FORM 10-Q QUARTERLY REPORT UNDER SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
For quarter Ended June 30, 1996 Commission File Number 0-24064
CONESTOGA ENTERPRISES, INC.
(Exact name of Registrant as specified in its charter)
PENNSYLVANIA 23-2565087
(State of Incorporation) (IRS Employer Number)
202 East First Street, Birdsboro, Pennsylvania 19508
(Address of Principal executive offices)
Registrant's telephone number, including area code (610) 582-8711
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes___X____No_______
As of June 30, 1996 the number of shares of Common Stock, par value $5.00
outstanding was 4,568,500
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS ( UNAUDITED )
June 30, 1996, June 30, 1995 and December 31, 1995
ASSETS
6/30 6/30 12/31
1996 **1995 **1995
Current Assets
Cash and Cash Equivalents $2,930,396 $1,609,586 $671,495
Accounts receivable,
including unbilled revenue 6,601,378 3,730,368 3,751,182
*Inventories, at average cos 1,347,929 733,943 576,786
Prepaid expenses 783,953 237,106 404,271
Total Current Assets 11,663,656 6,311,003 5,403,734
Investments and Other Assets
Cost in Excess of Net Assets Acquired 38,884,267 0 0
Investments in equity securities 1,604,204 2,058,990 2,361,102
Investments in partnerships 3,115,572 1,954,375 2,552,270
Nonregulated property and equipment 2,327,173 881,280 902,906
Prepaid Pension Costs 2,059,469 1,296,129 1,425,584
Other 590,327 70,963 711,773
48,581,012 6,261,737 7,953,635
Plant, at Cost
In Service 114,103,552 80,510,664 83,889,802
Under Construction 1,235,292 927,863 1,064,075
115,338,844 81,438,527 84,953,877
Less accumulated depreciation 55,202,155 37,388,906 39,716,521
Net plant in service 60,136,689 44,049,621 45,237,356
Total Assets $120,381,357 $56,622,361 $58,594,725
*Material and supplies are used to provide service
**Certain items have been restated for comparative purposes
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS ( UNAUDITED )
June 30, 1996, June 30, 1995 and December 31, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
6/30 6/30 12/31
1996 **1995 **1995
Current Liabilities
Current maturities of
long term debt $471,000 $390,000 $390,000
Accounts payable 3,367,728 1,456,060 1,982,689
Notes payable 100,000 0 500,000
Accrued:
Taxes 0 0 0
Payroll & Vacation Pay 474,139 488,422 390,372
Advance billings /
Customer Deposits 838,013 954,591 484,617
Total Current Liabilities 5,250,880 3,289,073 3,747,678
Long Term Liabilities
Long Term Debt, less
Current Maturities 27,773,000 4,840,000 4,645,000
Accrued PostRetirement Cost 521,542 374,579 447,908
Other 944,024 177,302 189,681
29,238,566 5,391,881 5,282,589
Deferred Income Taxes 10,219,264 6,899,387 7,222,136
Minority Interest (cwc) 222,313 0 253,367
Convertible\Redeemable
Preferred Stock
par value $65 per share; authorized
900,000 shares; issues and
outstanding 196,618 shares 12,780,170 0 0
Stockholders' Equity- Common stock
par value $5 per share; authorized
10,000,000 shares; issued and outstanding;
6/30/96 6/30/95 12/31/95
4,568,500 3,848,922 3,848,922 22,842,500 19,244,610 19,244,610
Additional Paid-In Capital 20,420,005 4,769,183 4,769,183
Retained earnings 19,131,013 16,859,641 17,727,271
Net unrealized appreciation on marketable
equity securities 276,646 168,586 347,891
Total Stockholders Equity 62,670,164 41,042,020 42,088,955
Total Liabilities and
Stockholders' Equity $120,381,357 $56,622,361 $58,594,725
Note - Long-term debt consisted of the
following at 6/30/96, 6/30/95 and 12/31/95
10 year term note at
prime rate due 1997 $2,500,000 $2,500,000 $2,500,000
10 year term note at
prime rate due 2002 2,340,000 2,730,000 2,535,000
Series A Senior Note at
6.91% due 2000 6,000,000 0 0
Series B Senior Note at
7.59% due 2011 16,000,000 0 0
Long term note at 8.5%
due 1998 1,404,000 0 0
$28,244,000 $5,230,000 $5,035,000
Less current Maturities 471,000 390,000 390,000
