SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
___ EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
_______________________________________
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
___ EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________________
Commission file number 0-873
__________________________________________________
PACIFIC TELECOM, INC.
_______________________________________________________________________
(Exact name of registrant as specified in its charter)
Washington 91-0644974
_______________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
805 Broadway, P.O. Box 9901, Vancouver, Washington 98668 - 8701
_____________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (360)905-5800
___________________
No Change
______________________________________________________________________
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
___ ____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, no par value 39,616,123 shares
_____________________________________________________________________
(Title of Class) (Outstanding at August 4, 1995)
<PAGE>
PACIFIC TELECOM, INC.
<TABLE>
<CAPTION>
INDEX
_____
PART I FINANCIAL INFORMATION: PAGE NO.
_____________________ ________
<C> <S> <C>
Item 1 - Financial Statements:
Consolidated Balance Sheets -
June 30, 1995 and December 31, 1994 3
Consolidated Statements of Income -
Three and six months ended June 30, 1995 and 1994 4
Consolidated Statements of Cash Flows -
Six months ended June 30, 1995 and 1994 5
Condensed Notes to Consolidated Financial Statements 6 - 8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 14
PART II OTHER INFORMATION:
_________________
Item 5 - Other Information 14
Item 6 - Exhibits and Reports on Form 8-K 14
Signatures 15
- 2 -
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
PACIFIC TELECOM, INC.
Consolidated Balance Sheets
(Unaudited)
ASSETS
______
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
___________ ____________
(In thousands)
<S> <C> <C>
Current assets:
Cash and temporary cash investments $ 29,315 $ 9,883
Accounts receivable 127,059 108,977
Accounts and notes receivable - affiliates 759 1,832
Material and supplies (at average cost) 15,466 14,775
Inventory - North Pacific Cable 61,053 62,777
Other 12,827 16,045
_________ _________
Total current assets 246,479 214,289
Investments 121,668 123,610
Plant in service:
Telecommunications 1,795,712 1,550,553
Other 22,303 22,115
Less accumulated depreciation 891,720 799,797
_________ _________
926,295 772,871
Construction work in progress 27,715 52,667
_________ _________
Net plant 954,010 825,538
Intangible assets - net 326,638 252,870
Deferred charges 23,544 26,644
_________ _________
Total assets $1,672,339 $1,442,951
_________ _________
_________ _________
LIABILITIES AND CAPITALIZATION
______________________________
Current liabilities:
Currently maturing long-term debt $ 15,599 $ 15,601
Notes payable 245,804 21,713
Accounts payable 56,730 69,515
Income taxes payable 2,868 -
Accrued liabilities 51,195 46,371
Accrued access and unearned revenue 19,649 21,892
_________ _________
Total current liabilities 391,845 175,092
Long-term debt 376,175 376,997
Deferred income taxes 96,446 95,966
Unamortized investment tax credits 11,852 13,809
Other long-term liabilities 101,323 97,131
Minority interest 16,712 16,183
Shareholders' equity:
Common stock 19,808 19,810
Additional paid-in capital 206,127 206,231
Unearned stock compensation (1,116) (442)
Retained earnings 453,167 442,174
_________ _________
Total shareholders' equity 677,986 667,773
_________ _________
Total liabilities and capitalization $1,672,339 $1,442,951
_________ _________
_________ _________
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
PACIFIC TELECOM, INC.
