CONESTOGA ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS ( UNAUDITED )
June 30, 1997, June 30, 1996 and December 31, 1996
ASSETS
6/30 6/30 12/31
1997 1996 1996
Current Assets
Cash and Cash Equivalents 2,917,168 2,930,396 1,956,554
Accounts receivable, including
unbilled revenue 7,020,758 6,601,378 6,888,667
Inventories, at average cost 1,096,652 1,347,929 867,205
Prepaid expenses 223,550 783,953 206,351
Total Current Assets 11,258,128 11,663,656 9,918,777
Investments and Other Assets
Cost in Excess of Net Assets of
Business Acquired 40,425,983 38,884,267 38,337,140
Investments in partnerships 4,184,541 3,115,572 3,377,027
Investments in equity securi 1,787,282 1,604,204 1,622,107
Prepaid Pension Costs 2,259,132 2,059,469 2,148,700
Other 1,452,640 590,327 1,513,920
50,109,578 46,253,839 46,998,894
Plant
In Service 125,152,928 118,094,438 123,137,474
Under Construction 1,411,689 1,235,292 557,293
126,564,617 119,329,730 123,694,767
Less accumulated depreciatio 63,805,787 56,865,868 60,760,620
62,758,830 62,463,862
Total Assets 124,126,536 120,381,357 119,851,818
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS ( UNAUDITED )
June 30, 1997, June 30, 1996 and December 31, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
6/30 6/30 12/31
1997 1996 1996
Current Liabilities
Notes payable 0 100,000 0
Current maturities of long
term debt 3,000,000 471,000 831,000
Accounts payable 3,080,082 3,367,728 2,769,189
Accrued:
Taxes 166,415 0 0
Interest 55,981 0 0
Payroll & Vacation Pay 891,166 474,139 855,981
Advance billing/Customer Depo 1,039,327 838,013 307,806
Total Current Liabilities 8,232,971 5,250,880 4,763,976
Long Term Liabilities
Long Term Debt, less
Current Maturities 23,750,000 27,773,000 27,218,000
Accrued Post Retirement Cost 672,820 521,542 596,742
Other 619,241 944,024 834,201
25,042,061 29,238,566 28,648,943
Deferred Income Taxes 9,392,661 10,219,264 10,185,015
Minority Interest 0 222,313 400,198
Convertible\Redeemable Preferred Stock
Par value $65 per share; authorized
900,000 shares; issued and
outstanding 196,618 shares 12,780,170 12,780,170 12,780,170
Common Stockholders' Equity
Common Stock par value $5 per share;
authorized 10,000,000 shares;
issued and outstanding;
6/30/97 6/30/96 12/31/96
4,775,301 4,568,500 4,568,5 23,876,505 22,842,500 22,842,500
Additional Paid-In Capital 24,680,677 20,420,005 20,420,005
Retained earnings 21,799,777 19,131,013 20,863,934
Net unrealized appreciation on
arketable equity securit 478,691 276,646 315,602
Less cost of treasury stock;
6/30/97 91,273 shs.
