<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition periods from to
Commission file number 0-11053
COMMONWEALTH TELEPHONE ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2093008
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
100 CTE Drive
Dallas, Pennsylvania 18612-9774
(Address of principal executive offices)
(Zip Code)
(717) 674-2700
(Registrant's telephone number, including area code)
(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
requirement for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock ($1.00 par value), as of September 30, 1998.
Common Stock 15,936,037
Class B Common Stock 2,460,355
<PAGE>
COMMONWEALTH TELEPHONE ENTERPRISES, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of
Operations-Quarters and Nine Months Ended
September 30, 1998 and 1997
Condensed Consolidated Balance Sheets-
September 30, 1998 and December 31, 1997
Condensed Consolidated Statements of Cash Flows-Nine Months
Ended September 30, 1998 and 1997
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial
Condition
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
COMMONWEALTH TELEPHONE ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
1998 1997 1998 1997
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Sales $ 57,748 $ 50,359 $ 166,662 $ 145,325
Costs and expenses, excluding
management fees and depreciation
and amortization 35,234 29,310 100,462 83,631
Management fees 2,021 3,008 5,834 6,488
Depreciation and amortization 9,780 8,051 27,323 22,814
Operating income 10,713 9,990 33,043 32,392
Interest and dividend income 640 859 2,295 2,625
Interest expense (3,370) (2,523) (9,572) (6,656)
Other income, net (15) (38) 272 1,008
Income from continuing operations before
income taxes 7,968 8,288 26,038 29,369
Provision for income taxes 3,748 3,465 11,981 12,696
Income from continuing operations before
equity in unconsolidated entities 4,220 4,823 14,057 16,673
Equity in income of unconsolidated entities 243 138 1,433 1,359
Income from continuing operations 4,463 4,961 15,490 18,032
Income (loss) from discontinued operations 5 (3,790) (26) (36,159)
Net income (loss) 4,468 1,171 15,464 (18,127)
Preferred stock dividend and accretion requirements 1,062 1,062 3,187 3,187
Net income (loss) to common shareholders $ 3,406 $ 109 $ 12,277 $ (21,314)
============ ============ ============ ============
Basic earnings (loss) per average common share:
Income from continuing operations $ 0.15 $ 0.17 $ 0.56 $ 0.67
============ ============ ============ ============
Discontinued operations $ -- $ (0.17) $ -- $ (1.64)
============ ============ ============ ============
Net income (loss) to common shareholders $ 0.15 $ -- $ 0.56 $ (0.97)
============ ============ ============ ============
Weighted average shares outstanding 22,071,524 22,001,656 22,052,284 21,999,477
Diluted earnings (loss) per average common share:
Income from continuing operations $ 0.15 $ 0.17 $ 0.54 $ 0.67
============ ============ ============ ============
Discontinued operations $ -- $ (0.17) $ -- $ (1.63)
============ ============ ============ ============
Net income (loss) to common shareholders $ 0.15 $ -- $ 0.54 $ (0.96)
============ ============ ============ ============
Weighted average shares and common stock
equivalents outstanding 22,624,170 22,387,696 22,659,701 22,243,656
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
<PAGE>
COMMONWEALTH TELEPHONE ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments $ 5,528 $ 14,017
Accounts receivable, net of reserve
for doubtful accounts of $1,825 at
September 30, 1998 and $1,098 at
December 31, 1997 31,157 23,824
Unbilled revenues 11,367 11,015
Material and supply inventory, at average
cost 10,378 8,000
Accounts receivable from related parties 427 3,743
Other current assets 4,094 5,671
Deferred income taxes 7,353 5,170
Total current assets 70,304 71,440
Property, plant and equipment, net of accumulated
depreciation of $242,122 at September 30, 1998 and
$223,051 at December 31, 1997 320,850 287,956
Investments 9,689 8,815
Deferred charges and other assets 8,741 5,456
Total assets $ 409,584 $ 373,667
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 9,010 $ 9,010
Accounts payable 24,408 24,738
Accounts payable to related parties 1,361 7,944
Advance billings and customer deposits 3,992 3,540
Accrued taxes 1,004 1,498
Accrued interest 566 638
Accrued operating taxes 4,110 4,110
Other current liabilities 26,909 23,980
Total current liabilities 71,360 75,458
Long-term debt 191,090 167,347
Deferred income taxes and investment tax credits 43,244 42,086
Other deferred credits 8,977 8,328
Redeemable preferred stock 43,754 42,517
Commitments and contingencies
Common shareholders' equity:
Common stock 22,380 22,377
Additional paid-in capital 149,633 151,041
Retained earnings 16,027 3,750
Treasury stock at cost, 3,983,650 shares at
September 30, 1998 and 4,048,218 shares at
December 31, 1997 (136,881) (139,237)
Total common shareholders' equity 51,159 37,931
Total liabilities and shareholders' equity $ 409,584 $ 373,667
========= =========
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
<PAGE>
COMMONWEALTH TELEPHONE ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
1998 1997
--------- ----------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 28,992 $ 45,272
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant & equipment (59,738) (104,282)
Sales and maturities of short-term investments -- 46,935
Acquisitions -- (30,490)
Proceeds from the sale of partnership interest -- 1,900
Proceeds from the sale of Florida cable operations -- 3,496
Other (48) (1,118)
Net cash used in investing activities (59,786) (83,559)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt 30,500 325,000
Redemption of long-term debt (6,757) (155,437)
Preferred dividend (1,950) (1,950)
Proceeds from exercise of stock options 652 128
Cash contribution from joint venture partner -- 4,116
Distribution of cash for discontinued entities -- (191,335)
Other (140) --
Net cash provided by (used in) financing
activities 22,305 (19,478)
Net (decrease) in cash and
temporary cash investments (8,489) (57,765)
Cash and temporary cash at beginning of year:
Continuing operations 14,017 11,004
Discontinued operations -- 65,136
Total cash and temporary cash investments
at beginning of year 14,017 76,140
Cash and temporary cash investments at September 30,
Continuing operations 5,528 18,375
Discontinued operations -- --
Total cash and temporary cash investments at
September 30, $ 5,528 $ 18,375
========= =========
Supplemental disclosures of cash flow information
Cash paid during the periods for:
Interest (net of amounts capitalized) $ 9,542 $ 30,737
========= =========
Income taxes $ 13,597 $ 8,308
========= =========
</TABLE>
Supplemental Schedule of Noncash Financing and Investing Activities:
Accretion in the carrying value of redeemable preferred stock charged to
retained earnings was $1,237 for each of the nine months ended September
30, 1998 and 1997.
