As filed with the United States Securities and Exchange Commission on
December 11, 1997.
Registration No. 333-_______
==============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-------------------------------
Century Telephone Enterprises, Inc.
(Exact name of registrant as specified in its charter)
Louisiana 72-0651161
(State or other (I.R.S. Employer
jurisdiction of incorporation Identification Number)
or organization)
100 Century Park Drive
Monroe, Louisiana 71203
(318) 388-9500
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------------
Harvey P. Perry Copy to:
Senior Vice President, General Counsel Kenneth J. Najder
and Secretary Jones,Walker, Waechter,
Century Telephone Enterprises, Inc. Poitevent,Carrere & Denegre, L.L.P.
100 Century Park Drive 201 St.Charles Avenue, 51st Floor
Monroe, Louisiana 71203 New Orleans,Louisiana 70170-5100
(318) 388-9500 (504) 582-8000
(Name, address, including zip code,
and telephone number, including
area code, of agent for service)
-------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this registration statement
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box.
---
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 (the "Securities Act"), other than securities offered
only in connection with dividend or interest reinvestment plans, please
check the following box. X
---
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
---
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Secur-
ities Act registration statement number of the earlier effective registration
statement for the same offering.
---
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. X
---
-------------------------------
<TABLE>
CALCULATION OF REGISTRATION FEE
============================================================================================
Proposed Proposed
maximum maximum
Title of each Amount offering aggregate
class of securities to be price per offering Amount of
to be registered registered unit(3) price(3) registration fee(4)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Senior Debt Securities
Preferred Stock $1,500,000,000(2) 100% $1,500,000,000 $442,500
Common Stock(1)
Warrants
============================================================================================
</TABLE>
(1) Includes Preference Share Purchase Rights, which prior to the
occurrence of certain events will not be exercisable or evidenced
separate from the registrant's Common Stock.
(2) In the event any Senior Debt Securities are issued at an original
discount, the amount registered will equal such principal amount as
may be sold for an initial public offering price of $1,500,000,000.
(3) Estimated solely for the purpose of calculating the registration fee;
certain information regarding the proposed maximum offering prices
has been omitted pursuant to Instruction II.D of Form S-3 and will be
determined, from time to time, by the registrant in connection with
its issuance of the securities registered hereunder.
(4) Calculated pursuant to Rule 457(o) promulgated under the Act; does
not include the $34,483 fee previously paid by the registrant with
respect to the $100,000,000 of Senior Debt Securities that remain
unsold under the Registration Statement on Form S-3 (Registration No.
33-52915) described further below.
________________
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that
this registration statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act or until this registration
statement shall become effective on such date as the Commission, acting
pursuant to Section 8(a), may determine.
Pursuant to Rule 429 under the Securities Act, the Prospectus
included in this Registration Statement is a combined Prospectus and also
relates to $400,000,000 of Senior Debt Securities previously registered
under the registrant's Registration Statement on Form S-3 (Registration
No. 33-52915), of which $100,000,000 remain unsold as of the date of this
filing.
SUBJECT TO COMPLETION, DATED DECEMBER 11, 1997
$1,600,000,000
CENTURY TELEPHONE ENTERPRISES, INC.
SENIOR DEBT SECURITIES
PREFERRED STOCK
COMMON STOCK
WARRANTS
________________________________
Century Telephone Enterprises, Inc. ("Century") may from time to time
offer hereunder (i) senior unsecured debt securities (the "Senior Debt
Securities"), (ii) shares of preferred stock (the "Preferred Stock"), (iii)
shares of common stock and accompanying preference share purchase rights
(the "Common Stock"), and (iv) warrants to purchase Senior Debt Securities,
Preferred Stock or Common Stock (the "Warrants"), with an aggregate initial
offering price of up to $1,600,000,000. The Senior Debt Securities,
Preferred Stock, Common Stock and Warrants (collectively, the "Securities")
may be offered, separately or together, in one or more separate series or
classes, in amounts, at prices and on terms to be determined at the time of
sale and set forth in one or more supplements to this Prospectus (a
"Prospectus Supplement").
The specific terms of the Securities in respect to which this
Prospectus is being delivered will be set forth in the applicable
Prospectus Supplement and will include, where applicable, among other
things (i) in the case of Senior Debt Securities, the specific designation,
aggregate principal amount, net proceeds, offering price, maturity,
interest rate, interest payment dates and terms of any conversion,
redemption or sinking fund provisions thereof; (ii) in the case of
Preferred Stock, the designation and stated value, any dividend,
liquidation, redemption, conversion, voting or other rights, and the
initial public offering price thereof; (iii) in the case of Common Stock,
the initial public offering price thereof and (iv) in the case of Warrants,
the duration, offering price, exercise price and exercise provisions. The
Senior Debt Securities will rank equally with all other unsubordinated and
unsecured indebtedness of Century.
The Securities may be offered directly or through agents,
underwriters or dealers designated from time to time by Century. If any
agents, underwriters or dealers are involved in the sale of any of the
Securities, their names, and any applicable purchase price, fee, commission
or discount arrangement between or among them, will be set forth in the
applicable Prospectus Supplement. See "Plan of Distribution."
________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
________________________________
This Prospectus may not be used to consummate sales of Securities
unless accompanied by a Prospectus Supplement.
________________
The date of this Prospectus is January ____, 1998.
The information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These Securities may not be sold nor
may offers to buy be accepted prior to the time the Registration Statement
becomes effective. This Prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any sale of these
Securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such state.
AVAILABLE INFORMATION
Century is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith Century files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information filed can be inspected
and copied at the Commission's Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C., 20549, and at the following regional offices of the
Commission: Seven World Trade Center, 13th Floor, New York, New York 10048
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material can be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission also maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants, such as Century, subsequent to the date when such
registrants began filing documents electronically with the Commission. The
address of the Commission's site is http//www.sec.gov. In addition,
Century's Common Stock is listed on the New York Stock Exchange and
similar information concerning Century can be inspected and copied at the
offices of the New York Stock Exchange, Inc., 20 Broad Street, New York,
New York 10005.
Pacific Telecom, Inc. ("PTI"), which Century acquired on December 1,
1997, also filed reports, proxy statements, and other information with the
Commission through November 10, 1997. Reports filed by PTI pursuant to the
Exchange Act can be inspected and copied at each of the locations
referenced above and are otherwise available through the Commission's
website.
This Prospectus forms a part of Century's Registration Statement (the
"Registration Statement") filed with the Commission on Form S-3
(Registration No. 333-_______), pursuant to which Century registered $1.5
billion of Securities. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of
which have been omitted as permitted by the rules and regulations of the
Commission. The Registration Statement may be inspected and copied at the
Commission's offices listed above. Century has filed a similar
Registration Statement on Form S-3 (Registration No. 33-52915), pursuant to
which Century registered $400,000,000 of Senior Debt Securities, of which
$100,000,000 remain unsold on the date of this Prospectus. This Prospectus
also relates to the $100,000,000 of unsold Senior Debt Securities
registered pursuant to Registration Statement No. 33-52915.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by Century under the
Exchange Act with the Commission and are incorporated herein by reference:
a. Century's Annual Report on Form 10-K for the year ended
December 31, 1996;
b. Century's Quarterly Reports on Form 10-Q for the quarters ended
March 31, June 30, and September 30, 1997;
c. Century's Current Reports on Form 8-K dated April 15, May 5,
June 11, December 1, and December 11, 1997; and
d. Century's Registration Statement filed under the Exchange Act,
as amended and restated on Form 8-A/A filed December 2, 1996, which
includes a description of the Century's Common Stock and Preference Share
Purchase Rights.
All reports filed by Century with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offering made hereby
shall be deemed to be incorporated by reference herein and to be made a
part hereof from their respective dates of filing. Information appearing
herein or in any particular document incorporated herein by reference is
not necessarily complete and is qualified in its entirety by the
information and financial statements appearing in all of the documents
incorporated herein by reference and should be read together therewith.
Any statements contained in a document incorporated or deemed to be
incorporated by reference shall be deemed to be modified or superseded to
the extent that a statement contained herein or in any other document
subsequently filed or incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
Century will provide without charge to each person to whom a copy of
this Prospectus has been delivered, including any beneficial owner, upon
the written or oral request of any such person, a copy of any of the
documents incorporated herein by reference, other than certain exhibits to
such documents. Requests for such copies should be directed to Harvey P.
Perry, Senior Vice President, General Counsel and Secretary, Century
Telephone Enterprises, Inc., 100 Century Park Drive, Monroe, Louisiana
71203, telephone (318) 388-9500.
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Prospectus and the
documents incorporated herein by reference include certain forward-looking
statements regarding events and financial trends that may affect the
Company's future operating results and financial position. Such forward-
looking statements are subject to uncertainties that could cause the
Company's actual results to differ materially from such statements. Such
uncertainties include but are not limited to: the effects of ongoing
deregulation in the telecommunications industry; the potential effects of
greater than anticipated competition in the Company's markets; possible
changes in the demand for the Company's products and services; the
Company's ability to successfully introduce new offerings on a timely and
cost-effective basis; the risks inherent in rapid technological change; the
Company's ability to effectively manage its growth, including integrating
the newly-acquired operations of PTI into the Company's operations; and the
effects of more general factors such as changes in general market or
economic conditions or in legislation, regulation or public policy. These
and other uncertainties related to the business are described in detail in
Century's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, which is incorporated herein by reference. You are cautioned not to
place undue reliance on these forward-looking statements, which speak only
as of the date on which they were made. Century undertakes no obligation
to update any of its forward-looking statements for any reason.
________________________________
All share and per share data relating to Century's common stock
contained or incorporated by reference herein has been adjusted for a stock
split effected as a 50% stock dividend distributed in December 1992.
Whenever used herein with respect to the operations of the Company or PTI,
the term "pops" means the population of licensed markets (based on
independent third-party population estimates) multiplied by the Company's
or PTI's proportionate equity interests in the licensed operators thereof.
When used herein, (i) the term "MSA" means a Metropolitan Statistical Area
for which the Federal Communications Commission (the "FCC") has granted a
cellular operating license, (ii) the term "RSA" means a Rural Service Area
for which the FCC has granted a cellular operating license, (iii) the term
"PCS" means Personal Communications Services, a new mobile communications
service, (iv) the term "LEC" means a local exchange carrier that provides
local telephone service, (v) the term "Series" means any particular series
of Senior Debt Securities, (vi) the term "Century" means Century Telephone
Enterprises, Inc. and (vii) the term "Company" means Century and its
subsidiaries.
THE COMPANY
The Company is a regional diversified telecommunications company that
is primarily engaged in providing local telephone and mobile communications
services in 21 states. As described further below under "Recent
Acquisition," on December 1, 1997, Century acquired Pacific Telecom, Inc.
("PTI"), which substantially expanded the Company's local telephone and
mobile communications operations. As a result of this acquisition, the
Company's telephone subsidiaries currently serve nearly 1.2 million
telephone access lines, primarily in rural, suburban and small urban
communities in 21 states, with its largest customer bases located in
Wisconsin, Washington, Alaska, Michigan and Louisiana. In addition,
through its cellular operations, the Company currently controls over 10
million pops in 31 MSAs and 44 RSAs, primarily concentrated in Michigan,
Mississippi, Wisconsin, Louisiana and Arkansas. The Company also provides
long distance, operator, Internet and business information services.
Century is incorporated in Louisiana. Its principal executive
offices are located at 100 Century Park Drive, Monroe, Louisiana 71203, and
its telephone number is (318) 388-9500. The Company currently employs
approximately 5,700 persons.
Telephone Operations
According to published sources, the Company is currently the 10th
largest local exchange telephone company in the United States, based on the
number of telephone access lines served. At September 30, 1997, the
Company and PTI served approximately 531,000 and 613,000 access lines,
respectively (not including approximately 47,000 access lines acquired by
PTI in October 1997). The Company currently operates over 440 central
office and remote switching centers in its telephone operating areas.
Substantially all of the Company's access lines are served by digital
switching technology, which in conjunction with other technologies allows
the Company to offer additional premium services to its customers,
including call forwarding, conference calling, caller identification,
selective call ringing and call waiting.
Mobile Communications Operations
According to published sources, the Company is currently the 10th
largest cellular telephone company in the United States, based on the
Company's owned pops. At September 30, 1997, the Company and PTI
controlled approximately 8.1 million and 1.9 million cellular pops,
respectively. Approximately 45% of the Company's pops in markets operated
by the Company are in a single, contiguous cluster of eight MSAs and nine
RSAs in Michigan; another 18% are in a cluster of five MSAs and seven RSAs
in northern and central Louisiana, southern Arkansas and eastern Texas. At
September 30, 1997, the majority-owned cellular systems of the Company and
PTI served approximately 430,000 and 87,000 cellular subscribers,
respectively. In addition, as a result of the PTI acquisition, the Company
controls approximately 8.1 million PCS pops, up from 4.0 million at
September 30, 1997.
Other Operations
The Company also provides long distance, operator, Internet and
interactive services in certain local and regional markets, as well as
certain printing and related business information services. At September
30, 1997, the Company's long distance business served approximately 165,000
customers in certain of the Company's markets.
Recent Acquisition
On December 1, 1997, Century and its cellular holding company,
Century Cellunet, Inc. ("Cellunet"), acquired PTI in exchange for $1.503
billion cash in a two-step transaction. In the first step, Cellunet
purchased substantially all of PTI's cellular operations in exchange for
$240 million, and in the second step Century purchased PTI's capital stock
for $1.263 billion. To finance the acquisition, Century borrowed $1.288
billion under its $1.6 billion senior unsecured credit facility with
NationsBank of Texas, Inc. and a syndicate of other lenders. This debt
matures in five years and carries floating-rate interest based upon London
InterBank Offered Rates for short-term periods. Century financed the
remainder of the PTI acquisition price with available cash, most of which
consisted of the proceeds of Century's sale of common stock of Brooks Fiber
Properties, Inc. ("Brooks") in November 1997.
PTI was organized in 1955 to provide local exchange telephone
services to suburban and rural communities primarily in the Pacific
Northwest. In subsequent years, PTI diversified its operations to provide
cellular and other telecommunications services. As a result of Century's
acquisition of PTI on December 1, 1997, the Company acquired 660,000
telephone access lines located in four midwestern states, seven western
states and Alaska, and approximately 100,000 cellular subscribers in
markets operated by PTI in two midwestern states and Alaska. Cellunet
intends to integrate the cellular operations that it purchased from PTI
into its existing cellular operations. Century will operate the remainder
of PTI as a wholly-owned subsidiary, with its headquarters remaining in
Vancouver, Washington. In connection with the acquisition, Century has
reorganized its telephone operations into three operating regions,
including a new western telephone operating region, substantially all of
which will be comprised of PTI's LECs in seven western states and Alaska.
As soon as practical, the Company plans to offer long distance, Internet
and certain other services in most of PTI's local exchange markets on
substantially the same terms on which the Company recently began to offer
such services to its telephone customers. Other than these new product
offerings and the possible sale of non-strategic assets, Century plans to
continue to operate PTI in the ordinary course of business.
For additional information regarding PTI, see its annual, quarterly
and current reports filed under the Exchange Act, recent copies of which are
filed as exhibits to the Registration Statement of which this Prospectus
forms a part and which are incorporated by reference into this Prospectus.
Recent Events Affecting the Telecommunications Industry
The telecommunications industry continues to undergo various
fundamental regulatory, competitive and technological changes that make it
difficult to determine the form or degree of future regulation and
competition affecting the Company's telephone and mobile communications
operations. These changes may have a significant impact on the future
financial performance of all telecommunications companies.
In February 1996 the United States Congress enacted the
Telecommunications Act of 1996 (the "1996 Act"), which obligates LECs to
permit competitors to interconnect their facilities to the LEC's network
and to take various other steps that are designed to promote competition.
Although the 1996 Act provides certain waiver opportunities for rural LECs
such as those operated by the Company, the FCC's August 1996 order
implementing most of the 1996 Act's interconnection provisions placed the
burden of proving the continuing availability of the rural telephone
company exemption on rural LECs. In July 1997 the U.S. Court of Appeals
for the Eighth Circuit overturned several provisions of the FCC's August
1996 interconnection order, including the rules placing the burden of proof
on rural LECs to retain their rural exemption. This decision is being
appealed.
Coincident with the recent movement toward increased competition has
been the gradual reduction of regulatory oversight of LECs. These
cumulative changes have led to the continued growth of various companies
providing competitive access and other services that compete with LECs'
services. Wireless telephone services are also expected to increasingly
compete with LECs.
In recent years, the FCC has allocated additional frequency spectrum
for mobile communications technologies that are expected to be competitive
with cellular, including PCS and mobile satellite services. In 1996
several major PCS companies began providing services competitive with
cellular in selected larger markets, although thus far the Company has
experienced competition from PCS companies in only a limited number of its
markets. The FCC has also authorized certain specialized mobile radio
service licensees to configure their systems so as to operate in a manner
similar to cellular systems.
USE OF PROCEEDS
Unless otherwise indicated in any Prospectus Supplement, the net
proceeds from Century's sale of Securities will be used for refinancing
outstanding indebtedness and for other general corporate purposes,
including the financing of acquisitions or capital expenditures. Century
currently anticipates that it may sell Senior Debt Securities in early 1998
to refinance a substantial portion of the bank indebtedness that it
incurred in December 1997 in connection with acquiring PTI. See "The
Company - Recent Acquisition." Any specific allocation of the net proceeds
from the sale of a particular offering of Securities will be determined at
the time of the offering thereof and will be described in the Prospectus
Supplement relating to that offering.
Century expects that it will from time to time engage in additional
private or public financings as market conditions warrant and as the need
arises.
CAPITALIZATION
The following table sets forth at September 30, 1997 (i) the actual
consolidated capitalization of the Company and (ii) the pro forma
capitalization of the Company assuming that the Company sold approximately
3.8 million shares of Brooks' common stock and acquired PTI on September
30, 1997. See "The Company - Recent Acquisition." This table should be
read in conjunction with the Company's Consolidated Financial Statements
and Pro Forma Consolidated Condensed Financial Information, and the Notes
thereto, incorporated by reference herein.
As Reported Pro Forma
----------- ---------
(In thousands)
Long-term debt, excluding current maturities:
Century . . . . . . . . . . . . . . . . . . . $ 325,996 $ 1,644,828
Subsidiaries. . . . . . . . . . . . . . . . . 239,637 718,479
----------- ---------
Total long-term debt, excluding current
maturities. . . . . . . . . . . . . . . 565,633 2,363,307(1)
----------- ---------
Stockholders' equity:
Common Stock, $1.00 par value, 175,000,000
shares authorized, 60,519,391 shares
issued and outstanding . . . . . . . . . . 60,519 60,519
Paid-in capital . . . . . . . . . . . . . . . 490,661 490,661
Unrealized holding gain on investments, net
of taxes . . . . . . . . . . . . . . . . . 62,038 8,689(2)
Retained earnings . . . . . . . . . . . . . . 635,491 701,705(2)
Unearned ESOP Shares. . . . . . . . . . . . . (9,200) (9,200)
Preferred Stock - non-redeemable. . . . . . . 8,106 8,106
----------- ---------
Total stockholders' equity . . . . . . . . 1,247,615 1,260,480
----------- ---------
Total capitalization $ 1,813,248 $ 3,623,787
=========== ===========
________________
(1)The $1.8 billion pro forma increase in long-term debt is attributable
to (i) Century's borrowing of $1.3 billion to finance its acquisition
of PTI and certain related costs and (ii) the Company's assumption of
$479 million of long-term debt of PTI at September 30, 1997. For
additional information, see the Pro Forma Consolidated Condensed
Financial Information and notes thereto incorporated by reference
herein.
(2)Reflects the gain on the sale of Brooks common stock that will be
recorded in Century's 1997 fourth quarter results of operations and the
reduction of the associated unrealized holding gain on investments, net
of taxes. For additional information, see the Pro Forma Consolidated
Condensed Financial Information and notes thereto incorporated by
reference herein.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges
for each of the years in the five year period ended December 31, 1996 and
for the nine months ended September 30, 1997, which ratios are based on the
historical consolidated financial statements of the Company without giving
effect to the PTI acquisition. The table also sets forth the pro forma
combined data for the year ended December 31, 1996 and for the nine months
ended September 30, 1997, which data give effect to the acquisition of PTI
as if it had occurred on January 1, 1996. The pro forma combined data are
presented for comparative purposes only and are not intended to be
indicative of actual results had the PTI acquisition occurred as of such
date, nor do they purport to indicate results which may be attained in the
future.
<TABLE>
HISTORICAL
----------------------------------------------------------
Year Ended December 31,
----------------------------------- Nine Months Ended
1992 1993 1994 1995 1996 September 30,1997
---- ---- ---- ---- ---- -----------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings
to fixed charges 4.25 4.32 4.50 4.74 5.10 7.69(1)
PRO FORMA COMBINED
-------------------------------------------
Year Ended Nine Months Ended
December 31, 1996 September 30, 1997
----------------- ------------------
<S> <C> <C>
Ratio of earnings to fixed charges . . . 2.01 2.72(2)
- -----------
(1) 5.67 excluding the gain on the sale of Century's competitive access
subsidiary in the second quarter of 1997.
(2) 2.22 excluding the gain on the sale of Century's competitive access
subsidiary in the second quarter of 1997.
</TABLE>
For purposes of computing these ratios, (i) earnings consist of
income before income taxes and fixed charges, with adjustments primarily
for earnings of unconsolidated subsidiaries and (ii) fixed charges consist
of interest expense (including amortized debt issuance costs) and preferred
stock dividends of subsidiaries.
DESCRIPTION OF SENIOR DEBT SECURITIES
Set forth below are certain general terms and provisions of the
Senior Debt Securities, which may be issued from time to time in one or
more Series. The particular terms of each Series will be described in a
Prospectus Supplement relating thereto. The Senior Debt Securities will be
issued under an Indenture, dated as of March 31, 1994 (the "Indenture"),
between Century and Regions Bank of Louisiana (successor-in-interest to
First American Bank & Trust of Louisiana), as Trustee (the "Trustee"). The
particular terms of each Series will be set forth in a resolution of a
committee of Century's Board of Directors specifically authorizing such
Series (a "Board Resolution") or in one or more supplemental indentures.
The following summary does not purport to be complete and is subject in all
respects to the provisions of, and is qualified in its entirety by express
reference to, the Indenture and Board Resolution, forms of which are filed
as exhibits to the Registration Statement. Unless otherwise indicated,
each reference italicized in parentheses below or in any Prospectus
Supplement applies to section numbers in the Indenture and each capitalized
term not otherwise defined herein has the meaning ascribed to it in the
Indenture.
General
The Senior Debt Securities will be general unsecured obligations of
Century and will rank prior to all subordinated indebtedness of Century and
pari passu with all other unsecured indebtedness of Century. For further
information on Century's debt, see "Capitalization." Century is a holding
company and derives substantially all of its income and operating cash flow
from its subsidiaries. As a result, Century relies upon its subsidiaries
to generate the funds necessary to meet its obligations, including the
payment of principal and interest on any Senior Debt Securities to be
issued hereunder. Certain of the subsidiaries' loan agreements contain
various restrictions on the transfer of funds to Century, including certain
provisions that restrict the amount of dividends that may be paid to
Century. At September 30, 1997, after giving effect to the acquisition of
PTI, the amount of pro-forma retained earnings of Century's subsidiaries
not subject to dividend restrictions was $510 million. Moreover, Century's
rights to receive assets of any subsidiary upon its liquidation or
reorganization (and the ability of holders of Senior Debt Securities to
benefit indirectly therefrom) are subject to the prior claims of creditors
of that subsidiary.
Except to the extent otherwise provided below or in any Prospectus
Supplement, neither the Indenture nor the Senior Debt Securities to be
offered thereby (i) limit the amount of secured or unsecured indebtedness
that may be issued or incurred by Century or any of its subsidiaries, (ii)
restrict the payment of dividends by Century or the sale or transfer of
Century's assets or (iii) contain provisions that would afford holders of
Senior Debt Securities protection in the event of a change in control,
highly leveraged transaction, recapitalization or similar transaction
involving Century, any of which could adversely affect the holders of
Senior Debt Securities.
The Prospectus Supplement relating to any particular Series being
offered thereby will set forth a description of such Series, including (i)
the title and aggregate principal amount of such Series; (ii) Century's net
proceeds from the sale thereof; (iii) the price or prices at which such
Series will be issued; (iv) the date or dates of maturity; (v) the rate or
rates per annum, if any, at which such Series will bear interest or the
method of determining such rate or rates; (vi) the date or dates from which
any such interest will accrue and the date or dates at which any such
interest will be payable; (vii) the terms of any conversion or exchange
rights; (viii) the terms for redemption or early payment, if any, including
any mandatory or optional sinking fund or similar provisions; (ix) any
special United States federal income tax considerations applicable to such
Series; (x) any special provisions relating to the defeasance of such
Series; or (xi) any other special considerations or specific provisions
applicable to such Series. Reference is also made to such Prospectus
Supplement for information regarding any additional covenants that may
relate to such Series.
The Senior Debt Securities may bear interest at a fixed or floating
rate. Senior Debt Securities bearing no interest or interest at a rate
that at the time of issuance is below the prevailing market rate may be
sold at a discount below their stated principal amount.
The Indenture is, and the Senior Debt Securities will be, governed by
Louisiana law. The Indenture is subject to and governed by the Trust
Indenture Act of 1939, as amended.
Denominations, Registration and Transfer
Unless otherwise provided in any Board Resolution and described in
the related Prospectus Supplement, the Senior Debt Securities will be
issued only in fully registered form and in denominations of $1,000 or any
multiples thereof (Section 2.03). The Trustee will act as the registrar
of each Series (Section 2.05). No service charge will be made for any
registration of transfer or exchange of Senior Debt Securities, or issue of
new Senior Debt Securities in the event of a partial redemption of any
Series, but Century may generally require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith
(Section 2.05). The Trustee may appoint an authenticating agent for any
Series to act on the Trustee's behalf in connection with authenticating
Senior Debt Securities of such Series issued upon the exchange, transfer or
partial redemption thereof (Section 2.10). The Trustee may at any time
rescind the designation of any such agent (Section 2.10).
Century shall not be required (i) to issue, register the transfer of
or exchange the Senior Debt Securities of any Series during a period
beginning 15 days before any selection of Senior Debt Securities of that
Series to be redeemed and ending at the close of business on the day of
mailing of the relevant redemption notice or (ii) to register the transfer
of or exchange any Senior Debt Securities of any Series, or portions
thereof, called for redemption (Section 2.05).
Payment and Paying Agents
Unless otherwise indicated in any Prospectus Supplement, payment of
principal of (and premium, if any) and interest on Senior Debt Securities
of any Series will be made in U.S. dollars at the principal office of
Century's Paying Agent or, at the option of Century, by check in U.S.
dollars mailed or delivered to the person in whose name such Senior Debt
Security is registered. Unless otherwise indicated in any Prospectus
Supplement and subject to certain exceptions provided for in the Indenture,
payment of any installment of interest on any Series will be made to the
person in whose name such Senior Debt Security is registered at the close
of business on the record date established under the Indenture for the
payment of interest (Section 2.03).
Unless otherwise indicated in any Prospectus Supplement, the Trustee
will act as Century's sole Paying Agent and the principal office of the
Trustee, 1500 North 18th Street, Monroe, Louisiana, will be designated as
such agent's office for purposes of payments with respect to Senior Debt
Securities. Any other Paying Agents initially designated by Century with
respect to any Series will be named in the related Prospectus Supplement.
Century may at any time designate additional Paying Agents or rescind the
designation of any Paying Agents or approve a change in the office through
which any Paying Agent acts, except that Century will be required to
maintain a Paying Agent in the Borough of Manhattan, City and State of New
York, or Monroe, Louisiana. (Sections 4.02 and 4.03).
Any money set aside by Century for the payment of principal of (and
premium, if any) or interest on any Senior Debt Securities that remains
unclaimed two years after such payment has become due and payable will be
repaid to Century on May 31 following the expiration of such two-year
period and the holder of such Senior Debt Security may thereafter look only
to Century for payment thereof (Section 11.05).
Conversion or Exchange Rights
The terms and conditions, if any, upon which any series of Senior
Debt Securities are convertible or exchangeable into Common Stock,
Preferred Stock or other securities of Century or any other issues will be
set forth in the applicable Prospectus Supplement relating thereto. Such
terms will include the type of security into which such Senior Debt
Securities are convertible or exchangeable, the conversion or exchange
price (or manner of calculation thereof), the conversion or exchange
period, the provisions as to whether such conversion or exchange rights
will be at the option of the holders of such Senior Debt Securities or
Century, the events requiring an adjustment of the conversion or exchange
price and any restrictions on conversion or exchange.
Redemption and Sinking Fund Provisions
Each Series may be redeemed, in whole or in part, upon not less than
30 days' and not more than 60 days' notice at the redemption prices and
subject to the terms and conditions (including those relating to any
sinking fund established with respect to such Series) that will be set
forth in a Board Resolution or supplemental indenture and in the Prospectus
Supplement relating to such Series (Sections 3.01 and 3.02). If less than
all of the Senior Debt Securities of the Series are to be redeemed, the
Trustee shall select the Senior Debt Securities of such Series, or portions
thereof, to be redeemed pro rata, by lot or by any other method the Trustee
shall deem fair and reasonable (Section 3.02).
Replacement of Securities
Any Senior Debt Security that becomes mutilated, destroyed, lost or
stolen will be replaced by Century at the expense of the holder upon
delivery to Century and the Trustee of the Senior Debt Security or evidence
of the destruction, loss or theft thereof satisfactory to Century and the
Trustee. An indemnity satisfactory to the Trustee and Century may be
required before a replacement security will be issued (Section 2.07).
Events of Default and Notice Thereof
Unless otherwise specified in any Prospectus Supplement, the terms
and conditions set forth under this heading will govern defaults under the
Indenture.
The Indenture provides that the following described events constitute
Events of Default with respect to each Series: (a) failure for 30 Business
Days to pay interest on the Senior Debt Securities of that Series when due;
(b) failure to pay principal of (or premium, if any, on) the Senior Debt
Securities of that Series when due (whether at maturity, upon redemption,
by declaration or otherwise) or to make any sinking or analogous fund
payment with respect to that Series unless caused solely by a wire transfer
malfunction or similar problem outside Century's control; (c) failure to
observe or perform any other covenant of that Series for 60 days after
written notice with respect thereto or (d) certain events relating to
bankruptcy, insolvency or reorganization (Section 6.01).
If an Event of Default shall occur and be continuing (the default not
having been cured or waived) with respect to any Series and if it is known
to the Trustee, the Trustee is required to mail to each holder of such
Series a notice of the Event of Default within 90 days of such default
(Section 6.07).
Upon an Event of Default, the Trustee or the holders of not less than
25% in aggregate outstanding principal amount of any Series, by notice in
writing to Century (and to the Trustee if given by such holders), may
declare the principal of all Senior Debt Securities of that Series due and
payable immediately, but the holders of a majority in aggregate outstanding
principal amount of such Series may rescind such declaration and waive the
default if the default has been cured and a sum sufficient to pay all
matured installments of interest and principal (and premium, if any) has
been deposited with the Trustee before any judgment or decree for such
payment has been obtained or entered (Section 6.01).
Holders of Senior Debt Securities may not enforce the Indenture
except as provided therein. Subject to the provisions of the Indenture
relating to the duties of the Trustee, if an Event of Default occurs and is
continuing the Trustee will be under no obligation to exercise any of the
rights or powers under the Indenture at the request or direction of any
holders of the affected Series, unless, among other things, the holders
shall have offered the Trustee indemnity reasonably satisfactory to it.
Subject to the indemnification provisions and certain limitations contained
in the Indenture, the holders of a majority in aggregate principal amount
of the Senior Debt Securities of such Series then outstanding will have the
right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee or exercising any trust or power
conferred on the Trustee. The holders of a majority in aggregate principal
amount of the then outstanding Senior Debt Securities of any Series
affected by a default may, in certain cases, waive such default except a
default in payment of principal of, or any premium, if any, or interest on,
the Senior Debt Securities of that Series or a call for redemption of the
Senior Debt Securities of that Series (Sections 6.04 and 6.06).
Century will be required to furnish to the Trustee annually a
statement as to the performance by it of certain of its obligations under
the Indenture and as to any default in such performance (Section 5.03).
Discharge and Defeasance
The Indenture provides that Century may discharge the Indenture with
respect to any Series, subject to certain exceptions, if at any time (i)
Century delivers to the Trustee for cancellation all outstanding Senior
Debt Securities of such Series previously authenticated and for whose
payment money or U.S. Government Obligations have been deposited in trust
by Century or (ii) all outstanding Senior Debt Securities of such Series
not previously delivered to the Trustee for cancellation by Century shall
have become due and payable or are to become due and payable or called for
redemption within one year and Century has deposited or caused to be
deposited with the Trustee the entire amount in moneys or U.S. Government
Obligations sufficient, without reinvestment, to pay at maturity or upon
redemption such outstanding Senior Debt Securities, including principal
(and premium, if any) and interest due or to become due to such date of
maturity or redemption, and if Century shall also pay or cause to be paid
all other sums payable thereunder with respect to such Series (Section
11.01).
Additionally, the Indenture provides that Century may discharge all
of its obligations under the Indenture with respect to any Series, subject
to certain exceptions, if at any time all outstanding Senior Debt
Securities of such Series not previously delivered to the Trustee for
cancellation by Century or which have not become due and payable as
described above shall have been paid by Century by depositing irrevocably
with the Trustee moneys or U.S. Government Obligations sufficient to pay at
maturity or upon redemption such outstanding Senior Debt Securities,
including principal (and premium, if any) and interest due or to become due
to such date of maturity or redemption, and if Century shall also pay or
cause to be paid all other sums payable thereunder with respect to such
Series (Section 11.02).
Merger and Consolidation
Nothing in the Indenture or any of the Senior Debt Securities
prevents Century from consolidating or merging with or into, or selling or
otherwise disposing of all or substantially all of its assets to, another
corporation, subject to Century's agreement (i) to obtain in connection
therewith a supplemental indenture pursuant to which the surviving entity
or transferee agrees to assume Century's obligations under all outstanding
Senior Debt Securities, including the due and punctual payment of the
principal of (and premium, if any, on) and interest on such outstanding
Senior Debt Securities, and (ii) that such surviving entity or transferee
is organized under the laws of the United States, any state thereof or the
District of Columbia (Section 10.01).
Modification of Indenture
The Indenture contains provisions permitting Century, when authorized
by a Board Resolution, and the Trustee, with the consent of the holders of
not less than a majority in aggregate principal amount of the Senior Debt
Securities of any Series at the time outstanding and affected by such
modification, to modify the Indenture or any supplemental indenture
affecting that Series or the rights of the holders thereof. However, no
such modification shall (i) extend the fixed maturity of any Senior Debt
Securities of any Series, reduce the principal amount thereof, reduce the
rate or extend the time of payment of interest thereon or reduce any
premium payable upon the redemption thereof, without the consent of the
holder of each Senior Debt Security so affected, or (ii) reduce the
aforesaid percentage of Senior Debt Securities, the holders of which are
required to consent to any such supplemental indenture, without the consent
of the holder of each Senior Debt Security then outstanding and affected
thereby (Section 9.02).
