SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission File Number 0-24064
CONESTOGA ENTERPRISES, INC.
a Pennsylvania Corporation Employer IRS No. 23-2565087
202 East First Street, Birdsboro, Pennsylvania 19508
Registrant's telephone number, including area code (610) 582-8711
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock (par value $5.00 per share)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes __X____ No _______
Indicate by check mark if disclosure of deliquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
[ ]
Indicate the number of shares outstanding of each of the issuers' classes of
Common Stock, as of the close of the period covered by this report.
Class Outstanding at December 31, 1995
Common Stock, $5.00 par value 3,848,922
The aggregate market value of the voting stock held by non-affiliates on
February 29, 1996, was $94,622,644. The stock of the Company is traded on
NASDAQ Small Cap market (ticker symbol "CENI"). Therefore, the price is based
on the most recent price at which the Company's stock has been traded.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 4, 1996, are incorporated by reference into
Part III of this report.
PART I
ITEM 1. BUSINESS
Conestoga Enterprises, Inc. (CEI, or the Company)is a Pennsylvania
corporation that is doing business as a holding company owning all of the
outstanding shares of the Conestoga Telephone and Telegraph Company (CTT),
Northern Communications, Inc. (NCI), and the Conestoga Mobile Systems, Inc.
(CMS). CEI has a 70% partnership interest in the Berks and Reading Area
Cellular Enterprises
ITEM 1. BUSINESS (Continued)
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, formed during
1995 to provide personal communication services (PCS). 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.
CEI owns all of the outstanding shares of CTT, an independent local
exchange carrier, which furnishes communication services, mainly local and
toll telephone service, to an area of approximately 300 square miles which
includes parts of the counties of Berks, Chester, Lancaster, and Montgomery,
in the Commonwealth of Pennsylvania. CTT's services are distributed through
its telephone exchanges and system of overhead and underground wire and cables.
CTT's entire telephone system is digitally equipped. The population of CTT's
service area is estimated to be 119,500, with an average annual growth rate of
.76%.
CEI became the owner of all of the outstanding stock of CTT on December
31, 1989, pursuant to a plan of merger in which the owners of all of the
outstanding shares of voting stock of CTT exchanged their shares for
outstanding shares of CEI. CEI's shares are registered under the Securities
Act of 1933.
CTT was organized and incorporated on August 20, 1902, under the laws of
the Commonwealth of Pennsylvania as a telephone utility company. CTT's
geographic service area is authorized and established by the Pennsylvania
Public Utility Commission (PUC). Such authorization is perpetual. Within
this area, at the present time, it is not in competition with any other
company in providing local exchange telephone service. However, during 1995
the PUC approved petitions of four Competitive Local Exchange Carriers (CLEC's)
to offer local exchange telephone service in Pennsylvania.
CTT is subject to the jurisdiction of the Federal Communications
Commission (FCC) with respect to interstate services. CTT is also subject to
the jurisdiction of the Pennsylvania Public Utility Commission (PUC) with
respect to intrastate services.
CTT faces competition from private communication systems and interexchange
carriers who have the capacity to originate and/or terminate calls without the
use of the company's facilities in the company's service area. It also
competes with other suppliers in the area of private branch service exchanges
and mobile radio telephone services.
The earnings for 1995 were impacted by several events as follows:
1. 1995 was the first full year of operations under the terms of the
Pennsylvania Public Utility Commissions's settlement of the Show Cause
proceedings, instituted against CTT. The settlement was reached during the
second quarter of 1994 and implemented during the third quarter of 1994.
Contained in the settlement was the elimination of the Touch Tone line charge,
and establishment of "Optional EAS" for some of the Company's toll routes
(see "Regulated Industry" heading in Item 7).
2. During the second quarter of 1995, CTT expensed additional Signaling
System 7 (SS7) software for CLASS type services, which include Caller ID,
Return Call and Repeat Call.
3. The partnerships providing cellular telephone service in both the
Reading metropolitan area as well as the Harrisburg, Lancaster, York
metropolitan area recorded substantial increases in the undistributed net
income for the year.
On January 1, 1991, CTT transferred to CEI 100% stock ownership of
Northern Communications, Inc. (NCI), which had been organized in March 1981 as
a non-regulated commercial enterprise operated for the resale of long distance
service. This transfer had no effect on the consolidated financial statements.
ITEM 1. BUSINESS (Continued)
The net operating profits of NCI for 1993, 1994, and 1995 were $336,559,
$475,762 and $491,703 respectively.
On January 1, 1991, CTT assigned to CEI, CTT's interests in two joint
ventures which provide cellular telephone services. The assigned interests
consist of:
1. A 70% partnership interest in the Berks and Reading Area Cellular
Enterprises Partnership (BRACE) which in turn owns a 39% limited partnership
interest in the Reading SMSA Limited Partnership providing cellular telephone
service in the Reading Metropolitan Area; and
2. A 10% partnership interest in the Lancaster Area Cellular Enterprises
Partnership (LACE) which in turn owns an 18.4% limited partnership interest in
the Susquehanna Cellular Communications Limited Partnership providing cellular
telephone service in the Harrisburg, Lancaster and York metropolitan areas.
These transfers had no effect on the consolidated financial statements of
CEI. As of December 31, 1995, CEI had invested $1,675,746 in BRACE and
$675,175 in LACE; BRACE had in turn invested $2,386,193 in the Reading SMSA
Limited Partnership; and LACE had invested $6,756,151 in the Susquehanna
Cellular Communications Limited Partnership.
During the third quarter of 1995, CTT acquired an 11.85% interest in the
PenTeleData Limited Partnership I, which provides certain data transmission
and interconnection services, including Internet services. As of December 31,
1995, CTT had a net investment of $201,349. CTT s share of the loss for the
first year was $118,651.
Conestoga Mobile Systems, Inc. (CMS) was incorporated on April 1,
1991 to provide pager services. It began operating on June 1, 1992 in the
central Pennsylvania region, after receiving regulatory approvals to acquire
and operate certain radio paging systems formerly owned by United Telephone
Company of Pennsylvania.
During the last half of 1992, CTT transferred its non-regulated paging
and cellular property and equipment to CEI as a non-cash dividend and CEI in
turn transferred the same to CMS as additional paid in capital. Since the end
of 1992 all paging operations of CEI and its subsidiaries have been provided
by CMS. The transactions described above had no effect on consolidated
financial statements. During the second quarter of 1994, CTT instituted
monthly bulk rates for paging access lines, and established CMS as a reseller
of pager access lines. The net operating loss for CMS for 1993, 1994, and
1995 was $82,663, $56,189 and $72,557 respectively.
Conestoga Wireless Company (CWC) was formed on March 17, 1995 as a
Limited Liability Company (Organized in Pa.). CEI has 60% interest and
Infocore, Inc., a telecommunications company with headquarters in King of
Prussia, Pa., has 40% interest. CWC is participating in the Federal
Communications PCS Spectrum Auction to acquire licenses to provide personal
communications services in the Eastern and Central Pa. regions.
Percentages of the Company's consolidated operating revenue in local,
long distance, nonregulated, and other services are shown on the following
table:
1995 1994 1993 1992 1991
Local* 19% 19% 20% 21% 22%
Long Distance
and Access 65% 66% 65% 65% 65%
Nonregulated** 14% 12% 12% 10% 8%
Other*** 2% 3% 3% 4% 5%
100% 100% 100% 100% 100%
ITEM 1. BUSINESS (Continued)
*CTT bills for local service on a flat rate basis.
**Includes revenues from CTT for it's nonregulated business,
(sales and lease of equipment and directory advertising) and CMS
nonregulated business ( sale and lease of pager and cellular
equipment and wide area pager service).
*** Includes rent revenues, billing and collection revenues, and
uncollectible revenues.
The regulated local, long distance and access services' gross revenues
contribute a greater percentage to net income than does the more competive
non regulated service gross revenues.
The Company had 50,412 access lines in service on December 31, 1995.
CTT had 45,696 access lines in service and CMS 4,716 access lines.
Approximately 15,000 access lines served business customers.
CTT had a total of 127 employees as of December 31, 1995, of which 83
are covered by one collective bargaining agreement.
ITEM 2. PROPERTIES
Since the business of CTT is that of furnishing communication service,
and as its plant is widely distributed in the territory serviced by it, its
properties do not lend themselves to description by character and location of
principal unit.
As of December 31, 1995, digital switching equipment represented
approximately 34% of CTT's investment in telephone plant in service; land and
buildings (occupied principally by digital switching equipment) 5%; connecting
lines not on subscribers' premises (a majority of which are on or under public
highways, streets, and alleys, and the remainder on or under private property)
56%; general purpose computers 2%; and motor vehicles, other work equipment
and furniture and office equipment 3% of such investment.
Conestoga Mobile Systems, Inc.'s business is that of furnishing radio
paging service, and as its plant is widely distributed in the territory serviced
by it, its properties do not lend themselves to description by character and
location of principal unit.
As of December 31, 1995, Land, Buildings, and Towers represented
approximately 33% of CMS's investment in plant; transmitters and terminal
equipment 58%, and computers and other plant 9%.
CTT owns most of its occupied buildings as well as most of the land on
which the buildings are located. Several of the remote switching center
buildings are located on properties which are leased. During 1995, CTT began
leasing office space for it's customer service and marketing departments.