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
__________________ ________________
1995 1994 1995 1994
_______ _______ _______ _______
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Operating revenues:
Local network service $ 29,951 $ 23,211 $ 57,211 $ 46,195
Network access service 52,882 41,668 100,736 83,397
Long distance network service 64,275 64,974 126,345 125,529
Private line service 14,369 14,369 29,597 29,234
Sales of cable capacity 1,124 352 2,684 2,587
Cellular and other 29,743 25,967 57,482 49,386
_______ _______ _______ _______
Total operating revenues 192,344 170,541 374,055 336,328
_______ _______ _______ _______
Operating expenses:
Plant support 32,483 28,316 62,726 55,385
Depreciation and amortization 29,672 26,842 57,232 53,618
Leased circuits 7,714 7,271 16,507 13,216
Access expense 22,611 23,106 44,977 45,593
Other operating expense 10,845 8,951 20,756 17,483
Cost of cable sales 666 228 1,724 1,654
Customer operations 19,443 19,004 38,003 36,606
Administrative support 19,370 18,164 38,406 35,956
Taxes other than income taxes 4,047 3,877 8,076 7,374
_______ _______ _______ _______
Total operating expenses 146,851 135,759 288,407 266,885
_______ _______ _______ _______
Operating income 45,493 34,782 85,648 69,443
_______ _______ _______ _______
Other income (expense):
Interest expense (11,470) (8,632) (21,468) (17,917)
Interest income 453 73 1,077 212
Gain on sale of investment - 3,166 - 3,166
Other (1,200) (2,491) (4,869) (4,245)
_______ _______ _______ _______
Other income (expense)-net (12,217) (7,884) (25,260) (18,784)
_______ _______ _______ _______
Income before income taxes 33,276 26,898 60,388 50,659
Income taxes 12,864 9,264 23,249 17,225
_______ _______ _______ _______
Net income $ 20,412 $ 17,634 $ 37,139 $ 33,434
_______ _______ _______ _______
_______ _______ _______ _______
Average number of shares
outstanding 39,616 39,610 39,616 39,609
_______ _______ _______ _______
_______ _______ _______ _______
Net income per share $ .52 $ .44 $ .94 $ .84
_______ _______ _______ _______
_______ _______ _______ _______
Cash dividends per share $ .33 $ .33 $ .66 $ .66
_______ _______ _______ _______
_______ _______ _______ _______
</TABLE>
See accompanying notes to consolidated financial statements.
- 4 -
<PAGE>
PACIFIC TELECOM, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
Six Months Ended
June 30,
1995 1994
________ _______
(In thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 37,139 $33,434
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 61,076 56,995
Deferred income taxes and
investment tax credits, net (2,319) (7,328)
Gain on sale of investment - (3,055)
Gains from unconsolidated entities, net (689) (204)
Accounts receivable and other
current assets (10,805) 416
Inventory - North Pacific Cable 1,722 1,654
Accounts payable and accrued liabilities (2,990) 3,902
Other (1,073) 5,518
________ ______
Net cash provided by operating
activities 82,061 91,332
_______ ______
Cash Flows from Investing Activities:
Construction expenditures (60,206) (45,974)
Cost of Colorado asset acquisitio (197,905) -
Investments in and advances to
affiliates, net (2,751) (11,971)
Proceeds from sales of assets 1,826 529
_______ ______
Net cash used by investing activities (259,036) (57,416)
_______ ______
Cash Flows from Financing Activities:
Increase (decrease) in short-term debt 224,091 (1,000)
Proceeds from issuance of long-term debt 2,148 5,390
Dividends paid (26,146) (26,143)
Payments of long-term debt (2,904) (13,527)
Purchase of common stock (782) (234)
_______ ______
Net cash provided (used) by
financing activities 196,407 (35,514)
_______ ______
Increase (decrease) in Cash and
Temporary Cash Investments 19,432 (1,598)
Cash and Temporary Cash Investments
at Beginning of Period 9,883 4,861
_______ ______
Cash and Temporary Cash Investments
at End of Period $ 29,315 $ 3,263
_______ ______
_______ ______
Supplemental Disclosures of Cash Flow Information:
Cash paid during the six months ended June 30 for:
Interest $ 21,037 $19,655
Income Taxes $ 20,204 $21,165
Noncash Investing and Financial Activities:
Common stock received as consideration in
sale of subsidiaries $ - $16,564
Unrealized loss on securities
available-for-sale $ - $ 1,967
</TABLE>
See accompanying notes to consolidated financial statements.
- 5 -
<PAGE>
Notes to Consolidated Financial Statements
(Unaudited)
1. The consolidated financial statements include all normal
adjustments which, in the opinion of management, are necessary to
present fairly the consolidated financial position at June 30,
1995, and the consolidated results of operations and cash flows for
the three and six months ended June 30, 1995 and 1994. These
consolidated financial statements should be read in conjunction
with the financial statements and related notes included in the
latest annual report filed on Form 10-K of Pacific Telecom, Inc.
(Company). The consolidated results of operations presented herein
are not necessarily indicative of the results to be expected for
the year.
2. At June 30, 1995, approximately 87 percent of the Company's
outstanding common stock was owned by PacifiCorp Holdings, Inc.
