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, 1997 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 delinquent 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, 1997
Common Stock, $5.00 par value 4,699,765
The aggregate market value of the voting stock held by non-affiliates on
February 27, 1998, was $139,694,970. The stock of the Company is traded on
NASDAQ National 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 2, 1998, 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 following operating companies: Conestoga Telephone
and Telegraph Company (CTT); Buffalo Valley Telephone Company (BVT);
Conestoga Communications, Inc. (CC); Conestoga Mobile Systems, Inc. (CMS);
Conestoga Wireless Company (CWC); and Infocore Inc. (INF). CEI's subsidiaries
also own a 70% partnership interest in the Berks and Reading Area Cellular
Enterprises Limited Partnership (BRACE); until August, 1997 a 10 % interest in
the Lancaster Area Cellular Enterprises (LACE); and an 11.85% interest in the
PenTeleData Limited Partnership I.
CTT and BVT are independent local exchange carriers, which furnish
communication services, mainly local and toll telephone service in their
respective service areas. CTT serves an area of approximately 300 square miles
which includes parts of the counties of Berks, Chester, Lancaster, and
Montgomery, in the Commonwealth of Pennsylvania. BVT serves an area of
approximately 275 square miles in Union and Northumberland Counties in the
Commonwealth of Pennsylvania. Both Companies services' are distributed
through their telephone exchanges and systems of overhead and underground wire
and cables. CTT's and BVT's entire telephone systems are digitally equipped.
The population of CTT's service area is estimated to be 121,000, with an
average annual growth rate of .76%. The population of BVT's service area is
estimated to be 36,700, with an average annual growth rate of .45%.
CTT was incorporated on August 20, 1902 and the original BVT, on
September 13, 1904. CEI acquired BVT on May 31, 1996. Both are incorporated
under the laws of the Commonwealth of Pennsylvania. They are subject to the
jurisdiction of the Pennsylvania Public Utility Commission (PUC), which
franchised and established their geographical service areas. Within their
areas, at the present time, they are not in competition with any other company
in providing local exchange telephone service. They are subject to the
jurisdiction of the Federal Communications Commission (FCC) with respect to
interstate services.
CEI acquired INF on April 30, 1997, pursuant to an Agreement and
Plan of Merger in which 199,923 common shares of CEI were exchanged for all of
the outstanding common shares of INF. INF is a diversified telecommunications
service company founded in 1981, which designs, installs and maintains
telephone and computer systems and resells local exchange and toll services.
CWC was formed on March 17, 1995 as a Limited Liability Company owned 60%
by CEI and 40% by INF. The limited liability company was merged into a
corporation by the same name on January 1, 1998. CEI now owns 100% of the
outstanding shares of CWC, the corporation. CWC holds licenses to provide
personal communication services in the Eastern and Central Pennsylvania
regions.
Northern Communications, Inc. (NCI) was organized in March 1981 as a
non-regulated commercial enterprise operated for the resale of long distance
service. During 1997, NCI's name was changed to Conestoga Communications,Inc.
(CC) and CC began operations as a full-service interexchange carrier.
BRACE owns a 39% limited partnership interest in the Reading SMSA Limited
Partnership. The latter provides cellular telephone service in the Reading
metropolitan area. As of December 31, 1997, CEI's investment in BRACE is
$2,850,589. BRACE has in turn invested $4,056,583 in the Reading SMSA
Limited Partnership.
PenTeleData Limited Partnership I provides data transmission and
interconnection services, including Internet services. As of December 31,
1997, CEI's net investment in PenTeleData was $128,266.
CEI sold its interest in LACE in August, 1997. LACE is a limited
partner in the Susquehana Cellular Communications Limited Partnership, which
provides cellular telephone service in the Harrisburg, Lancaster and York
metropolitan areas.
CMS is engaged in the business of providing radio paging services in the
Eastern and Central Pennsylvania regions.
CEI's earnings for 1997 were impacted by several events as follows:
1. BVT was included in the consolidated financial reporting for the
entire year, compared to seven months in 1996.
2. INF was included in its consolidated financial reports during the
second third and fourth quarters of 1997.
3. During the third quarter of 1997 the Company sold its 10% minority
partnership interest in LACE for $2.8 million, realizing a before
tax gain of $1.9 million.
Percentages of the Company's consolidated operating revenue in local,
long distance, nonregulated, and other services are shown on the following
table:
ITEM 1. BUSINESS (Continued)
1997 1996 1995 1994 1993
Local* 16% 17% 18% 18% 19%
Long Distance
and Access 61% 67% 67% 68% 67%
Sales and Lease** 22% 14% 13% 12% 11%
Other*** 1% 2% 2% 2% 3%
100% 100% 100% 100% 100%
* CTT and BVT bill for local service on a flat rate basis.
** Includes revenues from CTT and BVT for their nonregulated
business, (sales and lease of equipment and directory advertising), CMS
nonregulated business (sale and lease of pager and cellular equipment and
wide area pager service)and INF (sale, lease and maintain telecommunications
equipment).
*** Includes rent revenues, billing and collection revenues, and
uncollectible revenues.
The local, long distance and access services' gross revenues, which are
regulated by the Pa. Public Utility Commission and the Federal Communications
Commission, contribute a greater percentage to net income than the more
competitive nonregulated sale and lease gross revenues.
On December 31, 1997, the Company had 76,421 access lines in service, of
which 22,000 served business customers, as set forth in the following table:
ACCESS LINES BY COMPANY
YEAR
END CTT CMS BVT
12/31 TOTAL TOTAL TOTAL
1993 45,359 1,190
1994* 44,176 4,138
1995 45,696 4,716
1996 48,133 5,047 19,086
1997 51,015 5,282 20,124
* Paging Access Lines transferred to CMS
CTT had a total of 132 employees as of December 31, 1997, 83 of which
were covered by one collective bargaining agreement. BVT had a total of 58
employees, and INF had a total of 53, none of which are covered by a
bargaining agreement.
ITEM 2. PROPERTIES
CTT, BVT and CMS are engaged in the business of furnishing communication
service. Their properties do not lend themselves to description by character
and location of principal unit because their plant is widely distributed in
their service territories.
ITEM 2. PROPERTIES ( Continued)
As of December 31, 1997 investment in telephone plant in service by CTT
and BVT consisted of the following categories and approximate percentages:
A. Digital Switching equipment 34%;
B. Land and buildings (occupied principally by digital switching
equipment) 4%;
C. 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) 55%;
D. General purpose computers 2%;
E. Motor vehicles, other work equipment and furniture and office
equipment 5%.