See accompanying notes to Condensed Consolidated Financial Statements.
<PAGE>
COMMONWEALTH TELEPHONE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars, Except Per Share Data)
1. The Condensed Consolidated Financial Statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, in the opinion of the
Management of the Company, the Condensed Consolidated Financial Statements
include all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial information. The Condensed
Consolidated Financial Statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Form 10-K for
the fiscal year ended December 31, 1997, together with any amendment thereto.
2. On September 30, 1997, C-TEC Corporation ("C-TEC") distributed 100 percent of
the outstanding shares of common stock of its wholly-owned subsidiaries, RCN
Corporation ("RCN") and Cable Michigan, Inc. ("Cable Michigan")(the
"Distribution").
In accordance with Accounting Principles Board Opinion No. 30 - "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" ("APB 30"), the Company has restated its results of operations,
including prior periods, to reflect RCN and Cable Michigan as discontinued
operations.
In connection with the Distribution, C-TEC changed its name to Commonwealth
Telephone Enterprises, Inc. ("CTE"). CTE consists of Commonwealth Telephone
Company ("CT"), the nation's tenth largest independent local exchange carrier,
CTSI, Inc., ("CTSI"), a competitive local exchange carrier and other operations
which include Commonwealth Communications ("CC"), an engineering services
business, epix (R) ("epix"), an Internet services business, and Commonwealth
Long Distance Company ("CLD"), a reseller of long-distance services.
3. The provision for income taxes is different than the amount computed by
applying the United States statutory federal tax rate primarily due to state
income taxes net of federal benefit.
4. At September 30, 1998, CTE has approximately 1,402,000 options outstanding at
exercise prices ranging from $8.73 to $27.00. During the first nine months of
1998, approximately 542,000 options were granted, approximately 65,000 options
were exercised yielding cash proceeds of $652 and approximately 83,000 options
were canceled.
5. On September 30, 1997, the Yee Family Trusts, as holders of the Company's
Preferred Stock, Series A and Preferred Stock, Series B, filed an action against
the Company, RCN and Cable Michigan in the Superior Court of New Jersey. The
complaint alleges that the Company's distribution of the common stock of RCN and
Cable Michigan in connection with the Distribution constituted a fraudulent
conveyance. The plaintiffs further allege breaches of contract and fiduciary
duties in connection with the Distribution. On December 1, 1997, the complaint
was amended to allege the Company's distribution of the Common Stock of RCN and
Cable Michigan was an unlawful distribution in violation of 15 Pa. C.S.
1551(b)(2). The plaintiffs have asked the Court to set aside the alleged
fraudulent conveyance and are seeking unspecified monetary damages alleged to be
in excess of $52,000. The Company believes that this lawsuit is without merit
and is contesting the action vigorously. On January 9, 1998, the
<PAGE>
defendants, including RCN filed a Motion to Dismiss, or in the Alternative, for
Summary Judgment (the "Motion"). Response and Reply Briefs have also been filed.
Oral argument on the motion was held on September 15, 1998. As a result, two
counts of the complaint were dismissed. The Company's answer was subsequently
filed. Settlement discussions are currently in process. The Company can give no
assurance that these discussions will be successful in settling this complaint.
6. Basic earnings per share amounts are based on net income after deducting
preferred stock dividend requirements and the charges to retained earnings for
the accretion in value of preferred stock divided by the weighted average number
of shares of Common Stock and Class B Common Stock outstanding during the year.
Diluted earnings per share are based on net income after deducting preferred
stock dividend requirements and the charges to retained earnings for the
accretion in value of preferred stock divided by the weighted average number of
shares of Common Stock and Class B Common Stock outstanding during each year
after giving effect to stock options considered to be dilutive common stock
equivalents. For the quarters and nine months ended September 30, 1998 and 1997,
the conversion of redeemable preferred stock into common stock is not assumed,
since the effect is anti-dilutive.
In accordance with Statement of Financial Accounting Standards No. 128-"Earnings
per Share," the number of weighted average common shares outstanding have been
restated for all periods presented to include the effects of the September, 1998
Stock Rights Offering issuance of 3,678,612 shares of Common Stock. See Note 10.
The following table is a reconciliation of the numerators and denominators of
the basic and diluted per share computations for income from continuing
operations.