(Holdings), a wholly-owned subsidiary of PacifiCorp. (See the
Company's Current Report on Form 8-K dated July 14, 1995 and Part
II, Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on page 19 of the Company's
Annual Report on Form 10-K for the year ended December 31, 1994,
for information regarding a proposal by Holdings to acquire the
remaining 13 percent minority interest in the Company.) In July
1995, the Company reported that the Special Committee of the Board
of Directors was conducting a review of certain aspects regarding
one of the proposed acquisitions of additional local exchange
assets being considered by the Company. The Special Committee has
completed this review and reaffirmed its previous unanimous
recommendation to the Board of Directors of the Company in favor
of the proposed merger transaction as being fair to, and in the
best interests of, the Company's public minority shareholders.
Pacific Telecom has filed with the Securities and Exchange
Commission (SEC) revised preliminary proxy materials relating to
the annual meeting of shareholders at which the transaction will
be presented for approval. Pacific Telecom is awaiting further
comments or confirmation of no additional comments from the SEC.
Definitive proxy materials will be mailed to Pacific Telecom
shareholders after the proxy materials have been cleared by the
SEC.
3. Certain loan agreements contain provisions restricting the payment
of cash dividends. Retained earnings of approximately $151.8
million were available for dividends and other distributions at
June 30, 1995.
The Company's ratio of earnings to fixed charges for the six months
ended June 30, 1995, calculated in accordance with Item 503 of
Regulation S-K under the Securities Exchange Act of 1934, was 3.0
to 1.
4. The Company's effective combined state and federal income tax rates
were 38.5 percent and 34.0 percent for the six months
ended June 30, 1995 and 1994, respectively. The difference between
taxes calculated at the statutory federal tax rates and the
effective combined rates for 1995 and 1994 is reconciled as
follows:
- 6 -
<PAGE>
Notes to Consolidated Financial Statements
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
_____ _____
<S> <C> <C>
Federal statutory rate 35.0% 35.0%
State income taxes, net of federal benefit 4.5 3.3
Amortization of investment tax credits (3.2) (4.3)
Amortization of excess deferred income taxes (.6) (1.9)
Amortization of excess cost 1.9 1.8
Other .9 .1
____ ____
Effective tax rate 38.5% 34.0%
____ ____
____ ____
</TABLE>
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
__________________ ________________
1995 1994 1995 1994
_______ _______ _______ _______
(In thousands)
<S> <C> <C> <C> <C>
Federal income taxes $10,550 $ 7,919 $19,082 $14,692
State income taxes 2,314 1,345 4,167 2,533
______ ______ ______ ______
$12,864 $ 9,264 $23,249 $17,225
______ ______ ______ ______
______ ______ ______ ______
Income taxes currently
payable $15,181 $12,801 $25,888 $23,759
Deferred income taxes (1,318) (2,408) (640) (4,279)
Amortization of deferred
investment tax credits (999) (1,129) (1,999) (2,255)
______ ______ ______ ______
$12,864 $ 9,264 $23,249 $17,225
______ ______ ______ ______
______ ______ ______ ______
</TABLE>
5. On February 15, 1995, the Company acquired assets representing 45
exchanges serving approximately 53,000 access lines from US WEST
Communications, Inc. (USWC) for approximately $200 million in cash.
"Net plant" increased $126.7 million and "Intangibles" increased
$79.7 million. Short-term debt increases of $197.9 million and an
escrow account of $4.2 million included in "Investments" provided
the cash to fund the acquisition. The Company reclassified $33.4
million from "Construction work in progress" to "Plant in service -
Telecommunications" relating to the construction and upgrade
program the Company began on these assets in 1993 after signing the
definitive sale agreement.
6. On August 7, 1995, the Company closed the sale of the stock of
Alascom, Inc. (Alascom) to AT&T Corp. (AT&T) in a transaction
providing $365.5 million in proceeds. Under the terms of the
agreement, AT&T paid $290.5 million in cash for the Alascom stock
and for settlement of all past cost study issues. AT&T has also
agreed to allow PTI to retain the $75 million transition payment
made by AT&T to Alascom in July 1994 pursuant to a Federal
Communications Commission (FCC) order. AT&T made a down payment
of $30 million to the Company upon signing the stock purchase
agreement in October 1994. The remaining $260.5 million was paid
when the transaction closed. See Item 5. "Other Information" for
additional information regarding the Alascom sale.
