<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 1-5152
______
PACIFICORP
(Exact name of registrant as specified in its charter)
STATE OF OREGON 93-0246090
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
700 N.E. Multnomah
Suite 1600
Portland, Oregon 97232-4116
(Address of principal executive offices) (Zip code)
503-731-2000
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for at least the past 90 days.
YES X NO
_____ _____
At October 31, 1996, there were 294,665,717 shares of registrant's common
stock outstanding.
<PAGE>1
PACIFICORP
<TABLE>
<CAPTION>
Page No.
________
<S> <C>
PART I. FINANCIAL INFORMATION 2
Item 1. Financial Statements 2
Condensed Consolidated Statements of Income
and Retained Earnings 2
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION 29
Item 1. Legal Proceedings 29
Item 6. Exhibits and Reports on Form 8-K 29
Signature 31
</TABLE>
<PAGE>2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
PACIFICORP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Millions of Dollars, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
___________________ _________________
1996 1995 1996 1995
______ ______ ______ ______
<S> <C> <C> <C> <C>
REVENUES $1,136.8 $ 856.4 $3,120.1 $2,528.5
_______ _______ _______ _______
EXPENSES
Operations 476.9 303.8 1,256.1 926.7
Maintenance 74.0 67.7 228.4 218.3
Administrative and general 83.6 59.3 239.8 184.2
Depreciation and amortization 132.8 108.3 393.0 332.3
Taxes, other than income taxes 30.6 30.1 95.3 93.7
_______ _______ _______ _______
TOTAL 797.9 569.2 2,212.6 1,755.2
_______ _______ _______ _______
INCOME FROM OPERATIONS 338.9 287.2 907.5 773.3
_______ _______ _______ _______
INTEREST EXPENSE AND OTHER
Interest expense 117.5 83.2 345.0 282.2
Interest capitalized (2.6) (4.0) (9.4) (11.4)
Other (income) expense (2.3) (43.1) (8.9) (49.9)
_______ _______ _______ _______
TOTAL 112.6 36.1 326.7 220.9
_______ _______ _______ _______
Income before income taxes 226.3 251.1 580.8 552.4
Income taxes 83.4 82.1 208.8 175.1
_______ _______ _______ _______
NET INCOME 142.9 169.0 372.0 377.3
RETAINED EARNINGS BEGINNING OF PERIOD 685.0 509.1 632.4 474.3
Cash dividends declared
Preferred stock (5.7) (10.2) (23.5) (30.4)
Common stock per share: 1996 and
1995/$.27 and $.81 (79.5) (76.8) (238.2) (230.1)
Preferred stock retired (7.5) - (7.5) -
_______ _______ _______ _______
RETAINED EARNINGS END OF PERIOD $ 735.2 $ 591.1 $ 735.2 $ 591.1
======= ======= ======= =======
EARNINGS ON COMMON STOCK
(Net income less preferred
dividend requirement) $ 136.6 $ 158.9 $ 347.7 $ 346.9
Average number of common shares
outstanding (Thousands) 294,396 284,277 291,594 284,271
EARNINGS PER COMMON SHARE $ .46 $ .56 $ 1.19 $ 1.22
<FN>
See accompanying Notes to Condensed Consolidated Financial Statements
</FN>
</TABLE>
<PAGE>3
<TABLE>
PACIFICORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
(Unaudited)
ASSETS
<CAPTION>
September 30, December 31,
1996 1995
____________ ____________
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT
Domestic Electric Operations $11,413.5 $10,948.1
Australian Electric Operations 1,397.1 1,286.5
Telecommunications 1,627.2 1,592.9
Other 65.1 65.0
Accumulated depreciation and amortization (4,561.1) (4,280.5)
________ ________
Net 9,941.8 9,612.0
Construction work in progress 296.9 340.3
________ ________
TOTAL PROPERTY, PLANT AND EQUIPMENT 10,238.7 9,952.3
________ ________
CURRENT ASSETS
Cash and cash equivalents 31.3 22.2
Accounts receivable less allowance
for doubtful accounts: 1996/$7.5
and 1995/$7.4 656.6 545.0
Materials, supplies and fuel stock at
average cost 208.2 212.1
Inventory 54.9 62.8
Other 56.4 70.1
________ ________
TOTAL CURRENT ASSETS 1,007.4 912.2
________ ________
OTHER ASSETS
Investments in and advances to affiliated
companies 358.5 187.9
Intangible assets - net 781.5 743.2
Regulatory assets - net 1,064.8 1,060.3
Finance note receivable 216.3 217.5
Finance assets 442.4 453.7
Real estate investments 197.0 179.8
Deferred charges and other 340.9 308.3
________ ________
TOTAL OTHER ASSETS 3,401.4 3,150.7
________ ________
TOTAL ASSETS $14,647.5 $14,015.2
======== ========
<FN>
See accompanying Notes to Condensed Consolidated Financial Statements
</FN>
</TABLE>
<PAGE>4
<TABLE>
PACIFICORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(Millions of Dollars)
(Unaudited)
CAPITALIZATION AND LIABILITIES
<CAPTION>
September 30, December 31,
1996 1995
_____________ ____________
<S> <C> <C>
COMMON EQUITY
Common shareholders' capital
shares authorized 750,000,000;
shares outstanding: 1996/294,647,675
and 1995/284,276,709 $ 3,226.4 $ 3,012.9
Retained earnings 735.2 632.4
Guarantees of Employee Stock Ownership
Plan borrowings (3.0) (12.2)
________ ________
TOTAL COMMON EQUITY 3,958.6 3,633.1
________ ________
PREFERRED STOCK 135.5 311.5
________ ________
PREFERRED STOCK SUBJECT TO MANDATORY REDEMPTION 178.0 219.0
________ ________
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN
COMPANY'S JUNIOR SUBORDINATED DEBENTURES 209.8 -
________ ________
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 5,246.5 4,968.2
________ ________
CURRENT LIABILITIES
Long-term debt and capital lease obligations
currently maturing 213.4 206.1
Notes payable and commercial paper 764.5 1,021.1
Accounts payable 412.9 345.3
Taxes, interest and dividends payable 316.1 256.4
Customer deposits and other 185.3 176.0
________ ________
TOTAL CURRENT LIABILITIES 1,892.2 2,004.9
________ ________
DEFERRED CREDITS
Income taxes 1,994.6 1,910.1
Investment tax credits 151.1 159.2
Other 847.8 786.2
________ ________
TOTAL DEFERRED CREDITS 2,993.5 2,855.5
________ ________
MINORITY INTEREST 33.4 23.0
________ ________
COMMITMENTS AND CONTINGENCIES (See Note 2)
TOTAL CAPITALIZATION AND LIABILITIES $14,647.5 $14,015.2
======== ========
<FN>
See accompanying Notes to Condensed Consolidated Financial Statements
</FN>
</TABLE>
<PAGE>5
<TABLE>
PACIFICORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of Dollars)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
_______________________
1996 1995
______ ______
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 372.0 $ 377.3
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and amortization 409.9 346.6
Deferred income taxes and investment tax
credits - net 33.5 36.0
Other (12.8) (23.2)
Accounts receivable and prepayments (96.5) 26.7
Materials, supplies, fuel stock and
inventory 12.6 (13.8)
Accounts payable and accrued liabilities 130.1 (45.5)
______ ______
NET CASH PROVIDED BY OPERATING ACTIVITIES 848.8 704.1
______ ______
CASH FLOWS FROM INVESTING ACTIVITIES
Construction (456.8) (435.0)
Assets acquired (176.8) (288.8)
Investments in and advances to
affiliated companies - net (152.4) (1.8)
Purchase of minority interest
of Pacific Telecom - (117.1)
Proceeds from the sale of Alascom - 235.1
Proceeds from sale of assets 34.6 124.0
Proceeds from sales of finance assets
and principal payments 61.8 33.1
Other (14.6) (27.3)
______ ______
NET CASH USED IN INVESTING ACTIVITIES (704.2) (477.8)
______ ______
<FN>
See accompanying Notes to Condensed Consolidated Financial Statements
</FN>
</TABLE>
<PAGE>6
<TABLE>
PACIFICORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions of Dollars)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
_______________________
1996 1995
______ ______
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Changes in short-term debt (256.6) -
Proceeds from long-term debt 480.8 308.7
Proceeds from issuance of common stock 210.7 1.8
Proceeds from issuance of Company
obligated mandatorily redeemable
preferred securities 210.1 -
Dividends paid (261.5) (260.7)
Repayments of long-term debt and capital
lease obligations (251.7) (226.9)
Redemptions of preferred stock (223.8) -
Other (43.5) (56.5)
______ ______
NET CASH USED IN FINANCING ACTIVITIES (135.5) (233.6)
______ ______
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 9.1 (7.3)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 22.2 23.3
______ ______
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 31.3 $ 16.0
====== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for
Interest $ 391.3 $ 319.9
Income taxes net of refunds 150.6 149.3
<FN>
See accompanying Notes to Condensed Consolidated Financial Statements
</FN>
</TABLE>
<PAGE>7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1996
1. FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial
statements as of September 30, 1996 and December 31, 1995 and for the periods
ended September 30, 1996 and 1995, in the opinion of management, include all
adjustments, constituting only normal recording of accruals, necessary for a
fair presentation of financial position, results of operations and cash flows
for such periods. A significant part of the business of PacifiCorp (the
"Company") is of a seasonal nature; therefore, results of operations for the
periods ended September 30, 1996 and 1995 are not necessarily indicative of
the results for a full year. These condensed consolidated financial
statements should be read in conjunction with the financial statements and
related notes incorporated by reference in the Company's 1995 Annual Report on
Form 10-K.
