409 ----------- CITIZENS UTILITIES COMPANY AND SUBSIDIARIES INDEX
Page No. -------- Part I. Financial Information Consolidated Balance Sheets at September 30, 1997 and December 31, 1996 2 Consolidated Statements of Income for the Three Months Ended September 30, 1997 and 1996 3 Consolidated Statements of Income (Loss) for the Nine Months Ended September 30, 1997 and 1996 4 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1996 5 Notes to Consolidated Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II. Other Information 19 Signature 20
-1- PART I. FINANCIAL INFORMATION CITIZENS UTILITIES COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands)
September 30, December 31, 1997 1996 ------------- ------------ ASSETS - ------ Current assets: Cash $ 26,682 $ 24,230 Accounts receivable, net 239,288 281,650 Other 68,661 63,890 ------------- -------------- Total current assets 334,631 369,770 ------------- -------------- Property, plant and equipment 4,927,372 4,582,869 Less accumulated depreciation 1,590,606 1,444,817 ------------- -------------- Net property, plant and equipment 3,336,766 3,138,052 ------------- -------------- Investments 422,631 539,152 Regulatory assets 158,061 174,196 Deferred debits and other assets 250,081 301,978 ------------- -------------- Total assets $ 4,502,170 $ 4,523,148 ============= ============== LIABILITIES AND EQUITY - ---------------------- Current liabilities: Long-term debt due within one year $ 8,579 $ 3,593 Accounts payable and current liabilities 318,515 405,896 -------------- -------------- Total current liabilities 327,094 409,489 -------------- -------------- Deferred income taxes 380,848 347,975 Customer advances for construction and contributions in aid of construction 242,093 238,453 Deferred credits 147,250 115,291 Regulatory liabilities 21,651 22,810 Long-term debt 1,585,361 1,509,697 -------------- -------------- Total liabilities 2,704,297 2,643,715 -------------- -------------- Company obligated mandatorily redeemable convertible preferred securities * 201,250 201,250 -------------- -------------- Shareholders' equity: Common Stock issued, $.25 par value 61,680 59,788 Additional paid-in capital 1,463,539 1,381,341 Retained earnings 64,938 244,066 Unrealized gain (loss) on securities classified as available for sale 6,466 (7,012) -------------- -------------- Total shareholders' equity 1,596,623 1,678,183 -------------- -------------- Total liabilities and shareholders' equity $ 4,502,170 $ 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 SEPTEMBER 30, 1997 AND 1996 (In thousands, except per-share amounts)
1997 1996 ------------- -------------- Revenues $ 336,118 $ 319,959 ------------- -------------- Expenses: Operating 226,329 199,491 Depreciation 58,352 46,246 ------------- -------------- Total expenses 284,681 245,737 ------------- -------------- Income from operations 51,437 74,222 Other income, net 10,921 17,420 Interest expense 25,648 22,366 ------------- -------------- Income before income taxes and dividends on convertible preferred securities 36,710 69,276 Income taxes 12,109 21,680 ------------- -------------- Income before dividends on convertible preferred securities 24,601 47,596 Dividends on convertible preferred securities, net of income tax benefit 1,553 1,564 ------------- -------------- Net income $ 23,048 $ 46,032 ============= ============== Earnings per share of Common Stock $ .09 $ .19 * ============= ============== Average number of common shares outstanding for the period 245,919 248,063 * ============= ============== Dividend rate declared on Common Stock, paid in shares of Common Stock. 1.0 % 1.6 % ============= ==============
*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 (LOSS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (In thousands, except per-share amounts)
1997 1996 -------------- -------------- Revenues $ 1,014,751 $ 967,224 -------------- -------------- Expenses: Operating 886,423 607,454 Depreciation 172,931 140,475 -------------- -------------- Total expenses 1,059,354 747,929 -------------- -------------- Income (loss) from operations (44,603) 219,295 Other income, net 30,046 46,243 Interest expense 81,358 67,012 -------------- -------------- Income (loss) before income taxes and dividends on convertible preferred securities (95,915) 198,526 Income taxes (benefit) (30,213) 63,191 -------------- -------------- Income (loss) before dividends on convertible preferred securities (65,702) 135,335 Dividends on convertible preferred securities, net of income tax benefit 4,657 4,196 -------------- -------------- Net income (loss) $ (70,359) $ 131,139 ============== ============== Earnings (loss) per share of Common Stock $ (.29) $ .53 * ============== ============== Average number of common shares outstanding for the period 242,935 245,352 * ============== ============== Compounded dividend rate declared on Common Stock, paid in shares of Common Stock. 4.26% 4.88% ============== ==============
