<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 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
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PACIFIC TELECOM, INC.
(Exact name of registrant as specified in its charter)
STATE OF WASHINGTON 91-0644974
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
805 BROADWAY, P.O. BOX 9901, VANCOUVER, WASHINGTON 98668-8701
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (360)905-5800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 15, 1996, there were 100 shares of Common Stock outstanding. The
aggregate market value of voting stock held by nonaffiliates of the Registrant:
None
THIS REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(a)
AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM 10-K WITH THE REDUCED
DISCLOSURE FORMAT.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
<PAGE>
TABLE OF CONTENTS
Page No.
--------
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
- -----------
PART I
- ------
Item 1 Business
Introduction . . . . . . . . . . . . . . . . . . . . . . . . 4
Telecommunications Operations . . . . . . . . . . . . . . . 4
Local Exchange Companies . . . . . . . . . . . . . . . . . 4
Long Lines . . . . . . . . . . . . . . . . . . . . . . . . 4
Cellular Operations . . . . . . . . . . . . . . . . . . . . 5
Pacific Telecom Cable . . . . . . . . . . . . . . . . . . . 5
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . 5
Item 2 Properties . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 6
PART II
- -------
Item 5 Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . 6
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . 7
Item 8 Financial Statements and Supplementary Data. . . . . . . . . . 11
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure. . . . . . . . . . . 30
PART IV
- -------
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 30
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Appendices
Statements of Ratio of Earnings to Fixed Charges
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<PAGE>
DEFINITIONS
When the following terms are used in the text, they will have the meanings
indicated:
TERM MEANING
---- -------
Alaska Spur A portion of the North Pacific Cable that links
Alaska and the lower 48 states
AT&T AT&T Corp.
Alascom Alascom, Inc., a wholly-owned subsidiary of PTI until
its sale to AT&T in August 1995
Company PTI and its subsidiaries
FCC Federal Communications Commission
Holdings PacifiCorp Holdings, Inc., a wholly-owned subsidiary
of PacifiCorp
LEC Local exchange company
MSA Metropolitan statistical area
NPC North Pacific Cable, a submarine fiber optic cable
between the U.S. and Japan
PTC Pacific Telecom Cable, Inc., an 80 percent
owned subsidiary of PTI
PT Cellular Pacific Telecom Cellular, Inc., a wholly-owned
subsidiary of PTI
PT Transmission Pacific Telecom Transmission Services, Inc.,
a wholly-owned subsidiary of PTI
PTI Pacific Telecom, Inc., a Washington corporation
RSA Rural service area
U.S. United States of America
USF Universal Service Fund
USWC US WEST Communications, Inc.
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<PAGE>
PART I
Item 1. BUSINESS
--------
Introduction
- ------------
PTI was organized in 1955 to provide telephone service to suburban and rural
communities principally in the Pacific Northwest. Since that time, the Company
has grown significantly through acquisitions and expansion of its service
offerings in several areas within the telecommunications industry. This
expansion included investments in cellular telephone operations, international
communications, including the construction of a trans-Pacific fiber optic cable
and, until August 1995, the provision of long distance services in the State of
Alaska through Alascom. Over the past few years, the Company's strategy has
been to focus on its core business of providing local exchange service to
suburban and rural markets and to divest its diversified portfolio of noncore
businesses. This strategy has been implemented through the acquisition of
LECs, the sale of certain international operations, the consolidation and sale
of cellular holdings, and the completion of the sale of Alascom to AT&T. With
the sale of Alascom to AT&T, the Company resolved its uncertainties related to
the Alaska long distance market place restructuring issues.
The Company is a wholly-owned subsidiary of Holdings, which is a
wholly-owned subsidiary of PacifiCorp. On September 27, 1995, holders of a
majority of the approximately 5.3 million shares of outstanding common stock
held by minority shareholders voted in favor of the merger of a wholly-owned
subsidiary of Holdings into the Company. As a result of the merger, the common
stock held by minority shareholders (other than shares as to which dissenters'
rights were perfected) were converted into the right to receive $30.00 per share
in cash, and the Company became a wholly-owned subsidiary of Holdings with 100
shares of no par value common stock outstanding. In addition, a liability in
the amount of $41.6 million was accrued for amounts to be paid to dissenters in
the merger based on $30.00 per share fair value for their shares. Payments
totalling $14.3 million were made to dissenters in November and December 1995.
The Company is accruing interest on the remaining liability at a rate equal to
the Company's average short-term borrowing rate. The Company also recorded a
receivable from Holdings in the amount of the accrued liability to dissenters.
PTI had been a majority-owned subsidiary of PacifiCorp since 1973.
Telecommunications Operations
- -----------------------------
Local Exchange Companies
------------------------
The Company's LECs operate under a common business name and logo, PTI
Communications. This marketing concept was established in 1991 to create a
unified identity for the local operations, improve communication with customers
and assist in the marketing of new products and services. As one of the major
independent telephone companies in the U.S., the Company's LECs provide both
local telephone service and access to the long distance network for customers in
their respective service areas. The LECs also provide directory advertising
and, through contracts with interexchange carriers, billing and collection
services. At December 31, 1995, the Company operated 15 LECs within eleven
states comprised of 530,400 access lines in 344 exchanges. The average number
of access lines per exchange is approximately 1,542, reflecting the lower
population density generally found in the Company's service areas, which are
rural in nature. The Company's largest exchange in terms of access lines is in
Kalispell, Montana, which had 24,935 access lines at December 31, 1995.
Service areas are located primarily in the states of Alaska, Colorado, Montana,
Oregon, Washington and Wisconsin. States also served, but to a lesser extent,
include Idaho, Iowa, Minnesota, Nevada and Wyoming. (See "Regulation.") The
Company provides centralized administrative and support services to field
operations from its corporate offices in Vancouver, Washington.
As a result of acquisitions in Colorado, Washington and Oregon, the Company
added 90,000 access lines in 1995, an increase of 22 percent. The LECs also
experienced strong internal access line growth in certain service areas, as
evidenced by a 5.3 percent increase in access lines served during 1995. In
December 1995, the Company signed an agreement with USWC under which the Company
agreed to purchase certain local telephone exchange assets in Minnesota
representing 32 exchanges serving approximately 26,600 access lines. The
transaction is expected to close in late 1996 following receipt of approvals
from the FCC and Minnesota Public Utilities Commission.
Long Lines
----------
Through Alascom, the Company provided 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 LECs and the military bases
within Alaska and with the interstate and international long distance network.
Virtually all services are provided in accordance with tariffs filed with the
appropriate regulatory agencies. In August 1995, the Company sold Alascom to
AT&T.
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<PAGE>
Cellular Operations
-------------------
The Company's wholly-owned subsidiary, PT Cellular, is a holding company
with subsidiaries in Alaska, Michigan, Oregon, South Dakota, Washington and
Wisconsin. The Company has ownership interests with respect to 25 MSAs and
RSAs and manages 10 of these interests in Alaska, Michigan and Wisconsin. The
Company also manages five other RSAs in Minnesota in which it has no ownership
interest. Revenues from cellular operations represented approximately five
percent of total Company revenues in 1995.
The Company may increase its ownership interests in certain cellular
properties in order to achieve ownership control and to consolidate the
Company's cellular service areas into larger contiguous units for operating and
network efficiencies. This plan may be accomplished through the exchange of
existing cellular interests and/or future acquisitions.
Pacific Telecom Cable
---------------------
PTC, which is owned 80 percent by PTI and 20 percent by Cable & Wireless plc
(C&W), a United Kingdom corporation, is involved in the operation, maintenance
and sale of capacity of a submarine fiber optic cable between the U.S.
and Japan, known as the NPC. The eastern end of the cable is operated by PTC.
The western end is operated by International Digital Communications, Inc. (IDC),
a Japanese corporation. Major IDC shareholders include C. Itoh & Co.,
Ltd, Toyota Motor Corporation, Pacific Telesis International and C&W.
The NPC was the first submarine fiber optic cable to provide direct service
between the U.S. and Japan. In addition, through the Alaska Spur, it provides
the first digital fiber optic link between Alaska and the lower 48 states.
Service between the U.S. and Japan is carried on three, 420 Mbit/s digital fiber
optic pairs, providing a total capacity of 1,260 Mbit/s. Service between Alaska
and the lower 48 states is carried on one, 420 Mbit/s digital fiber optic pair.
On the eastern end, the cable lands at Pacific City, Oregon and Seward, Alaska.
From the landing stations, traffic is transmitted to carrier access centers near
Portland, Oregon and Anchorage, Alaska for interconnection with digital
communications facilities serving the lower 48 states and Alaska and with
facilities transmitting traffic to foreign countries. On the western end, the
cable lands at Miura, Japan, and traffic is transmitted to IDC's carrier access
centers in Tokyo, Yokohama and Osaka for interconnection with Japanese domestic
service providers. For service to points beyond Japan, IDC has constructed a
75-mile submarine cable from Miura to Chikura where it interconnects with other
international cables. IDC also participates in the Asia Pacific Cable system
that links Miura with Hong Kong, Singapore, Taiwan and Malaysia. (See Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for information about cable outages during 1995.) At December 31,
1995, approximately 55 percent of the cable's 17,010 circuit capacity had been
sold.
PT Transmission provides restoration services for the eastern end of the NPC
under the terms of its tariff. In the event of a cable failure, restoration
services are provided via a PT Transmission satellite earth station located at
Moores Valley, Oregon.
Regulation
- ----------
The Company's LECs operate in an industry that is subject to extensive
regulation by the FCC and state regulatory agencies. Virtually all services are
provided in accordance with tariffs filed with the appropriate regulatory
agencies. The telecommunications industry continues to undergo change as a
result of a series of regulatory, judicial and Congressional proceedings
regarding the deregulation of certain aspects of the industry. The FCC and some
state regulatory agencies are also pursuing alternative forms of regulation that
depart from traditional rate of return regulation for telecommunications
companies such as the Company. These alternatives include opening local
exchange franchises to encourage greater competition.
On February 1, 1996, the Congress adopted the Joint Conference Report on
S.652, thereby passing the Telecommunications Act of 1996 (Telecommunications
Act). The legislation was subsequently signed into law by President Clinton on
February 8, 1996. The Telecommunications Act addresses a substantial number of
telecommunications matters, and generally seeks to promote competitive service
in all telecommunications markets, including local exchange services. Among
other issues, the Telecommunications Act addresses removal of barriers to entry,
universal service mechanisms, eligibility for access to universal service
support funds, interconnection waiver or exemption provisions for rural and
mid-size companies and infrastructure sharing. Management believes these
provisions will prove consistent with the Company's current and planned
operations. In many instances, however, specific aspects of these matters are
referred by the legislation to the FCC for further proceedings and
implementation; the final actions of the FCC with respect thereto cannot now be
predicted. Proceedings before various of the Company's state regulatory
agencies are also likely as a result of the scope of
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<PAGE>
the federal legislation. In addition, oversight hearings to monitor FCC
interpretation and implementation of the legislation, as well as technical
corrective legislation later in 1996, are possible as implementation of the
legislation proceeds.
The Company's cellular interests are regulated by the FCC with respect to
the construction, operation and technical standards of cellular systems and the
licensing and designation of geographic boundaries of service areas. Certain
states also require operators of cellular systems to satisfy a state
certification process to serve as cellular operators.
Item 2. PROPERTIES
----------
The telephone properties of the Company's LECs include central office
equipment, microwave and radio equipment, poles, cables, rights of way, land
and buildings, customer premise equipment, vehicles and other work equipment.
Most of the Company's division headquarters buildings, telephone exchange
buildings, business offices, warehouses and storage areas are owned by the
Company's LECs. Approximately 38 percent of plant assets are pledged to secure
long-term debt. In addition, certain of the LECs' microwave facilities, central
office equipment and warehouses are located on leased land. Such leases are not
considered material, and their termination would not substantially interfere
with the operation of the Company's business. (See "Item 1. Business -
Telecommunications Operations - Local Exchange Companies" for information
regarding the states in which the Company has LEC operations.)
PT Cellular's subsidiaries are partners in partnerships that own or lease
switching facilities, cell site towers, cell site radio equipment and other
equipment required to furnish cellular service to the areas they serve. (See
"Item 1. Business - Telecommunications Operations - Cellular Operations" for
information regarding the states in which the Company has cellular operations.)
The properties of PTC and PT Transmission include a satellite transmit and
receive earth station, located at Moores Valley, Oregon, fiber optic cables,
land, buildings, operating facilities and business offices, all of which are
owned. In addition, PTC leases a duplicate cable for backup between Pacific
City, Oregon and Portland, Oregon and business office space. PTC also holds in
inventory its portion of the unsold capacity in the NPC and backhaul facilities.
The Company's executive, administrative, purchasing and certain engineering
functions are headquartered in Vancouver, Washington. The Company has a 50
percent ownership interest in its headquarters building and, through a long-term
lease, occupies approximately 66 percent of the 225,000 square-foot building.
The Company owns two mainframe computers and leases most of the other equipment
used in conjunction with providing data processing services.
Item 3. LEGAL PROCEEDINGS
-----------------
The Company is a party to various legal claims, actions and complaints, one
of which is described below. Although the ultimate resolution of legal
proceedings cannot be predicted with certainty, management believes that
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial statements.
On September 27, 1995, holders of a majority of the approximately 5.3
million shares of outstanding common stock held by minority shareholders of the
Company voted in favor of the merger of a wholly-owned subsidiary of Holdings
into the Company. As a result of the merger, the common stock held by minority
shareholders was converted into the right to receive $30.00 per share in cash,
other than shares as to which dissenters' rights were perfected. Former
minority shareholders of the Company who owned approximately 26 percent of the
total outstanding shares held by minority shareholders filed notices with the
Company asserting dissenters' rights in connection with the merger. Certain of
these shareholders have also asserted that the fair value of the Company's
common stock, to which they will be entitled under the dissenters' rights
provisions of the Washington Business Corporation Act (WBCA), is substantially
in excess of the $30.00 per share paid to the minority shareholders who did not
dissent. The process for judicial resolution of dissenting shareholder
proceedings is governed by the provisions of the WBCA. On February 12, 1996,
the Company filed a petition with the Superior Court of Washington for Clark
County in accordance with these provisions (Pacific Telecom, Inc. v. Gabelli
--------------------------------
Funds, Inc. et. al., Superior Court of Washington for Clark County).
- -------------------
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
-------------------------------------------------------------
There is no public market for the Company's common stock. All of the
Company's outstanding common stock is owned by Holdings. Dividends are normally
declared and paid on a quarterly basis. For 1995 and 1994, dividends paid
totalled $52,267,000 and $52,289,000, respectively.
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<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS *
---------------------------------------------------------------
The Company continues to implement its strategy that primarily focuses
resources to expand its provisioning of local exchange telephone services in
rural and suburban markets. The year ended December 31, 1995 can be best
described as a transition year, as the Company successfully exited the long
distance business in Alaska and redeployed its capital into LEC assets. During
1995, the Company closed three acquisitions of local exchange properties with
USWC in Colorado, Washington and Oregon. Assets representing 94 exchanges
serving approximately 90,000 access lines were purchased for an aggregate of
approximately $376.3 million. These transactions reflect the Company's
strategic focus on providing basic and enhanced telecommunications services to
rural and suburban markets. See Note 15 to Consolidated Financial Statements
included in Item 8 hereof for information concerning the USWC asset
acquisitions.
In August 1995, the Company sold its long distance subsidiary, Alascom, to
AT&T in a transaction that provided $365.5 million in cash. AT&T paid $290.5
million in cash for the Alascom stock and settlement of all past cost study
issues. AT&T also agreed to allow the Company to retain a $75 million
transition payment made by AT&T to Alascom in July 1994 pursuant to an FCC
order. See Note 16 to Consolidated Financial Statements included in Item 8
hereof for information concerning the sale of Alascom.
The Company operates predominately in the telecommunications industry,
providing voice, data, video, access to its networks to interexchange carriers
and other services through local exchange operations and provided long lines
operations until August 7, 1995, when Alascom was sold. There are substantial
similarities in the operations of and revenues derived from these activities.
The Company is involved with cellular operations which generate revenues from
retail and foreign roamer cellular services, as well as from management of
cellular properties for other owners. The Company is also involved in the
operation and maintenance of the NPC. Revenues from this cable project are
recognized from the sale of capacity on the primary cable and backhaul system
and from maintenance and restoration services provided for the system.
In 1995, 62 percent of consolidated operating revenues were contributed by local
exchange companies, 30 percent by long lines, five percent by cellular
operations and three percent by cable and backhaul capacity sales and related
cable services. Certain revenues from the Company's rate of return regulated
operations are based on estimates that are subject to subsequent adjustments in
future accounting periods as refined operational information becomes available.
The Company's net income for the year ended December 31, 1995 was $139.6
million, an increase of 71 percent compared to net income of $81.4 million in
1994. This increase was attributable to the after-tax gain on the sale of
Alascom of $66.4 million. Operating income increased less than one percent or
$.7 million in 1995 compared to 1994. The acquisition of local exchange assets
in Colorado, Washington and Oregon contributed $25.2 million to operating
income. Also increasing operating income were increases resulting from LEC
internal access line growth, revised local exchange revenue estimates for prior
years, cellular customer growth, and increased long lines equipment resale and
installation activities. Offsetting these increases was the elimination of five
months of long lines operating income resulting from the sale of Alascom.
Operating revenues for 1995 were $648.6 million, a decrease of $56.4 million, or
eight percent, compared to 1994. Operating expenses in 1995 were $483.3
million, a decrease of $57.0 million, or 11 percent, compared to 1994. The local
exchange acquisitions completed during 1995 serve to increase both operating
revenues and expenses, substantially replacing operating income that had been
provided by Alascom. However, with the sale of Alascom, the presentation of
long distance network services and access expense tend to distort a year to year
comparison of revenue and expenses.