As of December 31, 1997, CMS's investment in plant in service consisted
of the following categories and approximate percentages:
A. Land, Buildings, and Towers 21%
B. Transmitters and terminal equipment 39%;
C. Customer premise equipment 34%;
D. Computers and other plant 6%.
CTT and BVT own most of their 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 leased properties. CTT and BVT are leasing
some office space for their customer service and marketing departments.
INF has fixed assets consisting of vehicles and furniture and fixtures.
INF leases office space for its operations.
Standard practices prevailing in the telephone industry are followed by
both CTT and BVT in the construction and maintenance of their plant and
facilities. Both consider their plant and facilities are, as a whole, to be
in sound physical and operating condition. Modernization of plant and
facilities is very important in the telecommunications industry. CTT and BVT
together added 5.0 miles of fiber optic cable during 1997 and at the end of
1997 had 439 miles of fiber optic cable in service. Software additions to
both of their digital switches are added each year in order to fulfill the
demand for enhanced service through the digital network.
ITEM 3. LEGAL PROCEEDINGS
As of December 31, 1997, there was no litigation that was material, as
defined in Regulation S-K Item 103, pending against the Company and its
subsidiaries.
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) CEI's Common Stock is trading on the NASDAQ National Market under
the Ticker Symbol "CENI". The high and low sales prices for each quarter of
1997 and 1996 are listed below.
1997 High Low
4th Quarter $30.00 $28.00
3rd Quarter $29.00 $25.25
2nd Quarter $26.75 $23.75
1st Quarter $26.75 $23.375
1996 High Low
4th Quarter $24.75 $22.875
3rd Quarter $24.50 $22.875
2nd Quarter $28.75 $24.00
1st Quarter $29.00 $27.50
(b) Approximate Number of Equity Security Holders.
Approximate Number of
Record Holders (as of
Title of Class December 31, 1997)
Common Stock 1,890 (1)
Preferred Stock 64 (1)
(1) Included in the number of stockholders of record are shares held
in "nominee"or "street" name.
(c) Dividends
Payments of common stock 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 years 1996 and 1997, the total cash dividend paid
each year by the Company was $1.20 and $1.21 per share respectively.
Dividends were paid quarterly throughout the years. Under the most restrictive
covenants of the Company's debt agreement, $18,700,000 of the consolidated
retained earnings is available for payment of cash dividends in 1998.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS (continued)
During the second quarter of 1996 the Company issued Series A
Convertible Preferred Stock. Cumulative dividends of $3.42 per share per
annum are paid semi-annually. During 1996 and 1997 the total cash dividend
paid per share was $1.71 and $3.42 per share respectively.
ITEM 6. SELECTED FINANCIAL DATA
1997 1996 1995 1994 1993
Selected Income Statement Data:
Operating Revenue $56,184,525 $42,898,943 $32,552,703 $31,702,785 $30,077,940
Net Income 9,314,023 8,505,814 6,530,858 6,293,983 6,135,813
Basic Earnings per
Common Share* $1.87 $1.91 $1.70 $1.64 $1.60
Diluted Earnings per
Common Share* $1.87 $1.90 $1.70 $1.64 $1.60
Cash Dividends declared
per Common Share* $1.21 $1.20 $1.20 $1.11 $1.10
*adjusted for 5% stock dividend February, 1995
Selected Balance Sheet Data:
Net Plant $70,572,862 $62,934,147 $46,140,262 $45,599,261 $44,989,591
Total Assets 129,289,883 119,851,818 58,594,725 55,799,116 53,231,772
Long-term Debt
Less Current
Maturities 23,250,000 27,218,000 4,645,000 5,035,000 5,425,000
Minority Interest in
Subsidiary * 0 400,198 253,367 0 0
Stockholders' Equity 71,551,962 63,073,516 42,088,955 39,908,356 37,649,118
* Conestoga Wireless Company
When comparing 1997 and 1996 with 1995 and before, many of the variances are
a direct result of the merger with BVT effective June, 1996 and INF
effective April, 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
1997 marked a year in which we achieved solid financial results while
continuing to position the Company for entry into new markets and strengthen
our competitiveness in existing markets. Our results were driven by strong
market demand and solid operating performance in our network and related
markets. We reported net income of $9.314 million or $1.87 per common share
in 1997, compared to net income of $8.506 million or $1.91 per common share
in 1996, and $6.531 million or $1.70 per common share in 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS(Continued)
Our results for 1997 and 1996 were significantly impacted by the
acquisitions of BVT in June, 1996 and INF in April, 1997. Our substantial
increase in revenues and expenses was caused in large part by the inclusion of
the operations of BVT and INF in our consolidated financial statement. The
slight decline in earnings per common share can be attributed in large part to
two factors: (1) the additional common shares issued in connection with the
acquisitions of INF and BVT; and (2) the amortization of goodwill
associated with these acquisitions. Our results for 1998 and the near future
will be significantly impacted by the development, construction and
commencement of operations of our Personal Communications Services (PCS)
network, which is discussed under the heading PCS.
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 Total Revenues Period to Period
Increase (Decrease)
Year Ended December 31 Years Ended
1997 1996 1995 1997-96 1996-95
Local Service Revenues 16.2% 17.3% 17.7% 22.9% 28.4%
Long Distance and
Access Revenues 60.8% 66.8% 66.9% 19.1% 31.6%
Equipment Sale & Lease 21.5% 13.9% 13.1% 102.1% 40.1%
Other Revenues 1.5% 2.0% 2.3% 0.4% 15.3%
100.0% 100.0% 100.0% 31.0% 31.8%
Operating Expenses 72.3% 67.2% 67.5% 40.9% 31.3%
Operating Income 27.7% 32.8% 32.5% 10.6% 32.9%
Other Income (Net) 2.7% .5% 1.0% 533.9% (25.1%)
Income Taxes 13.9% 13.6% 13.4% 33.0% 33 .3%
Minority Interest 0 % .1% 0 % (81.1%) 278.6%
Net Income 16.5% 19.8% 20.1% 9.5% 30.2%
RESULTS OF OPERATIONS
Operating Revenues
Operating revenues increased 31.0% during 1997 when compared with 1996,
a direct result of the merger of BVT during the second quarter of 1996, and
the merger of INF during the second quarter of 1997. BVT provided $15.1
million in operating revenues for 1997 compared with $7.9 million during the
seven month period included in the consolidated revenues for 1996. INF added
$4.9 million for the eight month period of 1997. During the 1995-97 period
operating revenues increased 72.6%.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS(Continued)
Local Service Revenues, which are regulated by the Pennsylvania Public
Utility Commission (PUC) are generated by the local exchange carriers, CTT and
BVT, as well as CMS. In 1997 such revenues were $9.1 million, an increase of
22.9% when compared with 1996. The inclusion of BVT for the full year 1997
added $2.5 million in local service revenue, and accounted for 70.8% of the
increase when compared with 1996. Both CTT and BVT had very strong growth
in access lines during 1997.