The condensed consolidated financial statements of the Company
include its integrated domestic electric utility operating divisions of
Pacific Power and Utah Power and its wholly owned and majority owned
subsidiaries. Major subsidiaries, all of which are wholly owned, are:
PacifiCorp Holdings, Inc. ("Holdings"), which holds all of the Company's
nonintegrated electric utility investments, including Powercor Australia
Limited ("Powercor"), an Australian electricity distributor purchased on
December 12, 1995; and other investments, including Pacific Telecom, Inc.
("Pacific Telecom"), a telecommunications operation, 87% owned until
September 25, 1995, and PacifiCorp Financial Services, Inc., a financial
services business. Together these businesses are referred to herein as the
Companies. Significant intercompany transactions and balances have been
eliminated.
Investments in and advances to affiliated companies represent
investments in unconsolidated affiliated companies carried on the equity
basis, which approximates the Company's equity in their underlying net book
value.
Certain amounts from the prior period have been reclassified to
conform with the 1996 method of presentation. These reclassifications had no
effect on previously reported consolidated net income.
2. CONTINGENT LIABILITIES
The Company and its subsidiaries are parties to various legal
claims, actions and complaints, certain of which involve material amounts.
Although the Company is unable to predict with certainty whether or not it
will ultimately be successful in these legal proceedings or, if not, what the
impact might be, management currently believes that disposition of these
matters will not have a materially adverse effect on the Company's
consolidated financial statements.
The Company's 1991, 1992 and 1993 federal income tax returns are
currently under examination by the Internal Revenue Service (the "IRS"). The
Company has received an examination report for 1989 and 1990 proposing
adjustments that would increase income tax by $11 million. The Company filed
a protest of certain proposed adjustments on July 30, 1996.
<PAGE>8
As previously reported, several Superfund sites have been identified
where the Company has been or may be designated as a potentially responsible
party. Future costs associated with the disposition of these matters are not
expected to be material to the Company's consolidated financial statements.
3. GUARANTEED PREFERRED BENEFICIAL INTERESTS
IN COMPANY'S JUNIOR SUBORDINATED DEBENTURES
On June 11, 1996, PacifiCorp Capital I, a wholly owned subsidiary
trust of the Company (the "Trust"), issued, in a public offering, 8,680,000 of
its 8 1/4% Company Obligated Mandatorily Redeemable Preferred Securities (the
"Preferred Securities"), representing preferred undivided beneficial interests
in the assets of the Trust, with a liquidation preference of $25 per Preferred
Security. The sole assets of the Trust are $224 million, in aggregate
principal amount, of the Company's 8 1/4% Junior Subordinated Deferrable
Interest Debentures, Series C, due June 30, 2036 ("Series C Debentures") and
certain rights under a related guarantee by the Company. The Company's
guarantee of the Preferred Securities, considered together with the other
obligations of the Company with respect to Preferred Securities, constitutes a
full and unconditional guarantee by the Company of the Trust's obligations
with respect to the Preferred Securities.
4. NEW ACCOUNTING STANDARD
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment
of Long Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No.
121 requires that long-lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The Company has evaluated its assets based upon SFAS No. 121
and within the context of SFAS 71 "Accounting for the Effects of Certain Types
of Regulation" for its regulated operations and has concluded that no assets
qualified for impairment and consequently no adjustments were required.
<PAGE>9
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY RESULTS OF OPERATIONS
This report includes forward-looking statements that involve a number of risks
and uncertainties, including the factors identified in the Company's 1995
Annual Report on Form 10-K that may influence the financial performance and
earnings of the Company and its subsidiaries. Such forward-looking statements
should be considered in light of those factors.
Comparison of the third quarters of 1996 and 1995
_________________________________________________
<TABLE>
<CAPTION>
%
1996 1995 Change Change
____ ____ _____ _____
(Dollars in Millions)
<S> <C> <C> <C> <C>
Earnings contribution
on common stock (1)
Domestic Electric Operations $100.1 $ 88.1 $ 12.0 14
Australian Electric Operations 6.1 - 6.1 *
Telecommunications 20.3 52.9 (32.6) (62)
Other 10.1 17.9 (7.8) (44)
_____ _____ _____
Total $136.6 $158.9 $(22.3) (14)
===== ===== =====
<FN>
*Not a meaningful number.
(1) Earnings contribution on common stock by segment: (a) does not reflect
elimination for interest on intercompany borrowing arrangements; (b)
includes income taxes on a separate company basis, with any benefit or
detriment of consolidation reflected in Other; (c) amounts are net of
preferred dividend requirements and minority interest.
</FN>
</TABLE>
. Earnings contribution on common stock decreased $22 million or 14%. The
1995 earnings contribution included after-tax gains of $37 million relating
to completion of the sale of long distance telephone operations in Alaska
and $9 million relating to sales of finance assets. Excluding these 1995
gains, the earnings contribution in 1996 increased $24 million or 21%.
.. Domestic Electric Operations' earnings contribution increased
$12 million or 14%. Residential and commercial revenues rose
$21 million and $10 million, respectively. Of these increases,
$10 million was due to warmer weather in 1996, $10 million was from
higher prices and changes in customer mix and $5 million was due to an
increase in the average number of customers (2% for residential and 1%
for commercial). Sales to irrigation customers increased $7 million
due to warmer and drier weather in 1996. Wholesale revenues increased
$66 million due to an 86% increase in energy sales volumes, despite
lower prices. Purchased power expense increased $70 million due to
higher purchased volumes, resulting from increased demand for
electricity, and higher short-term and spot market purchase prices.
See discussion regarding expenses associated with the Hermiston Plant
on pages 13, 14 and 25 of this Form 10-Q.
<PAGE>10
.. Australian Electric Operations' earnings contribution was $6 million,
including earnings of $7 million from Powercor, an electricity
distributor, acquired in December 1995. Interest expense of
$.5 million was associated with the purchase of a 19.9% interest in
Hazelwood Power Station ("Hazelwood"), a coal-fired generating station
and associated coal mine in Victoria, Australia, acquired on
September 13, 1996.