The NPC system experienced three outages in 1995. The February and October
outages were caused by failure of components covered under existing contractual
warranty provisions. NPC's warranty provision requires the contractor
to pay for incurred marine operations charges and to replace spares and
materials used during the repair. The May outage was caused by an external
agency hooking the cable and dragging it on the sea bed until the cable was
damaged. During each of the outages, restoration services were provided to
customers within three hours after the outage occured. The NPC system generates
positive cash flow for the Company, primarily from the provision of maintenance
and restoration services.
- ------------------------
* Pursuant to General Instruction J (1)(a) and (b) of Form 10-K, the
Company is substituting a management's narrative analysis of results of
operations for Item 7.
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<PAGE>
The following table summarizes the effects of the sale of Alascom in August
1995 and the acquisition of LEC assets in 1995 on operating income for the
period ended December 31, 1995, when compared to 1994. Other material variances
are footnoted below:
<TABLE>
<CAPTION>
Year Alascom Year
Ended August - LEC Ended
December 31, December Acquisitions December 31,
1994 1994 1995 Other 1995
------------ -------- ------------ ----- ------------
(in millions)
<S> <C> <C> <C> <C> <C>
Operating revenues:
Local network service $ 97.0 $16.1 $ 7.4 (a) $120.5
Network access service 168.5 43.3 11.9 (b) 223.7
Long distance network service 272.0 $(126.0) 0.5 3.6 (c) 150.1
Private line service 58.2 (24.2) 0.3 34.3
Sales of cable capacity 4.6 (1.2) 3.4
Cellular 23.6 10.3 (d) 33.9
Other 81.1 (7.1) 3.1 5.6 (e) 82.7
----- ----- ---- ---- -----
Total operating revenues 705.0 (157.3) 63.0 37.9 648.6
----- ----- ---- ---- -----
Operating expenses:
Plant support 117.7 (18.4) 6.6 6.5 (f) 112.4
Depreciation and amortization 100.9 (13.5) 15.8 2.6 (g) 105.8
Leased circuits 26.6 (10.1) 4.4 (h) 20.9
Access expense 92.9 (39.3) (0.6) 53.0
Other operating expense 35.1 (5.5) 4.2 4.1 (i) 37.9
Cost of cable sales 3.0 (0.8) 2.2
Customer operations 72.8 (11.0) 3.6 1.5 (j) 66.9
Administrative support 75.6 (13.2) 6.0 (0.1) 68.3
Taxes other than income taxes 15.8 (0.7) 1.6 (0.8) 15.9
----- ----- ---- ---- -----
Total operating expenses 540.4 (111.7) 37.8 16.8 483.3
----- ----- ---- ---- -----
Operating income $164.6 $ (45.6) $25.2 $21.1 $165.3
===== ===== ==== ==== =====
</TABLE>
(a) Revenue from enhanced services, such as caller name and number
identification, automatic call back, auto recall and call trace, of
$1.3 million, LEC installation related charges of $1.9 million due to
customer growth and certain rate increases, LEC access line growth of
$2.1 million and extended area services of $1.2 million combined to
contribute most of the $7.4 million increase in local network service
revenue.
(b) Network access service revenue grew by $11.9 million, with $6.7 million
resulting from revised LEC revenue estimates for prior years, $2.4
million in increased USF support and $1.3 million resulting from
access line growth.
(c) Long distance network service revenue increased $3.6 million, with $5.9
million due to interim settlements with AT&T through July 1994, offset
in part by $3.7 million of revised long lines revenues estimates.
(d) Cellular revenue grew $10.3 million due to growth in customers and
increased roaming revenues.
(e) Other revenue increased $5.6 million as a result of a $3.1 million
increase in long lines installation activities and equipment resale and
a $2.9 million increase in cable maintenance and restoration activity
due to the cable outages, offset in part by a $1.8 million decrease in
revenues from noncore businesses exited during 1994.
(f) Plant support expense grew by $6.5 million due to increases of $1.7
million for LEC maintenance activity, growth in the customer base and
network upgrades, $1.6 million due to growth in cellular operations,
$.8 million for long lines equipment resale activities and $.6 million
due to a one-time energy efficiency project at the long lines toll
center.
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<PAGE>
(g) Depreciation expense was higher by $2.6 million, which included $3.3
million due to increased LEC depreciable plant balances and $.9 million
due to growth in cellular operations. These increases were offset in
part by a $2.4 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.
(h) Leased circuits expense increased by $4.4 million, of which $2.9
million was attributable to restoration services and $1.1 million was
due to long lines retroactive billings and contract adjustments.
(i) Other operating expense increased $4.1 million due to increases of $2.3
million relating to cellular customer growth and $1.1 million relating
to updating LEC plant records and the development and conversion to new
LEC plant record systems.
(j) Customer operations expense was higher by $1.5 million primarily due to
a $2.3 million increase in cellular costs relating to customer growth.
Other income - net for 1995 was $21.3 million, which included a $66.5
million pre-tax gain on the sale of Alascom. Interest expense increased $7.6
million, which included $5.8 million due to increased borrowings used to fund
the USWC asset acquisitions and $1.8 million in one-time interest charges mainly
relating to Internal Revenue Service settlements. Other expense in 1995 included
$1.6 million in costs relating to Holdings' offer to purchase the minority
interest in the Company. Cellular amortization decreased by $.6 million due to
prior year adjustments in 1994 and cellular equity income increased $.5 million.
An interest rate swap buy-out raised 1994 expenses by $1.4 million.
INCOME TAXES
- ------------
(in millions, except percentages)
1995 1994
---- ----
Income tax expense $47.0 $40.8
Effective income tax rate 25.2% 33.4%
Income tax expense increased due to higher state income tax and reductions
in tax benefits relating to amortization of investment tax credits and excess
deferred taxes. State income tax increased due to providing deferred state
income tax on assets in non-unitary states previously not provided. The
financial statement gain on the sale of Alascom was recorded without federal or
state income tax expense, because the tax basis in Alascom was greater than the
selling price. This caused the effective tax rate to decline. Excluding the
sale of Alascom, the Company's effective tax rate would have been 39.1 percent
in 1995. See Note 6 to the Consolidated Financial Statements for an explanation
of the tax impact of the gain on the sale of Alascom.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
(in millions)
Plan 1996 1995 1994
--------- ---- ----
Capital expenditures:
Local exchange companies $102 $106 $111
Long Lines - 7 22
Cellular 8 7 10
Other 4 2 5
--- --- ---
Total capital expenditures $114 $122 $148
=== === ===
Acquisitions $263 $368 $ -
=== === ===
Planned acquisitions during 1996 include the purchase of assets in
Minnesota from USWC for $103 million, which includes a $5 million escrow payment
made during 1995. Also included in acquisitions in 1996 are $165 million for
asset purchases not yet identified and that may not be completed before year
end.
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<PAGE>
CAPITAL EXPENDITURES
- --------------------
The Company's capital expenditures during 1995 were funded primarily through
internally generated cash of $153.0 million and commercial paper issuances. The
acquisitions in 1995 were funded primarily by proceeds from the sale of Alascom
and borrowings under the Series B Medium-term Notes program. The Company
expects to fund its capital expenditures in 1996 primarily through internally
generated cash. Capital expenditures during 1995 related mainly to network
upgrades and growth in the Company's operations. Significant network upgrades
during 1995 were made to acquired LEC assets.
ACQUISITIONS
- ------------
The Company has a stated objective of growing its local exchange operations
through internal growth and acquisitions. The Company intends to pursue
acquisitions of independent telephone companies, and to participate in the
rural divestiture strategy of USWC and other large regional holding companies.
While the Company's primary goal is to acquire properties in its current
operating states, it would consider entering new states if an acquisition
opportunity were of sufficient size. The Company believes that significant
economies of scale and associated cash flow benefits can be generated by
acquiring new properties and integrating them into the Company's administrative
and operations structure. See Notes 14 and 15 to Consolidated Financial
Statements included in Item 8 hereof for information concerning the USWC
asset acquisitions that were completed in 1995 and are pending in 1996.
The Company is interested in increasing its current cellular holdings in
order to expand its existing market coverage areas in Alaska and the Midwest.
The Company is also seeking solutions to exit minority holdings that are not
meeting its expectations for cash flow and net income returns.
DISPOSITIONS
- ------------
See Note 16 to Consolidated Financial Statements included in Item 8 hereof
for information concerning the sale of Alascom.
LONG-TERM AND SHORT-TERM DEBT
- -----------------------------
(in millions, except percentages)
December 31,
---------------------
1995 1994
------ ------
Long-term debt $459.5 $377.0
Short-term debt 90.0 21.7
Currently maturing long-term debt 5.5 15.6
----- -----
$555.0 $414.3
===== =====
Debt as a percent of total capitalization 41.8% 37.7%
===== =====
In 1995, a portion of the USWC asset acquisitions was funded through the
issuance of Series B Medium-term Notes. Short-term borrowings from other
available banking arrangements replaced the $36.5 million of Series A and B
Medium-term Notes that matured during 1995. Commercial paper issuances of $50
million were used to fund construction expenditures. Short-term borrowings from
other available banking arrangements of $25 million and commercial paper of
$50 million have been 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 Company has access to funds through its $300 million revolving credit
agreement which ends in November 1999. At December 31, 1995, no borrowings were
outstanding under this agreement. (See Note 12 to Consolidated Financial
Statements included in Item 8 hereof.) The revolving credit agreement also
serves as backup for a $100 million commercial paper program, under which $50
million was outstanding at December 31, 1995. The Company had $115 million
outstanding under other available banking arrangements at December 31, 1995. In
January 1996, the Company established a $200 million Series C Medium-term Notes
program, which will be used primarily to fund future acquisitions and to repay
some of the short-term debt outstanding at December 31, 1995.
-10-
<PAGE>
At December 31, 1995, the Company had approval from the Rural Telephone Bank
to borrow $17.6 million in additional Rural Electrification Administration debt
for certain construction projects.
Any temporary cash or liquidity requirements during 1996 will be met through
utilization of funds available under the revolving credit agreement or temporary
advances from Holdings. (See Note 2 to Consolidated Financial Statements
included in Item 8 hereof.) Long-term liquidity requirements will be met
through utilization of funds available under the revolving credit agreement or
the Series C Medium-term Notes program. Cash needed to pay dissenters' rights
will be provided by Holdings. (See Note 2 to Consolidated Financial Statements
included in Item 8 hereof.)
REGULATION
- ----------
See Item 1. "Business - Regulation" for information concerning regulation.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Directors and Shareholder of Pacific Telecom, Inc.:
We have audited the accompanying consolidated balance sheets of Pacific Telecom,
Inc. and its subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in shareholder's equity, and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such consolidated financial statements represent fairly, in all
material respects, the financial position of Pacific Telecom, Inc. and its
subsidiaries at December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 9 in the consolidated financial statements, the Company
changed its method of accounting for postretirement benefits in the year ended
December 31, 1993.
DELOITTE & TOUCHE LLP
Portland, Oregon
January 30, 1996
-11-
<PAGE>
PACIFIC TELECOM, INC.
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
--------------------------------
1995 1994 1993
---- ---- ----
(In thousands)
OPERATING REVENUES:
Local network service $120,512 $ 96,944 $ 81,783
Network access service 223,723 168,530 183,862
Long distance network service 150,064 271,977 262,528
Private line service 34,270 58,193 63,765
Sales of cable capacity 3,419 4,567 4,943
Cellular 33,884 23,642 16,056
Other 82,724 81,109 89,174
------- ------- -------
Total operating revenues 648,596 704,962 702,111
------- ------- -------
OPERATING EXPENSES:
Plant support 112,350 117,694 122,024
Depreciation and amortization (Note 3) 105,828 100,879 106,796
Leased circuits 20,933 26,618 30,639
Access expense (Note 2) 53,002 92,929 95,462
Other operating expense 37,876 35,116 33,219
Cost of cable sales 2,205 2,977 2,500
Customer operations 66,947 72,780 70,612
Administrative support 68,294 75,616 84,384
Taxes other than income taxes 15,850 15,712 14,827
------- ------- -------
Total operating expenses 483,285 540,321 560,463
------- ------- -------
OPERATING INCOME 165,311 164,641 141,648
------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense (42,316) (34,754) (44,273)
Interest income 2,798 1,716 932
Gain on sale of subsidiaries and
investments (Notes 5 and 16) 66,526 2,073 1,340
Minority interest (1,298) (975) (580)
Other (4,445) (10,536) (16,163)
------- ------- -------
Other income (expense) - net 21,265 (42,476) (58,744)
------- ------- -------
INCOME BEFORE INCOME TAXES 186,576 122,165 82,904
INCOME TAXES (NOTE 6) 47,012 40,766 23,846
------- ------- -------
INCOME FROM CONTINUING OPERATIONS 139,564 81,399 59,058
GAIN FROM DISCONTINUED OPERATIONS, NET
OF INCOME TAX (NOTE 7) - - 60,444
------- ------- -------
NET INCOME $139,564 $ 81,399 $119,502
======= ======= =======
The accompanying notes are an integral part of these financial statements.
-12-<PAGE>
<PAGE>
PACIFIC TELECOM, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
-----------------------
1995 1994
---- ----
(In thousands)
ASSETS
Current assets:
Cash and temporary cash investments $ 6,331 $ 9,883
Accounts receivable 81,528 108,977
Accounts and notes receivable - affiliates (Note 2) 41,234 1,832
Material and supplies (at average cost) 7,082 14,775
Inventory - North Pacific Cable 60,571 62,777
Other 9,522 16,045
--------- ---------
Total current assets 206,268 214,289
Investments (Note 10) 124,555 123,610
Plant in service:
Telecommunications (Note 3) 1,570,262 1,550,553
Other 22,655 22,115
Less accumulated depreciation 678,328 799,797
--------- ---------
914,589 772,871
Construction work in progress 13,970 52,667
--------- ---------
Net plant 928,559 825,538
Intangible assets - net 378,214 252,870
Deferred charges 16,528 26,644
--------- ---------
Total assets $1,654,124 $1,442,951
========= =========
The accompanying notes are an integral part of these financial statements.
-13-<PAGE>
<PAGE>
PACIFIC TELECOM, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
-----------------------
1995 1994
---- ----
(In thousands)
LIABILITIES AND CAPITALIZATION
Current liabilities:
Currently maturing long-term debt (Note 12) $ 5,535 $ 15,601
Notes payable (Note 11) 90,000 21,713
Accounts payable 48,395 69,515
Accrued liabilities 58,736 43,302
Dissenters' rights (Note 2) 27,930 -
Accrued access and unearned revenue 8,354 24,961
--------- ---------
Total current liabilities 238,950 175,092
Long-term debt (Note 12) 459,502 376,997
Deferred income taxes (Note 6) 126,539 95,966
Unamortized investment tax credits 6,929 13,809
Other long-term liabilities 48,502 97,131
Minority interest 18,288 16,183
Shareholder's equity:
Common stock - stated value, 1995 - $1.00,
1994 - $.50 (Note 2)
- authorized 200,000,000 shares
- outstanding 1995 - 100 shares,
1994 - 39,619,623 shares - 19,810
Additional paid-in capital 225,943 206,231
Unearned stock compensation (Note 8) - (442)
Retained earnings (Note 12) 529,471 442,174
--------- ---------
Total shareholder's equity 755,414 667,773
Commitments and contingencies (Notes 4 and 14) - -
--------- ---------
Total liabilities and capitalization $1,654,124 $1,442,951
========= =========
The accompanying notes are an integral part of these financial statements.
-14-
<PAGE>
PACIFIC TELECOM, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Common Additional Unearned Total
Stock Paid-in Stock Retained Shareholder's
--------------
Shares Amount Capital Compensation Earnings Equity
------ ------ ------- ------------ -------- -------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993 39,545 $19,772 $204,276 $ - $345,798 $569,846
Shares issued for benefits 66 34 1,767 1,801
Share purchases (2) (1) (58) (59)
Unearned stock compensation (Note 8) (143) (143)
Net income 119,502 119,502
Cash dividends ($1.32 per share) (52,236) (52,236)
------ ------ ------- --- ------- -------
BALANCE, DECEMBER 31, 1993 39,609 19,805 205,985 (143) 413,064 638,711
Shares issued for benefits 13 6 293 299
Share purchases (2) (1) (47) (48)
Unearned stock compensation (Note 8) (299) (299)
Net income 81,399 81,399
Cash dividends ($1.32 per share) (52,289) (52,289)
------ ------ ------- --- ------- -------
BALANCE, DECEMBER 31, 1994 39,620 19,810 206,231 (442) 442,174 667,773
SHARES ISSUED FOR BENEFITS 26 13 792 805
SHARE PURCHASES (30) (15) (882) (897)
MINORITY BUY-OUT AND
REVERSE MERGER (NOTE 2) (39,616)(19,808) 19,808 -
SHARE RETIREMENTS (16) (16)
UNEARNED STOCK COMPENSATION
(NOTE 8) 10 442 452
NET INCOME 139,564 139,564
CASH DIVIDENDS (52,267) (52,267)
------ ------ ------- --- ------- -------
BALANCE, DECEMBER 31, 1995 - $ - $225,943 $ - $529,471 $755,414
====== ====== ======= === ======= =======
</TABLE>
The Company has 152,000 shares of $25 stated value, six percent cumulative
Preferred Stock authorized, but no shares are outstanding.
The accompanying notes are an integral part of these financial statements.