The Company's access lines in service increased 4,155 or 5.7% during
1997. The total access lines in service as of December 31, 1997 was 76,421.
CTT had 51,015, BVT had 20,124, and CMS had 5,282. The Company has
experienced substantial increases in residential customers installing more
than one access line to their residences during the past two years. With the
continued interest in the Internet, the Company anticipates this trend will
continue in the near future. Therefore the growth of access lines should
continue.
Access Service Revenues increased 24.2% during 1997, and for the 1995-97
period increased 76.7%. Access service revenues are earned from long distance
carriers for their use of our local exchange facilities in providing long
distance services to their customers and from end-user subscribers. The
inclusion of BVT for the full year 1997 provided $7.5 million of access
revenue during 1997, and provided 75% of the increase when compared with
1996. The Company's total access minutes of use on the network
increased 8.2% during 1997 when compared with 1996. During 1996 CTT recorded
a prior period access billing adjustment, which added about $275,000 in access
revenue for 1996. The Company anticipates that access rates will decline when
local competition becomes more widespread, and could have a significant impact
on operating revenues in the future.
Long Distance Service Revenues, which include regulated CTT and BVT
intralata toll revenue, as well as CC long distance revenues, increased 7.9%
during 1997 when compared with 1996, and for the 1995-97 period increased
25.7%. The inclusion of BVT for the full year 1997 provided $1.8 million of
long distance revenue during 1997 , and provided 85% of the increase. With
the enactment of the Telecommunications Act of 1996, and subsequent enactment
provision by the PUC, requiring intralata toll competition by January 1, 1998,
long distance toll service will become very competitive with the
potential for loss of customer base and revenue. In order to retain our
customer base and reap some of the benefits from competition, during 1997 CC
became a full service interexchange provider offering long distance service
within the franchised territories as well as outside the territories .
Equipment Sales and Lease Revenues include (1) CTT and BVT sale and lease
of telephone equipment and directory advertising revenues, (2) CMS sale and
lease of pager and cellular equipment and local and wide area reseller
operations, and (3) INF sale of telecommunication equipment and service.
During 1997 these revenues increased 102.1% and for the 1995-97 period
increased 183.1%. The inclusion of BVT for the full year 1997 provided $3.2
million of equipment and lease revenues during 1997, and INF provided
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS(Continued)
another $4.5 million. Together they accounted for the increase in equipment
sale and lease revenues. Modest growth was experienced by all entities during
1997.
Other Revenues, which include CTT and BVT revenues for rents and billing
and collection, and uncollectible accounts for all entities, were relatively
even with 1996. Other revenue increased 15.7% during 1995-97 period.
Billing and collection revenues from both local exchange carriers are non
growth items due to an interexchange carrier taking back certain billing and
collection functions previously performed by both. Other Revenues in general
are a non growth part of the company's revenue stream. Uncollectible
revenues were about .6% of total operating revenues for 1997 compared with .4%
for 1996.
Operating Expenses
Operating Expenses increased 40.9% during 1997 when compared with 1996, a
direct result of the acquisition of BVT during the second quarter of 1996, and
the merger of INF during the second quarter of 1997. The inclusion of BVT for
the full year 1997 added $11.5 million in operating expenses for 1997 compared
with $5.6 million during the seven month period included in the consolidated
expenses for 1996. INF added $5.2 million for the eight month period of 1997.
During the 1995-97 period operating expenses increased 85.0%. Plant operations
expense were $7.9 million an increase of 37.8% when compared with 1996 and for
the 1995-97 period increased 78.5%. Plant operations expense included
charges from most of the subsidiaries and include outside plant expenses,
local exchange carriers digital switching expenses, engineering and other
related administrative expenses. The increase is a direct result of the
acquisition of BVT and INF. The demand for enhanced services required software
additions to the digital switches of both CTT and BVT. This software amounted
to $809 thousand and was expensed for financial statement purposes.
Depreciation and Amortization Expenses, for 1997 increased 31.6% over
1996 and for the 1995-97 period increased 90.8%. This increase is due to the
acquisitions of BVT and INF and the goodwill amortization from each. Goodwill
amortization expense for 1997 was $1.6 million, compared to $567 thousand for
1996. Goodwill represents the cost in excess of net assets associated with
the acquisitions, and for BVT is being amortized over forty
years and for INF over three years. Depreciation expense for 1997 computed by
the straight-line method was $8.2 million and equates to a 7.08% effective
composite rate, consistent with the two previous years.
Customer Operations Expense, which includes charges from all of the
subsidiaries, increased 22.3% during 1997 and increased 40.7% over the 1995-97
period. Customer Operations Expense consists of customer services for ordering
and billing, as well as marketing and advertising expenses. The acquisitions
of BVT and INF added $1.2 million of customer operations expense during 1997,
which accounted for 70.1% of the increase.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS(Continued)
Corporate Operations Expense, which includes all of the subsidiaries,
increased 38.3% during 1997 when compared with 1996, and increased during the
1995-97 period 109.0%. The acquisitions of BVT and INF added about $634
thousand to corporate operation charges during 1997, which is 51.3% of the
total increase. Corporate operations expenses include charges for professional
services such as legal and accounting, as well as regulatory, executive, and
insurance expenses. The Company did experience some additional charges
during 1997 for the development of PCS.
Labor sensitive operating expenses increased as a result of the three
year contract negotiated with the union during 1996. Effective May 10, 1996,
the first year of the contract, wage rates increased 3.1%. Effective May 10,
1997 the second year of the contract, wage rates increased 3.4%.
Equipment Sales and Lease Expenses, which include charges from CTT,
BVT, CMS, and INF, increased 126.2% during 1997, and during the 1995-97 period
increased 202.4%. The acquisitions of BVT and INF added about $4.2 Million
in equipment expenses during 1997, when compared with 1996, which made up all
of the increase.
Taxes other than income taxes increased 13.0% during 1997 when compared
with 1996, and during the 1995-97 period increased 42.5%. The increase is
primarily due to the inclusion of BVT for the full year 1997.
Other Income/Expense (net)
Interest expense increased 13.0% during 1997 when compared with 1996 a
result of the acquisition of BVT. During the 1995-97 period interest expense
increased 42.5%. External financing in the amount of $22,000,000 was required
to provide most of the cash needed for the BVT acquisition. There was some
interim financing required during 1996 against the Company's lines of credit
but none required during 1997. No balances remained at the end of 1997 or
1996. In February, 1997 CTT obtained a $5.0 million unsecured term
loan at an interest rate of 6.89% through a local bank in order to refinance
its two 10-year unsecured term loans which carried interest rates at prime
with ceilings of 8.5% and 8.4%. In June, 1997 BVT retired its debt of $1.4
million at an interest rate of 8.5%, without early payment penalty.