12/31/96 58,400 shs (2,156,977) 0 (1,368,525)
68,678,673 62,670,164 63,073,516
Total Liabilities and
Stockholders' Equ124,126,536 120,381,357 119,851,818
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 1997 and 1996
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1997 1996 1997 1996
Operating Revenues:
Local Service 2,259,630 1,705,994 4,483,645 3,199,408
Access Service 5,977,757 4,204,465 11,721,161 7,965,840
Long Dist. Service 2,387,373 2,140,723 4,797,612 4,229,132
Nonreg. Sales & Lease 2,876,153 1,289,917 4,418,120 2,438,488
Miscellaneous 247,610 193,944 517,879 396,199
13,748,523 9,535,043 25,938,417 18,229,067
Operating Expenses:
Plant Operations 1,910,233 1,396,964 3,630,597 2,508,110
Depreciation and Amortiza 2,414,969 1,564,477 4,661,301 2,893,349
Customer Operations 2,085,716 1,726,277 4,245,254 3,291,218
Corporate Operations 997,928 774,383 1,875,405 1,386,812
Nonreg. Sales & Lease 2,265,197 757,551 3,215,334 1,459,200
Taxes, other than income 496,533 378,650 970,809 721,909
10,170,576 6,598,302 18,598,700 12,260,598
Operating Inc 3,577,947 2,936,741 7,339,717 5,968,469
Other Income(Deductions), Net:
Interest Expense (521,734) (114,163) (1,058,100) (224,622)
Income from unconsolidated
partnerships interes 381,470 316,252 689,014 609,302
Other, Net 97,055 (6,552) 199,981 35,397
(43,209) 195,537 (169,105) 420,077
Income Before Income Tax 3,534,738 3,132,278 7,170,612 6,388,546
Income Taxes 1,692,192 1,361,982 3,221,119 2,706,505
Income Before Minority Inter 1,842,546 1,770,296 3,949,493 3,682,041
Minority Interest in net loss
of Subsidiary 2,126 21,825 10,400 31,054
Net Income 1,844,672 1,792,121 3,959,893 3,713,095
Earnings per common share $0.36 $0.42 $0.80 $0.92
Dividends per common share $0.30 $0.30 $0.60 $0.60
* Some amounts have been adjusted for comparative purposes.
CONESTOGA ENTERPRISES, INC.
Consolidated Statement of Cash Flow (Unaudited)
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
1997 1996
Cash Flows from Operating Activities
Net Income $3,959,893 $3,713,095
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and Amortizat $4,939,012 $3,066,567
Income from unconsolidated
partnership interests (689,014) (609,302)
Minority interest in
loss of subsidiary (10,400) (31,054)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts Receivable 874,401 (230,604)
Material and supplie (63,665) (42,660)
Prepaid expenses 6,231 (113,647)
Prepaid pension cost (110,432) (76,174)
Other Assets (365,735) 469,250
Increase (decrease) in:
Accounts Payable (264,660) (862,372)
Accrued expenses and
other current liabiliti 682,813 169,015
Other liabilities (138,882) (39,375)
Deferred income taxe (248,354) 27,673
4,611,315 1,727,317
Net cash provided by
operating activities 8,571,208 5,440,412
Cash Flows From Investing Activities
Purchase of Plant, net of
removal costs and salvage (3,944,486) (2,168,250)
Proceeds from surrender of
Life Insurance Policy 427,015 0
Capital investments in un-
consolidated partnershp inter (118,500) 0
apital distributions from un-
consolidated partnershp inter 0 46,000
Acquisition of business, net
of cash and cash equivalen 965,231 (20,154,908)
Net cash used in
investing activities (2,670,740) (22,277,158)
Cash Flows From Financing Activities
Proceeds from long-term
borrowing 5,000,000 22,000,000
Principal payments on long
term borrowing (6,299,000) (195,000)
Borrowing on line of credi 0 900,000
Principal payments on line
of credit 0 (1,300,000)
Proceeds from issuance of
stock under the dividend
reinvestment plan 171,650 0
Common and preferred
dividends paid (3,024,052) (2,309,353)
Purchase of common stock
for the treasury (788,452) 0
Minority interest investment
in subsidiary 0 0
Net cash provided by
(used in) financing activiti (4,939,854) 19,095,647
Increase (decrease) in
cash and cash equivalents 960,614 2,258,901
Cash and cash equivalents
Beginning 1,956,554 671,495
Ending $2,917,168 $2,930,396
CONESTOGA ENTERPRISES, INC.