-15-
<PAGE>
<PAGE>
PACIFIC TELECOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FROM CONTINUING OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $139,564 $ 81,399 $ 59,058
Adjustments to reconcile income from continuing operations
to net cash provided by operating activities:
Depreciation and amortization 114,282 107,784 115,748
Deferred income taxes and investment tax credits, net 24,515 (62,329) (7,251)
Gain on sale of subsidiaries and investments (66,526) (2,073) (1,340)
Gains from unconsolidated entities, net (3,350) (3,135) (503)
Accounts receivable and other current assets (46,165) (8,089) 47,836
Inventory - North Pacific Cable 2,206 2,977 2,500
Accounts payable and accrued liabilities (5,430) 22,168 (29,304)
Other (6,049) 2,666 (6,363)
------- ------- -------
Net cash provided by operating activities 153,047 141,368 180,381
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (121,753) (148,248) (102,618)
Cost of businesses acquired (368,348) - (15,536)
Investments in and advances to affiliates (7,321) (4,726) (7,447)
Proceeds from Alaska restructuring 235,076 105,000 -
Proceeds from sales of assets 3,985 17,656 200,552
------- ------- -------
Net cash provided (used) by investing activities (258,361) (30,318) 74,951
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term debt 82,023 (3,190) (53,066)
Change in affiliated notes 459 - -
Proceeds from issuance of long-term debt 153,810 8,006 3,042
Purchase of common stock (897) (48) (59)
Dividends paid (52,267) (52,289) (52,236)
Payments of long-term debt (81,366) (58,507) (157,887)
------- ------- -------
Net cash provided (used) by financing activities 101,762 (106,028) (260,206)
------- ------- -------
INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS (3,552) 5,022 (4,874)
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF YEAR 9,883 4,861 9,735
------- ------- -------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR $ 6,331 $ 9,883 $ 4,861
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the year $ 40,688 $ 36,692 $ 45,681
Income taxes paid during the year 33,736 102,324 48,574
NONCASH INVESTING ACTIVITIES:
Liabilities assumed in connection with the acquisition
of subsidiaries - - 3,548
Liabilities disposed of in connection with the sale
of subsidiaries 85,668 53 87
Common stock issued in connection with employee benefits 805 299 1,801
</TABLE>
The accompanying notes are an integral part of these financial statements.
-16-<PAGE>
<PAGE>
PACIFIC TELECOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation -- The consolidated financial statements
include the accounts of Pacific Telecom, Inc.(PTI) and its
subsidiaries (Company). The equity method is used to account for
those affiliated companies in which the Company exerts significant
influence through management agreements or ownership of 20 to 50
percent and for all cellular partnerships in which a Company
subsidiary is a partner. All appropriate intercompany transactions
and balances have been eliminated. The 1994 and 1993 consolidated
financial statements reflect certain reclassifications to conform
to the 1995 presentations.
(b) Discontinued operations -- International Communications Holdings,
Inc. (ICH), the Company's international subsidiary, was shown as a
discontinued operation in the consolidated financial statements and
notes through September 1993 (Note 7).
(c) Industry segmentation -- Although regulatory requirements impose
structural separation in its operations, the Company operates
predominately in the telecommunications industry providing voice,
data and video communication services.
(d) Regulatory authorities -- The accounting policies of the Company
are in conformity with the requirements of the Federal
Communications Commission (FCC) and the regulatory agencies of the
various states in which the Company operates.
(e) Telecommunications plant -- Telecommunications plant is stated at
cost. Additions to plant include direct costs and related indirect
charges. Depreciation and amortization are provided using the
straight-line method based on the estimated service lives of the
various classes of depreciable assets. Amounts charged to
operations for depreciation expense reflect methods prescribed by
regulators in the Company's regulated operations and, given the
Company's operating environment, do not materially differ from
estimated useful life determinations used to calculate depreciation
estimates of the Company's nonregulated operations. These
depreciation estimates and methods are applied consistently in both
regulated and public financial presentations. The composite
depreciation rate for depreciable telecommunications plant was 6.1
percent in 1995, 6.4 percent in 1994 and 6.9 percent in 1993. The
depreciation rate decrease in 1994 is mainly due to the rate
decrease ordered by the Alaska Public Utilities Commission for
Alaska local exchange operations.
(f) Interest during construction -- In accordance with regulatory
requirements, the Company's regulated subsidiaries capitalize debt
costs applicable to their construction projects. Interest
capitalized during 1995 was $231,000.
(g) Asset impairments -- In December 1995, 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 121 establishes
accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those
assets to be held and used and for long-lived assets and certain
identifiable assets to be disposed of. The Company evaluated its
assets based on this standard and concluded that no assets
qualified as impaired and consequently no adjustments were
required.
(h) Cash and cash equivalents -- The Company considers all investments
with original maturities less than 90 days to be cash equivalents.
(i) Income taxes -- The Company uses the liability method of
accounting for income taxes, which requires that deferred income
taxes be provided for all differences between the financial
statement and tax bases of assets and liabilities. Deferred income
taxes result primarily from differences between the financial
statement and tax bases of depreciable assets and certain acquired
assets, as well as employment related expenses not currently
deductible.
-17-
<PAGE>
Excess deferred income taxes on regulated assets and liabilities
resulting from the decrease in the statutory rates under the Tax
Reform Act of 1986, net of an increase arising from the Revenue
Reconciliation Act of 1993, are being amortized to income over the
composite book life of the related assets as required by regulatory
authorities.
Investment tax credits relating to regulated telephone property,
plant and equipment have been deferred and are being amortized over
the estimated useful lives of the related assets.
(j) Intangible assets -- These costs are primarily for franchises of
local exchange and cellular companies acquired and goodwill
recorded from such acquisitions and are being amortized generally
over 40 years. Accumulated amortization of these costs at December
31, 1995 and 1994 was $42,703,000 and $33,448,000, respectively.
Intangible assets relating to nonconsolidated investments are
included in "Investments" on the balance sheet (Note 10).
(k) Inventory -- Inventory on the North Pacific Cable represents the
construction costs for the cable, which are carried at lower of
cost or market and charged to income on an average cost per unit
basis as capacity in the cable is sold. During 1993, inventory
cost was reduced by approximately $19,200,000 as a result of
an agreement reached with the consortium that constructed the
cable.
(l) Software capitalization -- The Company capitalizes initial
operating system software development costs and expenses subsequent
additions or modifications to operating system software. The
Company also capitalizes application software that is purchased at
a cost of $10,000 or more and with a useful life in excess of one
year.
(m) Accrued access and unearned revenue -- Advance billings creditable
to revenue accounts in future months and advance payments made by
prospective customers prior to establishment of services are
recorded in accrued access and unearned revenue until the service
is rendered or cleared from this account as refunds are made.
(n) Revenue recognition -- The Company's subsidiaries participate in
access revenue pools for certain interstate and intrastate
revenues, which are initially recorded based on estimates. Certain
network access revenues are estimated under cost separations
procedures that base revenues on current operating costs and
investments in facilities to provide such services. These
estimates are subject to subsequent adjustment in future accounting
periods as refined operational information becomes available.
(o) Regulatory assets and liabilities -- At December 31, 1995 and 1994,
the Company had $704,000 and $8,193,000, respectively, in
regulatory assets and $8,900,000 and $14,196,000, respectively, in
regulatory liabilities on its balance sheet. The regulatory assets
were included in "Deferred charges" and the regulatory liabilities
were included in "Other long-term liabilities." The regulatory
assets arose from the income tax benefits provided to current
ratepayers for pre-1987 tax deductible expenses that were
capitalized on the books of the Company and for which no deferred
taxes were provided. These regulatory assets are being reduced as
the capitalized amounts are depreciated on the books and those
expenses are recovered. The regulatory liabilities are made up of
two items. The first relates to the excess deferred taxes that
resulted from a reduction in the Federal tax rate from 46 percent
to 35 percent. This excess will not be paid to the Federal
government, but rather will reduce future revenue requirements from
customers over the average life of the assets that generated the
difference. In addition, the regulatory liability includes the tax
savings resulting from this reduced revenue requirement created by
the amortization of the excess deferred taxes. The second relates
to a similar reduction in revenue requirements due to the tax
savings resulting from amortization of deferred investment tax
credits.
NOTE 2. TRANSACTIONS WITH RELATED PARTIES
The Company is a wholly-owned subsidiary of PacifiCorp Holdings,
Inc. (Holdings), which is a wholly-owned subsidiary of PacifiCorp. On
September 27, 1995, holders of a majority of the approximately 5.3
million shares of outstanding common stock held by minority shareholders
voted in favor of the merger of a wholly-owned subsidiary of Holdings
into the Company. As a result of the merger, the common stock held by
minority shareholders (other than shares as to which dissenters' rights
were perfected) were converted into the right to receive $30.00 per
share in cash, and the Company became a wholly-owned subsidiary of
Holdings with 100 shares of no par value common stock outstanding. In
addition, a liability in the amount of $41,648,000 was
-18-
<PAGE>
accrued for amounts to be paid to dissenters in the merger based on
$30.00 per share fair value for shares. Payments totalling $14,296,000
were made to dissenters in November and December 1995. The Company is
accruing interest on this liability at a rate equal to the Company's
average short-term borrowing rate. The Company also recorded a
receivable from Holdings in the amount of the accrued liability to
dissenters.
(a) Notes payable -- The Company has an agreement that permits temporary
cash advances to or from Holdings at short-term borrowing rates.
There were no borrowings from Holdings in 1995 or 1994. Interest
income related to cash advances to Holdings was $577,000 in 1995,
$777,000 in 1994 and $53,000 in 1993. Interest income for 1995
relates to the note receivable from Holdings for estimated amounts
due dissenters.
(b) Accounts and notes receivable - affiliates -- These amounts
generally represent billings to affiliates for services provided by
the Company, but in 1994 and 1993 the amount represents primarily a
tax refund receivable from Holdings. The 1995 amount primarily
reflects the amount due from Holdings for the dissenters' rights due
to the minority buy-out and a tax refund receivable from Holdings.
(c) Access expense -- The long lines subsidiary recognized approximately
$10,001,000 for the first seven months of 1995, $18,332,000 in 1994
and $15,852,000 in 1993 of interstate and intrastate access expense
related to the Company's local exchange companies in Alaska. Due to
the tariffed nature of these charges, the amounts were recorded as
network access service revenues by the local exchange companies and
have not been eliminated in the consolidated financial statements.
(d) Income taxes -- The Company participates with PacifiCorp in filing
consolidated income tax returns. The Company's income tax
provisions are based on a separate company calculation of income
taxes.
(e) The Company rents its headquarters building from a 50 percent owned
partnership. Annual rent was $1,661,000 in 1995, 1994 and 1993, 50
percent of which was included in administrative support.
NOTE 3. TELECOMMUNICATIONS PLANT IN SERVICE
The balances by category of Telecommunications Plant in Service at
December 31 are (in thousands):
Average
Remaining
Life 1995 1994
--------- --------- ---------
Central Office Equipment 13 $ 520,810 $ 530,871
Poles, Cable and Conduit 19 826,075 576,044
Building and Towers 31 91,331 169,974
Earth Stations 7 3,148 117,595
Satellite - - 14,183
Other 13 128,898 141,886
--------- ---------
Total Telecommunications Plant in Service $1,570,262 $1,550,553
========= =========
Depreciation expense was $101,966,000, $97,784,000 and $103,894,000 for
1995, 1994 and 1993, respectively.
-19- <PAGE>
<PAGE>
NOTE 4. LEASE AND MAINTENANCE ARRANGEMENTS
The Company's operating lease and maintenance agreements relate to
the use of headquarters buildings, data processing and customer premise
equipment, terrestrial communications circuits and cable maintenance and
backhaul. These agreements generally contain provisions or options to
renew the agreements at fair market rental rates. The Company has no
material capital lease obligations at this time. Under these
noncancellable operating lease and maintenance agreements, minimum
annual rental commitments are as follows (in thousands):
Year Ending December 31,
------------------------
1996 $17,311
1997 11,097
1998 10,364
1999 4,724
2000 2,594
2001 and beyond 6,487
------
Total minimum lease and maintenance payments $52,577
======
Rent expense approximated $36,591,000 in 1995, $41,688,000 in 1994
and $45,744,000 in 1993. This included rent expense for Alascom of
$17,939,000 in 1995, $28,148,000 in 1994 and $30,178,000 in 1993.
NOTE 5. SALE OF SUBSIDIARIES
See Note 16 for information regarding the sale of Alascom to AT&T
in August 1995.
On April 29, 1994, the Company completed the sale of PTI Harbor
Bay, Inc. and Upsouth Corporation, to IntelCom Group, Inc. for 1,183,147
shares of IntelCom common stock and $200,000 in cash. On October 17,
1994, the Company sold its IntelCom stock. Cash proceeds of $15,934,000
and a gain of $1,007,000, net of tax and selling expenses, were
recognized in 1994.
In September 1993, the Company sold a cellular property which
resulted in proceeds of $2,183,000 and an after-tax gain of $827,000.
-20-
<PAGE>
NOTE 6. INCOME TAXES
The Company's effective combined state and federal income tax rate
was 25.2 percent in 1995, 33.4 percent in 1994 and 28.8 percent in 1993.
The difference between taxes calculated as if the statutory federal tax
rate of 35 percent were applied to pre-tax income and the recorded tax
expense is due to the following:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Tax expense at statutory rates $65,302 $ 42,758 $29,016
State income taxes 14,491 1,702 3,185
Federal benefit of state income taxes (5,072) (596) (1,115)
Amortization of investment tax credits (3,098) (4,355) (4,795)
Amortization of excess deferred income taxes (451) (1,776) (2,128)
Amortization of acquisition costs in excess of equity 2,018 2,086 1,994
Alascom gain (a) (23,278) - -
Other (2,900) 947 (2,311)
------ ------- ------
Recorded tax expense $47,012 $ 40,766 $23,846
====== -====== ======
Income tax expense for continuing operations consisted of:
Taxes currently provided $22,497 $103,095 $27,600
Deferred income taxes (b) 27,613 (57,974) 1,041
Investment tax credits (3,098) (4,355) (4,795)
------ ------- ------
$47,012 $ 40,766 $23,846
====== ======= ======
</TABLE>
(a) The financial statement gain on the sale of Alascom was recorded
without federal or state income tax expense, because the tax basis
in Alascom was greater than the selling price. The tax basis was
significantly greater than the book basis due to Alascom's
required tax recognition of the $150,000,000 in transition
payments due from AT&T under a 1994 FCC order. The Company has
not historically provided deferred tax liabilities or assets under
SFAS 109 for book/tax differences on investments in subsidiaries.
As a result, the tax benefit of the higher tax basis in Alascom
was realized in 1995 with the sale.
(b) During 1994, prepaid taxes of $61,500,000 were reported due to the
FCC ordered transition payments of $150,000,000. Also, in 1995,
the Company had deferred tax increases associated with book/tax
differences on the newly acquired assets from USWC.
-21-<PAGE>
<PAGE>
The tax effect of significant items comprising the Company's net
deferred tax liability are as follows:
Year Ended December 31,
-----------------------
1995 1994
---- ----
(in thousands)
Deferred tax liabilities:
Plant in service $ 94,602 $70,274
Cellular acquisition adjustments 45,224 46,749
Deferred tax assets:
Employment related liabilities (12,243) (14,893)
Valuation adjustments (3,902) (7,507)
Reserve for self insurance (3,808) (5,201)
Other 2,661 (422)
------- ------
Net deferred tax liability $122,534 $89,000
======= ======
Noncurrent tax liabilities $126,539 $95,966
Current tax assets (4,005) (6,966)
------- ------
$122,534 $89,000
======= ======
NOTE 7. DISCONTINUED OPERATIONS
In January 1993, the Company signed an agreement to sell TRT
Communications, Inc. (TRT), a wholly-owned subsidiary of ICH, to IDB
Communications Group, Inc. (IDB). TRT provided international telex and
telephone services to more than 200 countries. ICH had been reported as
a discontinued operation for financial statements reporting purposes in
1992.
On September 23, 1993, the Company completed the sale of TRT and
the stock of a smaller subsidiary to IDB for 4,500,000 shares of IDB
common stock and $1,000,000 in cash. Based on the market value of IDB
stock at closing, the Company recognized an after-tax gain from
discontinued operations of $60,444,000 on the sale. The market value of
the IDB stock increased during 1993 resulting in the gain and the IDB
common stock was registered and sold in a secondary public offering in
November 1993. The Company recorded tax expense of $26,011,000 in 1993
with respect to the discontinued operations of ICH.
NOTE 8. PENSION PLAN
Substantially all employees of the Company, except those who are
members of one local of the International Brotherhood of Electrical
Workers (IBEW), are covered under the Company's pension plan. The
Company recognized costs of $1,747,000 and $1,074,000 during 1995,
$3,110,000 and $1,065,000 during 1994 and $3,342,000 and $874,000 during
1993 for contributions to the International Brotherhood of Teamsters
and IBEW pension plans, respectively. With the sale of Alascom in
August 1995, the Company had no further obligation to pay for pension
benefits of employees represented by the International Brotherhood of
Teamsters. The Company's plan provides benefits based upon an
employee's total years of service and the highest five years
compensation during the last 10 years of service. The Company's policy
is to fund annually up to the maximum amount of the unfunded pension
liability that can be deducted for federal income tax purposes.
-22-<PAGE>
<PAGE>
The Company's unrecognized net asset resulting from the initial
application of SFAS 87 - "Employer Accounting for Pensions", is being
amortized over a 10-year period ending in 1996 for the Company's
original plan and over a 20-year period ending in 2006 for the
North-West Telecommunications, Inc. plan that was merged with the
Company's plan on January 1, 1993. Net pension cost and funded status
of the pension plan are summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Service cost of benefits earned $ 3,724 $ 4,308 $ 3,671
Interest cost on the projected benefit obligation 10,765 9,954 9,936
Actual loss (gain) on assets (32,633) 1,592 (11,272)
Net amortization and deferral 18,947 (15,845) (1,715)
------- ------- -------
Total pension expense $ 803 $ 9 $ 620
======= ======= =======
Actuarial present value of benefit obligations:
Accumulated benefit obligation $141,574 $112,176 $119,505
======= ======= =======
Portion of accumulated benefit obligation vested $140,022 $111,041 $118,228
======= ======= =======
Projected benefit obligation $167,317 $131,530 $142,448
Plan assets at fair value, primarily listed stocks
and bonds 154,316 129,582 138,309
------- ------- -------
Plan assets less than projected benefit obligation (13,001) (1,948) (4,139)
Unrecognized net loss (gain) 6,749 (4,393) 238
Unrecognized prior service benefit (2,029) (2,291) (2,477)
Unrecognized net asset remaining from initial application
of SFAS 87 (4,536) (6,409) (8,282)
------- ------- -------
Pension liability at December 31 $(12,817) $(15,041) $(14,660)
======= ======= =======
Assumptions used to develop pension plan information were:
Discount rate 7.25% 8.50% 7.50%
Estimated long-term rate of return on assets 9.00 9.00 9.00
Assumed rate of increase in compensation levels 5.00 5.00 5.00
</TABLE>
The Company's pension liability at December 31, 1995 was included
in "Other long-term liabilities" on the balance sheet.
