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 March 31, 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 March 31, 1996 the number of shares of Common Stock, par value $5.00
outstanding was 3,848,922
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS ( UNAUDITED )
March 31, 1996, March 31, 1995 and December 31, 1995
ASSETS
3/31 3/31 12/31
1996 1995 1995
Current Assets
Cash and Cash Equivalents $1,352,444 $1,930,950 $671,495
Accounts receivable, including unbilled
revenue 4,247,147 3,368,953 3,751,182
*Inventories, at average cost 579,755 536,559 576,786
Prepaid expenses 102,244 44,587 404,271
Total Current Assets 6,281,590 5,881,049 5,403,734
Investments and Other Assets
Investments in equity securities 2,212,252 1,982,077 2,361,102
Investments in partnerships 2,845,320 1,658,281 2,552,270
Nonregulated property and equipment, 866,094 912,729 902,906
Prepaid Pension Costs 1,460,504 1,196,430 1,425,584
Other 649,592 70,448 711,773
8,033,762 5,819,965 7,953,635
Plant, at Cost
In Service 84,552,870 79,998,070 83,889,802
Under Construction 1,194,502 591,268 1,064,075
85,747,372 80,589,338 84,953,877
Less accumulated depreciation 40,956,748 36,315,811 39,716,521
Net plant in service 44,790,624 44,273,527 45,237,356
Total Assets $59,105,976 $55,974,541 $58,594,725
*Material and supplies are used to provide service
**Certain items have been restated for comparative purposes
LIABILITIES AND STOCKHOLDERS' EQUITY
3/31 3/31 12/31
1996 1995 1995
Current Liabilities
Current maturities of long term debt $390,000 $390,000 $390,000
Accounts payable 1,724,291 1,273,885 1,982,689
Notes payable 0 0 500,000
Accrued:
Taxes 529,157 174,292 0
Payroll & Vacation Pay 557,245 467,162 390,372
Advance billings / Customer Deposits 493,807 1,201,393 484,617
Total Current Liabiliti 3,694,500 3,506,732 3,747,678
Long Term Liabilities
Long Term Debt, less Current Maturities 4,547,500 4,937,500 4,645,000
Accrued PostRetirement Cost 484,717 338,351 447,908
Other 245,865 171,228 189,681
5,278,082 5,447,079 5,282,589
Deferred Income Taxes 7,122,170 6,785,541 7,222,136
Minority Interest (cwc) $244,138 0 $253,367
Stockholders' Equity:
Common stock, par value $5 per
share; authorized 10,000,000 shares;
issued and outstanding;
3/31/96 3/31/95 12/31/95
3,848,922 3,848,922 3,848,922 19,244,610 19,244,610 19,244,610
Additional Paid-In Capital 4,769,183 4,769,183 4,769,183
Retained earnings 18,493,568 16,100,014 17,727,271
Net unrealized appreciation on marketable
equity securities 259,725 121,382 347,891
Total Capital 43,011,224 40,235,189 42,088,955
Total Liabilities and
Stockholders' Equity $59,105,976 $55,974,541 $58,594,725
Note - Long-term debt consisted of the
following at March 31, 1996, March 31, 1995 and December 31, 1995
10 year term note at prime rate due 1997 2,500,000 2,500,000 2,500,000
10 year term note at prime rate due 2002 2,437,500 2,827,500 2,535,000
$4,937,500 $5,327,500 $5,035,000
Less current Maturities 390,000 390,000 390,000
$4,547,500 $4,937,500 $4,645,000
**Certain items have been restated for comparative purposes
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1996 and 1995
1996 *1995
Operating Revenues:
Local Service $1,493,414 $1,376,317
Access Service 3,761,375 3,335,428
Long Dist. Service 2,088,409 1,931,759
Nonreg. Sales & Lease 1,148,571 809,901
Miscellaneous 211,973 248,588
8,703,742 7,701,993
less uncollectible
operating revenues 9,718 (14,636)
8,694,024 7,716,629
Operating Expenses:
Plant Specific 769,063 720,882
Plant Non-Specific:
Network & Other 342,083 320,963
Depreciation 1,328,872 1,249,576
Customer Operations 1,564,941 1,466,185
Corporate Operations 612,429 528,867
Nonreg. Sales & Lease 701,649 595,451
Operating taxes, other 343,259 319,794
5,662,296 5,201,718
Operating Income 3,031,728 2,514,911
Other Income(Deductions), Net:
Interest Expense (110,459) (115,664)
Income from Partnerships 293,050 30,338
Other, Net 41,949 36,412
224,540 (48,914)
Income Before Income Taxes 3,256,268 2,465,997
Income Taxes 1,344,523 1,026,419
Income Before Minority Interest 1,911,745 1,439,578
Minority Interest in net loss
of Subsidiary 9,229 0
Net Income $1,920,974 $1,439,578
Earnings per common share $0.50 $0.37
Dividends per common share $0.30 $0.30
* Some amounts have been adjusted for comparative purposes.