*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 NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (In thousands)
1997 1996 --------------- ---------------- Net cash provided by operating activities $ 175,173 $ 210,967 --------------- ---------------- Cash flows used for investing activities: Capital expenditures (382,466) (225,215) Securities purchased (206,758) (195,430) Securities sold 324,837 72,700 Securities matured 20,433 29,446 Business acquisitions -- (89,564) Other 33,476 (27,800) --------------- ---------------- Net cash used for investing activities (210,478) (435,863) --------------- ---------------- Cash flows from financing activities: Long-term debt borrowings 78,619 209,508 Long-term debt principal payments (2,494) (3,538) Short-term debt repayments -- (140,650) Issuance of convertible preferred securities -- 201,250 Issuance of common stock 3,514 9,761 Common stock buybacks to fund stock dividends (41,791) (50,535) Other (91) (2,390) --------------- ---------------- Net cash provided from financing activities 37,757 223,406 --------------- ---------------- Change in cash 2,452 (1,490) Cash at January 1, 24,230 17,922 --------------- ---------------- Cash at September 30, $ 26,682 $ 16,432 =============== ================
The accompanying Notes are an integral part of these Financial Statements. - 5 - PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED 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: -------------------------- On August 25, 1997, the Company converted its shares of Series A Common Stock into Series B Common Stock at a ratio of one share of Series B Common Stock for each share of Series A Common Stock. This conversion had no effect on earnings 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 (See Management's Discussion and Analysis). 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 orders issued by the Vermont, New York and Arizona public utilities commissions. Other includes expenses related to accounting policy changes and other adjustments in preparation for the initial public offering for Electric Lightwave, Inc. ("ELI"), a wholly-owned subsidiary of the Company (see note 5). -6- PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (5) Initial Public Offering: ------------------------ In October, 1997, ELI filed a registration statement with the Securities and Exchange Commission for approximately $207 million of Class A Common Stock, representing approximately a 20% ownership interest. The issuance of these securities is expected to be completed during the fourth quarter of 1997. ELI intends to use the net proceeds to fund its operating and capital expenditure requirements. -7- 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, paging, cellular and other communications 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 nine months ended September 30, 1997, the Company used cash flow from operations and proceeds from net financings to fund capital expenditures and the Company's common 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 September 30, 1997 as compared to December 31, 1996 primarily due to a decrease in accounts payable and current liabilities. 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 September 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 County, Arizona, the Company's gas facilities and related equipment in Navajo County, Arizona and water and wastewater treatment facilities in the Company's service areas in Illinois. In addition, Citizens Utilities Company of California, a subsidiary of the Company, under a Department of Water Resources Loan, was advanced approximately $1.6 million. Such funds bear a fixed interest rate of 2.42% and a maturity date of July 1, 2027. Proceeds from the loan will be used to fund construction of water treatment facilities in California. During July, 1997, Citizens Utilities Rural Company, Inc. ("Rural"), a subsidiary of the Company, under its Rural Telephone Bank Loan Contract, was advanced $4,002,000 at an initial interest rate of 6.125% and ultimate maturity date of December 31, 2027. Proceeds from the loan will be used to finance the construction of Rural`s telecommunication systems. During August, 1997, the Company remarketed approximately $30 million of Series 1985 Industrial Development Revenue Bonds at a weighted average interest rate of 4.75% for a ten year period ending August 1, 2007. The bonds ultimately mature in 2015, 2020 and 2025. During September, 1997, the Company remarketed approximately $40 million of Series 1985 and Series 1988 Industrial Development Revenue Bonds at an initial weighted average interest rate of 3.83%. The bonds have final maturities in 2020, 2022, 2026, and 2028. During September, 1997, the Company arranged for the composite issuance of approximately $18 million of Industrial Development Revenue Bonds with an initial interest rate of 4.20% and an ultimate maturity of September 1, 2032. Proceeds from the composite issuance will be used to fund construction of the Company's gas facilities in the city of Flagstaff, Arizona and Navajo County, Arizona. -8- PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES In October, 1997, Electric Lightwave, Inc. ("ELI") arranged for a commitment for a five-year $400 million revolving credit facility. The Company will guarantee all of ELI's obligations under the credit facility. During 1997, the Company received increases in annual revenues from regulatory commissions in Arizona and California totaling $1.2 million. The Company has additional requests for increases in annual revenues pending before regulatory commissions in Arizona and California totaling $3.4 million. The Company had 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, 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 have begun to provide operating expense savings and are expected to generate additional savings in the future. In addition, the Company has reduced its 1997 capital expenditure program overall by $175 million. Expected operating expense savings have and will continue to come from reductions in workforce and benefits, consolidation of call center operations, closure of sales offices, reduction of sales and marketing activities and reconfiguration of the Company's network cost structure from fixed to variable through new carrier contracts and network redesign. The Company's 1997 capital expenditure program has been reduced as follows:
1997 1997 1997 Original Revised Budget Sector Budget Budget Reduction - ------ ----------------- ---------------- ---------------- ($ in thousands) Communications $ 313,000 $ 240,000 $ (73,000) Electric Lightwave 150,000 82,000 (68,000) 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) ================= ================ ================
-9- PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES 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. 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. In October, 1997, the Company announced that the New York Public Service Commission approved the acquisition of Ogden Telephone Company ("Ogden"). The Company agreed to acquire the Common Stock of Ogden in a stock for stock transaction valued at approximately $23 million. In October, 1997, the Company purchased all of the outstanding stock of Gasco, Inc. ("Gasco") for approximately $100 million. Gasco is a gas distribution company serving approximately 70,000 customers throughout Hawaii. In October, 1997, ELI filed a registration statement with the Securities and Exchange Commission for approximately $207 million of Class A Common Stock, representing approximately a 20% ownership interest. The issuance of these securities is expected to be completed during the fourth quarter of 1997. ELI intends to use the net proceeds to fund its operating and capital expenditure requirements. -10- PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES In November, 1997, the Company announced that it entered into an agreement with D&E Communications, Inc. ("D&E"), a full-service telecommunications company, in which the Company will purchase between 1 million and 1.3 million newly issued shares, representing approximately 14% to 18% of D&E Common Stock. The purchase price per share will be in the range of $20 to $25 per share. This transaction is subject to satisfaction of the requirements of the Hart-Scott-Rodino Antitrust Improvements Act and certain other conditions. New Accounting Pronouncement: - ----------------------------- In February, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 128 ("SFAS 128"), "Earnings Per Share," ("EPS") 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 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. -11- PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES (b) Results of Operations --------------------- Revenues - -------- Operating revenues for the three and nine months ended September 30, 1997 increased $16.2 million, or 5%, and $47.5 million, or 5%, respectively, as compared with the prior year periods primarily due to increased communications and public services revenues. Communications revenues