Century and the Trustee may execute, without the consent of any
holder of Senior Debt Securities, any supplemental indenture for certain
other usual purposes such as (i) creating a new Series; (ii) evidencing the
assumption by any successor to Century of Century's obligations under the
Indenture; (iii) adding covenants to the Indenture for the protection of
the holders of Senior Debt Securities; (iv) curing any ambiguity or
inconsistency in the Indenture; and (v) changing or eliminating any
provisions of the Indenture provided that there is no outstanding Senior
Debt Security of any Series created prior to such change which would
benefit therefrom (Sections 2.01, 9.01 and 10.01).
Limitations on Liens
The Indenture provides that Century will not, while any of the Senior
Debt Securities remain outstanding, create or suffer to exist any mortgage,
lien, pledge, security interest or other encumbrance (individually, a
"Lien" and collectively, "Liens") upon Century's property, whether now
owned or hereafter acquired, unless it shall secure the Senior Debt
Securities then outstanding by such Lien equally and ratably with all
obligations and indebtedness thereby secured so long as such obligations
and indebtedness remain so secured. Notwithstanding the foregoing, the
Indenture will not restrict Century from creating or suffering to exist:
(i) Liens upon property hereafter acquired by Century or Liens on
such property at the time of the acquisition thereof, or
conditional sales agreements or title retention agreements with
respect to any such property;
(ii) Liens on the stock of a corporation which, when such Liens
arise, concurrently becomes a subsidiary of Century, or Liens
on all or substantially all of the assets of a corporation
arising in connection with Century's purchase thereof;
(iii) Liens for taxes and similar levies; deposits to secure
performance or obligations under certain specified
circumstances and laws; mechanics' Liens and similar Liens
arising in the ordinary course of business; Liens created by or
resulting from legal proceedings being contested in good faith;
certain specified zoning restrictions and other restrictions on
the use of real property; interests of lessors in property
subject to any capitalized lease; and certain other similar
Liens generally arising in the ordinary course of business;
(iv) Liens existing on the date of the Indenture;
(v) Liens upon Century's property arising in connection with the
merger or consolidation of affiliates of Century with or into
Century; and
(vi) Liens that replace, extend or renew any Lien otherwise
permitted under the Indenture (Sections 4.05 and 4.06).
The restriction in the Indenture described above would not afford the
holders of the Senior Debt Securities protection in the event of a highly
leveraged transaction in which unsecured indebtedness was incurred or in
which the Liens arising in connection therewith were freely permitted under
the Indenture, nor would it afford protection in the event of one or more
highly leveraged transactions in which secured indebtedness was incurred by
Century's subsidiaries. However, in the event of one or more highly
leveraged transactions in which secured indebtedness was incurred by
Century, these provisions would require the Senior Debt Securities to be
secured equally and ratably with such indebtedness, subject to the
exceptions described above.
Concerning the Trustee
The Trustee, prior to the occurrence of an Event of Default,
undertakes to perform only such duties as are specifically set forth in the
Indenture and, after the occurrence of an Event of Default, shall exercise
the same degree of care as a prudent person would exercise in the conduct
of such person's own affairs (Section 7.01). Subject to such provision,
the Trustee is under no obligation to exercise any of the rights or powers
vested in it by the Indenture at the request, order or direction of any
holders of Senior Debt Securities, unless offered reasonable security or
indemnity by such holders against the costs, expenses and liabilities which
might be incurred thereby (Section 7.02). The Trustee is not required to
expend or risk its own funds or incur personal financial liability in the
performance of its duties if the Trustee reasonably believes that repayment
of such funds or liability or adequate indemnity is not reasonably assured
to it (Section 7.01). Century shall pay the Trustee reasonable
compensation and reimburse it for all reasonable expenses incurred in
accordance with the Indenture (Section 7.06).
The Trustee may resign with respect to one or more Series and a
successor Trustee may be appointed to act with respect to such Series
(Section 7.10).
The Trustee also serves as trustee for certain of Century's employee
benefit plans and provides revolving credit and other traditional banking
services to Century. The following officers and directors of Century act
as non-voting advisory directors of the Trustee: Clarke M. Williams,
Chairman of the Board, Glen F. Post, III, President, Chief Executive
Officer and Vice Chairman of the Board, and William R. Boles, Jr.,
Director.
DESCRIPTION OF THE PREFERRED STOCK
General
Century's Articles of Incorporation authorize the issuance of
2,000,000 shares of Preferred Stock, par value $25.00 per share. As of
September 30, 1997, Century had outstanding an aggregate of 324,238 shares
of its Series H and Series L Preferred Stock. Subject to limitations
prescribed by law, the Board of Directors is authorized at any time to
issue one or more series of Preferred Stock, to determine the designation
and size of any such series; and to establish the rights and preferences of
the shares of any such series. The particular terms of any series of
Preferred Stock offered hereunder will be described in the applicable
Prospectus Supplement. It is anticipated that any series of Preferred Stock
issued hereunder will rank pari passu with Century's outstanding Series H
and Series L Preferred Stock as to dividend payments and liquidation
distributions. However, if so indicated in a Prospectus Supplement, the
terms of any such series may differ from the terms set forth herein.
The summary of terms of Century's Preferred Stock contained in this
Prospectus does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of Century's Articles of Incorporation
and the articles of amendment relating to each series of the Preferred
Stock that will be filed as an exhibit to or incorporated by reference in
the Registration Statement of which this Prospectus is a part at or prior
to the time of issuance of such series.
The Board of Directors is authorized to determine, for each series of
Preferred Stock, and the Prospectus Supplement shall set forth with respect
to such series: (i) whether the holders thereof shall be entitled to
cumulative, noncumulative, or partially cumulative dividends and, with
respect to shares entitled to dividends, the dividend rate or rates,
including without limitation the methods and procedures for determining
such rate or rates, and any other terms and conditions relating to such
dividends; (ii) whether, and if so to what extent and upon what terms and
conditions, the holders thereof shall be entitled to rights upon the
liquidation of, or upon any distribution of the assets of, the Company;
(iii) whether, and if so upon what terms and conditions, such shares shall
be convertible into Common Stock, Senior Debt Securities, any other series
of Preferred Stock, or any other securities of Century, or exchangeable for
the securities of any other corporation; (iv) whether, and if so upon what
terms and conditions, such shares shall be redeemable; (v) whether the
shares shall be subject to any sinking fund provided for the purchase or
redemption of such shares and, if so, the terms of such fund; (vi) whether
the holders thereof shall be entitled to voting rights and, if so, the
terms and conditions for the exercise thereof; and (vii) whether the
holders thereof shall be entitled to other preferences or rights, and, if
so, the qualifications, limitations, or restrictions of such preferences or
rights.
Outstanding Preferred Stock
Series H Preferred Stock. As of September 30, 1997, Century had
outstanding 5,238 shares of Preferred Stock, Series H (the "Series H
Preferred Stock"). Each share of Series H Preferred Stock that has been
beneficially owned by the same person or entity continuously since May 30,
1987 generally entitles the holder to ten votes on all matters duly
submitted to a vote of stockholders until transfer of such stock.
Otherwise, each share entitles the holder thereof to one vote per share.
Holders of Series H Preferred Stock are entitled to receive dividends at
the rate of 7% per annum, payable in quarterly installments. Dividends on
Series H Preferred Stock are cumulative and dividends cannot be paid with
respect to Common Stock unless all cumulative dividends on all shares of
Series H Preferred Stock shall have been paid. The Series H Preferred
Stock ranks pari passu with the Series L Preferred Stock (defined below)
with respect to the payment of the dividends. In the event of liquidation,
dissolution or winding up of the Company, holders of Series H Preferred
Stock are entitled to receive, pro rata with all other holders of Preferred
Stock of whatever series, $25.00 per share plus accrued and unpaid
dividends, before any payment is made to holders of Common Stock. Shares
of Series H Preferred Stock are convertible, at the option of the holder,
into shares of Common Stock at the rate of one and twelve thirteenths (1-
12/13ths) shares of Common Stock for each share of Series H Preferred Stock
converted, subject to adjustment in case of certain corporate events which
may have the effect of diluting the shares of Common Stock received upon
such conversion (a "Diluting Event").
Series L Preferred Stock. As of September 30, 1997, Century had
outstanding 319,000 shares of 5% Cumulative Convertible Series L Preferred
Stock (the "Series L Preferred Stock"). Each share of Series L Preferred
Stock entitles the holder thereof to one vote on all matters duly submitted
to a vote of stockholders. The holder of each share of Series L Preferred
Stock is entitled to receive an annual cash dividend of $1.25, payable in
quarterly installments. Dividends on Series L Preferred Stock are
cumulative and dividends cannot be paid with respect to Common Stock unless
all cumulative dividends on all shares of Series L Preferred Stock shall
have been paid. The Series L Preferred Stock ranks pari passu with the
Series H Preferred Stock with respect to the payment of dividends. In the
event of liquidation, dissolution or winding up of the Company, holders of
Series L Preferred Stock are entitled to receive, pro rata with all other
holders of Preferred Stock of equal rank, including the Series H Preferred
Stock, $25.00 per share plus accrued and unpaid dividends, before any
payment is made to holders of Common Stock. Each share of Series L
Preferred Stock is convertible, at the option of the holder, into the
number of shares of Common Stock derived by dividing $25.00 by the
"Conversion Price" (defined in the Articles of Incorporation as $41.25,
subject to adjustment upon the occurrence of certain specified Diluting
Events).
DESCRIPTION OF THE COMMON STOCK
As of the date of this Prospectus, Century's Articles of
Incorporation authorizes the issuance of 175,000,000 shares of Common
Stock, $1.00 par value per share. As of September 30, 1997, 60,519,391
shares of Common Stock were outstanding. The Common Stock is listed for
trading on the New York Stock Exchange.
Voting Rights
Under Century's Articles, each share of Common Stock that has been
beneficially owned by the same person or entity continuously since May 30,
1987 generally entitles the holder thereof to ten votes on all matters duly
submitted to a vote of stockholders. Otherwise, each share entitles the
holder thereof to one vote per share. Accordingly, each share issued in
connection with this Prospectus will entitle the holder to one vote, and,
subject to the possibility of Century issuing ten-vote shares in connection
with business combinations accounted for as poolings of interest, each
other share of Common Stock issued by Century in the future will entitle
the holder to one vote. Holders of Century Stock do not have cumulative
voting rights. As a result, the holders of more than 50% of the voting
power may elect all of the directors if they so desire. As of March 10,
1997, the trustee for two of Century's employee benefit plans was the
record holder of Common Stock having approximately 36.1% of the total
voting power of all classes of Century's capital stock. The trustee votes
these shares in accordance with the instructions of Century's employees.
Other Rights
Subject to the rights of the holders of any outstanding shares of
Preferred Stock, holders of Common Stock are entitled to receive such
dividends, in cash, securities, or property, as may from time to time be
declared by the Board of Directors. In the event of any liquidation,
dissolution, or winding up of the Company, either voluntary or involuntary,
after payment shall have been made to the holders of preferred stock of the
full amount to which they shall be entitled, the holders of Common Stock
shall be entitled to share ratably, according to the number of shares held
by them, in all remaining assets of the Company available for distribution.
Shares of Common Stock are not redeemable and have no subscription,
conversion or preemptive rights.
Preferred Share Purchase Rights
On August 27, 1996, the Board of Directors of Century declared a
dividend of one preference share purchase right (a "Right") for each
outstanding share of Common Stock. The dividend was payable on November 1,
1996 to stockholders of record on September 30, 1996 (the "Record Date").
Each Right entitles the registered holder to purchase from Century one
one-hundredth of a share of Series BB Participating Cumulative Preference
Stock, par value $25 per share (the "Preference Shares"), of Century at a
price of $110 per one one-hundredth of a Preference Share (the "Purchase
Price"), subject to adjustment. The description and terms of the Rights
are set forth in a Rights Agreement dated as of August 27, 1996 (the
"Rights Agreement") between Century and Harris Trust and Savings Bank
(successor-in-interest to Society National Bank), as Rights Agent (the
"Rights Agent").
The Rights become exercisable upon the earlier to occur of (i) 10
days following a public announcement that a person or group of affiliated
or associated persons (an "Acquiring Person") have acquired beneficial
ownership of 15% or more of the outstanding Common Stock or (ii) 10
business days (or such later date as may be determined by action of the
Board of Directors prior to such time as any person or group of affiliated
persons becomes an Acquiring Person) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person
or group of 15% or more of the outstanding Common Stock (the earlier of
such dates being called the "Distribution Date").
The Rights are not exercisable until the Distribution Date. The
Rights will expire on November 1, 2006 (the "Final Expiration Date"),
unless the Final Expiration Date is extended or unless the Rights are
earlier redeemed or exchanged by Century, in each case as described below.
In the event that the Company is acquired in a merger or other
business combination transaction or 50% or more of its consolidated assets
or earning power are sold after a person or group has become an Acquiring
Person, proper provision will be made so that each holder of a Right will
thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of the Right, that number of shares of common stock
of the acquiring company which at the time of such transaction will have a
market value of two times the exercise price of the Right. In the event
that any person or group of affiliated or associated persons becomes an
Acquiring Person, proper provision shall be made so that each holder of a
Right, other than Rights beneficially owned by the Acquiring Person (which
will thereafter be void), will thereafter have the right to receive upon
exercise that number of shares of Common Stock having a market value at the
time of such occurrence of two times the exercise price of the Right.
At any time after any person or group becomes an Acquiring Person and
prior to the acquisition by such person or group of 50% or more of the
outstanding Common Stock, the Board of Directors of Century may exchange
the Rights (other than Rights owned by such person or group which will have
become void), in whole or in part, at an exchange ratio of one share of
Common Stock, or one one-hundredth of a Preference Share, per Right
(subject to adjustment).
At any time prior to the acquisition by a person or group of
affiliated or associated persons of beneficial ownership of 15% or more of
the outstanding Common Stock, the Board of Directors of Century may redeem
the Rights in whole, but not in part, at a price of $.01 per Right (the
"Redemption Price"). The redemption of the Rights may be made effective at
such time, on such basis and with such conditions as the Board of Directors
in its sole discretion may establish. Immediately upon any redemption of
the Rights, the right to exercise the Rights will terminate and the only
right of the holders of Rights will be to receive the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of Century, including, without limitation, the
right to vote or to receive dividends.
This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights
Agreement, which is an exhibit to the Registration Statement of which this
Prospectus forms a part.
DESCRIPTION OF THE WARRANTS
Century may issue Warrants for the purchase of Senior Debt
Securities, Preferred Stock or Common Stock. Warrants may be issued
independently or together with other Securities offered by any Prospectus
Supplement and may be attached to or separate from any such Securities.
Each series of Warrants will be issued under a separate warrant agreement
(a "Warrant Agreement") to be entered into between Century and a bank or
trust company, as warrant agent (the "Warrant Agent"). The Warrant Agent
will act solely as an agent of Century in connection with the Warrants and
will not assume any obligation or relationship of agency or trust for or
with any holders or beneficial owners of Warrants. The following summary of
certain provisions of the Warrants does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the provisions
of the Warrant Agreement that will be filed with the Commission in
connection with the offering of such Warrants.
The Prospectus Supplement relating to any particular issue of
Warrants to issue Senior Debt Securities, Common Stock or Preferred Stock
will describe the terms of such Warrants, including the following: (a) the
title of such Warrants; (b) the offering price for such Warrants, if any;
(c) the aggregate number of such Warrants; (d) the designation and terms of
the Senior Debt Securities, Preferred Stock or Common Stock purchasable
upon exercise of such Warrants; (e) if applicable, the designation and
terms of the Securities with which such Warrants are issued and the number
of such Warrants issued with each such Security; (f) if applicable, the
date from and after which such Warrants and any Securities issued therewith
will be separately transferable; (g) the number of shares of Common Stock
or Preferred Stock, or in the case of Warrants to purchase Senior Debt
Securities the amount of Senior Debt Securities, purchasable upon exercise
of a Warrant and the price at which such Securities may be purchased upon
exercise; (h) the date on which the right to exercise such Warrants shall
commence and the date on which such right shall expire; (i) if applicable,
the minimum or maximum amount of such Warrants that may be exercised at any
one time; (j) the currency or currency units in which the offering price,
if any, and the exercise price are payable; (k) if applicable, a discussion
of material United States federal income tax considerations; (l) the
antidilution provisions of such Warrants, if any; (m) the redemption or
call provisions, if any, applicable to such Warrants; and (n) any
additional terms of the Warrants, including terms, procedures, and
limitations relating to the exchange and exercise of such Warrants.
PLAN OF DISTRIBUTION
Century may sell Securities (i) through underwriters or dealers, (ii)
directly to one or more purchasers, (iii) through agents, or (iv) through a
combination of any such methods of sale. The applicable Prospectus
Supplement will set forth the terms of the offering of the Securities
offered thereby, including the initial public offering price, the name or
names of any underwriters, dealers or agents, any underwriting discounts
and other items constituting underwriters' compensation from Century, any
agents' commissions and any discounts, concessions or commissions allowed
or reallowed or paid by any underwriters to other dealers. Only
underwriters so named in the Prospectus Supplement shall be deemed to be
underwriters in connection with the Securities offered thereby.
Underwriters may offer and sell any series of Securities at a fixed
price or prices, which may be changed, or from time to time at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. Century also may directly offer and
sell any Securities in exchange for, among other things, one or more of its
outstanding issues of debt or convertible debt securities. Century also
may from time to time authorize agents acting on a best efforts basis to
solicit or receive offers to purchase any Securities upon the terms and
conditions set forth in the related Prospectus Supplement. In connection
with the sale of any Securities, underwriters or agents may be deemed to
have received compensation from Century in the form of underwriting
discounts or commissions and may also receive commissions from purchasers
of such Securities for whom they may act as agents. Underwriters may sell
any Securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters or commissions from the purchasers for whom they may act as
agent, or both.
Underwriters, dealers and agents may be entitled, under agreements
entered into with Century, to indemnification against and contributions
toward certain civil liabilities, including liabilities under the
Securities Act. Century may agree to reimburse underwriters or agents for
certain expenses incurred in connection with the distribution of any
Securities. Certain of the underwriters, dealers or agents and their
respective associates may be customers of, engage in transactions with, and
perform services for, Century in the ordinary course of business. The
obligations of the underwriters to purchase the Securities offered will be
subject to certain conditions precedent, and, unless otherwise indicated in
the related Prospectus Supplement, the underwriters will be obligated to
purchase all such Securities if any such securities are purchased.
If so indicated in the applicable Prospectus Supplement, Century will
authorize agents, underwriters, or dealers to solicit offers by certain
institutional investors to purchase Securities providing for payment and
delivery on a future date specified in the Prospectus Supplement. There
may be limitations on the minimum amount which may be purchased by any such
institutional investor or on the portion of the aggregate principal amount
of the particular Securities that may be sold pursuant to such
arrangements. Institutional investors to which such offers may be made,
when authorized, include commercial and savings banks, insurance companies,
pension funds, investment companies, educational and charitable
institutions, and such other institutions as may be approved by Century.
The obligations of any such purchasers pursuant to such delayed delivery
and payment arrangements will not be subject to any conditions except (i)
the purchase by an institution of the particular Securities shall not at
the time of delivery be prohibited under the laws of any jurisdiction in
the United States to which such institution is subject and (ii) if the
particular Securities are being sold to underwriters, Century shall have
sold to such underwriters the total principal amount of such Securities
less the principal amount thereof covered by such delayed payment and
delivery arrangements. Underwriters will not have any responsibility in
respect of the validity of such arrangements or the performance of Century
or such institutional investors thereunder.
Except for the Common Stock, none of the Securities when first issued
will have an established trading market. Any underwriters or agents to or
through whom such Securities are sold by Century for public offering and
sale may make a market in such Securities, but such underwriters or agents
will not be obligated to do so and may discontinue any market making at any
time without notice. If the Securities are traded after their initial
issuance, they may trade at a discount from their initial public offering
price, depending on general market conditions, the market for similar
securities, the Company's performance and other factors. Other than with
respect to the Common Stock, which is currently traded on the New York
Stock Exchange, there can be no assurance that an active public market for
the Securities will develop or be maintained.
LEGAL MATTERS
Except as may be otherwise specified in the Prospectus Supplement
accompanying this Prospectus, the legality of the securities will be passed
upon for Century by Jones, Walker, Waechter, Poitevent, Carrere & Denegre,
L.L.P. Certain legal matters relating to offerings of Securities will be
passed upon on behalf of the applicable underwriters, dealers or agents by
counsel named in the Prospectus Supplement.
EXPERTS
The consolidated financial statements and related financial statement
schedules of the Company as of December 31, 1995 and 1996, and for each of
the years in the three-year period ended December 31, 1996, included in
Century's Annual Report on Form 10-K for the fiscal year ended December 31,
1996, incorporated by reference herein, have been incorporated by reference
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, which is also incorporated by reference herein, and
upon the authority of such firm as experts in accounting and auditing.
The financial statements from Pacific Telecom, Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1996 included in this
prospectus and elsewhere in the Registration Statement have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein and elsewhere in the Registration Statement, and are
included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
___________________________________ _____________________________________
No person has been
authorized to give any
information or to make any
representations in connection
with an offering of Securities
other than those contained or
incorporated by reference in this $1,600,000,000
Prospectus or in any related
Prospectus Supplement and, if
given or made, such other
information and representations
must not be relied upon as having
been authorized by the Company or
its representatives, including
any underwriters. The delivery Century Telephone
of this Prospectus shall not, Enterprises, Inc.
under any circumstances, create
any implication that there has
been no change in the affairs of
the Company since the date hereof
or that the information contained Senior Debt Securities
herein is correct as of any time Preferred Stock
subsequent to its date. This Common Stock
Prospectus does not constitute an Warrants
offer to sell or a solicitation
of an offer to buy any securities
other than the registered
securities to which it relates
and may not be used to consummate
any sales unless accompanied by a --------------
Prospectus Supplement. This
Prospectus does not constitute an PROSPECTUS
offer to sell or a solicitation
of an offer to buy such --------------
securities in any circumstances
in which such offer or
solicitation is unlawful.
----------------- January ____, 1998
TABLE OF CONTENTS
Page
----
Available Information . . . .
Incorporation of Certain
Documents by Reference. . .
Forward-Looking Statements. .
The Company . . . . . . . . .
Use of Proceeds . . . . . . .
Capitalization. . . . . . . .
Ratio of Earnings to Fixed
Charges . . . . . . . . . .
Description of Senior Debt
Securities. . . . . . . . .
Description of Preferred Stock
Description of Common Stock .
Description of Warrants . . .
Plan of Distribution. . . . .
Legal Matters . . . . . . . .
Experts . . . . . . . . . . .
___________________________________ _____________________________________
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The estimated fees and expenses payable by Century in connection with
the offering described in the Registration Statement are as follows:
Commission registration fee . . . . . . . . . $ 442,500
Printing and engraving expenses . . . . . . . 10,000
Legal fees and expenses . . . . . . . . . . . 50,000
Accounting fees and expenses. . . . . . . . . 50,000
Blue Sky fees and expenses
(including legal fees) . . . . . . . . . . 6,500
Fees and expenses of Trustee (including
legal fees). . . . . . . . . . . . . . . . 15,000
Rating agency fees. . . . . . . . . . . . . . 610,000
Miscellaneous . . . . . . . . . . . . . . . . 10,000
__________
Total....................................$ 1,194,000
Item 15. Indemnification of Directors and Officers.
Section 83 of the Louisiana Business Corporation Law provides in part
that a corporation may indemnify any director, officer, employee or agent
of the corporation against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by
him in connection with any action, suit or proceeding to which he is or was
a party or is threatened to be made a party (including any action by or in
the right of the corporation) if such action arises out of his acts on
behalf of the corporation and he acted in good faith not opposed to the
best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
The indemnification provisions of the Louisiana Business Corporation
Law are not exclusive; however, no corporation may indemnify any person for
willful or intentional misconduct. A corporation has the power to obtain
and maintain insurance, or to create a form of self-insurance on behalf of
any person who is or was acting for the corporation, regardless of whether
the corporation has the legal authority to indemnify the insured person
against such liability.
Article II, Section 10 of Century's by-laws (the "Indemnification By-
law") provides for mandatory indemnification for directors and officers or
former directors and officers of Century to the fullest extent permitted by
Louisiana law.
Century's Articles of Incorporation authorize it to enter into
contracts with directors and officers providing for indemnification to the
fullest extent permitted by law. Century has entered into indemnification
contracts providing contracting directors or officers the procedural and
substantive rights to indemnification currently set forth in the
Indemnification By-law ("Indemnification Contracts"). The right to indem-
nification provided by each Indemnification Contract applies to all covered
claims, whether such claims arose before or after the effective date of the
contract.
Century maintains an insurance policy covering the liability of its
directors and officers for actions taken in their official capacity. The
Indemnification Contracts provide that, to the extent insurance is
reasonably available, Century will maintain comparable insurance coverage
for each contracting party as long as he serves as an officer or director
and thereafter for so long as he is subject to possible personal liability
for actions taken in such capacities. The Indemnification Contracts also
provide that if Century does not maintain comparable insurance, it will
hold harmless and indemnify a contracting party to the full extent of the
coverage that would otherwise have been provided for thereunder.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of Century pursuant to the foregoing provisions, or
otherwise, Century has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable.
Item 16. Exhibits.
The exhibits to this registration statement are listed in the exhibit
index, which appears elsewhere herein and is incorporated herein by
reference.
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in this registration
statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in this
registration statement or any material change to such
information in this registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do
not apply if the information required to be included in a post-
effective amendment by those paragraphs is contained in periodic
reports filed by the registrant pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in this registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing
of Century's annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934 that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer, or controlling person of the registrant in the successful defense
of any action, suit, or proceeding) is asserted by such director, officer,
or controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Monroe, State of Louisiana, on December 11, 1997.
CENTURY TELEPHONE ENTERPRISES, INC.
By: /s/ GLEN F. POST, III
---------------------
Glen F. Post, III
President,
Chief Executive Officer
and
Vice Chairman of the
Board of Directors
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears immediately below constitutes and appoints Clarke M. Williams, Glen
F. Post, III and Harvey P. Perry, or any one of them, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same with all exhibits thereto, and all
supplements and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorney-in-fact and agent or his substitute or substitutes
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ CLARKE M. WILLIAMS Chairman of the Board December 11, 1997
---------------------- of Directors
Clarke M. Williams
/s/ GLEN F. POST, III President, Chief December 11, 1997
-------------------- Executive Officer and
Glen F. Post, III Vice Chairman of the
Board of Directors
/s/ R. STEWART EWING, JR. Senior Vice President and December 11, 1997
- ------------------------- Chief Financial Officer
R. Stewart Ewing, Jr. (Principal Financial Officer)
/s/ MURRAY H. GREER Controller December 11, 1997
------------------- (Principal Accounting Officer)
Murray H. Greer
/s/ W. BRUCE HANKS Senior Vice President- December 11, 1997
------------------ Corporate Development
W. Bruce Hanks and Strategy and Director
/s/ HARVEY P. PERRY Senior Vice President, December 11, 1997
------------------- Secretary,
Harvey P. Perry General Counsel and Director
/s/ JIM D. REPPOND Director December 11, 1997
------------------
Jim D. Reppond
/s/ WILLIAM R. BOLES, JR. Director December 11, 1997
- -------------------------
William R. Boles, Jr.
/s/ ERNEST BUTLER, JR. Director December 11, 1997
----------------------
Ernest Butler, Jr.
/s/ CALVIN CZESCHIN Director December 11, 1997
-------------------
Calvin Czeschin
/s/ JAMES. B. GARDNER Director December 11, 1997
---------------------
James B. Gardner
/s/ R. L. HARGROVE, JR. Director December 11, 1997
- -----------------------
R. L. Hargrove, Jr.
/s/ JOHNNY HEBERT Director December 11, 1997
-----------------
Johnny Hebert
/s/ F. EARL HOGAN Director December 11, 1997
-----------------
F. Earl Hogan
/s/ C. G. MELVILLE, JR. Director December 11, 1997
- -----------------------
C. G. Melville, Jr.
/s/ VIRGINIA BOULET Director December 11, 1997
-------------------
Virginia Boulet
EXHIBIT INDEX
Exhibit
No. Exhibit
- ------- -------
1 Form of Underwriting Agreement to be used in connection with
sales of Senior Debt Securities.
2.1 Stock Purchase Agreement dated June 11, 1997 by and between,
among others, Century and PacifiCorp Holdings, Inc. (incorporated
by reference to Exhibit 2.1 of Century's Current Report on Form
8-K dated June 11, 1997), as amended by an instrument dated as of
November 5, 1997 (incorporated by reference to Exhibit 2.2 to
Century's Current Report on Form 8-K dated December 11, 1997).
3.1 Amended and Restated Articles of Incorporation of Century
(incorporated by reference to Exhibit 3(i) to Century's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996).
3.2 By-laws of Century as amended through November 21, 1996
(incorporated by reference to Exhibit 3.2 of Century's
Registration Statement on Form S-4, Registration No. 333-17015).
4.1 Rights Agreement dated as of August 27, 1996 between Century and
Harris Trust and Savings Bank (successor-in-interest to Society
National Bank), as Rights Agent (incorporated by reference to
Exhibit 1 to Century's Current Report on Form 8-K filed August
30, 1996).
4.2 Indenture dated as of March 31, 1994 between Century and Regions
Bank of Louisiana (successor-in-interest to First American Bank &
Trust of Louisiana), as Trustee (incorporated by reference to
Exhibit 25 to Century's Registration Statement on Form S-3,
Registration No. 33-59215).
4.3 Form of Board Resolution to be used in designating and
authorizing the terms and conditions of any series of Senior Debt
Securities offered hereunder.
4.4 Form of Senior Debt Security (included within Exhibit 4.3)
4.5 Form of Preferred Stock.*
4.6 Form of Articles of Amendment to Century's Amended and Restated
Articles of Incorporation to be used in connection with issuances
of Preferred Stock.*
4.7 Form of Common Stock (incorporated by reference to Exhibit 4.1 of
Century's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993).
4.8 Form of Warrant Agreement to purchase Senior Debt Securities.*
4.9 Form of Senior Debt Security Warrant Certificate (included in
Exhibit 4.8).
4.10 Form of Warrant Agreement to purchase Preferred Stock.*
4.11 Form of Preferred Stock Warrant Certificate (included in Exhibit
4.10).
4.12 Form of Warrant Agreement to purchase Common Stock.*
4.13 Form of Common Stock Warrant Certificate (included in Exhibit
4.12).
5 Opinion of Jones, Walker, Waechter, Poitevent, Carrere & Denegre,
L.L.P.
12 Statement regarding computation of ratio of earnings to fixed
charges.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Jones Walker, Waechter, Poitevent, Carrere & Denegre,
L.L.P. (included in Exhibit 5).
24 Power of Attorney (included on the signature pages of this
Registration Statement).
25 Statement of Eligibility of Trustee on Form T-1 (incorporated by
reference to Exhibit 25 to Century's Registration Statement on
Form S-3, Registration No. 33-52915).
99.1 Annual Report on Form 10-K of PTI for the year ended December 31,
1996, not including the exhibits thereto.
99.2 Quarterly Report on Form 10-Q of PTI for the quarter ended March
31, 1997, not including the exhibits thereto.
99.3 Quarterly Report on Form 10-Q of PTI for the quarter ended June
30, 1997, not including the exhibits thereto.
99.4 Quarterly Report on Form 10-Q of PTI for the quarter ended
September 30, 1997, not including the exhibits thereto.
99.5 Current Report on Form 8-K of PTI dated April 11, 1997, not
including the exhibits thereto.
99.6 Current Report on Form 8-K of PTI dated September 30, 1997, not
including the exhibits thereto.
________________
* To be filed by amendment.
Exhibit 1
to Registration Statement
CENTURY TELEPHONE ENTERPRISES, INC.
$____________ ___ percent Senior Debt Securities due ____
UNDERWRITING AGREEMENT
----------------------
___________ ___, 1998
[name]
As Representatives of
the several Underwriters
[address]
Dear Ladies and Gentlemen:
Century Telephone Enterprises, Inc., a Louisiana corporation (the
"Company"), proposes to issue and sell an aggregate of $______________
principal amount of the Company's ___ percent Senior Debt Securities
due ____ (the "Securities") to be issued pursuant to an Indenture
dated as of March 31, 1994 (the "Indenture"), between the Company and
Regions Bank of Louisiana (successor-in-interest to First American
Bank & Trust of Louisiana), as Trustee (the "Trustee"). The Secur-
ities will be sold to you and to the other underwriters named
in Schedule I (collectively, the "Underwriters") for whom you are
acting as representatives (the "Representatives").
The purchase price for the Securities to be paid by the several
Underwriters shall be agreed upon by the Company and the
Representatives, acting on behalf of the several Underwriters, and
such agreement shall be set forth in a separate written instrument
substantially in the form of Exhibit A hereto (the "Price
Determination Agreement"). The Price Determination Agreement may take
the form of an exchange of any standard form of written
telecommunication among the Company and the Representatives and shall
specify such applicable information as is indicated in Exhibit A
hereto. The offering of the Securities will be governed by this
Agreement, as supplemented by the Price Determination Agreement. From
and after the date of the execution and delivery of the Price
Determination Agreement, this Agreement shall be deemed to
incorporate, and unless the context otherwise indicates all references
contained herein to "this Agreement" and to the phrase "herein" shall
be deemed to include, the Price Determination Agreement.
The Company confirms as follows its agreements with the
Representatives and the several other Underwriters.
1. Agreement to Sell and Purchase.
------------------------------
(a) On the basis of the representations, warranties and
agreements of the Company herein contained and subject to all the
terms and conditions of this Agreement, the Company agrees to sell to
each Underwriter named below, and each Underwriter agrees, severally
and not jointly, to purchase from the Company, the principal amount of
the Securities set forth opposite the name of such Underwriter in
Schedule I, plus such additional principal amount of Securities which
such Underwriter may become obligated to purchase pursuant to Section
8 hereof, all at the purchase price plus accrued interest, if any,
from _________ __, 1998, to the Closing Date (as hereinafter defined),
to be agreed upon by the Representatives and the Company in accordance
with Section 1(b) and as set forth in the Price Determination
Agreement.
(b) The purchase price for the Securities to be paid by the
several Underwriters shall be agreed upon and set forth in the Price
Determination Agreement, which shall be dated the Execution Date (as
hereinafter defined), and a Final Prospectus (as hereinafter defined)
containing such price information shall be filed pursuant to 424(b)
under the Securities Act of 1933, as amended (the "Act").
2. Delivery and Payment. Delivery of the Securities shall be
--------------------
made to the Representatives for the accounts of the Underwriters
against payment of the purchase price by wire transfer in same day
funds to the Company or its order at the office of [name & address] or
at such other location as the parties may agree. Such payment shall
be made at 10:00 a.m., New York City time, on the third business day
following the date of this Agreement or at such time on such other
date, not later than seven business days after the date of this
Agreement, as may be agreed upon by the Company and the
Representatives (such date is hereinafter referred to as the "Closing
Date").