The following tables set forth additional information in connection with
the properties of the Company:
ITEM 2. PROPERTIES (Continued)
TELEPHONE PLANT STATISTICS
YEAR MILES OF MILES OF MILES OF MILES OF CENTRAL
END POLE WIRE IN AERIAL FIBER OPTICS DIAL
12/31 LINES AERIAL CABLE WIRES CABLE OFFICES
1991 651 334,671 726 230 10
1992 651 345,770 694 249 10
1993 651 355,914 665 256 10
1994 651 364,761 637 271 10
1995 651 369,971 620 298 10
ACCESS LINES BY EXCHANGE
YEAR
END
12/31 BRDS BLLY BOTW DGVL GNHL MGTW OLEY SNVL TOTN YLHS TOTAL CMS
1991 8441 2921 12585 2570 1516 4442 2135 2104 4989 1904 43607
1992 7880* 3009 12843 2621 1558 4705 2213 2200 5033 1966 44028 1249
1993 8155 3097 13110 2726 1596 4866 2296 2305 5124 2054 45329 1190
1994 7613* 3148 12256*2840 1651 5115 2471 2400 4575* 2107 44176 4138
1995 7851 3165 12682 2926 1838 5338 2538 2468 4698 2192 45696 4716
Standard practices prevailing in the telephone industry are followed by
CTT in the construction and maintenance of its plants and facilities, and CTT
considers that its plants and facilities are, as a whole, in sound physical
and operating condition.
* Paging Access Lines transferred to CMS
ITEM 3. LEGAL PROCEEDINGS
The Company was not involved in any material legal proceedings as of
December 31, 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was nothing submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) On June 9, 1994 CEI's Common Stock began trading in the NASDAQ
Over-the-Counter Small Cap Market. The Ticker Symbol is CENI. The high and
low sales prices for each quarter of 1994 and 1995 (adjusted for the 5% stock
dividend) are listed below.
1994 High Low
2nd Quarter $26.60 $25.65
3rd Quarter $25.72 $24.76
4th Quarter $25.72 $24.29
1995 High Low
1st Quarter $27.00 $24.00
2nd Quarter $26.50 $24.50
3rd Quarter $28.25 $25.25
4th Quarter $29.50 $27.00
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS (continued)
(b) Approximate Number of Equity Security Holders.
Approximate Number of
Record Holders (as of
Title of Class December 31, 1995)
Common Stock 1,721 (1)
(1) Included in the number of stockholders of record are shares
held in "nominee"or "street" name.
(c) Dividends
Payments of dividends will be within the discretion of the Company's Board
of Directors and will depend, among other factors, on earnings, capital
requirements, and the operating and financial condition of the Company. During
the year 1994, the total cash dividend paid by the Company was $1.11 per share.
During 1995 the total cash dividend paid by the Company was $1.20 per share.
Dividends were paid quarterly throughout the years. A 5% stock dividend was
declared by the Board of Directors during 1994, payable February 28, 1995 to
shareholders of record on January 31, 1995. Under the most restrictive
covenants of the Company's debt agreement, $16,741,064 of the consolidated
retained earnings is available for payment of cash dividends in 1996.
ITEM 6. SELECTED FINANCIAL DATA
Selected Income Statement Data:
1995 1994 1993 1992 1991
Operating Revenue $30,869,328 $29,828,193 $28,360,336 $27,233,776 $25,270,329
Net Income 6,530,858 6,293,983 6,135,813 6,373,077 5,316,957
Earnings per Common Share*
$1.70 $1.64 $1.60 $1.66 $1.38
Cash Dividends declared
per Common Share* $1.20 $1.11 $1.10 $1.09 $1.05
*adjusted for 5% stock dividend
Selected Balance Sheet Data:
1995 1994 1993 1992 1991
Net Plant and
Non-regulated Property
$46,140,262 $45,599,261 $44,989,591 $44,581,057 $43,032,644
Total Assets 58,594,725 55,799,116 53,231,772 52,041,087 51,550,445
Long-term Debt
Less Current Maturities
4,645,000 5,035,000 5,425,000 5,815,000 6,515,000
Minority Interest in
Subsidiary * 253,367 0 0 0 **1,490,100
Stockholders' Equity
42,088,955 39,908,356 37,649,118 35,772,871 33,522,757
*Conestoga Wireless Company
**Conestoga Telephone and Telegraph Company Preferred Stock
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Summary
The following table sets forth for the periods indicated (a) percentages
which certain items reflected in the financial data bear to total revenues and
(b) the percentage increase of such items as compared to the indicated prior
period.
Relationship to Period to Period
Total Revenues Increase (Decrease)
Year Ended December 31 Years Ended
1995 1994 1993 1994-95 1993-94
Local Service Revenues 18.7% 19.1% 20.2% 1.3% (.5%)
Long Distance and
Access Revenues 65.0% 66.0% 65.1% 2.1% 6.6%
Nonregulated 13.8% 12.3% 11.6% 16.2% 11.9%
Other Revenues 2.5% 2.6% 3.1% (6.2%) (13.2%)
100.0% 100.0% 100.0% 3.5% 5.2%
Relationship to Period to Period
Total Revenues Increase (Decrease)
Year Ended December 31 Years Ended
1995 1994 1993 1994-95 1993-94
Operating Expenses 65.7% 64.3% 64.1% 5.8% 5.6%
Operating Income 34.3% 35.7% 35.9% (.6%) 4.5%
Other Income (Net) 1.0% .2% .5% 374.8% (52.9%)
Income Taxes 14.2% 14.8% 14.7% (.8%) 5.3%
Minority Interest .1% 0 0 N/A 0
Net Income 21.2% 21.1% 21.6% 3.8% 2.6%
RESULTS OF OPERATIONS:
Conestoga Enterprises, Inc. was organized in 1989 to become a holding
company. To date it has the following subsidiaries:
1 - The Conestoga Telephone and Telegraph Company (CTT)
2 - Northern Communications (NCI)
3 - Conestoga Mobile Systems, Inc. (CMS)
It also has two partnership interests to provide cellular telephone service:
1 - Berks and Reading Area Cellular Enterprises (BRACE) (70% interest)
2 - Lancaster Area Cellular Enterprises (LACE)(10% interest)
Conestoga Wireless Company was formed in March, 1995, as a limited
liability company, in order to bid on an FCC license to provide Personal
Communication Service (PCS) in eastern Pennsylvania.
During the third quarter of 1995 the company acquired, through CTT, an
11.85% interest in the PenTeleData limited partnership which provides toll free
access to the Internet.
Operating Revenues: Operating Revenues increased 3.5% during 1995 when
compared with 1994. During the 1993-95 period they increased 8.9%. Local
Service Revenues, which includes regulated revenues from CTT and CMS, increased
1.3% during 1995, when compared with 1994. The increase is directly related to
the increase in access lines during 1995, and to a retroactive adjustment with
an interexchange carrier for interstate public coin revenue. Local Service
Revenues were negatively impacted with the elimination of the touch tone
monthly line charge and the revisions to Extended Area Service settlements,
which were part of the telephone company's stipulation in settlement of the
1993 show cause order instituted against it by the Pennsylvania Public Utility
Commission. After normalizing Local Service Revenues for those adjustments
there would have been an increase of 6.7%.
Access lines increased 4.3% during 1995, adding 2,098 lines. The total
access lines in service as of December 31, 1995 is 50,412. Conestoga Telephone
had 45,696 and Conestoga Mobile Systems had 4,716 access lines in service. The
Company anticipates that the number of access lines will continue to increase
as a result of a trend in which residential customers are installing more than
one access line to their residences to accommodate second telephone services or
additional line usage resulting from on-line services, which can be accessed by
home computers. CTT is aggressively marketing such second lines to residential
customers.
Access Service Revenues increased 8.0% during 1995, and for the 1993-95
period increased 16.1%. Interstate access minutes of use increased 3.1%.
Intrastate access minutes of use increased 27.2% during 1995, a result of (1)
increased usage on the intrastate network and (2) due to CTT's customers
moving to other interexchange carriers for short haul toll.
Long Distance Service Revenues, which include regulated CTT intralata toll
revenue and settlements, and NCI long distance reseller revenues, decreased
2.9% during 1995 when compared with 1994. For the 1993-95 period they
increased 2.8%. The decrease during 1995 can be attributed to (1) CTT's
customers moving to other interexchange carriers for short haul toll and (2)
the optional Extended Area Service (EAS) plan. While the movement of CTT
customers to other interexchange carriers results in lower intrastate toll
revenue, it increases intrastate access revenues as noted in the preceding
paragraph. The EAS plan gives the customer the option to receive a certain
geographic area free of toll charges in return for an increase in monthly local
service rates. Consequently, high volume callers to these areas now complete
calls free of charge.
Nonregulated Sales and Lease Revenues which include CTT sale and lease of
telephone equipment and directory advertising revenues, as well as CMS sale and
lease of pager and cellular equipment and local and wide area reseller
operations, increased 16.2% during 1995 and increased 30.1% during the 1993-95
period. CTT and CMS both recorded increased revenues in the equipment and
reseller operations, but the largest increase was in CTT directory advertising
revenues, due to additional settlement revenue recorded in 1995. This high
rate of increase is not expected to continue, but moderate increases are
expected.
Miscellaneous Revenues which include CTT regulated revenues for rents and
billing and collection, decreased 3.2% during 1995 and for the 1993-95 period
decreased 11.1%. Billing and Collection revenue declined due to interexchange
carrier take back of certain billing and collection functions previously
performed by CTT. Miscellaneous Revenues continue to be a non growth part of
the company's revenue stream.
