<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, 1994
________________________________
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 (206)696-0983
_____________
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 39,612,120 shares
_______________________________________________________________
(Title of Class) (Outstanding at May 6, 1994)
<PAGE>
<PAGE>
PACIFIC TELECOM, INC.
INDEX
_____
PART I FINANCIAL INFORMATION: PAGE NO.
_____________________ ________
Item 1 - Financial Statements:
Consolidated Balance Sheets -
March 31, 1994 and December 31, 1993 3
Consolidated Statements of Income -
Three months ended March 31, 1994 and 1993 4
Consolidated Statements of Cash Flows -
Three months ended March 31, 1994 and 1993 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 11
Signatures 12
- 2 -
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. - Financial Statements
PACIFIC TELECOM, INC.
Consolidated Balance Sheets
(Unaudited)
ASSETS
______
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
_________ ___________
(In thousands)
<S> <C> <C>
Current assets:
Cash and temporary cash investments $ 10,521 $ 4,861
Accounts receivable 91,190 99,055
Accounts and notes receivable -
affiliates 269 2,039
Material and supplies 15,841 15,967
Inventory - North Pacific Cable 64,327 65,753
Other 28,446 32,493
_________ _________
Total current assets 210,594 220,168
Investments 131,388 129,897
Plant in service:
Telecommunications 1,562,174 1,562,021
Other 26,340 17,695
Less accumulated depreciation 762,740 741,061
_________ _________
825,774 838,655
Construction work in progress 16,700 14,523
_________ _________
Net plant 842,474 853,178
Intangible assets 254,383 256,226
Deferred charges 22,425 22,755
_________ _________
Total assets $1,461,264 $1,482,224
_________ _________
_________ _________
/TABLE
<PAGE>
<PAGE>
LIABILITIES AND CAPITALIZATION
______________________________
<TABLE>
<S> <C> <C>
Current liabilities:
Currently maturing long-term debt $ 16,283 $ 16,429
Notes payable 3,903 24,903
Accounts payable 50,352 50,330
Income taxes payable 5,868 -
Accrued liabilities 49,759 49,928
Accrued toll settlements 19,388 17,756
_________ _________
Total current liabilities 145,553 159,346
Long-term debt 421,536 426,669
Deferred income taxes 152,558 153,455
Unamortized investment tax credits 17,242 18,326
Other long-term liabilities 67,906 68,947
Minority interest 15,353 16,770
Shareholders' equity:
Common stock 19,804 19,805
Additional paid-in capital 205,519 205,842
Retained earnings 415,793 413,064
_________ _________
Total shareholders' equity 641,116 638,711
_________ _________
Total liabilities and
capitalization $1,461,264 $1,482,224
_________ _________
_________ _________
</TABLE>
[FN]
See accompanying notes to consolidated financial
statements.
- 3 -
<PAGE>
<PAGE>
PACIFIC TELECOM, INC.
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
___________________
1994 1993
_______ _______
(In thousands, except
per share data)
<S> <C> <C>
Operating revenues:
Local network service $ 22,984 $ 19,295
Network access service 41,729 44,445
Long distance network service 60,555 66,354
Private line service 14,865 16,615
Sales of cable capacity 2,235 1,066
Other 23,419 21,978
_______ _______
Total operating revenues 165,787 169,753
_______ _______
Operating expenses:
Plant support 27,069 29,384
Depreciation and amortization 26,776 26,121
Leased circuits 5,945 8,012
Access expense 22,487 24,755
Other operating expense 8,532 8,121
Cost of cable sales 1,426 572
Customer operations 17,602 16,833
Administrative support 17,792 19,778
Taxes other than income taxes 3,497 3,625
_______ _______
Total operating expenses 131,126 137,201
_______ _______
Operating income 34,661 32,552
_______ _______
Other income (expense):
Interest expense (9,285) (11,532)
Interest income 139 166
Other (1,754) (1,772)
_______ _______
Total other income (expense) (10,900) (13,138)
_______ _______
Income before income taxes 23,761 19,414
Income taxes 7,961 5,213
_______ _______
Net income from continuing operations $ 15,800 $ 14,201
_______ _______
_______ _______
/TABLE
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
Average number of common shares
outstanding 39,608 39,566
_______ _______
_______ _______
Net income from continuing operations
per common share $ .40 $ .36
_______ _______
_______ _______
Cash dividends per common share $ .33 $ .33
_______ _______
_______ _______
</TABLE>
[FN]
See accompanying notes to consolidated financial
statements.