CONESTOGA ENTERPRISES, INC.
Consolidated Statement of Cash Flow (Unaudited)
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
1996 1995
Cash Flows from Operating Activities:
Net Income $1,920,974 $1,439,572
Adjustments to reconcile net cash
provided by operating activities:
Depreciation $1,328,872 $1,248,278
Income from unconsolidated partnership inte (293,050) (30,338)
Minority interest in loss of subsidiary (9,229) 0
Changes in assets and liabilities:
(Increase) decrease in:
Accounts Receivable (495,965) 233,150
Material and supplies (2,969) 60,157
Prepaid expenses 302,027 405,106
Prepaid pension costs (34,920) (99,699)
Other Assets 62,181 83,366
Increase (decrease) in:
Accounts Payable (258,398) (594,482)
Accrued expenses and other curren 705,221 364,917
Other liabilities 92,992 29,437
Deferred income taxes (99,966) (37,941)
1,296,796 1,661,951
Net cash provided by operating activities $3,217,770 $3,101,523
Cash Flows From Investing Activities:
Plant removal costs ($17,818) ($25,280)
Salvage from plant retired 9,074 57,668
Purchase of plant (873,396) (900,320)
Capital investments in unconsolidated
partnership interests
Capital distributions from unconsolidated
partnership interests 97,496 41,958
Net cash used in investing activit (784,644) (825,974)
Cash Flows From Financing Activities:
Borrowings on line of credit $300,000 $0
Principal payments on line of credit (800,000) 0
Principal payments on long-tern debt (97,500) (97,500)
Proceeds from issuance of stock under the
employee stock purchase 0
Cash dividends paid (1,154,677) (1,154,150)
Minority interest investment in subsidia 0 0
Net cash used in financing activities (1,752,177) (1,251,650)
Increase (decrease) in cash & cash equiva $680,949 $1,023,899
Cash & Cash Equivalents at Beginning Of Yea 671,495 907,051
Cash & Cash Equivalents at MARCH 31 $1,352,444 $1,930,950
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Payments for:
Interest $109,600 $128,759
Income Taxes $180,456 $245,950
CONESTOGA ENTERPRISES, INC.
The information shown in this interim report is unaudited for March 31, 1996 and
March 31, 1995. However, the information reflects all normal recurring
adjustments which are, in the opinion of management, necessary to a fair
statement of results for the interim periods.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE QUARTERLY INCOME STATEMENTS
Conestoga Enterprises, Inc. (CEI, or the Company) is a Pennsylvania corporation
that is doing business as a holding company owning all of the outstanding shares
of the Conestoga Telephone and Telegraph Company (CTT), 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 was incorporated on January 27, 1989 under the provisions of the Business
Corporation Law of Pennsylvania, Act of May 5, 1933, P.L. 364, as amended and
supplemented, to do all things and exercise all powers, rights and privileges
which a business corporation may now or hereafter be organized or authorized
to do or exercise under such act.
During the second quarter of 1995 CEI and Infocore, Inc. ( a King of Prussia,
Pa. firm) formed Conestoga Wireless Company (CWC). CWC is a Pennsylvania
limited liability company which is owned 60% by CEI and 40% by Infocore, Inc.
CWC will provide broadband personal communication services if it is successful
in acquiring licenses in the upcoming Federal Communications Commissions
Personal Communications Service (PCS) Spectrum Auction. It has discontinued
bidding in the "C" Block Auction, but is considering options to bid in the "F"
Block Auction.
On October 19, 1995, CEI entered into a definitive agreement relating to the
acquisition of Buffalo Valley Telephone (BVT) Company by CEI. Pursuant to the
merger agreement BVT would become a subsidiary of CEI. The consideration to be
paid for each outstanding BVT share is either (i) $65.00 in cash, (ii) one share
of $3.42 Series A Convertible Preferred Stock of CEI (par value $65.00) or (iii)
2.4 shares of CEI common stock. Total consideration to be paid would be
approximately $58 million. Approval of the merger agreement was received during
April, 1996 from the Securities and Exchange Commission and the Pennsylvania
Public Utility Commission. The effective date of the merger is anticipated to
be May 31, 1996.
FINANCIAL CONDITION
The cash and cash equivalents for the first three months of the current year
increased $680,949. The net cash provided by operating activities was $3.2
million for the first quarter of 1996.
Capital expenditures are provided primarily by internally generated funds.
There was outside short term borrowing required at various times during the
first quarter , but there was no balance remaining on March 31, 1996.