During 1997, the Company held 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. During the first eight months of 1997 the Company
held a 10% minority 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 areas. In September the Company sold
its interest in LACE for $2.8 million and realized a pretax gain of $1.9
million. The Company, through CTT, holds an 11.85% interest in PenTeleData
which provides local
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS(Continued)
access to the Internet. The pre-tax income from the Company's interests in
these ventures of $1.3 million increased 7.1% in 1997 when compared with 1996
and for the 1995-97 period increased 103.8%. The Company decided to sell its
interest in LACE because PCS service will be in direct competition with
cellular services and the Company is making substantial capital investments
in building its PCS network through its 100% owned subsidiary, CWC.
Income Taxes
Income taxes increased 33.0% during 1997 when compared with 1996, and during
the two year period of 1995-97 increased 77.3%. This increase is due to the
increase in income before income taxes, which for the two periods increased
19.4% and 56.7% respectively. The acquisitions and the gain on the sale of the
partnership interest affected both periods. The federal and state income tax
rates over the period remained unchanged.
Minority Interest
The minority interest recorded during 1997 and 1996 reflects INF's 40% interest
in the net loss of CWC prior to CEI's acquisition of INF.
Net Income
Net Income for 1997 increased 9.5% when compared with 1996, and can be
attributed to increased undistributed profits from the partnerships and the
gain on the sale of the partnership interest, as well as excellent growth in
access lines and minutes of use on the networks. Net income for 1997 was
negatively impacted by the start up costs of CWC and the goodwill amortization
associated with the acquisition of BVT and INF, which together were about $1.9
million. For the 1995-97 period net income increased 42.6%. It is expected
that net income will be negatively impacted for the near future due to the
PCS start up costs as well as the goodwill amortization.
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, 1997, the Company had no regulated assets but had regulated liabilities
which total $1.1 million. The Company currently expects to follow the
accounting prescribed by SFAS 71 in the foreseeable future, but if the Company
discontinued 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 of $5.3 million at December
31, 1997. They include purchases of equipment and materials to continue to
upgrade its telecommunications plant base, as well as equipment and materials
to build the PCS network. The projected capital budget requirements for 1998
of approximately $28.9 million, except for the PCS network build out
requirements, will be financed through
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS(Continued)
internally generated funds.
A bank line of credit for $5 million was available during 1997, at an
interest rate at one percent above the Federal Reserve Open Market Committee
Target Federal Funds Rate. The interest rates applicable on December 31, 1997
and 1996 were 5.5% and 8.25% (the bank's prime rate), respectively.
A second line of credit was available during 1997 from another bank for
$10 million with interest at one percent below the bank's prime rate or .35
percent above the bank's overnight base rate. The prime rate applicable at
December 31, 1997 and 1996 was 8.5% and 8.25%, respectively. The overnight
base interest rate on December 31, 1997 and 1996 was 6.75% and 7.0%
respectively . The line of credit was not utilized during 1997 but
was used several times during 1996 to cover expenses. There was no balance
outstanding on December 31, 1997, or 1996.
Substantial amounts of additional capital will be needed to build-out
the PCS network. In February, 1998 the Company borrowed $21.0 million at an
interest rate of 6.22%. Interest will be paid quarterly starting in May, 1998
with principal payments due in quarterly installments starting May, 2001
through May, 2008. The capital requirement over the next five years, for CWC
to build out its entire PCS network, could exceed $40 million. Additional
financing of the project could come from (1) internal sources, (2) long term
debt, (3) common stock issue, or a combination of the three.
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 1997 the Company's total investment in
these publicly traded stock increased due to unrealized appreciation of such
stock. The current market value of such investment is $2.3 million.
Management views this investment as a source of future liquidity, and
during February, 1998 did liquidate some of them.
The Board of Directors at its monthly meeting on September 24, 1996
authorized the repurchase of up to one hundred thousand shares of CEI common
stock on the open market or in negotiated transactions through June 30, 1997.
The maximum price which was to be offered at any time was $24.00 per common
share depending on market conditions and other factors. As of June 30, 1997,
the close of the offer, there were 91,273 common shares purchased back at an
average price of $23.632 per share. Some of these shares held in
the treasury were reissued throughout the year through the dividend
reinvestment plan and the employee stock purchase plan. The total shares
remaining as of December 31, 1997 were 75,536.
Management believes that the current working capital is adequate to meet
the immediate operating requirements, and that the currently available credit
facilities are adequate to provide short term financing for unforeseen
requirements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS(Continued)
Personal Communication Services (PCS):
CWC was a successful bidder in the Federal Communications Commission
(FCC) auctions for Personal Communication Services ("PCS") radio spectrum in
the D, E, and F blocks. 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 for the
customer, than cellular. The Basic Trading Areas in which CWC was the
successful bidder are Reading, Pottsville, Sunbury, and Williamsport,
Pa. These territories cover nine counties in Pennsylvania with an estimated
population of 900,000.
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 provide the Company
with an opportunity to expand the business into neighboring territories while
maintaining the Company's current customer base.
Management has negotiated with equipment vendors to acquire and install the
PCS network equipment and towers. Purchase orders have been generated and
construction has begun. The development of the PCS network is subject to
risks and delays associated with the design, and construction of the wireless
system. The Company must be able to successfully negotiate leases of sites
for location of equipment , which could require zoning or regulatory approvals.
Delays in acquiring these approvals could adversely affect the timing of the
build-out of the network.
The capital requirements to build-out the Company's entire PCS network
could exceed $40 million over the next five years. The Company's PCS system
will not commence business until Spring, 1998. The Company has projected PCS
operating losses for the near future. The capital cost of the PCS system, the
depreciation expense of the PCS assets, and the projected PCS operating losses
will significantly impact the Company's earnings.
Effects of Substantial Indebtedness and Preferred Stock on Future Operations:
At December 31, 1997, the Company had approximately $26.0 million of
long term debt outstanding and approximately $12.8 million of redeemable
preferred stock, compared to approximately $71.6 million of common equity.
This resulted in a ratio of 35% debt and preferred stock to 65% equity. At
December 31, 1996 the ratio was 40% debt to 60% equity. This decrease in debt
is a result reduction of debt of CTT and BVT using internally generated funds.
Including the additional debt incurred in February, 1998 the end of year 1997
ratio would have been 46% debt to 54% equity. It is anticipated that with the
building of the PCS infrastructure the Company will issue additional amounts of
debt and/or capital.