Consolidated Statement of Cash Flow (Unaudited) continued
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
1997 1996
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Payments for:
Interest $1,003,198 $276,924
Income Taxes $3,017,540 $2,148,831
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Acquisition of business:
Working Capital acquired,
net of cash and cash equivale $313,862 $1,017,550
Plant and other assets
acquired 1,121,779 16,924,033
Cost in excess of net
assets acquired 2,722,155 39,451,159
Long-term debt and other
liabilities assumed 0 (5,208,952)
Redeemable preferred
stock issued 0 (12,780,170)
Common stock issued (5,123,027) (19,248,712)
Cash Paid (Received) ($965,231) $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
information 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 interium periods.
The results of operations for the six month period ended June 30, 1997
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:
6/30/97 6/30/96 12/31/96
Promissory note, interest payable monthly
at prime, with a ceiling of 8.5% $0 $2,500,000 $0
Promissory note, interest payable monthly
at prime, with a ceiling of 8.4% 0 2,340,000 0
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 6,000,000 6,000,000
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 16,000,000 16,000,000
Promissory note, interest payable June 1
and December 1, at 8.5% 0 1,404,000 1,404,000
Promissory note, interest payable quarterly
at 6.89%. Quarterly principal payments of
$250,000 through February 1, 2002,
unsecured. 4,750,000 0 4,645,000
$26,750,000 $28,244,000 $28,049,000
Less current Maturities 3,000,000 471,000 831,000
$23,750,000 $27,773,000 $27,218,000
NOTE 3: ACQUISITIONS
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 "Accounting 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.
On May 1, 1997, the Company acquired all of the outstanding shares of
Infocore, Inc. (INF), a telecommunications company based in King of Prussia,
Pennsylvania. The Company issued 199,923 shares of common stock to
Infocore, Inc. shareholders as consideration for all outstanding shares of
Infocore, Inc. stock.
The acquisition has been accounted for as a purchase and the results of
operation of INF since that date are included in the consolidated financial
statements.
The excess of the purchase price over the book value acquired of $2,722,152 is
being amortized over 36 months using the straight line method.
NOTE 4: OTHER
Certain items of the June 30, 1996 consolidated financial statements have
been restated to conform to the June 30, 1997 financial statements. There
was no impact on net income.
Inventories, at average cost, are material and supplies used to provide
service.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE QUARTERLY INCOME STATEMENTS
FINANCIAL CONDITION
The cash and cash equivalents for the first six months of the current year
increased $960,614. The net cash provided by operating activities was $8.3
million, compared with $5.4 million for the first six months of 1996.
Capital expenditures are provided primarily by internally generated
funds. No outside short term borrowing was required during the first two
quarters of 1997. The Company has available lines of credit with two regional
banks totaling $15.0
million at June 30, 1997. Management believes that except for the build out
of the PCS network, through CWC, the cash provided from operations will be
sufficient to fund current capital projects. The building of the PCS
infrastructure will require additional amounts of long term debt and/or
capital in late 1997 or early 1998.
There was no financing required with the acquisition of INF.
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 additional debt that the 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.
The preferred stock is convertible into common stock at any time and can be
redeemed by the holder after May 31, 1998. The redemption rate is $65 per
share. 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 preferred stock.
The company on June 1, 1997 retired the $1.4 million 8.5% promissory
notes which were due on June 1, 1998, without premium, using internally
generated funds.
The debt (including CEI $3.42 Series A Preferred Stock ) to equity ratio
as of June 30, 1997 was 37% debt to 63% equity.
CONESTOGA ENTERPRISES, INC.
RESULTS OF OPERATIONS
Net income for the first six months of 1997, of $3,959,893, increased 6.6%
when compared with the first six months of 1996. The consolidated financial
statements (unaudited ) for the period include results from the Company and
its subsidiaries as follows:
Parent Company $389,174
Local Exchange Carriers $3,508,255
Others* $62,464
* Others include subsidiaries which provide resale
of long distance, paging services, PCS as well as
telecommunication equipment sale and lease.