- 4 -<PAGE>
<PAGE>
PACIFIC TELECOM, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
__________________
1994 1993
_______ _______
(In thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net income from continuing operations $15,800 $14,201
Adjustments to reconcile net income
from continuing operations to net
cash provided by operating activities:
Depreciation and amortization 28,269 27,112
Deferred income taxes and investment
tax credits, net (2,875) (812)
Accounts receivable and other current
assets 11,320 (2,018)
Inventory - North Pacific Cable 1,426 572
Accounts payable and accrued
liabilities 4,953 10,733
Other 1,065 (798)
______ ______
Net cash provided by operating
activities 59,958 48,990
______ ______
Cash Flows from Investing Activities:
Construction expenditures (13,377) (14,103)
Investments in and advances to
affiliates, net (1,566) (1,122)
Proceeds from sales of assets 319 -
______ ______
Net cash used by investing
activities (14,624) (15,225)
______ ______
Cash Flows from Financing Activities:
Decrease in short-term debt (21,000) (10,490)
Change in affiliated note - (5,000)
Proceeds from issuance of long-
term debt 995 197
Purchase of common stock (324) -
Dividends paid (13,071) (13,050)
Payments of long-term debt (6,274) (1,381)
______ ______
Net cash used by financing
activities (39,674) (29,724)
______ ______
Increase in Cash and Temporary
Cash Investments 5,660 4,041
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Cash and Temporary Cash Investments
at Beginning of Period 4,861 9,735
______ ______
Cash and Temporary Cash Investments
at End of Period $10,521 $13,776
______ ______
______ ______
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the three months ended March 31 for:
Interest $11,542 $14,225
Income Taxes $ 2,481 $ 9,279
Noncash Financing Activities:
Common stock issued for
employee benefits $ - $ 971
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
- 5 -
<PAGE>
<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 March 31, 1994, and the consolidated results of
operations and cash flows for the three months ended
March 31, 1994 and 1993. These consolidated financial
statements should be read in conjunction with the financial
statements and related notes incorporated 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 1993 consolidated financial
statements reflect certain reclassifications to conform to
the current year presentation.
2. At March 31, 1994, approximately 87% of the Company's
outstanding common stock was owned by PacifiCorp Holdings,
Inc. (Holdings), a wholly-owned subsidiary of PacifiCorp.
3. Certain loan agreements contain provisions restricting the
payment of cash dividends. Retained earnings of
approximately $208 million were available for dividends and
other distributions at March 31, 1994.
The Company's ratio of earnings to fixed charges for the
three months ended March 31, 1994, calculated in accordance
with Item 503 of Regulation S-K under the Securities Exchange
Act of 1934, was 2.9 to 1.0.
4. The Company's effective combined state and federal income tax
rates were 33.5 percent and 26.9 percent for the three months
ended March 31, 1994 and 1993, respectively. The difference
between taxes calculated at the statutory federal tax rates
and the effective combined rates for 1994 and 1993 is
reconciled as follows:
<PAGE>
<TABLE>
<CAPTION>
1994 1993
____ ____
<S> <C> <C>
Federal statutory rate 35.0% 34.0%
State income taxes, net of federal benefit 3.2 4.4
Amortization of investment tax credits (4.6) (6.2)
Amortization of excess deferred income taxes (2.6) (4.6)
Amortization of excess cost 2.5 2.3
Other - (3.0)
____ ____
Effective tax rate 33.5% 26.9%
____ ____
____ ____
</TABLE>
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
__________________
1994 1993
_______ _______
(In thousands)
<S> <C> <C>
Federal income taxes $ 6,773 $3,983
State income taxes 1,188 1,230
______ _____
$ 7,961 $5,213
______ _____
______ _____
Income taxes currently payable $10,958 $6,063
Deferred income taxes (1,871) 392
Amortization of deferred investment
tax credits (1,126) (1,242)
______ _____
$ 7,961 $5,213
______ _____
______ _____
</TABLE>
- 6 -
Notes to Consolidated Financial Statements
(Unaudited)
The Company's combined effective tax rate was lower in 1993
primarily reflecting the adjustment made to income taxes for
the 1993 adoption of SFAS No. 109, "Accounting for Income
Taxes" included in other.
