<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
___
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
________________________________________
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
___
EXCHANGE ACT OF 1934
For the transition period from to
________ ______________________________
Commission file number 0-873
________________________________________________
PACIFIC TELECOM, INC.
_______________________________________________________________________
(Exact name of registrant as specified in its charter)
Washington 91-0644974
_______________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
805 Broadway, P.O. Box 9901, Vancouver, Washington 98668-8701
_______________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (360)905-5800
____________________
No Change
_______________________________________________________________________
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
___ ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, no par value 100 shares
__________________________________________________________________________
(Title of Class) (Outstanding at May 9, 1997)
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H (1) (A)
AND (B) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
<PAGE>
<TABLE>
PACIFIC TELECOM, INC.
INDEX
_____
<CAPTION>
PART I FINANCIAL INFORMATION: PAGE NO.
_____________________ _______
<S> <C>
Item 1 - Financial Statements:
Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996 3
Consolidated Statements of Income -
Three months ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows -
Three months ended March 31, 1997 and 1996 5
Condensed Notes to Consolidated
Financial Statements 6 - 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 10
PART II OTHER INFORMATION:
_________________
Item 6 - Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
-2-
<PAGE>
<TABLE>
PART I FINANCIAL INFORMATION
Item 1. - Financial Statements
<CAPTION>
PACIFIC TELECOM, INC.
Consolidated Balance Sheets
(Unaudited)
ASSETS
______
March 31, December 31,
1997 1996
_________ ___________
(In thousands)
<S> <C> <C>
Current assets:
Cash and temporary cash investments $ 10,954 $ 9,421
Accounts receivable 100,873 97,705
Accounts and notes receivable - affiliates (Note 2) 37,791 62,345
Material and supplies (at average cost) 8,421 8,676
Inventory - North Pacific Cable 49,420 53,883
Other 9,335 6,428
_________ _________
Total current assets 216,794 238,458
Investments 112,694 131,621
Plant in service:
Telecommunications 1,653,128 1,631,443
Other 22,507 22,444
Less accumulated depreciation 743,171 721,462
_________ _________
932,464 932,425
_________ _________
Construction work in progress 12,373 16,140
Net plant 944,837 948,565
Intangible assets - net 367,105 365,451
Deferred charges 19,671 17,713
_________ _________
Total assets $1,661,101 $1,701,808
_________ _________
_________ _________
LIABILITIES AND SHAREHOLDER'S EQUITY
____________________________________
Current liabilities:
Currently maturing long-term debt $ 15,890 $ 15,813
Notes payable - 18,000
Accounts payable 48,247 48,138
Accrued liabilities 51,877 52,788
Dissenters' rights (Note 2) 26,497 27,930
Accrued access and unearned revenue 5,480 7,216
_________ _________
Total current liabilities 147,991 169,885
Long-term debt 501,388 527,906
Deferred income taxes (Note 4) 153,136 152,116
Unamortized investment tax credits 4,851 5,203
Other long-term liabilities 53,244 51,607
Minority interest 17,831 17,216
Shareholder's equity:
Common stock - -
Additional paid-in capital 225,943 225,943
Retained earnings (Note 3) 556,717 551,932
_________ _________
Total shareholder's equity 782,660 777,875
_________ _________
Total liabilities and shareholder's equity 1,661,101 $1,701,808
_________ _________
_________ _________
<FN>
See accompanying condensed notes to consolidated financial statements.
</TABLE>
-3-
<PAGE>
<TABLE>
PACIFIC TELECOM, INC.