$27,773,000 $4,840,000 $4,645,000
**Certain items have been restated for comparative purposes
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
June 30,1996 *June 30, 1995
QUARTER YEAR QUARTER YEAR
Operating Revenues: ENDED TO DATE ENDED TO DATE
Local Network Service $1,705,994 $3,199,408 $1,498,436 $2,874,753
Network Access 4,204,465 7,965,840 3,627,428 6,962,856
Long Dist. Network Svc. 2,140,723 4,229,132 1,987,721 3,919,480
Nonreg. Sales & Lease 1,289,917 2,438,488 1,314,392 2,124,293
Miscellaneous 238,104 450,077 250,968 499,556
9,579,203 18,282,945 8,678,945 16,380,938
less uncollectible
operating revenues 44,160 53,878 56,507 41,871
9,535,043 18,229,067 8,622,438 16,339,067
Operating Expenses:
Plant Specific 985,461 1,754,524 879,703 1,600,585
Plant Non-Specific:
Network & Other 411,503 753,586 347,824 668,787
Depreciation 1,564,477 2,893,349 1,258,421 2,507,997
Customer Operations 1,726,277 3,291,218 1,648,526 3,114,711
Corporate Operations 774,383 1,386,812 472,922 1,001,789
Nonreg. Sales & Lease 757,551 1,459,200 699,138 1,294,589
Operating taxes, other 378,650 721,909 332,645 652,439
6,598,302 12,260,598 5,639,179 10,840,897
Operating Income 2,936,741 5,968,469 2,983,259 5,498,170
Other Income(Deductions), Net:
Interest Expense (114,163) ($224,622) (112,910) ($228,574)
Income from Partnerships 316,252 609,302 253,245 283,583
Other, Net (6,552) 35,397 24,371 60,783
195,537 420,077 164,706 115,792
Income Before Income Taxes 3,132,278 6,388,546 3,147,965 5,613,962
Income Taxes 1,361,982 2,706,505 1,233,668 2,260,087
Income Before Minority
Interest 1,770,296 3,682,041 1,914,297 3,353,875
Minority Interest in net loss
of Subsidiary 21,825 31,054 0 0
Net Income $1,792,121 $3,713,095 $1,914,297 $3,353,875
Earnings per common share $0.42 $0.92 $0.50 $0.87
Dividends per common share $0.30 $0.60 $0.30 $0.60
CONESTOGA ENTERPRISES, INC.
Consolidated Statement of Cash Flow (Unaudited)
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
1996 1995
Cash Flows from Operating Activities:
Net Income $3,713,095 $3,353,876
Adjustments to reconcile net cash
provided by operating activities:
Depreciation $2,986,221 $2,505,590
Amortization $80,346 0
Income from unconsolidated partnership interests (609,302) (283,583)
Minority interest in loss of subsidiary (31,054) 0
Changes in assets and liabilities:
(Increase) decrease in:
Accounts Receivable (230,604) (128,265)
Material and supplies (42,660) (137,227)
Prepaid expenses (113,647) 124,429
Prepaid pension costs (76,174) (186,246)
Other Assets 469,250 (13,152)
Increase (decrease) in:
Accounts Payable (862,372) (411,458)
Accrued expenses and other current liabili 169,015 139,375
Other liabilities (39,375) 71,224
Deferred income taxes 27,673 73,137
1,727,317 1,753,824
Net cash provided by operating activities 5,440,412 5,107,700
Cash Flows From Investing Activities:
Plant removal costs ($46,728) ($49,255)
Salvage from plant retired 41,150 80,790
Purchase of plant (2,162,672) (1,932,872)
Acquisition of Buffalo Valley Telephone Co. (20,154,908) 0
Capital investments in unconsolidated
partnership interests 0 0
Capital distributions from unconsolidated
partnership interests 46,000 0
Net cash used in investing activities (22,277,158) (1,901,337)
Cash Flows From Financing Activities:
Borrowings on line of credit $900,000 $0
Principal payments on line of credit (1,300,000) 0
Principal payments on long-tern debt (195,000) (195,000)
Proceeds from long term debt 22,000,000 0
Proceeds from issuance of stock under the
employee stock purchase plan 0 0
Cash dividends paid (2,309,353) (2,308,828)
Minority interest investment in subsidiary 0 0
Net cash provided by (used in) financing ac 19,095,647 (2,503,828)
Increase (decrease) in cash & cash equivalents $2,258,901 $702,535
Cash & Cash Equivalents at Beginning Of Year 671,495 907,051
Cash & Cash Equivalents at JUNE 30 $2,930,396 $1,609,586
CONESTOGA ENTERPRISES, INC.