<PAGE>
5. Investments include $7.2 million of construction costs, $1.5
million of which was added during the first quarter of 1994,
relating to upgrading facilities of telephone exchanges in
Colorado that the Company has agreed to purchase from U.S.
West Communications, Inc. (USWC). (See Part I, Item 1,
"Business - Telecommunications operations - Local Exchange
Companies" on page 5 of the Annual Report on Form 10-K for
the year ended December 31, 1993 for additional information
concerning the transaction and construction contract.) If
the transaction with USWC does not close, USWC is required
to reimburse the Company for all of the Company's
expenditures under the construction contract plus interest.
6. On April 29, 1994, the Company completed the sale of PTI
Harbor Bay, Inc. and Upsouth Corporation to IntelCom Group,
Inc. (IntelCom) (AMEX:ITR) for 853,147 shares of IntelCom
common stock and $.2 million in cash. The Company also
received 330,000 more shares of IntelCom stock in lieu of
debt that was not assumed by the purchaser. The Company was
granted certain demand and piggyback registration rights for
the IntelCom stock and will utilize these rights to
participate as a selling shareholder in a public stock
offering currently contemplated by IntelCom for later in May
1994. The Company expects to sell all of its IntelCom shares
in this offering. Based on recent trading value for IntelCom
stock, the Company recognized proceeds on the sale of the
subsidiaries of $16.8 million (including $.2 million in cash)
and an after-tax gain of $1.6 million, net of anticipated
selling commissions and other expenses. Any additional gain
or loss realized will be dependent on IntelCom's stock price
when the shares are sold. The net assets of these
subsidiaries were classified in other current assets until
the sale closed.
- 7 -
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three Months Ended March 31
___________________________
<PAGE>
Results of Operations
_____________________
The Company's net income applicable to common stock for the
first quarter of 1994 was $15.8 million or $.40 per share
compared to net income of $14.2 million or $.36 per share for
the first quarter of 1993. Operating income increased 6.5
percent or $2.1 million in the first quarter of 1994. This
increase was attributable mainly to higher sales of cable
capacity, lower long lines leased circuits expense and LEC
access line growth. Partially offsetting these items were
higher LEC depreciation and lower out-of-period revenue
adjustments. In addition, lower interest expense, caused mainly
by lower borrowing levels, contributed to the improvement in net
income.
Operating revenues for the first quarter of 1994 were $165.8
million, a decrease of two percent from $169.8 million for the
first quarter of 1993. LEC extended calling area service
revenues of $1.9 million, a $1.0 million revenue effect of
access line growth and the $.7 million revenue effect of a
Washington state local network service rate increase combined to
contribute most of the $3.7 million increase in local network
service revenue. Network access service revenue declined by
$2.7 million, with $1.6 million resulting from the effect of LEC
extended calling area services and $1.2 million due to lower
out-of-period revenue adjustments. Long distance network
service revenue was down $5.8 million from the first quarter of
the prior year primarily due to the $2.4 million revenue effect
of long lines recoverable expense reductions and $1.5 million of
lower out-of-period revenue. In addition, interstate access
revenue was down $2.4 million due to the Anchorage Telephone
Utility (ATU) exiting the National Exchange Carrier Association
(NECA) access charge pools, which also resulted in a reduction
in access expenses. Private line service revenue decreased $1.8
million as a result of the Company exiting certain noncore
business activities. Higher revenues from cable sales of $.8
million and backhaul sales of $.4 million increased sales of
cable capacity. Other revenue increased $1.4 million, including
increased cellular retail and foreign roamer revenues of $2.0
<PAGE>
million relating to customer growth and acquisitions.
On November 29, 1993, Alascom filed an Application for Review
(Application) of the Final Recommended Decision (FRD) with the
Federal Communications Commission concerning the restructuring
of the interstate telecommunications market for Alaska,
including changes to the existing joint service agreement
between Alascom and American Telephone and Telegraph Company.
(See Part I, Item 1, "Business-Telecommunications Operations-
Alaska Market Restructuring" on page 7 of the Annual Report on
Form 10-K for the year ended December 31, 1993 for additional
information.) The Company derived 18 percent of its first
quarter 1993 revenues and 17 percent of its first quarter 1994
revenues under provisions of the joint services agreement.