For the three months For the nine months ended September 30, ended September 30, ------------------------------------------ --------------------------------------------- ($ in thousands) ($ in thousands) Increase/ Increase/ Telecommunications revenues 1997 1996 (Decrease) 1997 1996 (Decrease) - --------------------------- ---------- ----------- ------------- ------------- ------------ ------------- Network access services $ 94,969 $ 93,751 1% $ 282,687 $ 289,790 (2)% Local network services 63,366 58,421 8% 185,154 173,033 7% Long distance services 27,635 22,954 20% 63,041 41,696 51% Directory services 8,721 7,471 17% 24,289 22,280 9% Other 10,485 14,662 (28)% 35,866 40,951 (12)% ---------- ---------- ------------- ------------ ----------- ------------- Total $ 205,176 $ 197,259 4% $ 591,037 $ 567,750 4% ========== ========== ============= ============ =========== =============
Network access services revenues for the three months ended September 30, 1997 increased $1.2 million, or 1%, as compared with the prior year primarily due to the acquisition of Conference-Call USA ("Conference-Call") in December, 1996. Network access services revenues for the nine months ended September 30, 1997 decreased $7.1 million, or 2%, 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. Both the three months and nine months ended September 30, 1997 were negatively impacted by an interstate switched access rate reduction which became effective July 1, 1997. Local network services revenues for the three months ended September 30, 1997 increased $4.9 million, or 8%, 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 nine months ended September 30, 1997 increased $12.1 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 three months ended September 30, 1997 increased $4.7 million, or 20%, as compared with the prior year primarily due to growth in customers and increased minutes of use. Long distance services revenues for the nine months ended September 30, 1997 increased $21.3 million, or 51%, as compared with the prior year primarily due to growth in customers and increased minutes of use, partially offset by 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. Directory services revenues for the three months ended September 30, 1997 increased $1.3 million, or 17%, as compared with the prior year primarily due to the acquisition of Conference-Call. Directory services revenues for the nine months ended September 30, 1997 increased $2 million, or 9%, respectively, as compared with the prior year primarily due to the acquisition of Nevada and Conference-Call. Other revenues for the three and nine months ended September 30, 1997 decreased $4.2 million, or 28%, and $5.1 million, or 12%, respectively, as compared with the prior year periods primarily due to a rate decrease in a contract for billing and collections services in Arizona. -12- PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
For the three months For the nine months ended September 30, ended September 30, ----------------------------------------- ---------------------------------------------- ($ in thousands) ($ in thousands) Increase/ Increase/ Electric Lightwave revenues 1997 1996 (Decrease) 1997 1996 (Decrease) - --------------------------- ---------- ---------- ------------ ------------ ----------- -------------- Network access services $ 8,997 $ 5,525 63% $ 23,195 $ 14,858 56% Local network services 2,015 639 215% 4,410 1,461 202% Long distance services 2,404 4,728 (49)% 6,089 6,310 (4)% Other 2,684 673 299% 5,815 1,446 302% ---------- ---------- ------------ ------------ ----------- -------------- Total $ 16,100 $ 11,565 39% $ 39,509 $ 24,075 64% ========== ========== ============ ============ =========== ==============
Network access services revenues for the three and nine months ended September 30, 1997 increased $3.5 million, or 63%, and $8.3 million, or 56%, respectively, as compared with the prior year periods primarily due to increased volume on ELI's Phoenix to Las Vegas long haul route as well as the addition of the Portland to Seattle long haul route in February, 1997. Local network services revenues for the three months ended September 30, 1997 increased $1.4 million, or 215%, as compared with the prior year primarily due to customer growth and expansion of services. Local network services revenues for the nine months ended September 30, 1997 increased $2.9 million, or 202%, as compared with the prior year primarily due to local switch implementations for new and existing customers in Portland, Salt Lake City, Sacramento and Seattle in the second half of 1996. Long distance services revenues for the three and nine months ended September 30, 1997 decreased $2.3 million, or 49%, and $.2 million, or 4%, respectively, as compared with the prior year periods primarily due to short term contract revenues for prepaid debit card services in 1996. Other revenues for the three months ended September 30, 1997 increased $2 million, or 299%, as compared with the prior year primarily due to customer growth and expansion of services. Other revenues for the nine months ended September 30, 1997 increased $4.4 million, or 302%, as compared with the prior year primarily due to the introduction of ISDN services and increases in frame relay and internet access services in the second half of 1996. -13- PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES Public services revenues - ------------------------