Although a higher level of debt and preferred stock is not unusual in the
telecommunications industry, the additional debt and preferred stock may have
important consequences on the Company's future operations, including (i) the
Company will incur
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS(Continued)
additional interest expense, and significant principal repayment obligations,
(ii) the Company will be subject to significant unscheduled preferred stock
redemption obligations because the preferred shares issued in the acquisition
of BVT may be "put" by the holders thereof beginning in 1998; (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:
CTT and BVT are subject to a rate making process regulated by the
Pennsylvania Public Utility Commission (PUC) called "rate of return
regulation". 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 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 a productivity offset, with no limitation on earnings by the
regulated company. In order for the Company to avail itself of the
procedures permitted by Chapter 30, CTT and BVT must commit to providing
universal broadband services by 2015. Both Companies plan to file a Chapter
30 Plan in 1998.
The telecommunications industry continues to undergo fundamental changes,
which may have a significant impact on financial performance. The Federal
Telecommunications Act of 1996, creates a regulatory environment that
encourages competition. As rural companies, CTT and BVT are exempt from many
of the most onerous aspects of competition, unless prospective competitors
can pass a public interest standard and agree to offer service throughout the
telephone companies' territories. In addition, the Companies currently have
pending before the Pa. P.U.C., a petition that would significantly strengthen
the aforementioned competitive position. A favorable ruling on the petition
is expected during the first quarter of 1998.
Management believes that competition will bring many new opportunities
for the local exchange companies. Management is endeavoring to position the
Company to take advantage of these opportunities as they arise, and
remains optimistic about the future. In this regard, during 1997 CC received
approval from the Pa. P.U.C. to provide 1+ long distance service. In addition
in February, 1998, CC received Pa. P.U.C. approval to provide competitive local
exchange service in the franchise territories of Bell Atlantic of Pa. and GTE.
Year 2000 Potential Problems:
The Company is heavily dependent on computer systems and utilizes a
significant number of software programs and operating systems throughout the
organization. To the
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS(Continued)
extent the software applications are unable to interpret the calendar year
2000, some level of modification or replacement of these applications will be
necessary. The Company is also very dependent on vendor compliance and will
require them to represent that their systems are year 2000 compliant.
The Company has appointed a task force to assess the scope of the risk and
to bring its applications into compliance. This will include utilizing
outside organizations to complete the project. The Company is currently
unable to make a reasonable estimate of the costs associated with its year 2000
compliance. Accordingly, no assurance can be given that any or all of the
Company's or third party systems are or will be Year 2000 compliant or that
the costs required to address the year 2000 issue or that the impact of the
Company's failure to achieve substantial year 2000 compliance will not have a
material adverse effect on the Company's business, financial condition or
results of operations.
Forward-Looking Statements:
Managements' Discussion and Analysis of Financial Conditions and Results of
Operations relating to Operating Revenues, Other Income/Expense, Liquidity and
Capital Commitments, PCS, Effects of Substantial Indebtedness and Preferred
Stock on Future Operations and Regulated Industry, Year 2000 Potential Problems
and other statements relating to anticipated growth, anticipated sources of
funding for continuing and future operating activities and construction
expenditures (see. . . above) constitute "forward-looking statements" as
defined in the Securities Litigation Reform Act of 1995. Such forward-looking
statements involve risks and uncertainties which could cause actual results or
outcomes to differ materially from those expressed in forward-looking
statements. The projections made herein are expressed in good faith and
believed by the Company to have a reasonable basis, but there can be no
assurance that actual outcomes or results will not differ materially from the
expected outcomes or results described herein. Important factors that could
cause actual results to differ materially from the forward-looking statements
identified in this paragraph are discussed in the above-referenced sections
and accompany such forward-looking statements.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
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, 1997 and 1996,
and the related consolidated statements of income, common stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
BEARD AND COMPANY, INC.
Reading, Pennsylvania
January 17, 1998
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Shares And Per Share Data)
December 31, 1997 1996
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,517 $ 1,957
Accounts receivable, including unbilled revenue 6,895 6,889
Inventories, at average cost 1,104 867
Prepaid expenses 214 206
Total current assets 10,730 9,919
INVESTMENTS AND OTHER ASSETS
Cost in excess of net assets of business acquired,
less amortization 1997 $ 2,144; 1996 $ 567 39,506 38,337
Investments in partnerships 2,979 3,377
Investments in equity securities 2,308 1,622
Prepaid pension costs 2,423 2,149
Other 772 1,514
47,988 46,999
PLANT
In service 126,337 123,137
Under construction 10,778 557
137,115 123,694
Less accumulated depreciation 66,543 60,760
70,572 62,934
$ 129,290 $ 119,852
See Notes to Consolidated Financial Statements.
December 31, 1997 1996
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 3,000 $ 831
Accounts payable 4,858 2,770
Accrued expenses:
Payroll and vacation pay 1,070 856
Taxes 667 -
Other 860 308
Total current liabilities 10,455 4,765
LONG-TERM LIABILITIES
Long-term debt, less current maturities 23,250 27,218
Accrued postretirement cost 749 597
Other 987 834
24,986 28,649
DEFERRED INCOME TAXES 9,516 10,185
COMMITMENTS
MINORITY INTEREST IN SUBSIDIARY - 400
REDEEMABLE PREFERRED STOCK, par value $ 65 per share;
authorized 900,000 shares; issued and outstanding
196,618 shares; $ 3.42 cumulative dividends 12,780 12,780
COMMON STOCKHOLDERS' EQUITY
Common stock, par value $ 5 per share; authorized
10,000,000 shares; issued 1997 4,775,301 shares;
1996 4,568,500 shares 23,876 22,842
Additional paid-in capital 24,742 20,420
Retained earnings 23,958 20,864
Net unrealized appreciation on marketable equity
securities 762 316
Less cost of treasury stock 1997 75,536 shares;
1996 58,400 shares (1,785) (1,369)
71,553 63,073
$ 129,290 $ 119,852
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
Three Years Ended December 31, 1997 1996 1995
Operating revenues:
Local service $ 9,112 $ 7,417 $ 5,775
Access service 24,498 19,719 14,104
Long distance service 9,642 8,938 7,673
Equipment sales and lease 12,087 5,982 4,270
Other 846 843 731
56,185 42,899 32,553
Operating expenses:
Plant operations 7,926 5,751 4,440
Depreciation and amortization 9,806 7,450 5,139
Customer operations 9,106 7,446 6,471
Corporate operations 4,467 3,231 2,137
Equipment sales and lease 7,448 3,293 2,463
Taxes other than income 1,880 1,664 1,319
40,633 28,835 21,969
Operating income 15,552 14,064 10,584
Other income (expense), net:
Interest expense (2,017) (1,297) (428)
Income from unconsolidated
partnership interests 1,345 1,256 660
Gain on sale of unconsolidated partnership
interest 1,890 - -
Other, net 316 283 91
1,534 242 323
Income before income taxes 17,086 14,306 10,907
Income taxes 7,782 5,853 4,390
Income before minority interest 9,304 8,453 6,517
Minority interest in net loss of subsidiary 10 53 14
Net income $ 9,314 $ 8,506 $6,531
Basic earnings per share $ 1.87 $ 1.91 $ 1.70
Diluted earnings per share $ 1.87 $ 1.90 $ 1.70
See Notes to Consolidated Financial Statements.