- 7 -
<PAGE>
Summarized income statement data for Alascom are as follows:
Three Months Ended Six Months Ended
June 30, June 30,
__________________ ________________
1995 1994 1995 1994
_______ _______ _______ _______
(In thousands)
Operating revenues $82,356 $81,700 $164,277 $159,740
Operating income 15,176 15,646 30,426 30,788
The Company's consolidated cash balance increased approximately $25
million in the first half of 1995 due to the sale agreement which
does not allow cash to be transferred from Alascom to the Company.
- 8 -
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three Months Ended June 30
__________________________
Results of Operations
_____________________
The Company's net income for the second quarter of 1995 was $20.4
million or $.52 per share compared to net income of $17.6 million or
$.44 per share for the second quarter of 1994. Operating income
increased 30.8 percent or $10.7 million in the second quarter of 1995
compared to the same period in 1994. This increase was attributable
in part to the acquisition of assets on February 15, 1995 from USWC
representing 45 exchanges in Colorado serving approximately 53,000
access lines which contributed $5.1 million to operating income in the
second quarter. Excluding the increase relating to the acquisition,
operating income grew $5.6 million, or 16.1 percent, as a result of LEC
internal access line growth, revised local exchange revenue estimates
for prior years, cellular customer growth and higher long lines
equipment resale and installation activities.
Operating revenues for the second quarter of 1995 were $192.3 million,
an increase of $21.8 million, or 12.8 percent. Colorado acquisition
revenues of $4.1 million, LEC end user nonrecurring charges of $1.2
million relating to customer growth and revenue from LEC internal
access line growth of $.9 million combined to contribute most of the
$6.7 million increase in local network service revenue. Network access
service revenue grew by $11.2 million, with $9.6 million resulting from
the Colorado acquisition and $1.7 million resulting from revised LEC
revenue estimates for prior years. Cellular and other revenue
increased $3.8 million, including increased cellular revenue of $2.3
million due to growth in customers and long lines equipment resale and
installation activities revenue increases of $1.6 million.
Operating expenses for the second quarter of 1995 were $146.9 million,
an increase of $11.1 million, or 8.2 percent, compared to the second
quarter of 1994. Plant support grew by $4.2 million due to increases
of $2.3 million relating to the Colorado acquisition, $.7 million due
to increased LEC project work and $.6 million due to a one-time energy
efficiency project at the long lines toll center. Depreciation expense
was higher by $2.8 million, which included increases of $3.9 million
due to the Colorado acquisition and $1.0 million for increased LEC
depreciable plant balances. The increases were offset in part by a
$1.6 million reduction due to the Alaska LEC rate decrease ordered in
December 1994 and a $1.1 million reduction due to the decrease in long
lines depreciable plant balances resulting from the $75 million
transition payment received from AT&T in July 1994. Other operating
expense increased $1.9 million due to increases of $1.1 million
relating to the Colorado acquisition and $.6 million relating to
cellular customer growth. Administrative support was higher by $1.2
million mainly due to a $1.3 million increase relating to the Colorado
acquisition.
Other expense - net for the second quarter of 1995 was $12.2 million,
an increase of $4.3 million compared to the second quarter of 1994.
Interest expense increased $2.8 million due to the short-term
borrowings used to fund the Colorado asset acquisition. The Company
plans to repay the amounts borrowed with the proceeds from the sale of
its long lines subsidiary in the second half of 1995. The 1994 gain
from sale of investment was due to the $3.2 million pre-tax gain on the
sale of two wholly-owned subsidiaries in 1994. Other expense in the
second quarter of 1994 included $1.4 million of costs relating to the
interest rate swap buy-out.
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<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Income taxes increased due to higher taxable income and reductions in
tax benefits relating to amortization of investment tax credits and
excess deferred taxes.