Operating expenses for the first quarter of 1994 were $131.1
million, a decrease of $6.1 million compared to the first
quarter of 1993. Plant support decreased $2.4 million as the
timing of maintenance work reduced expenses by $1.5 million and
the decision to exit certain noncore business activities reduced
plant support by $.8 million. Leased circuits expense declined
by $2.1 million, including reductions in long lines of $1.5
million and in noncore business activity of $.5 million. Long
lines reductions reflect 1993 charges for retroactive billings
of $.5 million, the North Pacific Cable 1993 outage restoral of
$.4 million, contract rate changes of $.3 million and contract
termination liabilities of $.2 million. LEC depreciation
increased $1.3 million mainly due to an increase in depreciation
rates in Oregon. Countering this increase was a decrease in
noncore subsidiary activity depreciation of $.9 million.
- 8 -
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Access expense decreased $2.4 million due to the exit of ATU
from the NECA access charge pools which, as described above, was
offset by a decrease in long distance network service revenue.
Cellular customer growth increased customer operations expense
by $.9 million. Higher prime cable sales and backhaul sales
<PAGE>
increased cost of cable sales by $.9 million. Administrative
support decreased by $2.0 million relating mainly to the 1993
cost of the Non-Employee Director's Stock Ownership Plan of $.6
million, diminished activities for other noncore subsidiaries of
$.5 million and lower corporate support costs of $1.2 million.
Other expense (net) for the first quarter of 1994 was $10.9
million, a decrease of $2.2 million from the first quarter of
1993. This decrease was mainly due to the $2.2 million decrease
in interest expense reflecting lower debt levels as a result of
the payment of debt with proceeds from the sale of IDB
Communications Group, Inc. stock in 1993. (See Part I, Item 1,
"Business-International Communications" on page 10 of the Annual
Report on Form 10-K for the year ended December 31, 1993 for
more information concerning the payment of debt.)
Income taxes increased due to higher taxable income, the 1993
adjustment to adopt Statement of Financial Accounting Standards
(SFAS) 109 "Accounting for Income Taxes" and a higher federal
statutory income tax rate effective in mid-1993.
Acquisitions
____________
In August 1993, the Company signed a definitive agreement with
US WEST Communications, Inc. (USWC) under which the Company
would acquire certain rural telephone exchange properties in
Colorado. (See Part I, Item 1, "Business - Telecommunications
Operations - Local Exchange Companies" on page 5 of the Annual
Report on Form 10-K for the year ended December 31, 1993, for
additional information concerning the purchase of the Colorado
properties.) The Colorado Public Utilities Commission has
received motions for reconsideration and clarification of its
initial order approving the transaction with conditions. A
written order addressing those motions is expected to be issued
sometime in May 1994. The comment period has expired in the
Federal Communications Commission (FCC) docket considering the
Company's application for study area and price cap waivers
associated with the transaction. No opposing comments were
received, but issuance of the FCC written order is still
<PAGE>
pending.
On May 4, 1994, the Company signed definitive purchase
agreements to acquire certain rural telephone exchange
properties in Oregon and Washington from USWC. The properties
to be acquired by the Company represent 49 exchanges that serve
approximately 34,100 access lines. Many of these exchanges are
contiguous to or located near other rural exchanges that the
Company owns and operates in these states. The Company will be
acquiring assets from USWC to provide telephone service to these
areas at a combined price of approximately $182 million in cash.
The purchase price is subject to certain adjustments, including
adjustments for actual book value of the assets at closing. The
Company will not assume any financial liabilities in the
transactions. Applications seeking Washington Utilities and
Transportation Commission and Oregon Public Utilities Commission
approvals are expected to be filed in mid-May 1994.
Applications to the FCC for study area and price cap waivers are
expected to be filed in the second quarter. Completion of the
transactions with USWC is dependent on corporate, regulatory and
governmental approvals, receipt of which is expected to occur
prior to the end of 1995.
- 9 -
Management's Discussion and Analysis of
Financial Condition and Results of Operations
See Part I, Item 1, "Business - Acquisition Program" on page 18
of the Annual Report on Form 10-K for the year ended December
31, 1993 for information on the Company's acquisition strategy.
Liquidity and Capital Resources
_______________________________
During the three months ended March 31, 1994, construction
expenditures amounted to $13.4 million. These expenditures
related mainly to network upgrades and growth in the Company's
operations. The Company does not have any major construction
projects underway at the present time. The construction
<PAGE>
expenditures were funded using cash from operations. In 1994,
total construction expenditures estimated at $123.8 million
and expenditures for the construction contract with USWC
estimated at $28 million are expected to be funded primarily
through cash from operations.