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
(In Thousands, Except Shares And Per Share Data)
Three Years Ended December 31, 1997, 1996 and 1995
Common
Additional Stock
Common Stock Paid-In Dividend
Shares Amount Capital Distributable
Balance, December 31, 1994 3,665,967 $18,329 $ 950 $ 4,734
Net income - - - -
Common stock dividends
($ 1.20 per share) - - - -
Distribution of 5% stock dividend 182,955 915 3,819 (4,734)
Net change in unrealized appreciation
on marketable equity securities, net
of taxes - - - -
Balance, December 31, 1995 3,848,922 19,244 4,769 -
Net income - - - -
Common stock dividends
($ 1.20 per share) - - - -
Preferred stock dividends - - - -
Common stock issued for business
acquired 719,578 3,598 15,651 -
Purchase of common stock for the
treasury - - - -
Net change in unrealized appreciation
on marketable equity securities, net
of taxes - - - -
Balance, December 31, 1996 4,568,500 22,842 20,420 -
Net income - - - -
Common stock dividends
($ 1.21 per share) - - - -
Preferred stock dividends - - - -
Issuance of stock under employee
stock purchase plan - - 10 -
Issuance of stock under dividend
reinvestment plan 6,878 34 189 -
Common stock issued for business
acquired 199,923 1,000 4,123 -
Purchase of common stock for the
treasury - - - -
Net change in unrealized appreciation
on marketable equity securities, net
of taxes - - - -
Balance, December 31, 1997 4,775,301 $23,876 $24,742 $ -
See Notes to Consolidated Financial Statements.
Net
Unrealized
Appreciation
On Marketable
Retained Equity Treasury Stock
Earnings Securities Shares Amount Total
$ 15,815 $ 80 - $ - $ 39,908
6,531 - - - 6,531
(4,619) - - - (4,619)
- - - - -
- 268 - - 268
17,727 348 - - 42,088
8,506 - - - 8,506
(5,033) - - - (5,033)
(336) - - - (336)
- - - - 19,249
- - (58,400) (1,369) (1,369)
- (32) - - (32)
20,864 316 (58,400) (1,369) 63,073
9,314 - - - 9,314
(5,548) - - - (5,548)
(672) - - - (672)
- - 3,531 83 93
- - 12,206 289 512
- - - - 5,123
- - (32,873) (788) (788)
- 446 - - 446
$ 23,958 $ 762 (75,536) $1,785) $ 71,553
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Years Ended December 31, 1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 9,314 $ 8,506 $ 6,531
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 10,376 7,938 5,495
Income from unconsolidated
partnership interests (1,345) (1,256) (660)
Gain on sale of unconsolidated
partnership interest (1,890) - -
Gain on sale of nonregulated property (181) - -
Minority interest in loss of subsidiary (10) (53) (14)
Change in assets and liabilities, net of
effects from acquisition of business:
(Increase) decrease in:
Accounts receivable 1,000 (406) (149)
Materials and supplies (71) 377 20
Prepaid expenses 15 497 (43)
Prepaid pension costs (274) (165) (329)
Other assets 315 (560) (654)
Increase (decrease) in:
Accounts payable (890) (1,529) 114
Accrued expenses and other current
liabilities 1,151 (36) (431)
Other liabilities 306 405 170
Deferred income taxes (389) (338) 219
Net cash provided by
operating activities 17,427 13,380 10,269
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of plant, net of removal costs
and salvage from retirements (14,424) (7,354) (6,036)
Proceeds on sale of nonregulated property 734 - -
Capital investments in unconsolidated
partnership interests (237) - (320)
Capital distributions from unconsolidated
partnership interests 1,091 432 92
Proceeds from sale of unconsolidated
partnership interest 2,779 - -
Proceeds from surrender of life insurance
policies 427 - -
Acquisition of business, net of cash and
cash equivalents acquired 965 (19,744) -
Net cash used in investing activities(8,665) (26,666) (6,264)
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In Thousands)
Three Years Ended December 31, 1997 1996 1995
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings $ 5,000 $ 22,000 $ -
Principal payments on long-term debt (6,799) (390) (390)
Borrowings on line of credit - 900 2,000
Principal payments on line of credit - (1,400) (1,500)
Proceeds from issuance of stock under the
employee stock purchase plan 93 - -
Proceeds from issuance of stock under
the dividend reinvestment plan 512 - -
Common and preferred dividends paid (6,220) (5,369) (4,619)
Purchase of common stock for the treasury (788) (1,369) -
Minority interest investment in subsidiary - 200 268
Net cash provided by (used in)financing
activities (8,202) 14,572 (4,241)
Increase (decrease) in cash and
cash equivalents 56 1,286 (236)
Cash and cash equivalents:
Beginning 1,957 671 907
Ending $ 2,517 $ 1,957 $ 671
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash payments for:
Interest $ 1,980 $ 1,297 $ 428
Income taxes $ 7,544 $ 6,066 $4,284
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Acquisition of business:
Working capital acquired, net of cash and
cash equivalents 1997 $ 967;
1996 $ 5,459 $ 314 $ 977 $ -
Plant and other assets acquired 1,098 16,924 -
Cost in excess of net
assets acquired 2,746 38,904 -
Long-term liabilities assumed - (5,033) -
Redeemable preferred stock issued - (12,780) -
Common stock issued (5,123) (19,248) -
$ (965) $ 19,744 $ -
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. CEI's wholly-owned operating
subsidiaries
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
include:
The Conestoga Telephone and Telegraph Company (CTT) and Buffalo
Valley Telephone Company (BVT), which are independent local exchange
carriers providing both regulated and nonregulated communication
services.
Conestoga Communications, Inc. (CC), which provides long distance
services.
Conestoga Mobile Systems, Inc. (CMS), which provides paging
communication services.
Conestoga Wireless Company (CWC), which is currently constructing
facilities to provide personal communication services (PCS) in selected
markets throughout eastern and central Pennsylvania.
Infocore, Inc. (INF), which provides communication consulting services
including the design and installation of communication systems.
The Companies are collectively referred to herein as the Company. All
significant intercompany transactions have been eliminated in consolidation.
The Company operates predominately in the communications and related services
industry providing services to customers in eastern and central Pennsylvania.
