<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 September 30, 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 October 31, 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>
PACIFIC TELECOM, INC.
INDEX
_____
PART I FINANCIAL INFORMATION: PAGE NO.
_____________________ ________
Item 1 - Financial Statements:
Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 3
Consolidated Statements of Income -
Three and nine months ended
September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1997
and 1996 5
Condensed Notes to Consolidated
Financial Statements 6 - 8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results
of Operations 9 - 10
PART II OTHER INFORMATION:
_________________
Item 6 - Exhibits and Reports on Form 8-K 11
Signatures 12
-2-
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. - Financial Statements
PACIFIC TELECOM, INC.
Consolidated Balance Sheets
(Unaudited)
ASSETS
______
September 30, December 31,
1997 1996
_____________ ____________
(In thousands)
Current assets:
Cash and temporary cash investments $ 10,179 $ 9,421
Accounts receivable 105,486 97,705
Accounts and notes receivable -
affiliates (Note 2) 12,650 62,345
Material and supplies (at average cost) 9,842 8,676
Inventory - North Pacific Cable 40,389 53,883
Other 9,318 6,428
_________ _________
Total current assets 187,864 238,458
Investments 120,213 131,621
Plant in service:
Telecommunications 1,791,298 1,631,443
Other 22,646 22,444
Less accumulated depreciation 819,763 721,462
_________ _________
994,181 932,425
Construction work in progress 22,508 16,140
_________ _________
Net plant 1,016,689 948,565
Intangible assets - net 409,498 365,451
Deferred charges 26,557 17,713
_________ _________
Total assets $1,760,821 $1,701,808
_________ _________
_________ _________
LIABILITIES AND SHAREHOLDER'S EQUITY
____________________________________
Current liabilities:
Currently maturing long-term debt $ 39,045 $ 15,813
Notes payable 90,000 18,000
Accounts payable 50,814 48,138
Accrued liabilities 46,443 52,788
Dissenters' rights (Note 2) 15,043 27,930
Accrued access and unearned revenue 5,014 7,216
_________ _________
Total current liabilities 246,359 169,885
Long-term debt 478,842 527,906
Deferred income taxes (Note 4) 157,917 152,116
Unamortized investment tax credits 4,169 5,203
Other long-term liabilities 54,492 51,607
Minority interest 17,157 17,216
Shareholder's equity:
Common stock - -
Additional paid-in capital 225,943 225,943
Retained earnings (Note 3) 575,942 551,932
_________ _________
Total shareholder's equity 801,885 777,875
_________ _________
Total liabilities and
shareholder's equity $1,760,821 $1,701,808
_________ _________
_________ _________
[FN]
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
<TABLE>
PACIFIC TELECOM, INC.
Consolidated Statements of Income
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
__________________ __________________
1997 1996 1997 1996
______ ______ ______ ______
(In thousands)
<S> <C> <C> <C> <C>
Operating revenues:
Local network service $ 39,545 $ 35,530 $112,719 $101,970
Network access service 69,208 64,244 198,706 190,372
Long distance network service 490 441 1,295 1,203
Sales of cable capacity 12,300 6,030 12,412 8,279
Cellular 15,612 12,990 38,632 32,367
Other 16,854 17,373 52,401 52,001
_______ _______ _______ _______
Total operating revenues 154,009 136,608 416,165 386,192
_______ _______ _______ _______
Operating expenses:
Plant support 26,408 24,919 72,792 69,892
Depreciation and amortization 27,209 25,644 80,420 76,532
Other operating expense 8,625 8,543 25,100 24,211
Cost of cable sales 9,030 5,126 9,084 6,652
Customer operations 11,538 11,705 33,187 34,179
Administrative support 14,666 14,350 46,790 45,349
Taxes other than income taxes 5,456 4,766 15,588 14,553
_______ _______ _______ _______
Total operating expenses 102,932 95,053 282,961 271,368
_______ _______ _______ _______
Operating income 51,077 41,555 133,204 114,824
_______ _______ _______ _______
Other income (expense):
Interest expense (10,052) (9,765) (30,240) (30,104)
Interest income 1,079 995 2,569 2,196
Gain on sale of subsidiaries and
investments - - 1,317 3,705
Equity income 2,945 1,992 6,636 4,977
Other (1,171) (1,331) (6,802) (6,405)
_______ _______ _______ _______
Other expense - net (7,199) (8,109) (26,520) (25,631)
_______ _______ _______ _______
Income before income taxes 43,878 33,446 106,684 89,193
Income taxes (Note 4) 16,613 13,011 41,797 34,697
_______ _______ _______ _______
Net income $ 27,265 $ 20,435 $ 64,887 $ 54,496
_______ _______ _______ _______
_______ _______ _______ _______
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
-4-
<PAGE>
PACIFIC TELECOM, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
_________________
1997 1996
_______ _______
(In thousands)
Cash Flows from Operating Activities:
Net income $ 64,887 $ 54,496