Six Months Ended June 30
________________________
Results of Operations
_____________________
The Company's net income for the six months ended June 30, 1995 was
$37.1 million or $.94 per share, an increase of 11.1 percent compared
to net income of $33.4 million or $.84 per share for the same period
in 1994. Operating income increased 23.3 percent or $16.2 million for
the first six months of 1995 compared to the same period in 1994. This
increase was attributable in part to the acquisition of assets on
February 15, 1995 from USWC representing 45 exchanges in Colorado
serving approximately 53,000 access lines which contributed $8.0
million to operating income. Excluding the increase related to the
acquisition, operating income grew $8.2 million, or 11.9 percent, as
a result of LEC internal access line growth, revised local exchange
revenue estimates for prior years, cellular customer growth and higher
long lines equipment resale and installation activities.
Operating revenues for the first six months of 1995 were $374.1
million, an increase of $37.7 million, or 11.2 percent. Colorado
acquisition revenues of $6.3 million, LEC end user nonrecurring charges
of $1.4 million relating to customer growth and revenue from LEC
internal access line growth of $1.8 million combined to contribute most
of the $11.0 million increase in local network service revenue.
Network access service revenue grew by $17.3 million, with $14.3
million resulting from the Colorado acquisition and $2.6 million
resulting from revised LEC revenue estimates for prior years. Cellular
and other revenue increased $8.1 million, including increased cellular
revenue of $4.3 million due to growth in customers, an increase of $3.0
million resulting from long lines installation activities and equipment
resale and $1.6 million due to the restoration services resulting from
the two cable outages in 1995.
In May 1995, the North Pacific Cable (NPC) system manufacturers issued
their final investigation report on the cause of the February 5, 1995
system outage. The report concluded that the outage was caused by
failure of components covered under existing contractual warranty
provisions. NPC's warranty provision requires the contractor to pay
for incurred marine operations charges and to replace spares and
materials used during the repair. The NPC system also experienced an
outage on May 23, 1995. The manufacturers' investigation report on
this outage concluded that the outage was caused by an external agency
hooking the cable and dragging it on the sea bed until the cable was
damaged. The NPC system generates positive cash flow for the Company.
Operating expenses for the first six months of 1995 were $288.4
million, an increase of $21.5 million, or 8.1 percent, compared to the
first six months of 1994. Plant support grew by $7.3 million due to
increases of $3.0 million relating to the Colorado acquisition, $1.9
million due to increased LEC project work, $.8 million for long lines
equipment resale activities, $.7 million due to growth in cellular
operations and $.6 million due to a one-time energy efficiency project
at the long lines toll center. Leased circuits expense increased by
$3.3 million, of which $2.2 million related to the restoration services
subsequent to the cable outages in 1995. Depreciation expense was
higher by $3.6 million, which included increases of $5.7 million due
to the Colorado acquisition, $1.9 million for increased LEC depreciable
- 10 -
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
plant balances and $.5 million due to growth in cellular operations.
The increases were offset in part by a $3.0 million reduction due to
the Alaska LEC rate decrease ordered in December 1994 and a $2.2
million reduction due to the decrease in long lines depreciable plant
balances resulting from the $75 million transition payment received
from AT&T in July 1994. Other operating expense increased $3.3 million
due to increases of $1.3 million relating to the Colorado acquisition,
$.9 million due to growth in LEC operations and $.7 million relating
to cellular customer growth. Administrative support was higher by $2.5
million mainly due to a $2.0 million increase relating to the Colorado
acquisition.
Other expense - net for the first six months in 1995 was $25.3 million,
an increase of $6.5 million over the same period in 1994. Interest
expense increased $3.6 million due to the short-term borrowings used
to fund the Colorado asset acquisition. Other expense in the first six
months of 1995 included $1.4 million in costs relating to PacifiCorp
Holdings, Inc.'s offer to purchase the minority interest in the
Company. Offsetting these costs were the $1.4 million of costs
relating to the interest rate swap buy-out in 1994.
Income taxes increased due to higher taxable income and reductions in
tax benefits relating to amortization of investment tax credits and
excess deferred taxes.
Acquisitions
____________
See Part I, Item 1. "Business - Telecommunications Operations - Local
Exchange Companies" on page 4 of the Annual Report on Form 10-K for the
year ended December 31, 1994 for information concerning the pending
acquisition of assets from USWC in Oregon and Washington. The Company
is currently engaged in discussions concerning other potential
transactions involving the acquisition of rural local exchange assets.
See Part I, Item 1. "Business - Acquisition Program" on page 15 of the
Company's Annual Report on Form 10-K for the year ended December 31,
1994 for information on the Company's acquisition strategy.