The Company's local exchange carriers are subject to rate regulation by the
Federal Communications Commission (FCC) and the Pennsylvania Public Utility
Commission (PUC) and, accordingly, follow the accounting prescribed by
Statement of Financial Accounting Standards No. 71, "Accounting for Certain
Types of Regulation".
Telecommunications Act of 1996:
The Telecommunications Act of 1996 is the most comprehensive revision of the
federal communications laws in over 60 years. In general, the Act includes
provisions that open the telephone subsidiaries' local exchange markets to
competition upon certain conditions and permit local exchange carriers, such
as the Company, to provide long distance service outside their regions.
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 and 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.
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
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
settlements become known in accordance with industry practice.
Cash and cash equivalents:
For purposes of reporting the statements of 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.
Cost in excess of net assets of business acquired:
The excess of the acquisition cost over the net assets of the businesses
acquired are being amortized by the straight-line method over 3 to 40 years.
Management continually reviews the appropriateness of the carrying value of
the excess acquisition cost and the related amortization period.
Investments:
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
common stockholders' equity until realized. Gains and losses are determined
using the specific-identification method.
The Company is accounting for its investments in partnerships by the equity
method.
Plant and depreciation:
Plant is recorded at cost. Depreciation is computed by the straight-line
method. Rates used for calculating depreciation are based on the economic
useful lives of the assets. The effective composite depreciation rates for
the years 1997, 1996 and 1995 were 7.08%, 6.93% and 6.56% respectively.
Telephone plant:
Normal renewals and betterments of units of property are charged to plant
accounts, while ordinary repairs and replacements of items considered to be
less than units of property are charged to plant specific expenses. When
telephone plant is replaced or retired, the cost of the plant retired, plus
removal costs, less salvage is charged to accumulated depreciation.
Accordingly, no gain or loss is recognized in connection with ordinary
retirements.
Other property:
When other property is retired or otherwise disposed of, the property's
cost and accumulated depreciation are removed from the plant accounts and any
gain or loss on disposition is recognized in income.
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
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Employee benefits:
Pension plans:
All eligible employees of CTT and BVT are covered under noncontributory
defined benefit pension plans. The plans provide benefits based on years of
service and employee compensation. The Company's funding policy is to make
contributions in compliance with applicable regulations.
Postretirement benefit plan:
A subsidiary of the Company sponsors a postretirement health care plan
for substantially all of its 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 under the straight-line method that will result in full
accrual by December 31, 2012.
Savings plans:
The Company has contributory savings plans for substantially all
employees. The Company contributes matching amounts for participating
employees in accordance with the provisions of the plans. The Company
contributed approximately $ 312,000, $ 230,000 and $ 200,000 to the plans for
1997, 1996 and 1995 respectively.
Deferred compensation agreements:
The Company has deferred compensation agreements with certain officers
and employees which provide benefits payable to them upon retirement. The
estimated liabilities under the agreements are being accrued over the expected
remaining years of employment.
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
PURCHASE ACQUISITIONS
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 INF
shareholders as consideration for all outstanding shares of INF stock. The
acquisition has been accounted for as a purchase, and the results of operations
of INF since that date are included in the consolidated financial statements.
The excess of the purchase price over the fair value of net assets acquired
of $ 2,746,000 is being amortized over 3 years using the straight-line method.
On May 31, 1996, the Company acquired all of the outstanding shares of
Buffalo Valley Telephone Company (BVT), an independent local exchange carrier
providing regulated and nonregulated communication services in central
Pennsylvania. The consideration for the stock of BVT totaled approximately
$ 57 million which included 196,618 shares of $ 3.42 Series A Preferred Stock,
719,578 shares of common stock and approximately $ 25 million in cash. The
acquisition was accounted for as a purchase, and the results of operations of
BVT since the date of acquisition are included in the consolidated financial
statements. The excess of the purchase price over the book value of the net
assets acquired of approximately $ 39 million is being amortized over 40 years
using the straight-line method.
Unaudited pro forma consolidated results of operations for the years ended
December 31, 1996 and 1995 as though BVT has been acquired at the beginning of
the respective periods follows (in thousands, except per share amounts):
1996 1995
(Unaudited)
Operating revenues $ 47,885 $ 43,873
Operating income 15,373 13,936
Net income available for common stock 7,801 6,552
Basic and diluted earnings per share $1.71 $1.43
The previous amounts reflect adjustments for amortization of goodwill,
interest on debt issued to fund the cash portion of the acquisition and
related tax benefits, removal of expenses related to the acquisition, net of
taxes and preferred stock dividend requirements.
Proforma results of operations of the Infocore acquisition have not been
presented because the proforma effect of the acquisition was not significant.
The pro forma consolidated results of operations are provided for
comparative purposes only. They are based upon historical information which
has been restated to reflect the purchase acquisition and do not necessarily
reflect the actual results that would have occurred nor are they necessarily
indicative of future results of operations of the combined companies.
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
INVESTMENTS IN EQUITY SECURITIES
The following is a summary of the Company's investments in equity
securities:
December 31,
1997 1996
In Thousands
Marketable equity securities:
Aggregate cost $ 1,142 $ 1,142
Gross unrealized appreciation 1,166 480
Fair value $ 2,308 $ 1,622
The Company's investments in equity securities are concentrated in the
telecommunications industry.
4
INVESTMENTS IN PARTNERSHIPS
The following is a summary of the Company's investments in partnerships:
December 31,
1997 1996
(In Thousands)
Berks and Reading Area Cellular Enterprises
(BRACE), 70% interest $2,851 $2,555
PenTeleData, 11.85% interest 128 91
Lancaster Area Cellular Enterprises (LACE),
10% interest - 731
$ 2,979 $3,377
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 the Company effectively has a 27.3% interest in the operating
partnership. 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.
In September 1997, the Company sold its partnership interest in LACE for
$ 2,779,000 and realized a pretax gain of $ 1,890,000 on the sale. 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.
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
INVESTMENTS IN PARTNERSHIPS (continued)
The Company's equity in undistributed net income of the partnerships was
approximately $ 1,345,000, $ 1,256,000 and $ 660,000 for 1997, 1996 and 1995
respectively, which includes $ 158,000, $ 222,000 and $ 168,000 respectively
from LACE.