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 86,817 83,930
Deferred income taxes and investment
tax credits, net 6,189 15,386
Gain on sale of subsidiaries and investments (1,317) (3,705)
Gains from unconsolidated entities, net (6,636) (4,996)
Accounts receivable and other current assets (5,474) (26,498)
Inventory - North Pacific Cable 9,084 6,652
Accounts payable and accrued liabilities (12,247) 23,877
Other 7,273 (3,173)
_______ _______
Net cash provided by operating activities 148,576 145,969
_______ _______
Cash Flows from Investing Activities:
Construction expenditures (84,902) (79,585)
Cost of businesses acquired (105,410) -
Investments in and advances to affiliates (5,711) (6,495)
Proceeds from sales of assets 11,968 5,715
_______ _______
Net cash used by investing activities (184,055) (80,365)
_______ _______
Cash Flows from Financing Activities:
Increase (Decrease) in short-term debt 47,000 (56,000)
Change in affiliated notes 34,435 (3,562)
Proceeds from issuance of long-term debt - 51,740
Dividends paid (40,875) (39,567)
Payments of long-term debt (4,323) (5,119)
_______ _______
Net cash used by financing activities 36,237 (52,508)
_______ _______
Increase in Cash and Temporary Cash Investments 758 13,096
Cash and Temporary Cash Investments at
Beginning of Period 9,421 6,331
_______ _______
Cash and Temporary Cash Investments at
End of Period $ 10,179 $ 19,427
_______ _______
_______ _______
Supplemental Disclosures of Cash Flow Information:
Cash paid during the nine months ended September 30 for:
Interest $ 36,195 $ 35,727
Income Taxes 25,296 12,489
North Pacific Cable inventory reclassisfied
to Telecommunications - Plant in service 4,409 -
Noncash Investing Activities:
Liabilities assumed in connection with the
acquisition of subsidiaries 4,834 -
[FN]
See accompany 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
September 30, 1997, and the consolidated results of operations
for the three and nine months ended September 30, 1997 and 1996
and cash flows for the nine months ended September 30, 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 "Part II, Item 5 - Other Information" in the Company's Form
10-Q for the quarter ended June 30, 1997, for information
regarding the pending sale of all Pacific Telecom, Inc. outstanding
common stock to Century Telephone Enterprises, Inc.
The current liability for dissenters' rights decreased from the
year end balance due to payments made to dissenting shareholders.
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. See "Part II, Item 1 - Legal Proceedings" in the
Company's Form 10-Q for the quarter ended June 30, 1997, for
information relating to a lawsuit involving dissenters and the
Company.
3. Certain loan agreements contain provisions restricting the
payment of cash dividends. Retained earnings of approximately
$238.0 million were available for dividends and other
distributions at September 30, 1997.
The Company's ratio of earnings to fixed charges for the
nine months ended September 30, 1997, calculated in accordance
with Item 503 of Regulation S-K under the Securities Exchange
Act of 1934, was 4.1 to 1.
4. The Company's effective combined state and federal income tax
rates were 39.2 percent and 38.9 percent for the nine months
ended September 30, 1997 and 1996, respectively.
-6-
<PAGE>
Condensed Notes to Consolidated Financial Statements
(Unaudited)
The difference between taxes calculated at the statutory federal
tax 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 3.4 3.6
Amortization of investment tax credits (1.0) (1.4)
Amortization of excess deferred income taxes (.4) (.5)
Amortization of excess cost 1.6 1.8
Other .6 .4
_____ _____
Effective tax rate 39.2% 38.9%
_____ ____
_____ ____
The components of income tax expense are as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
_________________ ________________
1997 1996 1997 1996
_______ _______ _______ _______
(In thousands)
Federal income taxes $14,155 $12,104 $36,065 $29,702
State income taxes 2,458 907 5,732 4,995
______ ______ ______ ______
$16,613 $13,011 $41,797 $34,697
______ ______ ______ ______
______ ______ ______ ______
Income taxes currently payable $17,677 $ 951 $35,556 $19,312
Deferred income taxes (711) 12,492 7,300 16,680
Amortization of deferred
investment tax credits (353) (432) (1,059) (1,295)
______ ______ ______ ______
$16,613 $13,011 $41,797 $34,697
______ ______ ______ ______
______ ______ ______ ______
5. On September 30, 1997, the Company acquired local exchange
assets in Minnesota representing 32 exchanges serving approximately
27,000 access lines from US WEST Communications, Inc. for
approximately $103 million in cash. "Net Plant" increased $58.1
million and "Intangibles" increased $44.9 million as a
result of the acquisition. Cash from operations of $98 million
and an escrow account of $5 million included in "Investments"
provided the cash to fund the acquisition.