Certificates evidencing the Securities shall be in temporary or
definitive form and shall be registered in such names and in such
authorized denominations as the Representatives shall request by
written notice to the Company at least two business days prior to the
Closing Date. For the purpose of expediting the checking and
packaging of certificates for the Securities, the Company agrees to
make such certificates available for inspection at least 24 hours
prior to the Closing Date.
The cost of original issue tax stamps, if any, in connection with
the issuance and sale of the Securities by the Company to the
respective Underwriters shall be borne by the Company. The Company
will pay and hold each Underwriter and any subsequent holder of the
Securities harmless from any and all liabilities with respect to or
resulting from any failure or delay in paying federal and state stamp
and other issuance taxes, if any, which may be payable or determined
to be payable in connection with the original issuance or sale to such
Underwriter of the Securities.
3. Representations and Warranties of the Company. The Company
-----------------------------------------------
represents and warrants to and covenants with each Underwriter that:
(a) The Company meets the requirements for use of Form S-3.
A registration statement (Registration No. 333-_____) on Form S-3
relating to the Securities, and the offering thereof from time to time
in accordance with Rule 415 under the Act, including a Basic
Prospectus (as hereinafter defined) and such amendments to such
registration statement as may have been required to the date of this
Agreement, has been (i) prepared by the Company under the provisions
of the Act, and the rules and regulations thereunder (collectively
referred to as the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission"); (ii) filed with the
Commission; and (iii) declared effective by the Commission. Copies of
such registration statement and amendments, if any, and of any
Preliminary Prospectus (as hereinafter defined) used by the Company
have been delivered to the Representatives. The offering of the
Securities is a Delayed Offering (as hereinafter defined) and,
although the Basic Prospectus may not include all the information with
respect to the Securities and the offering thereof required by the Act
and the Rules and Regulations to be included in the Final Prospectus,
such Basic Prospectus includes all such information required by the
Act and the Rules and Regulations to be included therein as of the
Effective Date (as hereinafter defined). The Company will file the
Final Prospectus in accordance with Rule 424(b) of the Rules and
Regulations. As filed, the Final Prospectus shall include all
required information with respect to the Securities and the offering
thereof and, except to the extent the Representatives shall agree in
writing to a modification, shall be in all substantive respects in the
form furnished to you prior to the Execution Date or, to the extent
not completed at the Execution Date, shall contain such specific
additional information and other changes (beyond that contained in
such Basic Prospectus and any Preliminary Prospectus) as the Company
has advised you, prior to the Execution Date.
The term "Registration Statement" means such registration
statement as amended or supplemented to the date hereof, including
incorporated documents, financial statements and all exhibits, each as
amended, and, in the event any post-effective amendment to such
registration statement becomes effective prior to the Closing Date,
shall also mean such registration statement as so amended. The term
"Effective Date" means the later of the date the Registration
Statement initially became effective, the date that any post-effective
amendment or amendments thereto became or become effective or the date
of the filing of the Company's most recent Annual Report on Form 10-K.
The term "Execution Date" means the date that this Agreement is
executed and delivered by the parties hereto. The term "Basic
Prospectus" means the prospectus contained in and forming a part of
the Registration Statement, including incorporated documents or
documents deemed to be incorporated therein, at the Execution Date.
The term "Preliminary Prospectus" means any preliminary prospectus (or
any supplement thereto) which describes the Securities and the
offering thereof and is used prior to the filing of the Final
Prospectus. The term "Final Prospectus" means the prospectus
supplement relating to the Securities as first filed with the
Commission pursuant to Rule 424(b) of the Rules and Regulations after
the Execution Date, together with the Basic Prospectus. The term
"Delayed Offering" means an offering of securities pursuant to Rule
415 under the Rules and Regulations which does not commence promptly
after the effective date of a registration statement.
(b) On the Effective Date, the Registration Statement did
and when the Final Prospectus is first filed with the Commission
pursuant to Rule 424(b), the Final Prospectus (and any supplement
thereto), including the financial statements included or incorporated
by reference in the Final Prospectus, will comply in all material
respects with the applicable provisions of the Act, the Rules and
Regulations, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the rules and regulations thereunder (the "Exchange
Act Rules and Regulations"), the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act") and the rules and regulations
thereunder (the "Trust Indenture Act Rules and Regulations") and will
contain all information required to be included therein in accordance
with the Act, the Rules and Regulations, the Exchange Act and the
Exchange Act Rules and Regulations. On the Effective Date, the
Registration Statement did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
At the date the Final Prospectus (together with any supplement
thereto) is first filed with the Commission pursuant to Rule 424(b)
and at the Closing Date, the Final Prospectus did not or will not
contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading. The foregoing representations and warranties in this
Section 3(b) do not apply to any statements or omissions made in
reliance on and in conformity with information furnished in writing to
the Company by the Representatives specifically for inclusion in the
Registration Statement or Final Prospectus (or any supplement
thereto). On the Effective Date, the date the Final Prospectus is
first filed with the Commission pursuant to Rule 424(b), and at all
subsequent times to and including the Closing Date, the Indenture did
or will comply with all applicable provisions of the Trust Indenture
Act and the Trust Indenture Act Rules and Regulations.
(c) The documents which are incorporated by reference in
the Basic Prospectus, any Preliminary Prospectus and the Final
Prospectus or from which information is so incorporated by reference,
when they became effective or were filed with the Commission, as the
case may be, complied in all material respects with the requirements
of the Act, the Rules and Regulations, the Exchange Act or the
Exchange Act Rules and Regulations, as applicable; and any documents
so filed and incorporated by reference subsequent to the Effective
Date shall, when they are filed with the Commission, conform in all
material respects with the requirements of the Act, the Rules and
Regulations, the Exchange Act or the Exchange Act Rules and
Regulations, as applicable.
(d) Each of the Company and each of its subsidiaries listed
on Schedule II hereto (the "Subsidiaries") is, and at the Closing Date
will be, a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation. Each of
the Company and each of the Subsidiaries has, and at the Closing Date
will have, full corporate power and authority to conduct all the
activities conducted by it, to own or lease all the assets owned or
leased by it and to conduct its business as described in the
Registration Statement and the Final Prospectus. Each of the Company
and each of the Subsidiaries is, and at the Closing Date will be, duly
licensed or qualified to do business and in good standing as a foreign
corporation in all jurisdictions in which the nature of the activities
conducted by it or the character of the assets owned or leased by it
makes such licensing or qualification necessary except where the
failure to be so qualified or licensed would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
For purposes of this Agreement, (i) "subsidiaries" shall mean (a) the
Company's directly and indirectly majority-owned corporate
subsidiaries, (b) the Company's directly and indirectly majority-owned
limited liability companies and (c) the partnerships, joint ventures
and other entities of which the Company or any subsidiary is the
majority owner and acts as the managing general partner or in any
similar capacity and (ii) the phrase "Company and its subsidiaries,
taken as a whole" shall be construed to include minority-owned
partnerships in which a corporate subsidiary of the Company is a
limited partner, but only to the extent of the Company's equity
interests in such partnerships. Complete and correct copies of the
certificate of incorporation and of the by-laws of the Company and
each of the Subsidiaries and all amendments thereto have been made
available to the Representatives, and no changes therein will be made
subsequent to the Execution Date and prior to the Closing Date.
(e) The Securities have been duly and validly authorized
and, when authenticated by the Trustee and issued, delivered and sold
in accordance with this Agreement and the Indenture, will have been
duly and validly executed, authenticated, issued and delivered and
will constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective
terms and entitled to the benefits provided by the Indenture except
(i) that such enforcement may be subject to bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar
laws, now or hereafter in effect, relating to creditors' rights
generally and (ii) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
(f) The description of the Securities in the Registration
Statement and the Final Prospectus is, and at the Closing Date will
be, complete and accurate in all material respects and, insofar as
such description contains statements constituting a summary of the
legal matters or documents referred to therein, such description
fairly summarizes the information referred to therein.
(g) The financial statements and schedules included or
incorporated by reference in the Registration Statement or the Final
Prospectus present fairly the consolidated financial condition of the
Company as of the respective dates thereof and the consolidated
results of operations and cash flows of the Company for the respective
periods covered thereby, all in conformity with generally accepted
accounting principles applied on a consistent basis throughout the
entire period involved, except as otherwise disclosed in the
Registration Statement or the Final Prospectus. [The selected
consolidated financial data included in the Registration Statement or
the Final Prospectus present fairly the information shown therein and
have been compiled on a basis consistent with that of the audited
consolidated financial statements of the Company included in the
Registration Statement or the Final Prospectus.] No other financial
statements or schedules of the Company are required by the Act, the
Rules and Regulations or the Exchange Act to be included in or
incorporated by reference into the Registration Statement or the Final
Prospectus. KPMG Peat Marwick LLP ("Peat Marwick") and Deloitte &
Touche LLP ("Deloitte & Touche"), who have reported on certain
financial statements and schedules of the Company and Pacific Telecom,
Inc., respectively, each are or were, as the case may be, independent
accountants with respect to the Company and Pacific Telecom, Inc.,
respectively, as required by the Act and the Rules and Regulations.
(h) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Final
Prospectus and prior to the Closing Date, except as set forth in or
contemplated by the Registration Statement and the Final Prospectus,
(i) there has not been and will not have been any material change in
the capitalization of the Company, (ii) there has not been and will
not have been any material adverse change in the business, properties,
condition (financial or otherwise) or results of operations of the
Company and its subsidiaries, taken as a whole, arising for any reason
whatsoever, (iii) except in the ordinary course of business, neither
the Company nor any of the Subsidiaries has incurred nor will it
voluntarily incur any liabilities or obligations, direct or
contingent, that are material to the Company and its subsidiaries,
taken as a whole, and (iv) the Company has not and will not have paid
or declared any dividends or other distributions of any kind on any
class of its capital stock except cash dividends paid in the ordinary
course of business and consistent with past practice.
(i) The Company is not an "investment company" or an
"affiliated person" of, or "promoter" or "principal underwriter" for,
an "investment company," as such terms are defined in the Investment
Company Act of 1940, as amended.
(j) Except as set forth in the Registration Statement and
the Final Prospectus, there are no actions, suits or proceedings
pending or, to the best of the Company's knowledge, threatened against
or affecting the Company or any of its subsidiaries or any of their
respective officers in their capacity as such, before or by any
federal or state court, commission, regulatory body, administrative
agency or other governmental body, domestic or foreign, that is likely
to materially and adversely affect the business, properties, condition
(financial or otherwise) or results of operations of the Company and
its subsidiaries, taken as a whole. All actions, suits or proceedings
now pending against the Company or any of its subsidiaries, or any of
their respective officers in their capacities as such, before any
Federal or state court, commission, regulatory body, administrative
agency or other governmental body, domestic or foreign, if decided or
resolved in a manner unfavorable to the Company or any of its
subsidiaries, would not be likely to, singly or in the aggregate,
materially and adversely affect the business, properties, condition
(financial or otherwise) or results of operations of the Company and
its subsidiaries, taken as a whole.
(k) The Company and each of the Subsidiaries has, and at
the Closing Date, will have (i) such franchises, certificates,
authorities or permits issued by the appropriate state, federal or
foreign regulatory agencies or bodies necessary to conduct the
business now operated by them, other than those the absence of which
would not be likely to have a materially adverse effect on the
business, properties, condition (financial or otherwise) or results of
operations of the Company and its subsidiaries, taken as a whole, and
neither the Company nor any of the Subsidiaries has received any
notice of proceedings relating to the revocation or modification of
any such franchise, certificate, authority or permit which, singly or
in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would be likely to materially and adversely affect the
business, properties, condition (financial or otherwise) or results of
operations of the Company and its subsidiaries, taken as a whole, (ii)
complied in all material respects with all laws, statutes, ordinances,
rules, regulations, orders or decrees of any court, governmental body
or regulatory authority or administrative agency having jurisdiction
over the Company or any Subsidiary or any of the property or assets of
the Company or any Subsidiary (including, without limitation, any such
laws, statutes, ordinances, rules regulations, orders or decrees with
respect to environmental protection or the release, handling,
treatment, storage or disposal of hazardous substances or toxic
wastes), the failure to comply with which would be likely to
materially adversely affect the business, properties, condition
(financial or otherwise) or results of operations of the Company and
its subsidiaries, taken as a whole, and (iii) performed in all
material respects all of its obligations required to be performed by
it under any material contract or other instrument to which it is a
party or by which its property is bound or affected, and is not, and
at the Closing Date, will not be, in default under any such contract
or instrument the effect of which would be likely to materially
adversely affect the business, properties, condition (financial or
otherwise) or results of operations of the Company and its
subsidiaries, taken as a whole. To the best knowledge of the Company,
no other party under any material contract or other instrument to
which it or any Subsidiary is a party is in default in any respect
thereunder, except for any such defaults (alone or collectively) that
would not be likely to have a material adverse effect on the Company
and its subsidiaries, taken as a whole; provided that it is understood
and agreed that neither the Company nor any Subsidiary has undertaken
any special investigation to determine compliance by such other
parties under any such contract or other instrument. The Company is
not, and at the Closing Date, will not be, in violation of any
provision of its articles of incorporation or by-laws. The
Subsidiaries are not, and at the Closing Date, will not be, in
violation of any material provision of their respective articles of
incorporation or by-laws (or comparable documents).
(l) No consent, approval, authorization or order of, or any
filing, registration, qualification or declaration with, any court or
governmental agency or body is required for (i) the execution,
delivery or performance of this Agreement, the Securities or the
Indenture by the Company, (ii) the authorization, offer, issuance,
transfer, sale or delivery of the Securities by the Company in
accordance herewith or (iii) the consummation by the Company of the
transactions on its part contemplated herein and by the Indenture,
except such as may have been obtained under the Act, the Rules and
Regulations, the Trust Indenture Act or the Trust Indenture Act Rules
and Regulations and such as may be required under foreign or state
securities or Blue Sky laws or the by-laws and rules of the National
Association of Securities Dealers, Inc. (the "NASD") in connection
with the purchase and distribution of the Securities by the
Underwriters.
(m) The Company has full corporate power and authority to
enter into this Agreement. This Agreement has been duly authorized,
executed and delivered by the Company and, when executed and delivered
by the Representatives, constitutes a valid and binding agreement of
the Company and is enforceable against the Company in accordance with
the terms hereof, except (i) that such enforcement may be subject to
bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar laws, now or hereafter in effect, relating
to creditors' rights generally, (ii) that the remedy of specific
performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought and (iii) rights
to indemnity and contribution hereunder may be limited by federal or
state laws relating to securities or the policies underlying such
laws. The Indenture has been duly authorized and constitutes a valid
and binding agreement of the Company and is enforceable against the
Company in accordance with its terms, except (i) that such enforcement
may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws, now or hereafter in effect, relating to
creditors' rights generally and (ii) that the remedy of specific
performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought. The execution,
delivery and performance by the Company of this Agreement, the
Indenture and the Securities and the consummation of the transactions
contemplated hereby and thereby will not result in the creation or
imposition of any lien, charge or encumbrance upon any of the assets
of the Company or any of the Subsidiaries pursuant to the terms or
provisions of, or, except as disclosed in the Registration Statement
or the Final Prospectus, result in a breach or violation of any of the
terms or provisions of, or constitute a default under, or give any
other party a right to terminate any of its obligations under, or
result in the acceleration of any obligation under, the articles of
incorporation or by-laws (or comparable instruments) of the Company or
any of the Subsidiaries, any indenture, mortgage, deed of trust,
voting trust agreement, loan agreement, bond, debenture, note
agreement or other evidence of indebtedness, lease, contract or other
agreement or instrument to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the
Subsidiaries or any of their respective properties is or are bound or
affected, or violate or conflict with any franchise or any judgment,
ruling, decree, order, statute, rule or regulation of any court or
other governmental agency or body applicable to the business or
properties of the Company or any of the Subsidiaries, except for any
liens, charges, encumbrances, breaches, violations, defaults,
termination rights or accelerations that do not adversely affect the
business, properties, condition (financial or otherwise) or results of
operations of the Company and its subsidiaries, taken as a whole.
(n) The Company and each of the Subsidiaries has good and
marketable title to all franchises, properties and assets owned by it,
which are material to the business or operations of the Company and
its subsidiaries, taken as a whole, free and clear of all liens,
charges, encumbrances or restrictions, except such as are described in
the Final Prospectus. The Company and each of the Subsidiaries has
valid, subsisting and enforceable leases for the properties leased by
it, with such exceptions as would not materially interfere with the
business or operations of the Company and its subsidiaries, taken as a
whole.
(o) All existing material contracts described in the Final
Prospectus to which the Company or any of the Subsidiaries is a party
have been duly authorized, executed and delivered by the Company or
such Subsidiary, constitute valid and binding agreements of the
Company or such Subsidiary and are enforceable against the Company or
such Subsidiary in accordance with the terms thereof, except (i) that
such enforcement may be subject to bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar
laws, now or hereafter in effect, relating to creditors' rights
generally and (ii) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
(p) No statement, representation, warranty or covenant made
by the Company in this Agreement or the Indenture or made in any
certificate or document required by this Agreement to be delivered to
the Representatives was or will be, when made, inaccurate, untrue or
incorrect in any material respect.
(q) No holder of securities of the Company has rights to
the registration of any securities of the Company because of the
filing of the Registration Statement.
4. Agreements of the Company. The Company agrees with each of
---------------------------
the several Underwriters as follows:
(a) The Company will not, either prior to the Effective
Date or thereafter during such period as the Final Prospectus is
required by law to be delivered in connection with sales of the
Securities by an Underwriter or dealer, file any amendment or
supplement to the Registration Statement or the Final Prospectus,
unless a draft thereof shall first have been submitted to the
Representatives within a reasonable period of time prior to the filing
thereof and the Representatives shall not have objected thereto in
good faith.
(b) The Company will notify the Representatives promptly,
and will confirm such advice in writing, (1) when any post-effective
amendment to the Registration Statement becomes effective, (2) of any
request by the Commission for amendments or supplements to the
Registration Statement or the Final Prospectus or for additional
information, (3) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose or the threat thereof,
(4) of the happening of any event during the period mentioned in the
second sentence of Section 4(e) that in the judgment of the Company
requires the Company to file an amendment or supplement to the
Registration Statement and (5) of receipt by the Company, or any
representatives or attorney of the Company, of any other communication
from the Commission relating to the Registration Statement, the Basic
Prospectus, any Preliminary Prospectus or the Final Prospectus or the
offering of the Securities. If at any time the Commission shall issue
any order suspending the effectiveness of the Registration Statement,
the Company will make every reasonable effort to obtain the withdrawal
of such order at the earliest possible moment.
(c) The Company will furnish to the Representatives,
without charge, one complete copy of the Registration Statement and of
any post-effective amendment thereto, including financial statements
and schedules, and all exhibits thereto (including any documents filed
under the Exchange Act and deemed to be incorporated by reference into
the Final Prospectus), and will furnish to the Representatives,
without charge, for transmittal to each of the other Underwriters,
additional copies of the Registration Statement and any post-effective
amendment thereto, but without exhibits and documents incorporated by
reference therein.
(d) The Company will comply with all the provisions of any
undertakings contained in the Registration Statement.
(e) On the Effective Date, and thereafter from time to
time, the Company will deliver to each of the Underwriters, without
charge, as many copies of the Final Prospectus or any supplement
thereto, as the Representatives may reasonably request. The Company
consents to the use of any Preliminary Prospectus and the Final
Prospectus or any amendment or supplement thereto by the several
Underwriters and by all dealers to whom the Securities may be sold,
both in connection with the offering or sale of the Securities and for
any period of time thereafter during which a prospectus is required by
law to be delivered in connection therewith. If during such period of
time, any event shall occur which in the judgment of the Company or
counsel to the Underwriters should be set forth in the Final
Prospectus in order to make any statement therein, in the light of the
circumstances under which it was made when delivered, not misleading,
or if it is necessary to supplement the Final Prospectus to comply
with law, the Company will forthwith prepare and duly file with the
Commission an appropriate supplement thereto, and will deliver to each
of the Underwriters, without charge, such number of copies thereof as
the Representatives may reasonably request. The Company shall not
file any document under the Exchange Act before the termination of the
offering of the Securities by the Underwriters if such document would
be deemed to be incorporated by reference into any Preliminary
Prospectus or the Final Prospectus, unless a draft thereof shall first
have been submitted to the Representatives within a reasonable period
of time prior to the filing thereof and the Representatives shall not
have objected thereto in good faith.
(f) Prior to any public offering of the Securities by the
Underwriters, the Company will cooperate with the Representatives and
counsel to the Underwriters in connection with the registration or
qualification of the Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions as the
Representatives may request; provided, that in no event shall the
Company be obligated to qualify to do business in any jurisdiction
where it is not now so qualified or to take any action which would
subject it to general service of process in any jurisdiction where it
is not now so subject.
(g) During the period of five years commencing on the
Effective Date, the Company will furnish to the Representatives and
each other Underwriter who may so request copies of such financial
statements and other periodic and special reports as the Company may
from time to time distribute generally to the holders of any class of
its capital stock, and will furnish to the Representatives and each
other Underwriter who may so request a copy of each annual or other
report it shall be required to file with the Commission.
(h) The Company will make generally available to holders of
its securities as soon as may be practicable but in no event later
than the last day of the fifteenth full calendar month following the
calendar quarter in which the Execution Date falls, an earnings
statement (which need not be audited but shall be in reasonable
detail) for a period of 12 months ended commencing after the effective
date, within the meaning of and satisfying the provisions of Section
11(a) of the Act (including Rule 158 of the Rules and Regulations).
(i) Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement is terminated, the Company
will pay, or reimburse if paid by the Representatives, all costs and
expenses incident to the performance of the obligations of the Company
under this Agreement, including but not limited to costs and expenses
of or relating to (1) the preparation, printing and filing of the
Registration Statement and exhibits thereto, the Basic Prospectus any
Preliminary Prospectus, the Final Prospectus and any amendment or
supplement to the Registration Statement or the Final Prospectus, (2)
the preparation and delivery of certificates representing the
Securities, (3) the printing of this Agreement, any Agreement Among
Underwriters, any Dealer Agreements and any Underwriters'
Questionnaire, (4) furnishing (including costs of shipping and
mailing) such copies of the Registration Statement, the Basic
Prospectus, any Preliminary Prospectus and the Final Prospectus, and
all amendments and supplements thereto, as may be reasonably requested
for use in connection with the offering and sale of the Securities by
the Underwriters or by dealers to whom Securities may be sold, (5) any
filings required to be made by the Underwriters with the NASD, and the
fees, disbursements and other charges of counsel for the Underwriters
in connection therewith, (6) the registration or qualification of the
Securities for offer and sale under the securities or Blue Sky laws of
such jurisdictions designated pursuant to Section 4(f), including the
fees, disbursements and other charges of counsel to the Underwriters
in connection therewith, and the preparation and printing of
preliminary, supplemental and final Blue Sky memoranda, (7) counsel to
the Company, (8) the transfer agent and registrar for the Securities
(9) the rating of the Securities by one or more rating agencies and
(10) the Trustee and any agent of the Trustee and the fees,
disbursements and other charges of counsel for the Trustee in
connection with the Indenture and the Securities.
(j) If this Agreement shall be terminated by the Company
pursuant to any of the provisions hereof (other than pursuant to
Section 8) or if for any reason the Company shall be unable to perform
its obligations hereunder, the Company will reimburse the several
Underwriters for all out-of-pocket expenses (including the fees,
disbursements and other charges of counsel to the Underwriters)
reasonably incurred by them in connection herewith.
(k) The Company will not at any time, directly or
indirectly, take any action intended, or which might reasonably be
expected, to cause or result in, or which will constitute
stabilization of the price of the Securities to facilitate the sale or
resale of any of the Securities.
(l) The Company will apply the net proceeds from the
offering and sale of the Securities in the manner set forth in the
Final Prospectus under "Use of Proceeds".
(m) Until sixty (60) days from the Execution Date, the
Company will not, without the consent of the Representatives, offer,
sell or contract to sell, or otherwise dispose of, by public offering,
or announce the public offering of, any other debt securities of the
Company other than the Securities.
5. Conditions of Obligations of the Underwriters. In addition
---------------------------------------------
to the execution and delivery of the Price Determination Agreement,
the obligations of each Underwriter hereunder are subject to the
following conditions:
(a) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for
that purpose shall be pending or threatened by the Commission, (ii) no
order suspending the effectiveness of the Registration Statement or
the qualification or registration of the Securities under the
securities or Blue Sky laws of any jurisdiction shall be in effect and
no proceeding for such purpose shall be pending before or threatened
or contemplated by the Commission or the authorities of any such
jurisdiction, (iii) any request for additional information on the part
of the staff of the Commission or any such authorities with respect to
the offering of the Securities shall have been complied with to the
satisfaction of the staff of the Commission or such authorities and
(iv) after the Execution Date no amendment or supplement to the
Registration Statement or the Final Prospectus shall have been filed
unless a copy thereof was first submitted to the Representatives and
the Representatives did not object thereto in good faith, and the
Representatives shall have received certificates, dated the Closing
Date and signed on behalf of the Company by the Chief Executive
Officer or the Chairman of the Board of Directors of the Company and
the Chief Financial Officer of the Company (who may, as to proceedings
threatened, rely upon the best of their information and belief), to
the effect of clauses (i), (ii) and (iii).
(b) Since the respective dates as of which information is
given in the Registration Statement and the Final Prospectus (i) there
shall not have been a material adverse change in the general affairs,
business, properties, management, condition (financial or otherwise)
or results of operations of the Company and its subsidiaries, taken as
a whole, whether or not arising from transactions in the ordinary
course of business, in each case other than as set forth in or
contemplated by the Registration Statement and the Final Prospectus
and (ii) neither the Company nor any of the Subsidiaries shall have
sustained any loss or interference with its business or properties
from fire, explosion, flood or other casualty, whether or not covered
by insurance, or from any labor dispute or any court or legislative or
other governmental action, order or decree, which is not set forth in
the Registration Statement and the Final Prospectus, and which in each
case in clause (ii) is material to the Company and its subsidiaries,
taken as a whole, if in the judgment of the Representatives any such
development makes it impracticable or inadvisable to consummate the
sale and delivery of the Securities by the Underwriters in accordance
with the terms hereof.
(c) Since the respective dates as of which information is
given in the Registration Statement and the Final Prospectus, there
shall have been no litigation or other proceeding instituted against
the Company or any of the Subsidiaries or any of their respective
officers or directors in their capacities as such, before or by any
federal, state or local court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign,
in which litigation or proceeding an unfavorable ruling, decision or
finding would materially and adversely affect the business,
properties, condition (financial or otherwise) or results of
operations of the Company and its subsidiaries, taken as a whole.
(d) Each of the representations and warranties of the
Company contained herein shall be true and correct in all material
respects at the Closing Date and all covenants and agreements herein
contained to be performed on the part of the Company and all
conditions herein contained to be fulfilled or complied with by the
Company at or prior to the Closing Date shall have been duly
performed, fulfilled or complied with.
(e) On the Closing Date, the Representatives shall have
received an opinion, dated the Closing Date, and satisfactory in form
and substance to counsel for the Underwriters, from Harvey P. Perry,
Esq., General Counsel of the Company, and from Jones, Walker,
Waechter, Poitevent, Carrere & Denegre, L.L.P., special counsel to the
Company, to the effects set forth in Exhibit B and Exhibit C hereto,
respectively.
(f) On the Closing Date, the Representatives shall have
received an opinion, dated the Closing Date, from [insert name],
counsel to the Underwriters, with respect to the Registration
Statement, the Final Prospectus and this Agreement, which opinion
shall be satisfactory in all respects to the Representatives. In
giving such opinion, such counsel may rely, as to all matters governed
by the laws of the State of Louisiana, upon the opinion of Jones,
Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P. Such counsel
may also state that, insofar as such opinion involves factual matters,
they have relied, to the extent they deem proper, upon certificates of
officers of the Company and its subsidiaries, and certificates of
public officials.
(g) Concurrently with the execution and delivery of this
Agreement, Peat Marwick and Deloitte & Touche shall have furnished to
the Representatives letters, dated the date of this Agreement,
addressed to the Representatives and in form and substance
satisfactory to the Representatives, confirming that they are or were,
as the case may be, independent accountants with respect to the
Company and Pacific Telecom, Inc., respectively, as required by the
Act and the Rules and Regulations and with respect to the financial
and other statistical and numerical information contained or
incorporated by reference in the Registration Statement. At the
Closing Date, Peat Marwick shall have furnished to the Representatives
a letter, dated the date of the Closing Date, which shall confirm, on
the basis of a review in accordance with the procedures set forth in
the letter from Peat Marwick, that nothing has come to their attention
during the period from the date of their letter referred to in the
prior sentence to a date (specified in the letter) not more than five
days prior to the Closing Date which would require any change in their
letter dated the Execution Date if it were required to be dated and
delivered at the Closing Date.
(h) Concurrently with the execution and delivery of this
Agreement and at the Closing Date, there shall be furnished to the
Representatives an accurate certificate, dated the date of its
delivery, signed on behalf of the Company by each of the Chief
Executive Officer and the Chief Financial Officer of the Company, in
form and substance satisfactory to the Representatives, to the effect
that:
(i) Each signer of such certificate has carefully
examined the Registration Statement and the Final Prospectus and
(A) as of the date of such certificate, (i) the Registration
Statement is true and correct in all material respects and does
not omit to state a material fact required to be stated therein
or necessary in order to make the statements therein not untrue
or misleading and (ii) the Final Prospectus is true and correct
in all material respects and does not omit to state a material
fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not untrue
or misleading (it being understood that to the extent a statement
in the Final Prospectus, including any documents deemed to be
incorporated by reference therein, refers to and speaks as of a
specific date, each signer of such certificate only represents
with respect to such statement that it was true and correct in
all material respects as of such date) and (B) in the case of the
certificate delivered at the Closing Date, since the Execution
Date, no event has occurred as a result of which it is necessary
to supplement the Final Prospectus in order to make the
statements therein, in light of the circumstances under which
they were made, not untrue or misleading in any material respect
and there has been no document required to be filed under the
Exchange Act and the Exchange Act Rules and Regulations that upon
such filing would be deemed to be incorporated by reference into
the Final Prospectus that has not been so filed.
(ii) Each of the representations and warranties of the
Company contained in this Agreement were, when originally made,
and are, at the time such certificate is delivered, true and
correct in all material respects.
(iii) Each of the covenants required herein to be
performed by the Company on or prior to the delivery of such
certificate has been duly, timely and fully performed and each
condition herein required to be complied with by the Company on
or prior to the date of such certificate has been duly, timely
and fully complied with.
(i) The Securities shall be qualified for sale in such
states as the Representatives may reasonably request, each such
qualification shall be in effect and not subject to any stop order or
other proceeding on the Closing Date.
(j) The Company shall have furnished to the Representatives
such certificates, in addition to those specifically mentioned herein,
as the Representatives may have reasonably requested as to the
accuracy and completeness at the Closing Date of any statement in the
Registration Statement or the Final Prospectus or any documents filed
under the Exchange Act and deemed to be incorporated by reference into
the Final Prospectus, as to the accuracy at the Closing Date of the
representations and warranties of the Company herein, as to the
performance by the Company of its obligations hereunder, or as to the
fulfillment of the conditions concurrent and precedent to the
obligations hereunder of the Representatives.
6. Indemnification.
---------------
(a) The Company will indemnify and hold harmless each
Underwriter, the directors, officers, employees and agents of each
Underwriter and each person, if any, who controls each Underwriter
within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act from and against any and all losses, claims, liabilities,
expenses and damages (including any and all investigative, legal and
other expenses reasonably incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claim
asserted), to which they, or any of them, may become subject under the
Exchange Act or other federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, liabilities,
expenses or damages arise out of or are based on any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement, the Basic Prospectus, any Preliminary
Prospectus or the Final Prospectus or any amendment or supplement
thereto or in any documents filed under the Exchange Act and deemed to
be incorporated by reference into the Final Prospectus, or the
omission or alleged omission to state in (i) the Registration
Statement, any amendment or supplement thereto a material fact
required to be stated in it or necessary to make the statements in it
not misleading or (ii) the Basic Prospectus, any Preliminary
Prospectus or the Final Prospectus a material fact necessary in order
to make the statements therein, in the light of the circumstances
under which they were made, not misleading, provided that the Company
will not be liable to the extent that such loss, claim, liability,
expense or damage arises from the sale of the Securities in the public
offering to any person by an Underwriter and is based on an untrue
statement or omission or alleged untrue statement or omission made in
reliance on and in conformity with information relating to any
Underwriter furnished in writing to the Company by the Representatives
on behalf of any Underwriter expressly for inclusion in the
Registration Statement, the Basic Prospectus, any Preliminary
Prospectus or the Final Prospectus and provided further, that the
Company shall not be liable in any such case under the indemnity
agreement in this Section 6(a) with respect to any Preliminary
Prospectus or Final Prospectus, to the extent that any such loss,
claim, liability, expense or damage results from the fact that the
Underwriter sold Securities to a person to whom there was not sent or
given, at or prior to the written confirmation of such sale, a copy of
the Final Prospectus or of the Final Prospectus as then amended or
supplemented in any case where such delivery is required by the Act if
the Company has previously furnished copies thereof to the Underwriter
and the loss, claim, liability, expense or damage of the Underwriter,
the directors, officers, employees or agents of the Underwriter or any
person who controls the Underwriter results from an untrue statement,
alleged untrue statement, omission or alleged omission of a material
fact contained in the Preliminary Prospectus which was corrected in
the Final Prospectus (or the Final Prospectus as amended or
supplemented). This indemnity agreement is in addition to any
liability that the Company might otherwise have.
(b) Each Underwriter will indemnify and hold harmless the
Company and its officers, employees and agents and each person, if
any, who controls the Company within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act, each director of the Company
and each officer of the Company who signs the Registration Statement
to the same extent as the foregoing indemnity from the Company to each
Underwriter, but only insofar as losses, claims, liabilities, expenses
or damages arise out of or are based on any untrue statement or
omission or alleged untrue statement or omission made in reliance on
and in conformity with information relating to such Underwriter
furnished in writing to the Company by the Representatives on behalf
of such Underwriter expressly for use in the Registration Statement,
the Basic Prospectus, any Preliminary Prospectus or the Final
Prospectus. This indemnity is in addition to any liability that each
Underwriter might otherwise have.