Consolidated Statements of Income
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
__________________
1997 1996
_______ _______
(In thousands)
<S> <C> <C>
Operating revenues:
Local network service $ 36,684 $ 33,255
Network access service 63,622 63,471
Long distance network service 399 423
Sales of cable capacity 112 75
Cellular 10,219 8,768
Other 16,951 16,291
_______ _______
Total operating revenues 127,987 122,283
_______ _______
Operating expenses:
Plant support 21,732 22,035
Depreciation and amortization 26,755 25,340
Leased circuits 536 407
Other operating expense 6,863 7,269
Cost of cable sales 54 36
Customer operations 10,373 11,049
Administrative support 16,581 16,004
Taxes other than income taxes 4,935 4,788
_______ _______
Total operating expenses 87,829 86,928
_______ _______
Operating income 40,158 35,355
_______ _______
Other income (expense):
Interest expense (10,507) (10,053)
Interest income 743 605
Gain on sale of subsidiaries and investments 1,317 815
Equity income 1,258 935
Other (1,660) (1,444)
_______ _______
Other income (expense) - net (8,849) (9,142)
_______ _______
Income before income taxes 31,309 26,213
Income taxes (Note 4) 12,898 10,196
_______ _______
Net income $ 18,411 $ 16,017
_______ _______
_______ _______
<FN>
See accompanying condensed notes to consolidated financial statements.
</TABLE>
-4-
<PAGE>
<TABLE>
PACIFIC TELECOM, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
__________________
1997 1996
_______ _______
(In thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $18,411 $16,017
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 28,991 27,197
Deferred income taxes and investment tax credits, net 3,350 1,624
Gain on sale of subsidiaries and investments (1,317) (815)
Gains from unconsolidated entities, net (1,259) (821)
Accounts receivable and other current assets 401 (5,438)
Accounts payable and accrued liabilities (5,587) 10,784
Other 1,205 3,729
_______ ______
Net cash provided by operating activities 44,195 52,277
_______ ______
Cash Flows from Investing Activities:
Construction expenditures (15,928) (19,892)
Investments in and advances to affiliates 1,304 (1,332)
Proceeds from sales of assets 11,694 1,822
_______ _______
Net cash used by investing activities (2,930) (19,402)
_______ _______
Cash Flows from Financing Activities:
Decrease in short-term debt (43,000) (18,000)
Change in affiliated notes 18,336 -
Proceeds from issuance of long-term debt - 1,740
Dividends paid (13,625) (13,066)
Payments of long-term debt (1,443) (2,155)
_______ _______
Net cash used by financing activities (39,732) (31,481)
_______ _______
Increase in Cash and Temporary Cash Investments 1,533 1,394
Cash and Temporary Cash Investments at Beginning of Period 9,421 6,331
_______ _______
Cash and Temporary Cash Investments at End of Period $10,954 $ 7,725
_______ _______
_______ _______
Supplemental Disclosures of Cash Flow Information:
Cash paid during the three months ended March 31 for:
Interest $16,242 $15,121
Income Taxes 7,651 466
<FN>
See accompanying condensed notes to consolidated financial statements.
-5-
<PAGE>
Condensed Notes to Consolidated Financial Statements
(Unaudited)
1. The consolidated financial statements include all normal adjustments
which, in the opinion of management, are necessary to present fairly
the consolidated financial position at March 31, 1997, and the
consolidated results of operations and cash flows for the three months
ended March 31, 1997 and 1996. These consolidated financial statements
should be read in conjunction with the financial statements and related
notes included in the latest annual report filed on Form 10-K of
Pacific Telecom, Inc. (Company). The consolidated results of operations
presented herein are not necessarily indicative of the results to be
expected for the year. The 1996 consolidated financial statements
reflect certain reclassifications to conform to the current year
presentation. These reclassifications have no effect on previously
stated net income.
2. The Company is a wholly-owned subsidiary of PacifiCorp Holdings,
Inc.(Holdings), which is a wholly-owned subsidiary of PacifiCorp. See
Note 2 to the Consolidated Financial Statements included in the
Company's Annual Report on Form 10-K for the year ended December 31,
1996, for information related to the affiliated note for amounts to be
paid dissenters relating to the minority buy-out.
3. Certain loan agreements contain provisions restricting the payment of
cash dividends. Retained earnings of approximately $263 million were
available for dividends and other distributions at March 31, 1997.
The Company's ratio of earnings to fixed charges for the three months
ended March 31, 1997, calculated in accordance with Item 503 of
Regulation S-K under the Securities Exchange Act of 1934, was 3.7 to 1.