6. On October 6, 1997, the Company acquired local exchange assets
in Fairbanks, Alaska representing a single exchange serving
approximately 34,000 access lines from the City of Fairbanks
for approximately $84 million in cash. Additionally, $8
million were placed into escrow pending Federal Communications
Commission approvals for cellular license transfer. Borrowings
under other available banking arrangements and an escrow account
provided most of the cash to fund the acquisition.
-7-
<PAGE>
Condensed Notes to Consolidated Financial Statements
(Unaudited)
7. On October 31, 1997, the Company acquired local exchange
assets in Michigan representing eight exchanges serving
approximately 12,000 access lines from GTE North Incorporated
for approximately $34 million in cash. Borrowings under other
available banking arrangements and an escrow account provided
most of the cash to fund the acquisition.
-8-
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations*
Nine Months Ended September 30
______________________________
Results of Operations
_____________________
The Company's net income for the nine months ended September 30, 1997
was $64.9 million, an increase of 19 percent compared to net income of
$54.5 million for the same period in 1996. Operating income increased
16 percent or $18.4 million in the first nine months of 1997 compared
to 1996. Operating income increased due to LEC internal access line
growth, higher LEC enhanced services revenues, growth in cellular
operations and cable operations and increased circuit sales.
Operating revenues for the first nine months of 1997 were $416.2
million, an increase of $30.0 million, or 7.8 percent, compared to the
same period in 1996. Local network service revenues grew $10.7
million primarily due to higher LEC enhanced services revenues
of $3.8 million, revenues from internal access line growth of
$5.2 million and extended area service revenue of $.9 million.
Network access service revenue increased $8.3 million due to the
effect of higher revenue requirements of $3.2 million, higher
LEC prior year revenue adjustments of $2.6 million and $3.2 million
due to increased minutes of use. This increase was partially
offset by decreases in Universal Service Fund support of $.9
million. Sales of cable capacity increased $4.1 million due to
higher circuit sales. Cellular revenues increased $6.3 million
due to customer growth. Other revenue increased $.4 million
primarily due to $1.6 million received from AT&T relating to
services provided to AT&T Alascom, higher LEC nonregulated
customer premise equipment revenues of $1.0 million and
higher cable lease and restoration revenues of $.8 million.
These increases in other revenue were offset by $3.7 million in
lower billing and collection revenues due to contract modifications
that resulted in service reductions.
Operating expenses in the first nine months of 1997 were $283.0
million, an increase of $11.6 million, or four percent, compared to
the first nine months of 1996. Plant support increased $2.9 million
due to the $2.0 million effect of LEC access line growth and
$.9 million in increased lease circuits expense relating to frame
relay and internet services. Depreciation expense increased $3.9
million mainly due to increased LEC plant balances. Cost of cable
sales increased $2.4 million due to higher circuit sales.
Administrative support was up $1.4 million compared to 1996
mainly due to $1.0 million for services provided to AT&T Alascom.
Other expense - net for the nine months of 1997 was $26.5 million,
an increase of $.9 million or three 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 $1.7 million in the first nine
months of 1997 compared to the same period in 1996.
Income taxes increased $7.1 million due to the $6.3 million effect
of higher taxable income and the $1.2 million effect of the
sale of cellular properties in February 1997.
Acquisitions
____________
See Notes 5, 6 and 7 of the Condensed Notes to the Consolidated
Financial Statements relating to acquisitions closed in Minnesota,
Fairbanks, Alaska and Michigan , respectively. Currently, the
Company has no material acquisitions pending.
_____________________________
*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.
-9-
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Dispositions
____________
See "Part II, Item 5 - Other Information" in the Company's Form 10-Q
for the quarter ended June 30, 1997 for information concerning the
sale of Pacific Telecom Cellular, Inc. to Century Telephone
Enterprises, Inc. (Century) being superseded by PacifiCorp's sale of
the Company to Century.
