<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 March 31, 2000
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)
(570) 631-2700
(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 March 31, 2000
Common Stock 20,249,673
Class B Common Stock 2,088,005
<PAGE>
COMMONWEALTH TELEPHONE ENTERPRISES, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of
Operations-Quarters ended
March 31, 2000 and 1999
Condensed Consolidated Balance Sheets-
March 31, 2000 and December 31, 1999
Condensed Consolidated Statements of Cash Flows-
Quarters Ended March 31, 2000 and 1999
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial
Condition
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<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>
Quarters ended
March 31,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Sales $ 69,725 $ 61,270
Costs and expenses, excluding
management fees and depreciation
and amortization 44,227 37,525
Management fees 500 2,149
Depreciation and amortization 12,927 10,555
----------- -----------
Operating income 12,071 11,041
Interest and dividend income 901 999
Interest expense (4,350) (2,692)
Other income (expense), net 161 (7)
----------- -----------
Income before income taxes 8,783 9,341
Provision for income taxes 4,413 4,307
----------- -----------
Income before equity in unconsolidated entities 4,370 5,034
Equity in income of unconsolidated entities 230 114
----------- -----------
Net income $ 4,600 $ 5,148
=========== ===========
Basic earnings per average common share:
Net income $ 0.21 $ 0.23
=========== ===========
Weighted average shares outstanding 22,286,275 22,081,193
Diluted earnings per average common share:
Net income $ 0.20 $ 0.23
=========== ===========
Weighted average shares and common
stock equivalents outstanding 23,195,165 22,859,679
</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>
March 31, December 31,
2000 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments $ 11,450 $ 21,183
Accounts receivable and unbilled revenues,
net of reserve for doubtful accounts of $2,080 at
March 31, 2000 and $1,884 at December 31, 1999 44,768 43,104
Other current assets 30,131 28,008
--------- ---------
Total current assets 86,349 92,295
Property, plant and equipment, net of accumulated
depreciation of $292,165 at March 31, 2000 and
$280,948 at December 31, 1999 448,059 420,639
Investments 9,064 9,124
Deferred charges and other assets 9,592 8,114
Unamortized debt issuance costs 1,459 1,544
--------- ---------
Total assets $ 554,523 $ 531,716
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 9,010 $ 9,010
Accounts payable 50,270 42,573
Notes payable 30,000 30,000
Accrued expenses 44,145 45,317
Other current liabilities 4,398 4,504
--------- ---------
Total current liabilities 137,823 131,404
Long-term debt 196,076 188,328
Deferred income taxes and investment tax credits 50,053 48,886
Other deferred credits 13,520 12,666
Common shareholders' equity:
Common stock 26,063 26,062
Additional paid-in capital 220,717 221,685
Retained earnings 37,762 33,162
Treasury stock at cost, 3,726,279 shares at
March 31, 2000 and 3,808,113 shares at
December 31, 1999 (127,491) (130,477)
--------- ---------
Total common shareholders' equity 157,051 150,432
--------- ---------
Total liabilities and shareholders' equity $ 554,523 $ 531,716
========= =========
</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>
Quarters ended
March 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 21,640 $ 16,324
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant & equipment (40,403) (20,924)
Other 348 586
-------- --------
Net cash used in investing activities (40,055) (20,338)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt 10,000 52,500
Redemption of long-term debt (2,252) (2,252)
Preferred dividend - (650)
Proceeds from exercise of stock options 934 2
Preferred stock redemption - (52,000)
-------- --------
Net cash provided by financing activities 8,682 (2,400)
-------- --------
Net (decrease) in cash and
temporary cash investments (9,733) (6,414)
-------- --------
Cash and temporary cash investments
at beginning of year 21,183 16,968
-------- --------
Cash and temporary cash investments at
March 31, $ 11,450 $ 10,554
======== ========
Supplemental disclosures of cash flow information
Cash paid during the periods for:
Interest $ 4,193 $ 2,550
======== ========
Income taxes $ 1,973 $ 1,130
======== ========
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
<PAGE>
COMMONWEALTH TELEPHONE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Data)
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, 1999.
1. Background and Basis of Presentation - Commonwealth Telephone Enterprises,
Inc. ("CTE," the "Company," "we" or "our") consists of Commonwealth Telephone
Company ("CT"), the nation's ninth largest independent local exchange carrier;
CTSI, Inc. ("CTSI"), a competitive local exchange carrier; and other operations
("Other"), which include Commonwealth Communications ("CC"), an engineering
services business; epix(TM) Internet Services ("epix"); Jack Flash(SM) ("Jack
Flash"), the Company's Digital Subscriber Line ("DSL") product offering; and
Commonwealth Long Distance Company ("CLD"), a reseller of long-distance
services.