For the three months For the nine months ended September 30, ended September 30, ---------------------------------------- ------------------------------------------ ($ in thousands) ($ in thousands) Increase/ Increase/ Natural gas revenues 1997 1996 (Decrease) 1997 1996 (Decrease) - -------------------- --------- --------- ------------- ----------- ----------- ----------- Residential $ 17,450 $ 17,498 0% $ 101,675 $ 94,398 8% Commercial 7,436 7,048 6% 38,203 34,799 10% Industrial 7,573 7,027 8% 21,871 27,072 (19)% Municipal 272 220 24% 2,316 1,689 37% --------- --------- ------------- ----------- ----------- ----------- Total distribution 32,731 31,793 3% 164,065 157,958 4% Transportation 437 394 11% 1,819 1,692 8% Other 2,185 2,239 (2)% 6,966 6,835 2% --------- --------- ------------- ----------- ----------- ----------- Total $ 35,353 $ 34,426 3% $ 172,850 $ 166,485 4% ========= ========= ============= =========== =========== ===========
Residential and commercial distribution revenues for the nine months ended September 30, 1997 increased $7.3 million, or 8%, and $3.4 million, or 10%, respectively, as compared with the prior year periods primarily due to the increases granted in Louisiana in May, 1996 and Arizona in November, 1996, higher gas prices and higher consumption due to cooler weather conditions in 1997 in Arizona and Colorado. Commercial distribution revenues for the three months ended September 30, 1997 increased $.4 million, or 6%, as compared with the prior year primarily due to a rate increase granted in Arizona, higher gas prices and higher consumption due to cooler weather conditions in 1997 in Arizona and Colorado. Industrial distribution revenues for the three months ended September 30, 1997 increased $.5 million, or 8%, as compared with the prior year primarily due to rate increases granted in Louisiana and Arizona and higher consumption. Industrial distribution revenues for the nine months ended September 30, 1997 decreased $5.2 million, or 19%, as compared to the prior year primarily due to a decrease in customers and lower consumption in Louisiana. Municipal distribution revenues for the nine months ended September 30, 1997 increased $.6 million, or 37%, as compared with the prior year primarily due to the rate increases granted in Louisiana and Arizona and higher consumption. Transportation revenues for the nine months ended September 30, 1997 increased $.1 million, or 8%, as compared with the prior year primarily due to rate increases granted in Louisiana and Arizona and higher consumption. -14- PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES
For the three months For the nine months ended September 30, ended September 30, --------------------------------------- ---------------------------------------- ($ in thousands) ($ in thousands) Increase/ Increase/ Electric revenues 1997 1996 (Decrease) 1997 1996 (Decrease) - ----------------- --------- --------- ------------- ---------- ---------- ----------- Residential $ 23,754 $ 23,815 0% $ 60,264 $ 60,366 0% Commercial 15,841 15,389 3% 41,896 41,526 1% Industrial 11,076 11,019 1% 31,362 32,112 (2)% Municipal 2,299 2,149 7% 6,040 6,077 (1)% --------- --------- ------------ ---------- ---------- ------------ Total distribution 52,970 52,372 1% 139,562 140,081 0% Transportation 709 546 30% 2,020 1,831 10% Other 1,303 (268) 586% 3,232 1,555 108% --------- --------- ------------ ---------- ---------- ------------ Total $ 54,982 $ 52,650 4% $ 144,814 $ 143,467 1% ========= ========= ============ ========== ========== ============
Electric revenues for the three months ended September 30, 1997 increased $2.3 million, or 4%, as compared with the prior year primarily due to increased customers, higher consumption and higher commodity prices in Arizona. Electric revenues for the nine months ended September 30, 1997 increased $1.3 million, or 1%, as compared with the prior year primarily due to a rate increase granted in Hawaii in August, 1996, increased customers and higher consumption in Arizona, partially offset by a second quarter charge to reflect a Vermont public utility commission order requiring refunds to customers of approximately $6.6 million.