(c) Any party that proposes to assert the right to be
indemnified under this Section 6 will, promptly after receipt of
notice of commencement of any action against such party in respect of
which a claim is to be made against an indemnifying party or parties
under this Section 6, notify each such indemnifying party of the
commencement of such action, enclosing a copy of all papers served,
but the omission so to notify such indemnifying party will not relieve
it from any liability that it may have to any indemnified party under
the foregoing provisions of this Section 6 unless, and only to the
extent that, such omission results in the forfeiture of substantive
rights or defenses by the indemnifying party. If any such action is
brought against any indemnified party and it notifies the indemnifying
party of its commencement, the indemnifying party will be entitled to
participate in and, to the extent that it elects by delivering written
notice to the indemnified party promptly after receiving notice of the
commencement of the action from the indemnified party, jointly with
any other indemnifying party similarly notified, to assume the defense
of the action, with counsel satisfactory to the indemnified party, and
after notice from the indemnifying party to the indemnified party of
its election to assume the defense, the indemnifying party will not be
liable to the indemnified party for any legal or other expenses except
as provided below and except for the reasonable costs of investigation
subsequently incurred by the indemnified party in connection with the
defense. The indemnified party will have the right to employ its own
counsel in any such action, but the fees, expenses and other charges
of such counsel will be at the expense of such indemnified party
unless (1) the employment of counsel by the indemnified party has been
authorized in writing by the indemnifying party, (2) the indemnified
party has reasonably concluded (based on advice of counsel) that there
may be legal defenses available to it or other indemnified parties
that are different from or in addition to those available to the
indemnifying party, (3) a conflict or potential conflict exists (based
on advice of counsel to the indemnified party) between the indemnified
party and the indemnifying party (in which case the indemnifying party
will not have the right to direct the defense of such action on behalf
of the indemnified party) or (4) the indemnifying party has not in
fact employed counsel to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the
action, in each of which cases the reasonable fees, disbursements and
other charges of counsel will be at the expense of the indemnifying
party or parties. It is understood that the indemnifying party or
parties shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable
fees, disbursements and other charges of more than one separate firm
(plus any local counsel retained by you in your reasonable judgment)
admitted to practice in such jurisdiction at any one time for all such
indemnified party or parties. All such fees, disbursements and other
charges will be reimbursed by the indemnifying party promptly as they
are incurred. An indemnifying party will not be liable for any
settlement of any action or claim effected without its written consent
(which consent will not be unreasonably withheld).
(d) In order to provide for just and equitable contribution
in circumstances in which the indemnification provided for in the
foregoing paragraphs of this Section 6 is applicable in accordance
with its terms but for any reason is held to be unavailable from the
Company or the Underwriters, the Company and the Underwriters will
contribute to the total losses, claims, liabilities, expenses and
damages (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted,
but after deducting any contribution received by the Company from
persons other than the Underwriters, such as persons who control the
Company within the meaning of the Act, officers of the Company who
signed the Registration Statement and directors of the Company, who
also may be liable for contribution) to which the Company and any one
or more of the Underwriters may be subject in such proportion as shall
be appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other. The
relative benefits received by the Company on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case
as set forth in the table on the cover page of the Final Prospectus.
If, but only if, the allocation provided by the foregoing sentence is
not permitted by applicable law, the allocation of contribution shall
be made in such proportion as is appropriate to reflect not only the
relative benefits referred to in the foregoing sentence but also the
relative fault of the Company, on the one hand, and the Underwriters,
on the other, with respect to the statements or omissions which
resulted in such loss, claim, liability, expense or damage, or action
in respect thereof, as well as any other relevant equitable
considerations with respect to such offering. Such relative fault
shall be determined by reference to whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company
or the Representatives on behalf of the Underwriters, the intent of
the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission. The
Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 6(d) were to be
determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an
indemnified party as a result of the loss, claim, liability, expense
or damage, or action in respect thereof, referred to above in this
Section 6(d) shall be deemed to include, for purpose of this Section
6(d), any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section
6(d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts received by it, and no person
found guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) will be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute as provided in this Section
6(d) are several in proportion to their respective underwriting
obligations and not joint. For purposes of this Section 6(d), any
person who controls a party to this Agreement within the meaning of
the Act will have the same rights to contribution as that party, and
each officer of the Company who signed the Registration Statement will
have the same rights to contribution as the Company, subject in each
case to the provisions hereof. Any party entitled to contribution,
promptly after receipt of notice of commencement of any action against
such party in respect of which a claim for contribution may be made
under this Section 6(d), will notify any such party or parties from
whom contribution may be sought, but the omission so to notify will
not relieve the party or parties from whom contribution may be sought
from any other obligation it or they may have under this Section 6(d).
No party will be liable for contribution with respect to any action or
claim settled without its written consent (which consent will not be
unreasonably withheld).
(e) The indemnity and contribution agreements contained in
this Section 6 and the representations and warranties of the Company
contained in this Agreement shall remain operative and in full force
and effect regardless of (i) any investigation made by or on behalf of
the Underwriters, (ii) acceptance of any of the Securities and payment
therefor or (iii) any termination of this Agreement.
7. Termination. The obligations of the several Underwriters
-----------
under this Agreement may be terminated at any time on or prior to the
Closing Date by notice to the Company from the Representatives,
without liability on the part of any Underwriter to the Company, if,
prior to delivery and payment for the Securities, in the sole judgment
of the Representatives, (i) trading in securities generally on the New
York Stock Exchange shall have been suspended or limited or minimum or
maximum prices shall have been generally established on such exchange,
or additional material governmental restrictions, not in force on the
date of this Agreement, shall have been imposed upon trading in
securities generally by such exchange or by order of the Commission or
any court or other governmental authority, and any such suspensions,
limitations or restrictions shall continue to remain in effect, (ii) a
general banking moratorium shall have been declared by either federal
or New York State authorities or (iii) any material adverse change in
the financial or securities markets in the United States or in
political, financial or economic conditions in the United States or
any outbreak or material escalation of hostilities or declaration by
the United States of a national emergency or war or other calamity or
crisis shall have occurred the effect of any of which is such as to
make it, in the sole judgment of the Representatives, impracticable or
inadvisable to market the Securities on the terms and in the manner
contemplated by the Final Prospectus.
8. Substitution of Underwriters. If any one or more of the
------------------------------
Underwriters shall fail or refuse to purchase any of the Securities
which it or they have agreed to purchase hereunder, and the aggregate
principal amount of Securities which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than
one-tenth of the aggregate principal amount of Securities, the other
Underwriters shall be obligated, severally, to purchase the Securities
which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase, in the proportions which the principal amount of
Securities which they have respectively agreed to purchase pursuant to
Section 1 bears to the aggregate principal amount of Securities which
all such non-defaulting Underwriters have so agreed to purchase, or in
such other proportions as the Representatives may specify; provided
that in no event shall the maximum principal amount of Securities
which any Underwriter has become obligated to purchase pursuant to
Section 1 be increased pursuant to this Section 8 by more than one-
ninth of the principal amount of Securities agreed to be purchased by
such Underwriter without the prior written consent of such
Underwriter. If any Underwriter or Underwriters shall fail or refuse
to purchase any Securities and the aggregate principal amount of
Securities which such defaulting Underwriter or Underwriters agreed
but failed or refused to purchase exceeds one-tenth of the aggregate
principal amount of the Securities and arrangements satisfactory to
the Representatives and the Company for the purchase of such
Securities are not made within 48 hours after such default, this
Agreement will terminate without liability on the part of any non-
defaulting Underwriter or the Company for the purchase or sale of any
Securities under this Agreement. In any such case either the
Representatives or the Company shall have the right to postpone the
Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Registration Statement and
in the Final Prospectus or in any other documents or arrangements may
be effected. Any action taken pursuant to this Section 8 shall not
relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
9. Miscellaneous. Notice given pursuant to any of the
-------------
provisions of this Agreement shall be in writing and, unless otherwise
specified, shall be mailed or delivered (a) if to the Company, at the
office of the Company, 100 Century Park Drive, Monroe, Louisiana
71203, Attention: Harvey P. Perry, Senior Vice President, General
Counsel and Secretary or (b) if to the Underwriters, to the
Representatives at the offices of
______________________________________. Any such notice shall be
effective only upon receipt. Any notice under Section 7 or 8 may be
made by telex or telephone, but if so made shall be subsequently
confirmed in writing.
This Agreement has been and is made solely for the benefit
of the several Underwriters and the Company and of the controlling
persons, directors and officers referred to in Section 6, and their
respective successors and assigns, and no other person shall acquire
or have any right under or by virtue of this Agreement. The term
"successors and assigns" as used in this Agreement shall not include a
purchaser, as such purchaser, of Securities from any of the several
Underwriters.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
This Agreement may be signed in two or more counterparts
with the same effect as if the signatures thereto and hereto were upon
the same instrument.
In case any provision in this Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired
thereby.
The Company and the Underwriters each hereby irrevocably
waive any right they may have to trial by jury in respect of any claim
based upon or arising out of this Agreement or the transactions
contemplated hereby.
Please confirm that the foregoing correctly sets forth the
agreement between the Company and the several Underwriters.
Very truly yours,
CENTURY TELEPHONE ENTERPRISES, INC.
By:______________________________
Name:
Title:
Confirmed as of the date first
above mentioned:
[names]
Acting on behalf of themselves
and as the Representatives
of the other several Underwriters
named in Schedule I hereof.
[name]
By:________________________
Name:
Title:
SCHEDULE I
----------
UNDERWRITERS
Principal Amount
Name of Securities
- ---- To Be Purchased
---------------
- ------------------------------- $
---------------
Total . . . . . . . . . . . . . . $
===============
SCHEDULE II
-----------
SUBSIDIARIES
Name
- ----
Central Louisiana Telephone Company, Inc.
Evangeline Telephone Company
Century Telephone of Arkansas, Inc.
Mountain Home Telephone Co., Inc.
Century Telephone of Wisconsin, Inc.
Century Telephone Midwest, Inc.
Century Telephone of Michigan, Inc.
Century Cellunet of Southern Michigan, Inc.
Century Cellunet, Inc.
Century Investments, Inc.
Century Telephone of San Marcos, Inc.
Century Telephone of Ohio, Inc.
Celutel, Inc.
Pacific Telecom, Inc.
Pacific Telecom Cellular, Inc.
EXHIBIT A
CENTURY TELEPHONE ENTERPRISES, INC.
_____________________________
PRICE DETERMINATION AGREEMENT
-----------------------------
_________ __, 1998
[name]
As Representatives of
the several Underwriters
[address]
Dear Ladies and Gentlemen:
Reference is made to the Underwriting Agreement, dated __________
__,1998 (the "Underwriting Agreement"), among Century Telephone
Enterprises, Inc., a Louisiana corporation (the "Company"), and the
several Underwriters named in Schedule I thereto or hereto (the
"Underwriters"), for whom [name] are acting as representatives (the
"Representatives"). The Underwriting Agreement provides for the
purchase by the Underwriters from the Company, subject to the terms
and conditions set forth therein, of an aggregate of $_____________
principal amount of the Company's ___ percent Senior Debt Securities
due ____ (the "Securities") to be issued pursuant to an Indenture
dated as of March 31, 1994 between the Company and Regions Bank of
Louisiana (successor-in-interest to First American Bank & Trust of
Louisiana), as Trustee. This Agreement is the Price Determination
Agreement referred to in the Underwriting Agreement.
Pursuant to Section 1 of the Underwriting Agreement, the
undersigned agree with the Representatives that the purchase price for
the Securities to be paid by each of the several Underwriters shall be
___ percent of the aggregate principal amount of the Securities set
forth opposite the name of such Underwriter in Schedule I attached
hereto.
The Company represents and warrants to each of the Underwriters
that the representations and warranties of the Company set forth in
Section 3 of the Underwriting Agreement are accurate in all material
respects as though expressly made at and as of the date hereof.
As contemplated by the Underwriting Agreement, attached as
Schedule I is a completed list of the several Underwriters, which
shall be a part of this Agreement and the Underwriting Agreement.
This Agreement shall be governed by the law of the State of New
York.
If the foregoing is in accordance with your understanding of the
agreement among the Underwriters and the Company, please sign and
return to the Company a counterpart hereof, whereupon this instrument
along with all counterparts and together with the Underwriting
Agreement shall be a binding agreement among the Underwriters and the
Company in accordance with its terms and the terms of the Underwriting
Agreement.
Very truly yours,
CENTURY TELEPHONE ENTERPRISES, INC.
By:________________________________
Name:
Title:
Confirmed as of the date
first above mentioned:
[name]
Acting on behalf of themselves
and as the Representatives
of the other several Underwriters
named in Schedule I hereof.
[name]
By:_____________________________
Name:
Title:
[name]
By:_____________________________
Name:
Title:
EXHIBITS B AND C INTENTIONALLY DELETED
Exhibit 4.3
to Registration Statement
CENTURY TELEPHONE ENTERPRISES, INC.
Form of Resolution to be Adopted by the
Special Pricing Committee
of the
Board of Directors
(to be used in connection with authorizing the
issuance of any series of senior debt securities
under the below-referenced Indenture)
WHEREAS, the Board of Directors of Century Telephone Enterprises,
Inc. (the "Company") has previously authorized (i) the appropriate
officers of the Company to take various actions necessary to
permit the Company to register, issue and sell senior debt
securities, preferred stock, common stock and warrants to purchase
senior debt securities, preferred stock and common stock, subject
to certain limitations, and (ii) the Special Pricing Committee of
the Board of the Directors to establish the specific terms and
conditions of any one or more series of such securities to be
issued and sold from time to time; and
WHEREAS, the Special Pricing Committee, acting pursuant to such
authorization, deems it desirable and in the best interest of the
Company and its shareholders to authorize the issuance of
$[ ] aggregate principal amount of its senior debt securities;
NOW, THEREFORE, BE IT RESOLVED THAT:
(1) The Company shall create and issue $ ____,000,000
aggregate principal amount of its senior debt securities,
consisting of senior notes designated as the "Century Telephone
Enterprises, Inc. ___ percent Senior Notes, Series ___, Due ___
(the "Series ___ Notes"), with the sales price and terms set forth
in the proposal of the purchasers dated ________________ (referred
to herein as the "Proposal" and attached to and made a part of
theses minutes) and in accordance with the Indenture dated as of
March 31, 1994 ("Indenture"), between the Company and Regions Bank
of Louisiana (successor-in-interest to First American Bank & Trust
of Louisiana), as Trustee ("Trustee"), to wit:
(a) The Series ____ Notes will mature on _________.
(b) The Series _____ Notes shall bear interest from
until the principal thereof becomes due and payable at the rate
of __________ per annum with respect to the Series _____ Notes,
payable semi-annually on ___________ and ____________ of each year
commencing ____________, and any overdue principal and (to the
extent that the payment of such interest is enforceable under
applicable law) any overdue installment of interest thereon shall
bear interest at the same rate per annum; the principal of and the
interest on the Series _____ Notes shall be payable in any coin or
currency of the United States of America which at the time of
payment is legal tender for the payment of public and private
debts, at the office or agency of the Company maintained in
accordance with the Indenture, or, at the option of the Company,
by check in U.S. dollars mailed or delivered to the person in
whose name the Series _____ Notes are registered. The regular
record date with respect to any interest payment date for the
Series ______ Notes shall be ______________ or _______________ ,
as the case may be, immediately preceding such interest payment
date, whether or not such date is a business day.
(c) The Series ____ Notes will not be redeemable prior to
maturity.
OR
The Series ___ Notes may not be redeemed prior to.
The Series ____ Notes may be redeemed from time to time on not less than
30 nor more than 60 days' prior notice given as provided in the Indenture,
as a whole or in part, at the option of the Company, on any date or dates on
or after __________ , and prior to maturity, at the applicable percentage of
the principal amount thereof to be redeemed as set forth below under the
heading "Redemption Price" during the respective twelve-month periods
beginning _________ of the years shown below:
Redemption
Year Price
---- ----------
together, in each case, with accrued interest to the date fixed for
redemption (but if the date fixed for redemption is an interest payment
date, the interest installment payable on such date shall be payable to the
registered holder at the close of business on the applicable record date).
None of the Series _____ Notes may be called for redemption at
the option of the Company prior to _______________________ if such
redemption is for the purpose or in anticipation of refunding any Series A
Notes by the application, directly or indirectly, of funds borrowed by the
Company at an annual cost of money (calculated in accordance with generally
accepted financial practice) less the annual cost of money to the Company
resulting from the sale of the Series ____ Notes to the Purchaser. [If
applicable].
(d) The Series ____ Notes and the Trustee's Certificate of
Authentication to be endorsed thereon are to be substantially in the
following form:
(FORM OF FACE OF SECURITY)
No._____________ $_____________
CUSIP NO.________________
Century Telephone Enterprises, Inc.
____ percent Senior Notes, Series __, Due ____
Century Telephone Enterprises, Inc., a corporation duly organized
and existing under the laws of the State of Louisiana (herein referred
to as the "Company"), for value received, hereby promises to pay to
_____________ or registered assigns, the principal sum of _____________
Dollars on _____________ and to pay interest on said principal sum from
_____________, or from the most recent interest payment date to which
interest has been paid or duly provided for, semi-annually on
___________ and ___________ in each year, commencing __________, at the
rate of _______ percent per annum until the principal hereof shall have
become due and payable, and on any overdue principal and (to the extent
that payment of such interest is enforceable under applicable law) on
any overdue installment of interest at the same rate per annum. The
interest installment so payable, and punctually paid or duly provided
for, on any interest payment date will, as provided in the Indenture
hereinafter referred to, be paid to the person in whose name this
Security (or one or more Predecessor Securities, as defined in said
Indenture) is registered at the close of business on the regular record
date for such interest installment, which shall be the _____________ or
_____________, as the case may be (whether or not a business day),
immediately preceding such interest payment date. Any such interest
installment not so punctually paid or duly provided for shall forthwith
cease to be payable to the registered holder on such regular record
date, and may be paid to the person in whose name this Security (or one
or more Predecessor Securities) is registered at the close of business
on a special record date to be fixed by the Trustee for the payment of
such defaulted interest, notice of which shall be given to the
registered holders of this series of Securities not more than 15 days
and not less than 10 days prior to such special record date, or may be
paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities may be
listed, and upon such notice as may be required by such exchange, all
as more fully provided in the Indenture hereinafter referred to. The
principal of and the interest on this Security shall be payable in any
coin or currency of the United States of America which at the time of
payment is legal tender for payment of public and private debt, at the
office or agency of the Company maintained for that purpose in the City
of Monroe and State of Louisiana, or the Borough of Manhattan, the City
and State of New York, or, at the option of the Company, by check in
U.S. dollars mailed or delivered to the person in whose name this
Security is registered.
This Security shall not be entitled to any benefit under the
Indenture hereinafter referred to, or be valid or become obligatory for
any purpose, until the Certificate of Authentication hereon shall have
been signed by or on behalf of the Trustee.
The provisions of this Security are continued on the reverse side
hereof and such continued provisions shall for all purposes have the
same effect as though fully set forth at this place.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed.
Dated _____________________________________
CENTURY TELEPHONE ENTERPRISES, INC.
By ________________________________________
[President/Vice President]
Attest:
By ________________________________________
[Secretary/Assistant Secretary]
(FORM OF CERTIFICATE OF AUTHENTICATION)
CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the above-designated series
therein referred to in the within-mentioned Indenture.
Regions Bank of Louisiana
as Trustee, Authenticating Agent and
Security Registrar
By _________________________
Authorized Officer
(FORM OF REVERSE OF SECURITY)
This Security is one of a duly authorized series of Securities of
the Company (herein sometimes referred to as the "Securities"), all
issued or to be issued in one or more series under and pursuant to an
Indenture dated as of March 31, 1994 duly executed and delivered
between the Company and Regions Bank of Louisiana (successor-in-
interest to First American Bank & Trust of Louisiana), a Louisiana
banking corporation organized and existing under the laws of the State
of Louisiana, as Trustee (herein referred to as the "Trustee") (said
Indenture hereinafter referred to as the "Indenture"), to which
Indenture reference is hereby made for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of
the Trustee, the Company and the holders of the Securities. By the
terms of the Indenture, the Securities are issuable in series which may
vary as to amount, date of maturity, rate of interest and in other
respects as in the Indenture provided. This Security (herein called
the "Security") is one of the series designated on the face hereof
(herein called the "Series") limited in aggregate principal amount to
$___,000,000.
In case an Event of Default, as defined in the Indenture, with
respect to the Series shall have occurred and be continuing, the
principal of all of the Securities of the Series may be declared, and
upon such declaration shall become, due and payable, in the manner,
with the effect and subject to the conditions provided in the
Indenture.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the Securities of each series affected at
the time Outstanding, as defined in the Indenture, to execute
supplemental indentures for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the
Indenture or of any supplemental indenture or of modifying in any
manner the rights of the holders of the Securities; provided, however,
that no such supplemental indenture shall (i) extend the fixed maturity
of any Securities or any series, or reduce the principal amount
thereof, or reduce the rate or extend the time of payment of interest
thereon, or reduce any premium payable upon the redemption thereof,
without the consent of the holder of each Security so affected or (ii)
reduce the aforesaid percentage of Securities, the holders of which are
required to consent to any such supplemental indenture, without the
consent of the holders of each Security then Outstanding and affected
thereby. The Indenture also contains provisions permitting the holders
of a majority in aggregate principal amount of the Securities of any
series at the time Outstanding, on behalf of the holders of Securities
of such series, to waive any past default in the performance of any of
the covenants contained in the Indenture, or establish pursuant to the
Indenture with respect to such series, and its consequences, except a
default in the payment of the principal of, or premium, if any, or
interest on any of the Securities of such series. Any such consent or
waiver by the registered holder of this Security (unless revoked as
provided in the Indenture) shall be conclusive and binding upon such
holder and upon all future holders and owners of this Security and of
any Security issued in exchange hereof or in place hereof (whether by
registration of transfer or otherwise), irrespective of whether or not
any notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal
of and interest on this Security at the times and place and at the rate
and in the currency herein prescribed.
The Securities are issuable as registered Securities without
coupons in denominations of $1,000 or any integral multiple thereof.
Securities may be exchanged, upon presentation thereof for that
purpose, at the office or agency of the Company in the City of Monroe
and State of Louisiana, for other Securities of authorized
denominations, and for a like aggregate principal amount and series,
and upon payment of a sum sufficient to cover any tax or other
governmental charge in relation thereto.
The Securities will not be redeemable prior to maturity.
OR
The Securities may not be redeemed prior to __________. The
Securities may be redeemed from time to time on not less than 30 nor
more than 60 days' prior notice given as provided in the Indenture, as
a whole or in part, at the option of the Company, on any date or dates
on or after ________, and prior to maturity, at the applicable
percentage of the principal amount thereof to be redeemed as set forth
below under the heading "Redemption Price" during the respective twelve
month periods beginning ____ of the years shown below:
Redemption
Year Price
---- ----------
percent
together, in each case, with accrued interest to the date fixed for
redemption (but if the date fixed for redemption is an interest payment
date, the interest installment payable on such date shall be payable to
the registered holder at the close of business on the applicable record
date).
As provided in the Indenture and subject to certain limitations
therein set forth, this Security is transferable by the registered
holder hereof on the Security Register of the Company, upon surrender
of this Security for registration of transfer at the office or agency
of the Company in the City of Monroe and State of Louisiana accompanied
by a written instrument or instruments of transfer in form satisfactory
to the Company or the Security Registrar duly executed by the
registered holder hereof or his attorney duly authorized in writing,
and thereupon one or more new Securities of authorized denominations
and for the same aggregate principal amount and series will be issued
to the designated transferee or transferees. No service charge will be
made for any such transfer, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
relation thereto.
Prior to due presentment for registration of transfer of this
Security the Company, the Trustee, any Paying Agent and any Security
Registrar may deem and treat the registered holder hereof as the
absolute owner hereof (whether or not this Security shall be overdue
and notwithstanding any notice of ownership or writing hereon made by
anyone other than the Security Registrar) for the purpose of receiving
payment of or on account of the principal hereof and interest due
hereon and for all other purposes, and neither the Company nor the
Trustee nor any paying agent nor any Security Registrar shall be
affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or
the interest on this Security, or for any claim based hereon, or
otherwise in respect hereof, or based on or in respect of the
Indenture, against any incorporator, stockholder, affiliate, officer or
director, past, present or future, as such, of the Company or of any
predecessor or successor corporation, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the
acceptance hereof and as part of the consideration for the issuance
hereof, expressly waived and released.
Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Indenture.
The Indenture and this Security shall be governed by and
construed in accordance with the laws of the State of Louisiana.
(2) The office of Regions Bank of Louisiana is hereby
designated and created as the agency of the Company in the City of
Monroe and State of Louisiana at which (i) both the principal and
the interest on the Senior Notes are payable on the terms and
conditions specified in the Indenture and notices, presentations
and demands to or upon the Company in respect the Senior Notes may
be given or made, (ii) the Senior Notes may be surrendered for
transfer or exchange and transferred or exchanged in accordance
with the terms of the Indenture and (iii) books for the
registration and transfer of the Senior Notes shall be kept;
(3) The office of Regions Bank of Louisiana of Louisiana is
hereby designated and created as Security Registrar of the Company
in the City of Monroe and State of Louisiana at which (i) the
Company shall register the Senior Notes, (ii) the Senior Notes may
be surrendered for transfer or exchange and transferred or
exchanged in accordance with the terms of the Indenture, and (iii)
books for the registration and transfer of the Senior Notes shall
be kept; and
(4) The Senior Notes hereby authorized by these resolutions
shall be in substantially the form and shall have the
characteristics provided in the Indenture, and the form of the
Senior Notes of each such series set forth in these resolutions is
hereby approved and adopted.
FURTHER RESOLVED THAT:
(1) The President or any Vice President of the Company is
hereby authorized to execute and deliver on behalf of the Company
an Underwriting Agreement (the "Underwriting Agreement") in
substantially the form of the Underwriting Agreement included as
an exhibit to the registration statement of Form S-3 filed by the
Company on December 11, 1997 and declared effective ______________
(Registration No. 333-_______) (the "Registration Statement"),
reflecting the terms of the sale of the Series ________ Notes to
the Underwriters named in such agreement, along with the
accompanying Price Determination Agreement that confirms that the
sale price of the Series _____ Notes (after deducting an
underwriting discount of ____ percent) shall be ____ percent of
the principal amount thereof;
(2) The President or any Vice President and the Secretary
or any Assistant Secretary of the Company are hereby authorized
and directed to deliver to the Trustee a certified record of these
resolutions setting forth the terms of the Series ________ Notes
as required by Section 2.01 of the Indenture;
(3) The President or any Vice President of the Company is
hereby authorized to execute $ _______ aggregate principal amount
of Series ___ Notes on behalf of the Company under its corporate
seal or a facsimile attested by the Secretary or any Assistant
Secretary, and the signature of the President, or any Vice
President, may be in the form of a facsimile signature of the
present or any future President or Vice President and the
signature of the Secretary or any Assistant Secretary in
attestation of the corporate seal may be in the form of a
facsimile signature of the present or any future Secretary or
Assistant Secretary, and should any officer who signs, or whose
facsimile signature appears upon, any of the Senior Notes cease
to be such an officer prior to their issuance, the Series _____
Notes so signed or bearing such facsimile signature shall still be
valid, and without prejudice to the use of the facsimile signature
of any other officer as hereinabove authorized, the facsimile
signature of Glen F. Post III, President, and the facsimile
signature of Harvey P. Perry, Secretary, are hereby expressly
approved and adopted;
(4) The officers of the Company are hereby authorized to
cause the Series _____ Notes to be delivered to the Trustee for
authentication and delivery by it in accordance with the
provisions of the Indenture, and the Trustee is hereby authorized
and requested to authenticate the Series _____ Notes upon
compliance by the Company with the provisions of the Indenture and
to deliver the same to or upon the written order of the President
or any Vice President of the Company, and the President or any
Vice President is hereby authorized to apply to the Trustee for
the authentication and delivery of Series ________ Notes;
(5) The President or any Vice President and the Treasurer
or any Assistant Treasurer of the Company are hereby authorized
and empowered to endorse, in the name and on behalf or the
Company, any and all checks received in connection with the sales
of the Series _____ Notes for application as described in the
offering materials prepared and filed, or to be prepared and
filed, in connection with the offering of the Series _____ Notes,
or for deposit to the account of the Company in any bank, and that
any such endorsement be sufficient to bind the Company;
(6) The officers of the Company are hereby authorized to
issue and sell the aggregate principal amounts of the Series _____
Notes at the price and upon the terms and conditions set forth in
the Underwriting Agreement (including the accompanying Price
Determination Agreement) covering the sale of the Series _____
Notes;
(7) The preparation, dissemination and filing with the
Securities and Exchange Commission of the preliminary prospectus
supplement dated ______________________________ (to the
prospectus dated ____________________ forming a part of the
Registration Statement) is hereby ratified and confirmed in all
respects, and the officers of the Company are hereby authorized to
prepare, disseminate and file with the Securities and Exchange
Commission any additional preliminary or definitive prospectus
supplements that may be necessary or appropriate;
(8) The officers of the Company are authorized to execute
and deliver all such instruments and documents, to incur on behalf
of the Company all such expenses and obligations, to make all such
payments, and to do all such other acts and things as they may
consider necessary or desirable in connection with the
accomplishment of the intent and purposes of the foregoing
resolutions, including without limitation obtaining all necessary
and appropriate CUSIP numbers and debt ratings, retaining all
necessary printing companies, engraving companies and other agents
or advisers, executing and delivering all closing instruments that
are contemplated by the Indenture or Underwriting Agreement or
that are otherwise customary and appropriate, and issuing any
necessary and appropriate press releases; and
(9) All actions heretofore taken by the officers of the
Company that would have been authorized hereunder if taken after
the adoption of these resolutions are hereby ratified and
confirmed in all respects as the acts of the Company.
Exhibit 5
to Registration Statement
Jones, Walker
Waechter, Poitevent
Carrere & Denegre, L.L.P.
December 11, 1997
Century Telephone Enterprises, Inc.
100 Century Park Drive
Monroe, Louisiana 71203
RE: Registration Statement on Form S-3
Century Telephone Enterprises, Inc.
("Century")
Gentlemen:
We have acted as Century's special counsel in connection with
the preparation of the registration statement on Form S-3 (the
"Registration Statement") filed by Century with the Securities and
Exchange Commission (the "Commission") on the date hereof relating
to the registration of senior unsecured debt securities ("Senior
Debt Securities"), preferred stock ("Preferred Stock"), common stock
and associated preference share purchase rights ("Common Stock") and
warrants to purchase Senior Debt Securities, Preferred Stock or
Common Stock ("Warrants" and, collectively with the Senior Debt
Securities, Preferred Stock and Common Stock, the "Securities")
which may be issued from time to time in one or more series as
determined by Century's Board of Directors in subsequent resolutions
("Subsequent Resolutions") and as set forth in a supplement to the
prospectus (a "Prospectus Supplement") that forms a part of the
Registration Statement.
In connection with rendering the opinions expressed below, we
have examined original, photostatic or certified copies of (i) the
resolutions adopted by the Board of Directors of Century on November
20, 1997 (the "Board Resolutions"), (ii) the Indenture (the
"Indenture") dated as of March 31, 1994 between Century and Regions
Bank of Louisiana (successor-in-interest to First American Bank &
Trust of Louisiana), Monroe, Louisiana, as Trustee (the "Trustee"),
and (iii) such other records of Century, certificates of Century's
officers and public officials, and such other documents as we have
deemed relevant. In our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents
of all documents submitted to us as certified or photostatic copies
and the authenticity of the originals of such documents.
Based upon the foregoing and subject to the following
qualifications and comments, we are of the opinion that:
1. Century is a corporation duly organized, validly existing
and in good standing under the laws of the State of Louisiana and
has all requisite corporate power to issue the Securities.
2. Each series of Senior Debt Securities will be legally
issued and binding obligations of Century when (i) the Registration
Statement, as finally amended, shall have become effective under the
Act, (ii) any necessary supplemental indenture to the Indenture
shall have been duly authorized, executed and delivered by Century
and the Trustee, (iii) the terms of such series of Senior Debt
Securities shall have been established and approved in accordance
with Subsequent Resolutions, as contemplated by the Indenture and
the Registration Statement, (iv) a Prospectus Supplement with
respect to such series of Senior Debt Securities shall have been
filed (or transmitted for filing) with the Commission pursuant to
Rule 424(b) of the Act and (v) any required certificates
representing such series of Senior Debt Securities shall have been
duly authenticated, executed and delivered in accordance with the
Indenture, and such Securities shall have been duly delivered to the
purchasers thereof against payment of the agreed consideration
therefor in accordance with the applicable underwriting, purchase or
similar agreement.
3. The Common Stock will be legally issued, fully paid and
non-assessable when (i) the Registration Statement, as finally
amended, shall have become effective under the Act, (ii) the
issuance and sale of the Common Stock shall have been approved, in
conformity with applicable law, in accordance with Subsequent
Resolutions, as contemplated by the Registration Statement, (iii) a
Prospectus Supplement with respect to such shares of Common Stock
shall have been filed (or transmitted for filing) with the
Commission pursuant to Rule 424(b) of the Act and (iv) certificates
representing the Common Stock shall have been duly executed,
countersigned and registered and duly delivered to the purchasers
thereof against payment of the agreed consideration therefor (but
not less than the par value) in accordance with the applicable
underwriting, purchase or similar agreement.
4. Each series of Warrants to purchase Senior Debt Securities
will be legally issued and binding obligations of Century when (i)
the Registration Statement, as finally amended, shall have become
effective under the Act, (ii) a Warrant Agreement relating to such
Warrants shall have been duly authorized, executed and delivered by
Century and the warrant agent or agents thereunder, (iii) the terms
of such Warrants shall have been established and approved in
accordance with Subsequent Resolutions, as contemplated by the
Registration Statement and the Warrant Agreement relating to such
Warrants, (iv) a Prospectus Supplement with respect to such Warrants
shall have been filed (or transmitted for filing) with the
Commission pursuant to Rule 424(b) of the Act, (v) any and all
actions required under the Indenture to validly issue the Senior
Debt Securities upon exercise of the Warrants shall have been taken
and (vi) such Warrants shall have been duly executed and
authenticated or countersigned as provided in the Warrant Agreement
relating thereto and duly delivered to the purchasers thereof
against payment of the agreed consideration therefor in accordance
with the applicable underwriting, purchase or similar agreement.
5. Each series of Preferred Stock will be legally issued,
fully paid and non-assessable when (i) the Registration Statement,
as finally amended, shall have become effective under the Act, (ii)
the terms of such series of Preferred Stock shall have been
established and approved, in conformity with applicable law, in
accordance with Subsequent Resolutions, as contemplated by the
Registration Statement, (iii) Articles of Amendment setting forth
the terms of such series of Preferred Stock shall have been duly
executed, acknowledged, filed and recorded and shall have become
effective in accordance with the Louisiana Business Corporation Law,
(iv) a Prospectus Supplement with respect to such series of
Preferred Stock shall have been filed (or transmitted for filing)
with the Commission pursuant to Rule 424(b) of the Act and (v)
certificates representing such series of Preferred Stock shall have
been duly executed, countersigned and registered and duly delivered
to the purchasers thereof against payment of the agreed
consideration therefor (but not less than par value) in accordance
with the applicable underwriting, purchase or similar agreement.
6. Each series of Warrants to purchase Common Stock or
Preferred Stock will be legally issued and binding obligations of
Century when (i) the Registration Statement, as finally amended,
shall have become effective under the Act, (ii) a Warrant Agreement
relating to such Warrants shall have been duly authorized, executed
and delivered by Century and the warrant agent or agents thereunder,
(iii) the terms of such Warrants shall have been established and
approved in accordance with Subsequent Resolutions, as contemplated
by the Registration Statement and the Warrant Agreement relating to
such Warrants, (iv) a Prospectus Supplement with respect to such
Warrants shall have been filed (or transmitted for filing) with the
Commission pursuant to Rule 424(b) of the Act, (v) any and all
action required under the Louisiana Business Corporation Law to
validly issue Common Stock or Preferred Stock upon exercise of the
Warrants shall have been taken and (vi) such series of Warrants
shall have been duly executed and authenticated or countersigned as
provided in the Warrant Agreement relating thereto and duly
delivered to the purchasers thereof against payment of the agreed
consideration therefor in accordance with the applicable
underwriting, purchase or similar agreement.