4. The Company's effective combined state and federal income tax rates
were 41.2 percent and 38.9 percent for the three months ended
March 31, 1997 and 1996, respectively. The effective tax rate increase
in the first quarter of 1997 was due in large part to a deferred
intercompany gain triggered by the sale of a subsidiary, Wayside Telcom,
Inc., in February. The deferred intercompany gain generated $740,000
of income tax expense in excess of the statutory rate due to the
"Goodwill" investment associated with the telephone and cable television
subsidiaries that were spun off from Wayside Telcom in 1994. No
deferred taxes were provided on such Goodwill resulting in the higher
tax expense. The difference between taxes calculated at the statutory
federal rates and the effective combined rates for 1997 and 1996 is
reconciled as follows:
1997 1996
____ ____
Federal statutory rate 35.0% 35.0%
State income taxes, net of federal benefit 3.1 3.6
Amortization of investment tax credits (1.1) (1.6)
Amortization of excess deferred income taxes (.4) (.6)
Amortization of excess cost 1.8 2.9
Recapture Wayside deferred tax on intercompany gain 2.7 -
Other .1 (.4)
____ ____
Effective tax rate 41.2% 38.9%
____ ____
____ ____
-6-
<PAGE>
Condensed Notes to Consolidated Financial Statements
(Unaudited)
The components of income tax expense are as follows:
Three Months Ended
March 31,
__________________
1997 1996
_______ ______
(In thousands)
Federal income taxes $11,387 $ 8,728
State income taxes 1,511 1,468
______ ______
$12,898 $10,196
______ ______
______ ______
Income taxes currently payable $ 9,548 $ 8,572
Deferred income taxes 3,703 2,056
Amortization of deferred investment tax credits (353) (432)
______ ______
$12,898 $10,196
______ ______
______ ______
5. On April 11, 1997, the Company signed a letter of intent with Century
Telephone Enterprises, Inc. (Century) whereby the Company will exchange
the stock of its wholly-owned subsidiary, Pacific Telecom Cellular,
Inc., in return for $164.4 million in cash and LEC properties
representing more than 18,000 of Century's telephone access lines in
Arizona, Colorado, Idaho and New Mexico. The Company's cellular
ownership interests in its Alaska markets are not included as part of
this transaction.
This planned sale is not expected to affect net income when completed.
The Company acquired most of this cellular portfolio through various
tax deferred transactions. With the completion of this transaction,
the deferred income taxes will become due and payable. The tax
payments are expected to be approximately $63 million and will be paid
out of the cash proceeds of the sale.
Condensed income information for Pacific Telecom Cellular, Inc.,
excluding Alaska operations, is as follows:
Three Months Ended
March 31,
__________________
1997 1996
________ _______
(In thousands)
Operating revenues $9,243 $7,843
Operating income 1,577 895
Net income 597 272
-7-
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations*
Three Months Ended March 31
___________________________
Results of Operations
_____________________
The Company's net income for the three months ended March 31, 1997 was
$18.4 million, an increase of 14.9 percent compared to net income of
$16.0 million for the same period in 1996. Operating income increased
13.6 percent or $4.8 million in the first quarter of 1997 compared to
1996. Operating income increased due to LEC internal access line growth
and higher enhanced services revenue.
Operating revenues for the first quarter of 1997 were $128.0 million, an
increase of $5.7 million, or 4.7 percent, compared to the same period
in 1996. Local network service revenues grew $3.4 million due to higher
LEC enhanced services revenues of $1.7 million and revenues from internal
access line growth of $1.5 million. Cellular revenues increased $1.5
million due to customer growth. Other revenue increased $.7 million due
to $1.1 million received from AT&T relating to services provided to AT&T
Alascom.
Operating expenses in the first quarter of 1997 were $87.8 million, an
increase of $.9 million, or 1.0 percent, compared to the first quarter of
1996. Depreciation expense increased $1.4 million mainly due to increased
LEC plant balances. Administrative support was up $.6 million compared to
1996 mainly due to $.8 million for services provided to AT&T Alascom.