.. Telecommunications' earnings contribution decreased $33 million due to
a $37 million gain on the sale of Alascom, Inc. ("Alascom") to AT&T
Corp in August 1995. Excluding the effect of the Alascom gain and
Alascom's earnings contribution of $3 million in the 1995 period,
Pacific Telecom's contribution increased $7 million or 57% due to an
increase of $2 million resulting from local exchange company ("LEC")
assets acquired in late 1995, internal access line growth of 5% and
cellular customer growth.
.. The earnings contribution of other businesses included a $9 million
gain on the sale of finance assets in 1995. Without this gain the
earnings contribution would have increased $1 million. Increased
earnings from Pacific Generation Company and decreased taxes resulting
from a lower effective income tax rate were partially offset by
increased after-tax interest expense of $4 million resulting from
higher debt levels.
Comparison of the nine-month periods ended September 30, 1996 and 1995
______________________________________________________________________
<TABLE>
<CAPTION>
%
1996 1995 Change Change
____ ____ ______ ______
(Dollars in Millions)
<S> <C> <C> <C> <C>
Earnings contribution
on common stock
Domestic Electric Operations $248.5 $191.3 $ 57.2 30
Australian Electric Operations 22.0 - 22.0 *
Telecommunications 54.1 85.0 (30.9) (36)
Other 23.1 70.6 (47.5) (67)
_____ _____ _____
Total $347.7 $346.9 $ .8 -
===== ===== =====
<FN>
*Not a meaningful number.
</FN>
</TABLE>
. Earnings contribution on common stock was virtually unchanged. Excluding
the effect of a $37 million gain relating to the sale of long distance
telephone operations in Alaska, the earnings contribution increased
$38 million or 12%.
.. In 1995, the Company reached a tax settlement with the IRS for the
years 1983 through 1988. The settlement had no effect on consolidated
net income, although it had the effect of reducing Domestic Electric
Operations' earnings $32 million and increasing Other earnings
$32 million.
.. Excluding the $32 million tax settlement in 1995 referred to above,
Domestic Electric Operations' earnings contribution increased
$25 million or 11%. Residential and commercial revenues rose
$49 million and $31 million, respectively. Of these increases,
$23 million was due to the effect of more favorable weather conditions
in 1996, $18 million was due to a 2% increase in the average number of
residential and commercial
<PAGE>11
customers, $19 million was from increased customer usage and
$13 million was due to higher prices. Despite lower prices, wholesale
revenues increased $137 million due to an 85% increase in energy sales
volumes. An increase of $145 million in purchased power expense,
increased depreciation of $15 million, increased administrative and
general expense of $14 million and increased interest expense of
$13 million (excluding the effect of the tax settlement) partially
offset these improvements.
.. The earnings contribution of Australian Electric Operations was
$22 million in 1996.
.. Pacific Telecom's earnings contribution decreased $31 million.
Excluding the effect of the Alascom gain and Alascom's earnings
contribution of $30 million in the 1995 period, Pacific Telecom's
contribution increased $26 million or 90%. The increases were due to
the $13 million effect of 5% growth in existing local exchange
operations and growth in cellular operations, earnings of $9 million
resulting from LEC assets acquired in 1995 and the $4 million effect of
PacifiCorp's 100% ownership of Pacific Telecom in 1996 versus 87% in
1995.
.. Excluding the tax settlement referred to above, the earnings
contribution of other businesses decreased $15 million or 40%. The
decreases were primarily due to after-tax expenditures of $8 million
relating to the development of unregulated energy projects and
businesses and increased after-tax interest expense of $11 million
resulting from higher debt levels. The reductions were partially
offset by increased earnings from Pacific Generation Company.
<PAGE>12
RESULTS OF OPERATIONS
<TABLE>
DOMESTIC ELECTRIC OPERATIONS
Comparison of the third quarters of 1996 and 1995
_________________________________________________
<CAPTION>
%
1996 1995 Change Change
____ ____ ______ ______
(Dollars in Millions)
<S> <C> <C> <C> <C>
Revenues
Residential $179.1 $158.1 $ 21.0 13
Commercial 159.8 150.3 9.5 6
Industrial 198.0 191.3 6.7 4
Other 8.6 7.8 0.8 10
_____ _____ _____
Retail sales 545.5 507.5 38.0 7
Wholesale sales 210.5 144.7 65.8 45
Other 20.1 15.9 4.2 26
_____ _____ _____
Total 776.1 668.1 108.0 16
_____ _____ _____
Expenses
Fuel 120.9 120.1 0.8 1
Purchased power 153.5 83.2 70.3 84
Other operations 67.3 62.6 4.7 8
Maintenance 37.8 40.8 (3.0) (7)
Administrative and general 47.2 39.3 7.9 20
Depreciation and amortization 85.9 80.4 5.5 7
Taxes other than income taxes 24.9 26.1 (1.2) (5)
_____ _____ _____
Total 537.5 452.5 85.0 19
_____ _____ _____
Income from operations 238.6 215.6 23.0 11
Interest expense 77.8 70.3 7.5 11
Other income - net (6.3) (13.1) 6.8 52
Income taxes 60.7 60.2 0.5 1
_____ _____ _____
Net income 106.4 98.2 8.2 8
Preferred dividend requirement 6.3 10.1 (3.8) (38)
_____ _____ _____
Earnings contribution $100.1 $ 88.1 $ 12.0 14
===== ===== =====
Energy sales (millions of kWh)
Residential 2,806 2,594 212 8
Commercial 2,980 2,870 110 4
Industrial 5,627 5,446 181 3
Other 165 156 9 6
______ ______ _____
Retail sales 11,578 11,066 512 5
Wholesale sales 8,094 4,348 3,746 86
______ ______ _____
Total 19,672 15,414 4,258 28
====== ====== =====
Average number of customers
Residential 1,186,610 1,167,172 19,438 2
Commercial 164,552 162,138 2,414 1
</TABLE>
. Revenues increased $108 million or 16%.
In July 1996, Electric Operations received orders from the Public
Utility Commission of Oregon and the Wyoming Public Service Commission
to raise
<PAGE>13
prices by an average of 4% and 3.9%, respectively. The price increases
are expected to result in annual revenues of $37 million.
.. Residential revenues increased $21 million or 13% and kWh volume
increased 8%. Revenues increased $7 million due to warmer temperatures
in 1996 and $6 million due to price changes, including $3 million
resulting from the July 1996 price increases in Oregon and Wyoming and
$2 million due to differences in customer mix. In addition, revenues
were $3 million higher due to a 2% increase in the average number of
residential customers.
.. Commercial revenues increased $10 million or 6% and kWh volume
increased 4%. Revenues increased primarily due to the $4 million
effect of price changes, including $2 million resulting from the July
1966 price increases in Oregon and Wyoming, a $3 million increase due
to warmer temperatures in 1996 and the $2 million effect of a 1%
increase in the average number of commercial customers.
.. Industrial revenues increased $7 million or 4% primarily due to a
$7 million increase in sales to irrigation customers resulting from
warmer and drier weather in 1996.
.. Wholesale revenues increased $66 million or 45% while kWh volume
increased 86%. Higher short-term and spot market sales volumes added
$49 million to revenues. New long-term contract volumes and higher
long-term prices on certain existing long-term contracts increased
revenues $9 million and $6 million, respectively.
. Operating expenses increased $85 million or 19%.
.. Fuel expense increased $1 million or 1% due to a 178,000 mWh or 1%
increase in thermal generation. The higher demand for electricity in
1996 was also satisfied by a 55,000 mWh or 8% increase in lower-cost
hydroelectric generation at Company-owned plants and the availability
of lower-cost purchased power in the spot market.
In 1993 the Company signed a contract to purchase the entire energy
output from the Hermiston plant, a 474 MW natural gas cogeneration
plant. The Company purchased a 50% interest in the plant in July 1996
when it began commercial operation. Fuel costs associated with the
Company's 50% share of the Hermiston plant added $8 million to fuel
expense in the quarter. Reduced generation and lower fuel costs at
other plants helped offset this increase.