In August 1995, the Company sold Alascom to AT&T (Note 16), which
resulted in a pre-tax curtailment gain of $3,401,000. This gain was
included in "Gain on sale of subsidiaries and investments."
The Company participates in PacifiCorp's K Plus Employee Stock
Ownership and Savings Plan. Under this plan, eligible employees may
elect to contribute a portion of their pay, within specified limits, to
the Plan. The Company makes a matching contribution of 50 percent of
the employee's elective contribution. Employee elective contributions
subject to matching are limited to six percent of pay. In addition, the
Company makes a fixed contribution of two percent of pay per year. The
costs to the Company for these contributions in 1995, 1994 and 1993 were
$2,262,000, $2,991,000 and $2,838,000, respectively.
-23-
<PAGE>
PacifiCorp has a long-term incentive plan for certain executive
employees of the Company. Participants are eligible to receive shares of
PacifiCorp's common stock, plus dividend equivalents in cash based on a
determination of PacifiCorp's Board of Directors. Prior to the merger,
awards were in the Company's stock. Until the minority buy-out in
September 1995, the Company had its own separate long-term incentive
plan for certain executive employees. Under this previous plan
participants received grants of restricted shares of the Company's
common stock based on a determination of the Company's Board of
Directors. The costs to the Company for these benefit plans amounted to
$300,000, $80,000 and $734,000 in 1995, 1994 and 1993, respectively.
Awards granted under this plan that are not yet vested are included as a
liability. Upon completion of the merger, all unvested shares of the
Company's stock was converted to PacifiCorp shares on the basis of the
merger consideration.
In 1993, the Company adopted the Non-Employee Directors' Stock
Compensation Plan. Directors who are employees of the Company or any
affiliated companies are not eligible to participate. The participants'
interest in the plan vests at 20 percent per year. The Company
recognized a total cost for this plan of $640,000 in 1993, which
includes past service costs of $602,000. This plan was terminated.
NOTE 9. OTHER POSTRETIREMENT BENEFITS
The Company provides health care and life insurance benefits to
eligible retired employees. Substantially all employees of the Company
are covered under the Company's postretirement health care and life
insurance plans. The postretirement health care and life insurance
plans are noncontributory as long as the Company's cost per retiree
remains below $300 per month ($600 per family per month). Generally,
the health care plan pays stated percentages of most medical expenses,
reduced for any deductible and payments made by government programs.
The Company recognizes the cost of postretirement benefits over
the active service period of its employees. The adoption of SFAS 106 on
January 1, 1993 increased postretirement benefit expense by $3,000,000
in 1993 and an additional $1,000,000 in 1994. The Company's policy has
been to fund annually the maximum amount of postretirement benefit
expense that can be deducted for federal income tax purposes. Because
of income tax regulations that restrict the deductibility of certain
contributions for postretirement benefits, the Company may elect to make
non-tax deductible contributions to meet funding requirements imposed by
state regulatory commissions. The Company funded $13,254,000 and
$2,429,000 in 1995 and 1994, respectively, through contributions to
restricted trust funds and directly paying postretirement benefit costs
to third parties. The Company anticipates making additional tax
deductible contributions into 401(h) and VEBA trusts for 1996 totalling
approximately $4,000,000. The Company will recognize the transition
obligation, which represents the previously unrecognized prior service
cost, over a period of 20 years. At January 1, 1993, the Company had a
transition obligation of $38,356,000.
The net funded status for the combined plans is shown below (in
thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees and dependents $43,415 $37,119 $40,601
Fully eligible active plan participants 11,677 11,089 11,080
Other active plan participants 26,498 22,198 25,262
------ ------ ------
APBO 81,590 70,406 76,943
Plan assets at fair value, primarily listed
stocks and bonds (21,977) (8,503) (8,682)
------ ------ ------
APBO in excess of plan assets 59,613 61,903 68,261
Unrecognized transition obligation (29,579) (34,521) (36,438)
Unrecognized prior service cost 552 675 742
Unrecognized net loss from changes in assumptions (6,853) (1,666) (13,419)
------ ------ ------
Accrued postretirement benefit cost $23,733 $26,391 $19,146
====== ====== ======
-24-
<PAGE>
Net periodic postretirement benefit cost included the following components (in thousands):
1995 1994 1993
------ ------ ------
Service cost $2,030 $2,307 $1,835
Interest cost on accumulated postretirement
benefit obligation 5,891 5,836 5,055
Actual return on plan assets (1,902) 180 (233)
Amortization of transition obligation over 20 years 1,844 1,918 1,918
Net amortization and deferral 1,010 (620) 77
----- ----- -----
Net periodic postretirement benefit cost $8,873 $9,621 $8,652
===== ===== =====
Assumptions used to develop the accumulated postretirement benefit obligation information
were:
1995 1994 1993
------ ------ ------
Discount rate 7.25% 8.50% 7.50%
Estimated long-term rate of return on assets 9.00 9.00 9.00
Health care cost trend rate-under 65 11.00 11.00 14.00
Health care cost trend rate-over 65 10.00 10.00 10.00
Ultimate health care cost trend rate 4.50 5.50 5.00
</TABLE>
The assumed health care cost trend rates gradually decrease over
nine years. The health care cost trend rate assumptions have a
significant effect on the amounts reported. Increasing the assumed
health care cost trend rate by one percentage point would increase the
postretirement benefit obligation as of December 31, 1995 by
$2,238,000, and the annual net periodic postretirement benefit costs by
$267,000.
In August 1995, the Company sold Alascom to AT&T Corp. (Note 16).
As a result of this sale, the Company recognized a one time pre-tax
curtailment loss of $1,401,000. This loss was included in "Gain on sale
of subsidiaries and investments."
The Company's long-term portion of the accrued postretirement
benefit cost appears in "Other long-term liabilities" and the current
portion of the accrued postretirement benefit cost appears in "Accrued
liabilities" on the balance sheet at December 31, 1995.
NOTE 10. INVESTMENTS
The investment balances, which included interest bearing advances
of $5,000,000 and $4,000,000 at December 31, 1995 and 1994,
respectively, are summarized as follows:
December 31,
-------------------
1995 1994
------ ------
(in thousands)
Equity investments:
Cellular partnerships (a) $110,223 $106,270
Other equity investees 1,500 1,585
Cost investments:
Cellular partnerships 767 767
Other 12,065 14,988
------- -------
$124,555 $123,610
======= =======
(a) Cellular partnerships include goodwill of $23,150,000 in 1995 and
$23,814,000 in 1994, which is net of accumulated amortization of
$3,432,000 and $2,767,000, respectively.
-25-
<PAGE>
NOTE 11. SHORT-TERM DEBT
Short-term debt consisted of outstanding notes payable under
borrowing arrangements with various banks and other lenders.
Information regarding short-term debt follows:
<TABLE>
<CAPTION>
At December 31, During the Year
------------------ ------------------------------------
Average Average
Interest Maximum Average Interest
Balance Rate Outstanding Outstanding Rate
------- -------- ----------- ----------- --------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C>
1995
NOTES PAYABLE - BANKS $90,000 5.9% $242,166 $118,874 6.2%
NOTES PAYABLE - OTHER - - 8,845 3,655 8.2
1994
Notes payable - banks $12,000 6.8% $ 20,000 $ 9,292 5.0%
Notes payable - other 9,713 8.4 11,713 5,164 5.6
1993
Notes payable - banks $18,000 3.4% $165,844 $ 65,955 3.8%
Notes payable - other 6,903 3.6 6,903 1,151 3.4
</TABLE>
The average interest rate is calculated by dividing the actual
short-term interest expense by the average daily weighted balance of
short-term debt outstanding for the year.
NOTE 12. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
1995 1994
------ ------
(in thousands)
<S> <C> <C>
2%-11.8% First mortgage notes payable under U.S. Government-
sponsored loan programs, maturities through 2028 $137,173 $142,766
9.5% First mortgage notes, maturities through 1999 6,039 16,307
8%-12% Unsecured notes, maturities through 2007 23,325 24,025
7.3%-9.4% Unsecured medium-term notes, maturities through 2006 223,500 184,500
6.1% Commercial paper (b) 50,000 -
5.9% Other available banking arrangements (b) 25,000 25,000
------- -------
Total 465,037 392,598
Less current maturities 5,535 15,601
------- -------
Total long-term debt $459,502 $376,997
======= =======
</TABLE>
(a) The weighted average cost of long-term debt outstanding at
December 31, 1995 was 7.3 percent. The Company has small amounts
of debt which have higher rates than prevailing interest rates due
to prepayment restrictions.
-26-
<PAGE>
(b) Based upon management's intent and the Company's ability to
support the debt on a long-term basis through its revolving
credit agreement, $50,000,000 of commercial paper and $25,000,000
of borrowings under other available banking arrangements at
December 31, 1995, were classified as long-term debt.
The Company has a $300,000,000 revolving credit agreement.
Borrowings under the revolving credit agreement bear interest at rates
based on bids from participating banks, certain prime rates, interbank
borrowing rates or certificate of deposit rates. The revolving credit
agreement has been renewed for a term ending in November 1999. Annual
commitment fees on the revolving credit agreement are currently .125
percent of the total authorized amount. Funds that could be borrowed
under the revolving credit agreement at December 31, 1995 were
$300,000,000.
At December 31, 1995, approximately $611,779,000 of
"Telecommunications plant in service" was pledged as collateral under
various loan agreements. Certain agreements also contain provisions
restricting the payment of cash dividends. At December 31, 1995,
consolidated retained earnings available for dividends and other
distributions were $231,234,000, all of which were available from the
retained earnings of subsidiaries.
Long-term debt maturing annually within each of the four years
subsequent to 1996 is as follows: 1997 - $15,806,000; 1998 -
$29,049,000; 1999 - $92,344,000; 2000 - $6,614,000.
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments
are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
---------------------- ----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Cash and temporary investments and
net trade accounts (a) $ 80,698 $ 80,698 $ 51,177 $ 51,177
Investments at cost (Note 10) (b) 12,832 13,326 15,755 15,927
Long-term debt and notes payable
(Notes 11 and 12) (c) 555,037 578,024 414,311 405,562
</TABLE>
(a) The carrying amount approximates fair value because of the short
maturity of these instruments.
(b) The fair values of the other investments are estimated based on
quoted market prices for these or similar investments, or the
investment's ability to return cash to the Company through
operations or through the sale of the investment.
(c) The fair value of the Company's long-term debt is estimated using
the discounted cash flow method based on the quoted market rates
and prices for the same or similar issues of the same remaining
maturities. The discount rate is determined using U.S. Treasury
rates plus the average spread for the Company quoted by several
dealers. Prepayment penalties and other costs of debt retirement
are not reflected in these estimates.
-27-
<PAGE>
NOTE 14. COMMITMENTS AND CONTINGENCIES
In December 1995, the Company signed an agreement with US WEST
Communications, Inc. (USWC) under which the Company agreed to purchase
certain local telephone exchange assets in Minnesota for approximately
$103,000,000. Completion of this transaction will be dependent upon
appropriate regulatory approvals, expected to be received during 1996.
Expenditures under the Company's 1996 construction and capital
expenditure program are expected to approximate $113,900,000. There are
currently no long-term construction projects underway.
The Company is a party to various legal claims, actions and
complaints. Although the ultimate resolution of legal proceedings
cannot be predicted with certainty, management believes that disposition
of these matters will not have a material adverse effect on the
Company's consolidated financial statements.
NOTE 15. ACQUISITIONS
During 1995, the Company closed transactions in Colorado,
Washington and Oregon to acquire local exchange properties from USWC.
On February 15, 1995, the Company purchased assets in Colorado
representing 45 local exchanges serving approximately 53,000 access
lines for $202,070,000. On September 30, 1995, the Company purchased
assets in Washington representing 26 local exchanges serving
approximately 20,000 access lines for $92,794,000. On October 20, 1995,
the Company purchased assets in Oregon representing 23 exchanges serving
approximately 17,000 access lines for $81,500,000. These purchase
prices were based on a multiple of net book value of USWC assets
acquired with certain purchase price adjustments calculated at closing.
Funds used for the purchases were provided from proceeds received in the
sale of Alascom (Note 16), issuance of medium-term notes and short-term
borrowings.
Note 16. Sale of Alascom, Inc.
On August 7, 1995, the Company sold its Alaska long distance
communication subsidiary, Alascom, Inc. (Alascom), to AT&T Corp. (AT&T).
The Company received total cash proceeds of $365,500,000 paid in three
payments and recognized an after-tax gain of $66,376,000. In July 1994,
AT&T paid a $75,000,000 transition payment to Alascom that PTI retained.
In October 1994, AT&T paid a $30,000,000 down payment at the time
of the signing of the sale agreement. This amount was shown in "Other
long-term liabilities" until the sale closure. The remaining
$260,500,000 were paid at closing. The Company used the proceeds to
fund the acquisitions closed in 1995 (Note 15). The Company agreed to
provide accounting, data processing and human resource service support
for up to 15 months for certain services following the sale to allow for
a smooth transition in exchange for telecommunications equipment that
the Company intends to incorporate in its LEC operations.
-28-
<PAGE>
Condensed financial information for Alascom is as follows:
December 31, 1994
-----------------
(in thousands)
Current assets $ 82,680
Net plant 185,527
Other assets 7,509
-------
Total assets $275,716
=======
Current liabilities $ 69,872
Long-term liabilities 9,383
Equity 196,461
-------
Total liabilities and equity $275,716
=======
Seven months Twelve months
ended July 31, ended December 31,
----------------------
1995 1994 1993
-------------- ---- ----
(in thousands)
Operating revenues $193,126 $343,506 $337,843
Operating income 36,914 80,651 59,454
NOTE 17. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1995 and 1994 are as follows:
Three Months Ended Dec. 31 Sept. 30 June 30 March 31
------------------ ------- -------- ------- --------
(in thousands)
1995
----
OPERATING REVENUES $131,100 $143,441 $192,344 $181,711
OPERATING INCOME 40,479 39,184 45,493 40,155
NET INCOME 18,175 84,250 20,412 16,727
1994
----
Operating revenues $174,186 $194,448 $170,541 $165,787
Operating income 40,246 54,952 34,782 34,661
Net income 18,284 29,681 17,634 15,800
-29-
<PAGE>
Decreased revenues and operating income in the third and fourth
quarters of 1995 and increased net income in the third quarter of 1995
resulted from the sale of Alascom (Note 16).
Increased net income in the third quarter of 1994 resulted from the
settlement of all open revenue studies relating to the Joint Services
Agreement, which resulted in long lines interstate revenue increases of
$18,706,000.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
---------------------------------------------------------------
No information is required to be reported pursuant to this item.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
<TABLE>
<CAPTION>
Page References
---------------
<S>
<C>
(a) The following documents are filed under Item 8 of this Report.
(1) Index to Consolidated Financial Statements:
Independent Auditors' Report
11
Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993
12
Consolidated Balance Sheets at December 31, 1995 and 1994
13 - 14
Consolidated Statements of Changes in Shareholder's Equity
for the years ended December 31, 1995, 1994 and 1993
15
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993
16
Notes to Consolidated Financial Statements
17 - 30
</TABLE>
(2) Supplemental Schedules*
* All schedules have been omitted because of the absence of the
conditions under which they are required or because the required
information is included elsewhere in the financial statements filed
under Item 8 in this Report.
-30-
<PAGE>
(3) Exhibits:
2 Agreement for Purchase and Sale of Exchanges between US WEST
Communications, Inc., Northland Telephone Company and the Registrant dated
December 15, 1995.
2A Agreement for Purchase and Sale of Exchanges between US WEST
Communications, Inc. and the Registrant dated August 30, 1993.
(Incorporated by reference to Exhibit 2 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993, File No. 0-873.)
2B Agreement for Purchase and Sale of Exchanges between US WEST
Communications, Inc., Telephone Utilities of Eastern Oregon, Inc. and the
Registrant dated May 5, 1994. (Incorporated by reference to Exhibit 2A of
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1994, File No. 0-873.)
2C Agreement for Purchase and Sale of Exchanges between US WEST
Communications, Inc., Telephone Utilities of Washington, Inc. and the
Registrant dated May 5, 1994. (Incorporated by reference to Exhibit 2B of
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1994, File No. 0-873.)
2D Stock Purchase Agreement by and among AT&T Corp. and the Registrant dated
October 1, 1994. (Incorporated by reference to Exhibit 2C of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994, File No. 0-873.)
2E Agreement and Plan of Merger, dated as of March 9, 1995, by and among
Pacific Telecom, Inc., PacifiCorp Holdings, Inc. and PXYZ Corporation.
(Incorporated by reference to Exhibit 2A of the Registrant's Current
Report on Form 8-K dated March 9, 1995, File No. 0-873.)
2F Agreement dated as of March 9, 1995, by and between PacifiCorp and Pacific
Telecom, Inc. (Incorporated by reference to Exhibit 2B of the Registrant's
Current Report on Form 8-K dated March 9, 1995, File No. 0-873.)
3 Restated Articles of Incorporation of the Registrant, as amended June 13,
1990. (Incorporated by reference to Exhibit 3A of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1990, File
No. 0-873.)