Uncollectible Operating Revenues increased 12% during 1995 and 44.5%
during the 1993-95 period. Uncollectible revenues during 1995 were .6% of the
total operating revenues. The Uncollectible revenue for 1993 contained a
true-up adjustment which lowered 1993's annual writeoff, and consequently
magnified the increase in Uncollectible Operating Revenues during the 1993-95
period.
Operating Expenses: Operating Expenses increased 5.8% during 1995 when
compared with 1994 and increased 11.7% during the 1993-95 period. Plant Specific
Expenses, which are predominantly CTT regulated, increased 2.9% in 1995 and
decreased over the 1993-95 period 7.3%. The increase for 1995 is mainly the
result of renovations to the CTT business office. The 1993-95 period decrease
can be attributed to the expense of the SS7 digital switching software, which
amounted to
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
approximately $645,000 in 1993, and less than half that amount during 1994
and 1995. It is anticipated that central office software updates will continue
over the next two years.
Plant Nonspecific Network expenses, for 1995 increased 6.4% over 1994 and
for the 1993-95 period increased 24.2%. These expenses are CTT regulated and
include engineering, and plant administration expense. The increase in 1995
is the result of charges to update our customer line assignment software
package. Depreciation Expense, which is CTT and CMS regulated, increased 6.6%
during the current year when compared with the previous year, and increased
14.9% during the 1993-95 period. The composite depreciation rate for the
1995 was 6.56%, which is consistent with the two previous years.
Customer Operations Expense, which includes CTT and CMS regulated, and
NCI expenses, increased 7.8% during 1995 and increased 22.5% over the two year
period. Customer Operations Expenses consist of customer services, marketing,
advertising, ordering, and billing expenses. Billing expenses during 1995
included some one time charges for changes to the Company's billing system and
bill format.
Corporate Operations Expense, which includes regulated charges from CTT,
as well as charges from CEI, CMS, NCI and CWC, increased 20.5% during 1995 when
compared with 1994, and increased during the 1993-95 period 16.4%. The increase
during 1995 is due to the change in the corporate structure with the addition of
Vice President Operations and Vice President Finance & Administration, as well
as additional legal, accounting, and consulting fees associated with the
formation of Conestoga Wireless Company and preliminary merger negotiations
with Buffalo Valley Telephone Company. It anticipated that these additional
charges will continue in 1996 as the Company continues its involvement in both
the PCS bidding process through CWC and the acquisition of Buffalo Valley
Telephone Company.
The decrease in 1994 when compared with 1993 reflects the additional one
time charges in connection with the telephone company's show cause order
issued by the Pennsylvania Public Utility Commission during 1993. The order
was an investigation into CTT rates to determine if there was an overearnings
situation under rate of return regulation. The additional charges associated
with this investigation included legal and consulting fees which amounted to
approximately $70,000.
Labor sensitive operating expenses increased as a result of the three
year contract negotiated with the union during 1993. Effective May 10, 1995,
the third year of the contract, wage rates increased 4%, which had the effect
of increasing labor sensitive benefits as well.
Non-regulated Sales and Lease Expenses, which include charges from CTT and
CMS, decreased 1.6% during 1995, but increased 8.9% during the 1993-95 period.
Taxes other than income taxes decreased 3.6% during 1995 when compared with
1994.
Other Income/Expense (net): Interest expense increased 1.4% during 1995
when compared with 1994 and during the 1993-95 period increased 16.2%. There
was some interim financing required throughout 1994 and 1995 , as well as
increases in interest rates when compared with 1993. CTT has two 10-year
unsecured term loans obtained through a local bank. One carries an interest
rate at prime and a ceiling of 8.5% , with principal due 1997, the other one
carries an interest rate at prime with a ceiling of 8.4% through May 1997,
with principal payments due quarterly.
The Company holds a 70% partnership interest in the BRACE partnership
which in turn owns a 39% limited partnership interest in the Reading SMSA
Limited Partnership providing cellular telephone service in the Reading
metropolitan area, and a 10% partnership interest in the LACE partnership,
which in turn owns an 18.4% limited partnership interest in the Susquehanna
Cellular Communications Limited Partnership providing cellular telephone
service in the Harrisburg, Lancaster, York metropolitan area. The income from
the Company's interests in these ventures increased 102.1% to $778,179 in 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
The undistributed net income from partnerships during 1995 increased
71.3% and reflects the increases in the two cellular ventures described in the
proceeding paraqraqph as well as a first year loss for CTT's limited
partnership interest in PenTelData, which provides Internet services. During
the 1993-95 period the undistributed net income from these ventures increased
55.4%.
Income Taxes: Income taxes decreased (.8%) during 1995 when compared
with 1994 but during the two year period 1993-95 increased 4.4%. The federal
income tax rates over the period remained unchanged, but the state income tax
rate during 1995 decreased from 11.99% to 9.99% and during 1994 decreased from
12.25% to 11.99%.
Minority Interest: The minority interest recorded during 1995 reflects
Infocore, Inc.'s 40% interest in net loss for Conestoga Wireless Company (CWC).
Net Income: Net Income for 1995 increased 3.8% when compared with 1994,and
for the 1993-95 period increased 6.4%. These increases can be attributed to
increased growth in access lines, increased minutes of use on the network for
access and long distance services, increased undistributed profits from the
partnerships providing cellular services, as well as decreased state income tax
rates.
Balance Sheet Items: During 1994 the company adopted FASB Statement No. 115,
Accounting for Certain Investments in Debt and Equity Securities, which requires
that the Company's marketable equity securities be recorded at fair value based
on quoted market price and unrealized appreciation and depreciation, net of
taxes, be reported as a component of stockholders' equity until realized.
Accounting for the Effects of Certain Types of Regulation ("SFAS 71"):
The Company follows the accounting statement which recognizes the economic
effect of rate regulation by recording costs and a return on investment as such
amounts are recovered through regulatory authorized rates. As of December 31,
1995 the Company has no regulated assets and regulated liabilities total
$537,175. The Company currently expects to follow the accounting prescribed by
SFAS 71 in the foreseeable future, but if the Company were required to
discontinue this practice the effects of writing off any regulatory assets and
liabilities would not be material to operations of the Company.
Liquidity and Capital Commitments:
Current Operations: The Company had commitments at December 31, 1995 of
$1,200,000 for the purchase of equipment and materials to continue to upgrade
its telecommunications plant base. The projected capital budget requirements
for 1996 of approximately $5.7 million will be financed through internally
generated funds.
The line of credit with the bank remained at $3 million during 1995,
with the interest rate to be negotiated at the time of use. The current year's
advances were at base rate (prime, 8.75%) less .5%. The prime rate applicable
at December 31, 1995 and 1994 was 8.75% and 8.5% respectively, The line of
credit was utilized several times during 1995 to cover current expenses. There
was a $500,000 balance outstanding on December 31, 1995.
Inflation over the period, 1993-95, had minimal effect on operating
expenses. Management continues to believe that any future impact inflation
might have on operating expenses will be partially offset by customer growth
and by general rate increases to the extent necessary to maintain reasonable
earnings.
The Company has continued to invest in the future of the
telecommunications industry through the ownership of the publicly traded stock
of other telecommunication companies. During 1995 the Company's total
investment in these publicly traded stock grew 39.4% due to unrealized
appreciation of such stock. The current market value
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
of such investment is $1,585,102 . Although the Company currently plans to
retain such stock as investments, it is a source of liquidity should the need
arise.
Management believes that the current working capital is adequate to meet
the immediate operating requirements, and that the current available credit
facilities are adequate to provide short term financing for unforeseen
requirements.
Pending Acquisition:
On October 18, 1995 the Company entered into an agreement and plan of
merger to acquire all of the common stock of Buffalo Valley Telephone Company
(BVT) an independent local exchange carrier. The agreement calls for the BVT
shareholders to elect to receive, for each BVT share held, one of the following:
(1) $65 in cash, (2) one share of CEI $3.42 Series A Convertible Preferred
Stock ( with stated value of $65 per share),or (3) 2.4 shares of CEI common
stock, subject to certain adjustments. The acquisition is subject to certain
conditions, including approval of the merger by BVT shareholders and the Pa.
Public Utility Commission, and the approval of CEI shareholders of the amendment
to the company's Articles of Incorporation authorizing the Series A Preferred
Stock. The effective date of the merger is expected to be during the second
quarter of 1996. CEI has a letter of commitment from its bank lender committing
the bank to lend the funds necessary to complete the acquisition.
Management views the acquisition of BVT as being critical to its future
growth and development as an independent local exchange carrier. With the
acquisition of BVT it will be able to achieve greater economies of scale and
expand its service area over a substantially greater area.
Formation of Conestoga Wireless Company and PCS Bidding:
In March 1995, the Company and Infocore, Inc. ("Infocore") formed
Conestoga Wireless Company (CWC). The Company owns 60% and Infocore owns 40%,
of CWC. CWC is bidding in the FCC auctions for Personal Communication Services
("PCS") bandwidth. PCS is a wireless communications service based on lower
power and a higher frequency bandwidth than cellular service. PCS is
anticipated to be more reliable, of better quality and less expensive than
cellular. The service areas for which CWC is bidding include the Reading,
Lancaster, Pottsville, Stroudsburg, and Sunbury basic trading areas. These
auctions may not be completed until the second quarter of 1996. Management
does not know at this point whether CWC will be the successful bidder for any
of the aforementioned service areas. The Company anticipates that, if it is
successful in the bidding process, it would be able to fund its share of the
cost of the PCS licenses out of current earnings, but it would have to obtain
financing from outside sources to fund its share of the development of the PCS
system.
