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 September 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 September 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 )
September 30, 1996, September 30, 1995 and December 31, 1995
ASSETS
9/30 9/30 12/31
1996 1995 1995
Current Assets
Cash and Cash Equivalents $2,705,565 $1,501,331 $671,495
Accounts receivable, including
unbilled revenue 7,317,433 3,978,771 3,751,182
Inventories, at average cost 1,184,542 518,204 576,786
Prepaid expenses 218,949 339,774 404,271
Total Current Assets 11,426,489 6,338,080 5,403,734
Investments and Other Assets
Cost in Excess of Net Assets of
Business Acquired 38,643,227 0 0
Investments in equity securities 1,466,842 2,604,306 2,361,102
Investments in partnerships 3,255,260 2,126,937 2,552,270
Nonregulated property and equipment 1,846,319 893,826 902,906
Prepaid Pension Costs 2,110,352 1,395,828 1,425,584
Other 1,562,580 67,313 711,773
48,884,580 7,088,210 7,953,635
Plant, at Cost
In Service 115,409,622 82,561,628 83,889,802
Under Construction 2,573,732 1,299,889 1,064,075
117,983,354 83,861,517 84,953,877
Less accumulated depreciation 56,969,206 38,579,092 39,716,521
Net plant in service 61,014,148 45,282,425 45,237,356
Total Assets 121,325,217 $58,708,715 $58,594,725
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS ( UNAUDITED )
September 30, 1996, September 30, 1995 and December 31, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
9/30 9/30 12/31
1996 1995 1995
Current Liabilities
Current maturities of long term debt $2,971,000 $390,000 $390,000
Accounts payable 3,211,530 1,723,314 1,982,689
Notes payable 0 1,000,000 500,000
Accrued:
Interest 39,780 0 0
Payroll & Vacation Pay 623,343 476,617 390,372
Advance billings / Customer Deposits 1,167,627 945,983 484,617
Total Current Liabilities 8,013,280 4,535,914 3,747,678
Long Term Liabilities
Long Term Debt, less Current
Maturities 25,175,500 4,742,500 4,645,000
Accrued PostRetirement Cost 558,980 411,135 447,908
Other 884,585 183,428 189,681
26,619,065 5,337,063 5,282,589
Deferred Income Taxes 9,873,337 7,043,046 7,222,136
Minority Interest 420,169 98,937 253,367
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;
9/30/96 9/30/95 12/31/95
4568500 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 20,165,938 17,358,256 17,727,271
Net unrealized appreciation on
marketable equity securities 190,753 321,706 347,891
Total Stockholders' Equity 63,619,196 41,693,755 42,088,955
Total Liabilities and
Stockholders' Equity 121,325,217 $58,708,715 $58,594,725
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FOR THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
September 30, 1996 September 30, 1995
QUARTER YEAR QUARTER YEAR
ENDED TO DATE ENDED TO DATE
Operating Revenues:
Local Network Service $2,119,495 $5,318,903 $1,503,306 $4,378,059
Network Access 5,851,073 13,816,913 3,417,259 10,380,115
Long Dist. Network Svc 2,360,220 6,589,352 1,836,139 5,755,619
Nonreg. Sales & Lease 1,739,422 4,177,910 1,095,379 3,219,672
Miscellaneous 274,630 724,707 198,171 697,727
12,344,840 $30,627,785 $8,050,254 $24,431,192
Less uncollectible
operating revenues 61,133 115,011 58,940 100,811
12,283,707 30,512,774 7,991,314 24,330,381
Operating Expenses:
Plant Specific $1,113,398 $2,867,922 $702,328 $2,302,913
Plant Non-Specific:
Network & Other 335,974 1,089,560 316,058 984,845
Depreciation 1,941,024 4,834,373 1,305,010 3,813,007
Customer Operations 1,902,474 5,193,692 1,556,710 4,671,421
Corporate Operations 872,227 2,259,039 527,182 1,528,971
Nonreg. Sales & Lease 1,028,988 2,488,188 683,040 1,977,629
Operating taxes, other 457,882 1,179,791 323,064 975,503
Amortization Expense 241,040 $321,386 $0 $0
7,893,007 20,233,951 5,413,392 16,254,289
Operating Income 4,390,700 10,278,823 2,577,922 8,076,092
Other Income
(Deductions), Net:
Interest Expense ($538,037) ($762,659) ($116,213) ($344,787)
Income from Partnershi 204,088 813,390 270,611 554,194
Other, Net 152,650 268,393 138,809 199,592
(181,299) 319,124 293,207 408,999
Income Before
Income Taxes $4,209,401 $10,597,947 $2,871,129 $8,485,091
Income Taxes 1,806,070 4,512,575 $1,217,837 3,477,924
Income Before
Minority Interes $2,403,331 $6,085,372 $1,653,292 $5,007,167
Minority Interest in net
loss of Subsidiary 2,144 33,198 0 0
Net Income $2,405,475 $6,118,570 $1,653,292 $5,007,167
Earnings per common sha $0.49 $1.41 $0.43 $1.30
Dividends per common sh $0.30 $0.90 $0.30 $0.90
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONESTOGA ENTERPRISES, INC.