Consolidated Statement of Cash Flow (Unaudited) Continued
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
1996 1995
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Payments for:
Interest $276,924 $226,641
Income Taxes $2,148,831 $1,609,680
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Acquisition of Buffalo Valley Telephone Company;
Working Capital acquired, net of cash and cash
equivalents of $5,458,768 $1,017,550
Other assets acquired, principally plant and
intangible assets $57,283,566
Long-term debt and other liabilities assumed ($5,208,952)
Redeemable preferred stock issued ($12,780,170)
Common stock issued ($19,248,712)
Acquisition and investment costs paid
prior to 1996 ($908,374)
$20,154,908
CONESTOGA ENTERPRISES, INC.
The information shown in this interim report is unaudited for June 30, 1996
and June 30, 1995. However, the information reflects all normal recurring
adjustments which are, in the opinion of management, necessary to a fair
statement of results for the interim periods.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE QUARTERLY INCOME STATEMENTS
Conestoga Enterprises, Inc. (CEI, or the Company) is a Pennsylvania
corporation that is doing business as a holding company which owns all of the
outstanding shares of the Conestoga Telephone and Telegraph Company (CTT),
Buffalo Valley Telephone Company (BVT), Northern Communications, Inc. (NCI),
and Conestoga Mobile Systems, Inc. (CMS). CEI has a 70 % partnership interest
in the Berks and Reading Area Cellular Enterprises Partnership (BRACE) and a
10% partnership interest in the Lancaster Area Cellular Enterprises Partnership
(LACE). It also has a 60% interest in Conestoga Wireless
Company (CWC), a limited liability company. CEI through CTT has an
11.85% limited partnership interest in Penteledata Limited Partnership I.
CEI was incorporated on January 27, 1989 under the provisions of the Business
Corporation Law of Pennsylvania, Act of May 5, 1933, P.L. 364, as amended and
supplemented to do all things and exercise all powers, rights and privileges
which a business corporation may now or hereafter be organized or authorized
to do or exercise under such act.
During the second quarter of 1995 CEI and Infocore, Inc. ( a King of Prussia,
Pa. firm) formed Conestoga Wireless Company (CWC). CWC is a Pennsylvania
limited liability company which is owned 60% by CEI and 40% by Infocore, Inc.
CWC will provide broadband personal communication services if it is successful
in acquiring licenses in the upcoming Federal Communications Commissions
Personal Communications Service (PCS) Spectrum Auction. It was not successful
in acquiring a license in the "C" Block Auction, but is planning to bid in
the upcoming "D", "E", and "F" Block Auctions.
On May 31, 1996, CEI acquired BVT in accordance with a definitive merger
agreement entered into on October 19, 1995, thus BVT became a subsidiary of
CEI. The consideration paid for each outstanding BVT share was either (i)
$65.00 in cash, (ii) one share of $3.42 Series A Convertible Preferred Stock
of CEI (par value $65.00) or (iii) 2.4 shares of CEI common stock. The total
consideration for the transaction was approximately $58 million. The holders
of 43.8% of the BVT shares elected to receive cash,
22.3% elected to receive CEI Preferred stock, and 33.9% elected to receive
CEI common stock. The acquisition was accounted for as a purchase.
The CEI consolidated financial statements for the second quarter of 1996
include one month of BVT operations.
FINANCIAL CONDITION
The cash and cash equivalents for the first six months of the current
year increased $2,258,901, part of which was acquired through the merger with
BVT. The net cash provided by operating activities was $5.4 million for the
first two quarters of 1996, an increase over the first two quarters of 1995
of 6.5%.
Capital expenditures are provided primarily by internally generated funds.
There was outside short term borrowing required at various times during the
first two quarters, with a balance remaining on June 30, 1996 of $100,000.
The cash part of the acquisition of BVT was financed through outside
financing as follows;
Series A Senior Note $6,000,000, maturing four (4) years from closing
with fixed interest rate at 6.91% to be paid quarterly in arrears,
amortized in three (3) equal annual principal payments beginning
at the end of year two (2).