<TABLE>
<CAPTION>
Quarter ended Nine months ended
September 30, September 30,
----------------------------- -----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income from continuing operations $ 4,463 $ 4,961 $ 15,490 $ 18,032
Preferred stock dividends 650 650 1,950 1,950
----------- ----------- ----------- -----------
Subtotal 3,813 4,311 13,540 16,082
Accretion of preferred stock 412 412 1,237 1,237
----------- ----------- ----------- -----------
Total $ 3,401 $ 3,899 $ 12,303 $ 14,845
=========== =========== =========== ===========
Basic earnings per average common share:
Weighted average shares outstanding 22,071,524 22,001,656 22,052,284 21,999,477
=========== =========== =========== ===========
Income per average common share $ 0.15 $ 0.17 $ 0.56 $ 0.67
=========== =========== =========== ===========
Diluted earnings per average common share:
Weighted average shares outstanding 22,071,524 22,001,656 22,052,284 21,999,477
Dilutive shares resulting from stock options
Redeemable preferred stock (1) 552,646 386,040 607,417 244,179
----------- ----------- ----------- -----------
Weighted average shares and common stock
equivalents outstanding 22,624,170 22,387,696 22,659,701 22,243,656
=========== =========== =========== ===========
Income per average common share $ 0.15 $ 0.17 $ 0.54 $ 0.67
=========== =========== =========== ===========
</TABLE>
(1) In 1998 and 1997 the conversion of redeemable preferred stock into 1,457,143
shares of common stock using the "if converted" method is anti-dilutive.
<PAGE>
7. The Company's contract with the Communications Workers of America ("CWA")
which was set to expire on November 30, 1997, has been extended by joint
agreement between the Company and the Union. As of September 30, 1998,
approximately 40% of the CTE workforce was covered under collective bargaining
agreements. The Company has developed a contingency plan in the event of a
strike and does not expect a strike will impact the Company's operations or
financial results. Negotiation sessions most recently occurred on November 9,
1998. The Union is currently reviewing the Company's latest offer and no new
negotiation sessions have been scheduled.
8. In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 - "Reporting Comprehensive
Income" ("SFAS 130"). This statement, which establishes standards for reporting
and disclosure of comprehensive income, is effective for interim and annual
periods beginning after December 15, 1997. The Company does not currently have
any material items subject to disclosure pursuant to SFAS 130.
9. On September 23, 1998, the Company's "shelf" Registration Statement, which
will allow the Company to offer up to $200,000 of newly issued Subordinated Debt
Securities, Preferred Stock, Common Stock, or Rights from time to time, was
declared effective by the Securities and Exchange Commission ("SEC"). The
securities to be offered may be offered in one or more series and in amounts, at
prices and on terms to be determined at or prior to the time of sale. Specific
terms of the securities will be set forth in a prospectus supplement relating to
a particular issue of securities.
This SEC filing shall not constitute an offer to sell or the solicitation of an
offer to buy nor shall there be any sale of these securities in any state in
which such offer, solicitation or sale would be unlawful prior to the
registration or qualification under the securities laws of any such state.
10. On September 25, 1998 the Company commenced a Rights Offering of 3,678,612
shares of its Common Stock pursuant to the Registration Statement discussed
under paragraph 9 above. The Rights Offering expired at 5:00 p.m. EST October
23, 1998. Shareholders of record at the close of business on September 25, 1998
received one transferable subscription right for every five shares of Common
Stock or Class B Common Stock held. Rights holders were permitted to purchase
one share of Common Stock for each right held at a subscription price of $21.25
per share. To the extent the rights were not exercised, holders exercising their
rights were permitted to oversubscribe for the unpurchased shares at the same
$21.25 per share price. The available shares were allocated to the holders
exercising the oversubscription privilege pro rata based on the number of shares
requested. Each holder exercising the oversubscription privilege received
approximately 8% of the shares requested. Level 3 Telecom Holdings, Inc. which
owned approximately 48% of the outstanding Common Stock and approximately 48% of
the outstanding Class B Common Stock prior to the Rights Offering, exercised the
1,776,065 rights it received in respect of the shares it held. The net proceeds
of the Rights Offering were approximately $77,000.
11. In the third quarter of 1998, the Company borrowed $11,000 against its
revolving credit facility primarily to fund CTSI's expansion. The Company has
outstanding borrowings of $105,500 against this revolving credit facility at
September 30, 1998. On October 29 and 30, 1998 the Company used a portion of the
gross proceeds from the Stock Rights Offering to reduce $77,000 of outstanding
indebtedness on this credit facility.
12. Certain reclassifications have been made to 1997 to conform with the 1998
reporting format.
<PAGE>
13. In June, 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 133 ("SFAS 133"). This statement,
which establishes accounting and reporting standards for derivative instruments
and for hedging activities, is effective for the first quarter of fiscal years
beginning after June 15, 1999. The Company does not currently have any items
subject to disclosure pursuant to SFAS 133.
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
(Thousands of dollars except per share data)
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this Quarterly
Report is forward-looking, such as information relating to the effects of future
regulation and competition, statements made in relation to Year 2000 compliance,
and statements made as to plans to construct and develop additional markets.
Such forward-looking information involves important risks and uncertainties that
could significantly affect expected results in the future differently than
expressed in any forward-looking statements made by, or on behalf of, the
Company. These risks and uncertainties include, but are not limited to,
uncertainties relating to the Company's ability to penetrate new markets and the
related cost of that effort, economic conditions, acquisitions and divestitures,
government and regulatory policies, the pricing and availability of equipment,
materials and inventories, technological developments, pending and future
litigation, penetration, churn rates, availability of future financing and
changes in the competitive environment in which the Company operates.
The following discussion should be read in conjunction with the attached
Condensed Consolidated Financial Statements and notes thereto and with the
Company's audited financial statements and notes thereto included in the
Company's Form 10-K for the fiscal year ended December 31, 1997, together with
any amendment thereto.
The Company's operating income before depreciation, amortization and management
fees ("EBITDA") was $22,514 for the three months ended September 30, 1998 as
compared to $21,049 for the three months ended September 30, 1997. The
improvement in EBITDA was primarily the result of lower EBITDA losses at CTSI
and higher EBITDA from CT. Sales increased 14.7% and were $57,748 and $50,359
for the three months ended September 30, 1998 and 1997, respectively.