3A Bylaws of the Registrant, as amended and restated effective April 30,
1994. (Incorporated by reference to Exhibit 3B of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994, File No. 0-873.)
4 Indenture dated as of September 20, 1991, between the Company and The
First National Bank of Chicago, as Trustee for the Series B and C
Medium-term Notes. (Incorporated by reference to Exhibit 4 of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1991, File No. 0-873.)
In reliance upon Item 601(4)(iii) of Regulation S-K, various instruments
defining the rights of holders of long-term debt of the Registrant and its
subsidiaries are not being filed because the total amount authorized under each
such instrument does not exceed 10 percent of the total assets of the Registrant
and its subsidiaries on a consolidated basis. The Registrant hereby agrees to
furnish a copy of any such instrument to the Commission upon request.
-31-
<PAGE>
*10A Executive Bonus Plan, dated October 26, 1990. (Incorporated by reference
to Exhibit 10B of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990, File No. 0-873.)
10B Intercompany Borrowing Agreement between the Registrant, Inner PacifiCorp,
Inc. (now PacifiCorp Holdings, Inc.) and certain other affiliated
companies dated as of April 1, 1991. (Incorporated by reference to
Exhibit 10A of the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1991, File No. 0-873.)
10C Management Services Agreement between the Registrant and Pacific Power &
Light Company. (Incorporated by reference to Exhibit 10D of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1980, File No. 0-873.)
*10D PacifiCorp Supplemental Executive Retirement Plan 1988 Restatement.
(Incorporated by reference to Exhibit 10(q) of PacifiCorp's Form 10-K for
the year ended December 31, 1987, File No. 1-5152.)
*10E PacifiCorp Long-Term Incentive Plan 1994 Restatement. (Incorporated by
reference to Exhibit 10G of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994, File No. 0-873.)
*10F Form of Restricted Stock Agreement under the PacifiCorp Long-Term
Incentive Plan 1994 Restatement. (Incorporated by reference to Exhibit
10H of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994, File No. 0-873.)
10G Credit Agreement dated as of November 13, 1991. (Incorporated by
reference to Exhibit 10M of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1991, File No. 0-873.)
*10H Executive Deferred Compensation Plan dated as of January 1, 1994 as
amended. (Incorporated by reference to Exhibit 10L of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994, File No.
0-873.)
*10I Executive Officer Severance Plan dated as of January 1, 1994.
(Incorporated by reference to Exhibit 10N of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994, File No. 0-873.)
10J Second Amendment to the Credit Agreement dated November 29, 1994.
(Incorporated by reference to Exhibit 10O of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994, File No. 0-873.)
12 Statements re Computation of Ratios.
23 Independent Auditors' Consent
- -----------
* This exhibit constitutes a management contract or compensatory plan or
arrangement.
(b) Reports on Form 8-K.
None
-32-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PACIFIC TELECOM, INC.
March 22, 1996 By JAMES H. HUESGEN
- ----------------- ----------------------------
(Date) James H. Huesgen
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE AND CAPACITY DATE
---------------------- ----
CHARLES E. ROBINSON March 22, 1996
------------------------------------
(Charles E. Robinson)
Chairman, President, Chief Executive
Officer and Director
JAMES H. HUESGEN March 22, 1996
- -------------------------------------
(James H. Huesgen)
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
DONALD A. BLOODWORTH March 22, 1996
- -------------------------------------
(Donald A. Bloodworth)
Vice President, Revenue
Requirements and Controller
-33-
<PAGE>
SIGNATURE AND CAPACITY DATE
---------------------- ----
MICHAEL C. HENDERSON March 22, 1996
- -------------------------------------
(Michael C. Henderson)
Director
NOLAN E. KARRAS March 22, 1996
- -------------------------------------
(Nolan E. Karras)
Director
NANCY WILGENBUSCH March 22, 1996
- -------------------------------------
(Nancy Wilgenbusch)
Director
-34-
<PAGE>
AGREEMENT FOR
PURCHASE AND SALE
OF EXCHANGES
DATED AS OF DECEMBER 15, 1995
BETWEEN
NORTHLAND TELEPHONE COMPANY
D/B/A PTI COMMUNICATIONS
A WHOLLY-OWNED SUBSIDIARY OF PACIFIC TELECOM, INC.,
PACIFIC TELECOM, INC.
AND
U S WEST COMMUNICATIONS, INC.
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF EXCHANGES
This Agreement for Purchase and Sale of Exchanges ("Agreement") is made
and entered into as of the 15th day of December, 1995 by and between U S WEST
Communications, Inc., a Colorado corporation ("Seller"), and Northland
Telephone Company, d/b/a PTI Communications, a corporation organized and
existing under the laws of the State of Minnesota, a wholly-owned subsidiary
of Pacific Telecom, Inc. ("Buyer") and Pacific Telecom, Inc., ("PTI").
RECITALS
A. Seller currently has certain rights to provide and operate wireline
telecommunication services and owns certain assets used to provide
such services in Minnesota, pursuant to a grant of operating authority
issued by the Minnesota Public Utilities Commission ("MPUC"), which
have been offered for sale.
B. Buyer desires to acquire the right to provide and operate wireline
telecommunication services and to purchase certain of Seller's assets
in the telephone exchanges, listed in Exhibit A, in the State of
Minnesota (the "Exchanges"), and Seller wishes to sell, assign and
transfer the aforesaid right to provide and operate the wireline
telecommunication service and assets in the Exchanges to Buyer.
C. Each defined term shall have the meaning set forth in this Agreement where
such term is first used or, if no definition is so set forth, the
meaning set forth in the "Glossary of Terms," attached hereto and
incorporated orherein by this reference.
NOW, THEREFORE, for and in consideration of the foregoing and the mutual
covenants and agreements set forth in this Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Seller and Buyer, agree as follows:
<PAGE>
ARTICLE 1
PURCHASE AND SALE OF ASSETS
1.1 Sale and Transfer. Upon the terms and subject to the
_________________
conditions hereinafter set forth, Seller agrees to sell, convey, transfer,
assign and deliver all of the Exchanges and Assets, except for the Excluded
Assets, to Buyer, and Buyer agrees to purchase and receive the Exchanges and
Assets from the Seller and assume Liabilities after the Closing Date.
1.2 Purchase Price. Buyer shall pay to Seller as consideration
______________
for the transfer of the right to provide and operate wireline
telecommunication service in the Exchanges and sale of the Assets, a total
purchase price of One Hundred Three Million Dollars ($103,000,000) (the
"Purchase Price").
1.3 Payment. The Purchase Price shall be paid as follows:
_______
A. Earnest Money. On the execution date of this Agreement,
_____________
or three (3) business days thereafter, Buyer shall deposit, in a financial
institution acceptable to Seller, an amount equal to Five Million Dollars
($5,000,000) (the "Earnest Money") in the form of a wire transfer of federal
funds payable to the order of Seller, for disposition in accordance with the
terms of this Section. Buyer shall be responsible for all fees and costs
associated with the Earnest Money. At Closing, the Earnest Money and
interest accrued thereon, shall be applied towards the payment of the
Purchase Price. In the event Buyer fails to finalize the transaction for any
reason, except as set forth in Sections 8.1 or 8.3(ii), and in view of the
difficulty of determining the amount of damages which may result to Seller
from such failure to finalize the Agreement, Buyer and Seller have mutually
agreed that the Earnest Money shall be delivered to Seller as liquidated
damages, and not as a penalty, and this Agreement shall thereafter become
null and void. In the event Seller fails to finalize the transaction, except
as set forth in Sections 8.2 or 8.3(ii), then Seller shall, as soon as
reasonably practicable thereafter and upon Buyer providing reasonable proof
thereof, reimburse Buyer for all of its reasonable costs and fees incurred
from and after the
<PAGE>
execution date of this Agreement, not to exceed Two Hundred Thousand Dollars
($200,000), in negotiating and seeking Governmental Approval for this
transaction, and this Agreement will thereafter become null and void. In
the event the transaction is not finalized for reasons set forth in Section
8.1 or 8.3(ii), Buyer shall receive the Earnest Money and interest accrued
thereon.
B. Remaining Balance. On the Closing Date, the Purchase Price,
_________________
minus the Earnest Money, plus or minus the adjustments, as set forth in
Section 1.3(C), shall be payable to Seller by wire transfer of immediately
available funds to such bank account(s) as Seller shall designate prior to
Closing.
C. Adjustment to the Purchase Price. Any taxes, utilities,
________________________________
leases and such other items as shall be mutually agreed upon shall be
prorated as of the Closing Date and the Purchase Price shall be adjusted by
such proration multiplied by a factor of 1.0.
1.4. Appraisal of the Assets. No later than sixty (60) days
_______________________
after Closing, the Buyer and Seller shall mutually agree to the appraised
value of the depreciable tangible Assets.
1.5. Allocation of the Purchase Price. The Purchase Price for
________________________________
the Assets, the covenants set forth in Section 6.2(H), and grant of
operating authority (which includes, but is not limited to all applicable
state and federal certificates, licenses, or franchises necessary for
operating the Business) shall be allocated as mutually agreed upon between
Buyer and Seller no later than sixty (60) days after Closing. In addition,
it is understood and agreed between Buyer and Seller that the Purchase
Price reflects among other things the availability of additional revenue
sources (excluding those amounts obtained under traditional regulatory
practices) to support the operation of the Exchanges. Such allocation shall
provide, by line item, proration for taxes, utilities, leases, and such other
items as shall be mutually agreed to between Buyer and Seller.
1.6. Excise Taxes and Recording Costs. Buyer shall pay the excise
________________________________
taxes in accordance with Sections 297A of the Minnesota
<PAGE>
Revised Code. Buyer shall pay any and all recording fees, notarial fees and
other similar costs of Closing incurred in connection with the sale, transfer,
or assignment of the Exchanges and Assets or otherwise on account of this
Agreement or the transaction contemplated hereby.
1.7. Guaranty. PTI guarantees Buyer's obligations and ability to pay
________
the Purchase Price and Buyer's performance under this Agreement.
ARTICLE 2
CLOSING
2.1 Closing. The Closing of the purchase and sale of Exchanges
_______
and Assets (the "Closing") shall take place at Seller's offices at 10:00
o'clock a.m., local time, on the second Tuesday of the second full month
following the satisfaction or waiver of all the conditions precedent to
Closing set forth in Section 3 or on such other date as the parties
mutually agree but in no event later than the second anniversary date of
this Agreement. The date that the Closing actually occurs is referred
to as the "Closing Date." If the Closing is postponed, all references to
the Closing Date in this Agreement shall refer to the postponed date.
2.2 Documents to be Delivered by Seller to Buyer. At or prior to
____________________________________________
the Closing, Seller will deliver to Buyer:
A. certified copies of all Seller's resolutions pertaining to the
authorizations of this Agreement and the consummation of the transaction
contemplated herein by Seller;
B. duly executed bills of sale, assignments, and other instruments
of transfer, in form sufficient to convey to Buyer all of the rights, title
and interest of Seller in and to the Assets in accordance with the terms
hereof;
C. a certificate of Seller certifying as to the accuracy of
Seller's representations and warranties at and as of the
<PAGE>
Closing and that Seller has materially performed and complied with all of
the terms, provisions and conditions to be performed and complied with at or
before the Closing, the form of which shall be mutually agreed upon between
Seller and Buyer and furnished at least 30 days prior to the Closing;
D. a certificate of Seller certifying as to certain corporate
matters with respect to Seller, together with all of the attachments
referred to therein, the form of which shall be mutually agreed upon between
Seller and Buyer and furnished at least 30 days prior to the Closing;
E. the opinion of counsel to Seller, dated as of Closing Date, the
form of which will be furnished to Buyer at least 30 days prior to the
Closing; and
F. such other certificates and documents as Buyer or its counsel may
reasonably request.
2.3 Documents to be Delivered by Buyer to Seller. At or prior to the
_______________________________________________
Closing, Buyer will deliver to Seller:
A. the payment of the Purchase Price;
B. certified copies of all Buyer's resolutions pertaining to the
authorization of this Agreement and the consummation of the transactions
contemplated herein by Buyer;
C. a certificate of Buyer certifying as to the accuracy of Buyer's
representations and warranties at and as of the Closing and that Buyer has
materially performed and complied with all of the terms, provisions and
conditions to be performed and complied with it at or before the Closing,
the form of which shall be mutually agreed upon between Buyer and Seller and
furnished at least 30 days prior to the Closing;
D. a certificate of Buyer certifying as to certain corporate matters,
together with all of the attachments referred to therein, the form of which
shall be mutually agreed upon
<PAGE>
between Buyer and Seller and furnished at least 30 days prior to the Closing;
E. the opinion of counsel to Buyer, dated as of the Closing Date,
the form of which will be furnished to Seller at least 30 days prior to the
Closing; and
F. such other certificates and documents as Seller or its counsel
may reasonably request.
2.4 Documents to be Delivered by Seller and Buyer to Each Other. At or
____________________________________________________________
prior to the Closing, Seller and Buyer will execute and deliver or cause to
be executed and delivered to each other the Agreements set forth in Schedule
2.4, regarding the Exchanges, upon mutually agreed terms and conditions.
2.5 Further Assurance. Except as otherwise provided herein, all
_________________
instruments of conveyance, assignment or transfer referred to herein, all
sums of money, and all records and data to be delivered as specified in this
Agreement shall be delivered at Closing (or if previously delivered so
acknowledged). The transfer of telecommunications service from Seller to
Buyer shall occur at 11:59 p.m. on the Closing Date or as otherwise mutually
agreed.
ARTICLE 3
CONDITIONS
3.1 Conditions to Buyer's Obligations. The obligation of Buyer to
_________________________________
consummate the transactions contemplated by this Agreement shall be subject
to the satisfaction, on or prior to the Closing Date, of each of the
following conditions, any of which may, be waived by Buyer:
A. Representations and Warranties. All representations and warranties
______________________________
of Seller made in this Agreement shall be true and correct in all material
respects on and as of the Closing Date as though made at such time, other
than changes contemplated by this Agreement or approved by Buyer in writing,
and there shall have
<PAGE>
been delivered to Buyer a certificate of Seller to that effect, dated as of
the Closing Date, signed by an authorized officer of Seller.
B. Covenants. Seller shall have performed and complied in all
_________
material respects with all covenants and agreements required by this
Agreement to be performed by it on or prior to the Closing Date.
C. Consents. All authorizations, consents and approvals of, filings
________
and registrations with, and notifications to (collectively "Governmental
Approvals") any United States, state, or local governmental entity or
municipality or subdivision thereof or any authority, department, MPUC,
board, bureau, agency, court or instrumentality thereof the FCC, NECA,
or RUS (collectively, "Governmental Authorities") necessary to consummate
the transaction contemplated shall have been obtained or made and shall be
in full force and effect. The terms and conditions of all Governmental
Approvals shall be acceptable to Buyer, in Buyer's sole discretion.
D. No Governmental or Other Proceeding or Litigation. No preliminary or
_________________________________________________
permanent injunction or other order or decree by any Governmental Authority
shall have been issued and remain in effect which prevents the transactions
contemplated by this Agreement, or which could reasonably be expected to have
a material adverse effect on the Exchanges and Assets, nor shall there have
been instituted any action or proceeding by any Governmental Authority, nor
shall there have been instituted any action or proceeding by any other person
challenging the acquisition by Buyer or the sale by Seller of the Exchanges
and Assets, or otherwise seeking to restrain or prohibit the consummation of
the transaction contemplated hereby, or seeking material damages in
connection therewith, or which could reasonably be expected to have a
material adverse effect on the Exchanges and Assets.
E. Hart-Scott-Rodino Act. All filings required to be made under the
_____________________
Hart-Scott-Rodino Act ("H-S-R") shall have been made,
<PAGE>
and the waiting period thereunder shall have expired or early termination
thereof shall have been granted.
F. Certificates; Documents. Seller shall have delivered the
________________________
certificates, opinions of counsel and other documents required by Sections
2.2 and 2.4.
3.2 Conditions to Seller's Obligations. The obligations of Seller to
__________________________________
consummate the transactions contemplated by this Agreement shall be subject
to the satisfaction, on or prior to the Closing Date, of each of the
following conditions, any of which may be waived by Seller:
A. Representations and Warranties. All representations and warranties
______________________________
of Buyer made in this Agreement shall be true and correct in all material
than respects on and as of the Closing Date as though made at such time,
other changes contemplated by this Agreement or approved by Seller in writing,
and there shall have been delivered to Seller a Certificate of Buyer to
that effect, dated the Closing Date, signed by authorized officers of Buyer.
B. Covenants. Buyer shall have performed and complied in all material
_________
respects with all covenants and agreements required by this Agreement to be
performed by it on or prior to the Closing Date.
C. Consents. All Governmental Approvals of any Governmental Authority
________
necessary to consummate the transaction contemplated hereunder shall have
been obtained or made and shall be in full force and effect. The terms
and conditions of all Governmental Approvals must be acceptable to Seller,
in Seller's sole discretion.
D. No Governmental Proceeding or Litigation. No preliminary or permanent
________________________________________
injunction by any Government Authority shall have been issued and remain in
effect which prevents or delays the transactions contemplated by this
Agreement, nor shall there have been instituted any actions or proceeding by
any Governmental Authority, nor shall there have been instituted any action
or proceeding by any other person challenging the
<PAGE>
acquisition by Buyer or the sale by Seller of the Exchanges and Assets
or otherwise seeking to prohibit the consummation of the transaction
contemplated hereby or seeking material damages in connection therewith.
E. H-S-R Act. All filings required to be made under the
_________
H-S-R Act shall have been made, and the waiting period thereunder shall have
expired or early termination thereof shall have been granted.
F. Corporate Approvals. This transaction shall have received all necessary
___________________
corporate and Board of Director approval(s)on or before January 19, 1996.
G. Certificates; Documents. Buyer shall have delivered the Certificates,
_______________________
Opinion of Counsel and other documents required by Section 2.3 and Buyer
shall have delivered the agreements required by Section 2.4.