.. Purchased power and wheeling expense increased $70 million or 84% while
kWh volume purchased increased 158%. Short-term and spot market
purchases increased $49 million due to a 3,427,000 mWh, or almost 400%,
increase in kWh volume purchased and $4 million due to higher prices.
Increased volumes under long-term purchase contracts added $8 million
to expense. Purchases of $16 million from the Hermiston plant were
offset in part by expirations and reductions of other long-term
purchased power contracts. Wheeling expense increased $5 million due
to higher volumes wheeled.
<PAGE>14
Despite the addition of the Hermiston plant during the third quarter,
"net power costs" were $6.75 per mWh, or $0.05 below 1995 levels.
Electric Operations "net power costs" represents the net cost to serve
its retail customers on a mWh basis, as measured by the sum of fuel,
purchased power and wheeling expense, less wholesale power and wheeling
revenues. Net power costs are lower due to the overall reduction of
higher cost resources and the aggregation of lower cost power supplies
to serve increased retail and wholesale sales.
Bonneville Power Administration ("BPA"), a wholesale power and wheeling
supplier, increased its rates effective October 1, 1995. The rates
increased Electric Operations' capacity and wheeling expenses by
approximately $4 million annually and reduced the exchange benefits
directly received by Electric Operations' residential and small farm
customers by approximately $10 million annually. Electric Operations
has received approval for price increases that allow it to recover the
reduction of exchange benefits.
BPA completed its 1996 rate hearing process and implemented new five-
year rates effective October 1, 1996. The new rates will reduce
Electric Operations' annual capacity and wheeling expenses by
$3 million. In addition, while the new rates would have reduced the
annual exchange benefits directly received by Electric Operations'
residential and small farm customers by approximately $17 million,
President Clinton signed into law the "Energy and Water Development
Appropriation Act of 1995" (the "Act") which, among other things,
provides for a set amount of exchange benefits for the first twelve
months of the rate period, largely mitigating the reduction of exchange
benefits. Electric Operations has received approval for price
increases in Idaho that will allow it to recover the reduction of
exchange benefits relating to Idaho. The Act replaced lost benefits in
Oregon and Washington resulting in no price increases for those
jurisdictions.
.. Administrative and general expense increased $8 million or 20% due to
the timing of employee expense, higher outside services expense and
increased amortization of deferred postretirement benefits.
.. Depreciation and amortization expense increased $6 million or 7%
primarily due to additional plant in service, including addition of the
50% interest in the Hermiston plant and a new customer software system.
. Earnings contribution increased $12 million or 14%.
.. Income from operations increased $23 million or 11%. Electric
Operations expects the Hermiston plant will reduce income from
operations by approximately $30 million on an annualized basis.
Electric Operations has been able to secure new value-added sales
contracts and avoid certain above-market purchased power commitments as
a result of the addition of the Hermiston plant. Furthermore, the
estimated financial impact of the addition of the Hermiston plant
excludes the revenue associated with the inclusion of the plant in the
Electric Operations' rate base.
.. Interest expense increased $8 million or 11% primarily due to the
effects of higher levels of debt outstanding in 1996.
<PAGE>15
.. Other income decreased $7 million primarily due to a $2 million
increase in new product development expense and reductions of
$2 million each in interest capitalized and gains on sales of property.
.. Preferred dividend requirements decreased $4 million or 38% due to
redemptions of preferred stock in July and August 1996.
<TABLE>
Comparison of the nine-month periods ended September 30, 1996 and 1995
______________________________________________________________________
<CAPTION>
%
1996 1995 Change Change
____ ____ ______ ______
(Dollars in Millions)
<S> <C> <C> <C> <C>
Revenues
Residential $ 565.1 $ 516.1 $ 49.0 9
Commercial 458.6 427.2 31.4 7
Industrial 533.9 528.5 5.4 1
Other 24.2 22.5 1.7 8
_______ _______ _____
Retail sales 1,581.8 1,494.3 87.5 6
Wholesale sales 507.5 370.2 137.3 37
Other 46.2 45.0 1.2 3
_______ _______ _____
Total 2,135.5 1,909.5 226.0 12
_______ _______ _____
Expenses
Fuel 316.6 315.7 0.9 -
Purchased power 392.0 247.3 144.7 59
Other operations 202.8 196.9 5.9 3
Maintenance 125.9 128.7 (2.8) (2)
Administrative and general 130.2 116.3 13.9 12
Depreciation and amortization 254.2 239.5 14.7 6
Taxes other than income taxes 78.6 81.0 (2.4) (3)
_______ _______ _____
Total 1,500.3 1,325.4 174.9 13
_______ _______ _____
Income from operations 635.2 584.1 51.1 9
Interest expense 224.9 238.1 (13.2) (6)
Other income - net (21.7) (33.9) 12.2 36
Income taxes 159.2 158.2 1.0 1
_______ _______ _____
Net income 272.8 221.7 51.1 23
Preferred dividend requirement 24.3 30.4 (6.1) (20)
_______ _______ _____
Earnings contribution $ 248.5 $ 191.3 $ 57.2 30
======= ======= =====
Energy sales (millions of kWh)
Residential 9,260 8,662 598 7
Commercial 8,500 8,018 482 6
Industrial 15,382 15,002 380 3
Other 480 447 33 7
______ ______ ______
Retail sales 33,622 32,129 1,493 5
Wholesale sales 20,166 10,872 9,294 85
______ ______ ______
Total 53,788 43,001 10,787 25
====== ====== ======
Average number of customers
Residential 1,182,906 1,162,685 20,221 2
Commercial 163,860 161,458 2,402 2
</TABLE>
<PAGE>16
. Revenues increased $226 million or 12%.
.. Residential revenues increased $49 million or 9% and kWh volume
increased 7%. Revenues were up $17 million due to the effect of cooler
temperatures during the winter heating season and warmer temperatures
during summer cooling months in 1996. Residential customer growth of
2% added $10 million to revenues and price changes resulting from
differences in customer mix and price increases in Oregon and Wyoming
added $8 million. Other increases included $7 million due to the effect
of a decrease in BPA exchange benefits and $6 million resulting from
higher customer usage.
.. Commercial revenues increased $31 million or 7% and kWh volume
increased 6%. Revenues increased primarily due to a $13 million
increase resulting from higher customer usage, the $8 million effect of
a 2% increase in the average number of commercial customers, the
$6 million effect of temperature variations in 1996 compared with 1995
and price changes of $5 million resulting from differences in customer
mix and price increases in Oregon and Wyoming.
.. Industrial revenues increased $5 million or 1% and kWh volume increased
3%. Sales to irrigation customers increased $11 million due to warmer
and drier weather in 1996. Sales to general industrial customers
decreased $4 million due to the $9 million effect of lower contract
prices in 1996 and $7 million from lower volumes sold to oil and gas
customers, partially offset by a $12 million increase due to higher
volumes sold to new and existing customers.
.. Wholesale revenues increased $137 million or 37% while kWh volume
increased 85%. Higher short-term and spot market sales volumes added
$105 million to revenues. Additionally, new long-term firm contract
volumes and higher long-term prices increased revenues $36 million and
$12 million, respectively. The increases were partially offset by a
revenue decrease of $17 million due to a 30% decline in prices for
short-term and spot market sales resulting from increased competition,
surplus hydroelectric generation in the region and low natural gas
prices.
. Operating expenses increased $175 million or 13%.
.. Fuel expense increased $1 million due to higher fuel costs, partially
offset by reduced generation. Thermal generation declined 383,000 mWh
or 1% due to a 512,000 mWh or 15% increase in hydroelectric generation
and the availability of lower-cost purchased power in the spot market.
.. Purchased power and wheeling expense increased $145 million or 59%
while kWh volumes purchased increased 146%. A $99 million increase in
short-term and spot market purchases resulted from a 8,879,000 mWh, or
three-fold, increase in volumes purchased and $5 million was due to
higher prices for these purchases. Other increases included
$28 million due to higher volumes and prices for purchases under long-
term firm contracts, $7 million due to additional wheeling expense
resulting from higher volumes wheeled and $5 million due to the effect
of decreased BPA exchange benefits.