Other expense - net for the first quarter of 1997 was $8.8 million, a
decrease of $.3 million or 3.2 percent from 1996. Gain on sale of
subsidiaries and investments includes the sale of cellular properties
in 1997 and 1996. Equity earnings from cellular and telephone
investments increased $.3 million in the first quarter of 1997 compared
to the same period in 1996.
Income taxes increased $2.7 million due to the $1.5 million effect
of higher taxable income and the $1.2 million effect of the sale of
cellular properties in February 1997.
Acquisitions
____________
The Company has pending acquisitions of local exchange properties
in Minnesota, Michigan and Alaska serving approximately 70,000 access lines.
Approvals for the Minnesota and Michigan acquisitions have been received
from the public utility commissions in those states. The Company is
awaiting approval of those acquisitions from the FCC. Hearings are
scheduled before the Alaska Public Utilities Commission during May
relating to that acquisition. The Company anticipates that these three
acquisitions will receive all final regulatory approvals and close prior
to the end of 1997. The Company also has signed letters of intent to
acquire additional local exchange operations totaling 4,300 access lines.
___________________
*Pursuant to General Instruction H (1)(a) and (b) of Form 10-Q, the
Company is substituting a management's narrative analysis of results of
operations for Item 2.
-8-
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
See Part II, Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" under "Acquisitions" and Notes 13
and 14 to the Consolidated Financial Statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, for more
information about pending acquisitions.
Dispositions
____________
See Note 5 in "Notes to Condensed Consolidated Financial Statements" in
this Form 10-Q and Item 5. "Other Events" in the Company's Current Report
on Form 8-K dated April 11, 1997 for information concerning the sale of
Pacific Telecom Cellular, Inc. to Century Telephone Enterprises, Inc.
Liquidity and Capital Resources
_______________________________
During the three months ended March 31, 1997, construction expenditures
amounted to $15.9 million. These expenditures pertained mainly to network
upgrades and internal growth of the Company's operations. The construction
expenditures were funded primarily with cash from operations. In 1997,
total construction expenditures, which are estimated at $137.0 million,
are expected to be funded primarily through cash from operations. Included
in total estimated construction expenditures is $22 million relating to the
acquisitions that are expected to close during 1997. Cash from operations
was lower in the first quarter of 1997 compared to the first quarter
of 1996 due to the 1996 receipt of $10.1 million from the National Exchange
Carriers Association (NECA) attributable to certain revenue requirement
adjustments related primarily to the transition of acquisition properties.
The Company has access to funds through its $300 million revolving credit
agreement which terminates in November 1999. At March 31, 1997, no
borrowings were outstanding under this agreement. The revolving credit
agreement also serves as backup for a $100 million commercial paper program,
under which no borrowings were outstanding at March 31, 1997. The
Company is currently engaged in negotiations to replace the existing
agreement with a comparable facility. The Company has a $200 million Series
C Medium-term Note program under which $133.5 million of notes were
outstanding March 31, 1997. The remaining $66.5 million will be used
primarily to fund future acquisitions. At March 31, 1997, the Company had
approval from the Rural Telephone Bank to borrow $15.8 million in additional
Rural Utilities Service debt for certain construction projects.
-9-
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The Company has an agreement that allows temporary cash advances to or from
its parent, PacifiCorp Holdings, Inc. (Holdings), at short-term borrowing
rates. At March 31, 1997, $35.3 million was due from Holdings, which
includes $26.5 million be paid to dissenters relating to the minority
buy-out. (See Note 2 to the Consolidated Financial Statements included
in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 for more information about this note.)
The Company has definitive agreements with US WEST Communications,
Inc., GTE North Incorporated and the City of Fairbanks to purchase certain
telephone assets or operations in Minnesota, Michigan and Fairbanks, Alaska,
respectively, for approximately $248 million in cash, which includes
approximately $20 million for cash to be acquired in the acquisitions.