2. Segment Information - Financial information by business segment is as
follows:
<TABLE>
<CAPTION>
Quarter ended March 31, 2000 CT CTSI Other Consolidated
- ------------------------------------ --------- --------- --------- -------------
<S> <C> <C> <C> <C>
Sales $47,087 $14,712 $11,051 $72,850
Elimination of intersegment sales 2,765 150 210 3,125
External sales 44,322 14,562 10,841 69,725
Adjusted EBITDA 27,343 (3,118) 773 24,998
Depreciation and amortization 8,748 3,184 995 12,927
Operating income (loss) 18,595 (6,302) (222) 12,071
Interest expense, net (1,281) - (2,168) (3,449)
Other income (expense), net (68) 85 144 161
Income (loss) before income
taxes 17,246 (6,217) (2,246) 8,783
Provision (benefit) for income
taxes 7,272 (2,095) (764) 4,413
<CAPTION>
Quarter ended March 31, 1999 CT CTSI Other Consolidated
- ------------------------------------ -------- -------- -------- ------------
<S> <C> <C> <C> <C>
Sales $43,178 $ 8,193 $12,355 $63,726
Elimination of intersegment sales 2,183 87 186 2,456
External sales 40,995 8,106 12,169 61,270
Adjusted EBITDA 23,822 (2,683) 457 21,596
Depreciation and amortization 7,997 1,771 787 10,555
Operating income (loss) 15,825 (4,454) (330) 11,041
Interest expense, net (637) - (1,056) (1,693)
Other income (expense), net (59) 38 14 (7)
Income (loss) before income
taxes 15,129 (4,416) (1,372) 9,341
Provision (benefit) for income
taxes 6,291 (1,502) (482) 4,307
</TABLE>
3. Revenue Recognition - Local telephone service is recorded based on tariffed
rates. Telephone network access and long-distance revenues are derived from
access charges, toll rates and settlement arrangements. CT's interstate access
charges are subject to a pooling process with the National Exchange Carrier
Association (NECA). Final interstate revenues are based on nationwide average
costs applied to certain demand quantities. Internet access
<PAGE>
service revenues are based on contracted fees. Long-distance telephone service
revenues are recorded based on minutes of traffic processed and tariffed rates
or contracted fees. Revenues from local telephone, Internet access and
long-distance telephone services is earned and recorded when the services are
provided. Long-term contracts of CC are accounted for on the percentage-of-
completion method. Estimated sales and earnings are recognized as equipment is
installed or contracted services rendered, with estimated losses, if any,
charged to income currently.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements", which currently must be adopted by June 30, 2000. SAB 101 provides
additional guidance on revenue recognition as well as criteria for when revenue
is generally realized and earned, and also requires the deferral of incremental
direct selling costs. We are currently assessing the impact of SAB 101 on our
results of operations.
4. Income Taxes - 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.
5. CTE Stock Options - At March 31, 2000, CTE has approximately 1,582,000
options outstanding at exercise prices ranging from $8.727 to $54.3125. During
the first three months of 2000, 125,000 options were granted, 2,335 options were
canceled and 81,834 options were exercised, yielding cash proceeds of $934.
6. Earnings per Share - Basic earnings per share amounts are based on net
income divided by the weighted average number of shares of Common Stock and
Class B Common Stock outstanding during the period.
Diluted earnings per share amounts are based on net income divided by the
weighted average number of shares of Common Stock and Class B Common Stock
outstanding during each period after giving effect to stock options considered
to be dilutive common stock equivalents.
The following table is a reconciliation of the numerators and denominators of
the basic and diluted per share computations for net income:
<TABLE>
<CAPTION>
Quarter ended
March 31,
------------------------
2000 1999
----------- -----------
<S> <C> <C>
Net income $ 4,600 $ 5,148
=========== ===========
Basic earnings per average common share:
Weighted average shares outstanding 22,286,275 22,081,193
=========== ===========
Net income $ 0.21 $ 0.23
=========== ===========
Diluted earnings per average common share:
Weighted average shares outstanding 22,286,275 22,081,193
Dilutive shares resulting from stock
options 908,890 778,486
----------- -----------
Weighted average shares and common
stock equivalents outstanding 23,195,165 22,859,679
=========== ===========
Net income $ 0.20 $ 0.23
=========== ===========
</TABLE>
7. Off Balance Sheet Risk - The Company utilizes interest rate swap agreements
to reduce the impact of changes in interest rates on its floating rate debt.