Consolidated Statement of Cash Flow (Unaudited)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 1995
1996
Cash Flows from Operating Activities: $6,118,570 $5,007,167
Net Income
Adjustments to reconcile net cash
provided by operating activities:
Depreciation $5,259,993 $3,809,090
Amortization 321,386 0
Income from unconsolidated partners
interests 813,390 (554,427)
Minority interest in loss of subsidiary (33,198) (98,937)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts Receivable (946,659) (376,668)
Material and supplies 120,727 78,512
Prepaid expenses 741,082 21,761
Prepaid pension costs (127,057) (299,097)
Other Assets 88,529 (9,502)
Increase (decrease) in:
Accounts Payable (1,026,236) (145,053)
Accrued expenses and
other current liabilitie 647,833 118,962
Other liabilities (351,100) 124,290
Deferred income taxes (377,632) 219,564
3,504,278 2,888,495
Net cash provided by
operating activities 9,622,848 7,895,662
Cash Flows From Investing Activities:
Plant removal costs ($66,557) ($75,717)
Salvage from plant retired 111,612 112,366
Purchase of plant (5,016,922) (4,474,289)
Acquisition of
Buffalo Valley Telephone Co. (20,154,908) 0
Capital investments in unconsolidated
partnership interests (300,000) (200,000)
Capital distributions from
unconsolidated partnership interest 110,400 92,000
Net cash used in investing activities(25,316,375) (4,545,640)
Cash Flows From Financing Activities:
Borrowings on line of credit $1,400,000 $1,000,000
Principal payments on line of credit (1,900,000) 0
Principal payments on long term debt (292,500) (292,500)
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 (3,679,903) (3,463,242)
Minority interest investment
in subsidiary 200,000 0
Net cash provided by (used in)
financing activities 17,727,597 (2,755,742)
Increase (decrease) in cash &
cash equivalents $2,034,070 $594,280
Cash & Cash Equivalents at
Beginning of year 671,495 907,051
Cash & Cash Equivalents at SEPTEMBER $2,705,565 $1,501,331
CONESTOGA ENTERPRISES, INC.
Consolidated Statement of Cash Flow (Unaudited) Continued
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Payments for:
Interest $780,975 $342,627
Income Taxes $4,855,821 $2,908,468
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 (908,374)
$20,154,908
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1: BASIS OF PRESENTATION
The financial information included herein is unaudited; however, such
informatin reflects all adjustments (consisting solely of normal recurring
adjustments) which, are in the opinion of management, necessary for a fair
statement of results for the interiumperiods.
The results of operations for the three and nine-month periods ended
September 30, 1996 are not necessarily indicative of the results to be
expected for the full year.
NOTE 2: LONG TERM DEBT
Long-term debt is summarized as follows:
9/30/96 9/30/95 12/31/95
Promissory note, interest payable monthly
at prime, with a ceiling of 8.5%, principal
due in 1997, unsecured $2,500,000 $2,500,000 $2,500,000
Promissory note, interest payable monthly
at prime, with a ceiling of 8.4%, through
May, 1997, quarterly principal payments of
$97,500 through 2002, unsecured 2,242,500 2,632,500 2,535,000
Series A Senior Note interest payable
quarterly at 6.91%, annual principal
payments of $2,000,000 starting June 30,
1998 through June 30, 2000, unsecured 6,000,000 0 0
Series B Senior Note interest payable
quarterly at 7.59%, annual principal
payments of $1,454,545 starting June 30,
2001 through June 30, 2011, unsecured 16,000,000 0 0
Promissory note, interest payable June 1
and December 1, at 8.5%, annual principal
payments of $81,000 through 1997, final
payment of $1,323,000 on June 1, 1998,
unsecured 1,404,000 0 0
$28,146,500 $5,132,500 $5,035,000
Less current Maturities 2,971,000 390,000 390,000
$25,175,500 $4,742,500 $4,645,000
CONESTOGA ENTERPRISES, INC.