For the three months For the nine months ended September 30, ended September 30, --------------------------------------- ----------------------------------------- ($ in thousands) ($ in thousands) Increase/ Increase/ Water and wastewater revenues 1997 1996 (Decrease) 1997 1996 (Decrease) - ----------------------------- -------- ---------- ------------ ---------- --------- ----------- Residential distribution $ 19,071 $ 19,006 0% $ 52,932 $ 52,783 0% Commercial distribution 4,259 4,021 6% 10,357 10,016 3% Industrial distribution 296 273 8% 729 608 20% Other 881 759 16% 2,523 2,040 24% -------- ---------- ------------ ----------- ---------- ------------ Total $ 24,507 $ 24,059 2% $ 66,541 $ 65,447 2% ======== ========== ============ =========== ========== ============
Water and wastewater revenues for the three and nine months ended September 30, 1997 are comparable with prior year periods. -15- PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES Expenses - --------
For the three months For the nine months ended September 30, ended September 30, ------------------------------------------ ------------------------------------------- ($ in thousands) ($ in thousands) Increase/ Increase/ 1997 1996 (Decrease) 1997 1996 (Decrease) ---------- ---------- ------------- ------------ ---------- ------------ Natural gas purchased $ 16,419 $ 16,445 0% $ 94,598 $ 91,557 3% Depreciation 58,352 46,246 26% 172,931 140,475 23% Network expenses 18,937 20,692 (8)% 87,263 42,831 104% Taxes other than income 22,645 20,423 11% 70,560 63,129 12% Electric energy and fuel oil purchased 27,766 26,407 5% 72,936 70,274 4% Sales and marketing 8,948 13,281 (33)% 45,119 30,829 46% Other operating expenses 131,614 102,243 29% 515,947 308,834 67% ---------- ---------- ------------- ------------ ---------- ------------ Total $ 284,681 $ 245,737 16% $ 1,059,354 $ 747,929 42% ========== ========== ============= ============ ========== ============
Natural gas purchased expense for the nine months ended September 30, 1997 increased $3 million, or 3%, as compared with the prior year primarily due to higher prices. Depreciation expense for the three and nine months ended September 30, 1997 increased $12.1 million, or 26%, and $32.5 million, or 23%, respectively, as compared with the prior year periods primarily due to increased property, plant and equipment. Network expenses for the three months ended September 30, 1997 decreased $1.8 million, or 8%, as compared with the prior year due to lower negotiated rates in 1997. Network expenses for the nine months ended September 30, 1997 increased $44.4 million, or 104%, primarily due to an increase in long distance minutes sold and a second quarter charge of approximately $11.1 million related to lease terminations as a result of the curtailment of certain long distance service operations. Taxes other than income for the three months ended September 30, 1997 increased $2.2 million, or 11%, as compared with the prior year primarily due to increased payroll, property and franchise taxes as a result of the acquisition of Conference-Call in December, 1996. Taxes other than income for the nine months ended September 30, 1997 increased $7.4 million, or 12%, as compared with the prior year 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. Electric energy and fuel oil purchased for the three and nine months ended September 30, 1997 increased $1.4 million, or 5%, and $2.7 million, or 4%, respectively, as compared with the prior year periods primarily due to higher prices. Sales and marketing expenses for the three months ended September 30, 1997 decreased $4.3 million, or 33%, as compared with the prior year primarily due to a decrease in salaries, wages, commissions and benefits due to a reduction in workforce. Sales and marketing expenses for the nine months ended September 30, 1997 increased $14.3 million, or 46%, as compared with the prior year primarily due to increased costs to support an increased level of service offerings 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 three months ended September 30, 1997 increased $29.4 million, or 29%, as compared with the prior year primarily due to increases in personnel and related overhead to support expanded service offerings. Other operating expenses for the nine months ended September 30, 1997 increased $207.1 million, or 67%, as compared with the prior year primarily due to increases in personnel and related overhead to support expanded service offerings and second quarter charges of approximately $150.6 million, which primarily 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 $14.6 million related to accounting policy changes and other adjustments associated with ELI in preparation for its initial public offering. -16- PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES Other income, net/Interest expense/Income taxes - -----------------------------------------------