Contributing to the sales increase were higher sales of CT of $1,814, CTSI of
$4,748 and Other of $827. The sales for the three months ended September 30,
1997 include a one-time favorable impact of a National Exchange Carrier
Association revenue settlement (the "NECA settlement") of $763. Excluding the
impact of the NECA settlement, the Company's sales for the three months ended
September 30, 1997 were $49,596. On a normalized basis, the sales for the three
months ended September 30, 1998 were $8,152 or 16.4% greater than the normalized
sales for the same period in 1997.
Income from continuing operations was $4,463 and $4,961 for the three months
ended September 30, 1998 and 1997, respectively. This decrease reflects higher
interest, depreciation and income tax expense, partially offset by lower
management fees and the increased EBITDA discussed above. Net income to common
shareholders was $3,406 or $.15 per diluted average common share for the three
months ended September 30, 1998 as compared to net income to common shareholders
of $109 or $.00 per diluted average common share for the three months ended
September 30, 1997. Net income to common shareholders for the three months ended
September 30, 1997 includes a loss from discontinued operations of ($3,790) or
($.17) per diluted average common share. Excluding the favorable impact of the
NECA settlement on 1997 net income of $446, net loss to common shareholders
<PAGE>
for the three months ended September 30, 1997 was ($337) or ($.02) per diluted
average common share.
For the nine months ended September 30, 1998 the Company's EBITDA was $66,200 as
compared to $61,694 for the same period in 1997. The increase in EBITDA is
primarily due to increased sales of CT. Sales increased 14.7% and were $166,662
and $145,325 for the nine months ended September 30, 1998 and 1997,
respectively. Contributing to the increase were higher sales of CT of $7,557,
CTSI of $12,515 and Other Operations of $1,265. The sales for the nine months
ended September 30, 1997 include a favorable one-time NECA settlement of $763.
Excluding the impact of the NECA settlement, the Company's sales for the nine
months ended September 30, 1997 were $144,562. On a normalized basis, the sales
for the three months ended September 30, 1998 were $22,100 or 15.3% greater than
the normalized sales for the same period in 1997.
Income from continuing operations was $15,490 and $18,032 for the nine months
ended September 30, 1998 and 1997, respectively. This decrease reflects higher
interest and depreciation expense, partially offset by lower income tax expense
and the increased EBITDA discussed above. Net income to common shareholders was
$12,277 or $.54 per diluted average common share for the nine months ended
September 30, 1998 as compared to net loss to common shareholders of ($21,314)
or ($.96) per diluted average common share for the nine months ended September
30, 1997. Net income to common shareholders for the nine months ended September
30, 1997 includes a loss from discontinued operations of ($36,159) or ($1.63)
per diluted average common share. Excluding the favorable impact of the NECA
settlement on 1997 net income of $446, net loss to common shareholders for the
nine months ended September 30, 1997 was ($21,760) or ($.98) per diluted average
common share.
Selected data by business segment was as follows:
Sales
Quarter ended Nine months ended
September 30, September 30,
----------------------- -----------------------
1998 1997 1998 1997
-------- -------- -------- --------
CT $ 39,166 $ 37,352 $115,500 $107,943
CTSI 6,205 1,457 15,084 2,569
Other 12,377 11,550 36,078 34,813
-------- -------- -------- --------
Total $ 57,748 $ 50,359 $166,662 $145,325
======== ======== ======== ========
Operating income before depreciation and amortization is commonly used in the
communications industry to analyze companies on the basis of operating
performance, leverage and liquidity. Operating income before depreciation and
amortization is not intended to represent cash flows for the period and should
not be considered as an alternative to cash flows from operating, investing or
financing activities as determined in accordance with U.S. GAAP. Operating
income before depreciation and amortization is not a measurement under U.S. GAAP
and may not be comparable with other similarly titled measures of other
companies.
<PAGE>
Operating income (loss) before depreciation and amortization
<TABLE>
<CAPTION>
Quarter ended Quarter ended
September 30, 1998 September 30, 1997
----------------------------------- -----------------------------------
CT CTSI Other Total CT CTSI Other Total
-- ---- ----- ----- -- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA before
management fees $23,723 $(1,799) $ 590 $22,514 $23,115 $(3,287) $ 1,221 $21,049
Management fees 1,371 217 433 2,021 2,315 318 375 3,008
------- ------- ------- ------- ------- ------- ------- -------
EBITDA after
management fees $22,352 $(2,016) $ 157 $20,493 $20,800 $(3,605) $ 846 $18,041
</TABLE>
<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 30, 1998 September 30, 1997
----------------------------------- -----------------------------------
CT CTSI Other Total CT CTSI Other Total
-- ---- ----- ----- -- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA before
management fees $70,270 $(6,350) $ 2,280 $66,200 $66,089 $(6,775) $ 2,380 $61,694
Management fees 4,043 528 1,263 5,834 5,242 429 817 6,488
------- ------- ------- ------- ------- ------- ------- -------
EBITDA after
management fees $66,227 $(6,878) $ 1,017 $60,366 $60,847 $(7,204) $ 1,563 $55,206
</TABLE>
<TABLE>
<CAPTION>
Operating Data
September 30,
------------------------
1998 1997 % change
------ ------- --------
<S> <C> <C> <C>
CT access lines 271,451 253,862 6.9%
CTSI access lines* 35,933 10,347 247.3%
</TABLE>
* Excludes customer circuits in service ("VGEs") of 11,208 and 4,392 for the
quarters ended September 30, 1998 and 1997, respectively. VGEs are another
measure of network utilization.