<PAGE>17
Electric Operations "net power costs" were $6.84 per mWh in the 1996
period, or $.24 below 1995 levels.
.. Administrative and general expense increased $14 million or 12%
primarily due to the timing of employee expense, higher outside
services expense and increased amortization of deferred postretirement
benefits.
.. Depreciation and amortization expense increased $15 million or 6%
primarily due to additional plant in service.
. Earnings contribution increased $57 million or 30%.
.. Income from operations increased $51 million or 9%.
.. Interest expense decreased $13 million primarily due to the effect of
the $28 million interest portion of the settlement with the IRS in
1995, referred to above. Interest expense, excluding the IRS
settlement, increased $15 million or 7% primarily due to the effects of
higher levels of debt outstanding in 1996.
.. Other income decreased $12 million primarily due to the effects of a
gain of $3 million on the sale of water rights in 1995, a $3 million
decrease in interest capitalized, a $3 million increase in charitable
contributions in 1996 and higher new product development expense of
$2 million.
.. Income tax expense increased $1 million. The $4 million net effect of
the IRS settlement in 1995, referred to above, was offset by increased
tax expense due to higher taxable income.
.. Preferred dividend requirements decreased $6 million or 20% due to
redemptions of preferred stock in July and August 1996 and lower
dividend requirements on auction rate preferred stock.
<PAGE>18
AUSTRALIAN ELECTRIC OPERATIONS
Powercor was acquired by Holdings on December 12, 1995 for
approximately $1.6 billion of debt. Approximately $900 million was financed
in Australia and $700 million was borrowed in the U.S. At September 30, 1996,
the Australian debt totaled $926 million. Interest expense associated with
the U.S. borrowings has not been allocated to subsidiaries of Holdings.
Allocation of interest expense associated with the U.S. borrowings would have
reduced Powercor's earnings contribution by approximately $7 million in the
third quarter of 1996 and $21 million for the nine-month period ended
September 30, 1996.
In September 1996, a subsidiary of Holdings acquired a 19.9%
ownership interest in Hazelwood, a coal-fired generating station and
associated coal mine in Victoria, Australia for approximately $145 million.
In conjunction with the investment in Hazelwood, the subsidiary also made an
advance of $12 million, which is repayable in four annual installments through
June 30, 2000. Hazelwood was purchased in partnership with National Power PLC
(51.9%), Destec Energy (20%) and Commonwealth Bank Group of Australia (8.2%).
<TABLE>
Third quarter of 1996
_____________________
<CAPTION>
Energy Sales
____________________
1996 1996 1995(a)
____ ____ ____
(Dollars in Millions) (Millions of kWh)
<S> <C> <C> <C>
Powercor
Revenues
Domestic $ 67.7 748 756
Commercial 50.7 456 355
Industrial 43.7 912 724
Other 16.0 93 97
_____ _____ _____
Total 178.1 2,209 1,932
_____ ===== =====
Operating expenses
Purchased power 84.7
Other operations 19.4
Maintenance 11.4
Administrative and general 9.4
Depreciation and amortization 18.2
Taxes other than income taxes 0.5
_____
Total 143.6
_____
Income from operations 34.5
Interest expense 18.8
Other expense 0.5
Income taxes 8.6
_____
Powercor earnings contribution $ 6.6
=====
Hazelwood earnings contribution $ (0.5)
=====
<FN>
(a) Prior to Powercor's being acquired by the Company.
</FN>
</TABLE>
Energy sales in the third quarter increased by 14% compared to the
previous quarter. The third quarter includes the Australian winter months,
when electricity demand is high. In addition to seasonally high sales during
the Australian winter months, increased market share in the contestable market
in Victoria has provided a substantial contribution to sales. The Victorian
<PAGE>19
electricity market is progressively being deregulated, and the 750 mWh - 1000
mWh market became contestable starting July 1, 1996. Powercor now holds in
excess of 40% of the contestable market in the state, up from approximately
37% in the second quarter of 1996. Powercor has been successful in retaining
the majority of its major franchise customers which became contestable in
July, and has also acquired a large number of new customers throughout
Victoria. The success in winning new customers provided an additional
$11 million in revenue during the third quarter, an increment which is
expected to continue in the fourth quarter.
Powercor had a total of 546,000 customers at September 30, 1996.
This represents an increase of 2,000 customers compared to the previous
quarter and an increase of 6,000 customers from the end of 1995.
Income tax expense included $4 million of revised estimates of
deferred income taxes associated with purchase price allocations. Hazelwood
recorded interest expense of $0.5 million.
Powercor obtains most of its required electricity (purchased power)
through a statewide generation pool. Pool prices vary depending on certain
conditions, including weather, economic growth and other factors influencing
supply and demand for electric power. Powercor has hedged its pool price
exposure with a number of vesting contracts. Prices under the contracts are
lowest in the Australian summer months because demand is lowest, which
generally is expected to result in higher profit margins for Powercor in the
first quarter than in any other quarter of the year.
<PAGE>20
<TABLE>
Nine-month period ended September 30, 1996
__________________________________________
<CAPTION>
Energy Sales
____________________
1996 1996 1995(a)
____ ____ ____
(Dollars in Millions) (Millions of kWh)
<S> <C> <C> <C>
Powercor
Revenues
Domestic $180.5 2,005 1,977
Commercial 118.6 1,201 1,028
Industrial 128.6 2,439 2,266
Other 49.9 352 348
_____ _____ _____
Total 477.6 5,997 5,619
_____ ===== =====
Operating expenses
Purchased power 220.8
Other operations 41.8
Maintenance 33.0
Administrative and general 33.7
Depreciation and amortization 53.2
Taxes other than income taxes 1.3
_____
Total 383.8
_____
Income from operations 93.8
Interest expense 56.6
Other expense 1.4
Income taxes 13.3
_____
Powercor earnings contribution $ 22.5
=====
Hazelwood earnings contribution $ (0.5)
=====
<FN>
(a) Prior to Powercor's being acquired by the Company.
</FN>
</TABLE>
The earnings contribution of Powercor was $23 million. As indicated
above, allocation of interest expense associated with the U.S. borrowings
would have reduced Powercor's earnings contribution by approximately
$21 million resulting in a $2 million earnings contribution. Hazelwood,
acquired in September 1996, recorded interest expense of $0.5 million.
<PAGE>21
TELECOMMUNICATIONS
On September 25, 1995, Holdings acquired the 13% publicly held
minority interest of Pacific Telecom.
On August 7, 1995, Pacific Telecom closed the sale of the stock of
Alascom to AT&T Corp., in a transaction providing $366 million in proceeds.
The Company recognized an after-tax gain of approximately $37 million from the
sale, based on its 87% ownership interest of Pacific Telecom when the sale
occurred. The table below contains summarized income statement data for
Alascom and the effects of the sale of Alascom in August 1995, which included
a $67 million gain realized by Pacific Telecom from the sale, the write off of
$20 million of goodwill relating to Alascom and $9 million of minority
interest associated with the sale. The table below does not include interest
allocations made by Pacific Telecom. The loss of Alascom's earnings
contribution is expected to be offset by earnings of LEC assets acquired in
1995 and LEC assets expected to be acquired in 1997. See pages 22 and 25 of
this Form 10-Q.
The discussion below each of the following tables is presented
excluding the effect of the Alascom gain and Alascom's earnings contribution
in the 1995 periods.
<TABLE>
Comparison of the third quarters of 1996 and 1995.