OPERATING REVENUES
Operating revenues for the first two quarters of 1997 were $25,938,417,
an increase of 42.3% when compared with the first two quarters of 1996.
Operating revenues for the second quarter of 1997 increased 12.8% when compared
with the first quarter of 1997, and compared with the second quarter of 1996,
increased 44.2%.
The increases in operating revenue for the first two quarters of 1997, are
primarily due to the operating revenues provided by the acquisition of BVT
(5/31/96), and INF (4/30/97). The increases are comprised of the following:
Increase/
(Decrease) %
Local Service $1,284,237 40.1%
Access Service $3,755,321 47.1%
Long Distance Service $568,480 13.4%
Nonregulated Sales and Le
Lease $1,979,632 81.2%
Miscellaneous (net of
uncollectible) $121,680 30.7%
Local Service revenues include regulated revenues from CTT, BVT and CMS.
CTT and CMS both recorded increases in local service revenues for the first
two quarters of 1997, and BVT added $1.2 million in local service revenues.
When comparing the second quarter of 1997 with the first quarter local service
revenues increased 1.6%.
Total access lines in service on June 30, 1997 were 74,055. CTT had 49,569
in service, CMS had 5,084, and BVT had 19,402. Total access lines added during
the first six months of 1997 were 1,715.
The access line growth during the first two quarters of 1997 has been at a
record setting pace for both local exchange carriers (CTT & BVT), and is
reflected in the local service revenue increase. Much of the increase is due
to residential second line installations as well as the increased demand for
the custom calling service features.
CONESTOGA ENTERPRISES, INC.
OPERATING REVENUES (continued)
Access Service revenues from CTT continued to grow due to increased interlata
minutes of use on the network (over 20%). BVT added $3.5 million in access
service revenues during the first two quarters of 1997 which is an increase of
6.1% over the same period of 1996. When comparing the second quarter of 1997
with the first quarter of 1997 access revenues are up 4.1%.
Long Distance Service revenues include intralata toll revenues from CTT and
BVT, as well as the resale of long distance service from NCI. All three
entities recorded slight decreases during the first two quarters of 1997 when
compared with the same period of 1996. BVT added $880,400 in long distance
service revenues during the first two quarters of 1997. When comparing the
second quarter of 1997 with the first quarter of 1997 long distance revenues
are down .9%.
Nonregulated Sales and Lease revenues include sale and lease of telephone
equipment and directory advertising from CTT and BVT, sale and lease of pager
and cellular equipment from CMS, as well as equipment sales and other services
provided by INF. CTT's and CMS's nonregulated revenues decreased during
the first two quarters of 1997. BVT added nonregulated revenues of $488,537.
INF added $1.1 million during the first two months operating as a subsidiary
of CEI. When comparing the second quarter of 1997 with the first quarter of
1997 nonregulated revenues are up 86.5% primarily due to the addition of INF
during the current quarter.
Miscellaneous revenues include billing and collection revenues from CTT and
BVT. When comparing the first two quarters of 1997 with the first two quarters
of 1996, CTT is about even. The consolidated increase is a direct result of
the addition of BVT, which for the period added $167,000. When comparing the
second quarter of 1997 with the first quarter of 1997 miscellaneous revenues
are down 8.4%.
OPERATING EXPENSES
Operating Expenses for the first two quarters of 1997 were $18,598,700, an
increase of 51.7% when compared with the first two quarters of 1996.
Operating expenses for the second quarter of 1997 increased 20.7% when compared
with the first quarter of 1997, and compared with the second quarter of 1996,
increased 54.1%.
The increase in operating expenses for the first two quarters, is primarily
due to the addition of BVT and INF and to the amortization expense of goodwill
associated with both of the acquisitions. The increases are comprised of the
following:
Increase/
(Decrease) %
Plant Operations $1,122,487 44.8%
Depreciation and Amortization $1,767,952 61.1%
Customer Operations $954,036 29.0%
Corporate Operations $488,593 35.2%
Nonregulated Sales and Lease $1,756,134 120.3%
Operating Taxes $248,900 34.5%
CONESTOGA ENTERPRISES, INC.