For the three months For the nine months ended September 30, ended September 30, --------------------------------------- ------------------------------------------ ($ in thousands) ($ in thousands) Increase/ Increase/ 1997 1996 (Decrease) 1997 1996 (Decrease) ---------- --------- ------------ ---------- --------- ------------ Investment income $ 8,038 $ 9,582 (16)% $ 26,322 $ 32,064 (18)% Other 2,883 7,838 (63)% 3,724 14,179 (74)% ---------- --------- ------------ ---------- --------- ------------ Total $ 10,921 $ 17,420 (37)% $ 30,046 $ 46,243 (35)% ========== ========= ============ ========== ========= ============
Investment income for the three and nine months ended September 30, 1997 decreased $1.5 million, or 16%, and $5.7 million, or 18%, 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, partially offset by an increase in the Centennial preferred dividend. Other income for the three months ended September 30, 1997 decreased $5 million, or 63%, as compared with the prior year primarily due to a decrease in the Allowance for Funds Used During Construction ("AFUDC"). Other income for the nine months ended September 30, 1997 decreased $10.5 million, or 74%, as compared with the prior year primarily due to a second quarter charge of approximately $4.5 million related to an Arizona public utility commission order disallowing recovery of certain amounts of the equity component of the AFUDC, partially offset by the gain on sale of land at the Illinois water property.
For the three months For the nine months ended September 30, ended September 30, ----------------------------------------- ------------------------------------------ ($ in thousands) ($ in thousands) Increase/ Increase/ 1997 1996 (Decrease) 1997 1996 (Decrease) --------- ---------- ------------- ---------- ---------- ----------- Interest expense $ 25,648 $ 22,366 15% $ 81,358 $ 67,012 21% Interest expense for the three months ended September 30, 1997 increased $3.3 million, or 15%, as compared with the prior year primarily due to the issuance of debentures in December, 1996. Interest expense for the nine months ended September 30, 1997 increased $14.3 million, or 21%, as compared with the prior year primarily due to the issuance of debentures in June and December, 1996 and a second quarter charge of approximately $1.7 million related to an Arizona public utility commission order disallowing recovery of certain amounts of the interest component of AFUDC. For the three months For the nine months ended September 30, ended September 30, --------------------------------------------- ---------------------------------------- ($ in thousands) ($ in thousands) Increase/ Increase/ 1997 1996 (Decrease) 1997 1996 (Decrease) ------------ ------------- ------------- ---------- --------- ------------ Income taxes $ 12,109 $ 21,680 (44)% $ (30,213) $ 63,191 (148)%
Income taxes for the three months ended September 30, 1997 decreased $9.6 million, or 44%, as compared with the prior year primarily due to lower taxable income. Income taxes for the nine months ended September 30, 1997 decreased $93.4 million, or 148%, as compared with the prior year primarily due to the tax benefit associated with the second quarter charges to earnings. -17- PART I. FINANCIAL INFORMATION (Continued) CITIZENS UTILITIES COMPANY AND SUBSIDIARIES Net income (loss)/Earnings (loss) per share - -------------------------------------------
For the three months For the nine months ended September 30, ended September 30, -------------------------------------------- ------------------------------------------ ($ in thousands) ($ in thousands) Increase/ Increase/ 1997 1996 (Decrease) 1997 1996 (Decrease) ------------- ---------- ------------- ---------- ----------- ------------ Net income (loss) $ 23,048 $ 46,032 (50)% $ (70,359) $ 131,139 (154)% Earnings (loss) per share $ .09 $ .19 (53)% $ (.29) $ .53 (155)%