Liquidity and Capital Resources
_______________________________
During the nine months ended September 30, 1997, construction
expenditures amounted to $84.9 million. These expenditures
pertained mainly to network upgrades and internal growth of
the Company's operations. The construction expenditures were funded
primarily with commercial paper. In 1997, total construction
expenditures, which are estimated at $137.0 million, are expected
to be funded primarily through commercial paper. Included in
total estimated construction expenditures is $22 million
relating to the acquisitions that have closed during 1997. Cash
from operations was slightly higher in the first nine months of
1997 compared to the first nine months of 1996 due to higher income.
The Company has access to funds through its $300 million revolving
credit agreement which terminates in November 1999. At
September 30, 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 $90 million
was outstanding at September 30, 1997. The Company has a
$200 million Series C Medium-term Note program under which
$133.5 million of notes were outstanding on September 30, 1997.
At September 30, 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.
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 September 30, 1997, $10.6
million was due from Holdings, which includes $15.0 million to be
paid to dissenters relating to the minority buy-out, net of
borrowings from Holdings of $4.4 million. (See Note 2 in
"Notes to Condensed Consolidated Financial Statements" in this
Form 10-Q and 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 the
dissenters transaction.)
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.
-10-
<PAGE>
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 September 30, 1997, under Item 5.
"Other Events" the Company reported information with
respect to the purchase of local exchange assets in
Minnesota and Fairbanks, Alaska from US WEST
Communications, Inc. and the City of Fairbanks,
respectively.
-11-
<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: November 7, 1997 /s/James H. Huesgen
_____________________
James H. Huesgen
Executive Vice President and
Chief Financial Officer
-12-
<PAGE>
<TABLE>
EXHIBIT 12
PACIFIC TELECOM, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollar amounts in millions)
<CAPTION>
Nine Months
Ended Year Ended December 31,
_____________________________________
Sept. 30, 1997 1996 1995 1994 1993 1992
______________ ____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C> <C>
Earnings, as defined*:
Income from continuing operations
before income taxes $106.7 $122.7 $186.6 $122.2 $ 82.9 $ 99.8
Add:
Fixed charges 35.2 46.5 54.5 48.6 59.5 63.2
Equity losses of less than 50%
owned persons - - - - - 0.9
Minority interest 2.8 2.4 1.3 1.0 0.6 0.1
_____ _____ _____ _____ _____ _____
Total earnings $144.7 $171.6 $242.4 $171.8 $143.0 $164.0
_____ _____ _____ _____ _____ _____
_____ _____ _____ _____ _____ _____
Fixed charges:
Interest $30.2 $40.8 $42.3 $34.7 $44.3 $ 52.1
Interest portion of
rental expense 5.0 5.7 12.2 13.9 15.2 11.1
____ ____ ____ ____ ____ ____
Total fixed charges $35.2 $46.5 $54.5 $48.6 $59.5 $63.2
____ ____ ____ ____ ____ ____
____ ____ ____ ____ ____ ____
Ratio of earnings to fixed charges 4.1 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 1997
THIRD QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 997002
<OTHER-PROPERTY-AND-INVEST> 139900
<TOTAL-CURRENT-ASSETS> 187864
<TOTAL-DEFERRED-CHARGES> 26557
<OTHER-ASSETS> 409498
<TOTAL-ASSETS> 1760821
<COMMON> 0
<CAPITAL-SURPLUS-PAID-IN> 225943
<RETAINED-EARNINGS> 575942
<TOTAL-COMMON-STOCKHOLDERS-EQ> 801885
0
0
<LONG-TERM-DEBT-NET> 478842
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 90000
<LONG-TERM-DEBT-CURRENT-PORT> 39045
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 351049
<TOT-CAPITALIZATION-AND-LIAB> 1760821
<GROSS-OPERATING-REVENUE> 416165
<INCOME-TAX-EXPENSE> 41797
<OTHER-OPERATING-EXPENSES> 282961
<TOTAL-OPERATING-EXPENSES> 324758
<OPERATING-INCOME-LOSS> 91407
<OTHER-INCOME-NET> 3720
<INCOME-BEFORE-INTEREST-EXPEN> 95127
<TOTAL-INTEREST-EXPENSE> 30240
<NET-INCOME> 64887
0
<EARNINGS-AVAILABLE-FOR-COMM> 64887
<COMMON-STOCK-DIVIDENDS> 40875
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 148576
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