OPERATING EXPENSES (continued)
Plant operations expenses include CTT, BVT and CMS regulated expenses. When
comparing the first two quarters of 1997 with the first two quarters of 1996,
CTT's plant operations expenses increased, partially due to a digital switch
software upgrade of $450,000 during the second quarter of 1997. BVT added
$1.1 million which included a one time charge for digital switch software
upgrade of $265,000. When comparing the second quarter of 1997 with the first
quarter of 1997 plant operations expense increased 11%.
Depreciation and amortization expenses include charges from CTT, CMS, BVT
and INF. CTT and BVT recorded normal increases in depreciation expenses when
comparing the first two quarters of 1997 with the first two quarters of 1996.
BVT added $1.2 million in depreciation expense and $482,000 in goodwill
amortization expense. INF for the first two months as a subsidiary of CEI
added $174,700 of expense which included $151,200 of goodwill amortization
expense. When comparing the second quarter of 1997 with the first quarter of
1997 depreciation and amortization expenses are up 7.5%.
Customer operations expenses include expenses for CTT, BVT, NCI, and CMS.
When comparing the first two quarters of 1997 with the first two quarters of
1996, customer operations expenses increased 29%. BVT added $1.2 million in
customer operations expense which is an increase of 23% due to some one time
charges for set up costs of a new billing system. CTT's expenses were about
even with the same period of 1996. When comparing the second quarter of 1997
with the first quarter of 1997, customer operations expenses are down 3.4%.
Corporate operations expenses for the first two quarters of 1997 increased
35.2% when compared with the first two quarters of 1996, due to allocation
change for certain operating officers of the Company, and to the addition of
Vice President Regulatory and External Affairs during the second quarter of
1996. BVT added $385,000 in corporate operation expenses for the period.
When comparing the second quarter of 1997 with the first quarter of 1997
corporate operations expenses increased 13.7%.
Nonregulated sales and lease expenses include expenses for CTT, BVT, CMS
and INF. The increase is primarily due to the addition of BVT, which had
$890,000 in nonregulated expenses during the first six months, and to INF
which added $1.2 million if expenses during the two months as a subsidiary of
CEI. When comparing the second quarter of 1997 with the first quarter of 1997
the increase in nonregulated expenses is a direct result of the merger of INF.
Taxes, other than income, increased 34.5% which was due to the addition of
BVT. When comparing the second quarter of 1997 with the first quarter of 1997
operating taxes increased 4.7%.
CONESTOGA ENTERPRISES, INC.
OTHER INCOME (DEDUCTIONS), NET
Interest expense for the first two quarters of 1997 includes expenses from
CTT, CEI, and BVT. The interest expense for the period reflects the
additional long term debt financing required for the merger with BVT May 31,
1996. When comparing the second quarter of 1997 with the first quarter of
1997 interest expense is lower by 2.7%.
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 balance of $1,323,000 which was due June, 1998 was paid down
June 1, 1997, without premium, using internally generated funds.
CTT on January 31, 1997 secured, through a local bank, a $5.0 million
promissory note, which will require quarterly interest and principal payments
through May, 2002. The interest rate is 6.89% per annum. The funds were
used to refinance existing more expensive debt of CTT.
The before tax earnings from the partnerships interests increased 13.1%
when comparing the first two quarters of 1997 with the same period of 1996 due
to increased earnings from the cellular ventures. The before tax earnings of
the cellular ventures was $752,200, an increase of 31.2%. CTT's interest in
Penteledata Limited Partnership I, which primarily provides access to the
internet, recorded a before tax loss of $63,200 for the first two quarters of
1997.
MINORITY INTEREST
The minority interest recorded during the first two quarters of 1997
reflects Infocore, Inc.'s 40% interest in net loss of CWC during the first
four months before the acquisition.