Commonwealth Telephone Company ("CT")
Sales were $39,166 and $37,352 for the quarters ended September 30, 1998 and
1997, respectively. The sales for the three months ended September 30, 1997
include a favorable one-time NECA settlement of $763. Excluding the impact of
the NECA settlement, CT's sales for the three months ended September 30, 1997
were $36,589. On a normalized basis, the sales for the three months ended
September 30, 1998 were $2,577 or 7% greater than the normalized sales for the
same period in 1997. The sales increase is primarily due to higher access and
local service revenue resulting from an increase in switched access lines by
17,589 or 6.9%.
The growth in switched access lines reflects CT's success in promoting second
line sales throughout its territory. The increase in access revenue includes
interstate access revenue which increased $586 resulting from the growth in
access lines and minutes of use and state access revenue which increased $1,251
due to an increase in IntraLATA minutes. Local service revenue increased $529 as
a result of the increase in switched access lines.
CT's sales were $115,500 and $107,943 for the nine months ended September 30,
1998, and 1997, respectively. Excluding the impact of the NECA settlement, CT's
sales for the nine months ended September 30, 1997 were $107,180. On a
normalized basis, the sales for the nine months ended September 30, 1998 were
$8,320 or 7.8% greater than the normalized sales for the same period in 1997.
Interstate access revenue increased $2,837 as a result of the growth in switched
access lines and access minutes; State access revenue increased by $2,837 due
<PAGE>
to an increase in IntraLATA minutes. Local service revenue increased $1,368 as a
result of the increase in switched access lines. As a result of increased
penetration, primarily in Caller ID, vertical service revenue increased $1,021,
or 30%.
Operating expenses excluding depreciation, amortization and management fees for
the quarter ended September 30, 1998 were $15,443 as compared to $14,237 for the
quarter ended September 30, 1997. Contributing to the increase of $1,206 or 8.5%
is an increase in payroll and benefits resulting from incentive plan payouts
based on quarterly results, annual salary increases and new customer service and
outside technician positions.
Operating expenses excluding depreciation, amortization and management fees for
the nine months ended September 30, 1998 were $45,230 as compared to $41,854 for
the nine months ended September 30, 1997. Contributing to the increase of $3,376
or 8.1% is an increase in payroll and benefits resulting from incentive plan
payouts based on quarterly results, annual salary increases and new customer
service and outside technician positions.
CTSI, Inc. ("CTSI")
CTSI revenues were $6,205 for the quarter ended September 30, 1998 as compared
to $1,457 for the same period in 1997. The increase of $4,748 represents an
increase in local, toll and access revenues as a result of the continued
penetration into the current CTSI markets, including Northeastern, Harrisburg
and Central Pennsylvania, and most recently, the Southern Upstate New York
market. At September 30, 1998, CTSI had 35,933 switched access lines installed
versus 10,347 switched access lines installed at the quarter ended September 30,
1997. In the three and nine months ended September 30, 1998, CTSI added switched
access lines of 6,764 and 17,915, respectively.
CTSI revenues were $15,084 for the nine months ended September 30, 1998 and
$2,569 for the same period in 1997. The increase of $12,515 is primarily due to
the increased penetration of customers and lines in the Northeastern, Harrisburg
and Central Pennsylvania markets.
Operating expenses, excluding depreciation and amortization and management fees
were $8,004 and $4,744 for the quarters ended September 30, 1998 and 1997,
respectively. This increase of $3,260 is primarily due to the penetration into
the three markets noted above and the first quarter, 1998 expansion into the
Southern Upstate New York market. These expenses represent employee related
costs associated with sales, operations, and support staff, building rental
expense, leased loop charges, long distance expense and terminating access from
ILECs.
Operating expenses excluding depreciation, amortization, and management fees
were $21,434 and $9,344 for the nine months ended September 30, 1998 and 1997,
respectively. The increase of $12,090 is due to the expansion in the first
quarter of 1998 into the Southern Upstate New York market and the increased
penetration into the Northeastern and Harrisburg and Central Pennsylvania
markets. These expenses represent employee related costs associated with sales,
operations, and support staff, building rental expense, circuit rental expense,
leased loop charges, long distance expense, MIS expenses, and terminating access
from ILECs.
Other
Other sales were $12,377 and $11,550 for the quarters ended September 30, 1998
and 1997, respectively. The increase of $827 is primarily due to increased epix
(R) ("epix") sales of $914 or 61.7%. This increase in sales reflects the
<PAGE>
continued demand for high-speed Internet access and website development and
hosting services. Commonwealth Communications ("CC") revenue increased $718 as a
result of an increase in non-recurring revenues from premises distribution
system and business system upgrade contracts, partially offset by a decline in
data communication contracts. Commonwealth Long Distance Company ("CLD") revenue
decreased $803 primarily as customers switched to alternate long distance
providers due to CLD's above industry rates. The Company expects this trend to
continue.
For the nine month period ended September 30, 1998, other sales were $36,078 as
compared to $34,813 for the same period in 1997. The increase of $1,265 is a
result of increased epix sales of $2,681 or 66.1%, CC sales of $1,242, partially
offset by an expected decline in CLD sales of $2,656.
Other costs and expenses, excluding depreciation, amortization and management
fees were $11,787 and $10,329 for the quarters ended September 30, 1998 and
1997, respectively. The increase of $1,458 represents increased costs, primarily
payroll and benefits, advertising and transport costs associated with the growth
of epix and increased costs of goods sold for CC associated with higher sales,
partially offset by lower costs of CLD due in part to lower sales.
Other costs and expenses, excluding depreciation, amortization and management
fees were $33,798 and $32,433 for the nine months ended September 30, 1998 and
1997, respectively. The increase of $1,365 represents increased costs, primarily
payroll and benefits, advertising and transport costs associated with the growth
of epix and increased costs of goods sold for CC associated with higher sales,
partially offset by lower costs of CLD due in part to lower sales.