RESULTS OF OPERATIONS
Net income for the first quarter of 1996, at $1,920,974, increased 33.4% when
compared with the first quarter of 1995. The consolidated financial statements
(unaudited) for the period include profits from the Company's subsidiaries and
joint ventures as follows:
RESULTS OF OPERATIONS (continued)
CEI Parent Company $153,602
CTT Local Exchange Carrier $1,637,428
NCI Reseller of Long Distance $134,546
CMS Paging Services $9,242
CWC PCS Company ($13,844)
OPERATING REVENUES
Operating Revenues for the first quarter of 1996 were $8,694,024, an increase
of 12.7% when compared with the first quarter of 1995. Operating Revenues for
the twelve month period ended were $31.8 million, which is an increase of 8.5%
over the previous twelve month period ended March 31, 1995.
The increase in operating revenues for the first quarter of 1996 is comprised
of the following:
Increase/
(Decrease) %
Local Service $117,097 8.5%
Access Service $425,947 12.8%
Long Distance Service $156,650 8.1%
Nonregulated Sale and Lease $338,670 41.8%
Miscellaneous (net uncollectible)($36,615) -14.7%
Local Service revenues include regulated revenues from CTT and CMS, with
increases recorded from both entities.
There were 653 access lines added during the first quarter of 1996, bringing
the total access lines in service to 51,065. CTT had 46,237 access lines in
service and CMS had 4,828.
The increase in Access Service revenues is a direct result of increased usage.
The interstate minutes of use increased 20% and intrastate minutes of use were
up 24% during this first quarter when compared with the first quarter of 1995.
Long Distance Service revenues include intralata toll revenues from CTT
and resale of long distance service from NCI. Most of the increase for the
first quarter of 1996 is from CTT, with resale revenues about even with the
first quarter of 1995.
Nonregulated Sales and Lease revenues include sale and lease of telephone
equipment and directory advertising from CTT, as well as sale and lease of pager
and cellular equipment from CMS. The increase recorded during the first
quarter of 1996 is from CTT. Sale and lease of telephone equipment revenue was
up 42.3%, due to several large systems sold, and directory advertising revenues
were up due to additional settlement revenue recorded during the first quarter
of 1996.
Miscellaneous revenues which include billing and collection revenues from CTT,
are down due to an interexchange carrier take back of certain billing and
collection functions previously performed by CTT during the third quarter of
1995.
OPERATING EXPENSES
Operating Expenses for the first quarter of 1996 were $5,662,296, an increase
of 8.9% when compared with the first quarter of 1995. Operating Expenses for
the twelve month period ended were $20.7 million, which is an increase of 7.7%
over the previous twelve month period ended March 31, 1995.
OPERATING EXPENSES (continued)
The increase in operating expenses is comprised of the following:
Increase/
(Decrease) %
Plant Specific $48,181 6.7%
Plant Non-Specific $100,416 6.4%
Customer Operations $98,756 6.7%
Corporate Operations $83,562 15.8%
Nonregulated $106,198 17.8%
Operating Taxes $23,465 7.3%
Plant Specific expenses, which include CTT and CMS regulated expenses, reflected
increases in general support type expenses as well as outside plant expenses.
Plant Non-Specific expenses increased due to one time charges for installing a
new automated line assignment program at CTT, as well as increases in
depreciation expense.
Customer Operations expenses include expenses from CTT, NCI, and CMS . Billing
expenses remained relatively even with the first quarter of 1995. The largest
difference was in the intralata terminating charges for CTT which were up 21.7%.
Corporate Operations expenses increases were due to payroll allocation changes
for the operating officers of the Company, and the addition of Vice President
Finance and Administration.
Nonregulated Sales and Lease expenses include expenses from CTT and CMS were up
primarily due to increased cost of sales of telephone equipment from CTT.
OTHER (INCOME) DEDUCTIONS, NET
Interest on Funded Debt for the first quarter of 1996 decreased 4.7%. The
interest rate on the line of credit with the local bank, which is negotiated at
the time of use, during the quarter ranged from 8% to 7.75%. As of March 31,
1996, there was no short term obligation outstanding.
The before tax earnings from the two partnerships which provide cellular
telephone service increased during the first three months of 1996 when compared
with the same period of 1995. The before tax earnings for the first three
months of 1996 were $280,996. The rate of earnings during this quarter is
consistent with the last two quarters of 1995.
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 quarter of 1996 are $1,344,523, an increase of
31% when compared with the first quarter of 1995.
CONESTOGA ENTERPRISES, INC.
PART II. OTHER INFORMATION
Item 6 (b) EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the quarter for which this
report is filed.
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 May 13, 1996 By /s/ John R Bentz
_______________ _________________________________
John R. Bentz
Executive Vice President
Date May 13, 1996 By /s/ Albert H Kramer
_________________ ________________________________
Albert H. Kramer
Vice President, Finance and Administration
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