Net income for the three months ended September 30, 1997 decreased $23 million, or 50%, as compared with the prior year primarily due to increased operating and depreciation expenses. Net income for the nine months ended September 30, 1997 decreased $201.5 million, or 154%, as compared with the prior year 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 nine months ended September 30, 1997 would have decreased $66.3 million, or 51%, as compared with the prior year primarily due 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 three months ended September 30, 1997 decreased $.10, or 53%, as compared with the prior year primarily due to a decrease in net income, partially offset by a decrease in shares outstanding resulting from the Company's stock buyback program. Earnings per share for the nine months ended September 30, 1997 decreased $.82, or 155%, as compared with the prior year primarily due to 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 $.26, or 49%, for the nine months ended September 30, 1997, as compared with the prior year primarily due to increased network, sales and marketing and operating expenses related to the Company's expansion of its communications activities. -18- 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 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. On September 26, 1997, the Company filed a notice of appeal seeking review by the Vermont Supreme Court of various aspects of the Board's June 16, 1997 order. The Company estimates that the future annual effect of the rate reduction ordered by the Board is approximately $3.9 million. The Company made a $6.6 million refund to its customers 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. Final terms of probation are expected to be announced in the near future. During this probationary period, the Company could lose its franchise to operate in Vermont if it violates the terms of probation prescribed by 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 no more than $65,000. The Company has contractual rights of indemnification from the former shareholders of Metro and expects to recover a portion of the settlement cost. In August, 1997, a lawsuit was filed in the United States District Court for the District of Connecticut against the Company and four of its officers, one of whom is also a director, on behalf of all persons who purchased or otherwise acquired Series A and Series B shares of common stock of the Company between September 5, 1996 and July 11, 1997, inclusive. The complaint alleges that Citizens and the individual defendants, during such period, violated Sections 10 (b) and 20 (a) of the Securities Exchange Act of 1934.The plaintiffs seek to recover unspecified compensatory damages. The Company and the individual defendants intend to file a motion to dismiss and to vigorously defend against the complaint. The Company believes that there is no merit to any of the allegations contained in the complaint, and believes that the disposition of this action will not have a material adverse effect on the Company's financial position. Item 2. Changes in Securities and use of Proceeds ----------------------------------------- On August 25, 1997, the Company converted its shares of Series A common stock into Series B common stock at a ratio of one (1) share of Series B common stock for each share of Series A common stock. The Company's common stock is listed on the New York Stock Exchange under the symbol CZN. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (b) On July 23, 1997, the Company filed Form 8-K dated July 23, 1997, under Item 7, "Exhibits," announcing the conversion of the Company's Series A common stock to Series B common stock effective August 25, 1997. On August 8, 1997, the Company filed on Form 8-K dated August 7, 1997, under Item 7, "Exhibits," announcing the 1997 second quarter charge and six-month results. -19- 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: November 14, 1997 By: /s/ Livingston E. Ross ---------------------- Livingston E. Ross Vice President and Controller -20- EX-27 2 SCHEDULE UT FDS FOR THE PERIODS ENDED 9/30/97
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CITIZENS UTILITIES COMPANY AND SUBSIDIARIES' CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000020520 CITIZENS UTILITIES COMPANY 1,000 3-MOS 9-MOS DEC-31-1997 DEC-31-1997 SEP-30-1997 SEP-30-1997 PER-BOOK PER-BOOK 3,336,766 3,336,776 422,631 422,631 334,631 334,631 158,061 158,061 250,081 250,081 4,502,170 4,502,170 61,680 61,680 1,463,539 1,463,539 64,938 64,938 1,596,623 1,596,623 201,250 201,250 0 0 1,585,361 1,585,361 0 0 0 0 0 0 8,579 8,579 0 0 0 0 0 0 2,704,297 2,643,715 4,502,170 4,502,170 336,118 1,014,751 12,109 (30,213) 44,185 167,534 284,681 1,059,354 51,437 (44,603) 10,921 30,046 62,358 (14,557) 25,648 81,358 23,048 (70,359) 1,553 4,657 23,048 (70,359) 0 0 0 0 0 175,173 .09 (.29) .09 (.29) 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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