Depreciation and amortization
Depreciation and amortization increased $1,729 or 21.5% for the quarter ended
September 30, 1998 as compared to the quarter ended September 30, 1997.
Depreciation and amortization increased $4,509 or 19.8% for the nine months
ended September 30, 1998 as compared to the nine months ended September 30,
1997. The increases for both the quarterly and nine-month periods are due to a
higher depreciable plant balance as a result of CT and CTSI capital expenditures
during 1997 and 1998.
Interest expense
Interest expense includes interest on CT's mortgage note payable to the National
Bank for Cooperatives, interest on CTE's revolving credit facility and
amortization of debt issuance costs. Interest expense was $3,370 and $2,523 for
the quarters ended September 30, 1998 and 1997, respectively, and $9,572 and
$6,656 for the nine months ended September 30, 1998 and 1997, respectively. The
increases for both the quarterly and nine-month periods are primarily due to
interest on borrowings of $75,000 in the third quarter of 1997 against the
revolving credit facility, the proceeds of which were used to fund an equity
contribution to RCN prior to the Distribution, second quarter 1998 borrowings of
$19,500 against this credit facility to fund CTSI's expansion, partially offset
by lower interest expense on the mortgage note payable to the National Bank for
Cooperatives. In the third quarter 1998, CTE borrowed $11,000 against this
credit facility primarily to fund CTSI's expansion.
<PAGE>
Income taxes
The Company's effective income tax rates for continuing operations were 45.6%
and 41.1% for the quarters ended September 30, 1998 and 1997, respectively. The
Company's effective income tax rates for continuing operations were 43.6% and
41.3% for the nine months ended September 30, 1998 and 1997, respectively. The
difference between the effective rates and the amounts computed by applying the
statutory federal rate is primarily attributable to state income taxes net of
federal benefit. The effective rate is higher in 1998 since state tax benefits
have not been fully realized on the losses of CTSI due to valuation allowances
offsetting state deferred tax assets and state limitations on the amount of net
operating loss carryforwards.
Regulation
CT, in providing telecommunications services in the Commonwealth of
Pennsylvania, is subject to regulation by the Pennsylvania PUC. CT submitted its
Plan to the Pennsylvania PUC pursuant to a state law whereby local exchange
carriers may agree to enhance their network's bandwidth capability in exchange
for lessened regulatory oversight. On February 19, 1997, the Pennsylvania PUC
approved CT's Plan, which provides CT with authority to (i) increase its basic
service rates based on the rate of inflation minus 2.0 percent beginning in
1999, subject to certain limitations; (ii) implement revenue-neutral rate
rebalancing; and (iii) adjust rates to compensate for exogenous events such as
jurisdictional cost shifts or legislative mandates. CT agreed to maintain
current price levels in the aggregate for basic or non-competitive services for
two years, but maintained the right to rebalance rates for such services,
including dialtone, IntraLATA toll and access rates, immediately, subject to
approval of the Pennsylvania PUC. On March 26, 1998, the Pennsylvania PUC
approved CT's rate rebalancing plan, which, among other things, raised basic
service rates on April 1, 1998 for primary lines by $2.45. The Company does not
expect the rate rebalancing to have an impact on margins.
Liquidity and capital resources
September 30, December 31,
1998 1997
------------- ------------
Cash and temporary cash investments $ 5,528 $ 14,017
Working capital $ (1,056) $ (4,018)
Long-term debt (including current maturities) $ 200,100 $ 176,357
Nine months ended September 30,
1998 1997
--------- --------
Net cash provided by operating activities $ 28,992 $ 45,272
Investing activities:
Additions to property, plant and equipment $ 59,738 $104,282
Cash and temporary cash investments was $5,528 at September 30, 1998 as compared
to $14,017 at December 31, 1997. The Company's working capital ratio for
continuing operations was 0.99 to 1 at September 30, 1998 as compared to 0.95 to
1 at December 31, 1997.
<PAGE>
For the nine months ended September 30, 1998, the Company's net cash provided by
operating activities was $28,992 comprised primarily of net income of $15,464,
non-cash depreciation and amortization of $27,323 partially offset by other
non-cash items of ($4,187) and working capital changes of ($9,608). Net cash
used in investing activities of $59,786 consisted primarily of additions to
property, plant and equipment of $59,738. Net cash provided by financing
activities of $22,305 consisted primarily of borrowings of $30,500 on the
revolving credit facility, proceeds from the exercise of stock options of $652
partially offset by redemption of long-term debt of ($6,757) and preferred
dividends of ($1,950).
The Company currently has adequate resources to meet its short-term obligations,
including cash on hand of $5,528 and $19,500 of availability under its revolving
credit facility at September 30, 1998. On October 29 and 30, 1998, the Company
received gross proceeds of $78,272 from the issuance of stock associated with
its September 25, 1998 Common Stock Rights Offering (discussed below). The
Company used $77,000 of the gross proceeds from the Offering to reduce
outstanding indebtedness on its revolving credit facility. Net proceeds from the
Offering are expected to be approximately $77,000.
On September 23, 1998, the Company's "shelf" Registration Statement, which
will allow the Company to offer up to $200,000 of newly issued Subordinated Debt
Securities, Preferred Stock, Common Stock, or Rights from time to time, was
declared effective by the Securities and Exchange Commission ("SEC"). The
securities to be offered may be offered in one or more series and in amounts, at
prices and on terms to be determined at or prior to the time of sale. Specific
terms of the securities will be set forth in a prospectus supplement relating to
a particular issue of securities.
This SEC filing shall not constitute an offer to sell or the solicitation of an
offer to buy nor shall there be any sale of these securities in any state in
which such offer, solicitation or sale would be unlawful prior to the
registration or qualification under the securities laws of any such state.