In connection with our opinions expressed above, we have
assumed that, at or prior to the time of the delivery of any such
Security: (i) the Board of Directors of Century shall have duly
authorized the issuance and sale of each such Security pursuant to
the adoption of Subsequent Resolutions and such authorization shall
not have been modified or rescinded; (ii) the Registration Statement
shall have been declared effective and such effectiveness shall not
have been terminated or rescinded; (iii) the Indenture has been duly
authorized, executed and delivered by Century and the Trustee and
the Indenture has been and continues to be qualified under the Trust
Indenture Act of 1939, as amended; and (iv) there will not have
occurred any change in law affecting the validity or enforceability
of any such Security. We have also assumed that none of the terms
of any Security to be established subsequent to the date hereof nor
the issuance and delivery of such Security, nor the compliance by
Century with the terms of such Security will violate any applicable
law or will result in a violation of any provision of any instrument
or agreement then binding upon Century, or any restriction imposed
by any court or governmental body having jurisdiction over Century
or its assets.
The opinions set forth in paragraphs 2, 4 and 6 hereof are
subject to the qualification that enforceability may be limited by
(i) applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or similar laws of general applicability
relating to or affecting the enforcement of creditors' rights, (ii)
general principles of equity (regardless of whether enforceability
is considered in a proceeding in equity or at law) and (iii)
governmental authority to limit, delay or prohibit the making of
payments outside of the United States or in a foreign currency or
currency unit.
The opinions rendered herein are specifically limited to
currently applicable United States federal law and the laws of the
State of Louisiana as they relate to the opinions expressed herein.
We are members of the bar of the State of Louisiana and have neither
been admitted to nor purport to be experts on the laws of any other
jurisdiction. We express no opinion as to the application of the
securities or blue sky laws of the various states to the sale of any
Securities.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the prospectus
forming a part thereof under the caption "Legal Matters." In giving
this consent, we do not admit that we are within the category of
persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the general rules and regulations of the
Commission.
Yours very truly,
JONES, WALKER, WAECHTER,
POITEVENT, CARRERE & DENEGRE, L.L.P.
By: /s/ Kenneth J. Najder
---------------------
Kenneth J. Najder
Exhibit 12
to Registration Statement
<TABLE>
<CAPTION>
RATIO OF EARNINGS TO FIXED CHARGES
(unaudited)
Pro Forma
Consolidated
-------------------------------
Year Ended December 31, Nine Months For the Year Nine Months
---------------------------------------- Ended Ended Ended
1992 1993 1994 1995 1996 Sept. 30, 1997 Dec. 31, 1996 Sept. 30, 1997
---- ---- ---- ---- ---- -------------- ------------- --------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income before the
cumulative effect of
changes in accounting
principles . . . . . . $59,973 $69,004 $100,238 $114,776 $129,077 $157,744 120,632 158,648
Income taxes. . . . . . . 32,599 37,252 61,300 68,292 74,565 90,251 87,174 104,988
------- ------- -------- -------- -------- -------- -------- --------
Pretax income . . . . . . 92,572 106,256 161,538 183,068 203,642 247,995 207,806 263,636
Adjustments to Earnings:
Fixed charges. . . . . 27,817 30,275 43,131 44,558 46,388 34,777 187,165 140,729
Capitalized interest . (547) (76) (392) (746) (1,063) (677) (1,063) (677)
Preferred dividends of
subsidiaries paid
to outside parties . (104) (50) (162) (197) (663) (561) (663) (561)
Gross earnings from
unconsolidated
cellular
partnerships . . . . (2,526) (7,004) (16,049) (20,155) (26,952) (21,750) (32,099) (28,386)
Distributed earnings
from unconsolidated
cellular
partnerships. . . . 395 1,587 5,969 4,957 15,648 9,173 15,648 9,173
Gross losses from
unconsolidated
cellular
partnerships. . . . 834 378 351 71 - - - -
Minority losses from
majority-owned
subsidiaries. . . . (315) (625) (509) (321) (239) (1,507) - (1,507)
------- ------- -------- -------- -------- -------- -------- --------
Earnings as adjusted. . . 118,126 130,741 193,877 211,235 236,761 267,450 376,794 382,407
------- ------- -------- -------- -------- -------- -------- --------
Fixed charges:
Interest expense . . . 27,166 30,149 42,577 43,615 44,662 33,539 179,269 134,491
Interest capitalized . 547 76 392 746 1,063 677 1,533 677
Interest portion of
rental expense. . . - - - - - - 5,700 5,000
Preferred dividends
of subsidiaries
paid to outside
parties . . . . . . 104 50 162 197 663 561 663 561
------- ------- -------- -------- -------- -------- -------- --------
27,817 30,275 43,131 44,558 46,388 34,777 187,165 140,729
------- ------- -------- -------- -------- -------- -------- --------
Ratio of earnings to
fixed charges. . . . . 4.25 4.32 4.50 4.74 5.10 7.69(1) 2.01 2.72(2)
======= ======= ======== ======== ======== ======== ======== ========
(1) 5.67 excluding the gain on the sale of Century's competitive access subsidiary
in the second quarter of 1997.
(2) 2.22 excluding the gain on the sale of Century's competitive access subsidiary
in the second quarter of 1997.
</TABLE>
Exhibit 23.1
------------
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors
Century Telephone Enterprises, Inc.
We consent to the use of our report dated January 29, 1997, related to the
consolidated financial statements and related financial statement schedules
of Century Telephone Enterprises, Inc. as of December 31, 1996 and 1995, and
for each of the years in the three-year period ended December 31, 1996,
incorporated by reference and to the reference to our firm under the heading
"Experts" in the prospectus constituting part of the Registration Statement
on Form S-3 of Century Telephone Enterprises, Inc. to be filed on or about
December 11, 1997.
/s/ KPMG Peat Marwick LLP
- --------------------------
KPMG PEAT MARWICK LLP
Shreveport, Louisiana
December 11, 1997
[Letterhead of Deloitte & Touche LLP]
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
Pacific Telecom, Inc.:
We consent to the use in this Registration Statement of Century Telephone
Enterprises, Inc. on Form S-3 of our report dated January 27, 1997, appearing
in the Annual Report on Form 10-K included herein of Pacific Telecom, Inc.
for the year ended December 31, 1996.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
- --------------------------
DELOITTE & TOUCHE LLP
Portland, Oregon
December 11, 1997
Exhibit 99.1
to Registration Statement
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1996
----------------------------------------------
OR
[ ] 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: 0-873
--------------------------------------------------
PACIFIC TELECOM, INC.
(Exact name of registrant as specified in its charter)
STATE OF WASHINGTON 91-0644974
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
805 BROADWAY, P.O. BOX 9901, VANCOUVER, WASHINGTON 98668-8701
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (360)905-5800
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. YES
[X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 14, 1997, there were 100 shares of Common Stock outstanding.
The aggregate market value of voting stock held by nonaffiliates of the
Registrant: None
THIS REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
J(1)(A) AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM 10-K WITH
THE REDUCED DISCLOSURE FORMAT.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
<PAGE>
TABLE OF CONTENTS
Page No.
--------
Definitions ..................................................... 3
- - -----------
PART I
- - ------
Item 1 Business
Introduction ........................................ 4
Telecommunications Operations ....................... 4
Local Exchange Companies .......................... 4
Cellular Operations ............................... 5
Pacific Telecom Cable ............................. 5
Regulation .......................................... 6
Employees ........................................... 7
Item 2 Properties ............................................ 7
Item 3 Legal Proceedings ..................................... 7
PART II
- - -------
Item 5 Market for Registrant's Common Equity and
Related Stockholder Matters ......................... 8
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations ................. 8
Item 8 Financial Statements and Supplementary Data ........... 13
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure .............. 31
PART IV
- - -------
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K ......................................... 31
Signatures ...................................................... 34
Appendices
Statements of Ratio of Earnings to Fixed Charges
- 2 -
<PAGE>
DEFINITIONS
When the following terms are used in the text, they will have the meanings
indicated:
TERM MEANING
---- -------
Alaska Spur A portion of the North Pacific Cable that links
Alaska and the lower 48 states
AT&T AT&T Corp.
Alascom Alascom, Inc., a wholly-owned subsidiary of PTI until
its sale to AT&T in August 1995
Company PTI and its subsidiaries
FCC Federal Communications Commission
FMUS Fairbanks Municipal Utility System
GTE GTE North Incorporated
Holdings PacifiCorp Holdings, Inc., a wholly-owned subsidiary
of PacifiCorp
LEC Local exchange company
MSA Metropolitan statistical area
NPC North Pacific Cable, a submarine fiber optic cable
between the U.S. and Japan
PCS Personal communication services
PTC Pacific Telecom Cable, Inc., an 80 percent
owned subsidiary of PTI
PT Cellular Pacific Telecom Cellular, Inc., a wholly-owned
subsidiary of PTI
PT Transmission Pacific Telecom Transmission Services, Inc.,
a wholly-owned subsidiary of PTI
PTI Pacific Telecom, Inc., a Washington corporation
RSA Rural service area
U.S. United States of America
USF Universal Service Fund
USWC US WEST Communications, Inc.
- 3 -
<PAGE>
PART I
Item 1. BUSINESS
--------
Introduction
- - ------------
PTI was organized in 1955 to provide telephone service to suburban
and rural communities principally in the Pacific Northwest. Since that
time, the Company has grown significantly through acquisitions and
expansion of its service offerings in several areas within the
telecommunications industry. This expansion included investments in
cellular telephone operations, international communications, including the
construction of a trans-Pacific fiber optic cable and, until August 1995,
the provision of long distance services in the State of Alaska through
Alascom. Over the past few years, the Company's strategy has been to
focus on its core business of providing local exchange service to suburban
and rural markets and to divest its diversified portfolio of noncore
businesses. This strategy has been implemented through the acquisition of
LECs, the sale of certain international operations, the consolidation and
sale of cellular holdings, and the sale of Alascom to AT&T.
The Company is a wholly-owned subsidiary of Holdings, which is a
wholly-owned subsidiary of PacifiCorp. On September 27, 1995, holders of
a majority of the approximately 5.3 million shares of outstanding common
stock held by minority shareholders voted in favor of the merger of a
wholly-owned subsidiary of Holdings into the Company. As a result of the
merger, the Company has a liability at December 31, 1996 of $29.5 million
to be paid to dissenters in the merger based on $30.00 per share fair
value for their shares, including interest on the liability accrued at a
rate equal to 5.97 percent per annum. The Company also has a receivable
from Holdings in the amount of the accrued liability to dissenters. PTI
had been a majority-owned subsidiary of PacifiCorp since 1973.
Telecommunications Operations
- - -----------------------------
Local Exchange Companies
------------------------
The Company's LECs operate under a common business and brand name,
PTI Communications. This marketing concept creates a unified identity for
the local operations, improves communication with customers and assists in
the marketing of new products and services. As one of the major
independent telephone companies in the U.S., the Company's LECs provide
both local telephone service and access to the long distance network for
customers in their respective service areas. The LECs also provide
directory advertising and, through contracts with interexchange carriers,
billing and collection services. At December 31, 1996, the Company
operated 13 LECs within eleven states comprised of 559,500 access lines
in 344 exchanges. The average number of access lines per exchange is
approximately 1,626, reflecting the lower population density generally
found in the Company's service areas. The Company's largest exchange in
terms of access lines is in Kalispell, Montana, which had 26,594 access
lines at December 31, 1996. Service areas are located primarily in the
states of Alaska, Colorado, Montana, Oregon, Washington and Wisconsin.
States also served, but to a lesser extent, include Idaho, Iowa,
Minnesota, Nevada and Wyoming. (See "Regulation.") The Company provides
centralized administrative and support services to field operations from
its corporate offices in Vancouver, Washington.
The LECs experienced strong internal access line growth in certain
service areas, as evidenced by a 5.5 percent increase in access lines
served during 1996. As a result of acquisitions in Colorado, Washington
and Oregon, the Company added 90,000 access lines in 1995, an increase of
22 percent. The Company has definitive agreements with USWC and GTE to
purchase local exchange telephone properties in Minnesota and Michigan,
respectively. The Minnesota properties represent 32 exchanges serving
27,100 access lines and the Michigan properties represent eight exchanges
serving 11,300 access lines. The Company has a definitive agreement with
the City of Fairbanks to acquire its telephone and cellular operations,
FMUS, that have approximately 32,000 access lines and 6,800 cellular
customers. These acquisitions are subject to regulatory approval and are
expected to close in 1997. The Company has letters of intent to acquire
operations representing eight exchanges serving approximately 4,300 access
lines. These acquisitions are subject to completion of due diligence
investigations, negotiations of definitive purchase agreements and
regulatory approval.
- 4 -
<PAGE>
Cellular Operations
-------------------
The Company's wholly-owned subsidiary, PT Cellular, is a holding
company with subsidiaries in Alaska, Michigan, Oregon, South Dakota,
Washington and Wisconsin. The Company has ownership interests with
respect to 24 MSAs and RSAs and manages 10 of these interests in Alaska,
Michigan and Wisconsin. The Company also manages one other RSA in
Wisconsin in which it has no ownership interest. Revenues from cellular
operations represented approximately eight percent of total Company
revenues in 1996.
The Company may increase its ownership interests in certain cellular
properties in order to achieve ownership control or to consolidate the
Company's cellular service areas into larger contiguous units for
operating and network efficiencies. This plan may be accomplished through
the exchange of existing cellular interests and/or future acquisitions.
Due to the purchase of cellular properties with the pending FMUS
acquisition, the Company would own a portion of both the wireline and non
wireline channel blocks in Alaska RSA #1. The FCC rules generally
prohibit direct or indirect ownership interest in licensees for both
blocks in the same cellular geographic service areas. Therefore, the
Company will be required to sell one of the channel blocks located in
Alaska RSA #1.
On January 14, 1997, the FCC completed its auction of 1,479 licenses
to provide broadband PCS on the D, E and F blocks in the two GHz frequency
band. Each license authorizes service on 10 MHz of spectrum in one of 493
Basic Trading Areas, with three licenses awarded in each area. The
Company, through its wholly-owned subsidiary MVI, Corp., was high bidder
on eleven licenses in Wisconsin, eight licenses in Michigan, three
licenses each in Minnesota and Alaska and one license each in Montana,
Iowa and Colorado. The Company's average bid per POP for these licenses
was $2.17. These licenses overlap the Company's existing cellular and
local exchange properties. The Company continues to evaluate the
potential services to be offered within each license area, but anticipates
initial deployment of services in some areas to commence in late 1997.
The FCC requires that an adequate signal be provided to at least
one-quarter of the population of the licensed area within five years of
the license grant. Funds to be used to purchase the PCS licences will be
provided from the sale of cellular interests in two properties in Wisconsin.
Pacific Telecom Cable
---------------------
PTC, which is owned 80 percent by PTI and 20 percent by Cable &
Wireless plc (C&W), a United Kingdom corporation, is involved in the
operation, maintenance and sale of capacity of a submarine fiber optic
cable between the U.S. and Japan, known as the NPC. The eastern end of
the cable is operated by PTC. The western end is operated by
International Digital Communications, Inc. (IDC), a Japanese corporation.
Major IDC shareholders include C. Itoh & Co., Ltd, Toyota Motor
Corporation, Pacific Telesis International and C&W.
The NPC was the first submarine fiber optic cable to provide direct
service between the U.S. and Japan. In addition, through the Alaska Spur,
it provides the first and only digital fiber optic link between Alaska and
the lower 48 states. Service between the U.S. and Japan is carried on
three, 420 Mbit/s digital fiber optic pairs, providing a total capacity of
1,260 Mbit/s. Service between Alaska and the lower 48 states is carried
on one, 420 Mbit/s digital fiber optic pair. On the eastern end, the
cable lands at Pacific City, Oregon and Seward, Alaska. From the landing
stations, traffic is transmitted to carrier access centers near Portland,
Oregon and Anchorage, Alaska for interconnection with digital
communications facilities serving the lower 48 states and Alaska and with
facilities transmitting traffic to foreign countries. On the western end,
the cable lands at Miura, Japan, and traffic is transmitted to IDC's
carrier access centers in Tokyo, Yokohama and Osaka for interconnection
with Japanese domestic service providers. For service to points beyond
Japan, IDC has constructed a 75-mile submarine cable from Miura to Chikura
where it interconnects with other international cables. IDC also
participates in the Asia Pacific Cable system that links Miura with Hong
Kong, Singapore, Taiwan and Malaysia. (See Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
for information about cable outages during 1995.) At December 31, 1996,
approximately 59 percent of the cable's 17,010 circuit capacity had been
sold.
PT Transmission provides restoration services for the eastern end of
the NPC under the terms of its tariff. In the event of a cable failure,
restoration services are provided via a PT Transmission satellite earth
station located at Moores Valley, Oregon.
- 5 -
<PAGE>
Regulation
- - ----------
The Company's LECs operate in an industry that is subject to
extensive regulation by the FCC and state regulatory agencies. Virtually
all services are provided in accordance with tariffs filed with the
appropriate regulatory agencies. The telecommunications industry
continues to undergo change as a result of a series of regulatory,
judicial and Congressional proceedings regarding the deregulation of
certain aspects of the industry. The FCC and certain state regulatory
agencies are also pursuing alternative forms of regulation that depart
from traditional rate-of-return regulation for telecommunications
companies such as the Company. These alternatives include opening local
exchange franchises to encourage greater competition.
In 1993, the Wisconsin legislature enacted a new model to manage the
transition to a competitive telecommunications marketplace.
Telecommunication utilities are permitted to file alternatives to
traditional rate-of-return regulation, and the Company's Wisconsin LEC
operations received approval of an alternative regulation plan effective
July 1, 1996. The plan covers a five-year period and includes a provision
that allows the Company to adjust rates within specified parameters if
certain quality-of-service and infrastructure-development commitments are
met. The alternative regulation plan also included proposed open market
initiatives designed to facilitate the introduction of local exchange
competition in the Company's Wisconsin service territory.
On February 8, 1996, President Clinton signed into law the
Telecommunications Act of 1996 (the 1996 Act). The 1996 Act addresses a
substantial number of telecommunications matters, with a general goal of
promoting the development of competitive service provisioning in all
telecommunications markets over time, including local exchange services.
Among the many issues comprehended by the 1996 Act are those affecting
removal of barriers to entry for various geographic and service markets,
universal service standards and mechanisms, eligibility for and access to
universal service support funding, interconnection and unbundling of
telecommunications networks (including exemption, suspensions, and
modifications of requirements pertaining thereto for certain classes of
carriers), large carrier (Bell Operating Companies) entry into interstate
interexchange communications markets, and infrastructure sharing.
The 1996 Act, which applies generally to the Company, also contains
provisions with specific import for the Company's operations.
Definitional provisons classify the Company as a "rural telephone company"
for certain purposes of the Act. Various of the interconnection and
unbundling requirements applicable generally to incumbent local exchange
carriers are subject to exemption provisions available to rural telephone
companies, which the Company is under the above definition, or to waiver
provisions for local exchange companies with less than two percent of the
total nationwide access lines, which qualification the Company also meets.
The 1996 Act authorizes the establishment of USF to provide support for
eligible telecommunications carriers, for which designation the Company
believes it will qualify in the future. Management believes these and
other provisions will prove consistent with the Company's current and
planned operations. The Company recognized USF revenues of $55.1 million
in 1996 and anticipates recognition of approximately $56.0 million in
1997.
With respect to a number of matters, the 1996 Act permits or requires
further proceedings by the FCC, or state regulatory commissions, or both.
Following the effective date of the 1996 Act, the FCC initiated more than
one hundred separate dockets to address various aspects of the 1996 Act's
implementation. Also, a Federal-State Joint Board was convened to examine
and to make recommendations concerning issues pertaining to future
universal service definitions and the establishment of mechanisms for
support funding. Independently, a number of state regulatory commissions
overseeing the Company's local exchange operations within the states
commenced proceedings relating to both the 1996 Act and specific state
statutory initiatives and requirements. The Company has participated
actively in all major proceedings which are likely to have an impact upon
its future operations and financial performance. Additionally, the
Company has helped to organize or has participated, or both, in industry
organizations in an effort to communicate its views effectively on these
various issues.
The Company believes that the 1996 Act, and the regulatory
proceedings deriving therefrom, continue to prove consistent with the
long-term strategic plan of the Company. Based in part upon the rural
nature of the Company's operations and the recognition currently being
accorded to rural serving requirements in the 1996 Act and derivative
regulatory proceedings, the Company does not believe that the Act and its
associated regulatory interpretations will have a material advese impact
on the Company's financial results of operations.
The Company's cellular interests are regulated by the FCC with
respect to the construction, operation and technical standards of cellular
systems and the licensing and designation of geographic boundaries of
service areas. Certain states also require operators of cellular systems
to satisfy a state certification process to serve as cellular operators.
- 6 -
<PAGE>
Employees
- - ---------
At December 31, 1996, the Company had 2,187 employees, approximately
32 percent of whom were members of five different bargaining units. These
units are represented by the International Brotherhood of Teamsters, the
International Brotherhood of Electrical Workers, Communication Workers of
America or the NTS Employee Committee. Relations with represented and
non-represented employees continue to be generally good.
Item 2. PROPERTIES
----------
The telephone properties of the Company's LECs include central office
equipment, microwave and radio equipment, poles, cables, rights of way,
land and buildings, customer premise equipment, vehicles and other work
equipment. Most of the Company's division headquarters buildings,
telephone exchange buildings, business offices, warehouses and storage
areas are owned by the Company's LECs. Approximately 39 percent of plant
assets are pledged to secure long-term debt. In addition, certain of the
LECs' microwave facilities, central office equipment and warehouses are
located on leased land. Such leases are not considered material, and
their termination would not substantially interfere with the operation of
the Company's business. (See "Item 1. Business - Telecommunications
Operations - Local Exchange Companies" for information regarding the
states in which the Company has LEC operations.)
PT Cellular's subsidiaries are partners in partnerships that own or
lease switching facilities, cell site towers, cell site radio equipment
and other equipment required to furnish cellular service to the areas they
serve. (See "Item 1. Business - Telecommunications Operations - Cellular
Operations" for information regarding the states in which the Company has
cellular operations.)
The properties of PTC and PT Transmission include a satellite
transmit and receive earth station, located at Moores Valley, Oregon,
fiber optic cables, land, buildings, operating facilities and business
offices, all of which are owned. In addition, PTC leases a duplicate
cable for backup between Pacific City, Oregon and Portland, Oregon and
business office space. PTC also holds in inventory its portion of the
unsold capacity in the NPC and backhaul facilities.
The Company's executive, administrative, purchasing and certain
engineering functions are headquartered in Vancouver, Washington. The
Company has a 50 percent ownership interest in its headquarters building
and, through a long-term lease, occupies approximately 63 percent of the
225,000 square-foot building. The Company owns two mainframe computers
and leases most of the other equipment used in conjunction with providing
data processing services.
Item 3. LEGAL PROCEEDINGS
-----------------
The Company is a party to various legal claims, actions and
complaints, one of which is described below. Although the ultimate
resolution of legal proceedings cannot be predicted with certainty,
management believes that disposition of these matters will not have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
On September 27, 1995, holders of a majority of the approximately 5.3
million shares of outstanding common stock held by minority shareholders
of the Company voted in favor of the merger of a wholly-owned subsidiary
of Holdings into the Company. As a result of the merger, the common stock
held by minority shareholders was converted into the right to receive
$30.00 per share in cash, other than shares as to which dissenters' rights
were perfected. Former minority shareholders of the Company who owned
approximately 26 percent of the total outstanding shares held by minority
shareholders filed notices with the Company asserting dissenters' rights
in connection with the merger. Certain of these shareholders have also
asserted that the fair value of the Company's common stock, to which they
will be entitled under the dissenters' rights provisions of the Washington
Business Corporation Act (WBCA), is substantially in excess of the $30.00
per share paid to the minority shareholders who did not dissent. The
process for judicial resolution of dissenting shareholder proceedings is
governed by the provisions of the WBCA. On February 12, 1996, the Company
filed a petition with the Superior Court of Washington for Clark County in
accordance with these provisions (Pacific Telecom, Inc. v. Gabelli Funds,
---------------------------------------
Inc. et. al., Superior Court of Washington for Clark County). Each of the
- - ------------
dissenters filed an answer in late March 1996. The dissenters
transferred the case to federal district court in Tacoma, Washington,
where it is now pending. The number of
- 7 -
<PAGE>
shares originally at issue was 1,343,995; however, 13 dissenters,
representing 460,800 shares, agreed to accept $30.00 per share and will be
dismissed from the case. As part of the dissenters' pre-trial
disclosures, the Company was advised that expert testimony to be offered
by the dissenters will be to the effect that the fair value per share of
the Company's common stock as of the date of the merger was in the range
of $43.56 to $50.20. Trial is scheduled for April 14, 1997.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
-------------------------------------------------
There is no public market for the Company's common stock. All of the
Company's outstanding common stock is owned by Holdings. Dividends are
normally declared and paid on a quarterly basis. For 1996 and 1995,
dividends paid totalled $52,816,000 and $52,267,000, respectively.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS *
-------------------------------------------------
The Company is continuing with its strategy of focusing resources on
providing local exchange telephone services in rural and suburban
markets. In late 1995 and during 1996, the Company signed definitive
agreements to purchase local exchange telephone properties and operations
representing approximately 70,400 access lines and cellular operations
representing 6,800 customers. The year ended December 31, 1995 can be
best described as a transition year, as the Company successfully exited
the long distance business in Alaska and redeployed the proceeds from the
divestiture into LEC assets. During 1995, the Company closed three
acquisitions of local exchange properties with USWC in Colorado,
Washington and Oregon. Assets representing 94 exchanges serving
approximately 90,000 access lines were purchased for an aggregate of
approximately $376.3 million. See Note 14 to Consolidated Financial
Statements included in Item 8 hereof for information concerning the USWC
asset acquisitions.
In August 1995, the Company sold its long distance subsidiary,
Alascom, to AT&T in a transaction that provided $365.5 million in cash.
AT&T paid $290.5 million in cash for the Alascom stock and settlement of
all past cost study issues. AT&T also agreed to allow the Company to
retain a $75 million transition payment made by AT&T to Alascom in July
1994 pursuant to an FCC order. See Note 15 to Consolidated Financial
Statements included in Item 8 hereof for information concerning the sale
of Alascom.
The Company operates predominately in the telecommunications industry
through local exchange operations, providing switched and non-switched
voice and data communication services, and access to its networks to
interexchange carriers. The Company had provided long lines operations
until August 7, 1995, when Alascom was sold. The Company is involved with
cellular operations which generate revenues from retail and foreign roamer
cellular services, as well as from management of cellular properties for
other owners. The Company is also engaged in the operation and
maintenance of the NPC. Revenues from this cable project are recognized
from the sale of capacity on the primary cable and backhaul system and
from maintenance and restoration services provided for the system. In
1996, 86 percent of consolidated operating revenues were contributed by
local exchange companies, eight percent by cellular operations, five
percent by cable and backhaul capacity sales and related cable services
and one percent by other activities. Certain revenues from the Company's
rate of return regulated operations are based on estimates that are
subject to subsequent adjustments in future accounting periods as refined
operational information becomes available.
- - ----------------------------------
* Pursuant to General Instruction J (1)(a) and (b) of Form 10-K, the
Company is substituting a management's narrative analysis of results of
operations for Item 7.
- 8 -
<PAGE>
The NPC system experienced three outages in 1995. The February and
October outages were caused by failure of components covered under
existing contractual warranty provisions. NPC's warranty provision
requires the contractor to pay for incurred marine operations charges and
to replace spares and materials used during the repair. The May outage
was caused by an external agency hooking the cable and dragging it on the
sea bed until the cable was damaged. During each of the outages,
restoration services were provided to customers within three hours after
the outage occured. The NPC system generates positive cash flow for the
Company, primarily from the provision of maintenance and restoration
services.
The Company's net income for the year ended December 31, 1996 was
$75.3 million, a decrease of 46 percent compared to net income of $139.6
million in 1995. This decrease was attributable to the after-tax gain on
the sale of Alascom of $66.4 million in 1995. Operating income declined
four percent or $6.6 million in 1996 compared to 1995 due to the $36.9
million decrease relating to the sale of Alascom. Most of the operating
income decline was offset by the acquisition of local exchange assets in
Colorado, Washington and Oregon, internal access line growth, revised
local exchange revenue estimates for prior years and cellular customer
growth. Operating revenues for 1996 were $521.1 million, a decrease of
$119.0 million, or 19 percent, compared to 1995. Operating expenses in
1996 were $362.4 million, a decrease of $112.4 million, or 24 percent,
compared to 1995. The local exchange acquisitions completed during 1995
had served to increase both operating revenues and expenses, and
substantially replace operating income that had been provided by Alascom.
However, with the sale of Alascom, the presentation of long distance
network services and access expense tend to distort a year to year
comparison of revenue and expenses.
The following table summarizes the effects of the sale of Alascom in
August 1995 and the acquisition of LEC assets in 1995 on operating income
for the period ended December 31, 1996, when compared to 1995. Other
variances are footnoted below:
<TABLE>
<CAPTION>
Year Alascom Variance Year
Ended Seven Months due to Ended
December 31, Ended July 31, LEC December 31,
1995 1995 Acquisitions Other 1996
------------ -------------- ------------ ----- ------------
(in millions)
<S> <C> <C> <C> <C> <C>
Operating revenues:
Local network service $120.5 $ 7.5 $12.9 (a) $140.9
Network access service 223.7 32.9 2.5 (b) 259.1
Long distance network service 150.1 $(148.9) .3 .1 1.6
Private line service 34.3 (34.3) -
Sales of cable capacity 3.4 5.0 (c) 8.4
Cellular 33.9 10.1 (d) 44.0
Other 74.2 (9.9) 1.8 1.0 67.1
----- ----- ---- ---- -----
Total operating revenues 640.1 (193.1) 42.5 31.6 521.1
----- ----- ---- ---- -----
Operating expenses:
Plant support 112.4 (26.3) 5.1 91.2
Depreciation and amortization 105.8 (19.6) 11.7 4.4 (e) 102.3
Leased circuits 20.9 (16.3) .1 (2.2)(f) 2.5
Access expense 53.0 (53.0) -
Other operating expense 37.9 (9.3) 1.1 1.4 (g) 31.1
Cost of cable sales 2.2 4.5 (h) 6.7
Customer operations 58.4 (15.8) .7 2.1 (i) 45.4
Administrative support 68.3 (14.8) 3.3 6.8 (j) 63.6
Taxes other than income taxes 15.9 (1.1) 2.4 2.4 (k) 19.6
----- ----- ---- ---- -----
Total operating expenses ` 474.8 (156.2) 24.4 19.4 362.4
----- ----- ---- ---- -----
Operating income $165.3 $(36.9) $18.1 $12.2 $158.7
===== ===== ==== ==== =====
</TABLE>
(a) Revenue from enhanced services, such as caller name and number
identification, voice messaging, automatic call back, auto recall and
call trace, of $4.1 million, revenue from LEC access line growth of
$6.1 million, LEC installation related charges of $1.0 million due to
customer growth and certain rate increases and extended area services
of $1.0 million accounted for most of the $12.9 million increase in
local network service revenue.
- 9 -
<PAGE>
(b) Network access service revenue grew by $2.5 million, with $3.4
million resulting from access line growth and higher minutes of use
and $2.8 million resulting from revised LEC revenue estimates for
prior years. This increase was partially offset by decreased
Universal Service Fund (USF) support of $3.9 million. The national
average cost per access line to provide service to rural telephone
customers (the USF benchmark) increased while the Company's cost per
access line increased at a rate below the national average. This
caused a slight decrease in the USF support received per access line.
(c) Sales of cable capacity increased $5.0 million due to additional
circuit sales.
(d) Cellular revenue grew $10.1 million due to growth in customers and
increased roamer revenues.
(e) Depreciation expense was higher by $4.4 million, which included $3.4
million due to increased LEC depreciable plant balances and $.7
million due to growth in cellular operations.
(f) Leased circuits expense decreased $2.2 million in 1996 mainly due to
the cable outage restoration services provided in February and May
1995.
(g) Other operating expense increased $1.4 million primarily due to
growth in cellular operations.
(h) Cost of cable sales increased by $4.5 million due to additional
circuit sales.
(i) Customer operations expense grew $2.1 million, which included $1.1
million due to growth in cellular operations and $.9 million due to
LEC customer growth.
(j) Administrative support increased $6.8 million mainly due to customer
growth, systems development and acquisition activities.
(k) Taxes other than income taxes increased $2.4 million mainly due to
higher property valuations and growth in excise taxes due to
increased LEC revenues.
Other expense - net was $36.0 million in 1996 compared to other
income - net of $21.3 million in 1995. Gain on sale of subsidiaries and
investments included pre-tax gains on cellular properties of $3.7 million
in 1996 and the pre-tax gain on the sale of Alascom of $66.5 million in
1995. Other expense was lower in 1996 due to higher cellular and LEC
equity income of $2.7 million and because 1995 included $1.5 million of
costs relating to Holdings' offer to purchase the minority interest in the
Company.
INCOME TAXES
- - ------------
(in millions, except percentages)
1996 1995
----- -----
Income tax expense $47.5 $47.0
Effective income tax rate 38.7% 25.2%
Income tax expense increased due to higher taxable income. The
financial statement gain on the sale of Alascom in 1995 was recorded
without federal or state income tax expense, because the tax basis in
Alascom was greater than the selling price. This caused the effective tax
rate to decline in 1995. Excluding the sale of Alascom, the Company's
effective tax rate would have been 39.1 percent in 1995. See Note 6 to
the Consolidated Financial Statements for an explanation of the tax impact
of the gain on the sale of Alascom.
- 10 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
(in millions)
Plan 1997 1996 1995
--------- ---- ----
Capital expenditures:
Local exchange companies $126 $113 $106
Long Lines - - 7
Cellular 7 6 7
Other 4 3 2
--- --- ---
Total capital expenditures $137 $122 $122
=== === ===
Acquisitions - LEC $432 $ - $368
=== === ===
Acquisitions - PCS $ 10 $ - $ -
=== === ===
Planned acquisitions during 1997 include the purchase of assets or
operations in Minnesota, Michigan, Fairbanks, Alaska and other
acquisitions for an aggregate $252 million, which includes a $5 million
escrow payment made during 1995, escrow payments totalling $2 million made
during 1996, and approximately $20 million for cash to be acquired in the
acquisitions. Also included in planned acquisitions in 1997 are $200
million for asset purchases not yet identified and that may not be
completed before year end. The Company plans to fund these acquisitions
with medium-term note issuances, internally generated cash and short-term
debt. If all the planned acquisitions close during 1997, debt as a
percentage of total capitalization is anticipated to be 53 percent by
year end 1997.
CAPITAL EXPENDITURES
- - --------------------
The Company's capital expenditures during 1996 were funded through
internally generated cash of $197 million. The acquisitions in 1995 were
funded primarily by proceeds from the sale of Alascom and borrowings under
the Series B Medium-term Notes program. The Company expects to fund its
capital expenditures in 1997 primarily through internally generated cash.
