LUMN

Business Context and Reporting Period

Registrant: Century Telephone Enterprises, Inc. (Century)
Reporting Date: December 1, 1997
Event: Acquisition of Pacific Telecom, Inc. (PTI) and its cellular subsidiary.
Transaction Structure: A two-step transaction totaling $1.503 billion in cash. Century Cellunet, Inc. (a Century subsidiary) acquired PTI's cellular operations for $240 million. Immediately thereafter, Century acquired 100% of PTI's capital stock from PacifiCorp Holdings, Inc. for $1.263 billion. PTI paid a $240 million dividend to its parent prior to the stock purchase.

Key Financial Metrics

Acquisition and Financing

• Total Purchase Price: $1.503 billion.
• Debt Financing: Century borrowed $1.288 billion under a $1.6 billion senior unsecured credit facility. The debt matures in five years with a floating rate (weighted average 6.155% at reporting).
• Cash Financing: The remainder of the purchase price was funded by available cash, primarily proceeds from the November 1997 sale of Brooks Fiber Properties, Inc. stock ($202.7 million proceeds, $108.1 million pre-tax gain).

Acquired Assets (PTI)

• Telephone Access Lines: 660,000 lines across four midwestern states, seven western states, and Alaska.
• Cellular Subscribers: Approximately 100,000 subscribers in two midwestern states and Alaska.
• Other Assets: Wireless, cable television, and telecommunications assets.

PTI Historical Financials (Year Ended Dec 31, 1996)

Material Changes and Operational Impact

• Organizational Restructuring: Century reorganized telephone operations into three regions, creating a new western region comprised substantially of PTI's local exchange properties.
• Service Expansion: Century plans to offer long-distance, Internet, and other services in PTI markets on terms similar to existing Century markets.
• Integration: PTI will operate as a wholly-owned subsidiary with headquarters in Vancouver, Washington. Cellular properties will be integrated into Century Cellunet.
• Rating Action: Moody's assigned a Baa1 rating to Century's new $1.6 billion credit facility and confirmed its Baa1 rating on senior unsecured debt. Standard & Poor's initiated a review but had not completed it as of the filing date.

Guidance, Outlook, and Risks

Outlook and Strategy

Century intends to continue operating PTI in the ordinary course of business, with the exception of new product offerings and the potential sale of non-strategic assets to reduce acquisition indebtedness. The company filed a shelf registration statement for up to $1.5 billion of senior unsecured debt, preferred stock, common stock, and warrants.

Risks and Contingencies

• Forward-Looking Statements: The filing includes standard disclaimers regarding uncertainties such as deregulation, competition, technological change, and the ability to integrate PTI operations effectively.
• Debt Service: The acquisition significantly increased Century's leverage. Pro forma adjustments assume an interest rate of 7.2% on the new debt, which would materially impact net income.
• Regulatory Approvals: Certain pending acquisitions by PTI (in Minnesota, Michigan, and Alaska) noted in PTI's financials were dependent on regulatory approvals expected in 1997.

Investor Verification Checklist

• Verify the final interest rate and terms of the $1.288 billion credit facility and any subsequent refinancing plans mentioned for early 1998.
• Confirm the completion of Standard & Poor's credit rating review and the final rating assigned.
• Monitor the integration progress of PTI's 660,000 access lines and 100,000 cellular subscribers into Century's existing network.
• Review the actual realization of the $108.1 million pre-tax gain from the Brooks Fiber stock sale in Century's Q4 1997 results.
• Assess the impact of the increased debt load on Century's future cash flows and ability to meet covenants.