On September 25, 1998 the Company commenced a Rights Offering of 3,678,612
shares of its Common Stock pursuant to the Registration Statement discussed
above. The Rights Offering expired at 5:00 p.m. EST October 23, 1998.
Shareholders of record at the close of business on September 25, 1998 received
one transferable subscription right for every five shares of Common Stock or
Class B Common Stock held. Rights holders were permitted to purchase one share
of Common Stock for each right held at a subscription price of $21.25 per share.
To the extent the rights were not exercised, holders exercising their rights
were permitted to oversubscribe for the unpurchased shares at the same $21.25
per share price. The available shares were allocated to the holders exercising
the oversubscription privilege pro rata based on the number of shares requested.
Each holder exercising the oversubscription privilege received approximately 8%
of the shares requested. Level 3 Telecom Holdings, Inc. which owned
approximately 48% of the outstanding Common Stock and approximately 48% of the
outstanding Class B Common Stock prior to the Rights Offering, exercised the
1,776,065 rights it received in respect of the shares it held. The net proceeds
of the Rights Offering were approximately $77,000.
The Company presently intends to judge the success of its initial rollout of the
CTSI business in deciding whether to undertake additional capital expenditures
to further expand the network to additional areas. The Company expects that the
further expansion of the CTSI business will require significant capital to fund
the network development and operations, including funding the development of its
fiber optic networks and funding operating losses. The Company's operations have
required and will continue to require substantial capital investments for the
design, construction, and development of additional networks and services.
<PAGE>
The Company plans on funding current expansion plans through internally
generated funds from operations. Sources of funding for the Company's further
capital requirements may include financing from public offerings or private
placements of equity and/or debt securities, and bank loans. There can be no
assurance that additional financing will be available to the Company or, if
available, that it can be obtained on a timely basis and on acceptable terms.
Failure to obtain such financing could result in the delay or curtailment of the
Company's development and expansion plans and expenditures.
The Company anticipates that future cash flows will be used principally to
support operations and finance growth of the business and, thus, the Company
does not intend to pay cash dividends on the Company Common Stock in the
foreseeable future. The payment of any cash dividends in the future will be at
the discretion of the Company's Board of Directors. The declaration of any
dividends and the amount thereof will depend on a number of factors, including
the Company's financial condition, capital requirements, funds from operations,
future business prospects and such other factors as the Company's Board of
Directors may deem relevant.
As a result of factors such as the significant expenses associated with the
development of new networks and services, the Company anticipates that its
operating results could vary significantly from period to period.
Year 2000 Disclosure
State of Readiness.
The Company has certain financial, administrative and operational
systems which are not Year 2000 compliant. The Company has performed a study to
identify those specific systems which require remediation and developed a plan
to correct such situations in a timely fashion. The plan includes procedures
which are designed to ensure that those systems for which the Company is
dependent on external vendors, such as certain billing systems, will be Year
2000 compliant by the end of 1999 based on the status of external vendors'
remediation efforts. The Company has identified the following plan phases: (i)
Awareness, which includes defining the problems presented; (ii) Inventory, which
includes a detailed evaluation, by system, of the size and complexity of Year
2000 problems, if any; (iii) Assessment, which consists of evaluating the Year
2000 compliance status of the inventory (including assessment of vendors'
compliance), through contact with vendors, and the solutions required; (iv)
Renovation, which includes the actual repair, upgrade, replacement, or re-
engineering of various systems; (v) Validation, which includes testing of
affected systems; (vi) Implementation, whereby renovated systems are placed in
production; and (vii) Post Implementation, which includes contingency planning.
For those internal systems that require corrective action, the Company
has contracted with its information systems services provider to rewrite the
relevant programming code. The Company is in the process of converting its suite
of financial systems to an Oracle system. Such system is expected to ensure Year
2000 compliance in financial applications, enable the Company to process and
report its financial transactions more efficiently, and provide a greater level
of detailed information to facilitate management's analysis which is critical to
its business decisions. Testing of components of critical operational systems
(systems such as billing, customer support, tolls and rating) already has begun,
with further tests and data evaluation to occur in late 1998 and 1999. The
Company expects that renovation of its mission-critical systems (systems whose
failure would have an adverse impact on the operation of the Company) will be
completed by the end of 1998, and expects non-critical system renovation to be
complete by the end of the first quarter of 1999.
The Company is employing a team approach across its MIS, financial and
operational groups in addressing the above issue, as well as utilizing the
assistance of external consultants in the case of the Oracle implementation.
<PAGE>
Costs of Remediation.
Although the total costs to remedy the Year 2000 issue cannot be
precisely estimated and may change over time, excluding the costs of the Oracle
system, the Company incurred costs of approximately $1,875 during the first nine
months of 1998 (which included approximately $709 of hardware costs) and
anticipates spending an aggregate of approximately $3,408 during the remainder
of 1998 and 1999 (which includes approximately $274 of hardware costs). These
costs will be expensed as incurred, unless new systems are purchased that should
be capitalized in accordance with Generally Accepted Accounting Principles. Some
of the costs represent ongoing investment in systems upgrades, the timing of
which is being accelerated in order to facilitate Year 2000 compliance. In some
instances, such upgrades will position the Company to provide more and better
quality services to its customers than they currently receive. The Company
expects to fund these costs with cash provided by operations. There is no
assurance that the Company's Year 2000 compliance plan will progress as
intended. While the Company continues to refine its Year 2000 remediation
efforts and the associated costs, based on the information most currently
available, the Company does not believe that its cost of Year 2000 remediation
will be material.
Risks.