Dispositions
____________
See Item 5. "Other Information" for information regarding the sale of
Alascom, Inc. to AT&T Corp.
Liquidity and Capital Resources
_______________________________
During the six months ended June 30, 1995, construction expenditures
amounted to $60.2 million. These expenditures pertained 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 expenditures were funded primarily with cash
from operations. In 1995, total construction expenditures estimated
at $127.5 million are expected to be funded primarily through cash from
operations.
The Company has access to funds through its $300 million revolving
credit agreement. At June 30, 1995, no borrowings were outstanding
under this agreement. The revolving credit agreement also serves as
backup for a $100 million commercial paper program, under which $78.5
million was outstanding at June 30, 1995. The Company had $188.7
million outstanding under other available banking arrangements, $1.7
million due to GE American Communications, Inc. for the purchase of a
satellite transponder and $1.9 million due to the minority owner of a
Company subsidiary at June 30, 1995. Short-term borrowings from the
commercial paper program at June 30, 1995 of $25 million have been
- 11 -
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
classified as long-term debt based on management's intent and the
Company's ability to support this debt on a long-term basis. The
Colorado asset acquisition in February 1995 was funded through short-
term bank borrowings. Almost all short-term debt outstanding at June
30, 1995 will be repaid during August 1995 with the proceeds of $260.5
million from the sale of Alascom to AT&T.
The Company has a $150 million Series B Medium-Term Note program, under
which $72.5 million of notes were outstanding at June 30, 1995, with
terms of one to 12 years and an average annual interest rate of 7.9
percent. The Company has $75.5 million of Medium-Term Notes available
for issuance. The Company also has approval from the Rural Telephone
Bank to borrow $18.7 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 June 30,
1995, no funds were outstanding or advanced to Holdings. The Company
has definitive agreements with USWC to purchase local telephone
properties in Oregon and Washington for approximately $180 million.
The Company expects to fund these acquisitions through the issuance of
external debt and internally generated funds.
Any temporary cash or liquidity requirements during 1995 will be met
through utilization of funds available under the revolving credit
agreement or temporary advances from Holdings. Long-term liquidity
requirements will be met through utilization of funds available under
the revolving credit agreement, which terminates in November 1999, the
issuance of additional Series B Medium-Term Notes and the possible
establishment of an additional Medium-Term Note program.
Pro Forma Financial Information (Unaudited)
___________________________________________
The accompanying unaudited pro forma consolidated balance sheet as of
June 30, 1995 reflects the Company's consolidated financial position
excluding the assets and liabilities of Alascom and including the local
exchange assets to be acquired in Oregon and Washington. The pro forma
consolidated income statement has not been provided since there have
been no significant changes to the financial forecast included in the
Company's Annual Report on Form 10-K for the year ended December 31,
1994. The Company signed a definitive agreement dated as of October
1, 1994 to sell the stock of Alascom to AT&T for $365 million
(including the $75 million transition payment received in July 1994).
See Item 5. "Other Information" for information regarding the sale of
Alascom to AT&T. The Company expects to close the purchase of assets
in Oregon and Washington for approximately $180 million before the end
of 1995 after the receipt of certain regulatory approvals and subject
to certain purchase price adjustments at closing. The pro forma
balance sheet assumes the sale and purchases occurred on June 30, 1995.
See Item 1. "Business - Telecommunications Operations - Alaska Market
Restructuring" and Note 16 "Pending Sale of Alascom, Inc." of the notes
to the consolidated financial statements in Item 8. "Financial
Statements and Supplementary Data" of the Company's Annual Report on
Form 10-K for the year ended December 31, 1994 for additional
information relating to the pending sale of Alascom. See
"Acquisitions" above and Item 1. "Business -Telecommunications
Operations - Local Exchange Companies" of the Company's Annual Report
- 12 -
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
on Form 10-K for the year ended December 31, 1994 for additional
information relating to the acquisitions of local exchange assets from
USWC.
The unaudited pro forma consolidated balance sheet and related notes
should be read in conjunction with the consolidated financial
statements and related notes included in Item 1 hereof and in Item 8.