NOTE 3: ACQUISITION
On May 31, 1996, Conestoga Enterprises, Inc. (CEI) acquired all of the
outstanding shares of Buffalo Valley Telephone Company (BVT) an independent
local exchange carrier which provides both regulated and nonregulated
communication services in Central Pennsylvania. The consideration for the
stock included 196,618 shares of CEI $3.42 Series A Preferred Stock,
719,578 shares of CEI Common Stock, and approximately $25 million
in cash.
The acquisition has been accounted for as a purchase and the results of
operation of BVT since the date of acquisition are included in the consolidated
financial statements. The excess of the purchase price over the book value
$acquired of $38,964,613 is being amortized over 40 years using the straight
line method. The allocation of purchase price is in accordance
with Statement of Financial Accounting Standards No. 71 "Accouting
for Certain Types of Regulation." This practice differs from the
requirements of Accounting Principles Board Opinion no. 16 "Business
Combinations" which requires adjusting assets and liabilities to their
fair values and which is applicable for nonregulated entities.
Unaudited pro forma consolidated results of operations for the nine months
ended September 30, 1996 and 1995 as though BVT had been acquired as of
January 1, 1996 and January 1, 1995 are as follows:
1996 1995
Operating revenues $35,499 $31,547
Operating income 11,890 10,517
Net income 5,632 5,223
Earnings per common share $1.20 $1.11
The above amounts reflect adjustments for amortization of goodwill, interest on
debt issued to fund the cash portion of the purchase price and related tax
benefit, removal of expenses related to the acquisition, net of taxes, and
$3.42 Series A Preferred Stock dividend requirements.
NOTE 4: OTHER
Certain items for September 30, 1995 and December 31, 1995 have been restated
for comparative purposes.
Inventories, at average cost, are material and supplies used to provide service.
CONESTOGA ENTERPRISES, INC.
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.
On May 31, 1996, CEI acquired BVT in accordance with the terms and provisions
of an Agreement and Plan of Merger dated October 18, 1995, among BVT, CEI and a
CEI subsidiary, CB Merger Corporation. In the acquisition transaction, BVT was
merged into CB Merger Corporation, thus becoming a subsidiary of CEI, and the
name of CB Merger Corporation was changed to BVT. CEI acquired all of the
outstanding shares of BVT and paid or exchanged (i) $65.00 in cash, (ii) one
share of CEI $3.42 Series A Convertible Preferred Stock,
par value $65.00, or (iii) 2.4 shares of CEI common stock,
for each BVT share, as elected by the BVT shareholders. The total
consideration for the transaction was approximately $58,000,000. The holders
of 43.8% of BVT shares elected to receive cash, 22.3% elected CEI Preferred
Stock and 33.9% elected CEI Common Stock.
The acquisition was accounted for as a purchase.
The CEI consolidated financial statements for the third quarter of 1996
include four months of BVT operations.
FINANCIAL CONDITION
The cash and cash equivalents for the first nine months of the current year
increased $2,034,070, part of which was acquired through the merger with BVT.
The net cash provided by operating activities was $9.6 million for the first
three quarters of 1996, an increase over the first three quarters of 1995 of
21.9%.
CONESTOGA ENTERPRISES, INC.
FINANCIAL CONDITION (continued)
Capital expenditures are provided primarily by internally generated funds.
There was outside short term borrowing required at various times during the
first three quarters, but there was no balance outstanding on
September 30, 1996. The Company has available lines of credit with two
regional banks totaling $15.0 million at September 30, 1996.
While management believes that cash provided from operations will be sufficient
to fund upcoming capital projects, the use of these lines of credit may be
required on a short term basis.
The cash part of the acquisition of BVT was financed through outside financing
as follows;
Series A Senior Note $6,000,000, maturing June 30, 2000 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 June 30, 2011 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.
The Senior Notes are unsecured and contain certain financial covenants with
which the Company must comply. These covenants include, among other things,
restrictions on certain types of investments, payment of dividends beyond
certain levels and limits upon additinal debt that the Company
Company and its subsidiaries may incur. The Company is currently
in compliance with all debt covenants and expects to remain in
compliance for the foreseeable future.
196,618 shares of CEI's $3.42 Series A Preferred stock and 719,578 of CEI Common
Stock were issued to BVT shareholders as part of the acquisition.The preferred
stock is convertible into common stock at any time and can be redeemed by the
holder after the second anniversary of the closing date of the merger with BVT.
The redemption rate is $65 per share.