ARTICLE 4
ENVIRONMENTAL CONDITIONS; EXCHANGES AND ASSETS "AS IS"
4.1 Central Office; Asbestos, Hazardous Materials. Buyer acknowledges
_____________________________________________
that it knows that the central office buildings and adjacent structures,
including but not limited to the Central Office site, garages and parking
lots, (the "Central Offices") appurtenances, facilities and improvements
thereon of the Exchanges and Assets may have been found to contain asbestos-
containing materials, and that Buyer has independently investigated the
presence of asbestos-containing materials in the Central Offices. In
addition, Buyer acknowledges that it knows that the Central Office and
equipment may contain Hazardous Materials. Buyer also acknowledges that
it is aware that certain Hazardous Materials are used in maintenance and
operations related to the equipment and related to the Property, and that
such Hazardous Materials may be present in the Central Offices. Except
as expressly provided for in this Agreement, SELLER HEREBY DISCLAIMS
ALL WARRANTIES, WHETHER EXPRESSED OR IMPLIED, WITH
<PAGE>
REGARD TO THE CONDITION OR SAFETY OR PRESENCE OF HAZARDOUS MATERIALS AND
ASBESTOS IN SAID CENTRAL OFFICES.
Except as provided for in Section 6.3(H), Buyer agrees to take the
Exchanges and Assets "AS IS" and without any warranty of merchantability or
fitness or any other warranties expressed or implied as it relates to the
environmental condition of the Central Offices. Except as provided for in
Section 6.3(H), Buyer understands and agrees that any responsibility for
compliance with Environmental Laws applicable to the ownership or use of the
Central Offices following the Closing, including the costs of any remediation
or cleanup associated with the Central Offices, or environmental Claim or
Liability associated with the Central Offices, irrespective of when
contamination occurred, is assumed by Buyer at the Closing. Except as
provided for in this Agreement, BUYER UNDERSTANDS THAT THE SELLER MAKES NO
REPRESENTATIONS, WARRANTIES, OR GUARANTEES, WHETHER EXPRESS OR IMPLIED, OF
ANY KIND, NATURE OR TYPE WHATSOEVER WITH RESPECT TO THE CENTRAL OFFICES, OR
THE VALUE, MARKETABILITY, FEASIBILITY, DESIRABILITY OR ADAPTABILITY THEREOF
OR THE COMPLIANCE WITH ENVIRONMENTAL LAWS. Buyer has made all legal, factual
and other inquiries and investigations as Buyer deems necessary, desirable or
appropriate with respect to the Central Offices and the appurtenances,
facilities and improvements thereon, and Buyer is purchasing the Central
Offices based on Buyer's or its agent's inspection and examination thereof.
In addition, Buyer has relied on information and documentation provided by
Seller as well as Seller's representations set forth in this Agreement.
Except as it relates to those documents to be provided pursuant to Section
6.3(H), Buyer acknowledges that Seller has informed Buyer of the potential
presence of asbestos-containing materials in the Exchanges and in the Central
Offices as well as other Hazardous Materials, and Buyer acknowledges that the
purchase Price reflects the potential presence of the asbestos-containing
materials and the Hazardous Materials and environmental Claims or Liabilities
that may be associated with the Central Offices.
4.2 Outside Plant. Except as expressly provided for in this Agreement,
____________
Buyer acknowledges that it knows that operations in the outside plant
may trigger certain environmental, industrial
<PAGE>
hygiene and safety concerns relating to Environmental Laws. EXCEPT AS
EXPRESSLY PROVIDED FOR IN THIS AGREEMENT, SELLER HEREBY DISCLAIMS ALL
WARRANTIES, EXPRESS OR IMPLIED, WITH REGARD TO THE CONDITION OR SAFETY OF
SAID OUTSIDE PLANT CONSISTENT WITH PUBLIC POLICY.
Except as expressly provided for in this Agreement, Buyer takes the
outside plant "AS IS" and without any warranty of merchantability or fitness
or any other warranties expressed or implied as it relates to the
environmental condition of the outside plant. Except as provided for
in Section 6.3 (H), Buyer understands and agrees that any responsibility for
compliance with Environmental Laws applicable to the ownership or use of the
Exchanges and Assets following the Closing, including the costs of any
remediation or cleanup associated with the Exchanges and Assets, irrespective
of when contamination occurred, is assumed by Buyer at the Closing. Seller
agrees that all outside plant environmental Claims or Liabilities which are
incurred or based on facts which arise on or before Closing, are the
responsibility of Seller for the time period set forth in Section 7.6. Except
as expressly provided for in this Agreement, Buyer understands that Seller
makes no warranties, representations or guarantees, whether express or
implied, of any kind, nature or type whatsoever with respect to the Exchanges
and Assets or the value, marketability, feasibility, desirability or
adaptability thereof, or the compliance with Environmental Laws. Buyer has
made all legal, factual and other inquiries and investigations as Buyer deems
necessary, desirable or appropriate with respect to the outside plant, and
Buyer is purchasing the Exchanges and Assets based on Buyer's own, or its
agent's inspection and examination thereof. In making such investigation and
inquires, Buyer has relied on information and documentation provided by
Seller as well as Seller's representations expressly set forth in this
Agreement.
4.3 DISCLAIMER, OF WARRANTIES. SELLER HEREBY DISCLAIMS ANY AND ALL
_________________________
REPRESENTATIONS OR WARRANTIES, EXPRESSED OR IMPLIED, EXCEPT AS SPECIFICALLY
SET FORTH HEREIN. SELLER IS NOT WARRANTING THE CONDITION OR USEFULNESS OF
THE EXCHANGES AND ASSETS, OR THEIR VALUE.
<PAGE>
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
5.1 Buyer's Representations and Warranties. Buyer represents and warrants
______________________________________
to Seller that:
A. Organization. Buyer is a corporation duly incorporated, validly
____________
existing and in good standing under the laws of the State of Minnesota. Except
as provided in Section 3.1(G) Buyer has full corporate power and authority to
execute and deliver this Agreement and Buyer has obtained all corporate
approvals necessary to consummate this transaction, and authorize the
execution, delivery and performance of this Agreement and the agreements
and contracts mentioned herein. Neither the execution and delivery of, nor
the consummation of the transaction contemplated herein will result in a
default or an event that would constitute a default, breach or violation of
any contracts involving the Buyer.
B. Authorization, Execution, and Delivery. Except as provided in 3.1(G)
______________________________________
this Agreement and all other agreements and instruments to be executed by
Buyer in connection herewith shall be duly and validly executed and delivered
by Buyer. Except as provided in 3.1(G) this Agreement and the transaction
contemplated hereby, when executed by Buyer, shall constitute a valid and
binding agreement of Buyer enforceable against Buyer in accordance with its
terms except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
relating to creditors' rights generally and by principles of equity.
C. Governmental Authorizations. Except as set forth in Schedule 5.1(C),
___________________________
Buyer's execution and delivery of this Agreement or Buyer's consummation of
the transactions contemplated hereby does not require authorization or
approval of, or filing with, any governmental agency, authority or other body
or any other third persons.
<PAGE>
D. Funds. On the Closing Date, Buyer shall have sufficient funds
_____
available to pay the Purchase Price and to consummate the transaction
contemplated hereby.
E. Litigation. Except as set forth in Schedule 5.1(E), to the best of
__________
Buyer's knowledge, there are no Claims, either at law or in equity, on or
before any Governmental Authority, of any kind now pending or threatened or
could reasonably form the basis of any such Claim involving Buyer or any of
its properties or assets that (i) question the validity of this Agreement; or
(ii) seeks to delay, prohibit or restrict in any manner any actions taken or
contemplated to be taken by Buyer under this Agreement.
F. Investigation. Buyer, through its accountants, attorneys, agents,
_____________
employees', and others, has made prior to the Closing, such investigations of
the Exchanges and Assets and of the financial, legal, and other condition and
location of the Exchanges and Assets that it deems necessary or advisable
with respect to the transaction contemplated by this Agreement. Buyer
has diligently requested and has received all information which it has deemed
pertinent, necessary or appropriate to an evaluation of this transaction, and,
except for those documents requested in Schedule 6.3(H), has conducted a
thorough and independent investigation of all material aspects of the
Exchanges and Assets. The Buyer has carefully read and scrutinized all
information provided to it by Seller and its representatives, or which Buyer
has obtained through its independent investigation, and understands the fair
implications of this information. In making such investigation, Buyer has
relied on information and documentation provided by Seller as well as
Seller's representations and warranties expressly set forth in this Agreement.
The Buyer has not received from the Seller or from anyone acting or claiming
to act on behalf of the Seller, any accounting, tax, legal, or other advice
with respect to this transaction, and Buyer is relying solely on advice of
its own accounting, tax, legal, and other advisors. The Buyer has such
knowledge, experience and sophistication in financial and business matters
as to enable it to evaluate all of the merits and risks associated with this
transaction.
<PAGE>
G. Exchanges in Existing Study Areas for USF Purposes. Buyer shall include
__________________________________________________
the Exchanges and Assets in its existing Study Area for USF purposes.
H. Assets "As Is, Where Is". Buyer acknowledges that it is acquiring the
________________________
Exchanges and Assets in their "AS IS, WHERE IS" condition, and without any
warranty of merchantability or fitness or any other warranties expressed or
implied, except as expressly provided herein.
5.2 Seller's Representations and Warranties. Seller represents and
_______________________________________
warrants to Buyer that:
A. Organization. Seller is a corporation duly incorporated, validly
____________
existing and in good standing under the laws of the State of Colorado and has
full power and authority to execute and deliver this Agreement. Seller has
authority to complete the transactions contemplated by this Agreement.
Neither the execution and delivery of, nor the consummation of the transaction
contemplated herein will result in a default or an event that would constitute
a default, breach or violation of any contracts involving the Seller.
B. Authorization, Execution and Delivery. Except as set forth in Section
_____________________________________
3.2(F), this Agreement and all other agreements and instruments to be executed
by Seller in connection herewith shall be duly and validly executed and
delivered by Seller. Except as set forth in Section 3.2(F) this Agreement
and the transaction contemplated hereby, when executed by Seller, shall
constitute a valid, legal, and binding agreement by Seller enforceable
against Seller in accordance with its terms except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to creditors' rights
generally and by principles of equity.
C. Title to Assets. Except as provided in Section 6.2(E), the Assets, at
_______________
the time of Closing, will be owned and transferred by Seller to Buyer free
and clear of all liens, and encumbrances.
<PAGE>
D. Governmental Authorization. Except as set forth in Schedule 5.2(D), no
__________________________
authorization or approval of, or filing with, any governmental agency,
authority or other body or any other third persons will be required in
connection with Seller's execution and delivery of this Agreement or Seller's
consummation of the transactions contemplated hereby except for those
authorizations or approvals which would not have a material adverse impact on
the Buyer's use of the Assets.
E. Litigation. Except as set out in Schedule 5.2(E), to the best of
__________
Seller's knowledge, there are no Claims, either at law or in equity, on or
before any Governmental Authority, of any kind now pending, or threatened,
involving Seller or any of its properties or assets that (i) question the
validity of this Agreement; or (ii) seeks to delay, prohibit or restrict in
any manner any actions taken or contemplated to be taken by Seller under this
Agreement.
F. Tax Matters. All taxesc of any kind whatsoever due and payable by the
___________
Seller with respect to the Exchanges and Assets through the Closing Date will
have been paid in full. There are no liens for federal, state or local taxes
upon the Exchanges or Assets, except for statutory liens for taxes or
assessments not yet delinquent or the validity of which is being contested in
good faith by appropriate proceedings.
Seller has filed or will cause to be filed, all federal, state and local
tax returns and reports of any kind (including, without limitation, income,
franchise, sales, use, excise, employment and real and personal property)
which Seller is obligated to file with respect to the Assets for all periods
up to and including the Closing Date and shall pay all taxes due on such
returns.
G. Offering Memorandum. To the best of Seller's knowledge as of
___________________
September 13, 1994, Sections 3.3.3 and 3.3.4 and 5.2 of Seller's Offering
Memorandum for the Sale of Selected Telephone Exchanges in the State of
Minnesota issued September 13, 1994, as amended, are true and correct in all
material respects.
<PAGE>
ARTICLE 6
COVENANTS
6.1 Covenants of Buyer. Buyer hereby covenants and agrees that from the
__________________
execution date hereof to the Closing Date:
A. Continued Efforts. Buyer will use its continual best efforts to (I)
_________________
cause to be fulfilled and satisfied all of the conditions to the Closing to
be performed or satisfied by Buyer; (ii) cause to be performed all of the
matters required of Buyer at the Closing; and (iii) take such steps and
do all such acts as may be necessary to make all of its warranties and
representations of Buyer true and correct as of the Closing Date with the
same effect as if the same had been made, and this Agreement had been dated,
as of the Closing Date.
B. Cooperation. Buyer agrees to cooperate with Seller with respect to
___________
(I) Seller's assignment to Buyer of the Exchanges and Assets hereunder and
(ii) Seller's restructuring of this transaction as an Internal Revenue Code
sec. 1031 transaction, at no additional expense to Buyer; such cooperation to
include, without limitation, purchase of the Assets from an intermediary
corporation of Seller's choice, and execution of an Assignment and Conditional
Rescission Agreement and such other documents in connection with the
transaction as Seller may reasonably request. If Seller elects to pursue this
transaction as an Internal Revenue Code Sec. 1031 transaction, notwithstanding
anything in this Agreement to the contrary, Seller shall fully indemnify,
defend and hold Buyer harmless from and against any and all liabilities
resulting therefrom, including but not limited to any tax impacts on Buyer or
the Assets, and further provided that Seller shall remain directly and
primarily bound by all other conditions, representations, warranties and
covenants contained herein and remedies related thereto.
C. Contracts. Within thirty (30) days after the execution date of this
_________
Agreement, Seller shall provide to Buyer a schedule of all agreements that
Buyer shall assume, from and after the Closing Date, provided such agreements
are within the normal course of business. In addition, at least thirty (30)
days prior
<PAGE>
to Closing, Seller shall provide Buyer with a final schedule of all agreements
to be reviewed and assumed by Buyer provided such agreements are within the
normal course of business.
D. Accounting Practices. Buyer shall comply with all FCC and State
____________________
Regulatory accounting practices. Buyer will not seek recovery of an
acquisition adjustment through its interstate or intrastate rates including
revenues received from federal or state Universal Service Funds. Provided,
however, that Buyer will not be precluded from recovering an acquisition
adjustment in the interstate jurisdiction, if such recovery becomes possible
as a result of FCC policy.
E. Extended Area Service ("EAS") Arrangement. Buyer agrees to implement
___________________________________________
any future EAS Arrangements in the Exchanges pursuant to MPUC order.
6.2 Covenant of Seller. Seller hereby covenants and agrees that from the
__________________
execution date hereof to the Closing Date:
A. Access to Information and Facilities. Seller will afford Buyer and its
____________________________________
representatives, at Buyers own expense, reasonable access during normal
business hours to all facilities, properties, books, accounts, records,
contracts and documents of or relating to the Exchanges and Assets in Seller's
possession or control. Seller shall exercise its reasonable efforts to
furnish or cause to be furnished to Buyer and its representatives all data
and information concerning the Exchanges and Assets as shall reasonably be
requested or required by Buyer, including, but not limited to, the information
that may be necessary for compliance with Federal Security and Exchange
Commission requirements.
B. Continued Efforts. Seller will use its continual best efforts to: (i)
________________
cause to be fulfilled and satisfied all of the conditions to the Closing to
be performed or satisfied by Seller; (ii) cause to be performed all of the
matters required of Seller at the Closing; and (iii) take such steps and do
such acts as may be necessary to make all of its warranties and
representations true and correct as of the Closing Date with the same effect
as if
<PAGE>
the same had been made, and this Agreement had been dated, as of the Closing
Date.
C. Cooperation. Seller agrees prior to and if necessary after Closing, to
___________
cooperate with Buyer with respect to Seller's assignment to Buyer of the
Assets hereunder.
D. Maintenance of Assets. Seller shall keep all Assets in a normal state
_____________________
of repair and operating efficiency and Seller shall maintain its books and
records in the normal and usual manner applied on a consistent basis.
E. Real Property. Seller shall convey, by Quit Claim Deed or if recognized
_____________
in Minnesota a Special Warranty Deed, its real property located in the
Exchanges to Buyer, together with the rights of ways which are by their terms
assignable; provided, however, that in the event Seller's facilities are
located in any right- of-way to be transferred hereunder, the right-of-way
shall be treated as joint use property.
F. Consent to Assignment. To the extent that the assignment of any
_____________________
contract or any permit shall require the consent of another person, this
Agreement shall not constitute an agreement to assign the contract or permit
if an attempted assignment would constitute a breach thereof. Seller shall
use its reasonable efforts to obtain the consent of any other party to a
contract, or the issuer of a permit or the assignment thereof to Buyer. If
any such consent is not obtained, to the extent permitted by applicable law,
Seller shall cooperate with Buyer to provide for Buyer the benefit under
such contract or permit, including enforcement, at the cost of and for the
benefit of Buyer, of any and all rights of Seller against any other Party.
G. Closing Report. Seller shall prepare and deliver to Buyer, within
______________
sixty (60) days after Closing, a report for the limited purpose of assisting
Buyer in establishing the closing Net Book Value of the Assets, as of the
Closing Date.
H. Wireline Telecommunications. Seller shall not install (except that
___________________________
Buyer and Seller have agreed that Seller may install
<PAGE>
fiber optic and other facilities which transit through the Exchanges to other
locations) or operate, in the Exchanges, any wireline telecommunications
physical plant providing comparable services to those which are in place on
the execution date of this Agreement, for a period of three (3) years from
the Closing.
6.3 Mutual Covenants.
________________
A. Confidentiality. Each party to this Agreement agrees to hold all
_______________
Confidential Information (as defined in the "Glossary of Terms"), whether
received before or after entering into this Agreement, in confidence for a
period of two (2) years from the Closing Date, and agrees that during such
period each party will use the same solely for the purposes of this Agreement.