_________________________________________________
<CAPTION>
Excluding Alascom
_________________
Alascom %
1996 1995 1995 Change Change
____ ____ _______ ______ ______
(Dollars in Millions)
<S> <C> <C> <C> <C> <C>
Revenues
Local network service $ 36.3 $ 30.7 $ - $ 5.6 18
Network access service 64.3 54.5 - 9.8 18
Long distance network service 0.4 23.6 23.2 - -
Private line service - 4.7 4.7 - -
Sales of cable capacity 6.1 0.7 - 5.4 *
Cellular and other 31.8 29.3 0.9 3.4 12
_____ _____ _____ ____
Total 138.9 143.5 28.8 24.2 21
_____ _____ _____ ____
Expenses
Operations 26.7 33.7 14.0 7.0 36
Maintenance 24.8 26.9 3.8 1.7 7
Administrative and general 14.3 14.7 1.5 1.1 8
Depreciation and amortization 26.7 25.0 2.8 4.5 20
Taxes other than income taxes 4.8 4.0 0.2 1.0 26
_____ _____ _____ ____
Total 97.3 104.3 22.3 15.3 19
_____ _____ _____ ____
Income from operations 41.6 39.2 6.5 8.9 27
Interest expense 10.0 8.8 .6 1.8 22
Other income - net (1.8) (66.7) (66.8) (1.9) 19
Income taxes 13.0 12.8 2.5 2.7 26
_____ _____ _____ ____
Net Income 20.4 84.3 70.2 6.3 45
Minority interest and other 0.1 31.4 30.2 (1.1) (92)
_____ _____ _____ ____
Earnings contribution $ 20.3 $ 52.9 40.0 7.4 57
===== ===== ===== ====
Telephone access lines (end
of period) 553,154 508,847 44,307 9
<FN>
*Not a meaningful number.
</FN>
</TABLE>
<PAGE>22
. Revenues increased $24 million or 21%.
.. Local network service revenues increased $6 million or 18% primarily
due to revenue increases of $2 million from LEC assets acquired in late
1995, $2 million from the effects of internal access line growth and
$1 million in enhanced service revenues. Pacific Telecom acquired
properties with 53,000 access lines in Colorado in February 1995 and
additional properties with 37,000 access lines in Oregon and Washington
later in 1995.
.. Network access service revenues increased $10 million or 18% primarily
due to increased revenues of $8 million from LEC assets acquired and an
increase of $1 million from revised LEC revenue estimates for prior
years.
.. Sales of cable capacity increased $5 million due to higher circuit
sales. Approximately 58.9% of the North Pacific Cable's capacity has
been sold.
.. Cellular and other revenue increased $3 million or 12% due to an
increase of $3 million in cellular revenues resulting from customer
growth and higher roaming revenues.
. Operating expenses increased $15 million or 19%.
.. Operations expense increased $7 million or 36% due to a $5 million
increase in cost of cable sales and increases of $1 million resulting
from LEC assets acquired and $1 million from customer growth at
existing LECs.
.. Maintenance expense increased $2 million or 7% primarily due to LEC
assets acquired.
.. Depreciation expense increased $5 million or 20% primarily due to a
$3 million increase from LEC assets acquired and $2 million due to
increased LEC plant in service.
. Earnings contribution increased $7 million or 57%.
.. Income from operations increased $9 million or 27%. Excluding the
$4 million effect of the acquisition of LEC assets, income from
operations increased $5 million or 16%.
.. Income tax expense increased $3 million or 26% due to higher taxable
income.
<PAGE>23
<TABLE>
Comparison of the nine-month periods ended September 30, 1996 and 1995.
______________________________________________________________________
<CAPTION>
Excluding Alascom
_________________
Alascom %
1996 1995 1995 Change Change
____ ____ _______ ______ ______
(Dollars in Millions)
<S> <C> <C> <C> <C> <C>
Revenues
Local network service $104.1 $ 87.9 $ - $16.2 18
Network access service 190.4 155.2 - 35.2 23
Long distance network service 1.2 149.9 148.8 0.1 9
Private line service - 34.3 34.3 - -
Sales of cable capacity 8.3 3.4 - 4.9 144
Cellular and other 88.8 86.8 10.0 12.0 16
_____ _____ _____ ____
Total 392.8 517.5 193.1 68.4 21
_____ _____ _____ ____
Expenses
Operations 68.9 153.7 94.3 9.5 16
Maintenance 69.5 89.7 26.3 6.1 10
Administrative and general 45.3 53.0 14.8 7.1 19
Depreciation and amortization 79.7 84.3 19.7 15.1 23
Taxes other than income taxes 14.6 12.0 1.1 3.7 34
_____ _____ _____ ____
Total 278.0 392.7 156.2 41.5 18
_____ _____ _____ ____
Income from operations 114.8 124.8 36.9 26.9 31
Interest expense 30.6 30.3 1.5 1.8 6
Other income - net (5.0) (63.0) (67.4) (9.4) *
Income taxes 34.7 36.1 14.0 12.6 57
_____ _____ _____ ____
Net Income 54.5 121.4 88.8 21.9 67
Minority interest and other 0.4 36.4 32.3 (3.7) (90)
_____ _____ _____ ____
Earnings contribution $ 54.1 $ 85.0 $ 56.5 $25.6 90
===== ===== ===== ====
<FN>
*Not a meaningful number.
</FN>
</TABLE>
. Revenues increased $68 million or 21%.
.. Local network service revenues increased $16 million or 18% primarily
due to increased revenues of $8 million from LEC assets acquired in
1995 and increases of $5 million from the effects of customer and
internal access line growth and $2 million in enhanced service
revenues.
.. Network access service revenues increased $35 million or 23% primarily
due to increased revenues of $30 million from LEC assets acquired and
increases of $4 million from access line growth of 5%, exclusive of
acquisitions, and higher minutes of use and $3 million from revised LEC
revenue estimates for prior years. The increases were partially offset
by a $2 million decrease in Universal Service Fund ("USF") support.
The national average cost per access line to provide service to rural
telephone customers (the USF benchmark) increased while Pacific
Telecom's cost per access line increased at a rate below the national
average. This caused a slight decrease in USF support received per
access line.
.. Sales of cable capacity increased $5 million due to higher circuit
sales.
<PAGE>24
.. Cellular and other revenue increased $12 million or 16% primarily due
to an increase of $8 million in cellular revenues resulting from
customer growth and higher roaming revenues and increases in other
revenues of $2 million from LEC assets acquired and $2 million from
nonregulated equipment sales.
. Operating expenses increased $42 million or 18%.
.. Operations expense increased $10 million or 16% due to an increase of
$5 million in cost of cable sales, the $4 million effect of growth in
LEC and cellular operations and a $3 million increase from LEC assets
acquired.
.. Maintenance expense increased $6 million or 10% due to LEC assets
acquired.
.. Administrative and general expense increased $7 million or 19%
primarily due to increases of $4 million resulting from higher
administrative support costs for information systems and employee
benefits and $3 million from LEC assets acquired.
.. Depreciation expense increased $15 million or 23% primarily due to a
$10 million increase from LEC assets acquired and $4 million due to
increased LEC plant in service.
.. Taxes other than income taxes increased $4 million or 34% primarily due
to increases of $2 million each from LEC assets acquired and higher
excise taxes due to increased LEC revenues.
. Earnings contribution increased $26 million or 90%.
.. Income from operations increased $27 million or 31%. Excluding the
$15 million effect of the acquisition of LEC assets, income from
operations increased $12 million or 14%.
.. Other income increased $9 million primarily due to gains of $4 million
from sales of cellular properties and a $2 million increase in income
from cellular and other investments.
.. Income tax expense increased $13 million or 57% due to higher taxable
income.
<PAGE>25
FINANCIAL CONDITION -
For the nine months ended September 30, 1996:
Net cash flows of $849 million were provided by operating activities
during the period.
Capital Spending
Capital spending totaled $786 million in 1996 compared to
$726 million in 1995. Domestic Electric Operations capital spending increased
$143 million to $478 million. See discussion below regarding the Company's
$154 million investment in the Hermiston Generating Project. Capital spending
for Australian Electric Operations in 1996 included $49 million of
construction costs for Powercor, acquired in December 1995, and $145 million
relating to an equity investment in Hazelwood in September 1996. See
discussion below. Pacific Telecom's capital spending decreased $291 million
to $80 million due to expenditures of $288 million relating to LEC assets
acquired in 1995.