The swap agreements are contracts to exchange floating rate for fixed interest
payments periodically over the life of the agreements without exchange of the
underlying notional
<PAGE>
amounts. The notional amounts of interest rate agreements are used to measure
interest to be paid or received and do not represent the amount of exposure to
credit loss. Amounts to be paid or received under interest rate swap agreements
are accrued and recognized over the life of the swap agreements as an adjustment
to interest expense. The fair values of the swap agreements are not recognized
in the consolidated financial statements since they are accounted for as hedges.
At March 31, 2000, the Company had five interest rate swap agreements
outstanding with commercial banks. These agreements have maturity dates ranging
from three to five years and converted $75,000 of variable rate borrowings at
6.12% to fixed rate debt at a weighted average of 6.05%.
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 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; reorganizations; 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, 1999.
Results of Operations:
Quarters ended March 31, 2000 vs March 31, 1999
The Company's sales increased 13.8% and were $69,725 and $61,270 for the
quarters ended March 31, 2000 and 1999, respectively. Contributing to the sales
increase of $8,455 were higher sales of CT of $3,327 and CTSI of $6,456,
partially offset by a decline in Other sales of $1,328.
The Company's operating income was $12,071 for the quarter ended March 31, 2000
as compared to $11,041 for the quarter ended March 31, 1999. The improvement in
operating income of $1,030 was primarily the result of increased sales at CT and
CTSI and a reduction in management fees, partially offset by increased costs at
CTSI and increased consolidated depreciation expense.
Net income was $4,600 or $0.20 per diluted average common share for the quarter
ended March 31, 2000 and $5,148 or $0.23 for the quarter ended March 31, 1999.
This decrease of $548 reflects higher interest expense of $1,658 due to higher
levels of borrowing, partially offset by the increase in operating income
discussed above.
<TABLE>
<CAPTION>
Selected operating data:
March 31,
----------------
2000 1999 % Change
------- ------- --------
<S> <C> <C> <C>
CT installed access lines 301,614 281,889 7.0%
CTSI installed access lines 95,728 52,303 83.0%
</TABLE>
Commonwealth Telephone Company
Sales were $44,322 and $40,995 for the quarters ended March 31, 2000 and 1999,
respectively. The sales increase of 8.1% is primarily due to higher access and
local service revenues resulting from an increase in installed access
<PAGE>
lines of 19,725 or 7.0%. The increase in access revenue includes interstate
access revenue which increased $1,169 for the three months ended March 31, 2000,
primarily resulting from the growth in access lines and minutes of use. State
access revenue increased $1,282 for the three months ended March 31, 2000
primarily as a result of an increase in IntraLATA minutes. Local service
revenue increased $624 for the three months ended March 31, 2000 as a result of
the increase in access lines. CT's successful marketing of residential
additional lines continues to contribute to access line growth. Residential
additional line penetration was 29.8% at March 31, 2000 as compared to 22.2% at
March 31, 1999. Enhanced services revenue increased $561 or 35.0% primarily as
a result of increases in Caller ID and custom calling sales.
Operating expenses excluding depreciation, amortization and management fees for
the quarter ended March 31, 2000 were $16,679 as compared to $15,738 for the
quarter ended March 31, 1999. Contributing to the increase of $941 or 6.0% is
an increase in payroll and benefits resulting from annual salary increases,
quarterly performance-based incentives and increased health care costs caused by
inflation. Also contributing to the increase are higher operating tax expense,
primarily capital stock tax, due to increases in income, and higher costs
associated with increased penetrations of enhanced services, particularly
Caller ID.
CTSI
CTSI sales were $14,562 for the quarter ended March 31, 2000 as compared to
$8,106 for the same period in 1999. The increase of $6,456 represents an
increase in local, toll and access revenues of $4,208 primarily as a result of
the continued penetration in the Wilkes-Barre/Scranton; Harrisburg;
Lancaster/Reading, PA; Binghamton, NY; Bucks, Chester and Montgomery County, PA
and Syracuse, NY markets. Residential sales increased $1,345. At March 31, 2000,
CTSI had 95,728 installed access lines versus 52,303 installed access lines at
March 31, 1999. In the three months ended March 31, 2000, CTSI added 11,180
access lines.