Each party agrees to make no more copies of such Confidential Information than
is reasonably necessary for the purposes, consistent with this Agreement, for
which it will be used. Each party agrees that it will not make disclosure of
any such Confidential Information received from the other party to anyone
except as specifically permitted by this Agreement and as required by law,
including but not limited to Securities and Exchange Commission. Each party
may disclose Confidential Information to its employees to whom disclosure is
necessary for the purposes set forth above, provided that the disclosing party
shall notify each such employee that disclosure is made in confidence and
instructs such employees that such Confidential Information shall be kept in
confidence by such employee in accordance with this Agreement. Furthermore,
each party may disclose such Confidential Information to consultants and
attorneys engaged by such party, to partners and prospective partners, and to
lenders, but only pursuant to a written confidentiality agreement with such
consultants and attorneys, partners, prospective partners, and lenders the
terms of which are substantially the same as this Section 6.3(A), except that
according to such confidentiality agreement no further disclosure of the
Confidential Information shall be permitted. Each party also agrees that it
will make requests for Confidential Information of the other only if necessary
to accomplish the purposes set forth in this Agreement. The obligations set
forth herein shall be satisfied by each party through the exercise of
<PAGE>
the same degree of care used to protect its own information of like
importance.
If the sale contemplated by this Agreement is not consummated for any
reason, each party agrees to return to the other party all such Confidential
Information, including all copies thereof, immediately on request. The
obligations arising under this section shall survive any termination or
abandonment of this Agreement.
This Agreement will be filed on a confidential basis with the MPUC.
B. Public Announcements. No public announcement of the execution of this
____________________
Agreement, except as necessary to obtain regulatory approval or as otherwise
required by law, shall be made before the Closing without the mutual prior
approvals of both Seller and Buyer, which approval shall not be unreasonably
withheld.
C. Cooperation. Each party covenants to use all reasonable efforts,
___________
commencing promptly on the execution and delivery of this Agreement, to take,
or cause to be taken in good faith, all actions, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations, expeditiously and practicably to consummate and make effective
the transactions contemplated by this Agreement, including but not limited to
using its reasonable efforts to obtain all necessary actions, waivers,
consents and approvals from third parties or governmental or regulatory
bodies, to effect all necessary filings with Governmental Authorities and to
consummate the agreements required in Schedule 2.4.
D. MPUC filings. Within ten (10) days after the execution of this
____________
Agreement, or on such other date as the parties shall mutually agree, Seller
and Buyer agree to file any required application and to take such reasonable
action as may be necessary or helpful (including, but not limited to making
available witnesses, information, documents, and data requested by the MPUC)
to apply for and receive approval by the MPUC and any other
<PAGE>
applicable regulatory authorities for the transfer of Assets and the grant of
operating authority or issuance of a Certificate of Convenience and Necessity
to Buyer and any other necessary MPUC approvals.
E. FCC Filings. Ten (10) days after the MPUC approval which meets the
___________
requirements of 3.1(C) and 3.2(C), or on such other date as the parties shall
mutually agree, Buyer and Seller agree to commence the process to jointly file
such applications and to take such reasonable actions as may be necessary or
appropriate to apply for and receive approval by the FCC for the transfer of
Assets, to Buyer. The FCC approval includes but is not limited to,
Section 214 approval, Study Area approval, Price Cap Waiver approval and
radio license approval.
F. Tax Liabilities. Buyer and Seller agree that Seller will be liable for
_______________
all tax liabilities accrued or imputed by any tax or regulatory authority for
periods prior to Closing and Buyer will be liable for all tax liabilities
accrued or imputed by any tax or regulatory authority for periods on or after
Closing, except as set forth in Section 6.1(B).
G. Costs. Except as otherwise specifically provided herein, each Party
_____
shall bear its own costs incurred in connection with this Agreement and the
other agreements and transactions contemplated hereby.
H. Environmental Assessment. Buyer and Seller have agreed that Seller
________________________
shall only perform, at its sole expense, the environmental projects which
shall be mutually agreed upon by Buyer and Seller within sixty (60) days of
the date Buyer receives from Seller copies of the Phase I Environmental
Assessment Reports which projects shall be set forth in Schedule 6.3(H).
Such projects shall be performed in conformance with state and federal
requirements (save and except that Buyer and Seller have acknowledged and
mutually agreed that Seller shall not remediate or abate asbestos containing
materials or Hazardous Materials from Central Offices in the Exchanges).
Seller further agrees, at its sole cost, to: remove, replace or close all
underground storage tanks as applicable and remove all storage drums located
within
<PAGE>
the Exchanges, as set forth in Schedule 6.3(H), in conformance with state and
federal requirements prior to Closing or such other date as mutually agreed
to by the Buyer and Seller.
ARTICLE 7
INDEMNIFICATION
7.1 Indemnification by Buyer. From and after the Closing Date, Buyer
________________________
shall indemnify, defend and hold Seller harmless from and against any and all
Claims and Liabilities, that may be incurred by Seller arising from: (i) any
breach of any representation or warranty; or (ii) any breach of any covenant,
obligation or agreement of Buyer contained herein; or (iii) any and all Claims
or Liabilities arising out of or relating to the ownership or operation of the
Exchanges and Assets after the Closing provided such Claims or Liabilities are
incurred or based on facts after the Closing Date.
7.2 Buyer's Indemnification Threshold. Buyer shall not be required to
_________________________________
indemnify, defend or hold Seller harmless from and against any Claims or
Liabilities, incurred after the Closing Date, unless and until such amount
exceeds $250,000 per incident (the "Indemnity Threshold"), and Buyer shall
only be obligated to indemnify Seller with respect to amounts that exceed the
Indemnity Threshold and then only to the extent provided herein.
7.3 Indemnification by Seller. From and after the Closing Date, Seller
__________________________
shall indemnify, defend and hold Buyer harmless from and against any and all
Claims or Liabilities that may be incurred by Buyer arising from: (i) any
breach of any representation or warranty; or (ii) any breach of any covenant,
obligation or agreement of Seller contained herein; or (iii) except as
provided in Article 4, any and all Claims or Liabilities arising out of or
relating to the ownership or operation of the Exchanges and Assets prior to
Closing provided such Claims or Liabilities are incurred on or prior to the
Closing Date.
7.4 Seller's Indemnification Threshold. Except for liabilities
__________________________________
referenced in Section 6.1(B), Seller shall not be required to indemnify,
defend or hold Buyer harmless from and
<PAGE>
against any Claims or Liabilities, incurred on or before the Closing Date,
unless and until such amount exceeds the "Indemnity Threshold", and Seller
shall only be obligated to indemnify Buyer with respect to amounts that exceed
the Indemnity Threshold and then only to the extent provided herein.
7.5 Maximum Amount. Except for liabilities referenced in Section
______________
6.1(B), the maximum aggregate amount of indemnification under Sections 7.1 or
7.3 that can be required of Seller or Buyer hereunder shall not exceed in the
aggregate 10% of the Purchase Price (the "Maximum Amount").
7.6 Time Limitation. The respective rights of Seller and Buyer to
_______________
indemnification for Claims or Liabilities arising under Section 7.1 or 7.3,
as the case may be, shall apply only to those claims for indemnification,
notice of which is given pursuant to this Agreement to the other party on or
before the expiration of the eighteen ( 18) month anniversary date of the
Closing, except that the indemnification which relates to tax matters shall
remain in effect until the expiration of the applicable statute of limitation
period. The respective rights of Seller or Buyer to indemnification for
environmental Claims and Liabilities shall only apply to those Claims or
Liabilities for outside plant indemnification, notice of which is given
pursuant to this Agreement to the other party on or before the expiration of
the third (3rd) anniversary date of the Closing. Upon expiration of the time
limitations set forth in this Section 7.6, Seller shall have no liability for
any environmental Claims, or Liabilities based on Environmental Laws,
incidents, exposures occurring prior to the Closing. In addition, upon
expiration of the time limitations set forth in this Section 7.6, it shall be
conclusively presumed that the Buyer has accepted and assumed all
responsibilities for all Claims or Liabilities including but not limited to
environmental Claims and Liabilities, occurring prior to Closing.
7.7 Notice of Indemnification. Notwithstanding any other provision
_________________________
contained in this Agreement, any party entitled to indemnification hereunder
(the "Indemnified Party") shall be deemed to have waived any right thereto
unless such party gives to
<PAGE>
the party from whom indemnification is sought (the "Indemnifying Party")
written notice of the Claim or Liability, within 60 business days, and,
when known, the facts constituting the basis for such Claim. In the event
that any notice of a right for indemnification is made hereunder as a result
of or in connection with any Claim or Liability by a person who is not a
party to this Agreement, the notice to the Indemnifying Party shall specify,
if known, the amount or an estimate of the amount of the Claim or Liability
arising therefrom. The Indemnified Party shall not settle or compromise any
Claim or Liability by a third party for which it is entitled to
indemnification hereunder without the prior written consent of the
Imdemnifying Party, unless suit shall have been instituted against the
Party Idemnified and the Indemnifying Party shall not have taken control of
such suit after notification thereof as provided in Section 7.7.
7.8 Defense by Indemnifying Party. In connection with any Claim or
_____________________________
Liability giving rise to indemnity hereunder resulting from or arising out
of any claim or legal proceeding by a person who is not a party to this
Agreement, the Indemnifying Party at its sole cost and expense may (but
shall not be required to), upon written notice to the Indemnified Party,
assume the defense of any such claim or legal proceeding if it acknowledges
to the Indemnified Party in writing its obligation to indemnify the
Indemnified Party with respect to such claim. The Indemnified Party shall be
entitled to participate in (but not control) the defense of any such action,
with its counsel and at its own expense. If the Indemnifying Party does not
assume the defense of any such Claim or Liability resulting therefrom, (a)
the Indemnified Party may defend against such Claim or Liability, in such
manner as it may deem appropriate, including, but not limited to, settling
such Claim or Liability (after giving 5 business days written notice of the
same to the Indemnifying Party) on such terms as the Indemnified Party may
deem appropriate, and (b) the Indemnifying Party shall be entitled to
participate in (but not control) the defense of such action, with its own
counsel and at its own expense.
7.9 Manner of Indemnification. All indemnification payments under
_________________________
Article 7 shall be effected by payment of cash or delivery
<PAGE>
of a certified or official bank check or, at payee's request, by wire transfer
of immediately available funds to anaccount designated by payee, in the amount
of the indemnified liability.
7.10 Remedies. The indemnity rights under Sections 7.1 and 7.3 shall be
________
the sole remedy for any breach of the representations and warranties of Seller
or Buyer as the case may be. In the event of a breach, or a threatened or
attempted breach, of any covenant of this Agreement by either party, the other
party shall, in addition to the indemnification provisions set forth in
Article 7, be entitled to (i) a temporary or permanent injunction against such
breach without the necessity of showing any actual damages, and (ii) a decree
for the specific performance of this Agreement.
7.11 Insurance. Prior to asserting any claim under this Agreement (other
_________
than with respect to Taxes), each Indemnified Party shall file, or cause to
be filed, a claim with respect to the indemnified Claims or Liabilities in
question under any insurance policies that may be maintained by such
Indemnified Party or any subsidiary, division or affiliate thereof. In the
event that any insurance policies maintained by the Indemnified Party would
cover any indemnified Claims or Liabilities, then the Indemnified Party's
indemnification for Claims or Liabilities shall be limited to any deductible
and amounts in excess of the amounts actually collected by the Indemnified
Party for such Claims or Liabilities.
ARTICLE 8
TERMINATION
8.1 Termination By Buyer.
____________________
A. If any condition precedent to Buyer's obligation to effect the
Closing, as set forth in Section 3.1, is not satisfied and such condition is
not waived, if waivable, by Buyer on or prior to the Closing Date, Buyer
shall not be obligated to effect the Closing and may terminate this
Agreement.
<PAGE>
B. If any Governmental Approval contains terms and conditions
unacceptable to Buyer, in Buyer's sole discretion, Buyer shall not be
obligated to effect the Closing and may terminate this Agreement.
8.2 Termination By Seller.
_____________________
A. If any condition precedent to Seller's obligation to effect the
Closing, as set forth in Section 3.2, is not satisfied and such condition is
not waived, if waivable, by Seller on or prior to the Closing Date, Seller
shall not be obligated to effect the Closing and may terminate this Agreement.
B. If any Governmental Approval contains terms and conditions
unacceptable to Seller, in Seller's sole discretion, Seller shall not be
obligated to effect the Closing and may terminate this Agreement.
8.3 Termination By Buyer or Seller. (i) If Buyer or Seller have
______________________________
discovered that any of the representations and warranties of the other party
is inaccurate in any material respect and, after consultation with such
breaching party, a satisfactory accommodation with respect to such inaccuracy
shall not have been reached; or (ii) if an order is issued by any Governmental
Authority to restrain, enjoin or prohibit the consummation of the transactions
contemplated by this Agreement, Buyer or Seller shall not be obligated to
effect the Closing and may terminate this Agreement.
8.4 Effect of Termination. In the event of the termination of this
_____________________
Agreement pursuant to Sections 8.1, 8.2 or 8.3, this Agreement shall
thereafter become void except as set forth in Section 1.3(A) and for the
provisions of Section 6.3(A), 6.3(B), and 6.3(C), without further liability
on the part of any party hereto or its respective shareholders, directors,
officers or employees in respect thereof, except as follows: (i) nothing
herein shall relieve any party from liability for any breach of this Agreement
prior to termination under Sections 8.1, 8.2 or 8.3, and (ii) the obligations
of the parties hereto set forth in
<PAGE>
Section 11.6 shall not be affected by a termination of this Agreement.
ARTICLE 9
POST CLOSING MATTERS
9.1 Post Closing. In order to effectuate an orderly transition in the
____________
provisioning of telecommunications services to customers in the Exchanges,
Buyer and Seller agree to utilize the measures set forth below:
A. Notice to Customers. Seller and Buyer, shall jointly provide
___________________
written notification in Seller's final bill to each customer affected by
this Purchase and Sale of Assets that Seller is no longer the customer's
telecomunications provider and advising the customer of the name,
address and telephone number of the Buyer.
B. Customer Relations. From and after the Closing, any service
__________________
related customer complaint due to telephone service provided prior to Closing
which can be reasonably resolved by Buyer, shall be resolved by Buyer, without
contribution or adjustment from Seller; provided, in the event that Buyer
cannot reasonably resolve such complaints, Buyer shall refer those customers
to Seller and Buyer shall promptly advise Seller in writing, of the steps it
took to resolve the complaint.
ARTICLE 10
ARBITRATION
10.1 Claims. All Claims by Buyer or Seller by one against the other
______
arising out of or related in any manner to this Agreement or any of the
Exchanges and Assets shall be resolved by arbitration, as prescribed herein.
The Federal Arbitration Act, 9 U.S.C. Sections 1 to 15, not state law, will
govern the arbitrability of all Claims.
<PAGE>
10.2 Rules. A single arbitrator engaged in the practice of law, who is
_____
knowledgeable about the telecommunications industry, telecommunications law
and who has at least eight (8) years of experience litigating in federal
district court, shall conduct the arbitration under the then current
commercial arbitration rules of the American Arbitration Association ("AAA"),
unless otherwise provided herein. The arbitrator shall be selected in
accordance with AAA procedures. The arbitration shall be conducted in the
AAA office in Minneapolis, Minnesota.
10.3 No Discovery; Damages; Expenses. The Buyer and Seller shall allow and
_______________________________
participate in discovery in accordance with the Federal Rules of Civil
Procedure. The arbitrator shall rule on unresolved discovery disputes. The
arbitrator shall only have authority to award contractual damages and shall
not have the authority to award punitive or exemplary damages, other non-
compensatory damages or any other form of relief. Each Party shall bear its
own costs and attorneys' fees. The arbitrator's decision and award shall be
final and binding, and judgment upon the award rendered by the arbitrator may
be entered in any court having jurisdiction thereof.
10.4 Judicial or Administrative Action. If any party files a judicial or
_________________________________
administrative action asserting Claims subject to arbitration, as prescribed
herein, and the other party successfully stays such action and/or compels
arbitration of said Claims, the party filing said action shall pay the other
party's costs and expenses incurred in seeking such stay and/or compelling
arbitration, including reasonable attorneys' fees.
<PAGE>
ARTICLE 11
GENERAL
11.1 Time of the Essence. Time is of the essence with respect to each and
___________________
every term, condition, obligation and provision hereof, and failure to timely
perform or remedy any of the terms, conditions, obligations or provisions
hereof by either party shall constitute a material breach of and a noncurable
default under this Agreement by the party so failing to perform (but which may
be waived by the nonbreaching party).
11.2 Bulk Sales. For purposes of any Minnesota uniform commercial code
__________
requirements, Buyer hereby waives compliance with the provisions of any
applicable laws relating to bulk transfers in connection with the transactions
contemplated by this Agreement, including without limitation the provisions of
the Minnesota Revised Code regarding bulk transfers.
11.3 Notices. All notices hereunder will be in writing and served by
_______
certified mail, return receipt requested. Notice shall be deemed to have been
duly given on the date mailed by the notifying party. Notices shall be sent
as follows:
If to Seller:
U S WEST Communications, Inc.
1600 Bell Plaza, Room 1806
Seattle, Washington 98191
Manager-Exchange Carrier Properties,
Exchange Carrier Services
with a copy (which shall not constitute notice) to:
U S WEST, Inc.
7800 East Orchard Road
Englewood, CO 80111
Attention: Associate General Counsel
Corporation Transactions
<PAGE>
If to Buyer:
Pacific Telecom, Inc.
805 Broadway
P.O. Box 9901
Vancouver, Washington 98668-8701
Attention: Chief Financial Officer
with a copy (which shall not constitute notice) to:
Pacific Telecom, Inc.