Acquisition and Investment Transactions
On July 30, 1996, the Company paid $154 million for its 50%
ownership interest in the Hermiston Generating Project located near Hermiston,
Oregon. This 474 megawatt natural gas cogeneration project was developed by
U.S. Generating Company and went into commercial operation on July 1, 1996.
The payment was initially funded with short-term debt.
Pacific Telecom has signed definitive agreements with U.S. West
Communications, Inc. to purchase local exchange telephone properties in
Minnesota with 26,600 access lines and with GTE North Incorporated to purchase
properties in Michigan with 11,100 access lines. Both acquisitions are
subject to regulatory approval and are expected to close in the first half of
1997. Pacific Telecom also has a definitive agreement with the Fairbanks
Municipal Utility System ("FMUS") to acquire its telephone and cellular
operations that have 32,000 access lines and 6,800 cellular customers. The
sale of FMUS was approved by a majority of the voters of the City of Fairbanks
in a special election on October 8, 1996. Certain regulatory approvals are
required and closing is estimated for mid-1997. Pacific Telecom anticipates
that the three acquisitions will require $248 million in cash. Pacific
Telecom expects to fund these acquisitions through the issuance of external
debt and internally generated funds.
A consortium, known as the Hazelwood Power Partnership, purchased a
1,600 megawatt, coal-fired generating station and associated coal mine in
Victoria, Australia for approximately $1.9 billion. The consortium financed
the acquisition of the Hazelwood plant and mine with approximately
$858 million in equity contributions from the partners and $1 billion of
nonrecourse borrowings at the partnership level. PacifiCorp Holdings, Inc.,
which has a 19.9% interest in the partnership, financed its $145 million
portion of the equity investment and the associated $12 million advance with
long-term borrowings in the United States.
The Company believes that its existing and available capital
resources are sufficient to meet working capital, dividend and construction
needs in 1996.
<PAGE>26
Debt Transactions
At September 30, 1996, the Company had $594 million of commercial
paper and bank borrowings outstanding at an average weighted rate of 5.4%.
These borrowings are supported by a $500 million revolving credit agreement.
At September 30, 1996, the consolidated subsidiaries had access to
$2.1 billion of short-term funds through committed bank revolving credit
agreements. Subsidiaries had $168 million of commercial paper outstanding at
September 30, 1996, as well as borrowings of $1.2 billion under bank revolving
credit facilities. At September 30, 1996, the Companies had $1.2 billion of
short-term debt classified as long-term debt as they have the intent and
ability to support short-term borrowings through the various revolving credit
facilities on a long-term basis. The Company and its subsidiaries have
intercompany borrowing arrangements providing for temporary loans of funds
between parties at short-term market rates.
During January 1996, the Company issued $200 million of secured
medium-term notes in the form of First Mortgage and Collateral Trust Bonds
with interest rates of 6.1% and 6.7% and maturities from 2006 to 2026.
Proceeds were used to repay short-term debt that had been classified as long-
term debt at December 31, 1995.
In April 1996, Holdings issued $150 million of 6.75% senior notes
due 2001 and $100 million of 7.2% senior notes due 2006 for proceeds of
$247 million. Proceeds were used to repay short-term debt.
In September 1996, the Company established a $500 million Secured
Medium-Term Note Program and a $250 million Unsecured Medium-Term Note
Program, none of which notes have been issued.
Equity Transactions
The Company issued 8,500,000 shares of common stock to the public
for proceeds of $172 million in March 1996 and 290,000 shares in April 1996
for proceeds of $6 million. Proceeds were used to repay short-term debt.
During the period, the Company also issued 1,590,216 shares of its common
stock under the dividend reinvestment and stock purchase plan ("the Plan").
The average number of common shares outstanding rose 3% due to the
public sales of shares in March and April 1996 and issuances under the Plan.
The Company periodically evaluates the advantages of common share issuances in
the context of its current capital structure, financing needs and market price
and began to issue common stock under the Plan in February 1996, following a
period during which open market purchases had been used for the Plan.
On June 11, 1996, a wholly-owned subsidiary Trust issued, in a
public offering, 8,680,000 of its 8 1/4% Preferred Securities for proceeds of
$217 million. Concurrent with the issuance of the Preferred Securities, the
Trust issued to the Company Series A Common Securities in the amount of
$7 million. The sole asset of the Trust is $224 million of Series C
Debentures issued by the Company. See Note 3 to Condensed Consolidated
Financial Statements.
<PAGE>27
On July 12, 1996, the Company redeemed all outstanding shares of its
7.96%, 8.92% and 9.08% Serial Preferred Stock, all outstanding shares of its
$1.76, $1.98 and $2.13 No Par Serial Preferred Stock and 410,000 shares of the
440,000 outstanding shares of its $7.12 No Par Serial Preferred Stock. The
aggregate stated value of the shares redeemed was $117 million and the
redemption premium paid was $5 million.
On July 29, 1996, the Company redeemed all of its outstanding shares
of Market Auction Preferred Securities Series C at a redemption price of
$100,000 per share, or $50 million, plus accrued and unpaid dividends at that
date.
On August 19, 1996, the Company redeemed all of its outstanding
shares of Dutch Auction Rate Transferable Securities Series A-1 at a
redemption price of $100,000 per share, or $50 million, plus accrued and
unpaid dividends at that date.
______________________________________________________________________________
The condensed consolidated financial statements as of September 30,
1996 and December 31, 1995 and for the three-month and nine-month periods
ended September 30, 1996 and 1995 have been reviewed by Deloitte & Touche LLP,
independent accountants, in accordance with standards established by the
American Institute of Certified Public Accountants. A copy of their report is
included herein.
<PAGE>28
Deloitte & Touche LLP
_____________________ _____________________________________________________
3900 US Bancorp Tower Telephone:(503)222-1341
111 SW Fifth Avenue Facsimile:(503)224-2172
Portland, Oregon 97204-3698
INDEPENDENT ACCOUNTANTS' REPORT
PacifiCorp:
We have reviewed the accompanying condensed consolidated balance sheet of
PacifiCorp and subsidiaries as of September 30, 1996, and the related
condensed consolidated statements of income and retained earnings and of cash
flows for the three- and nine-month periods ended September 30, 1996 and 1995.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and of making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such condensed consolidated financial statements for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of PacifiCorp and subsidiaries as of
December 31, 1995, and the related consolidated statements of income and
retained earnings and of cash flows for the year then ended (not presented
herein); and in our report dated February 13, 1996 we expressed an unqualified
opinion on those consolidated financial statements and included an explanatory
paragraph relating to the change in the Company's method of accounting for
income taxes and other postretirement benefits. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1995 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
October 18, 1996
<PAGE>29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
______ _________________
On October 9, 1996, the Sierra Club filed an action against the
Company and the other joint owners of the Craig Electric Generating
Station (the "Station") under the citizen's suit provisions of the
federal Clean Air Act alleging, based upon reports from emissions
monitors at the Station, that over 14,000 violations of state and
federal opacity standards have occurred over a five-year period at
units 1 and 2 of the Station. (Sierra Club v. Tri-State Generation
___________________________________
and Transmission Association, Inc., Public Service Company of
_____________________________________________________________
Colorado, Inc., Salt River Project Agricultural Improvement and
_______________________________________________________________
Power District, PacifiCorp and Platte River Power Authority, Civil
___________________________________________________________
Action No. 96-B2368, US District Court for the District of
Colorado.) The Company has a 19.28 percent interest in units 1 and
2 of the Station, which is operated by Tri-State Generation and
Transmission Association and located in Craig, Colorado.