On February 21, 1996, a letter of intent was signed with Pencor Services,
Inc. (the parent company of Palmerton Telephone Company and Blue Ridge Cable TV)
to purchase a 19.70% interest in CWC. After the transaction is completed in the
second quarter of 1996, CEI's, Infocore's, and Pencor Services, Inc.'s ownership
interests will be 50.15%, 30.15%, and 19.70%, respectively.
Management views participation in PCS as being an important part of
its future business. PCS is expected to be a reliable, convenient and
inexpensive vehicle for providing mobile telephone service. It will help
protect the Company's current customer base and provide for expansion into
areas beyond its local franchise area.
Effects of Substantial Indebtedness and Preferred Stock on Future
Operations:
Currently, the Company is operating with a low level of debt
financing. At December 31, 1995, for example, the Company had approximately
$4.7 million of long term debt outstanding as compared to approximately $42.1
million
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
of common equity. This resulted in a ratio of 12% debt to 88% equity. In
connection with the acquisition of BVT,and PCS licenses, the Company could
incur significant amounts of debt and preferred stock.
Although a higher level of debt and preferred stock is not unusual
in the telephone utility industry, the additional debt and preferred stock may
have important consequences on the Company's future operations, including (i)
the Company will incur significant interest expense, and have significant
preferred stock dividend and principal repayment obligations, (ii) the Company
will be subject to significant unscheduled preferred stock redemption
obligations because the preferred shares issuable in the acquisition may be
"put" by the holders thereof beginning two years after the effective date
thereof; (iii) the Company's increased leverage may make it more vulnerable to
economic downturns and reduce its flexibility in responding to changing
business and economic conditions; and (iv) payment of dividends on the Company's
common shares, may be restricted by the level of financial resources needed to
service the Company's additional debt and preferred stock.
Regulated Industry:
Conestoga Telephone Company (CTT) is subject to a rate making
process regulated by the Pennsylvania Public Utility Commission (PUC) called
rate base rate of return. In 1993 the PUC issued a show cause order against
CTT, which was an investigation into the rates of the company to determine
whether its earnings were excessive under this form of regulation. During
1994 an agreement between the PUC and the CTT was reached. CTT agreed (i) to
provide its customers with touch tone service free of charge; (ii) not to
increase rates for three years; (iii) to provide certain dialing areas with
an optional Extended Area Service plan. The PUC agreed not to file a show
cause order concerning rates and earnings for a period of three years. This
agreement affects the revenues, prices and earnings of CTT as reflected
throughout this Form 10-K . Increased income can only be achieved through
increased customers, greater volume of traffic on the network and through
control of its expenses.
An amendment to the Pennsylvania Public Utility Act passed
in 1993, provides for streamlined rate regulation and a method for determining
rates other than the rate base rate of return regulation and procedures. This
new regulation referred to as Chapter 30, provides a price stability mechanism
in which a telephone company's annual revenues from non-competitive services
may be permitted to change in line with the gross domestic product price index,
minus 2.25%, with no limitation on earnings by the regulated company. In
order to avail itself of the procedures permitted by chapter 30, CTT must
commit itself to provide universal broadband services by 2015. As of yet, CTT
has not determined the full effects of such a pricing mechanism. Therefore CTT
has not availed itself of the alternate pricing procedures.
The telecommunication industry continues to undergo fundamental
changes, which may have a significant impact on financial performances. The
recently passed Federal Telecommunications Act , while apparently lifting the
ban on cross ownership between cable and telephone companies in communities
served by the local telephone company, opens the local telephone company's
market to new competitors providing local exchange service.
Management recognizes that there will be substantial competitive
pressure within the local loop from many players. It also believes that
competition will bring many new opportunities for the local exchange
companies. Management is endeavoring to position the Company to take advantage
ofthese opportunities as they arise, and remains optimistic about the future.
PART II
Item 8. Financial Statements and
Supplementary Data
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Conestoga Enterprises, Inc.
Birdsboro, Pennsylvania
We have audited the accompanying consolidated balance sheets of Conestoga
Enterprises, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1995, and the
supporting schedules listed in the Index at Item 14(a)(2). These financial
statements and the supporting schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and the supporting schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Conestoga
Enterprises, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, and the supporting schedules present
fairly the information required to be set forth therein in conformity with
generally accepted accounting principles.
BEARD & COMPANY, INC.
Reading, Pennsylvania
January 20, 1996
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1995 1994
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 671,495 $ 907,050
Accounts receivable, including unbilled revenue 3,751,182 3,602,102
Inventories, at average cost 576,786 596,716
Prepaid expenses 404,271 361,535
Total current assets 5,403,734 5,467,403
INVESTMENTS AND OTHER ASSETS
Investments in equity securities 2,361,102 1,913,165
Investments in partnerships 2,552,270 1,664,744
Nonregulated property and equipment 902,906 945,387
Prepaid pension costs 1,425,584 1,096,731
Other 711,773 57,812
7,953,635 5,677,839
PLANT
In service 83,889,802 79,340,171
Under construction 1,064,075 502,215
84,953,877 79,842,386
Less accumulated depreciation 39,716,521 35,188,512
45,237,356 44,653,874
$ 58,594,725 $55,799,116
See Notes to Consolidated Financial Statements.
December 31, 1995 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable $ 500,000 $ -
Current maturities of long-term debt 390,000 390,000
Accounts payable 1,982,689 1,868,367
Accrued:
Taxes - 2,768
Payroll and vacation pay 390,372 392,745
Advance billings and customer deposits 484,617 910,893
Total current liabilities 3,747,678 3,564,773
LONG-TERM LIABILITIES
Long-term debt, less current maturities 4,645,000 5,035,000
Accrued postretirement cost 447,908 302,247
Other 189,681 165,258
5,282,589 5,502,505
DEFERRED INCOME TAXES 7,222,136 6,823,482
COMMITMENTS
MINORITY INTEREST IN SUBSIDIARY 253,367 -
STOCKHOLDERS' EQUITY
Common stock, par value $ 5 per share; authorized
10,000,000 shares; issued and outstanding
1995 3,848,922 shares; 1994 3,665,967 shares 19,244,610 18,329,835
Additional paid-in capital 4,769,183 950,049
Common stock dividend distributable - 4,733,909
Retained earnings 17,727,271 15,814,593
Net unrealized appreciation on marketable equity
securities 347,891 79,970
42,088,955 39,908,356
$58,594,725 $55,799,116
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Years Ended December 31, 1995 1994 1993
Operating revenues:
Local service $ 5,774,650 $ 5,699,215 $ 5,727,580
Access service 9,840,752 9,112,441 8,476,734
Long distance service 10,253,164 10,564,165 9,977,452
Nonregulated sales and lease 4,270,249 3,673,849 3,281,851
Miscellaneous 902,701 932,102 1,015,897
Uncollectible operating revenues (172,188) (153,579) (119,178)
30,869,328 29,828,193 28,360,336
Operating expenses:
Plant specific 3,074,746 2,988,336 3,318,203
Plant nonspecific:
Network and other 1,365,546 1,282,990 1,099,094
Depreciation 5,138,828 4,822,211 4,471,427
Customer operations 4,787,434 4,439,584 3,908,112
Corporate operations 2,137,427 1,773,415 1,835,812
Nonregulated sales and lease 2,462,666 2,502,042 2,262,348
Taxes other than income 1,318,887 1,368,848 1,270,589
20,285,534 19,177,426 18,165,585
Operating income 10,583,794 10,650,767 10,194,751
Other income (expense), net:
Interest expense (427,812) (422,106) (368,273)
Income from unconsolidated partnership
interests 659,526 385,077 424,432
Other, net 91,251 105,048 88,286
322,965 68,019 144,445
Income before income taxes 10,906,759 10,718,786 10,339,196
Income taxes 4,390,341 4,424,803 4,203,383
Income before minority interest 6,516,418 6,293,983 6,135,813
Minority interest in net loss of subsidiary 14,440 - -
Net income $6,530,858 $6,293,983 $6,135,813
Earnings per common share $ 1.70 $ 1.64 $ 1.60
Weighted average common shares outstanding 3,848,922 3,843,174 3,843,174
See Notes to Consolidated Financial Statements.
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three Years Ended December 31, 1995, 1994 and 1993
Additional Common
Common Paid-In Stock
Stock Capital Dividend
Distributable
Balance, December 31, 1992 $18,302,470 $837,032 $ -
Net income - - -
Cash dividend ($ 1.10 per share) - - -
Balance, December 31, 1993 18,302,470 837,032 -
Adjustment to beginning balance
for change in accounting
method, net of taxes - - -
Net income - - -
Cash dividend ($ 1.11 per share) - - -
Issuance of stock under employee
stock purchase plan 27,365 113,017 -
5% stock dividend distributable - - 4,733,909
Net change in unrealized
appreciation on marketable
equity securities, net of taxes - - -
Balance, December 31, 1994 18,329,835 950,049 4,733,909
Net income - - -
Cash dividend ($ 1.20 per share) - - -
Distribution of 5% stock dividend 914,775 3,819,134 (4,733,909)
Net change in unrealized
appreciation on marketable
equity securities, net of taxes - - -
Balance, December 31, 1995 $ 19,244,610 $4,769,183 $ -
See Notes to Consolidated Financial Statements.