Series B Senior Note $16,000,000, maturing fifteen (15) years from closing
with fixed interest rate at 7.59% to be paid quarterly in arrears,
amortized in eleven (11) equal annual principal payments beginning
at the end of year five (5).
Cash on hand was used for the remaining cash requirement of $3,136,000.
196,618 shares of CEI's $3.42 Series A Preferred stock and 719,578 shares
of CEI Common Stock were issued as part of the acquisition.
The debt (including CEI Convertible Preferred Stock ) to equity ratio as of
June 30, 1996 was 41% debt to 59% equity.
RESULTS OF OPERATIONS
Net income for the first six months of 1996, of $3,713,095, increased 10.7%
when compared with the first six months of 1995. The consolidated financial
statements (unaudited ) for the period include results from the Company and
its subsidiaries as follows:
CEI Parent Company $285,928
CTT Local Exchange Carrier $3,015,805
BVT Local Exchange Carrier (one mo) $228,077
NCI Reseller of Long Dist. Svc. $241,010
CMS Paging Services ($11,144)
CWC PCS Company ($46,581)
Net income for the second quarter of 1996, of $1,792,121 when compared with
the second quarter of 1995 shows a decrease of 6.4% . This decrease is the
result of one time revenue gain recorded in 1995, and a nonrecurring expense
recorded in 1996. Net income for the second quarter of 1996 when compared with
the first quarter of 1996 shows a decrease of 6.7%. This decrease is the
result of a retroactive adjustment to the beginning of the year for new
depreciation rates, and the non recurring expense recorded.
RESULTS OF OPERATIONS (continued)
OPERATING REVENUES
Operating Revenues for the first six months of 1996 were $18,229,067, an
increase of 11.6% when compared with the first six months of 1995. Operating
Revenues for the second quarter of $9,535,043 increased 10.6% over the second
quarter of 1995 and 9.7% over the first quarter of 1996.
The increase in operating revenues for the first six months, partially due
to the addition of BVT for one month, is comprised of the following:
Increase/
(Decrease) %
Local Service $324,655 11.3%
Access Service $1,002,984 14.4%
Long Distance Service $309,652 7.9%
Nonregulated Sales and $314,195 14.8%
Miscellaneous (net unco ($61,486) -13.4%
Local Service revenues include regulated revenues from CTT, BVT and CMS.
CTT and CMS both recorded increases in local service revenues for the six month
period and BVT added $178,000 in local service revenues.
Total access lines in service on June 30, 1996 was 70,280. CTT had 46,921
in service, CMS had 5,010, and BVT had 18,349. Total access lines added during
the first six months of 1996 (including BVT for six months) was 1,867.
Both local exchange carriers (CTT & BVT) recorded increases in access
service revenues, which is a direct result of increased minutes of use on the
toll network. Interstate-interlata minutes of use increased 12.6% and
Intrastate-interlata minutes of use increased 14.9%. Intralata terminating
minutes of use increased 9.2%.
Long Distance Service revenues include intralata toll revenues from CTT
and BVT, as well as the resale of long distance service from NCI. CTT recorded
increases for the first six months of 1996. NCI recorded a decrease of 6.3%
in operating revenues.
Nonregulated Sales and Lease revenues include sale and lease of telephone
equipment and directory advertising from CTT and BVT, as well as sale and lease
of pager and cellular equipment from CMS. CTT recorded an increase of 36.6%
in sale of telephone equipment revenue. BVT recorded nonregulated revenues for
the one month of $164,807. CMS recorded a slightly higher increase in it's
nonregulated revenues.
Miscellaneous revenues include billing and collection revenues from CTT
and BVT. The decrease is a result of an interexchange carriers take back of
certain billing and collections functions previously performed by CTT during
the third quarter of 1995.
RESULTS OF OPERATIONS (continued)
OPERATING EXPENSES
Operating Expenses for the first six months of 1996 were $12,260,598, an
increase of 13.1% when compared with the first six months of 1995. Operating
Expenses for the second quarter of $6,598,302 increased 17% over the second
quarter of 1995, and 16.5 % over the first quarter of 1996.