The Company plans to participate as a selling stockholder in a
public offering currently contemplated by IntelCom Group, Inc.
(IntelCom) in May 1994 and expects to sell 1,183,147 shares of
IntelCom common stock in this offering (Note 6). Cash proceeds
from the sale, net of selling commissions and other expenses,
will be used to help finance the Company's continuing local
exchange acquisition program.
The Company has access to funds through its $300 million
revolving credit agreement. At March 31, 1994, the Company had
nothing outstanding under the revolving credit agreement. In
addition to providing available funds, the revolving credit
agreement also serves as backup for a $100 million commercial
paper program, under which nothing was outstanding at March 31,
1994. The Company had $3.9 million due to the minority owner of
a Company subsidiary at March 31, 1994. The Company also has a
$150 million Series B Medium-Term Note program, with $74.5
million outstanding at March 31, 1994, and has received approval
from the Rural Telephone Bank authorizing it to borrow up to
$21.9 million in additional REA debt for certain construction
projects.
The Company has an agreement that allows temporary cash advances
to or from its majority shareholder, PacifiCorp Holdings, Inc.
(Holdings). Interest rates on advances from Holdings are based
on Holdings' cost of short-term funds plus 3/8 percent.
Interest rates on advances to Holdings are based on Holdings'
cost of short-term funds. At March 31, 1994, the Company had
nothing outstanding or advanced to Holdings. The Company has
definitive agreements with USWC to purchase local telephone
properties in Colorado for approximately $207 million and in
Oregon and Washington for approximately $182 million. The
Company expects to fund these acquisitions through the issuance
<PAGE>
of external debt and internally generated funds.
Any temporary cash or liquidity requirements during 1994 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, which term ends in November 1995 and is
renewable on an annual basis with the consent of the banks,
temporary advances from Holdings or the issuance of additional
Series B Medium-Term Notes.
- 10 -
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
12 Statements re Computation of Ratios
(b) Reports on Form 8-K
None
- 11 -
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 11, 1994 /s/James H. Huesgen
____________________________
<PAGE>
James H. Huesgen
Executive Vice President and
Chief Financial Officer
- 12 -
<PAGE>
EXHIBIT 12
Pacific Telecom, Inc.
Computation of Ratio of Earnings to Fixed Charges
(Dollar amounts in millions)
<TABLE>
<CAPTION>
Three
Months
Ended
March 31, Year Ended December 31,
1994 ______________________________________________________
_________ 1993 1992 1991 1990 1989
______ ______ ______ ______ ______
<C> <C> <C> <C> <C> <C>
<S>
Earnings, as defined*:
Income from continuing operations
before income taxes $23.8 $ 82.9 $ 99.8 $120.4 $137.5 $104.6
Add:
Fixed charges 12.8 59.5 63.2 67.7 49.2 40.0
Equity losses of less than 50%
owned persons 0.1 - 0.9 0.5 0.7 0.1
Minority interest 0.1 0.6 0.1 2.0 4.0 -
____ _____ _____ _____ _____ _____
Total earnings $36.8 $143.0 $164.0 $190.6 $191.4 $144.7
____ _____ _____ _____ _____ _____
____ _____ _____ _____ _____ _____
Fixed charges:
Interest $ 9.3 $44.3 $52.1 $55.0 $40.1 $30.0
Interest portion of rental expense 3.5 15.2 11.1 12.7 9.1 10.0
____ ____ ____ ____ ____ ____
Total fixed charges $12.8 $59.5 $63.2 $67.7 $49.2 $40.0
____ ____ ____ ____ ____ ____
____ ____ ____ ____ ____ ____
Ratio of earnings to fixed charges 2.9 2.4 2.6 2.8 3.9 3.6
____ ____ ____ ____ ____ ____
____ ____ ____ ____ ____ ____
<FN>
* For the purpose of computing these ratios, "earnings" represents the aggregate of (a) income from continuing
operations before income taxes, (b) fixed charges, (c) equity losses of less than 50% owned persons and (d)
minority interest. Equity losses of less than 50% owned persons are added to income from continuing operations
before income taxes since the Company does not guarantee the debt of such persons. "Fixed Charges" consist of
interest charges and an estimated amount representing the interest portion of rental expense.
</TABLE>