INCOME TAXES
Income taxes for the first two quarters of 1997 are $3.2 million, an
increase of 19.0% when compared with the same period of 1996. When comparing
the second quarter of 1997 with the first quarter of 1997 income taxes were
up 10.7%.
OTHER
PCS SERVICE; During the first quarter of 1997 CWC was a successful bidder in
the Federal Communication Commission (FCC) Personal Communication Services
(PCS) radio spectrum D, E, and F Block Auction in four basic trading areas,
covering nine counties in Pennsylvania and a population of 840,000. The
licenses were granted during the second quarter of 1997. CWC has selected
the equipment which it will use to operate the wireless system and the first
purchase commitment for $11.4 million has been issued. The PCS network will
require significant investment of capital which could be funded by additional
debt, or equity, or a combination of the two. A decision on the financing
should be finalized during the fourth quarter of 1997. CWC was 40% owned by
Infocore, Inc., and with the merger, became 100% owned by
CEI and its subsidiaries.
CONESTOGA ENTERPRISES, INC.
OTHER (continued)
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. As of June 30, 1997, the close of the offering, 91,273 shares had been
bought back and held as treasury stock. Management does not anticipate any
additional purchases in the near future.
DIVIDEND REINVESTMENT PLAN; The Company has amended its Dividend
Reinvestment Plan to permit the issuance of original issue shares to
shareholders under the Plan and to permit participating shareholders to
contribute a fixed amount less than the full amount of cash dividends to the
Plan. The purchase price per share under the Plan shall be the average of the
bid and asked prices per share for each trading day during the 30 calendar
days prior to the applicable dividend payment date, as reported on the National
Association of Securities Dealers, Inc., Automated Quotation System. 6,878
shares were issued during the second quarter 1997 under this Plan.
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 time frame for action by the Federal
Communications Commission (FCC) in order to implement various aspects of the
new 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 15th, 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 July, 1997, the court issued an
order that overturned many of the rules contained in the FCC's August, 1996
Interconnection Order. Of particular importance to incumbent telephone
companies like CTT and BVT, the FCC's pricingrules were overturned based on
the grounds that the FCC overstepped its jurisdictional authority.
In addition in May, 1997 the FCC issued orders addressing Universal
Service and Access Reform. In each case the FCC focused primarily on large
telephone companies. For rural telephone companies like CTT and BVT, the FCC's
actions will not cause significant impacts. The FCC plans to further address
rural company issues later in 1997.
CONESTOGA ENTERPRISES, INC.
OTHER (continued)
There were also significant events in the state regulatory arena. On May
23, 1996, the Pennsylvania Public Utility Commission (Pa. P.U.C.) 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. In
January of 1997, the Pa. P.U.C. issued an order addressing universal service.
In response to this order, several petitions for reconsideration were filed by
interested parties. The PUC responded to those petitions
in July, 1997. The response was generally favorable to incumbent LEC's and
efforts are currently focused on coordinating the Pa. PUC's plan with the
FCC's Universal Service Order issued in May, 1997. In addition, the Pa.
P.U.C. has initiated a generic investigation in the area of access reform.
This process began with comments from interested parties filed in June, 1997.
A final order in the proceeding is expected in late 1997 or early 1998.
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 is currently evaluating the new opportunities
available to it and will aggressively pursue expansion into these
markets, some of which are expected to begin during the third quarter of 1997.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
PART II. OTHER INFORMATION
Item 6 (b) EXHIBITS AND REPORTS ON FORM 8-K
NONE
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONESTOGA ENTERPRISES, INC.
Date August 15, 1997 By /s/ John R. Bentz
_______________ _________________________________
John R. Bentz
President
Date August 15, 1997 By /s/ Albert H. Kramer
_________________ ________________________________
Albert H. Kramer
Executive Vice President
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