Net
Unrealized
Appreciation
On Marketable
Retained Equity
Earnings Securities Total
$16,583,369 $ - $ 35,722,871
6,135,813 - 6,135,813
(4,209,566) - (4,209,566)
18,509,616 - 37,649,118
- 153,260 153,260
6,293,983 - 6,293,983
(4,246,172) - (4,246,172)
- - 140,382
(4,742,834) - (8,925)
- (73,290) (73,290)
15,814,593 79,970 39,908,356
6,530,858 - 6,530,858
(4,618,708) - (4,618,708)
528 - 528
- 267,921 267,921
$ 17,727,271 $ 347,891 $ 42,088,955
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Years Ended December 31, 1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $6,530,858 $6,293,983 $6,135,813
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 5,494,723 5,188,997 4,875,540
Income from unconsolidated
partnership interests (659,526) (385,077) (424,432)
Minority interest in loss of
subsidiary (14,440) - -
Change in assets and liabilities:
(Increase) decrease in:
Accounts receivable (149,080) (82,574) (265,756)
Materials and supplies 19,930 (200,277) 123,849
Prepaid expenses (42,736) (278,803) (15,026)
Prepaid pension costs (328,853) (124,640) (70,619)
Other assets (653,961) (5,169) 20,437
Increase (decrease) in:
Accounts payable 114,322 295,600 (242,762)
Accrued expenses and other
current liabilities (430,889) 123,195 (162,402)
Other liabilities 170,082 180,238 68,459
Deferred income taxes 218,640 32,443 (108,857)
Net cash provided by operating
activities 10,269,070 11,037,916 10,034,244
CASH FLOWS FROM INVESTING ACTIVITIES
Plant removal costs (113,962) (125,808) (131,366)
Salvage from plant retired 157,322 196,937 502,653
Purchase of plant (6,079,084) (5,869,796)(5,655,363)
Purchase of investments - (776,000) -
Capital investments in unconsolidated
partnership interests (320,000) (7,000) -
Capital distributions from
unconsolidated partnership
interests 92,000 17,900 -
Net cash used in investing
activities (6,263,724) (6,563,767)(5,284,076)
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Three Years Ended December 31, 1995 1994 1993
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on line of credit 2,000,000 2,300,000 700,000
Principal payments on line of credit (1,500,000) (2,300,000) (700,000)
Principal payments on long-term debt (390,000) (390,000) (390,000)
Proceeds from issuance of stock
under the employee stock purchase plan - 140,382 -
Cash dividends paid (4,618,708) (4,246,172) (4,209,566)
Minority interest investment in
subsidiary 267,807 - -
Net cash used in financing activities (4,240,901) (4,495,790) (4,599,566)
Increase (decrease) in cash and
cash equivalents (235,555) (21,641) 150,602
Cash and cash equivalents:
Beginning 907,050 928,691 778,089
Ending $ 671,495 $ 907,050 $ 928,691
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 427,812 $ 422,106 $ 368,273
Income taxes $ 4,283,881 $4,859,254 $4,631,869
See Notes to Consolidated Financial Statements.
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation and nature of operations:
The consolidated financial statements include the accounts of Conestoga
Enterprises, Inc. (CEI) and its subsidiaries:
The Conestoga Telephone and Telegraph Company (CTT), a wholly-owned
subsidiary, which is an independent local exchange carrier providing
both regulated and nonregulated communication services.
Northern Communications, Inc. (NCI), a wholly-owned subsidiary, which
resells long distance services.
Conestoga Mobile Systems, Inc. (CMS), a wholly-owned subsidiary, which
provides paging communication services.
Conestoga Wireless Company, LLC (CWC), a 60%-owned subsidiary formed in
March 1995 to bid in the personal communication services (PCS) auction,
scheduled for early 1996, by the Federal Communications Commission for
bandwidth to provide PCS, a wireless telecommunications technology.
CEI, CTT, NCI, CMS and CWC are collectively referred to herein as the
Company. All significant intercompany transactions have been eliminated
in consolidation.
The Company's primary service area is eastern Pennsylvania.
CTT is subject to rate regulation by the Pennsylvania Public Utility
Commission (PUC) and the Federal Communications Commission (FCC) and,
accordingly, follows the accounting prescribed by the Financial Accounting
Standards Board (FASB) Statement No. 71, "Accounting for Certain Types of
Regulation".
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets & liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and cash equivalents:
For purposes of reporting cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents. At times, cash balances exceed F.D.I.C. limits.
Depreciation methods and plant accounting policies:
Depreciation is computed by the straight-line method. Individual rates are
used for each class of depreciable property. The effective composite
depreciation rates for the years 1995, 1994 and 1993 were 6.56%, 6.58% and
6.59% respectively.
Normal renewals and betterments of units of property are charged to plant
accounts, and the costs of units of depreciable property retired are charged
to the accumulated depreciation account along with removal cost less salvage
applicable thereto. Ordinary repairs and replacements of items considered
to be less than units of property are charged to plant specific expenses.
No gain or loss is recognized in connection with ordinary retirements of
depreciable property.
Investments in equity securities:
All marketable equity securities are classified as available for sale. These
securities are recorded at fair value based on quoted market prices and
unrealized appreciation, net of taxes, is reported as a separate component
of stockholders' equity until realized. Gains and losses are determined
using the specific-identification method.
Investment in partnerships:
The Company is accounting for its investments in partnerships by the equity
method.
Revenue recognition:
The Company's revenues are recognized when earned. Access service and long
distance service revenues are derived from access charges, toll rates and
settlement arrangements. The Company records retroactive settlements as
revenues in the year the settlements become known in accordance with
industry practice.
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income taxes:
Deferred taxes are provided on the liability method whereby deferred tax
assets are recognized for deductible temporary differences and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax basis. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects
of changes in tax laws and rates on the date of enactment.
Per share amounts:
Net income per share of common stock is based on the weighted average number
of shares outstanding each year after giving retroactive effect to stock
dividends.
New accounting standard:
In 1995, the Financial Accounting Standards Board (FASB) issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" which establishes accounting and
measurement standards for the impairment of long-lived assets such as property
and equipment, certain identifiable intangibles and goodwill related to those
assets. The Company is required to adopt the Statement effective January 1,
1996 and the effect of its implementation is not expected to have a material
impact on the Company's financial position or results of operations.
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
INVESTMENTS IN EQUITY SECURITIES
The following is a summary of the Company's investments in equity securities:
December 31
1995 1994
Marketable equity securities:
Aggregate cost $999,490 $999,490
Gross unrealized appreciation 585,612 137,675
Fair value 1,585,102 1,137,165
Nonmarketable equity security:
Investment in Buffalo Valley Telephone Company
common stock, at cost (see Note 17) 776,000 776,000
2,361,102 1,913,165
The Company's investments in equity securities are concentrated in the
telephone utility industry.
3
INVESTMENTS IN PARTNERSHIPS
December 31,
1995 1994
Berks and Reading Area Cellular Enterprises
(BRACE), 70% interest $ 1,675,746 $ 1,065,824
Lancaster Area Cellular Enterprises (LACE),
10% interest 675,175 598,920
PenTeleData, 11.85% interest 201,349 -
$ 2,552,270 $ 1,664,744
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
INVESTMENTS IN PARTNERSHIPS (CONTINUED)
BRACE's sole activity is a 39% limited partnership interest in the Reading SMSA
Limited Partnership, which provides cellular telephone service to the Reading
metropolitan area. BRACE is reported on the equity method since it, as a
limited partner, has no operational control of the Reading SMSA Limited
Partnership. LACE is an 18.4% limited partner in the Susquehanna Cellular
Communications Limited Partnership, which provides cellular telephone service
in the Harrisburg, Lancaster and York metropolitan areas. LACE is reported on
the equity method since CEI, as one of the three general partners in that
entity, has significant influence over its operating and financial policies.
PenTeleData is a limited partnership which provides Internet access services
in central and eastern Pennsylvania. PenTeleData is reported on the equity
method in accordance with Statement of Position 78-9. The Company's equity in
undistributed net income of the partnerships was $ 659,526, $ 385,077 and
$ 424,432 for 1995, 1994 and 1993 respectively.
4
TELEPHONE PLANT AND NONREGULATED PROPERTY AND EQUIPMENT
Telephone plant and nonregulated property and equipment are carried at cost
less accumulated depreciation and consist of the following:
December 31,
1995 1994
Telephone plant:
In service:
Land and buildings $ 4,080,085 $ 3,958,199
Digital switching equipment 28,019,258 26,515,216
Other equipment 4,867,984 4,418,948
Outside plant facilities 46,922,475 44,447,808
83,889,802 79,340,171
Under construction 1,064,075 502,215
84,953,877 79,842,386
Less accumulated depreciation 39,716,521 35,188,512
$ 45,237,356 $ 44,653,874
Nonregulated property and equipment:
Buildings $ 112,527 $ 112,527
Equipment 2,219,821 2,321,171
2,332,348 2,433,698
Less accumulated depreciation 1,429,442 1,488,311
$ 902,906 $ 945,387
<PAGE>
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
LINE OF CREDIT
The Company has an unsecured $ 3,000,000 line of credit from a bank available
until May 31, 1996 with interest at a rate to be negotiated, not to exceed the
bank's prime rate. At December 31, 1995, there was $ 500,000 outstanding on
the line of credit with interest payable at one-half percent below prime. There
were no borrowings outstanding on the line of credit at December 31, 1994.