Operating expenses, excluding depreciation, amortization and management fees
were $17,599 and $10,501 for the quarters ended March 31, 2000 and 1999,
respectively. The increase of $7,098 is a result of the continued growth in the
six markets noted above and the first quarter 2000 expansion into the
Charleston/Huntington, WV market. These expenses represent employee-related
costs associated with sales, operations and support staff, leased loop charges,
circuit rentals, engineering costs, billing and collection expense and
terminating access from independent local exchange carriers.
Other
Other sales were $10,841 and $12,169 for the quarters ended March 31, 2000 and
1999, respectively. The decrease of $1,328 is primarily due to decreased CC
sales of $1,300 or 20.4%. CC is intentionally reducing its premises
distribution system (cabling projects) business due to its high risk and low
margin nature. CLD sales declined $692 or 23.3% as customers switch to
alternate long-distance providers due to CLD's above average industry rates.
The Company expects this trend to continue. epix sales increased $554 or 19.6%
reflecting the continued demand for dial-up Internet access. Jack Flash
contributed $110 in sales.
Other costs and expenses, excluding depreciation, amortization and management
fees were $9,949 and $11,286 for the three months ended March 31, 2000 and 1999,
respectively. The decrease of $1,337 is due to lower costs of CC and CLD due in
part to lower sales, offset by increased costs, primarily payroll and benefits,
transport and network costs associated with the growth of epix.
<PAGE>
Adjusted EBITDA - (Earnings before interest, taxes, depreciation and
amortization, other income (expense) and equity in income of unconsolidated
entities):
<TABLE>
<CAPTION>
Quarters ended
March 31,
--------------------
2000 1999
------- -------
<S> <C> <C>
CT $27,343 $23,822
CTSI (3,118) (2,683)
Other 773 457
------- -------
Total $24,998 $21,596
======= =======
</TABLE>
Adjusted EBITDA was $24,998 and $21,596 for the quarters ended March 31, 2000
and 1999, respectively. The increase of $3,402 or 15.8% is primarily due to
increased sales of CT and CTSI and a reduction in management fees, partially
offset by increased costs and expenses of CT and CTSI.
We believe that adjusted EBITDA is an alternate measure of operations which (1)
gauges our ability to control costs and increase overall profitability and (2)
provides investors and research analysts with a benchmark against certain other
communications companies. Adjusted EBITDA is not a measurement under U.S.
Generally Accepted Accounting Principles (GAAP) and may not be comparable to
other similarly titled measures of other companies.
Depreciation and amortization
Depreciation and amortization increased $2,372 or 22.5% for the quarter ended
March 31, 2000 as compared to the quarter ended March 31, 1999. The increase
for the period is primarily due to a higher depreciable plant balance as a
result of CT and CTSI capital expenditures during 1999.
Interest expense
Interest expense includes interest on CT's mortgage note payable to the National
Bank for Cooperatives (CoBank), interest on CTE's revolving credit facility and
amortization of debt issuance costs. The Company used interest rate swaps on
$75,000 of its indebtedness to hedge interest rate exposure. The differential
to be paid or received is accrued and recognized in interest expense and may
change as interest rates change. Interest expense was $4,350 and $2,692 for the
quarters ended March 31, 2000 and 1999, respectively. The increase of $1,658 is
primarily due to increased interest expense resulting from additional net
borrowings on the credit facility in 1999 of $28,000, primarily to fund CTSI's
expansion. Interest expense on CT's mortgage note payable to the National Bank
for Cooperatives declined as a result of scheduled principal payments.
Income taxes
The Company's effective income tax rates were 49.0% and 45.6% for the quarters
ended March 31, 2000 and 1999, 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 2000 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
The Pennsylvania Public Utility Commission ("PUC") established an interim
Universal Service Fund ("USF") in its September 30, 1999, global settlement
litigation decision. Small incumbent local exchange carriers, including CT,
will receive USF subsidies. All carriers (excluding wireless carriers)
providing telecommunications services in Pennsylvania, including CT and CTSI,
will be required to contribute to the fund as of January 1, 2001. The PUC has
<PAGE>
recently proposed that USF contributions will be based on intrastate end-user
revenues. The amount of the USF contributions will be calculated on an annual
basis by the National Exchange Carrier Association ("NECA"), the interim third-
party administrator selected by the PUC.
Incumbent local telephone companies around the country have been contesting the
right of competitive local carriers, such as CTSI, to collect reciprocal
compensation on local telephone calls that terminate to Internet Service
Providers ("ISPs"). CTSI's current interconnection agreements with Bell
Atlantic have been interpreted by the state commissions in both Pennsylvania and
New York to require payment of reciprocal compensation on ISP calls. However,
this issue is the subject of continuing litigation at both the Federal and state
levels, and it is possible that CTSI's right to collect this revenue may be
affected by this litigation. During the first three months of 2000, CTSI
recorded approximately $325, or 2.2% of its revenues, for reciprocal
compensation revenues associated with ISP traffic.