Capital expenditures during 1996 related mainly to network upgrades and
growth in the Company's operations. Significant network upgrades were
made during 1996 to acquired LEC assets.
ACQUISITIONS
- - ------------
The Company has a stated objective of growing its local exchange
operations through internal growth and acquisitions. The Company intends
to pursue acquisitions of independent telephone companies, and to
participate in the rural divestiture strategy of USWC and other large
regional holding companies. While the Company's primary goal is to
acquire properties in its current operating states, it would consider
entering new states if an acquisition opportunity were of sufficient size.
The Company believes that significant economies of scale and associated
cash flow benefits can be generated by acquiring new properties and
integrating them into the Company's administrative and operations
structure. See Notes 13 and 14 to Consolidated Financial Statements
included in Item 8 hereof for information concerning the asset
and operation acquisitions that were completed in 1995 and those that are
pending in 1997, respectively.
DISPOSITIONS
- - ------------
In February 1997, the Company sold its cellular interests in Brown
County (Wisconsin) and Wisconsin RSA 10 for net cash proceeds of $10.3
million and a net gain of $.1 million. Proceeds of the sale will be used
to purchase PCS licenses. See Item 1. "Business - Telecommunications
Operations - Cellular" for information concerning PCS license purchases.
- 11 -
<PAGE>
See Notes 5 and 15 to Consolidated Financial Statements included in
Item 8 hereof for information concerning the sales of cellular properties
and the sale of Alascom.
LONG-TERM AND SHORT-TERM DEBT
- - -----------------------------
(in millions, except percentages)
December 31,
------------------------
1996 1995
---- ----
Long-term debt $527.9 $459.5
Short-term debt 18.0 90.0
Currently maturing long-term debt 15.8 5.5
----- -----
$561.7 $555.0
===== =====
Debt as a percent of total capitalization 41.4% 41.8%
===== =====
In January 1996, the Company established a $200 million Series C
Medium-term Notes program. During 1996, the Company issued $133.5 million
of such notes and used the proceeds primarily to repay short-term debt.
The remaining $66.5 million will be used primarily to fund future
acquisitions.
The Company has access to funds through its $300 million revolving
credit agreement which terminates in November 1999. At December 31, 1996,
no borrowings were outstanding under this agreement. (See Note 11 to
Consolidated Financial Statements included in Item 8 hereof.) The
revolving credit agreement also serves as backup for a $100 million
commercial paper program, under which no borrowings were outstanding at
December 31, 1996. The Company had $43 million outstanding under other
available banking arrangements at December 31, 1996. Short-term
borrowings from other available banking arrangements of $25 million have
been classified as long-term debt at December 31, 1996 based on
management's intent and the Company's ability to support this debt on a
long-term basis. The Company is currently engaged in negotiations to
replace the existing credit agreement with a comparable facility.
At December 31, 1996, the Company had approval from the Rural
Telephone Bank to borrow $15.8 million in additional Rural Utilities
Service debt for certain construction projects.
Any temporary cash or liquidity requirements during 1997 will be met
through utilization of funds available under the revolving credit
agreement or temporary advances from Holdings. (See Note 2 to
Consolidated Financial Statements included in Item 8 hereof.) Long-term
liquidity requirements will be met through utilization of funds available
under the revolving credit agreement or the Series C Medium-term Notes
program. Cash needed to pay dissenters' rights is to be provided by
Holdings. (See Note 2 to Consolidated Financial Statements included in
Item 8 hereof.)
REGULATION
- - ----------
See Item 1. "Business - Regulation" for information concerning
regulation.
FORWARD-LOOKING STATEMENTS
- - --------------------------
The information in the tables and text in this document include
certain forward-looking statements that involve a number of risks and
uncertainties that may influence the financial performance and earnings of
the Company and its subsidiaries. When used in this "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
the words "estimates", "expects", "anticipates", "forecasts", "plans",
"intends" and variations of such words, and similar
- 12 -
<PAGE>
expressions are intended to identify forward-looking statements that
involve risks and uncertainties. There can be no assurance the results
predicted will be realized. Actual results will vary from those
represented by the forecasts, and those variations may be material.
The following factors are among the factors that could cause actual
results to differ materially from the forward-looking statements: utility
commission practices; regional economic conditions; environmental,
regulatory and tax legislation; technological developments in the
telecommunications industry; and the cost of debt and equity capital. Any
forward-looking statements issued by the Company should be considered in
light of these factors.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Directors and Shareholder of Pacific Telecom, Inc.:
We have audited the accompanying consolidated balance sheets of Pacific
Telecom, Inc. and its subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, changes in shareholder's
equity, and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements represent fairly,
in all material respects, the financial position of Pacific Telecom, Inc.
and its subsidiaries at December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Portland, Oregon
January 27, 1997
- 13 -
<PAGE>
PACIFIC TELECOM, INC.
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
--------------------------------
1996 1995 1994
---- ---- ----
(In thousands)
OPERATING REVENUES:
Local network service $140,870 $120,512 $ 96,944
Network access service 259,110 223,723 168,530
Long distance network service 1,606 150,064 271,977
Private line service - 34,270 58,193
Sales of cable capacity 8,353 3,419 4,567
Cellular 44,043 33,884 23,642
Other 67,148 74,263 72,533
------- ------- -------
Total operating revenues 521,130 640,135 696,386
------- ------- -------
OPERATING EXPENSES:
Plant support 91,163 112,350 117,694
Depreciation and amortization (Note 3) 102,292 105,828 100,879
Leased circuits 2,509 20,933 26,618
Access expense (Note 2) - 53,002 92,929
Other operating expense 31,066 37,876 35,116
Cost of cable sales 6,688 2,205 2,977
Customer operations 45,482 58,486 64,204
Administrative support 63,623 68,294 75,616
Taxes other than income taxes 19,575 15,850 15,712
------- ------- -------
Total operating expenses 362,398 474,824 531,745
------- ------- -------
OPERATING INCOME 158,732 165,311 164,641
------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense (40,823) (42,316) (34,754)
Interest income 3,471 2,798 1,716
Gain on sale of subsidiaries and
investments (Notes 5 and 15) 3,705 66,526 2,073
Minority interest (2,398) (1,298) (975)
Other 44 (4,445) (10,536)
------- ------- -------
Other income (expense) - net (36,001) 21,265 (42,476)
------- ------- -------
INCOME BEFORE INCOME TAXES 122,731 186,576 122,165
INCOME TAXES (NOTE 6) 47,454 47,012 40,766
------- ------- -------
NET INCOME $ 75,277 $139,564 $ 81,399
======= ======= =======
The accompanying notes are an integral part of these financial statements.
- 14 -
<PAGE>
PACIFIC TELECOM, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
----------------------
1996 1995
---- ----
(In thousands)
ASSETS
Current assets:
Cash and temporary cash investments $ 9,421 $ 6,331
Accounts receivable 97,705 81,528
Accounts and notes receivable - affiliates (Note 2) 62,345 41,234
Material and supplies (at average cost) 8,676 7,082
Inventory - North Pacific Cable 53,883 60,571
Other 6,428 9,522
--------- ---------
Total current assets 238,458 206,268
Investments (Note 9) 131,621 124,555
Plant in service:
Telecommunications (Note 3) 1,631,443 1,570,262
Other 22,444 22,655
Less accumulated depreciation 721,462 678,328
--------- ---------
932,425 914,589
Construction work in progress 16,140 13,970
--------- ---------
Net plant 948,565 928,559
Intangible assets - net 365,451 378,214
Deferred charges 17,713 16,528
--------- ---------
Total assets $1,701,808 $1,654,124
========= =========
The accompanying notes are an integral part of these financial statements.
- 15 -
<PAGE>
PACIFIC TELECOM, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
----------------------
1996 1995
---- ----
(In thousands)
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Currently maturing long-term debt (Note 11) $ 15,813 $ 5,535
Notes payable (Note 10) 18,000 90,000
Accounts payable 48,138 48,395
Accrued liabilities 52,788 58,736
Dissenters' rights (Note 2) 27,930 27,930
Accrued access and unearned revenue 7,216 8,354
--------- ---------
Total current liabilities 169,885 238,950
Long-term debt (Note 11) 527,906 459,502
Deferred income taxes (Note 6) 152,116 126,539
Unamortized investment tax credits 5,203 6,929
Other long-term liabilities 51,607 48,502
Minority interest 17,216 18,288
Shareholder's equity:
Common stock - stated value, 1996 and 1995 -
$1.00 (Note 2)
- authorized, 200,000,000 shares
- outstanding, 1996 and 1995 - 100 shares - -
Additional paid-in capital 225,943 225,943
Retained earnings (Note 11) 551,932 529,471
--------- ---------
Total shareholder's equity 777,875 755,414
Commitments and contingencies (Notes 4 and 13) - -
--------- ---------
Total liabilities and shareholder's equity $1,701,808 $1,654,124
========= =========
The accompanying notes are an integral part of these financial statements.
- 16 -
<PAGE>
PACIFIC TELECOM, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Common
Stock Additional Unearned Total
--------------- Paid-in Stock Retained Shareholder's
Shares Amount Capital Compensation Earnings Equity
------ ------- ---------- ------------ -------- -------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 39,609 $19,805 $205,985 $(143) $413,064 $638,711
Shares issued for benefits 13 6 293 299
Share purchases (2) (1) (47) (48)
Unearned stock compensation (Note 7) (299) (299)
Net income 81,399 81,399
Cash dividends (52,289) (52,289)
------ ------- ------- --- ------- -------
BALANCE, DECEMBER 31, 1994 39,620 19,810 206,231 (442) 442,174 667,773
Shares issued for benefits 26 13 792 805
Share purchases (30) (15) (882) (897)
Minority buy-out and
reverse merger (Note 2) (39,616) (19,808) 19,808 -
Share retirements (16) (16)
Unearned stock compensation
(Note 7) 10 442 452
Net income 139,564 139,564
Cash dividends (52,267) (52,267)
------ ------- ------- --- ------- -------
BALANCE, DECEMBER 31, 1995 - - 225,943 - 529,471 755,414
NET INCOME 75,277 75,277
CASH DIVIDENDS (52,816) (52,816)
------ ------- ------- --- ------- -------
BALANCE, DECEMBER 31, 1996 - $ - $225,943 $ - $551,932 $777,875
====== ======= ======= === ======= =======
</TABLE>
The Company has 152,000 shares of $25 stated value, six percent cumulative
Preferred Stock authorized, but no shares are outstanding.
The accompanying notes are an integral part of these financial statements.
- 17 -
<PAGE>
PACIFIC TELECOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 75,277 $139,564 $ 81,399
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 111,508 114,282 107,784
Deferred income taxes and investment tax credits, net 22,296 24,515 (62,329)
Gain on sale of subsidiaries and investments (3,705) (66,526) (2,073)
Gains from unconsolidated entities, net (6,030) (3,350) (3,135)
Accounts receivable and other current assets (10,868) (46,165) (8,089)
Inventory - North Pacific Cable 6,689 2,206 2,977
Accounts payable and accrued liabilities (3,277) (5,430) 22,168
Other 5,147 (6,049) 2,666
------- ------- -------
Net cash provided by operating activities 197,037 153,047 141,368
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (122,387) (121,753) (148,248)
Cost of businesses acquired - (368,348) -
Investments in and advances to affiliates (5,118) (7,321) (4,726)
Proceeds from Alaska restructuring (Note 15) - 235,076 105,000
Proceeds from sales of assets 5,821 3,985 17,656
------- ------- -------
Net cash used by investing activities (121,684) (258,361) (30,318)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term debt (72,000) 82,023 (3,190)
Change in affiliated notes (26,131) 459 -
Proceeds from issuance of long-term debt 135,239 153,810 8,006
Purchase of common stock - (897) (48)
Dividends paid (52,816) (52,267) (52,289)
Payments of long-term debt (56,555) (81,366) (58,507)
------- ------- -------
Net cash provided (used) by financing activities (72,263) 101,762 (106,028)
------- ------- -------
INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS 3,090 (3,552) 5,022
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF YEAR 6,331 9,883 4,861
------- ------- -------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR $ 9,421 $ 6,331 $ 9,883
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the year $40,030 $40,688 $ 36,692
Income taxes paid during the year 17,911 33,736 102,324
NONCASH INVESTING ACTIVITIES:
Liabilities disposed of in connection with the sale of subsidiaries - 85,668 53
Common stock issued in connection with employee benefits - 805 299
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 18 -
<PAGE>
PACIFIC TELECOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation -- The consolidated financial statements
include the accounts of Pacific Telecom, Inc. (PTI) and its
subsidiaries (Company). The equity method is used to account
for those affiliated companies in which the Company exerts
significant influence through management agreements or ownership
of 20 to 50 percent and for all cellular partnerships in which a
Company subsidiary is a partner. All appropriate intercompany
transactions and balances have been eliminated. The 1995 and
1994 consolidated financial statements reflect certain
reclassifications to conform to the 1996 presentations.
(b) Industry segmentation -- Although regulatory requirements impose
structural separation in its operations, the Company operates
predominately in the telecommunications industry through local
exchange operations providing switched and non-switched voice
and data communication services.
(c) Regulatory authorities -- The accounting policies of the Company
are in conformity with the requirements of the Federal
Communications Commission (FCC) and the regulatory agencies of
the various states in which the Company operates. The Company
prepares its financial statements in accordance with Statement
of Financial Accounting Standards (SFAS) No. 71, "Accounting for
the Effects of Certain Types of Regulation." Accounting under
SFAS 71 is appropriate as long as: rates are established by or
subject to approval by independent, third-party regulators;
rates are designed to recover the specific enterprise's
cost-of-service; and in view of demand for service, it is
reasonable to assume that rates are set at levels that will
recover costs and can be collected from customers.
(d) Telecommunications plant -- Telecommunications plant is stated
at cost. Additions to plant include direct costs and related
indirect charges. Depreciation and amortization are provided
using the straight-line method based on the estimated service
lives of the various classes of depreciable assets. Amounts
charged to operations for depreciation expense reflect methods
prescribed by regulators in the Company's regulated operations
and, given the Company's operating environment, do not
materially differ from estimated useful life determinations used
to calculate depreciation estimates of the Company's
nonregulated operations. These depreciation estimates and
methods are applied consistently in both regulated and public
financial presentations. The composite depreciation rate for
depreciable telecommunications plant was 6.2 percent in 1996,
6.1 percent in 1995 and 6.4 percent in 1994.
(e) Interest during construction -- In accordance with regulatory
requirements, the Company's regulated subsidiaries capitalize
debt costs applicable to their construction projects. Interest
capitalized during 1996 and 1995 was $470,000 and $231,000,
respectively.
(f) Asset impairments -- In December 1995, the Company adopted SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." SFAS 121 establishes
accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those
assets to be held and used and for long-lived assets and certain
identifiable assets to be disposed of. The Company evaluated
its assets based on this standard and concluded that no assets
qualified as impaired and consequently no adjustments were
required.
- 19-
<PAGE>
(g) Cash and cash equivalents -- The Company considers all
investments with original maturities less than 90 days to be
cash equivalents.
(h) Income taxes -- The Company uses the liability method of
accounting for income taxes, which requires that deferred income
taxes be provided for all differences between the financial
statement and tax bases of assets and liabilities. Deferred
income taxes result primarily from differences between the
financial statement and tax bases of depreciable assets and
certain acquired assets, as well as employment related expenses
not currently deductible.
Excess deferred income taxes on regulated assets and liabilities
resulting from the decrease in the statutory rates under the Tax
Reform Act of 1986, net of an increase arising from the Revenue
Reconciliation Act of 1993, are being amortized to income over
the composite book life of the related assets as required by
regulatory authorities.
Investment tax credits relating to regulated telephone property,
plant and equipment have been deferred and are being amortized
over the estimated useful lives of the related assets.
(i) Intangible assets -- These costs are primarily for franchises of
local exchange and cellular companies acquired and goodwill
recorded from such acquisitions and are being amortized
generally over 40 years. Accumulated amortization of these
costs at December 31, 1996 and 1995 was $53,359,000 and
$42,703,000, respectively. Intangible assets relating to
nonconsolidated investments are included in "Investments" on the
balance sheet (Note 9).
(j) Inventory -- Inventory on the North Pacific Cable represents the
construction costs for the cable, which are carried at lower of
cost or market and charged to income on an average cost per unit
basis as capacity in the cable is sold.
(k) Software capitalization -- The Company capitalizes initial
operating system software development costs and expenses
subsequent additions or modifications to operating system
software. The Company also capitalizes application software
that is purchased at a cost of $10,000 or more and with a useful
life in excess of one year.
(l) Accrued access and unearned revenue -- Advance billings
creditable to revenue accounts in future months and advance
payments made by prospective customers prior to establishment of
services are recorded in accrued access and unearned revenue
until the service is rendered or cleared from this account as
refunds are made.
(m) Revenue recognition -- The Company's subsidiaries participate in
access revenue pools for certain interstate and intrastate
revenues, which are initially recorded based on estimates.
Certain network access revenues are estimated under cost
separations procedures that base revenues on current operating
costs and investments in facilities to provide such services.
These estimates are subject to subsequent adjustment in future
accounting periods as refined operational information becomes
available.
(n) Use of estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements. Actual results could differ from
those estimates.
- 20 -
<PAGE>
(o) Regulatory assets and liabilities -- In accordance with SFAS 71,
the Company's LEC operations capitalize certain costs
(regulatory assets) in accordance with regulatory authority
whereby those costs will be expensed and recovered in future
periods. At December 31, 1996 and 1995, the Company had
$502,000 and $704,000, respectively, in regulatory assets and
$5,873,000 and $8,900,000, respectively, in regulatory
liabilities on its balance sheet. The regulatory assets were
included in "Deferred charges" and the regulatory liabilities
were included in "Other long-term liabilities." The regulatory
assets arose from the income tax benefits provided to current
ratepayers for pre-1987 tax deductible expenses that were
capitalized on the books of the Company and for which no
deferred taxes were provided. These regulatory assets are being
reduced as the capitalized amounts are depreciated on the books
and those expenses are recovered. The regulatory liabilities
are made up of three items. The first relates to the excess
deferred taxes that resulted from a reduction in the Federal tax
rate from 46 percent to 35 percent. This excess will not be
paid to the Federal government, but rather will reduce future
revenue requirements from customers over the average life of the
assets that generated the difference. The second item in the
regulatory liability is the tax savings resulting from this
reduced revenue requirement created by the amortization of the
excess deferred taxes. The final item is a similar reduction in
revenue requirements due to the tax savings resulting from
amortization of deferred investment tax credits.
NOTE 2. TRANSACTIONS WITH RELATED PARTIES
The Company is a wholly-owned subsidiary of PacifiCorp Holdings,
Inc. (Holdings), which is a wholly-owned subsidiary of PacifiCorp. On
September 27, 1995, holders of a majority of the approximately 5.3
million shares of outstanding common stock held by minority
shareholders voted in favor of the merger of a wholly-owned subsidiary
of Holdings into the Company. As a result of the merger, the common
stock held by minority shareholders (other than shares as to which
dissenters' rights were perfected) were converted into the right to
receive $30.00 per share in cash, and the Company became a wholly-owned
subsidiary of Holdings with 100 shares of no par value common stock
outstanding. At December 31, 1996, a liability in the amount of
$27,930,000 included amounts to be paid to dissenters in the merger
based on $30.00 per share fair value for shares and accrued interest at
a rate equal to 5.97 percent per annum. The Company also recorded a
receivable from Holdings in the amount of the accrued liability to
dissenters.
(a) Notes payable -- The Company has an agreement that permits
temporary cash advances to or from Holdings at short-term
borrowing rates (Note 10). Interest expense on borrowings from
Holdings was $10,000 in 1996. There were no borrowings from
Holdings in 1995 and 1994. Interest income related to cash
advances to Holdings was $1,660,000 in 1996, $577,000 in 1995
and $777,000 in 1994. Interest income for 1996 and 1995 mainly
relates to the note receivable from Holdings for estimated
amounts due dissenters.
(b) Long-term debt -- At December 30, 1996, the Company issued Series
C Medium-term Notes in the amount of $33,499,000 to PacifiCorp
Environmental Remediation Company, a wholly-owned subsidiary of
Holdings. Holding has agreed to pay the Company a fee of $10,000
annually for each year the notes are outstanding. See Note 11
for additional information relating to these notes.
(c) Accounts and notes receivable - affiliates -- These amounts
generally represent billings to affiliates for services provided
by the Company. The 1996 and 1995 amounts primarily reflect the
amount due from Holdings for estimated amounts due dissenters'
and a tax refund receivable from Holdings. In 1996, the amount
also represents cash advances to Holdings of $26,131,000.
(d) Access expense -- The long lines subsidiary sold during 1995
recognized approximately $10,001,000 for the first seven months
of 1995 and $18,332,000 in 1994 of interstate and intrastate
access expense related to the Company's local exchange companies
in Alaska. Due to the tariffed nature of these charges, the
amounts were recorded as network access service revenues by the
local exchange companies and have not been eliminated in the
consolidated financial statements.
- 21 -
<PAGE>
(e) Income taxes -- The Company participates with PacifiCorp in
filing consolidated income tax returns. The Company's income
tax provisions are based on a separate company calculation of
income taxes.
(f) Management fees -- The Company pays PacifiCorp a management fee
for administrative services PacifiCorp provides to the Company.
Management fees paid to PacifiCorp were $2,214,000 in 1996,
$1,289,000 in 1995 and $871,000 in 1994.
(g) The Company rents its headquarters building from a 50 percent
owned partnership. Annual rent was $1,661,000 in 1996, 1995 and
1994, 50 percent of which was included in administrative
support.
NOTE 3. TELECOMMUNICATIONS PLANT IN SERVICE
The balances by category of Telecommunications Plant in Service
at December 31 are (in thousands):
Average
Remaining
Life 1996 1995
--------- --------- ---------
Central Office Equipment 13 $ 560,841 $ 520,810
Poles, Cable and Conduit 20 874,308 826,075
Building and Towers 29 85,116 91,331
Other 11 111,178 132,046
--------- ---------
Total Telecommunications Plant in Service $1,631,443 $1,570,262
========= =========
Depreciation expense was $97,131,000, $101,966,000 and
$97,784,000 for 1996, 1995 and 1994, respectively. Depreciation
expense declined in 1996 relating to the sale of Alascom, Inc. (Alascom)
in 1995. This was partially offset by increases related to acquisitions.
NOTE 4. LEASE AND MAINTENANCE ARRANGEMENTS
The Company's operating lease and maintenance agreements relate
to the use of headquarters buildings, data processing and customer
premise equipment, terrestrial communications circuits and cable
maintenance and backhaul. These agreements generally contain
provisions or options to renew the agreements at fair market rental
rates. The Company has no material capital lease obligations at
this time. Under these noncancellable operating lease and
maintenance agreements, minimum annual rental commitments are as
follows (in thousands):
Year Ending December 31,
------------------------
1997 $17,442
1998 11,786
1999 5,423
2000 3,158
2001 2,265
2002 and beyond 4,765
------
Total minimum lease and maintenance payments $44,839
======
Rent expense approximated $16,960,000 in 1996, $36,591,000 in
1995 and $41,688,000 in 1994. These amounts included rent expense for
Alascom of $17,939,000 in 1995 and $28,148,000 in 1994.
- 22 -
<PAGE>
NOTE 5. SALE OF SUBSIDIARIES
During 1996, the Company sold several cellular properties.
These transactions resulted in proceeds of $5,286,000 and after-tax gains
of $2,269,000.
See Note 15 for information regarding the sale of Alascom to
AT&T Corp. (AT&T) in August 1995.
On April 29, 1994, the Company completed the sale of PTI
Harbor Bay, Inc. and Upsouth Corporation, to IntelCom Group, Inc. for
1,183,147 shares of IntelCom common stock and $200,000 in cash. On
October 17, 1994, the Company sold its IntelCom stock. Cash proceeds of
$15,934,000 and a gain of $1,007,000, net of tax and selling expenses,
were recognized in 1994.
NOTE 6. INCOME TAXES
The Company's effective combined state and federal income tax
rate was 38.7 percent in 1996, 25.2 percent in 1995 and 33.4 percent in
1994. The difference between taxes calculated as if the statutory
federal tax rate of 35 percent were applied to pre-tax income and the
recorded tax expense is due to the following:
Year Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
(in thousands)
Tax expense at statutory rates $42,955 $65,302 $42,758
State income taxes 6,639 14,491 1,702
Federal benefit of state income taxes (2,324) (5,072) (596)
Amortization of investment tax credits (1,714) (3,098) (4,355)
Amortization of excess deferred income taxes (595) (451) (1,776)
Amortization of acquisition costs in excess
of equity 2,056 2,018 2,086
Alascom gain (a) - (23,278) -
Other 437 (2,900) 947
------ ------ ------
Recorded tax expense $47,454 $47,012 $40,766
====== ====== ======
Income tax expense consisted of:
Taxes currently provided $25,158 $22,497 $103,095
Deferred income taxes (b) 24,010 27,613 (57,974)
Investment tax credits (1,714) (3,098) (4,355)
------ ------ -------
$47,454 $47,012 $ 40,766
====== ====== =======
(a) The financial statement gain on the sale of Alascom was recorded
without federal or state income tax expense, because the tax basis
in Alascom was greater than the selling price. The tax basis was
significantly greater than the book basis due to Alascom's required
tax recognition of the $150,000,000 in transition payments due from
AT&T under a 1994 FCC order. The Company has not historically
provided deferred tax liabilities or assets under SFAS 109 for
book/tax differences on investments in subsidiaries. As a result,
the tax benefit of the higher tax basis in Alascom was realized in
1995 with the sale.
(b) During 1994, prepaid taxes of $61,500,000 were reported due to the
FCC ordered transition payments of $150,000,000. Also, in 1995, the
Company had deferred tax increases associated with book/tax
differences on the newly acquired assets from USWC.
- 23 -
<PAGE>
The tax effect of significant items comprising the Company's net
deferred tax liability are as follows:
Year Ended December 31,
-----------------------
1996 1995
---- ----
(in thousands)
Deferred tax liabilities:
Plant in service $124,324 $ 94,602
Cellular acquisition adjustments 43,388 45,224
Deferred tax assets:
Employment related liabilities (13,736) (12,243)
Valuation adjustments 581 (3,902)
Reserve for self insurance (2,848) (3,808)
Other (2,388) 2,661
------- -------
Net deferred tax liability $149,321 $122,534
======= =======
Noncurrent tax liabilities $152,116 $126,539
Current tax assets (2,795) (4,005)
------- -------
$149,321 $122,534
======= =======
NOTE 7. PENSION PLAN
Substantially all employees of the Company, except those who are
members of one local of the International Brotherhood of Electrical
Workers (IBEW), are covered under the Company's pension plan. The
Company recognized costs of $1,173,000, $1,074,000 and $1,065,000 in
1996, 1995 and 1994, respectively, for contributions to the IBEW pension
plans and $1,747,000 and $3,110,000 in 1995 and 1994, respectively, for
contributions to the International Brotherhood of Teamsters. With the
sale of Alascom in August 1995, the Company has no further obligation to
pay for pension benefits of employees represented by the International
Brotherhood of Teamsters. The Company's plan provides benefits based
upon an employee's total years of service and the highest five years
compensation during the last 10 years of service. The Company's policy
is to fund annually up to the maximum amount of the unfunded pension
liability that can be deducted for federal income tax purposes.
The Company's unrecognized net asset resulting from the initial
application of SFAS 87 - "Employer Accounting for Pensions", was
amortized over a 10-year period that ended in 1996 for the Company's
original plan and is being amortized over a 20-year period ending in 2006
for the North-West Telecommunications, Inc. plan that was merged with the
Company's plan on January 1, 1993. Net pension cost and funded status of
the pension plan are summarized as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1995 1994
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Service cost of benefits earned $ 4,163 $ 3,724 $ 4,308
Interest cost on the projected benefit obligation 10,697 10,765 9,954
Actual loss (gain) on assets (13,638) (32,633) 1,592
Net amortization and deferral (2,118) 18,947 (15,845)
------ ------ ------
Total pension (income) expense $ (896) $ 803 $ 9
====== ====== ======
Early retirement program $ 2,520 $ - $ -
====== ====== ======
- 24 -
<PAGE>
Actuarial present value of benefit obligations:
Accumulated benefit obligation $133,123 $141,574 $112,176
======= ======= =======
Portion of accumulated benefit obligation vested $131,792 $140,022 $111,041
======= ======= =======
Projected benefit obligation $156,406 $167,317 $131,530
Plan assets at fair value, primarily listed stocks and bonds 171,428 154,316 129,582
------- ------- -------
Plan assets in excess of (less than) projected benefit obligation 15,022 (13,001) (1,948)
Unrecognized net loss (gain) (21,150) 6,749 (4,393)
Unrecognized prior service benefit (1,784) (2,029) (2,291)
Unrecognized net asset remaining from initial application
of SFAS 87 (2,663) (4,536) (6,409)
------- ------- -------
Pension liability at December 31 $(10,575)$(12,817) $(15,041)
======= ======= =======
Assumptions used to develop pension plan information were:
Discount rate 7.50% 7.25% 8.50%
Estimated long-term rate of return on assets 9.00 9.00 9.00
Assumed rate of increase in compensation levels 4.50 5.00 5.00
</TABLE>
The Company's pension liability at December 31, 1996 and 1995
was included in "Other long-term liabilities" on the balance sheet.
In December 1996, the Company offered an early retirement program
to a group of corporate employees. The Company recognized an expense of
$2,520,000 relating to this early retirement program.
In August 1995, the Company sold Alascom to AT&T (Note 15), which
resulted in a pre-tax curtailment gain of $3,401,000. This gain was
included in "Gain on sale of subsidiaries and investments."
The Company participates in PacifiCorp's K Plus Employee Stock
Ownership and Savings Plan. Under this plan, eligible employees may
elect to contribute a portion of their pay, within specified limits, to
the Plan. The Company makes a matching contribution of 50 percent of the
employee's elective contribution. Employee elective contributions
subject to matching are limited to six percent of pay. In addition, the
Company makes a fixed contribution of two percent of pay per year. The
costs to the Company for these contributions in 1996, 1995 and 1994 were
$2,882,000, $2,262,000 and $2,991,000, respectively.
PacifiCorp has a long-term incentive plan for certain executive
employees of the Company. Participants are eligible to receive shares of
PacifiCorp's common stock, plus dividend equivalents in cash based on a
determination of PacifiCorp's Board of Directors. Until September 1995,
the Company had its own separate long-term incentive plan for certain
executive employees and awards were in the Company's stock. Under this
previous plan participants received grants of restricted shares of the
Company's common stock based on a determination of the Company's Board of
Directors. The costs to the Company for these benefit plans amounted to
$311,000, $300,000 and $80,000 in 1996, 1995 and 1994, respectively.
Awards granted under these plans that are not yet vested are included as
a liability. Upon completion of the merger with a subsidiary of Holdings
(Note 2), all unvested shares of the Company's stock were converted to
PacifiCorp shares on the basis of the merger consideration.
- 25 -
<PAGE>
NOTE 8. OTHER POSTRETIREMENT BENEFITS
The Company provides health care and life insurance benefit
to eligible retired employees. Substantially all employees of the
Company are covered under the Company's postretirement health care and
life insurance plans. The postretirement health care and life insurance
plans are noncontributory as long as the Company's cost per retiree
remains below $300 per month ($600 per family per month). Generally, the
health care plan pays stated percentages of most medical expenses,
reduced for any deductible and payments made by government programs.
The Company recognizes the cost of postretirement benefits over
the active service period of its employees. The Company's policy is to
fund annually an amount of the postretirement benefit liability that will
systematically reduce that liability using available funds and allow
deductibility for federal income tax purposes. Due to income tax
regulations that restrict the deductibility of certain contributions for
postretirement benefits, the Company has elected to make non-tax
deductible contributions to meet funding requirements imposed by state
regulatory commissions. The Company funded $10,458,000, $13,254,000 and
$2,429,000 in 1996, 1995 and 1994, respectively, through contributions to
restricted trust funds and directly paying postretirement benefit costs
to third parties. The Company anticipates making additional
contributions into 401(h), VEBA and other trusts for 1997 totalling
approximately $5,700,000. The Company recognizes the transition
obligation, which represents the previously unrecognized prior service
cost, over a period of 20 years.
The net funded status for the combined plans is shown below (in
thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees and dependents $41,517 $43,415 $37,119
Fully eligible active plan participants 12,147 11,677 11,089
Other active plan participants 29,779 26,498 22,198
------ ------ ------
APBO 83,443 81,590 70,406
Plan assets at fair value, primarily listed
stocks and bonds (31,131) (21,977) (8,503)
------ ------ ------
APBO in excess of plan assets 52,312 59,613 61,903
Unrecognized transition obligation (27,839) (29,579) (34,521)
Unrecognized prior service cost 491 552 675
Unrecognized net loss from changes in assumptions (2,994) (6,853) (1,666)
------ ------ ------
Accrued postretirement benefit cost $21,970 $23,733 $26,391
====== ====== ======
Net periodic postretirement benefit cost included the following
components (in thousands):
1996 1995 1994
------ ------ ------
Service cost $2,706 $2,030 $2,307
Interest cost on accumulated postretirement
benefit obligation 5,971 5,891 5,836
Actual return on plan assets (1,931) (1,902) 180
Amortization of transition obligation over 20 years 1,740 1,844 1,918
Net amortization and deferral (40) 1,010 (620)
----- ----- -----
Expenses 8,446 8,873 9,621
Early retirement program 250 - -
----- ----- -----
Net periodic postretirement benefit cost $8,696 $8,873 $9,621
===== ===== =====
</TABLE>
- 26 -
<PAGE>
Assumptions used to develop the accumulated postretirement
benefit obligation information were:
1996 1995 1994
----- ----- -----
Discount rate 7.50% 7.25% 8.50%
Estimated long-term rate of return on assets 9.00 9.00 9.00
Health care cost trend rate-under 65 11.00 11.00 11.00
Health care cost trend rate-over 65 10.50 10.00 10.00
Ultimate health care cost trend rate 4.50 4.50 5.50
The assumed health care cost trend rates gradually decrease
over nine years. The health care cost trend rate assumptions have a
significant effect on the amounts reported. Increasing the assumed
health care cost trend rate by one percentage point would increase the
postretirement benefit obligation as of December 31, 1996 by $2,238,000,
and the annual net periodic postretirement benefit costs by $272,000.
In December 1996, the Company offered an early retirement program
to a group of corporate employees. The Company recognized an expense of
$250,000 relating to this early retirement program.
In August 1995, the Company sold Alascom to AT&T (Note 15). As a
result of this sale, the Company recognized a one time pre-tax
curtailment loss of $1,401,000. This loss was included in "Gain on sale
of subsidiaries and investments."
The Company's long-term portion of the accrued postretirement
benefit cost appears in "Other long-term liabilities" and the current
portion of the accrued postretirement benefit cost appears in "Accrued
liabilities" on the balance sheet at December 31, 1996.