805 Broadway
P.O. Box 9901
Vancouver, Washington 98668-8701
Attention: Vice President Regulatory Affairs
11.4 Waivers. No failure of a party to enforce a provision of this
_______
Agreement will be construed as a general or a specific waiver of that
provision, or of a party's right to enforce that provision, or of a party's
right to enforce any other provision of this Agreement. No waiver of any
breach of any covenant or other provision herein contained shall be deemed
to be a waiver of any preceding or succeeding breach, or of any other
covenant or provision herein contained. No extension of time for performance
of any obligation or act shall be deemed to be an extension of the time for
performance of any other obligation or act.
11.5 Commissions. Each party represents and warrants that it has dealt
___________
with no broker or finder in connection with this Agreement and, insofar as it
knows, no broker or other person is entitled to any commission or finder's fee
in connection with the consummation of the transactions contemplated by this
Agreement.
11.6 Payment of Expenses. Except as otherwise provided herein, each of
___________________
the parties shall pay all costs and expenses incurred or to be incurred by it
in the negotiation and preparation of this Agreement and in consummating and
carrying out the transactions contemplated by this Agreement, whether or not
the transactions contemplated by this Agreement are consummated.
<PAGE>
11.7 Headings. The subject headings of the sections and subsections of
________
this Agreement are included only for purposes of convenience, and shall not
the construction or interpretation of any of its provisions.
11.8 Counterparts. This Agreement may be executed in one or more
___________
counterparts, each of which shall be deemed an original, and when each
of the parties hereto has executed and delivered to the other party one or
more counterparts this Agreement shall be binding and effective, even though
no single counterpart has been executed by both of the parties.
11.9 Successors and Assigns. This Agreement shall be binding on and shall
______________________
inure to the benefit of the parties hereto and their permitted successors and
assigns; provided, however, that no assignment shall be permitted except as
provided for in this Agreement.
11.10 Assignment. Except as set forth in Section 6.1(B), the rights and
__________
obligations of the parties to this Agreement or any interest in this Agreement
shall not be assigned, transferred, hypothecated, pledged or otherwise
disposed of without the prior written consent of the non-assigning party
which consent may be withheld in such party's sole discretion; provided,
however, that any party hereto may, without prior consent of the other party
hereto, assign this Agreement in its entirety to any parent or subsidiary
entity.
11.11 Additional Instruments and Assistance. Each party hereto shall from
_____________________________________
time to time execute and deliver such further instruments, provide additional
information and render such further assistance as the other party or its
counsel may reasonably request in order to complete and perfect the
transactions contemplated herein.
<PAGE>
11.12 Seller's Control over Authorized Facilities. No provision of this
___________________________________________
Agreement shall be construed to abrogate Seller's control of and
responsibility for the operation of the authorized facilities of the Business
prior to the actual transfer of control of those facilities hereunder to the
Buyer as approved by the FCC and the MPUC.
11.13 Governing Law. This Agreement shall be construed in accordance
_____________
with the laws of the State of Minnesota.
11.14 Severability. If any term or provision of this Agreement is, to
____________
any extent, held or deemed to be invalid or unenforceable when applied to any
person or circumstance, the remaining provisions of this Agreement and the
enforcement of such provision to other persons or circumstances, or to another
extent, shall not be affected thereby, and each provision of this Agreement
shall be enforced to the fullest extent allowed by law.
11.15 Amendments. This Agreement may not be modified, changed,
__________
supplemented or terminated, nor may any obligations hereunder be waived by a
party, except by written instrument signed by the party to be charged or by
its agent duly authorized in writing or as otherwise expressly permitted
herein.
11.16 No Construction Against the Drafting Party. Each party hereto
__________________________________________
acknowledges that such party and its counsel have reviewed this Agreement and
participated in its drafting. This Agreement shall not be construed against
either party for having prepared it.
<PAGE>
11.17 Integration. This Agreement, and the SOWs and all schedules and
___________
exhibits attached hereto, constitutes the entire agreement between the
parties, and there are no agreements, understandings, warranties or
representations between the parties except as set forth or noted herein.
This Agreement is not made for the benefit of any person, firm, corporation
or association other than the parties hereto. The parties do not intend
to confer any benefit hereunder on any person, firm or corporation other than
the parties hereto.
IN WITNESS WHEREOF, the parties to this Agreement have executed it as
of the date first above written.
BUYER:
NORTHLAND TELEPHONE COMPANY, PACIFIC TELECOM, INC.,
a Minnesota Corporation a Washington corporation
/s/James H. Huesgen /s/James H. Huesgen
____________________________ ___________________________________
By: James H. Huesgen By: James H. Huesgen
Its: Executive Vice President Its: Executive Vice President
and Chief Financial Officer and Chief Financial Officer
Date: December 15, 1995 Date: December 15, 1995
SELLER:
U S WEST COMMUNICATIONS, INC.,
a Colorado corporation
/s/ Solomon D. Trujillo
______________________________________
By: Solomon D. Trujillo
Its: President and Chief Executive
Officer
Date: December 15, 1995
<PAGE>
GLOSSARY OF TERMS
For purposes of this Agreement, certain terms used in this Agreement and
not otherwise defined herein shall have the meanings designated below:
"Agreement" means all or any part of this Agreement, including Schedules
and Exhibits, as any of the foregoing may be amended, modified or
supplemented in writing from time to time.
"Assets" shall mean, to the extent that they are by their terms
assignable, all of Seller's assets and properties in the Exchanges, all
assets as identified on Seller's Continuing Property Records (CPRs) and such
other assets as set forth in Schedule 6.3(J), except the Excluded Assets,
of whatever kind, character and description, and those assets whether
intangible, real, personal or mixed:
(a) "Authorities" means (1) construction permits, licenses or
authorizations granted by the FCC owned by Seller and used to develop and
operate the System; and (2) the licenses or operating right granted by the
MPUC to operate the System in the State of Minnesota. For purposes of this
Agreement, Authorities does not include Seller's applications for Authorities
before the FCC and MPUC.
(b) "Interests" means all rights, privileges, benefits and interests
under all contracts, agreements, consents, or licenses, permits or
certificates (except those included as Authorities and Realty), including
agreements, permits, leases and arrangements with respect to intangible or
personal property or interests therein; equipment leases; consents; agreements
with suppliers, customers and subscribers; business licenses; prepaid
expenses; any sales agent or sales affiliate agreements used or owned in
connection with the Operation of which it is a part.
(c) "Property" means all of Seller's physical facilities located
within the Exchanges and other assets necessary to conduct the business as
shall be mutually agreed upon between Buyer and Seller (including all of
Seller's coin station sets presently installed in the Exchanges except as set
forth in the Excluded Assets) that are in Seller's plant in service accounts
in accordance with Part 32 of the FCC Uniform System of Accounts ("USOA").
<PAGE>
(d) "Realty" means all real property, or mixed real and personal
property within the Exchanges, including, without limitation: land,
structures, buildings, tower sites or antenna sites, easements, rights of way,
servitudes, licenses, agreements, arrangements or leases with respect to real
property interests; leasehold improvements, building improvements, or other
improvements or fixtures; and rights-of-way and other or similar properties
owned by Seller and used in the Business of which it is a part.
(e) "Records" means all records, including copies (or the originals at
Seller's election) of all outside plant records, all central office equipment
records, all service records kept in the ordinary course of Seller's business
which identify and describe the customers being served by Seller in the
Exchanges, the service that is being provided to such customers, and those
records which identify and describe the physical property (including, but not
limited to, cables, wires, and central office equipment) being sold hereby.
"Business" means the wireline telecommunications business of the
Exchanges as related to the Assets, the Property and the Authorities in the
State of Minnesota.
"Claims" shall mean any and all liabilities, obligations, losses, damages,
deficiencies, demands, claims, penalties, settlements, judgments, actions,
proceedings and suits of whatever kind and nature and all reasonable costs and
expenses, including reasonable attorneys' fees.
"Closing" shall have the meaning specified in Section 2.1.
"Closing Date" shall have the meaning specified in Section 2.1.
"Communications Act" means the Federal Communications Act of 1934, as
amended, and all rules and regulations promulgated thereunder, which are in
effect at the date of this Agreement.
"Confidential Information" shall mean any and all technical or business
information furnished, in whatever form or medium, or disclosed by one party
to the other, including but not limited to, product and service specifications,
prototypes, computer programs, models, drawings, marketing plans, financial
data, and personnel statistics, which are marked as confidential or
proprietary by the
<PAGE>
disclosing party, or, for information which is disclosed orally, the
disclosing party indicates to the other at the time of disclosure the
confidential or proprietary nature of the information and confirms in writing
to the receiving party within 30 days after such disclosure that such
information is confidential. For purposes of this Agreement, any
technical or business information of a third person furnished or disclosed by
one party to the other, and which is marked as confidential or proprietary or
which is indicated orally by the disclosing party to be confidential,
shall be deemed Confidential Information of the disclosing party unless
otherwise specifically indicated in writing to the contrary.
"Encumbrances" means any and all encumbrances, security interests, liens,
taxes, claims, liabilities, options, commitments, charges, restrictions or
other obligations of whatsoever kind, quantity or nature, whether accrued,
absolute, contingent or otherwise, except the lien for ad valorem taxes or
other taxes not yet due and payable or being contested in good faith,
governmental conditions and restrictions under the Authorities and contractual
terms and conditions regarding the Interests and Realty of the Business.
"Environmental Law" means the National Environmental Policy Act ("NEPA")
and mandated environmental assessments, Resource Conservation and Recovery Act
of 1976, 42 U.S.C. Section 6901-6987, as amended by the Hazardous and Solid
Waste Amendments of 1984, the Compensation and Liability Act, as amended by
the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. Section
9601-9657, the Hazardous Materials Transportation Act of 1975, 49 U.S.C.
Section 1801-1812, the Toxic Substances Control Act, the Clean Air Act, 42
U.S.C. Section 7401 et seq., the Federal Insecticide, Fungicide and
Rodenticide Act, 7 U.S.C. Section 136 et seq., the Clean Water Act, 33 U.S.C.
Section 1251 et seq., the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. Section 9601 et seq., the Comprehensive
Environmental Response Compensation and Liability Act ("CERCLA"), and any
substantially similar state or local environmental law and any of these law(s)
as may be amended from time to time.
"Exchange Area" means the geographical areas set forth and described in
Exhibit A.
<PAGE>
"Excluded Assets" means (a) Seller's cash on hand at the Closing; (b)
the properties, assets, privileges, rights and interests (whether tangible or
intangible, real, personal or mixed), if any, as being excluded from the Assets
to be transferred to Buyer; (c) any insurance policy, bond, letter of credit,
or other similar item, and any cash surrender value in regard thereto; (d) all
books and records that Seller is required by law to retain or that relate
solely to internal corporate matters; (e) all claims, rights and interests in
and to any refunds for Federal, state or local franchise, income or other taxes
or fees of any nature whatsoever for periods prior to the Closing Date; (f) any
pension, profit sharing or employee benefit plans; (g) any assets, interests
or property of Seller used in the operation of any business conducted by Seller
other than the operation of the Assets; (h) the name U S WEST and all similar
names and related marks and logos used or owned in connection with the
provision of telecommunications services in the Exchanges; (i) all portable
test equipment; (j) motor vehicles and associated motor vehicle general stock;
(k) materials and supplies and tools; provided, however, that Seller shall make
available to Buyer all materials, supplies and specialized tools reasonably
required for the operation of the assets at no additional cost to Buyer; (l)
FCC licenses for air-to-ground, cellular, or paging services held by either
Seller, or any affiliate of Seller; and (m) all maintenance radio equipment and
antennas; (n) backbone transiting toll facilities and associated fiber
equipment as shall be mutually agreed to between Buyer and Seller and as shall
be set forth on Schedule 1.1 within sixty (60) days prior to Closing.
The parties expressly agree that no assets relating to Yellow Pages or
classified directory advertising activities of Seller or any affiliate of
Seller shall be transferred in this transaction.
"FCC" means the Federal Communications Commission or any other Federal
agency which succeeds in whole or in part to its jurisdiction so far as the
subject matter of this Agreement is concerned.
"FCC Approval" means the issuance on the release date of the FCC public
notice of the FCC's grant of consent to the assignment of the FCC Authorities.
"Hazardous Materials" shall mean any substance, including, without
limitation, any asbestos, formaldehyde, flammables,
<PAGE>
explosives, and any hazardous substance or toxic material which could presently
or at any time in the future cause a detriment to or impair the value or
beneficial use of any of the Assets, or constitute or cause a health, safety
or environmental hazard to any of the Assets or to any person or require
remediation at the behest of any federal, state, or local governmental agency
under any Environmental Law.
"Liabilities," except as otherwise provided in this Agreement, any and all
obligations for Claims arising out of or relating to Buyer's ownership or
operation of the Assets.
"MFJ" shall mean the Modification of Final Judgment entered August 24,
1982 in United States v. Western Electric, et al., Case No. 82-0192, United
States District Court, District of Columbia, and all subsequent orders of such
court in such action, and any judicial, legislative or regulatory amendments
or modifications thereof.
"MPUC" means the Minnesota Public Utilities Commission.
"System" means, as the context requires, Seller's service delivery
components in the Exchanges, including, without limitation, all equipment,
facilities, assets, properties, licenses, permits, grant of operating authority
and other rights and authorities and related technical knowledge and
information, necessary for conduct of Seller's wireline telecommunications
services within the particular Exchanges.
"USF" means the federal Universal Service Fund.
<PAGE>
EXHIBITS
MINNESOTA - EXHIBIT A
List of Exchanges
The above mentioned exhibit has been omitted. The Company agrees to furnish
supplementally a copy of the omitted exhibit to the Commission upon request.
SCHEDULES
2.4 ADDITIONAL AGREEMENTS
5.1(C) BUYER Governmental Authorizations Necessary to Consummate the
Transactions
5.1(E) Buyer's Litigation
5.2(C) SELLER Governmental Authorizations Necessary to Consummate the
Transactions
5.2(E) Seller's Litigation
6.1(C) Contracts to be assumed by the Buyer
6.3(J) Telephone Plant In Service
The above mentioned schedules have been omitted. The Company agrees to
furnish supplementally a copy of any omitted schedule to the Commission
upon request.
<PAGE>
<TABLE>
EXHIBIT 12
Pacific Telecom, Inc.
Computation of Ratio of Earnings to Fixed Charges
(Dollar amounts in millions)
<CAPTION>
Year Ended December 31,
_________________________________________________
1995 1994 1993 1992 1991
______ ______ ______ ______ ______
<S> <C> <C> <C> <C> <C>
Earnings, as defined*:
Income from continuing operations
before income taxes $186.6 $122.2 $ 82.9 $ 99.8 $120.4
Add:
Fixed charges 54.5 48.6 59.5 63.2 67.7
Equity losses of less than 50%
owned persons - - - 0.9 0.5
Minority interest 1.3 1.0 0.6 0.1 2.0
_____ _____ _____ _____ _____
Total earnings $242.4 $171.8 $143.0 $164.0 $190.6
_____ _____ _____ _____ _____
_____ _____ _____ _____ _____
Fixed charges:
Interest $42.3 $34.7 $44.3 $52.1 $55.0
Interest portion of rental expense 12.2 13.9 15.2 11.1 12.7
____ ____ ____ ____ ____
Total fixed charges $54.5 $48.6 $59.5 $63.2 $67.7
____ ____ ____ ____ ____
____ ____ ____ ____ ____
Ratio of earnings to fixed charges 4.4 3.5 2.4 2.6 2.8
____ ____ ____ ____ ____
____ ____ ____ ____ ____
<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 Annual
Report on Form 10-K for the year ended December 31, 1995 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 910909
<OTHER-PROPERTY-AND-INVEST> 142205
<TOTAL-CURRENT-ASSETS> 206268
<TOTAL-DEFERRED-CHARGES> 16528
<OTHER-ASSETS> 378214
<TOTAL-ASSETS> 1654124
<COMMON> 0
<CAPITAL-SURPLUS-PAID-IN> 225943
<RETAINED-EARNINGS> 529471
<TOTAL-COMMON-STOCKHOLDERS-EQ> 755414
0
0
<LONG-TERM-DEBT-NET> 384502
<SHORT-TERM-NOTES> 90000
<LONG-TERM-NOTES-PAYABLE> 25000
<COMMERCIAL-PAPER-OBLIGATIONS> 50000
<LONG-TERM-DEBT-CURRENT-PORT> 5535
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 343673
<TOT-CAPITALIZATION-AND-LIAB> 1654124
<GROSS-OPERATING-REVENUE> 648596
<INCOME-TAX-EXPENSE> 47012
<OTHER-OPERATING-EXPENSES> 483285
<TOTAL-OPERATING-EXPENSES> 530297
<OPERATING-INCOME-LOSS> 118299
<OTHER-INCOME-NET> 63581
<INCOME-BEFORE-INTEREST-EXPEN> 181880
<TOTAL-INTEREST-EXPENSE> (42316)
<NET-INCOME> 139564
0
<EARNINGS-AVAILABLE-FOR-COMM> 139564
<COMMON-STOCK-DIVIDENDS> 52267
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 153047
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
DELOITTE &
TOUCHE LLP
______________ __________________________________________________
LOGO[] 3900 US Bancorp Tower Telephone: (503)222-1341
111 SW Fifth Avenue Facsimile: (503)224-2172
Portland, Oregon 97204-3698
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
Pacific Telecom, Inc.:
We consent to the incorporation by reference in Registration
Statement No. 333-00191 on Form S-3 of our report dated January 30,
1996 (which expresses an unqualified opinion and includes an
explanatory paragraph relating to a change in method of accounting
for other postretirement benefits in the year ended December 31,
1993), appearing in this Annual Report on Form 10-K of Pacific
Telecom, Inc. for the year ended December 31, 1995.
DELOITTE & TOUCHE LLP
Portland, Oregon
March 19, 1996
_________________
Deloitte Touche
Tohmatsu
International
_________________