6
LONG-TERM DEBT
Long-term debt is summarized as follows:
December 31,
1995 1994
Promissory note, interest payable monthly at
prime, subject to a ceiling of 8.5%, principal
due in 1997, unsecured $ 2,500,000 $ 2,500,000
Promissory note, interest payable monthly at
prime, subject to a ceiling of 8.4% through
May 1997, principal due in quarterly
installments of $ 97,500 through 2002,
unsecured 2,535,000 2,925,000
5,035,000 5,425,000
Less current maturities 390,000 390,000
$ 4,645,000 $5,035,000
Among other things, CTT's long-term debt agreements include various financial
covenants related to the maintenance of certain net worth and debt to net worth
ratios. At December 31, 1995, restricted net assets of CTT are $ 25,000,000
or 59.4% of consolidated net assets. Under the most restrictive covenants of
the debt agreements, $ 16,741,064 of the consolidated retained earnings is
available for payment of cash dividends in 1996.
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
LONG-TERM DEBT (CONTINUED)
The aggregate amount of maturities for each of the five years subsequent to
December 31, 1995 are as follows:
1996 $390,000
1997 2,890,000
1998 390,000
1999 390,000
2000 390,000
The prime interest rate applicable to the promissory notes and line of credit
was 8.75% and 8.5% at December 31, 1995 and 1994 respectively.
7
COMMON STOCK
CTT has a Stock Purchase Plan for all employees who meet minimum eligibility
requirements which provides for the issuance and sale of CEI common stock. The
Plan is being implemented by a series of offerings. Under the fourth offering
of the Plan, participating employees of CTT authorized deductions for a period
of two years ended December 31, 1994. As of December 31, 1994, the Company
issued 5,473 shares under the fourth offering of the Plan at a price of $ 25.65
per share. Under the fifth offering of the Plan, participating employees of
CTT authorized deductions for a period of two years ending August 31, 1997. The
price the employee pays for a share of stock is 95% of the average of the
closing sales price of the shares as quoted on NASDAQ for the days on which
sales are reported during the ten (10) business dates prior to August 31, 1997
but will not be less than $ 24.85 nor more than $ 28.38 per share. A maximum
of 146,237 shares are authorized for subscription under the fifth or subsequent
offerings. As of December 31, 1995, employees have reserved 5,764 shares for
purchase under the fifth offering of the Plan.
On October 26, 1994, the Company declared a 5% common stock dividend, payable
February 28, 1995, to stockholders of record on January 31, 1995. Average
shares outstanding and all per share amounts have been restated to give
retroactive effect to the stock dividend.
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8
DIVIDEND REINVESTMENT PLAN
The Company sponsors a Stock Reinvestment Plan for all shareholders who wish
to participate. Participants' dividends will be used to purchase shares on the
open market. A participant's purchase price per share will be the average
market price per share for all shares purchased under the Plan for each
dividend period.
9
INCOME TAX MATTERS
Net deferred tax liabilities consist of the following components as of
December 31, 1995 and 1994:
1995 1994
Deferred tax liabilities:
Plant, in service $6,718,147 $6,664,880
Prepaid pension costs 549,229 399,939
Investments 369,066 131,380
7,636,442 7,196,199
Deferred tax assets 414,306 372,717
$7,222,136 $6,823,482
The provision for income taxes for the years ended December 31, 1995, 1994 and
1993 was as follows:
1995 1994 1993
Current:
Federal $3,136,592 $3,129,698 $3,050,411
State 1,035,109 1,262,662 1,261,829
4,171,701 4,392,360 4,312,240
Deferred:
Federal 167,915 23,312 (77,146)
State 50,725 9,131 (31,711)
218,640 32,443 (108,857)
$4,390,341 $4,424,803 $4,203,383
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9
INCOME TAX MATTERS (CONTINUED)
The income tax provision differs from the amount of income tax determined by
applying the federal income tax rate to pretax income for the years ended
December 31, 1995, 1994 and 1993 due to the following:
1995 1994 1993
Normal statutory federal income tax rate 34.0% 34.0% 34.0%
Increase resulting from:
State income tax, net of federal tax benefit 6.8 8.0 8.1
Other - (0.7) (1.4)
40.8% 41.3% 40.7%
10
DEFINED BENEFIT PENSION PLANS
CTT has two qualified pension plans covering its union and salaried employees.
The plans provide benefits based on years of service and employee compensation.
CTT's funding policy is to make contributions in compliance with applicable
regulations.
The components of the pension cost charged to expense for 1995, 1994 and 1993
consisted of the following:
1995 1994 1993
Service cost (benefits earned) $270,153 $317,134 $263,284
Interest cost on projected benefit
obligation 603,315 568,597 492,966
Actual return on plan assets (2,001,488) 78,407 (576,322)
Net amortization and deferral 1,299,338 (777,411) (99,657)
Total expense $171,318 $186,727 $80,271
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10
DEFINED BENEFIT PENSION PLANS (CONTINUED)
Assumptions used in the determination of pension plan information for 1995,
1994 and 1993 consisted of the following:
1995 1994 1993
Discount rate 7.0% 8.0% 7.0%
Rate of increase in compensation levels 5.0 5.0 5.0
Expected long-term rate of return on plan assets 8.5 8.5 9.0
The following table sets forth the plans' funded status as of December 31, 1995
and 1994 and the amount recognized in the accompanying consolidated balance
sheets:
1995 1994
Actuarial present value of benefit obligations:
Vested benefits $6,680,657 $5,267,417
Accumulated benefits $6,696,921 $5,282,191
Projected benefits $(9,827,790) $(7,653,847)
Plan assets at fair value 10,217,166 7,951,129
Plan assets in excess of projected benefit
obligation 389,376 297,282
Unrecognized net loss 1,308,705 1,098,883
Unrecognized net (asset) (506,933) (547,906)
Unrecognized prior service cost 234,436 248,472
Prepaid pension cost $1,425,584 $1,096,731
Plan assets consist primarily of U.S. Government securities, corporate bonds
and common stocks, including CEI's common stock of $ 151,393 and $ -0- at
December 31, 1995 and 1994 respectively.
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11
SAVINGS AND INVESTMENT PLAN AND 401(k) PLAN
CTT has a savings and investment plan whereby participants may contribute two
percent to ten percent of their salaries. Effective June 1, 1995, the Plan was
amended to a 401(k) plan. CTT contributes an additional amount equal to a
percentage (from twenty-five percent to one-hundred percent, as announced each
year) of the participants' contributions up to six percent. The Plan covers
substantially all nonunion employees. CTT contributed $ 111,912, $ 96,144 and
$ 93,425 to the Plan for 1995, 1994 and 1993 respectively.
CTT has a 401(k) Plan for its union employees. Participants may contribute one
percent to eight percent of their wages. CTT currently contributes fifty
percent of the participants' contributions. CTT contributed $ 88,156, $ 91,161
and $ 77,109 to the Plan during 1995, 1994 and 1993 respectively.
12
DEFERRED COMPENSATION PLAN
CTT has entered into deferred compensation agreements with two executives which
provide benefits payable to them upon retirement from CTT. The estimated
liabilities under the agreements are being accrued over the expected remaining
years of employment.
13
POSTRETIREMENT BENEFIT PLAN
CTT sponsors a postretirement health care plan for salaried employees and their
spouses. The plan is contributory, with retirees contributing 50% of the
premiums. The plan is unfunded. The Company's share of the estimated costs
that will be paid after retirement is generally being accrued by charges to
expense over the employees' active service periods to the dates they are fully
eligible for benefits, except that the Company's unfunded cost that existed at
January 1, 1993 is being accrued primarily in a straight-line manner that will
result in its full accrual by December 31, 2012. The Company has received
approval from the PUC to include the expense of this plan for ratemaking
purposes pending the funding of the accruals into a trust.
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13
POSTRETIREMENT BENEFIT PLAN (CONTINUED)
The components of the net periodic postretirement benefit cost charged to
expense for 1995, 1994 and 1993 consisted of the following:
1995 1994 1993
Service cost $34,356 $41,903 $31,951
Interest cost on projected benefit
obligation 94,181 92,350 83,208
Amortization of transition obligation 56,267 56,267 56,267
Total expense $184,804 $190,520 $171,426
The following sets forth the plans' funded status reconciled with the
amount recognized in the Company's consolidated balance sheets as of
December 31, 1995 and 1994:
1995 1994
Actuarial present value of accumulated
postretirement benefit obligations:
Retirees $(481,252) $(437,030)
Fully eligible active employees (366,498) (343,172)
Other active members (496,656) (427,341)
(1,344,406) (1,207,543)
Unrecognized transition obligation 956,529 1,012,796
Unrecognized net (gain) loss (60,031) (107,500)
Accrued postretirement cost $(447,908) $(302,247)
Assumptions used by the Company in the determination of postretirement benefit
plan information consisted of the following:
1995 1994 1993
Projected health care cost trend rate 9.5% 10.5% 11.5%
Ultimate trend rate 6.0 6.0 5.5
Year ultimate trend rate is achieved 2000 2000 2000
Discount rate 7.0% 8.0% 7.0%
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13
POSTRETIREMENT BENEFIT PLAN (CONTINUED)
Increasing the assumed health care cost trend rates by one percentage point in
each year will increase the accumulated postretirement benefit obligation as
of December 31, 1995 by $ 206,310 and the aggregate service and interest cost
components of net periodic postretirement benefit cost for 1995 by $ 21,371.