The preferred stock may also be called for redemption by the Company
after the fourth anniversary of the closing of the merger. The Company
believes that internally generated cash flow, along with the existing lines
of credit, will be adequate to meet any cash requirements arising
out of the redemption of the preferred stock.
The debt (including CEI Convertible Preferred Stock ) to equity ratio as of
September 30, 1996 was 39% debt to 61% equity.
CONESTOGA ENTERPRISES, INC.
RESULTS OF OPERATIONS
Net income for the first nine months of 1996, of $6,118,570, increased 22.2%
when compared with the first nine months of 1995. The consolidated financial
statements (unaudited ) for the period include results from the Company and its
subsidiaries as follows:
CEI Parent Company $492,187
CTT Local Exchange Carrier $4,771,761
BVT Local Exchange Carrier ( $545,641
NCI Reseller of Long Dist. Sv $376,504
CMS Paging Services ($17,725)
CWC PCS Company ($49,798)
Net income for the third quarter of 1996, of $2,405,475 when compared with the
third quarter of 1995 shows an increase of 45.5% . This increase is primarily
the result of the addition of BVT and to a retroactive billing adjustment
recorded during the third quarter of 1996 for CTT, as well as
unprecedented access line growth for CTT & BVT. Net income for the
third quarter of 1996, when compared with the second quarter of 1996,
increased 34.2% for the same reasons mentioned above.
OPERATING REVENUES
Operating Revenues for the first nine months of 1996 were $30,512,774, an
increase of 25.4% when compared with the first nine months of 1995. Operating
Revenues for the third quarter of $12,283,707 increased 53.7% over the third
quarter of 1995 and 28.8% over the second quarter of 1996.
The increase in operating revenues for the first nine months of 1996,
partially due to the addition of BVT and to a retroactive billing adjustment
during the third quarter of 1996 is comprised of the following:
Increase/
(Decrease) %
Local Service $940,844 21.5%
Access Service $3,436,798 33.1%
Long Distance Service $833,733 14.5%
Nonregulated Sales an $958,238 29.8%
Miscellaneous (net un $12,780 2.3%
Local Service revenues include regulated revenues from CTT, BVT and CMS.
CTT and CMS both recorded increases in local service revenues for the nine month
period, and BVT added $752,000 in local service revenues.
CONESTOGA ENTERPRISES, INC.
RESULTS OF OPERATIONS (continued)
Total access lines in service on September 30, 1996 was 71,328. CTT had 47,441
in service, CMS had 5,054, and BVT had 18,833. Total access lines added during
the first nine months of 1996 (including BVT for nine months) was 2,915.
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 about 12% and Intrastate-
Interlata minutes of use increased about 23%. Intralata terminating minutes
of use increased 6.7%. CTT also recorded a retroactive billing adjustment
during the third quarter of $315,000. BVT added $2.2 million in
access service revenues.
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 nine months of 1996. NCI recorded a decrease of 5.5%
in operating revenues. BVT added $631,000 in long distance service 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 nonregulated revenues increased
4.3%, and CMS nonregulated revenues were up 1.6%. BVT added nonregulated
revenues of $851,204.
Miscellaneous revenues include billing and collection revenues from CTT and BVT.
CTT has experienced a decrease, which is a result of an interexchange
carrier's take back of certain billing and collections functions previously
performed by CTT.
OPERATING EXPENSES
Operating Expenses for the first nine months of 1996 were $20,233,951, an
increase of 24.5% when compared with the first nine months of 1995. Operating
Expenses for the third quarter of $7,893,007 increased 45.8% over the third
quarter of 1995, and 19.6% over the second quarter of 1996.
The increase in operating expenses for the first nine months, partially due to
the addition of BVT and to the amortization expense of the BVT acquisition, is
comprised of the following:
Increase/
(Decrease) %
Plant Specific $565,009 24.5%
Plant Non-Specific $1,126,081 23.5%
Customer Operations $522,271 11.2%
Corporate Operations $730,068 47.7%
Nonregulated $510,559 25.8%
Amortization Expense $321,386 100.0%
Operating Taxes $204,288 20.9%
CONESTOGA ENTERPRISES, INC.
RESULTS OF OPERATIONS (continued)
Plant Specific expenses include CTT, BVT and CMS regulated expenses. CTT
recorded increases in aerial cable and buried cable expenses and BVT had
$404,800 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 nine months of 1996
by $68,000. BVT had $808,000 in plant non-specific expenses.
Customer Operations expenses include expenses for CTT, BVT, NCI, and CMS .