NOTE 9. INVESTMENTS
The investment balances, which included interest bearing
advances of $10,037,000 and $5,000,000 at December 31, 1996 and 1995,
respectively, are summarized as follows:
December 31,
----------------------
1996 1995
---- ----
(in thousands)
Equity investments:
Cellular partnerships (a) $111,505 $110,223
Other equity investees 2,375 1,500
Cost investments:
Cellular partnerships 657 767
Other 17,084 12,065
------- -------
$131,621 $124,555
======= =======
(a) Cellular partnerships include goodwill of $23,383,000 in 1996 and
$23,150,000 in 1995, which is net of accumulated amortization of
$4,284,000 and $3,432,000, respectively.
- 27 -
<PAGE>
NOTE 10. SHORT-TERM DEBT
Short-term debt consisted of outstanding notes payable under
borrowing arrangements with various banks and other lenders. Information
regarding short-term debt follows:
<TABLE>
<CAPTON>
At December 31, During the Year
----------------- ----------------------------------
Average Average
Interest Maximum Average Interest
Balance Rate Outstanding Outstanding Rate
------- -------- ----------- ----------- --------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C>
1996
NOTES PAYABLE - BANKS $18,000 5.6% $80,000 $56,521 5.7%
NOTES PAYABLE - HOLDINGS - - 4,869 66 6.1
1995
Notes payable - banks $90,000 5.9% $242,166 $118,874 6.2%
Notes payable - other - - 8,845 3,655 8.2
1994
Notes payable - banks $12,000 6.8% $20,000 $9,292 5.0%
Notes payable - other 9,713 8.4 11,713 5,164 5.6
</TABLE>
The average interest rate is calculated by dividing the actual
short-term interest expense by the average daily weighted balance
short-term debt outstanding for the year.
NOTE 11. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
2% - 11.8% First mortgage notes payable under U.S. Government-
sponsored loan programs, maturities through 2028 $133,330 $137,173
9.5% First mortgage notes, maturities through 1999 6,000 6,039
8% - 9.8% Unsecured notes, maturities through 2007 22,390 23,325
6.6% - 9.4% Unsecured medium-term notes, maturities through 2008 323,500 223,500
6% Unsecured medium-term notes, maturities through 2006 (b) 33,499 -
6.1% Commercial paper - 50,000
5.6% Other available banking arrangements (c) 25,000 25,000
------- -------
Total 543,719 465,037
Less current maturities 15,813 5,535
------- -------
Total long-term debt $527,906 $459,502
======= =======
</TABLE>
(a) The weighted average cost of long-term debt outstanding at December
31, 1996 was 7.2 percent. The Company has small amounts of debt
which have higher rates than prevailing interest rates due to
prepayment restrictions.
- 28 -
<PAGE>
(b) Variable rate debt based on the Company's commercial paper rate is
convertible to a fixed rate at the option of the holder after
December 30, 1998. Once the debt has been converted to fixed rate
debt, Holdings will indemnify the Company for the incremental
interest expense incurred for rates exceeding 6.75 percent.
(c) Based upon management's intent and the Company's ability to support
the debt on a long-term basis through its revolving credit
agreement, $25,000,000 of borrowings under other available banking
arrangements at December 31, 1996, were classified as long-term
debt.
The Company has a $300,000,000 revolving credit agreement.
Borrowings under the revolving credit agreement bear interest at rates
based on bids from participating banks, certain prime rates, interbank
borrowing rates or certificate of deposit rates. The revolving credit
agreement has been renewed for a term ending in November 1999. Annual
commitment fees on the revolving credit agreement are currently .125
percent of the total authorized amount. Funds that could be borrowed
under the revolving credit agreement at December 31, 1996 were
$300,000,000.
At December 31, 1996, approximately $638,697,000 of
"Telecommunications plant in service" was pledged as collateral under
various loan agreements. Certain agreements also contain provisions
restricting the payment of cash dividends. At December 31, 1996,
consolidated retained earnings available for dividends and other
distributions were $242,037,000, all of which were available from the
retained earnings of subsidiaries.
Long-term debt maturing annually within each of the four years
subsequent to 1997 is as follows: 1998 -$29,071,000; 1999 - $48,156,000;
2000 - $6,574,000; 2001 - $66,546,000.
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial
instruments are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
-------------------- --------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Cash and temporary investments and
net trade accounts (a) $121,333 $121,333 $ 80,698 $ 80,698
Investments at cost (Note 9) (b) 17,741 17,741 12,832 13,326
Long-term debt and notes payable
(Notes 10 and 11) (c) 561,719 569,193 555,037 578,024
</TABLE>
(a) The carrying amount approximates fair value because of the short
maturity of these instruments.
(b) The fair values of the other investments are estimated based on
quoted market prices for these or similar investments, or the
investment's ability to return cash to the Company through
operations or through the sale of the investment.
(c) The fair value of the Company's long-term debt is estimated using
the discounted cash flow method based on the quoted market rates and
prices for the same or similar issues of the same remaining
maturities. The discount rate is determined using U.S. Treasury
rates plus the average spread for the Company quoted by several
dealers. Prepayment penalties and other costs of debt retirement
are not reflected in these estimates.
- 29 -
<PAGE>
NOTE 13. COMMITMENTS AND CONTINGENCIES
The Company has signed agreements with US West Communications,
Inc. (USWC), GTE North Incorporated and the City of Fairbanks to
purchase certain telephone assets or operations in Minnesota, Michigan
and Fairbanks, Alaska for approximately $248 million in cash, which
includes approximately $20 million for cash to be acquired in the
acquisitions. Completion of these transactions will be dependent upon
appropriate regulatory approvals, expected to be received during 1997.
Expenditures under the Company's 1997 construction and capital
expenditure program are expected to approximate $137,000,000. There are
currently no long-term construction projects underway.
The Company is a party to various legal claims, actions and
complaints. Although the ultimate resolution of legal proceedings
cannot be predicted with certainty, management believes that disposition
of these matters will not have a material adverse effect on the Company's
financial position, results of operations or cash flows.
NOTE 14. ACQUISITIONS
During 1995, the Company closed transactions in Colorado,
Washington and Oregon to acquire local exchange properties from USWC. On
February 15, 1995, the Company purchased assets in Colorado representing
45 local exchanges serving approximately 53,000 access lines for
$202,070,000. On September 30, 1995, the Company purchased assets in
Washington representing 26 local exchanges serving approximately 20,000
access lines for $92,794,000. On October 20, 1995, the Company purchased
assets in Oregon representing 23 exchanges serving approximately 17,000
access lines for $81,500,000. These purchase prices were based on a
multiple of net book value of USWC assets acquired with certain purchase
price adjustments calculated at closing. Funds used for the purchases
were provided from proceeds received in the sale of Alascom (Note 15),
issuance of medium-term notes and short-term borrowings.
NOTE 15. SALE OF ALASCOM, INC.
On August 7, 1995, the Company sold its Alaska long distance
communication subsidiary, Alascom to AT&T. The Company received total
cash proceeds of $365,500,000 paid in three payments and recognized an
after-tax gain of $66,376,000. In July 1994, AT&T paid a $75,000,000
transition payment to Alascom that PTI retained. In October 1994, AT&T
paid a $30,000,000 down payment at the time of the signing of the sale
agreement. The remaining $260,500,000 was paid at closing. The Company
used the proceeds to fund the asset purchases closed in 1995 (Note 14).
Condensed income information for Alascom is as follows:
Seven months Twelve months
ended July 31, ended December 31,
1995 1994
-------------- ------------------
(in thousands)
Operating revenues $193,126 $343,506
Operating income 36,914 80,651
- 30 -
<PAGE>
NOTE 16. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1996 and 1995 are as
follows:
Three Months Ended Dec. 31 Sept. 30 June 30 March 31
------------------ ------- -------- ------- --------
(in thousands)
1996
----
OPERATING REVENUES $134,937 $136,609 $126,761 $122,823
OPERATING INCOME 43,908 41,555 37,914 35,355
NET INCOME 20,781 20,435 18,044 16,017
1995
----
Operating revenues $128,975 $141,326 $190,228 $179,606
Operating income 40,479 39,184 45,493 40,155
Net income 18,175 84,250 20,412 16,727
Decreased revenues and operating income in the first and second
quarters of 1996 and decreased net income in the third quarter of 1996
resulted from the sale of Alascom in 1995 (Note 15).
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
------------------------------------------------
No information is required to be reported pursuant to this item.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
--------------------------------------------
<TABLE>
<CAPTION>
Page References
- - ---------------
<S>
<C>
(a) The following documents are filed under Item 8 of this Report.
(1) Index to Consolidated Financial Statements:
Independent Auditors' Report 13
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994 14
Consolidated Balance Sheets at December 31, 1996 and 1995 15-16
Consolidated Statements of Changes in Shareholder's Equity
for the years ended December 31, 1996, 1995 and 1994 17
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 18
Notes to Consolidated Financial Statements 19-31
</TABLE>
- 31 -
<PAGE>
(2) Supplemental Schedules*
* All schedules have been omitted because of the absence of the
conditions under which they are required or because the required
information is included elsewhere in the financial statements filed
under Item 8 in this Report.
(3) Exhibits:
2 Agreement for Purchase and Sale of Exchanges between US WEST
Communications, Inc., Northland Telephone Company and the
Registrant dated December 15, 1995. (Incorporated by
reference to Exhibit 2 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1995, File No. 0-873.)
2A Stock Purchase Agreement by and among AT&T Corp. and the
Registrant dated October 1, 1994. (Incorporated by reference
to Exhibit 2C of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994, File No. 0-873.)
2B Asset Purchase Agreement between GTE North Incorporated, PTI
Communications of Michigan, Inc. and the Registrant dated
March 29, 1996.
2C Asset Purchase Agreement by and between the City of Fairbanks
and PTI Communications of Alaska, Inc. dated August 20, 1996.
3 Restated Articles of Incorporation of the Registrant, as
amended June 13, 1990. (Incorporated by reference to Exhibit
3A of the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1990, File No. 0-873.)
3A Bylaws of the Registrant, as amended and restated effective
April 30, 1994. (Incorporated by reference to Exhibit 3B of
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994, File No. 0-873.)
4 Indenture dated as of September 20, 1991, between the Company
and The First National Bank of Chicago, as Trustee for the
Series B and C Medium-term Notes. (Incorporated by reference
to Exhibit 4 of the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1991, File No. 0-873.)
In reliance upon Item 601(4)(iii) of Regulation S-K, various
instruments defining the rights of holders of long-term debt of
the Registrant and its subsidiaries are not being filed because
the total amount authorized under each such instrument does not
exceed 10 percent of the total assets of the Registrant and its
subsidiaries on a consolidated basis. The Registrant hereby
agrees to furnish a copy of any such instrument to the Commission
upon request.
*10A Executive Bonus Plan, dated October 26, 1990. (Incorporated by
reference to Exhibit 10B of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1990, File No. 0-873.)
10B Intercompany Borrowing Agreement between the Registrant, Inner
PacifiCorp, Inc. (now PacifiCorp Holdings, Inc.) and certain
other affiliated companies dated as of April 1, 1991.
(Incorporated by reference to Exhibit 10A of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1991, File No. 0-873.)
- 32 -
<PAGE>
10C Management Services Agreement between the Registrant and Pacific
Power & Light Company. (Incorporated by reference to Exhibit 10D
of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1980, File No. 0-873.)
*10D PacifiCorp Supplemental Executive Retirement Plan 1988
Restatement. (Incorporated by reference to Exhibit 10(q) of
PacifiCorp's Form 10-K for the year ended December 31, 1987, File
No. 1-5152.)
*10E PacifiCorp Long-Term Incentive Plan 1994 Restatement.
(Incorporated by reference to Exhibit 10G of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994,
File No. 0-873.)
*10F Form of Restricted Stock Agreement under the PacifiCorp Long-Term
Incentive Plan 1994 Restatement. (Incorporated by reference to
Exhibit 10H of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994, File No. 0-873.)
10G Credit Agreement dated as of November 13, 1991. (Incorporated by
reference to Exhibit 10M of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1991, File No. 0-873.)
*10H Executive Deferred Compensation Plan dated as of January 1, 1994
as amended. (Incorporated by reference to Exhibit 10L of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994, File No. 0-873.)
*10I Executive Officer Severance Plan dated as of January 1, 1994.
(Incorporated by reference to Exhibit 10N of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994,
File No. 0-873.)
10J Second Amendment to the Credit Agreement dated November 29, 1994.
(Incorporated by reference to Exhibit 10O of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994,
File No. 0-873.)
12 Statements re Computation of Ratios.
23 Independent Auditors' Consent
- - ---------------
* This exhibit constitutes a management contract or compensatory
plan or arrangement.
(b) Reports on Form 8-K.
None
- 33 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PACIFIC TELECOM, INC.
March 20, 1997 By JAMES H. HUESGEN
- - ----------------- ----------------------------
(Date) James H. Huesgen
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
SIGNATURE AND CAPACITY DATE
---------------------- ----
CHARLES E. ROBINSON March 20, 1997
- - ------------------------------------
(Charles E. Robinson)
Chairman, President, Chief Executive
Officer and Director
JAMES H. HUESGEN March 20, 1997
- - ------------------------------------
(James H. Huesgen)
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
- 34 -
<PAGE>
SIGNATURE AND CAPACITY DATE
---------------------- ----
MICHAEL C. HENDERSON March 20, 1997
- - ------------------------------------
(Michael C. Henderson)
Director
NOLAN E. KARRAS March 20, 1997
- - ------------------------------------
(Nolan E. Karras)
Director
NANCY WILGENBUSCH March 20, 1997
- - ------------------------------------
(Nancy Wilgenbusch)
Director
- 35 -
Exhibit 99.2
to Registration Statement
<PAGE>
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 March 31, 1997
________________________________________
OR
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 0-873
________________________________________________
PACIFIC TELECOM, INC.
_______________________________________________________________________
(Exact name of registrant as specified in its charter)
Washington 91-0644974
_______________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
805 Broadway, P.O. Box 9901, Vancouver, Washington 98668-8701
_______________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (360)905-5800
____________________
No Change
_______________________________________________________________________
(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 12 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 90 days.
Yes X No
___ ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, no par value 100 shares
__________________________________________________________________________
(Title of Class) (Outstanding at May 9, 1997)
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H (1) (A)
AND (B) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
<PAGE>
<TABLE>
PACIFIC TELECOM, INC.
INDEX
_____
<CAPTION>
PART I FINANCIAL INFORMATION: PAGE NO.
_____________________ _______
<S> <C>
Item 1 - Financial Statements:
Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996 3
Consolidated Statements of Income -
Three months ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows -
Three months ended March 31, 1997 and 1996 5
Condensed Notes to Consolidated
Financial Statements 6 - 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 10
PART II OTHER INFORMATION:
_________________
Item 6 - Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
-2-
<PAGE>
<TABLE>
PART I FINANCIAL INFORMATION
Item 1. - Financial Statements
<CAPTION>
PACIFIC TELECOM, INC.
Consolidated Balance Sheets
(Unaudited)
ASSETS
______
March 31, December 31,
1997 1996
_________ ___________
(In thousands)
<S> <C> <C>
Current assets:
Cash and temporary cash investments $ 10,954 $ 9,421
Accounts receivable 100,873 97,705
Accounts and notes receivable - affiliates (Note 2) 37,791 62,345
Material and supplies (at average cost) 8,421 8,676
Inventory - North Pacific Cable 49,420 53,883
Other 9,335 6,428
_________ _________
Total current assets 216,794 238,458
Investments 112,694 131,621
Plant in service:
Telecommunications 1,653,128 1,631,443
Other 22,507 22,444
Less accumulated depreciation 743,171 721,462
_________ _________
932,464 932,425
_________ _________
Construction work in progress 12,373 16,140
Net plant 944,837 948,565
Intangible assets - net 367,105 365,451
Deferred charges 19,671 17,713
_________ _________
Total assets $1,661,101 $1,701,808
_________ _________
_________ _________
LIABILITIES AND SHAREHOLDER'S EQUITY
____________________________________
Current liabilities:
Currently maturing long-term debt $ 15,890 $ 15,813
Notes payable - 18,000
Accounts payable 48,247 48,138
Accrued liabilities 51,877 52,788
Dissenters' rights (Note 2) 26,497 27,930
Accrued access and unearned revenue 5,480 7,216
_________ _________
Total current liabilities 147,991 169,885
Long-term debt 501,388 527,906
Deferred income taxes (Note 4) 153,136 152,116
Unamortized investment tax credits 4,851 5,203
Other long-term liabilities 53,244 51,607
Minority interest 17,831 17,216
Shareholder's equity:
Common stock - -
Additional paid-in capital 225,943 225,943
Retained earnings (Note 3) 556,717 551,932
_________ _________
Total shareholder's equity 782,660 777,875
_________ _________
Total liabilities and shareholder's equity 1,661,101 $1,701,808
_________ _________
_________ _________
<FN>
See accompanying condensed notes to consolidated financial statements.
</TABLE>
-3-
<PAGE>
<TABLE>
PACIFIC TELECOM, INC.
Consolidated Statements of Income
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
__________________
1997 1996
_______ _______
(In thousands)
<S> <C> <C>
Operating revenues:
Local network service $ 36,684 $ 33,255
Network access service 63,622 63,471
Long distance network service 399 423
Sales of cable capacity 112 75
Cellular 10,219 8,768
Other 16,951 16,291
_______ _______
Total operating revenues 127,987 122,283
_______ _______
Operating expenses:
Plant support 21,732 22,035
Depreciation and amortization 26,755 25,340
Leased circuits 536 407
Other operating expense 6,863 7,269
Cost of cable sales 54 36
Customer operations 10,373 11,049
Administrative support 16,581 16,004
Taxes other than income taxes 4,935 4,788
_______ _______
Total operating expenses 87,829 86,928
_______ _______
Operating income 40,158 35,355
_______ _______
Other income (expense):
Interest expense (10,507) (10,053)
Interest income 743 605
Gain on sale of subsidiaries and investments 1,317 815
Equity income 1,258 935
Other (1,660) (1,444)
_______ _______
Other income (expense) - net (8,849) (9,142)
_______ _______
Income before income taxes 31,309 26,213
Income taxes (Note 4) 12,898 10,196
_______ _______
Net income $ 18,411 $ 16,017
_______ _______
_______ _______
<FN>
See accompanying condensed notes to consolidated financial statements.
</TABLE>
-4-
<PAGE>
<TABLE>
PACIFIC TELECOM, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
__________________
1997 1996
_______ _______
(In thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $18,411 $16,017
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 28,991 27,197
Deferred income taxes and investment tax credits, net 3,350 1,624
Gain on sale of subsidiaries and investments (1,317) (815)
Gains from unconsolidated entities, net (1,259) (821)
Accounts receivable and other current assets 401 (5,438)
Accounts payable and accrued liabilities (5,587) 10,784
Other 1,205 3,729
_______ ______
Net cash provided by operating activities 44,195 52,277
_______ ______
Cash Flows from Investing Activities:
Construction expenditures (15,928) (19,892)
Investments in and advances to affiliates 1,304 (1,332)
Proceeds from sales of assets 11,694 1,822
_______ _______
Net cash used by investing activities (2,930) (19,402)
_______ _______
Cash Flows from Financing Activities:
Decrease in short-term debt (43,000) (18,000)
Change in affiliated notes 18,336 -
Proceeds from issuance of long-term debt - 1,740
Dividends paid (13,625) (13,066)
Payments of long-term debt (1,443) (2,155)
_______ _______
Net cash used by financing activities (39,732) (31,481)
_______ _______
Increase in Cash and Temporary Cash Investments 1,533 1,394
Cash and Temporary Cash Investments at Beginning of Period 9,421 6,331
_______ _______
Cash and Temporary Cash Investments at End of Period $10,954 $ 7,725
_______ _______
_______ _______
Supplemental Disclosures of Cash Flow Information:
Cash paid during the three months ended March 31 for:
Interest $16,242 $15,121
Income Taxes 7,651 466
<FN>
See accompanying condensed notes to consolidated financial statements.
-5-
<PAGE>
Condensed Notes to Consolidated Financial Statements
(Unaudited)
1. The consolidated financial statements include all normal adjustments
which, in the opinion of management, are necessary to present fairly
the consolidated financial position at March 31, 1997, and the
consolidated results of operations and cash flows for the three months
ended March 31, 1997 and 1996. These consolidated financial statements
should be read in conjunction with the financial statements and related
notes included in the latest annual report filed on Form 10-K of
Pacific Telecom, Inc. (Company). The consolidated results of operations
presented herein are not necessarily indicative of the results to be
expected for the year. The 1996 consolidated financial statements
reflect certain reclassifications to conform to the current year
presentation. These reclassifications have no effect on previously
stated net income.
2. The Company is a wholly-owned subsidiary of PacifiCorp Holdings,
Inc.(Holdings), which is a wholly-owned subsidiary of PacifiCorp. See
Note 2 to the Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the year ended December 31,
1996, for information related to the affiliated note for amounts to be
paid dissenters relating to the minority buy-out.
3. Certain loan agreements contain provisions restricting the payment of
cash dividends. Retained earnings of approximately $263 million were
available for dividends and other distributions at March 31, 1997.
The Company's ratio of earnings to fixed charges for the three months
ended March 31, 1997, calculated in accordance with Item 503 of
Regulation S-K under the Securities Exchange Act of 1934, was 3.7 to 1.
4. The Company's effective combined state and federal income tax rates
were 41.2 percent and 38.9 percent for the three months ended
March 31, 1997 and 1996, respectively. The effective tax rate increase
in the first quarter of 1997 was due in large part to a deferred
intercompany gain triggered by the sale of a subsidiary, Wayside Telcom,
Inc., in February. The deferred intercompany gain generated $740,000
of income tax expense in excess of the statutory rate due to the
"Goodwill" investment associated with the telephone and cable television
subsidiaries that were spun off from Wayside Telcom in 1994. No
deferred taxes were provided on such Goodwill resulting in the higher
tax expense. The difference between taxes calculated at the statutory
federal rates and the effective combined rates for 1997 and 1996 is
reconciled as follows:
1997 1996
____ ____
Federal statutory rate 35.0% 35.0%
State income taxes, net of federal benefit 3.1 3.6
Amortization of investment tax credits (1.1) (1.6)
Amortization of excess deferred income taxes (.4) (.6)
Amortization of excess cost 1.8 2.9
Recapture Wayside deferred tax on intercompany gain 2.7 -
Other .1 (.4)
____ ____
Effective tax rate 41.2% 38.9%
____ ____
____ ____
-6-
<PAGE>
Condensed Notes to Consolidated Financial Statements
(Unaudited)
The components of income tax expense are as follows:
Three Months Ended
March 31,
__________________
1997 1996
_______ ______
(In thousands)
Federal income taxes $11,387 $ 8,728
State income taxes 1,511 1,468
______ ______
$12,898 $10,196
______ ______
______ ______
Income taxes currently payable $ 9,548 $ 8,572
Deferred income taxes 3,703 2,056
Amortization of deferred investment tax credits (353) (432)
______ ______
$12,898 $10,196
______ ______
______ ______
5. On April 11, 1997, the Company signed a letter of intent with Century
Telephone Enterprises, Inc. (Century) whereby the Company will exchange
the stock of its wholly-owned subsidiary, Pacific Telecom Cellular,
Inc., in return for $164.4 million in cash and LEC properties
representing more than 18,000 of Century's telephone access lines in
Arizona, Colorado, Idaho and New Mexico. The Company's cellular
ownership interests in its Alaska markets are not included as part of
this transaction.
This planned sale is not expected to affect net income when completed.
The Company acquired most of this cellular portfolio through various
tax deferred transactions. With the completion of this transaction,
the deferred income taxes will become due and payable. The tax
payments are expected to be approximately $63 million and will be paid
out of the cash proceeds of the sale.
Condensed income information for Pacific Telecom Cellular, Inc.,
excluding Alaska operations, is as follows:
Three Months Ended
March 31,
__________________
1997 1996
________ _______
(In thousands)
Operating revenues $9,243 $7,843
Operating income 1,577 895
Net income 597 272
-7-
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations*
Three Months Ended March 31
___________________________
Results of Operations
_____________________
The Company's net income for the three months ended March 31, 1997 was
$18.4 million, an increase of 14.9 percent compared to net income of
$16.0 million for the same period in 1996. Operating income increased
13.6 percent or $4.8 million in the first quarter of 1997 compared to
1996. Operating income increased due to LEC internal access line growth
and higher enhanced services revenue.
Operating revenues for the first quarter of 1997 were $128.0 million, an
increase of $5.7 million, or 4.7 percent, compared to the same period
in 1996. Local network service revenues grew $3.4 million due to higher
LEC enhanced services revenues of $1.7 million and revenues from internal
access line growth of $1.5 million. Cellular revenues increased $1.5
million due to customer growth. Other revenue increased $.7 million due
to $1.1 million received from AT&T relating to services provided to AT&T
Alascom.
Operating expenses in the first quarter of 1997 were $87.8 million, an
increase of $.9 million, or 1.0 percent, compared to the first quarter of
1996. Depreciation expense increased $1.4 million mainly due to increased
LEC plant balances. Administrative support was up $.6 million compared to
1996 mainly due to $.8 million for services provided to AT&T Alascom.
Other expense - net for the first quarter of 1997 was $8.8 million, a
decrease of $.3 million or 3.2 percent from 1996. Gain on sale of
subsidiaries and investments includes the sale of cellular properties
in 1997 and 1996. Equity earnings from cellular and telephone
investments increased $.3 million in the first quarter of 1997 compared
to the same period in 1996.
Income taxes increased $2.7 million due to the $1.5 million effect
of higher taxable income and the $1.2 million effect of the sale of
cellular properties in February 1997.
Acquisitions
____________
The Company has pending acquisitions of local exchange properties
in Minnesota, Michigan and Alaska serving approximately 70,000 access lines.
Approvals for the Minnesota and Michigan acquisitions have been received
from the public utility commissions in those states. The Company is
awaiting approval of those acquisitions from the FCC. Hearings are
scheduled before the Alaska Public Utilities Commission during May
relating to that acquisition. The Company anticipates that these three
acquisitions will receive all final regulatory approvals and close prior
to the end of 1997. The Company also has signed letters of intent to
acquire additional local exchange operations totaling 4,300 access lines.
___________________
*Pursuant to General Instruction H (1)(a) and (b) of Form 10-Q, the
Company is substituting a management's narrative analysis of results of
operations for Item 2.
-8-
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
See Part II, Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" under "Acquisitions" and Notes 13
and 14 to the Consolidated Financial Statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, for more
information about pending acquisitions.
Dispositions
____________
See Note 5 in "Notes to Condensed Consolidated Financial Statements" in
this Form 10-Q and Item 5. "Other Events" in the Company's Current Report
on Form 8-K dated April 11, 1997 for information concerning the sale of
Pacific Telecom Cellular, Inc. to Century Telephone Enterprises, Inc.
Liquidity and Capital Resources
_______________________________
During the three months ended March 31, 1997, construction expenditures
amounted to $15.9 million. These expenditures pertained mainly to network
upgrades and internal growth of the Company's operations. The construction
expenditures were funded primarily with cash from operations. In 1997,
total construction expenditures, which are estimated at $137.0 million,
are expected to be funded primarily through cash from operations. Included
in total estimated construction expenditures is $22 million relating to the
acquisitions that are expected to close during 1997. Cash from operations
was lower in the first quarter of 1997 compared to the first quarter
of 1996 due to the 1996 receipt of $10.1 million from the National Exchange
Carriers Association (NECA) attributable to certain revenue requirement
adjustments related primarily to the transition of acquisition properties.
The Company has access to funds through its $300 million revolving credit
agreement which terminates in November 1999. At March 31, 1997, no
borrowings were outstanding under this agreement. The revolving credit
agreement also serves as backup for a $100 million commercial paper program,
under which no borrowings were outstanding at March 31, 1997. The
Company is currently engaged in negotiations to replace the existing
agreement with a comparable facility. The Company has a $200 million Series
C Medium-term Note program under which $133.5 million of notes were
outstanding March 31, 1997. The remaining $66.5 million will be used
primarily to fund future acquisitions. At March 31, 1997, the Company had
approval from the Rural Telephone Bank to borrow $15.8 million in additional
Rural Utilities Service debt for certain construction projects.
-9-
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The Company has an agreement that allows temporary cash advances to or from
its parent, PacifiCorp Holdings, Inc. (Holdings), at short-term borrowing
rates. At March 31, 1997, $35.3 million was due from Holdings, which
includes $26.5 million be paid to dissenters relating to the minority
buy-out. (See Note 2 to the Consolidated Financial Statements included
in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 for more information about this note.)
The Company has definitive agreements with US WEST Communications,
Inc., GTE North Incorporated and the City of Fairbanks to purchase certain
telephone assets or operations in Minnesota, Michigan and Fairbanks, Alaska,
respectively, for approximately $248 million in cash, which includes
approximately $20 million for cash to be acquired in the acquisitions.
These acquisitions are subject to regulatory approvals expected to be
received during 1997. The Company has signed letters of intent to acquire
operations representing 4,300 access lines for $22 million. The Company
expects to fund these acquisitions through the issuance of external debt,
internally generated funds and proceeds from the sale of cellular
investments.
Any temporary cash or liquidity requirements during 1997 are expected to be
met through utilization of funds available under the revolving credit
agreement or temporary advances from Holdings. Long-term liquidity
requirements are expected to be met through utilization of funds available
under the revolving credit agreement or the Series C Medium-term Note
program. Cash needed to pay dissenters' rights will be provided by Holdings.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
12 Statements re Computation of Ratios
27 Financial Data Schedule (filed electronically only)
(b) Reports on Form 8-K
On Form 8-K dated April 11, 1997, under Item 5. "Other Events"
the Company reported information with respect to the pending
sale of Pacific Telecom Cellular, Inc. to Century Telephone
Enterprises, Inc.
-10-
<PAGE>
SIGNATURES
__________
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.
Pacific Telecom, Inc.
_____________________
(Registrant)
Date: May 12, 1997 /s/James H. Huesgen
____________________________
James H. Huesgen
Executive Vice President and
Chief Financial Officer
-11-
</TABLE>
Exhibit 99.3
to Registration Statement
<PAGE>
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
_________________________________
OR
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 0-873
__________________________________________
PACIFIC TELECOM, INC.
________________________________________________________________
(Exact name of registrant as specified in its charter)
Washington 91-0644974
________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
805 Broadway, P.O. Box 9901, Vancouver, Washington 98668 - 8701
________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (360)905-5800
______________
No Change
________________________________________________________________
(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 12 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 90 days.
Yes X No
___ ____
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Common Stock, no par value 100 shares
______________________________________________________________
(Title of Class) (Outstanding at August 1, 1997)
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
H (1) (A) AND (B) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM
WITH THE REDUCED DISCLOSURE FORMAT.
<PAGE>
PACIFIC TELECOM, INC.
INDEX
_____
PART I FINANCIAL INFORMATION: PAGE NO.
_____________________ ________
Item 1 - Financial Statements:
Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996 3
Consolidated Statements of Income -
Three and six months ended June 30,
1997 and 1996 4
Consolidated Statements of Cash Flows -
Six months ended June 30, 1997 and 1996 5
Condensed Notes to Consolidated
Financial Statements 6 - 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8 - 10
PART II OTHER INFORMATION:
_________________
Item 1 - Legal Proceedings 10
Item 5 - Other Information 10
Item 6 - Exhibits and Reports on Form 8-K 10
Signatures 11
-2-
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. - Financial Statements
PACIFIC TELECOM, INC.
Consolidated Balance Sheets
(Unaudited)
ASSETS
______
June 30, December 31,
1997 1996
________ ___________
(In thousands)
Current assets:
Cash and temporary cash investments $ 9,762 $ 9,421
Accounts receivable 105,816 97,705
Accounts and notes receivable - affiliates (Note 2) 22,538 62,345
Material and supplies (at average cost) 10,411 8,676
Inventory - North Pacific Cable 49,420 53,883
Other 9,349 6,428
_________ _________
Total current assets 207,296 238,458
Investments 123,562 131,621
Plant in service:
Telecommunications 1,675,477 1,631,443
Other 23,167 22,444
Less accumulated depreciation 764,288 721,462
_________ _________
934,356 932,425
Construction work in progress 11,927 16,140
_________ _________
Net plant 946,283 948,565
Intangible assets - net 359,530 365,451
Deferred charges 25,710 17,713
_________ _________
Total assets $1,662,381 $1,701,808
_________ _________
_________ _________
LIABILITIES AND SHAREHOLDER'S EQUITY
____________________________________
Current liabilities:
Currently maturing long-term debt $ 38,736 $ 15,813
Notes payable - 18,000
Accounts payable 48,470 48,138
Accrued liabilities 54,591 52,788
Dissenters' rights (Note 2) 15,043 27,930
Accrued access and unearned revenue 5,945 7,216
_________ _________
Total current liabilities 162,785 169,885
Long-term debt 477,113 527,906
Deferred income taxes (Note 4) 157,736 152,116
Unamortized investment tax credits 4,498 5,203
Other long-term liabilities 53,716 51,607
Minority interest 18,287 17,216
Shareholder's equity:
Common stock - -
Additional paid-in capital 225,943 225,943
Retained earnings (Note 3) 562,303 551,932
_________ _________
Total shareholder's equity 788,246 777,875
_________ _________
Total liabilities and shareholder's equity $1,662,381 $1,701,808
_________ _________
_________ _________
[FN]
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
<TABLE>
PACIFIC TELECOM, INC.