14
COMMITMENTS
At December 31, 1995, the Company had commitments for the purchase of equipment
and materials approximating $ 1,200,000.
15
QUARTERLY DATA (UNAUDITED)
First Second Third Fourth
1995
Operating revenues $7,336,966 $8,159,895 $7,578,316 $7,794,151
Operating income 2,514,855 2,983,315 2,577,922 2,507,702
Net income 1,439,572 1,914,303 1,653,292 1,523,691
Earnings per share 0.37 0.50 0.43 0.40
1994
Operating revenues $7,818,072 $7,617,533 $7,404,827 $6,987,761
Operating income 3,081,476 2,681,691 2,734,284 2,153,316
Net income 1,736,238 1,628,286 1,579,322 1,350,137
Earnings per share 0.45 0.43 0.41 0.35
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value.
Cash, cash equivalents, accounts receivable and accounts payable:
The carrying amount approximates fair value because of the short maturity
of those instruments.
Investments in equity securities:
The fair values of investments in equity securities are based on quoted
market prices. Additional information pertinent to the investment in Buffalo
Valley Telephone Company common stock, a nonmarketable security, is provided
in Note 17.
Note payable and long-term debt:
The carrying amount approximates fair value because the interest rate
changes with market interest rates.
17
PENDING ACQUISITION
On October 18, 1995, the Company entered into an agreement and plan of merger
("Agreement") to acquire all of the common stock of Buffalo Valley Telephone
Company ("BVT"), an independent local exchange carrier which provides both
regulated and nonregulated communication services in central Pennsylvania.
Under the terms of the Agreement, BVT's shareholders will elect to receive
for each share held either cash in the amount of $ 65, one CEI Series A
Preferred share with a stated value of $ 65 per share or 2.4 CEI common
shares, subject to certain adjustments. The total cash consideration to be
paid to BVT shareholders will not exceed fifty percent of the total purchase
price. BVT has 899,154 common shares outstanding of which 16,000 shares are
currently owned by CEI. The Company is currently negotiating the financing
of for the cash portion of the purchase price. The acquisition is subject
to certain conditions, including approval of the merger by BVT shareholders
and the Pennsylvania Public Utility Commission, and the approval by CEI
shareholders of an amendment to CEI's Articles of Incorporation authorizing
the Series A Preferred Stock. The transaction will be accounted for by the
purchase method, and the effective date of the merger is expected to be in
the second quarter of 1996.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information as to the Directors and Executive Officers of the
Company set forth under the Subcaption "Election of Directors " of the
Proxy Statement relating to the Annual Meeting of Shareholders to be held
on May 4, 1996 is incorporated by reference into this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information as to the Executive Officers' Compensation set forth
under the caption "Executive Compensation" of the Proxy Statement relating
to the Annual Meeting of Shareholders to be held on May 4, 1996 is
incorporated by reference into this Report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the captions "Election of Directors"
and "Security Ownership of Management" of the Proxy Statement relating to
the Annual Meeting of Shareholders to be held on May 4, 1996 is incorporated
by reference into this Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There are no relationships or related transactions as described in
Item 404 of Regulation S-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements:
The following consolidated financial statements of Conestoga Enterprises, Inc.
and subsidiaries are included in Part II, Item 8:
Opinion of Independent Certified Public Accountants
Consolidated balance sheets - December 31, 1995 and 1994
Consolidated statements of income - years ended December 31, 1995, 1994
and 1993
Consolidated statements of stockholders' equity - years ended
December 31, 1995, 1994 and 1993
Consolidated statements of cash flows - years ended December 31, 1995,
1994 and 1993
Notes to consolidated financial statements
(a)(2) Financial Statement Schedules:
Schedule I - Condensed Financial Information of Registrant
All other schedules are omitted because they are not applicable, not required,
or because the required information is included in the financial statements
or notes thereto.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(continued:
(a)(3) Exhibits -
(10) Material contracts Attachment C1
(21) Subsidiaries of the registrant Attachment D1
(b) Reports on Form 8-K
A report on Form 8-K has been filed by the Registrant on
December 22, 1995. The Agreement and Plan of merger filed
among Buffalo Valley Telephone Company, Conestoga Enterprises,
Inc. & C B Merger Corp was dated October 18, 1995.
Schedule I
CONESTOGA ENTERPRISES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT)
BALANCE SHEETS
December 31, 1995 1994
ASSETS
CURRENT ASSETS
Cash and cash equivalents $28,043 $187,391
Accounts receivable, due from subsidiaries
eliminated in consolidation 604,446 1,003,663
Total current assets 632,489 1,191,054
INVESTMENTS AND OTHER ASSETS 4,844,398 3,579,776
INVESTMENTS IN SUBSIDIARIES 37,046,035 35,286,400
$42,522,922 $40,057,230
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES $64,901 $17,494
DEFERRED INCOME TAXES 369,066 131,380
STOCKHOLDERS' EQUITY 42,088,955 39,908,356
$42,522,922 $40,057,230
Schedule I
CONESTOGA ENTERPRISES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT)
STATEMENTS OF INCOME
Years Ended December 31, 1995 1994 1993
Operating revenues $ - $ - $ -
Operating expenses:
Corporate operations 173,052 111,527 85,616
Taxes other than income 55,370 123,128 7,743
228,422 234,655 93,359
Other income, net:
Income from partnership interests 778,179 385,077 424,432
Other, net 187,154 203,709 177,848
965,333 588,786 602,280
Income before income taxes and
equity in net income of subsidiaries 736,911 354,131 508,921
Income taxes 290,571 128,261 157,071
Income before equity in net
income of subsidiaries 446,340 225,870 351,850
Equity in net income of subsidiaries 6,084,518 6,068,113 5,783,963
Net income $6,530,858 $6,293,983 $6,135,813
Schedule I
CONESTOGA ENTERPRISES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT)
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES
Income before equity in net income
of subsidiaries $446,340 $225,870 $351,850
Adjustments to reconcile income before
net income of subsidiaries to net cash used
in operating activities:
Amortization - 11,435 11,436
Income from partnership interests (778,179) (385,077) (424,432)
Change in assets and liabilities:
(Increase) decrease in accounts receivable
and other current assets (131,290) 8,861 26,095
Increase (decrease) in:
Current liabilities 47,935 (64,234) 61,782
Deferred income taxes 57,671 1,553 (68,539)
Net cash used in operating activities (357,523) (201,592) (41,808)
CASH FLOWS FROM INVESTING ACTIVITIES
Dividends received from subsidiaries 4,727,732 3,059,597 5,400,597
Purchase of investments - (776,000) -
Capital investments in unconsolidated
partnership interests - (7,000) -
Capital distributions from partnership
interests 92,000 17,900 -
Investment in subsidiary (402,849) - -
Net change in advances to subsidiaries 400,000 2,000,000 (1,232,000)
Net cash provided by investing activities 4,816,883 4,294,497 4,168,597
Schedule I
CONESTOGA ENTERPRISES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT)
STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1995 1994 1993
CASH FLOWS USED IN FINANCING ACTIVITIES
Proceeds from issuance of stock under
employee stock purchase plan $ - $ 140,382 $ -
Cash dividends paid (4,618,708) (4,246,172) (4,209,567)
(4,618,708) (4,105,790) (4,209,567)
Decrease in cash (159,348) (12,885) (82,778)
Cash:
Beginning 187,391 200,276 283,054
Ending $ 28,043 $ 187,391 $ 200,276
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash payments for income taxes $ 247,749 $ 194,200 $ 350,041
INDEX TO EXHIBITS
Page
(a) Articles of Incorporation, as amended 53 - 56*
(b) By-laws 57 - 66*
Instruments defining the rights of security holders
(b) Relevant portions of the by-laws 67*
Material contracts
(a) Agreement dated January 28, 1987 with
John R. Bentz, Executive Vice President 68 - 74*
(b) Agreement dated March 22, 1989 with
Donald R. Breitenstein, Controller 75 - 81*
(c) Agreement dated September 1, 1995 with
Albert H. Kramer, Vice-President,
Finance and Administration 47 - 51
Subsidiaries of the registrant 52
*These exhibits appear in the 1992 10K.
Attachment C1
EMPLOYMENT AGREEMENT
AGREEMENT made this 1st day of September , 1995, between THE
CONESTOGA TELEPHONE & TELEGRAPH COMPANY, a Pennsylvania business corporation,
having its principal office in the Borough of Birdsboro, County of Berks and
State of Pennsylvania (hereinafter called "Employer") and ALBERT H. KRAMER, of
1932 Heatherton Drive, Lancaster, Pennsylvania 17601 (hereinafter called the
"Employee").
A G R E E M E N T
1. Employment. The Employer employs the Employee and the Employee accepts
employment upon the terms and conditions of this Agreement.
2. Term. The term of this Agreement shall begin on September 1, 1995 and
shall terminate on August 31, 1998. It is the intention of the Employer and
the Employee that this relationship shall continue beyond the three (3)
years period but either party may terminate the same under the terms
hereinafter set forth in this Agreement.
3. Compensation.
(a) The Employer shall pay the Employee for all services rendered a salary
of One Hundred Twenty Thousand Dollars ($120,000.00) per year, payable in
equal weekly installments at the end of each week. Salary payments shall
be subject to withholding and other applicable taxes.