The action seeks injunctive relief requiring the defendants to
operate the Station in compliance with applicable statutes and
regulations, the imposition of civil penalties, litigation costs,
attorneys' fees and mitigation. The federal Clean Air Act provides
for penalties of up to $25,000 per day for each violation, but the
level of penalties imposed in any particular instance is
discretionary. The complaint alleges that the Company and Public
Service Company of Colorado are responsible for the alleged
violations beginning with the second quarter of 1992, when they
acquired their interests in the Station, and that the other owners
are responsible for the alleged violations during the entire period.
The complaint alleges that there were approximately 10,000
violations since the second quarter of 1992. The Company and the
other defendants are seeking an extension of time within which to
answer the complaint. The Company is unable to predict the level of
penalties or other remedies that may be imposed upon the joint
owners of the Station or what portion of such liability may
ultimately be borne by the Company.
Item 6. Exhibits and Reports on Form 8-K
______ ________________________________
(a) Exhibits.
Exhibit 12(a): Statements of Computation of Ratio of Earnings to
Fixed Charges.
Exhibit 12(b): Statements of Computation of Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends.
Exhibit 15: Letter re unaudited interim financial information of
awareness of incorporation by reference.
Exhibit 27: Financial Data Schedule for the quarter ended
September 30, 1996 (filed electronically only).
<PAGE>30
(b) Reports on Form 8-K.
None.
<PAGE>31
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PACIFICORP
Date November 13, 1996 By
_________________________ _________________________________
Richard T. O'Brien
Senior Vice President
(Chief Financial Officer)
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
_______ ___________ ____
<S> <C> <C>
Exhibit 12(a): Statements of Computation of Ratio of
Earnings to Fixed Charges.
Exhibit 12(b): Statements of Computation of Ratio of
Earnings to Combined Fixed Charges and Preferred Stock
Dividends.
Exhibit 15: Letter re unaudited interim financial
information of awareness of incorporation by reference.
Exhibit 27: Financial Data Schedule for the quarter
ended September 30, 1996 (filed electronically only).
</TABLE>
<PAGE>
<TABLE>
EXHIBIT (12)(a)
PACIFICORP
STATEMENTS OF COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES
(in millions of dollars)
<CAPTION>
YEAR ENDED DECEMBER 31, Nine Months
______________________________________________ Ended
1991 1992 1993 1994 1995 Sept. 30, 1996
____ ____ ____ ____ ____ ______________
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges, as defined:*
Interest expense..................... $ 428.0 $ 409.7 $ 377.8 $ 336.8 $ 378.7 $345.0
Estimated interest portion
of rentals charged to expense...... 20.4 17.1 20.1 19.5 16.7 6.9
_______ _______ _______ _______ _______ _____
Total fixed charges.......... $ 448.4 $ 426.8 $ 397.9 $ 356.3 $ 395.4 $351.9
======= ======= ======= ======= ======= =====
Earnings, as defined:*
Income from continuing
operations......................... $ 446.8 $ 150.2 $ 422.7 $ 468.0 $ 505.0 $372.0
Add (deduct):
Provision for income taxes......... 176.7 90.8 187.4 249.8 238.8 208.8
Minority interest.................. 14.1 8.4 11.3 13.3 18.9 3.8
Undistributed income of less
than 50% owned affiliates........ (1.8) (5.7) (16.2) (14.7) (15.0) (14.7)
Fixed charges as above............. 448.4 426.8 397.9 356.3 395.4 351.9
_______ _______ _______ _______ _______ _____
Total earnings............... $1,084.2 $ 670.5 $1,003.1 $1,072.7 $1,143.1 $921.8
======= ======= ======= ======= ======= =====
Ratio of Earnings to Fixed Charges..... 2.4x 1.6x 2.5x 3.0x 2.9x 2.6x
==== ==== ==== ==== ==== ====
<FN>
_______________
*"Fixed charges" represent consolidated interest charges and an estimated amount representing the interest
factor in rents. "Earnings" represent the aggregate of (a) income from continuing operations, (b) taxes
based on income from continuing operations, (c) minority interest in the income of majority-owned
subsidiaries that have fixed charges, (d) fixed charges and (e) undistributed income of less than 50% owned
affiliates without loan guarantees.
</FN>
</TABLE>
<PAGE>
<TABLE>
PACIFICORP EXHIBIT (12)(b)
STATEMENTS OF COMPUTATION OF
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
(in millions of dollars)
<CAPTION>
YEAR ENDED DECEMBER 31, Nine Months
______________________________________________ Ended
1991 1992 1993 1994 1995 Sept. 30, 1996
____ ____ ____ ____ ____ ______________
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges, as defined:*
Interest expense..................... $ 428.0 $ 409.7 $ 377.8 $ 336.8 $ 378.7 $345.0
Estimated interest portion
of rentals charged to expense...... 20.4 17.1 20.1 19.5 16.7 6.9
_______ _______ _______ _______ _______ _____
Total fixed charges.......... 448.4 426.8 397.9 356.3 395.4 351.9
Preferred Stock Dividends,
as defined:*....................... 37.4 59.9 56.8 60.8 57.0 37.9
_______ _______ _______ _______ _______ _____
Total fixed charges and
preferred dividends........ $ 485.8 $ 486.7 $ 454.7 $ 417.1 $ 452.4 $389.8
======= ======= ======= ======= ======= =====
Earnings, as defined:*
Income from continuing operations.... $ 446.8 $ 150.2 $ 422.7 $ 468.0 $ 505.0 $372.0
Add (deduct):
Provision for income taxes......... 176.7 90.8 187.4 249.8 238.8 208.8
Minority interest.................. 14.1 8.4 11.3 13.3 18.9 3.8
Undistributed income of less than
50% owned affiliates............. (1.8) (5.7) (16.2) (14.7) (15.0) (14.7)
Fixed charges as above............. 448.4 426.8 397.9 356.3 395.4 351.9
_______ _______ _______ _______ _______ _____
Total earnings............... $1,084.2 $ 670.5 $1,003.1 $1,072.7 $1,143.1 $921.8
======= ======= ======= ======= ======= =====
Ratio of Earnings to Combined
Fixed Charges and Preferred
Stock Dividends...................... 2.2x 1.4x 2.2x 2.6x 2.5x 2.4x
==== ==== ==== ==== ==== ====
<FN>
_______________
*"Fixed charges" represent consolidated interest charges and an estimated amount representing the interest
factor in rents. "Preferred Stock Dividends" represent preferred dividend requirements multiplied by the
ratio which pre-tax income from continuing operations bears to income from continuing operations.
"Earnings" represent the aggregate of (a) income from continuing operations, (b) taxes based on income from
continuing operations, (c) minority interest in the income of majority-owned subsidiaries that have fixed
charges, (d) fixed charges and (e) undistributed income of less than 50% owned affiliates without loan
guarantees.
</FN>
</TABLE>
<PAGE>
Deloitte &
Touche LLP
____________ _____________________________________________________
Suite 3900 Telephone:(503)222-1341
111 SW Fifth Avenue Facsimile:(503)224-2172
Portland, Oregon 97204-3698
EXHIBIT 15
November 12, 1996
PacifiCorp
700 N.E. Multnomah
Portland, Oregon
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited interim
financial information of PacifiCorp and subsidiaries for the periods ended
September 30, 1996 and 1995, as indicated in our report dated October 18,
1996; because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, is
incorporated by reference in Registration Statement Nos. 33-62095, 333-09115,
33-55309, and 333-03357, all on Form S-3; in Registration Statement Nos.
33-58461, 33-51277, 33-54169, 33-57043, and 333-10885 and Post-Effective
Amendment No. 1 to Registration Statement No. 33-17970, all on Form S-8; and
in Registration Statement No. 33-36239 on Form S-4.
We also are aware that the aforementioned report, pursuant to Rule 436(c)
under the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that
Act.
DELOITTE & TOUCHE LLP
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PACIFICORP'S
FORM 10-Q DATED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000075594
<NAME> PACIFICORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
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178000
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<EARNINGS-AVAILABLE-FOR-COMM> 347700
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</TABLE>