These acquisitions are subject to regulatory approvals expected to be
received during 1997. The Company has signed letters of intent to acquire
operations representing 4,300 access lines for $22 million. The Company
expects to fund these acquisitions through the issuance of external debt,
internally generated funds and proceeds from the sale of cellular
investments.
Any temporary cash or liquidity requirements during 1997 are expected to be
met through utilization of funds available under the revolving credit
agreement or temporary advances from Holdings. Long-term liquidity
requirements are expected to be met through utilization of funds available
under the revolving credit agreement or the Series C Medium-term Note
program. Cash needed to pay dissenters' rights will be provided by Holdings.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
12 Statements re Computation of Ratios
27 Financial Data Schedule (filed electronically only)
(b) Reports on Form 8-K
On Form 8-K dated April 11, 1997, under Item 5. "Other Events"
the Company reported information with respect to the pending
sale of Pacific Telecom Cellular, Inc. to Century Telephone
Enterprises, Inc.
-10-
<PAGE>
SIGNATURES
__________
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Pacific Telecom, Inc.
_____________________
(Registrant)
Date: May 12, 1997 /s/James H. Huesgen
____________________________
James H. Huesgen
Executive Vice President and
Chief Financial Officer
-11-
</TABLE>
<PAGE>
<TABLE>
EXHIBIT 12
PACIFIC TELECOM, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in millions)
<CAPTION>
Three Months
Ended Year Ended December 31,
March 31, _____________________________________
1997 1996 1995 1994 1993 1992
___________ ______ ______ ______ ______ _____
<S> <C> <C> <C> <C> <C> <C>
Earnings, as defined*:
Income from continuing operations
before income taxes $ 31.3 $122.7 $186.6 $122.2 $ 82.9 $99.8
Add:
Fixed charges 11.8 46.5 54.5 48.6 59.5 63.2
Equity losses of less than 50%
owned persons - - - - - .9
Minority interest .6 2.4 1.3 1.0 .6 .1
_____ _____ _____ _____ _____ _____
Total earnings $ 43.7 $171.6 $242.4 $171.8 $143.0 $164.0
_____ _____ _____ _____ _____ _____
_____ _____ _____ _____ _____ _____
Fixed charges:
Interest $10.5 $40.8 $42.3 $34.7 $44.3 $52.1
Interest portion of
rental expense 1.3 5.7 12.2 13.9 15.2 11.1
____ ____ ____ ____ ____ ____
Total fixed charges $11.8 $46.5 $54.5 $48.6 $59.5 $63.2
____ ____ ____ ____ ____ ____
____ ____ ____ ____ ____ ____
Ratio of earnings to fixed charges 3.7 3.7 4.4 3.5 2.4 2.6
____ ____ ____ ____ ____ ____
____ ____ ____ ____ ____ ____
</TABLE>
[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> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1997 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 927748
<OTHER-PROPERTY-AND-INVEST> 129783
<TOTAL-CURRENT-ASSETS> 216794
<TOTAL-DEFERRED-CHARGES> 19671
<OTHER-ASSETS> 367105
<TOTAL-ASSETS> 1661101
<COMMON> 0
<CAPITAL-SURPLUS-PAID-IN> 225943
<RETAINED-EARNINGS> 556717
<TOTAL-COMMON-STOCKHOLDERS-EQ> 782660
0
0
<LONG-TERM-DEBT-NET> 501388
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 15890
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 361163
<TOT-CAPITALIZATION-AND-LIAB> 1661101
<GROSS-OPERATING-REVENUE> 127987
<INCOME-TAX-EXPENSE> 12898
<OTHER-OPERATING-EXPENSES> 87829
<TOTAL-OPERATING-EXPENSES> 100727
<OPERATING-INCOME-LOSS> 27260
<OTHER-INCOME-NET> 1658
<INCOME-BEFORE-INTEREST-EXPEN> 28918
<TOTAL-INTEREST-EXPENSE> 10507
<NET-INCOME> 18411
0
<EARNINGS-AVAILABLE-FOR-COMM> 18411
<COMMON-STOCK-DIVIDENDS> 13625
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 44195
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