"Financial Statements and Supplementary Data" of the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
<TABLE>
<CAPTION>
PRO FORMA BALANCE SHEET
(UNAUDITED, IN MILLIONS)
Historical (a) (b) US WEST Pro forma
Consolidated Historical Elimination Sale of Asset Consolidated
June 30, 1995 PTI Alascom Reversal Alascom Acquisitions PTI
____________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets $ 246.5 $(100.9) $ 11.2 $ 28.4 $(32.3)(c) $ 152.9
Investments 121.7 (.1) 221.9 (221.9) (4.0) 117.6
Net plant in service 954.0 (174.4) - - 114.5 894.1
Intangible and other assets 350.1 (7.1) - - 67.0 410.0
_______ ______ _____ _____ _____ _______
Total assets $1,672.3 $(282.5) $233.1 $(193.5) $145.2 $1,574.6
_______ ______ _____ _____ _____ _______
_______ ______ _____ _____ _____ _______
LIABILITIES AND CAPITALIZATION
Current liabilities $ 391.8 $ (60.0) $ 18.0 $(232.1)(c) $ - $ 117.7
Long-term debt 376.2 - - - 145.2(c) 521.4
Deferred income taxes and
unamortized investment
tax credits 108.3 (.5) - - - 107.8
Other long-term liabilities 118.0 (6.9) - (30.0) - 81.1
Shareholders' equity 678.0 (215.1) 215.1 68.6 - 746.6
_______ _____ _____ _____ ______ _______
Total liabilities and
capitalization $1,672.3 $(282.5) $233.1 $(193.5) $145.2 $1,574.6
_______ _____ _____ _____ _____ _______
_______ _____ _____ _____ _____ _______
</TABLE>
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
PRO FORMA ADJUSTMENTS - The accompanying pro forma consolidated balance
sheet as of June 30, 1995 consists of the historical balance sheet of
the Company (after elimination of affiliated transactions and
interest), less the historical balance sheet of Alascom, plus an
estimate for the assets to be purchased in Oregon and Washington and
certain liabilities related to these acquisitions, plus certain pro
forma adjustments described below:
a. Affiliated balances between the Company and its subsidiaries and
Alascom eliminated in the consolidation process were restored on
the pro forma balance sheet. The affiliated balances between PTI
and Alascom were added to PTI's investment in Alascom. The
affiliated balances between the other PTI subsidiaries and Alascom
were reclassified to the proper nonaffiliated line item.
b. Cash proceeds of $260.5 million received at closing the sale of
Alascom in August 1995 and the $30 million deposit in "Other long-
term liabilities" received in October 1994 were offset by the
Company's investment in Alascom and net gain on sale. The actual
gain to be realized on the sale will be approximately $66 million
- 13 -
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
which is lower than indicated on the pro forma balance sheet as
the sales price is fixed and the Company's carrying value in
Alascom increased as Alascom's earnings were recognized and
affiliated account balances changed between June 30, 1995 and the
August 1995 closing.
c. Cash proceeds received from the sale of Alascom have been applied
to short-term debt used to purchase assets in Colorado, Oregon and
Washington from USWC. Amounts needed for the asset purchases in
excess of the Alascom proceeds and cash on hand were assumed to be
borrowed on a long-term basis.
PART II OTHER INFORMATION
Item 5. Other Information
On August 7, 1995, the Company closed the sale of the stock
of its long distance communications subsidiary, Alascom,
Inc. (Alascom) to AT&T Corp. (AT&T). There are no
affiliated relationships between the Company and AT&T. The
July 1994 transition payment of $75 million, the October
1994 down payment of $30 million and the August 1995 sale
proceeds of $260.5 million combined for total cash proceeds
of $365.5 million. The Company expects to recognize an
after-tax gain of approximately $66 million from this sale.
This gain is less than the amount previously reported due
to a longer approval process than originally expected. The
effect of the reduced gain has been offset by additional
Alascom earnings which have been included in the Company's
consolidated results of operations prior to closing. The
$260.5 million in cash proceeds will be used to reduce
short-term debt balances that the Company incurred to
acquire local exchange access lines in Colorado earlier this
year. The Company has agreed to provide accounting, data
processing and human resource service support for Alascom
operations for up to 15 months following the sale to allow
for a smooth transition in exchange for cash and certain
equipment that the Company intends to incorporate in its LEC
operations.