Consolidated Statements of Income
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
___________________ _________________
1997 1996 1997 1996
_______ _______ _______ _______
(In thousands)
<S> <C> <C> <C> <C>
Operating revenues:
Local network service $ 37,615 $ 33,801 $ 73,174 $ 66,440
Network access service 65,876 62,657 129,498 126,128
Long distance network service 406 339 805 762
Sales of cable capacity - 2,174 112 2,249
Cellular 12,801 10,609 23,020 19,377
Other 17,471 17,721 35,547 34,628
_______ _______ _______ _______
Total operating revenues 134,169 127,301 262,156 249,584
_______ _______ _______ _______
Operating expenses:
Plant support 24,461 22,947 46,384 44,973
Depreciation and amortization 26,456 25,548 53,211 50,888
Other operating expense 9,267 7,983 16,475 15,668
Cost of cable sales - 1,490 54 1,526
Customer operations 11,276 11,425 21,649 22,474
Administrative support 15,543 14,995 32,124 30,999
Taxes other than income taxes 5,197 4,999 10,132 9,787
_______ _______ _______ _______
Total operating expenses 92,200 89,387 180,029 176,315
_______ _______ _______ _______
Operating income 41,969 37,914 82,127 73,269
_______ _______ _______ _______
Other income (expense):
Interest expense (9,700) (10,392) (20,188) (20,339)
Interest income 747 596 1,490 1,201
Gain on sale of subsidiaries
and investments - 2,890 1,317 3,705
Equity income 2,433 2,050 3,691 2,985
Other (3,952) (3,524) (5,631) (5,074)
_______ _______ _______ _______
Other expense - net (10,472) (8,380) (19,321) (17,522)
_______ _______ _______ _______
Income before income taxes 31,497 29,534 62,806 55,747
Income taxes (Note 4) 12,286 11,490 25,184 21,686
_______ _______ _______ _______
Net income $ 19,211 $ 18,044 $ 37,622 $ 34,061
_______ _______ _______ _______
_______ _______ _______ _______
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
-4-
PACIFIC TELECOM, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
________________
1997 1996
______ ______
(In thousands)
Cash Flows from Operating Activities:
Net income $37,622 $ 34,061
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 57,766 54,951
Deferred income taxes and investment tax credits, net 7,189 3,267
Gain on sale of subsidiaries and investments (1,317) (3,705)
Gains from unconsolidated entities, net (3,476) (2,991)
Accounts receivable and other current assets (10,592) (15,184)
Inventory - North Pacific Cable 54 1,526
Accounts payable and accrued liabilities (2,289) 25,863
Other 5,983 4,677
______ _______
Net cash provided by operating activities 90,940 102,465
______ _______
Cash Flows from Investing Activities:
Construction expenditures (51,797) (46,972)
Investments in and advances to affiliates (5,709) (1,928)
Proceeds from sales of assets 11,959 2,255
______ _______
Net cash used by investing activities (45,547) (46,645)
______ _______
Cash Flows from Financing Activities:
Decrease in short-term debt (43,000) (17,000)
Change in affiliated notes 28,067 -
Proceeds from issuance of long-term debt - 1,740
Dividends paid (27,250) (26,317)
Payments of long-term debt (2,869) (3,347)
______ _______
Net cash used by financing activities (45,052) (44,924)
______ _______
Increase in Cash and Temporary Cash Investments 341 10,896
Cash and Temporary Cash Investments at
Beginning of Period 9,421 6,331
______ _______
Cash and Temporary Cash Investments at
End of Period $ 9,762 $ 17,227
______ _______
______ _______
Supplemental Disclosures of Cash Flow Information:
Cash paid during the six months ended June 30 for:
Interest $19,755 $ 20,080
Income Taxes $15,625 $ 11,081
North Pacific Cable inventory reclassisfied to
Telecommunications - Plant in service $ 4,409 $ -
[FN]
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
Notes to Consolidated Financial Statements
(Unaudited)
1. The consolidated financial statements include all normal
adjustments which, in the opinion of management, are
necessary to present fairly the consolidated financial
position at June 30, 1997, and the consolidated results
of operations for the three and six months ended June 30, 1997
and 1996 and cash flows for the six months ended June 30,
1997 and 1996. These consolidated financial statements
should be read in conjunction with the financial
statements and related notes included in the latest
annual report filed on Form 10-K of Pacific Telecom, Inc.
(Company). The consolidated results of operations
presented herein are not necessarily indicative of the
results to be expected for the year. The 1996
consolidated financial statements reflect certain
reclassifications to conform to the current year
presentation. These reclassifications have no effect on
previously stated net income.
2. The Company is a wholly-owned subsidiary of PacifiCorp
Holdings, Inc. (Holdings), which is a wholly-owned
subsidiary of PacifiCorp. See "Part II, Item 5 - Other
Information" for information regarding the pending sale
of all Pacific Telecom, Inc. outstanding common stock to
Century Telephone Enterprises, Inc.
The current liability for dissenters' rights decreased from
the year end balance due to payments made to dissenting
shareholders. See Note 2 to the Consolidated Financial
Statements included in the Company's Annual Report on Form
10-K for the year ended December 31, 1996, for information
related to the affiliated note for amounts to be paid dissenters
relating to the minority buy-out. See "Part II, Item 1 -
Legal Proceedings" for information relating to a lawsuit
involving dissenters' and the Company.
3. Certain loan agreements contain provisions restricting
the payment of cash dividends. Retained earnings of
approximately $267 million were available for dividends
and other distributions at June 30, 1997.
The Company's ratio of earnings to fixed charges for the
six months ended June 30, 1997, calculated in accordance
with Item 503 of Regulation S-K under the Securities
Exchange Act of 1934, was 3.8 to 1.
4. The Company's effective combined state and federal income
tax rates were 40.1 percent and 38.9 percent for the six
months ended June 30, 1997 and 1996, respectively. The
effective tax rate increase in the first half of 1997 was
due in large part to a deferred intercompany gain
triggered by the sale of a subsidiary, Wayside Telcom,
Inc., in February. The deferred intercompany gain
generated $740,000 of income tax expense in excess of the
statutory rate due to the "Goodwill" investment
associated with the telephone and cable television
subsidiaries that were spun off from Wayside
-6-
<PAGE>
Notes to Consolidated Financial Statements
(Unaudited)
Telcom in 1994. No deferred taxes were provided on such
"Goodwill" resulting in the higher tax expense. The
difference between taxes calculated at the statutory
federal tax rates and the effective combined rates for
1997 and 1996 is reconciled as follows:
1997 1996
____ ____
Federal statutory rate 35.0% 35.0%
State income taxes, net of federal benefit 3.4 4.8
Amortization of investment tax credits (1.1) (1.5)
Amortization of excess deferred income taxes (.4) (.5)
Amortization of excess cost 1.8 1.9
Recapture Wayside deferred tax on
intercompany gain 1.2 -
Other .2 (.8)
____ ____
Effective tax rate 40.1% 38.9%
____ ____
____ ____
The components of income tax expense are as follows:
Three Months Ended Six Months Ended
June 30, June 30,
__________________ ________________
1997 1996 1997 1996
______ _______ ______ ______
(In thousands)
Federal income taxes $10,523 $ 8,870 $21,910 $17,598
State income taxes 1,763 2,620 3,274 4,088
______ ______ ______ ______
$12,286 $11,490 $25,184 $21,686
______ ______ ______ ______
______ ______ ______ ______
Income taxes currently
payable $ 8,331 $ 9,744 $17,879 $18,361
Deferred income taxes 4,308 2,177 8,011 4,188
Amortization of deferred
investment tax credits (353) (431) (706) (863)
______ ______ ______ ______
$12,286 $11,490 $25,184 $21,686
______ ______ ______ ______
______ ______ ______ ______
-7-
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations*
Six Months Ended June 30
________________________
Results of Operations
_____________________
The Company's net income for the six months ended June 30, 1997
was $37.6 million, an increase of 10.5 percent compared to
net income of $34.1 million for the same period in 1996.
Operating income increased 12.1 percent or $8.9 million in the
first half of 1997 compared to 1996. Operating income increased
due to LEC internal access line growth and higher enhanced
services revenues and growth in cellular operations.
Operating revenues for the first half of 1997 were $262.2
million, an increase of $12.6 million, or 5.0 percent, compared
to the same period in 1996. Local network service revenues grew
$6.7 million due to higher LEC enhanced services revenues of
$2.5 million, revenues from internal access line growth of
$3.1 million and extended area service revenue of $.6
million. Network access service revenue increased $3.4 million
due to the effect of higher revenue requirements of $1.7
million and $2.6 million due to increased minutes of use. This
was partially offset by decreases in Universal Service Fund
support of $.8 million. Sales of cable capacity decreased $2.1
million due to lower circuit sales. Cellular revenues
increased $3.6 million due to customer growth. Other revenue
increased $.9 million due to $1.6 million received from AT&T
relating to services provided to AT&T Alascom, higher LEC
nonregulated customer premise equipment revenues of $.9
million and higher cable lease and restoration revenues of
$.8 million. This was partially offset by $2.1 million
in lower billing and collection revenues due to contract
modifications that resulted in service reductions.
Operating expenses in the first half of 1997 were $180.0
million, an increase of $3.7 million, or 2.1 percent, compared
to the first half of 1996. Plant support increased $1.4
million due to the $.8 million effect of LEC access line
growth and $.5 million in increased lease circuits
expense on the cable. Depreciation expense increased
$2.3 million mainly due to increased LEC plant balances. Cost
of cable sales decreased $1.5 million due to lower circuit sales.
Administrative support was up $1.1 million compared to 1996
mainly due to $1.0 million for services provided to AT&T Alascom.
Other expense - net for the first half of 1997 was $19.3 million,
an increase of $1.8 million or 10.3 percent from 1996. Gain on
sale of subsidiaries and investments includes the sale of
cellular properties in 1997 and 1996. Equity earnings from
cellular and telephone investments increased $.7 million in the
first half of 1997 compared to the same period in 1996.
Income taxes increased $3.5 million due to the $2.2 million effect
of higher taxable income and the $1.2 million effect of the sale
of cellular properties in February 1997.
Acquisitions
____________
The Company has pending acquisitions of local exchange properties
in Minnesota, Michigan and Alaska serving approximately 70,000
access lines. Approvals for the Minnesota and Michigan
acquisitions have been received from the public utility commission
in those states. The Company is awaiting approval of those
acquisitions from the FCC. Hearings before the Alaska Public
Utilities Commission for the Alaska acquisition concluded in June
and the Company is awaiting an order. The Company anticipates
that these three acquisitions will receive all final regulatory
approvals and close prior to the end of 1997. The Company also
has signed letters of intent or definitive agreements to acquire
additional local exchange operations totaling 3,800 access lines.
__________________
*Pursuant to General Instruction H (1)(a) and (b) of Form 10-Q,
the Company is substituting a management's narrative analysis
of results of operations for Item 2.
-8-
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
See "Part II, Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -
Acquisitions" and Notes 13 and 14 to the Consolidated
Financial Statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996, for
more information about pending acquisitions.
Dispositions
____________
See "Part II, Item 5 - Other Information" in this Form 10-Q
for information concerning the sale of Pacific Telecom Cellular,
Inc. to Century Telephone Enterprises, Inc. (Century) being
superseded by PacifiCorp's sale of the Company to Century.
Liquidity and Capital Resources
_______________________________
During the six months ended June 30, 1997, construction
expenditures amounted to $51.8 million. These expenditures
pertained mainly to network upgrades and internal growth
of the Company's operations. The construction expenditures
were funded primarily with cash from operations. In 1997,
total construction expenditures, which are estimated at
$137.0 million, are expected to be funded primarily through
cash from operations. Included in total estimated
construction expenditures is $22 million relating to the
acquisitions that are expected to close during 1997. Cash
from operations was lower in the first half of 1997
compared to the first half of 1996 due to the 1996 receipt
of $10.1 million from the National Exchange Carrier
Association attributable to certain revenue requirement
adjustments related primarily to the transition of
acquisition properties.
The Company has access to funds through its $300 million
revolving credit agreement which terminates in November 1999.
At June 30, 1997, no borrowings were outstanding under
this agreement. The revolving credit agreement also serves
as backup for a $100 million commercial paper program, under
which no borrowings were outstanding at June 30, 1997. The
Company has a $200 million Series C Medium-term Note program
under which $133.5 million of notes were outstanding on
June 30, 1997. The remaining $66.5 million could be used to
fund future acquisitions. However, Century may require the
Company to use short-term borrowing facilities for acquisitions
prior to closing the sale of the Company to Century. See
"Part II, Item 5 - Other Information" for information relating
to the sale of the Company to Century. At June 30, 1997, the
Company had approval from the Rural Telephone Bank to borrow
$15.8 million in additional Rural Utilities Service debt for
certain construction projects.
The Company has an agreement that allows temporary cash
advances to or from its parent, PacifiCorp Holdings, Inc.
(Holdings), at short-term borrowing rates. At June 30, 1997,
$17.0 million was due from Holdings, which includes $15.0
million to be paid to dissenters relating to the minority
buy-out. (See Note 2 in "Notes to Condensed Consolidated
Financial Statements" in this Form 10-Q and Note 2 to the
Consolidated Financial Statements included in the Company's
Annual Report on Form 10-K for the year ended
December 31, 1996, for more information about this transaction.)
The Company has definitive agreements with US WEST
Communications, Inc., GTE North Incorporated and the City of
Fairbanks to purchase certain telephone assets or operations
in Minnesota, Michigan and Fairbanks, Alaska, respectively,
for approximately $248 million in cash, which includes approxi-
mately $20 million for cash to be acquired in the acquisitions.
These acquisitions are subject to regulatory approvals expected
to be received during 1997. The Company has signed letters
-9-
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
of intent or definitive agreements to acquire operations
representing 3,800 access lines for approximately $24
million. The Company expects to fund these acquisitions
through the issuance of external debt and internally
generated funds.
Any temporary cash or liquidity requirements during 1997
are expected to be met through utilization of funds
available under the revolving credit agreement or
temporary advances from Holdings. Long-term liquidity
requirements are expected to be met through utilization of
funds available under the revolving credit agreement or
the Series C Medium-term Note program. Cash needed to pay
dissenters' rights will be provided by Holdings.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The trial in Pacific Telecom, Inc. v. Gabelli Funds,
_______________________________________
Inc. et al. was held from May 7 to May 14, 1997. On
__________
May 15, 1997, the court ruled in favor of the Company,
holding that $30.00 per share was the fair value of
the Company's common stock on the date of the merger.
On June 10, 1997, the dissenters filed a Notice of
Appeal of this action to the United States Court of
Appeals for the Ninth Circuit. See "Part I, Item 3.
Legal Proceedings" in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996, for
more information about this lawsuit.
Item 5. Other Information
On June 11, 1997, PacifiCorp entered into an agreement
to sell the outstanding common stock of the Company to
Century for approximately $1.5 billion in cash in
addition to Century's assumption of the Company's debt.
The sale of the Company is subject to certain
regulatory approvals which are expected to be received
before the end of 1997. This sale supersedes the
previously announced letter of intent between the
Company and Century relating to the sale of Pacific
Telecom Cellular, Inc.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 Stock Purchase Agreement, dated as of
June 11, 1997, by and among PacifiCorp
Holdings, Inc., Pacific Telecom, Inc.,
Century Telephone Enterprises, Inc. and
Century Cellunet, Inc. (Incorporated by
reference to Exhibit 2.1 of Century
Telephone Enterprises, Inc.'s Current
Report on Form 8-K dated June 11, 1997,
File No. 1-7784.)
12 Statements re Computation of Ratios
27 Financial Data Schedule (filed electronically
only)
(b) Reports on Form 8-K
On Form 8-K dated April 11, 1997, under Item 5.
"Other Events" the Company reported information
with respect to the pending sale of Pacific Telecom
Cellular, Inc. to Century Telephone Enterprises,
Inc.
-10-
<PAGE>
SIGNATURES
__________
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.
Pacific Telecom, Inc.
__________________________
(Registrant)
Date: August 7, 1997 /s/James H. Huesgen
______________________________
James H. Huesgen
Executive Vice President and
Chief Financial Officer
-11-
Exhibit 99.4
to Registration Statement
<PAGE>
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
________________________________
OR
___ 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 0-873
_________________________________________
PACIFIC TELECOM, INC.
________________________________________________________________
(Exact name of registrant as specified in its charter)
Washington 91-0644974
________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
805 Broadway, P.O. Box 9901, Vancouver, Washington 98668 - 8701
________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (360)905-5800
_____________
No Change
________________________________________________________________
(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 12 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 90 days.
Yes X No
___ ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, no par value 100 shares
________________________________________________________________
(Title of Class) (Outstanding at October 31, 1997)
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL
INSTRUCTION H (1) (A) AND (B) OF FORM 10-Q
AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.
<PAGE>
PACIFIC TELECOM, INC.
INDEX
_____
PART I FINANCIAL INFORMATION: PAGE NO.
_____________________ ________
Item 1 - Financial Statements:
Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 3
Consolidated Statements of Income -
Three and nine months ended
September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1997
and 1996 5
Condensed Notes to Consolidated
Financial Statements 6 - 8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results
of Operations 9 - 10
PART II OTHER INFORMATION:
_________________
Item 6 - Exhibits and Reports on Form 8-K 11
Signatures 12
-2-
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. - Financial Statements
PACIFIC TELECOM, INC.
Consolidated Balance Sheets
(Unaudited)
ASSETS
______
September 30, December 31,
1997 1996
_____________ ____________
(In thousands)
Current assets:
Cash and temporary cash investments $ 10,179 $ 9,421
Accounts receivable 105,486 97,705
Accounts and notes receivable -
affiliates (Note 2) 12,650 62,345
Material and supplies (at average cost) 9,842 8,676
Inventory - North Pacific Cable 40,389 53,883
Other 9,318 6,428
_________ _________
Total current assets 187,864 238,458
Investments 120,213 131,621
Plant in service:
Telecommunications 1,791,298 1,631,443
Other 22,646 22,444
Less accumulated depreciation 819,763 721,462
_________ _________
994,181 932,425
Construction work in progress 22,508 16,140
_________ _________
Net plant 1,016,689 948,565
Intangible assets - net 409,498 365,451
Deferred charges 26,557 17,713
_________ _________
Total assets $1,760,821 $1,701,808
_________ _________
_________ _________
LIABILITIES AND SHAREHOLDER'S EQUITY
____________________________________
Current liabilities:
Currently maturing long-term debt $ 39,045 $ 15,813
Notes payable 90,000 18,000
Accounts payable 50,814 48,138
Accrued liabilities 46,443 52,788
Dissenters' rights (Note 2) 15,043 27,930
Accrued access and unearned revenue 5,014 7,216
_________ _________
Total current liabilities 246,359 169,885
Long-term debt 478,842 527,906
Deferred income taxes (Note 4) 157,917 152,116
Unamortized investment tax credits 4,169 5,203
Other long-term liabilities 54,492 51,607
Minority interest 17,157 17,216
Shareholder's equity:
Common stock - -
Additional paid-in capital 225,943 225,943
Retained earnings (Note 3) 575,942 551,932
_________ _________
Total shareholder's equity 801,885 777,875
_________ _________
Total liabilities and
shareholder's equity $1,760,821 $1,701,808
_________ _________
_________ _________
[FN]
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
<TABLE>
PACIFIC TELECOM, INC.
Consolidated Statements of Income
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
__________________ __________________
1997 1996 1997 1996
______ ______ ______ ______
(In thousands)
<S> <C> <C> <C> <C>
Operating revenues:
Local network service $ 39,545 $ 35,530 $112,719 $101,970
Network access service 69,208 64,244 198,706 190,372
Long distance network service 490 441 1,295 1,203
Sales of cable capacity 12,300 6,030 12,412 8,279
Cellular 15,612 12,990 38,632 32,367
Other 16,854 17,373 52,401 52,001
_______ _______ _______ _______
Total operating revenues 154,009 136,608 416,165 386,192
_______ _______ _______ _______
Operating expenses:
Plant support 26,408 24,919 72,792 69,892
Depreciation and amortization 27,209 25,644 80,420 76,532
Other operating expense 8,625 8,543 25,100 24,211
Cost of cable sales 9,030 5,126 9,084 6,652
Customer operations 11,538 11,705 33,187 34,179
Administrative support 14,666 14,350 46,790 45,349
Taxes other than income taxes 5,456 4,766 15,588 14,553
_______ _______ _______ _______
Total operating expenses 102,932 95,053 282,961 271,368
_______ _______ _______ _______
Operating income 51,077 41,555 133,204 114,824
_______ _______ _______ _______
Other income (expense):
Interest expense (10,052) (9,765) (30,240) (30,104)
Interest income 1,079 995 2,569 2,196
Gain on sale of subsidiaries and
investments - - 1,317 3,705
Equity income 2,945 1,992 6,636 4,977
Other (1,171) (1,331) (6,802) (6,405)
_______ _______ _______ _______
Other expense - net (7,199) (8,109) (26,520) (25,631)
_______ _______ _______ _______
Income before income taxes 43,878 33,446 106,684 89,193
Income taxes (Note 4) 16,613 13,011 41,797 34,697
_______ _______ _______ _______
Net income $ 27,265 $ 20,435 $ 64,887 $ 54,496
_______ _______ _______ _______
_______ _______ _______ _______
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
-4-
<PAGE>
PACIFIC TELECOM, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
_________________
1997 1996
_______ _______
(In thousands)
Cash Flows from Operating Activities:
Net income $ 64,887 $ 54,496
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 86,817 83,930
Deferred income taxes and investment
tax credits, net 6,189 15,386
Gain on sale of subsidiaries and investments (1,317) (3,705)
Gains from unconsolidated entities, net (6,636) (4,996)
Accounts receivable and other current assets (5,474) (26,498)
Inventory - North Pacific Cable 9,084 6,652
Accounts payable and accrued liabilities (12,247) 23,877
Other 7,273 (3,173)
_______ _______
Net cash provided by operating activities 148,576 145,969
_______ _______
Cash Flows from Investing Activities:
Construction expenditures (84,902) (79,585)
Cost of businesses acquired (105,410) -
Investments in and advances to affiliates (5,711) (6,495)
Proceeds from sales of assets 11,968 5,715
_______ _______
Net cash used by investing activities (184,055) (80,365)
_______ _______
Cash Flows from Financing Activities:
Increase (Decrease) in short-term debt 47,000 (56,000)
Change in affiliated notes 34,435 (3,562)
Proceeds from issuance of long-term debt - 51,740
Dividends paid (40,875) (39,567)
Payments of long-term debt (4,323) (5,119)
_______ _______
Net cash used by financing activities 36,237 (52,508)
_______ _______
Increase in Cash and Temporary Cash Investments 758 13,096
Cash and Temporary Cash Investments at
Beginning of Period 9,421 6,331
_______ _______
Cash and Temporary Cash Investments at
End of Period $ 10,179 $ 19,427
_______ _______
_______ _______
Supplemental Disclosures of Cash Flow Information:
Cash paid during the nine months ended September 30 for:
Interest $ 36,195 $ 35,727
Income Taxes 25,296 12,489
North Pacific Cable inventory reclassisfied
to Telecommunications - Plant in service 4,409 -
Noncash Investing Activities:
Liabilities assumed in connection with the
acquisition of subsidiaries 4,834 -
[FN]
See accompany notes to consolidated financial statements.
-5-
<PAGE>
Condensed Notes to Consolidated Financial Statements
(Unaudited)
1. The consolidated financial statements include all normal
adjustments which, in the opinion of management, are necessary
to present fairly the consolidated financial position at
September 30, 1997, and the consolidated results of operations
for the three and nine months ended September 30, 1997 and 1996
and cash flows for the nine months ended September 30, 1997
and 1996. These consolidated financial statements should be
read in conjunction with the financial statements and related
notes included in the latest annual report filed on Form 10-K of
Pacific Telecom, Inc. (Company). The consolidated results
of operations presented herein are not necessarily indicative of
the results to be expected for the year. The 1996
consolidated financial statements reflect certain
reclassifications to conform to the current year presentation.
These reclassifications have no effect on previously stated
net income.
2. The Company is a wholly-owned subsidiary of PacifiCorp Holdings,
Inc. (Holdings), which is a wholly-owned subsidiary of PacifiCorp.
See "Part II, Item 5 - Other Information" in the Company's Form
10-Q for the quarter ended June 30, 1997, for information
regarding the pending sale of all Pacific Telecom, Inc. outstanding
common stock to Century Telephone Enterprises, Inc.
The current liability for dissenters' rights decreased from the
year end balance due to payments made to dissenting shareholders.
See Note 2 to the Consolidated Financial Statements included in
the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, for information related to the affiliated note
for amounts to be paid dissenters relating to the minority
buy-out. See "Part II, Item 1 - Legal Proceedings" in the
Company's Form 10-Q for the quarter ended June 30, 1997, for
information relating to a lawsuit involving dissenters and the
Company.
3. Certain loan agreements contain provisions restricting the
payment of cash dividends. Retained earnings of approximately
$238.0 million were available for dividends and other
distributions at September 30, 1997.
The Company's ratio of earnings to fixed charges for the
nine months ended September 30, 1997, calculated in accordance
with Item 503 of Regulation S-K under the Securities Exchange
Act of 1934, was 4.1 to 1.
4. The Company's effective combined state and federal income tax
rates were 39.2 percent and 38.9 percent for the nine months
ended September 30, 1997 and 1996, respectively.
-6-
<PAGE>
Condensed Notes to Consolidated Financial Statements
(Unaudited)
The difference between taxes calculated at the statutory federal
tax rates and the effective combined rates for 1997 and 1996 is
reconciled as follows:
1997 1996
____ ____
Federal statutory rate 35.0% 35.0%
State income taxes, net of federal benefit 3.4 3.6
Amortization of investment tax credits (1.0) (1.4)
Amortization of excess deferred income taxes (.4) (.5)
Amortization of excess cost 1.6 1.8
Other .6 .4
_____ _____
Effective tax rate 39.2% 38.9%
_____ ____
_____ ____
The components of income tax expense are as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
_________________ ________________
1997 1996 1997 1996
_______ _______ _______ _______
(In thousands)
Federal income taxes $14,155 $12,104 $36,065 $29,702
State income taxes 2,458 907 5,732 4,995
______ ______ ______ ______
$16,613 $13,011 $41,797 $34,697
______ ______ ______ ______
______ ______ ______ ______
Income taxes currently payable $17,677 $ 951 $35,556 $19,312
Deferred income taxes (711) 12,492 7,300 16,680
Amortization of deferred
investment tax credits (353) (432) (1,059) (1,295)
______ ______ ______ ______
$16,613 $13,011 $41,797 $34,697
______ ______ ______ ______
______ ______ ______ ______
5. On September 30, 1997, the Company acquired local exchange
assets in Minnesota representing 32 exchanges serving approximately
27,000 access lines from US WEST Communications, Inc. for
approximately $103 million in cash. "Net Plant" increased $58.1
million and "Intangibles" increased $44.9 million as a
result of the acquisition. Cash from operations of $98 million
and an escrow account of $5 million included in "Investments"
provided the cash to fund the acquisition.
6. On October 6, 1997, the Company acquired local exchange assets
in Fairbanks, Alaska representing a single exchange serving
approximately 34,000 access lines from the City of Fairbanks
for approximately $84 million in cash. Additionally, $8
million were placed into escrow pending Federal Communications
Commission approvals for cellular license transfer. Borrowings
under other available banking arrangements and an escrow account
provided most of the cash to fund the acquisition.
-7-
<PAGE>
Condensed Notes to Consolidated Financial Statements
(Unaudited)
7. On October 31, 1997, the Company acquired local exchange
assets in Michigan representing eight exchanges serving
approximately 12,000 access lines from GTE North Incorporated
for approximately $34 million in cash. Borrowings under other
available banking arrangements and an escrow account provided
most of the cash to fund the acquisition.
-8-
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations*
Nine Months Ended September 30
______________________________
Results of Operations
_____________________
The Company's net income for the nine months ended September 30, 1997
was $64.9 million, an increase of 19 percent compared to net income of
$54.5 million for the same period in 1996. Operating income increased
16 percent or $18.4 million in the first nine months of 1997 compared
to 1996. Operating income increased due to LEC internal access line
growth, higher LEC enhanced services revenues, growth in cellular
operations and cable operations and increased circuit sales.
Operating revenues for the first nine months of 1997 were $416.2
million, an increase of $30.0 million, or 7.8 percent, compared to the
same period in 1996. Local network service revenues grew $10.7
million primarily due to higher LEC enhanced services revenues
of $3.8 million, revenues from internal access line growth of
$5.2 million and extended area service revenue of $.9 million.
Network access service revenue increased $8.3 million due to the
effect of higher revenue requirements of $3.2 million, higher
LEC prior year revenue adjustments of $2.6 million and $3.2 million
due to increased minutes of use. This increase was partially
offset by decreases in Universal Service Fund support of $.9
million. Sales of cable capacity increased $4.1 million due to
higher circuit sales. Cellular revenues increased $6.3 million
due to customer growth. Other revenue increased $.4 million
primarily due to $1.6 million received from AT&T relating to
services provided to AT&T Alascom, higher LEC nonregulated
customer premise equipment revenues of $1.0 million and
higher cable lease and restoration revenues of $.8 million.
These increases in other revenue were offset by $3.7 million in
lower billing and collection revenues due to contract modifications
that resulted in service reductions.
Operating expenses in the first nine months of 1997 were $283.0
million, an increase of $11.6 million, or four percent, compared to
the first nine months of 1996. Plant support increased $2.9 million
due to the $2.0 million effect of LEC access line growth and
$.9 million in increased lease circuits expense relating to frame
relay and internet services. Depreciation expense increased $3.9
million mainly due to increased LEC plant balances. Cost of cable
sales increased $2.4 million due to higher circuit sales.
Administrative support was up $1.4 million compared to 1996
mainly due to $1.0 million for services provided to AT&T Alascom.
Other expense - net for the nine months of 1997 was $26.5 million,
an increase of $.9 million or three percent from 1996. Gain on sale
of subsidiaries and investments includes the sale of cellular
properties in 1997 and 1996. Equity earnings from cellular
and telephone investments increased $1.7 million in the first nine
months of 1997 compared to the same period in 1996.
Income taxes increased $7.1 million due to the $6.3 million effect
of higher taxable income and the $1.2 million effect of the
sale of cellular properties in February 1997.
Acquisitions
____________
See Notes 5, 6 and 7 of the Condensed Notes to the Consolidated
Financial Statements relating to acquisitions closed in Minnesota,
Fairbanks, Alaska and Michigan , respectively. Currently, the
Company has no material acquisitions pending.
_____________________________
*Pursuant to General Instruction H (1)(a) and (b) of Form 10-Q,
the Company is substituting a management's narrative analysis
of results of operations for Item 2.
-9-
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Dispositions
____________
See "Part II, Item 5 - Other Information" in the Company's Form 10-Q
for the quarter ended June 30, 1997 for information concerning the
sale of Pacific Telecom Cellular, Inc. to Century Telephone
Enterprises, Inc. (Century) being superseded by PacifiCorp's sale of
the Company to Century.
Liquidity and Capital Resources
_______________________________
During the nine months ended September 30, 1997, construction
expenditures amounted to $84.9 million. These expenditures
pertained mainly to network upgrades and internal growth of
the Company's operations. The construction expenditures were funded
primarily with commercial paper. In 1997, total construction
expenditures, which are estimated at $137.0 million, are expected
to be funded primarily through commercial paper. Included in
total estimated construction expenditures is $22 million
relating to the acquisitions that have closed during 1997. Cash
from operations was slightly higher in the first nine months of
1997 compared to the first nine months of 1996 due to higher income.
The Company has access to funds through its $300 million revolving
credit agreement which terminates in November 1999. At
September 30, 1997, no borrowings were outstanding under this
agreement. The revolving credit agreement also serves as backup
for a $100 million commercial paper program, under which $90 million
was outstanding at September 30, 1997. The Company has a
$200 million Series C Medium-term Note program under which
$133.5 million of notes were outstanding on September 30, 1997.
At September 30, 1997, the Company had approval from the Rural
Telephone Bank to borrow $15.8 million in additional Rural
Utilities Service debt for certain construction projects.
The Company has an agreement that allows temporary cash advances
to or from its parent, PacifiCorp Holdings, Inc. (Holdings),
at short-term borrowing rates. At September 30, 1997, $10.6
million was due from Holdings, which includes $15.0 million to be
paid to dissenters relating to the minority buy-out, net of
borrowings from Holdings of $4.4 million. (See Note 2 in
"Notes to Condensed Consolidated Financial Statements" in this
Form 10-Q and Note 2 to the Consolidated Financial Statements
included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, for more information about the
dissenters transaction.)
Any temporary cash or liquidity requirements during 1997 are
expected to be met through utilization of funds available under
the revolving credit agreement or temporary advances from
Holdings. Long-term liquidity requirements are expected to
be met through utilization of funds available under the
revolving credit agreement or the Series C Medium-term Note
program. Cash needed to pay dissenters' rights will be
provided by Holdings.
-10-
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
12 Statements re Computation of Ratios
27 Financial Data Schedule (filed
electronically only)
(b) Reports on Form 8-K
On Form 8-K dated September 30, 1997, under Item 5.
"Other Events" the Company reported information with
respect to the purchase of local exchange assets in
Minnesota and Fairbanks, Alaska from US WEST
Communications, Inc. and the City of Fairbanks,
respectively.
-11-
<PAGE>
SIGNATURES
__________
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.
Pacific Telecom, Inc.
__________________________
(Registrant)
Date: November 7, 1997 /s/James H. Huesgen
_____________________
James H. Huesgen
Executive Vice President and
Chief Financial Officer
-12-
Exhibit 99.5
to Registration Statement
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report (date of earliest event reported): April 11, 1997
PACIFIC TELECOM, INC.
(Exact name of registrant as specified in Charter)
State of Washington 0-873 91-0644974
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File No.) Identification No.)
805 Broadway
Vancouver, Washington
(Address of principal 98668-8701
executive offices) (Zip Code)
Registrant's telephone number, including area code: (360)905-5800
No Change
(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS
Information with respect to the sale of Pacific Telecom Cellular,
Inc., a wholly-owned subsidiary of Pacific Telecom, Inc., in return for
$164.4 million in cash and more than 18,000 telephone access lines
contained in a news release of PacifiCorp issued on April 11, 1997, is
incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
99 PacifiCorp news release issued April 11, 1997.
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 hereunto duly authorized.
PACIFIC TELECOM, INC.
(Registrant)
Dated: April 14, 1997 By: /s/James H. Huesgen
________________________________
James H. Huesgen
Executive Vice President
and Chief Financial Officer
Exhibit 99.6
to Registration Statement
PAGE 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report (date of earliest event reported): September 30, 1997
PACIFIC TELECOM, INC.
(Exact name of registrant as specified in Charter)
State of Washington 0-873 91-0644974
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File No.) Identification No.)
805 Broadway
Vancouver, Washington
(Address of principal 98668-8701
executive offices) (Zip Code)
Registrant's telephone number, including area code: (360)905-5800
No Change
(Former name or former address, if changed since last report)
PAGE 2
ITEM 5. OTHER EVENTS
On September 30, 1997, Pacific Telecom, Inc. (Company) purchased local
exchange assets in Minnesota from US WEST Communications, Inc.
(USWC). There are no affiliated relationships between the Company and
USWC. The assets acquired from USWC represent 32 exchanges which serve
approximately 27,000 access lines, largely in rural Minnesota. The Company
combined these assets with its existing local exchange operations in Minnesota
and began providing telecommunications services to its new customers
immediately after closing. The Company paid approximately $103 million in
cash at closing for these assets. Funds for the purchase were provided mainly
from internally generated funds.
On October 6, 1997, the Company purchased local exchange assets in
Fairbanks, Alaska from the City of Fairbanks (Fairbanks). There are no
affiliated relationships between the Company and Fairbanks. The assets
acquired from Fairbanks represent a single exchange which serves
approximately 38,000 access lines. The Company combined these assets with
its existing local exchange operations in Alaska and began providing
telecommunications services to its new customers immediately after closing.
The Company paid approximately $84 million in cash at closing for the
telecommunications assets in Fairbanks. Additionally, cash in the amount of
$8 million was placed in escrow representing the purchase price for the Alaska
Rural Service Area (RSA) No. 1 A-side license to be paid to Fairbanks upon
receipt of regulatory approvals. Funds for the purchase were provided mainly
through available banking arrangements.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
2 Agreement of Purchase and Sale of Exchanges between US WEST
Communications, Inc., Northland Telephone Company and the
Registrant dated December 15, 1995. (Incorporated by reference to
Exhibit 2 of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995, File No. 0-873.)
2C Asset Purchase Agreement by and between the City of Fairbanks and
PTI Communications of Alaska, Inc. dated August 20, 1996.
(Incorporated by reference to Exhibit 2C of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995, File No.
0-873.)
PAGE 3
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 hereunto duly authorized.
PACIFIC TELECOM, INC.
(Registrant)
Dated: October 14, 1997 By: /s/James H. Huesgen
-----------------------------
James H. Huesgen
Executive Vice President
and Chief Financial Officer