Liquidity and capital resources
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- --------
<S> <C> <C>
Cash and temporary cash investments $ 11,450 $ 21,183
Working capital $(51,474) $(39,109)
Long-term debt (including current maturities) $205,086 $197,338
<CAPTION>
Quarters ended March 31,
2000 1999
-------- --------
<S> <C> <C>
Net cash provided by operating activities $ 21,640 $ 16,324
Investing activities:
Additions to property, plant and equipment $ 40,403 $ 20,924
</TABLE>
Cash and temporary cash investments were $11,450 at March 31, 2000 as compared
to $21,183 at December 31, 1999. The Company's working capital ratio was .63 to
1 at March 31, 2000 as compared to 0.70 to 1 at December 31, 1999.
For the three months ended March 31, 2000, CTE's net cash provided by operating
activities was $21,640 comprised of net income of $4,600, non-cash depreciation
and amortization of $12,927 and other non-cash items and working capital changes
of $4,113. Net cash used in investing activities of $40,055 consisted primarily
of additions to property, plant and equipment of $40,403. Net cash provided by
financing activities of $8,682 consisted primarily of borrowings on the
revolving credit facility of $10,000, partially offset by the redemption of
long-term debt of ($2,252).
We believe that we currently have adequate resources to meet our obligations,
including cash on hand of $11,450 and $116,000 of availability under revolving
credit facilities at March 31, 2000.
We expect 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. 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 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.
We anticipate that future cash flows will be used principally to support
operations and finance growth of the business and, thus, we do not intend to pay
cash dividends on the Company's common equity 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
<PAGE>
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, we anticipate that operating results
could vary significantly from period to period.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company has entered into interest rate swap agreements to adjust the
interest rate profile of our debt obligations and to achieve a targeted mix of
floating and fixed rated debt. The counterparties to the interest rate swap
agreements are major financial institutions that have been accorded high ratings
by primary rating agencies. The Company limits the dollar amount of contracts
entered into with any one financial institution and monitors the credit ratings
of these counterparties. While the Company may be exposed to credit losses due
to non-performance of the counterparties, the Company considers the risk remote
and does not expect the settlement of these transactions to have a material
effect on its result of operations or financial condition.
The table below provides information about the Company's interest rate swaps.
Notional amounts are used to calculate the contractual payments to be exchanged
under the contract. The estimated fair value amounts have been provided to the
Company by the financial institutions with which it has swap contracts using
appropriate valuation methodologies.
<TABLE>
<CAPTION>
(Dollars in thousands)
Approximate
Maturity Notional Fair Value as of
Date Fixed rate amount March 31, 2000
--------- ----------- -------- ----------------
<S> <C> <C> <C> <C>
Variable to fixed:
Hedge 1 2002 6.00% $15,000 $305
Hedge 2 2002 6.01% $10,000 $211
Hedge 3 2004 (a) 5.78% $20,000 $442
Hedge 4 2002 (b) 6.13% $15,000 $238
Hedge 5 2002 6.36% $15,000 $224
</TABLE>
(a) With an option by the counterparty to terminate the contract in 2002.
(b) Extendible to 2004 at the option of the counterparty.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) 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: May 15, 2000 Commonwealth Telephone Enterprises, Inc.
/s/ Donald P. Cawley
Donald P. Cawley
Vice President and
Chief Accounting Officer
<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, 2000 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 11,450
<SECURITIES> 0
<RECEIVABLES> 46,486
<ALLOWANCES> 2,080
<INVENTORY> 11,023
<CURRENT-ASSETS> 86,349
<PP&E> 740,224
<DEPRECIATION> 292,165
<TOTAL-ASSETS> 554,523
<CURRENT-LIABILITIES> 137,823
<BONDS> 196,076
0
0
<COMMON> 26,063
<OTHER-SE> 130,988
<TOTAL-LIABILITY-AND-EQUITY> 554,523
<SALES> 0
<TOTAL-REVENUES> 69,725
<CGS> 0
<TOTAL-COSTS> 40,179
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 749
<INTEREST-EXPENSE> 4,350
<INCOME-PRETAX> 8,782
<INCOME-TAX> 4,413
<INCOME-CONTINUING> 4,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,600
<EPS-BASIC> 0.21
<EPS-DILUTED> 0.20
</TABLE>