Alascom provides intrastate and interstate message toll
service, wide area telephone service, private line, leased
channel and other communications services within Alaska and
between Alaska and the rest of the world. Alascom's
facilities interconnect with 22 local exchange companies and
the military bases within Alaska and with the interstate and
international long distance network. Alascom uses
satellite, terrestrial and undersea fiber optic cable
facilities in providing service.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
12 Statements re Computation of Ratios
27 Financial Data Schedule (filed electronically
only)
(b) Reports on Form 8-K
On Form 8-K dated July 14, 1995, under Item 5. "Other
Events," the Company reported information with respect
to recent developments in connection with the proposed
acquisition of the minority interest of Pacific
Telecom, Inc. by PacifiCorp Holdings, Inc.
- 14 -
<PAGE>
SIGNATURES
__________
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Pacific Telecom, Inc.
________________________________
(Registrant)
Date: August 10, 1995 /s/James H. Huesgen
______________________________
James H. Huesgen
Executive Vice President and
Chief Financial Officer
<PAGE>
<TABLE>
EXHIBIT 12
Pacific Telecom, Inc.
Computation of Ratio of Earnings to Fixed Charges
(Dollar amounts in millions)
<CAPTION>
Six Months
Ended
June 30, Year Ended December 31,
_____________________________________________________
1995 1994 1993 1992 1991 1990
_________ ______ ______ ______ ______ ______
<S> <C> <C> <C> <C> <C> <C>
Earnings, as defined*:
Income from continuing operations
before income taxes $60.4 $122.2 $ 82.9 $ 99.8 $120.4 $137.5
Add:
Fixed charges 30.0 48.6 59.5 63.2 67.7 49.2
Equity losses of less than 50%
owned persons - - - .9 .5 .7
Minority interest .6 1.0 .6 .1 2.0 4.0
____ _____ _____ _____ _____ _____
Total earnings $91.0 $171.8 $143.0 $164.0 $190.6 $191.4
____ _____ _____ _____ _____ _____
____ _____ _____ _____ _____ _____
Fixed charges:
Interest $21.5 $34.7 $44.3 $52.1 $55.0 $40.1
Interest portion of rental expense 8.5 13.9 15.2 11.1 12.7 9.1
____ ____ ____ ____ ____ ____
Total fixed charges $30.0 $48.6 $59.5 $63.2 $67.7 $49.2
____ ____ ____ ____ ____ ____
____ ____ ____ ____ ____ ____
Ratio of earnings to fixed charges 3.0 3.5 2.4 2.6 2.8 3.9
____ ____ ____ ____ ____ ____
____ ____ ____ ____ ____ ____
<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>
<TABLE> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1995 FINANCIAL STATMENTS INCLUDED IN THIS FORM 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> JUN-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 936772
<OTHER-PROPERTY-AND-INVEST> 138906
<TOTAL-CURRENT-ASSETS> 246479
<TOTAL-DEFERRED-CHARGES> 23544
<OTHER-ASSETS> 326638
<TOTAL-ASSETS> 1672339
<COMMON> 19808
<CAPITAL-SURPLUS-PAID-IN> 205011
<RETAINED-EARNINGS> 453167
<TOTAL-COMMON-STOCKHOLDERS-EQ> 677986
0
0
<LONG-TERM-DEBT-NET> 351175
<SHORT-TERM-NOTES> 192339
<LONG-TERM-NOTES-PAYABLE> 25000
<COMMERCIAL-PAPER-OBLIGATIONS> 53465
<LONG-TERM-DEBT-CURRENT-PORT> 15599
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 356775
<TOT-CAPITALIZATION-AND-LIAB> 1672339
<GROSS-OPERATING-REVENUE> 374055
<INCOME-TAX-EXPENSE> 23249
<OTHER-OPERATING-EXPENSES> 288407
<TOTAL-OPERATING-EXPENSES> 311656
<OPERATING-INCOME-LOSS> 62399
<OTHER-INCOME-NET> (3792)
<INCOME-BEFORE-INTEREST-EXPEN> 58607
<TOTAL-INTEREST-EXPENSE> (21468)
<NET-INCOME> 37139
0
<EARNINGS-AVAILABLE-FOR-COMM> 37139
<COMMON-STOCK-DIVIDENDS> 26146
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 82061
<EPS-PRIMARY> .94
<EPS-DILUTED> .94
</TABLE>