The increase in operating expenses for the first six months, partially due
to the addition of BVT for one month, is comprised of the following:
Increase/
(Decrease) %
Plant Specific $153,939 9.6%
Plant Non-Specific $470,151 14.8%
Customer Operations $176,507 5.7%
Corporate Operations $385,023 38.4%
Nonregulated $164,611 12.7%
Operating Taxes $69,470 10.6%
Plant Specific expenses, include CTT, BVT and CMS regulated expenses. CTT
recorded increased aerial cable expense and BVT had $97,000 in plant specific
expenses.
Plant Non-Specific expenses include charges for CTT and BVT. CTT recorded
increases in the network administration expenses for the installation of the
new line assignment software. CTT also had a depreciation study performed by
an outside consulting firm. The new rates were adopted retroactive to Jan,
1996, which increased depreciation expense for the six months of 1996 by
$45,000. BVT had $195,000 in plant non-specific expenses.
Customer Operations expenses include expenses for CTT, BVT, NCI, and CMS .
Intralata termination charges increased 14.3% during the first six months of
1996 when compared with the first six months of 1995. BVT had $90,188 in
intralata termination expense.
Corporate Operations expenses increases were due to payroll allocation changes
for the operating officers of the Company, the addition of Vice President
Finance and Administration, and the addition of Vice President Regulatory and
External Affairs, and the addition of BVT.
Nonregulated Sales and Lease expenses include expenses for CTT, BVT and CMS.
The increase is primarily due to increased cost of sales of telephone equipment
for CTT and BVT which had $110,300 in nonregulated expenses.
RESULTS OF OPERATIONS (continued)
OTHER (INCOME) DEDUCTIONS, NET
Interest on Funded Debt for the first six months of 1996 includes expense
from CTT and BVT (for one month). The interest expense for the period
decreased 1.7% when compared with the first six months of 1995. When comparing
the second quarter, 1996 with the first quarter of 1996 interest expense
increased 3.4% due to the addition of BVT. Accrual of interest on the two
senior notes began on July 1, 1996.
BVT has funded debt in the form of long-term notes issued May, 1978, at 8.5%
interest rate paid semi-annually, with $81,000 annual principal payment. The
current balance is $1,404,000, with maturity date and final payment of
$1,323,000 due June, 1998.
The before tax earnings from the two partnerships which provide cellular
telephone service increased during the first six months of 1996 when compared
with the same period of 1995. The before tax earnings for the first six months
of 1996 were $645,194, which is consistent with the earnings reported for the
last two quarters of 1995. CTT's partnership, which primarily provides access
to the internet, recorded a before tax loss for the first six months of
$35,892.
MINORITY INTEREST
The minority interest recorded during 1996 reflects Infocore, Inc.'s 40%
interest in net loss for Conestoga Wireless Company (CWC).
INCOME TAXES
Income taxes for the first six months of 1996 are $2,706,505, an increase
of 19.8% when compared with the first six months of 1995. Income taxes the
second quarter of 1996 and the first quarter of 1996 are comparable.
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
A special meeting of the shareholders of CEI was held on May 22, 1996 to
consider and take action to amend the CEI Articles of Incorporation to
authorize a class of preferred stock, and the issuance of common and
preferred stock in the merger of BVT into a subsidiary of CEI.
Proposal #1 to amend CEI Articles of Incorporation to authorize a class
of preferred stock;
For - 2,881,253 Against - 91,007 Abstain - 7,128
Proposal #2 the issuance of common and preferred stock of CEI in the
merger of BVT into a subsidiary of CEI
For - 2,890,042 Against - 61,931 Abstain - 30,800
CONESTOGA ENTERPRISES, INC.
PART II. OTHER INFORMATION
Item 6 (b) EXHIBITS AND REPORTS ON FORM 8-K
A form 8-K was filed on June 13, 1996 to report that on May 31, 1996 the
merger of BVT as a subsidiary of CEI was completed.
Amendment # 1 of form 8-K was filed on August 14, 1996 to provide the
historical financial statements of BVT and the Pro Forma condensed
consolidated financial statements of CEI, giving effect to the merger.
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.
CONESTOGA ENTERPRISES, INC.
Date August 14, 1996 By /s/ John R Bentz
_______________ _________________________________
John R. Bentz
Executive Vice President
Date August 14, 1996 By /s/ Albert H Kramer
_________________ ________________________________
Albert H. Kramer
Vice President, Finance and
Administration
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