Intralata termination charges increased 12.7% during the first nine months of
1996 when compared with the first nine months of 1995. Customer services
expenses were down, but advertising expenses increased. BVT had
$600,700 in customer operations expense.
Corporate Operations expenses increases were due to payroll allocation changes
for certain operating officers of the Company, the addition of Vice President
Finance and Administration, and the addition of Vice President Regulatory and
External Affairs. BVT had $229,000 in corporate operations expenses.
Nonregulated Sales and Lease expenses include expenses for CTT, BVT and CMS.
The increase is primarily due to the addition of BVT, which had $489,000 in
nonregulated expenses.
OTHER INCOME (DEDUCTIONS), NET
Interest expense for the first nine months of 1996 includes expense from CTT,
CEI, and BVT. The interest expense for the period reflects the additional long
term debt financing required for the merger with BVT.
BVT previously had 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 nine months of 1996 when compared
with the same period of 1995. The before tax earnings for the first nine months
of 1996 were $889,300, 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 nine months of $75,900.
CONESTOGA ENTERPRISES, INC.
RESULTS OF OPERATIONS (continued)
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 nine months of 1996 are $4,512,575, an increase
of 29.7% when compared with the first nine months of 1995. BVT had $585,300
in income taxes for the period.
OTHER
PCS SERVICE; 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
current Federal Communications Commissions Personal Communications Service
(PCS) Spectrum Auction. It was not successful in acquiring a license in the
"C" Block Auction, but is currently bidding in the "D", "E", and "F" Block
Auctions.
If the Company is successful in acquiring one or more of these licenses, it
anticipates that the cost of the licenses would be funded out of current
earnings, but the development of the PCS system would require
significant investment of capital which would be funded by additional debt.
COMMON STOCK BUYBACK; At the Board of Directors meeting held on September
24, 1996, the Board authorized the purchase of up to 100,000 common shares
on the open market and/or private negotiated transactions, though June 30,
1997. All purchases shall be in accordance with the Securities and Exchange
Commission regulations.
TELECOMMUNICATIONS ACT OF 1996; On February 8, 1996, the
Telecommunications Act of 1996 (TA96) was signed into law. TA96 amends the
Communications Act of 1934 and contains extensive ground rules for the
evolution of the telecommunications marketplace to full competition. The
legislation contained a specific timeframe for action by the Federal
Communications Commission (FCC) in order to implement various aspects of the
law.
The first major action by the FCC occurred on August 8, 1996 when the FCC issued
its Interconnection Order. The order contained provisions regarding operational
and pricing guidelines required to facilitate the interconnection of competing
local networks. In response to the FCC's actions, several Bell
operating companies (among others) initiated legal action to block the
implementation of this order. On October 15, 1996 the 8th Circuit
Federal Court of Appeals issued a stay on certain aspects of the FCC's order,
until the courts can decide if the FCC overstepped its authority regarding
interconnection price setting. In addition, the FCC is planning to address
the issues of universal service and access charge reform in the first
half of 1997.
CONESTOGA ENTERPRISES, INC.
RESULTS OF OPERATIONS (continued)
There were also significant events in the state regulatory arena. On May 23,
1996, the Pennsylvania Public Utility Commission issued an order which requires
new local telephone companies that wish to provide telephone service in areas
that are currently served by rural telephone companies to commit to serving
the entire territory served by the rural telephone company.
Since CTT and BVT are both classified as rural telephone companies in
the Telecommunications Act of 1996, this means that new competitors
will not be able to "cherry pick" our best customers. This order was designed
to promote fair and equal competition in rural areas.
Due to the changes described above, competition will have an impact on CEI
in the not too distant future. It is anticipated that in spite of CEI's rural
status, competitors will attempt to enter our markets and
therefore some segment of the existing business could be at risk. In that
regard, however, the Company is confident in its ability to meet
this challenge and to continue to grow the existing business in a competitive
environment.
Competition will also create opportunities for CEI in markets that were
heretofore closed to CEI in a monopoly telecommunications environment. The
Company intends to analyze out-of-franchise opportunities and
aggressively pursue expansion into these markets where warranted.
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.
A form 8-K was filed on October 2, 1996 to report that on September 24, 1996
the Board of Directors authorized the repurchase of up to one hundred thousand
shares of the common stock of CEI on the open market or in negotiated
transactions, depending on market conditions and other factors.
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 November 14, 1996 By /s/ John R. Bentz
_______________ _________________________________
John R. Bentz
President
Date November 14, 1996 By /s/ Albert H. Kramer
_________________ ________________________________
Albert H. Kramer
Vice President, Finance and Administration
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