The most reasonably likely risks of failure by the Company or its
supplier to resolve the Year 2000 problem would be an inability to provide
service for the Company's customers and an inability on the part of the Company
to timely process service requests and billings for its customers. As a result,
while the company believes its plan for Year 2000 remediation and testing of its
operational telephone networks is on schedule, the Company is unable to
determine the impact that any system interruption in interconnected third party
networks would have on the Company's business, financial condition, and results
of operations.
Third Parties.
The Year 2000 compliance status of interconnected third party networks
is not yet fully known. The Company has made and expects to continue to make
inquiry of interconnected third party networks and industry work groups
addressing the Year 2000 issues concerning testing and compliance. While the
Company understands that members of the US public switched telephone network
are, individually and collectively, working on remediation and testing of Year
2000 network issues, there can be no assurances that remediation or test results
will be complete or available for all configurations of interconnected software
and equipment used by the Company in connection with the network.
The Company has, over many years, sold, leased and maintained telephone
equipment manufactured by third parties and owned by the Company's customers,
known as Customer Premises Equipment ("CPE"), which is attached to the Company's
network. Certain CPE, including Private Branch Exchanges ("PBXs"), include
certain date-sensitive features, such as voice messaging and customer-owned cost
accounting systems. These systems or features may encounter Year 2000 processing
problems resulting in system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
Currently the Company is engaged with customers in various phases of
their Year 2000 programs as applied to CPE, including customer awareness,
inventory, assessment, renovation, validation and implementation. The Company is
assembling an inventory of CPE potentially subject to Year 2000 problems, in
order to further assess the risks to the Company if CPE sold, leased or
maintained by the Company is not Year 2000 compliant or cannot be made Year 2000
compliant in a timely manner. The Company has obtained and continues to seek
information, representations and assurances from manufacturers whether the CPE
<PAGE>
made by them is Year 2000 compliant. Certain customers currently are making CPE
renovations.
Many of the Year 2000 issues related to CPE are outside the Company's
control, including the information on CPE Year 2000 problems and solutions, and
manufacturer or customer decisions to provide or install such solutions. Whether
manufacturers or owners will make or complete necessary CPE repairs on a timely
basis is not yet fully known. As a result, the Company is unable to determine
the impact that any CPE interruption would have on the Company's business,
financial condition, and results of operations.
Contingency Plans.
Contingency plans to restore and maintain services as a result of
software-related problems are in the development phase. The Company intends on
leveraging its years of telecommunications and information technology experience
in order to meet the challenges associated with the Year 2000.
The above discussion contains statements that are "forward-looking".
The above information is based on our current best estimates, which were derived
using numerous assumptions of future events, including the availability and
future costs of certain technological and other resources, third party
modification actions and other factors. Although the Company believes that its
statements are based on reasonable assumptions, given the complexity of these
issues and possible as yet unidentified risks, actual results may vary
materially from those anticipated and discussed above. Specific factors that
might cause such differences include, among others the availability and cost of
personnel trained in this area, the ability to locate and correct all affected
computer codes, the timing and success of remedial efforts of our third party
suppliers and similar uncertainties. No assurance can be given that third
parties on whom the Company depends for essential services (such as electric
utilities, interexchange carriers, software and hardware equipment suppliers,
etc.) will convert their critical systems and processes in a timely manner.
Failure or delay by any of these parties could significantly disrupt the
Company's business, financial condition, or results of operations.
<PAGE>
Item 1. Legal Proceedings
The information required under Item 1 of Part II is included in Note 5
to the financial statements set forth in Part I hereof and is
specifically incorporated herein by reference thereto.
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits
(27-27.1) Financial Data Schedule
(b.) Reports on Form 8-K
None.
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.
Date: November 16, 1998 Commonwealth Telephone Enterprises, Inc.
/s/ Bruce Godfrey
Bruce C. Godfrey
Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 5,528
<SECURITIES> 0
<RECEIVABLES> 43,622
<ALLOWANCES> 1,098
<INVENTORY> 10,378
<CURRENT-ASSETS> 70,304
<PP&E> 562,972
<DEPRECIATION> 242,122
<TOTAL-ASSETS> 409,584
<CURRENT-LIABILITIES> 71,360
<BONDS> 191,090
43,754
0
<COMMON> 22,380
<OTHER-SE> 28,779
<TOTAL-LIABILITY-AND-EQUITY> 409,584
<SALES> 0
<TOTAL-REVENUES> 166,662
<CGS> 0
<TOTAL-COSTS> 91,455
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,689
<INTEREST-EXPENSE> 9,572
<INCOME-PRETAX> 26,038
<INCOME-TAX> 11,981
<INCOME-CONTINUING> 15,490
<DISCONTINUED> (26)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,464
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.54
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,738
<SECURITIES> 0
<RECEIVABLES> 37,699<F1>
<ALLOWANCES> 1,466
<INVENTORY> 10,372
<CURRENT-ASSETS> 62,716
<PP&E> 528,823
<DEPRECIATION> 230,295
<TOTAL-ASSETS> 375,824
<CURRENT-LIABILITIES> 74,849
<BONDS> 165,095
42,929
0
<COMMON> 22,380
<OTHER-SE> 19,876
<TOTAL-LIABILITY-AND-EQUITY> 375,824
<SALES> 0
<TOTAL-REVENUES> 53,235
<CGS> 0
<TOTAL-COSTS> 28,829<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 715
<INTEREST-EXPENSE> 3,080
<INCOME-PRETAX> 8,823
<INCOME-TAX> 3,875
<INCOME-CONTINUING> 5,066
<DISCONTINUED> 5
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,071
<EPS-PRIMARY> .22
<EPS-DILUTED> .21
<FN>
<F1>Receivables and Total Costs have been restated to conform with the December,
1997 reporting format.
</FN>
</TABLE>