(b)Employer will review Employee's compensation on an annual basis along with
the review of all their management employees.
4. Duties. The Employee shall serve as the Employer's Vice-President Finance
and Administration and shall be responsible for the Employer's overall
financial plans and policies, along with its accounting practices and the
conduct of its relationship with lending institutions and the financial
community. Employee shall direct treasury, budgeting, audit, tax, accounting,
real estate and pension activities for the Corporation and its affiliated
companies and its parent holding company, Conestoga Enterprises, Inc. The
exact responsibilities for the position are set forth in the job description
for Vice-President Finance and Administration of the Employer. A copy of
said job description is attached hereto and referred to as Schedule A.
5. Extent of Services. The Employee shall devote his entire time and attention
to the Employer's business. During the term of this Agreement, the Employee
shall not engage in any other business activity, regardless of whether it is
pursued for gain or profit. Employee, however, may invest his assets in other
companies so long as they do not require the Employee's services in the
operation of their affairs. Employer is aware that Employee is Vice-President
of DKM Enterprises, and does attend stockholders, directors and officers
meetings. Employer does not object to Employee's continued participation in
this Company so long as it remains passive and does not interfere with the
performance of his duties as Vice-President, Finance/Administration.
6. Working Facilities. The Employee shall have a private office, stenographic
help, a personal computer and other facilities and services that are suitable
to his position and appropriate for the performance of his duties.
7. Disclosure of Information. The Employee acknowledges that the list of the
Employer's customers, as the Employer may determine from time to time, is a
valuable, special and unique asset of the Employer's business. The Employee
shall not, during and after the term of his employment, disclose all or any
part of the Employer's customer list to any person, firm, corporation,
association, or other entity for any reason or purpose. In the event of the
Employee's breach or threatened breach of this paragraph, the Employer shall
be entitled to a preliminary restraining order and an injunction restraining
and enjoining the Employee from disclosing all or any part of the Employer's
customer list to any person, firm, corporation, association, or other entity
for any reason or purpose and from rendering any services to any person, firm,
corporation, association, or other entity to whom all or any part of such
list has been, or is threatened to be, disclosed. In addition to or in lieu
of the above, the Employer may pursue all other remedies available to the
Employer for such breach or threatened breach, including the recovery of
damages from the Employee.
8. Expenses. The Employer shall reimburse Employee for all reasonable and
necessary expenses incurred in carrying out his duties under this Agreement.
Employee shall present to the Employer, from time to time, an itemized account
of such expenses in any form required by the Employer.
9. Vacations. The Employee shall be entitled each year to a vacation of four (4)
weeks commencing January 1, 1996, during which time his compensation shall be
paid in full.
10.Termination Without Cause. Commencing September 1, 1998, the Employer may
without cause, terminate this Agreement at any time by giving thirty (30) days
written notice to the Employee. In that event, the Employee, if requested by
the Employer, shall continue to render his services and shall be paid his
regular compensation up to the date of termination. Employee may, without
cause, terminate this Agreement by giving sixty (60) days written notice to
the Employer. In such event, the Employee shall continue to render his
services and shall be paid his regular compensation up until the date of
termination.
11.Termination for Proper Cause. Employer may terminate Employee's employment at
any time for "proper cause". Proper cause for the termination of Employee's
employment shall be as follows:
(a) Violation by Employee of the restrictive covenants set forth in
paragraph 7 hereof;
(b) Employee's disloyal, dishonest or illegal conduct; or
(c) Employee's willful dereliction of his duties to the Company.
12. Death During Employment. If the Employee dies during the term of
employment, the Employer shall pay to the Employee's estate the compensation
that would otherwise be payable to the Employee up to the end of the month in
which his death occurs. In addition, if Employee qualifies under the terms of
the Employer's existing life insurance coverage, Employer will provide life
insurance on the life of Employee amounting to two and one-half (2-1/2) times
his annual salary up to a maximum of Three Hundred Thousand Dollars
($300,000.00).
13. Restricted Covenant. For a period of two (2) years after the termination
or expiration of this Agreement, the Employee shall not within a radius of
twenty-five (25) miles from the present place of the Employer's business,
directly or indirectly, own, manage, operate, control, be employed by,
participate in, or be connected in any manner with the ownership, management,
operation or control of any business similar and competitive to the type of
business conducted by the Employer at the time this Agreement terminates. In
the event of the Employee's actual or threatened breach of this paragraph, the
Employer shall be entitled to a preliminary restraining order and injunction
restraining the Employee from violating its provisions. Nothing in this
Agreement shall be construed to prohibit the Employer from pursuing any other
available remedies for such breach or threatened breach, including the recovery
of damages from the Employee.
14.Arbitration. Any controversy or claim arising out of, or relating to this
Agreement, or its breach, shall be settled by arbitration in the City of
Reading in accordance with the then governing rules of the American Arbitration
Association. Judgment upon the award rendered may be entered and enforced in
any court of competent jurisdiction.
15.Notices. Any notice required or desired to be given under this Agreement
shall be deemed given if in writing and sent by certified mail, return receipt
requested, to the Employee's residence or to the Employer's principal office,
as the case may be.
16.Waiver of Breach. The Employer's waiver of a breach of any provision in this
Agreement by the Employee shall not operate or be construed as a waiver of any
subsequent breach by the Employee. No waiver shall be valid unless in writing
and signed by an authorized officer of the Employer.
17.Assignment. The Employee acknowledges that his services are unique and
personal. Accordingly, the Employee may not assign his rights or delegate his
duties or obligations under this Agreement. The Employer's rights and
obligations under this Agreement shall inure to the benefit of, and shall be
binding upon, the Employer's successors and assigns.
18.Entire Agreement. This Agreement contains the entire understanding of the
parties. It may not be changed orally but only by an agreement in writing
signed by the party against whom enforcement of any waiver, change,
modification, extension, or discharge is sought.
19.Headings. Headings in this Agreement are for convenience only and shall
not be used to interpret or construe its provisions.
20.Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first above written.
CONESTOGA TELEPHONE AND TELEGRAPH
COMPANY
By \s\ F. M. Brown
President
Attest \s\ Kenneth A Benner
Secretary
\s\ Albert H. Kramer (SEAL)
Albert H. Kramer
Attachment D1
SUBSIDIARIES OF CONESTOGA ENTERPRISES, INC.
1. The Conestoga Telephone and Telephone Company
Incorporated August 20, 1902
Pennsylvania
Operates - The Conestoga Telephone and Telegraph Company
2. Northern Communications, Inc.
Incorporated March 5, 1981
Pennsylvania
Operates - Northern Communications, Inc.
3. Conestoga Mobile Systems, Inc.
Incorporated April 1, 1991
Pennsylvania
Operates - Conestoga Mobile Systems, Inc.
4. Conestoga Wireless Company
Limited Liability Company
Formed March 1995
Pennsylvania
Operates - Conestoga Wireless Company
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CONESTOGA ENTERPRISES, INC.
Date _March 8, 1996_ By \s\ F. M. Brown
F. M. Brown
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
Date _March 8, 1996_ \s\ Alvin W. Sponagle
Alvin W. Sponagle
Chairman of the Board
Date _March 8, 1996_ \s\ John R. Bentz
John R. Bentz
Executive Vice President
Date _March 8, 1996_ \s\ James H. Murray
James H. Murray
Vice President
Date _March 8, 1996_ \s\ Kenneth A. Benner
Kenneth A. Benner
Secretary/Treasurer
Date _March 8, 1996_ \s\ Donald R. Breitenstein
Donald R. Breitenstein
Controller, Chief Accounting Officer
Date _March 8, 1996_ \s\ Emma F. Mullen
Emma F. Mullen
Director
Date _March 8, 1996_ \s\ John M Sausen
John M. Sausen
Director
Date _March 8, 1996_ \s\ Richard G. Wiedner
Richard G. Weidner
Director
Date _March 8, 1996_ \s\ Thomas C. Keim
Thomas C. Keim
Vice President - Operations
Date _March 8, 1996_ \s\ Albert H. Kramer
Albert H. Kramer
Vice President - Finance and
Administration, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> UT
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 45,237,356
<OTHER-PROPERTY-AND-INVEST> 5,816,278
<TOTAL-CURRENT-ASSETS> 5,403,734
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<COMMON> 19,244,610
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<TOTAL-COMMON-STOCKHOLDERS-EQ> 42,088,955
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<LONG-TERM-DEBT-NET> 4,645,000
<SHORT-TERM-NOTES> 500,000
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<OTHER-ITEMS-CAPITAL-AND-LIAB> 10,970,770
<TOT-CAPITALIZATION-AND-LIAB> 58,594,725
<GROSS-OPERATING-REVENUE> 30,869,328
<INCOME-TAX-EXPENSE> 4,390,341
<OTHER-OPERATING-EXPENSES> 0
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<OPERATING-INCOME-LOSS> 10,583,794
<OTHER-INCOME-NET> 750,777
<INCOME-BEFORE-INTEREST-EXPEN> 11,334,571
<TOTAL-INTEREST-EXPENSE> 427,812
<NET-INCOME> 6,530,858
0
<EARNINGS-AVAILABLE-FOR-COMM> 6,530,858
<COMMON-STOCK-DIVIDENDS> 4,618,708
<TOTAL-INTEREST-ON-BONDS> 427,812
<CASH-FLOW-OPERATIONS> 10,269,070
<EPS-PRIMARY> 1.70
<EPS-DILUTED> 1.70
</TABLE>