5
PLANT
Plant is carried at cost less accumulated depreciation and consists of the
following:
December 31,
1997 1996
(In Thousands)
Telephone plant:
In service:
Land and buildings $ 5,314 $ 5,342
Digital switching equipment 42,260 41,778
Other equipment 6,716 6,853
Outside plant facilities 68,445 65,321
122,735 119,294
Under construction 1,227 557
123,962 119,851
Less accumulated depreciation 64,337 58,698
59,625 61,153
Nonregulated property and equipment:
Land and buildings 113 653
Equipment 3,489 3,190
3,602 3,843
Under construction 9,551 -
13,153 3,843
Less accumulated depreciation 2,206 2,062
10,947 1,781
$70,572 $62,934
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
LONG-TERM DEBT, CREDIT ARRANGEMENTS AND SUBSEQUENT EVENT
Long-term debt is summarized as follows:
December 31,
1997 1996
(In Thousands)
6.91% Series A Senior Notes,
interest payable quarterly,
principal due in annual
installments of $ 2,000,000
from 1998 through 2000. $ 6,000 $ 6,000
7.59% Series B Senior Notes,
interest payable quarterly,
principal due in annual
installments of $ 1,454,000
from 2001 through 2011. 16,000 16,000
6.89% term loan, interest
payable quarterly, principal
due in quarterly installments
of $ 250,000 through 2002. 4,250 4,645
8.5% notes - 1,404
26,250 28,049
Less current maturities 3,000 831
$23,250 $27,218
During 1997, the Company refinanced its $ 4,645,000 promissory notes.
The refinanced notes were classified in the 1996 balance sheet in accordance
with the terms of the new agreement.
The aggregate amounts of maturities of long-term debt for each of the five
years subsequent to December 31, 1997 are as follows (in thousands):
1998 $3,000
1999 3,000
2000 3,000
2001 2,455
2002 1,705
The Company has an unsecured credit agreement through June 30, 1998 with a
bank under which it may borrow up to $ 10,000,000 for working capital or
general business purposes in the form of line of credit loans or letters of
credit. Interest is payable monthly on advances at the Company's option of
either one percent below the bank's prime rate or .35 percent above the bank's
overnight base rate. There were no borrowings outstanding on the line of
credit at December 31, 1997 and 1996. The prime and overnight base interest
rates were 8.5% and 6.75% at December 31, 1997 and 8.25% and 7.00% at December
31, 1996. Issuance fees on letters of credit shall be mutually agreed between
the bank and the Company on a case-by-case basis.
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
LONG-TERM DEBT, CREDIT ARRANGEMENTS AND SUBSEQUENT EVENT(CONTINUED)
The Company also has an unsecured $ 5,000,000 line of credit from a bank
available until June 30, 1998 with interest at the Federal Reserve Open Market
Committee Target Federal Funds Rate plus one percent. There were no borrowings
outstanding on the line of credit at December 31, 1997 and 1996. The interest
rate applicable to the line of credit was 5.50% at December 31, 1997. The
applicable interest rate on the line of credit during 1996 was the bank's prime
rate, which was 8.25% at December 31, 1996.
The credit agreements contain provisions which, among other things, require
maintenance of certain financial ratios and limit the amount of additional
indebtedness. The Senior Notes also contain provisions which, among
other things, restrict mergers and consolidations, encumbrances and sales of
certain assets, redemptions of preferred stock and purchases of restricted
investments. Under the most restrictive covenants of the debt agreements,
approximately $ 18,700,000 of the consolidated retained earnings is available
for payment of cash dividends in 1997.
On January 15, 1998, the Company signed a commitment letter to issue
$ 21,000,000 of 6.22% Senior Notes. Interest on the notes will be payable
quarterly starting in May 1998 with principal due in quarterly installments
of $ 750,000 from May 2001 through May 2008. The proceeds from this issuance
will be used to finance the construction of the Company's PCS facilities. The
closing date for the transaction is expected to be February 11,1998.
7
INCOME TAX MATTERS
The provision for income taxes for the years ended December 31, 1997, 1996
and 1995 was as follows:
1997 1996 1995
(In Thousands)
Current:
Federal $ 6,251 $ 4,631 $ 3,136
State 1,974 1,507 1,035
8,225 6,138 4,171
Deferred:
Federal (357) (244) 168
State (86) (41) 51
(443) (285) 219
$ 7,782 $ 5,853 $ 4,390
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
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, 1997, 1996 and 1995 due to the following:
1997 1996 1995
Normal statutory federal income tax rate 35.0% 35.0% 35.0%
Increase resulting from:
State income tax, net of federal tax benefit 7.2 6.7 6.5
Goodwill amortization 3.2 1.4 -
Other 0.2 (2.2) (0.7)
45.6% 40.9% 40.8%
Net deferred tax liabilities consist of the following components as of
December 31, 1997 and 1996:
1997 1996
(In Thousands)
Deferred tax liabilities:
Plant, in service $9,482 $9,914
Prepaid pension costs 942 850
Investments 597 330
11,021 11,094
Deferred tax assets:
Employee benefits (876) (726)
Net operating loss carryforwards (592) -
Other (316) (183)
(1,784) (909)
Valuation allowance 279 -
$9,516 $10,185
The Company has approximately $ 922,000 of net operating loss carryforwards
for federal income tax purposes, which expire between the years 2006 and 2012.
The Company has approximately $ 2,790,000 of net operating loss carryforwards
for state income tax purposes which expire between the years 1998 and 2000. A
valuation allowance of $ 279,000 was recorded during 1997 for these state
loss carryforwards which will probably expire unutilized.
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8
DEFINED BENEFIT PENSION PLANS
The components of the pension cost charged to expense for 1997, 1996 and
1995 consisted of the following:
1997 1996 1995
(In Thousands)
Service cost (benefits earned) $ 481 $ 420 $ 270
Interest cost on projected benefit
obligation 960 790 603
Actual return on plan assets (3,251) (1,542) (2,001)
Net amortization and deferral 1,817 444 1,299
Total expense $ 7 $ 112 $ 171
Assumptions used in the determination of pension plan information for 1997,
1996 and 1995 consisted of the following:
1997 1996 1995
Discount rate 7.0% 7.5% 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 8.5
The following table sets forth the plans' funded status as of December 31,
1997 and 1996 and the amount recognized in the accompanying consolidated
balance sheets:
1997 1996
(In Thousands)
Actuarial present value of benefit obligations:
Vested benefits $10,260 $ 8,876
Accumulated benefits $10,299 $ 8,890
Projected benefits $(14,946) $(12,906)
Plan assets at fair value 19,237 16,083
Plan assets in excess of projected
benefit obligation 4,291 3,177
Unrecognized net (gain) loss (1,648) (573)
Unrecognized net (asset) (1,010) (1,124)
Unrecognized prior service cost 790 669
Prepaid pension cost $2,423 $2,149
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DEFINED BENEFIT PENSION PLANS (CONTINUED)
Plan assets consist primarily of U.S. Government securities, corporate bonds
and common stocks, including CEI's common stock of $ 239,000 and $ 200,000 at
December 31, 1997 and 1996 respectively.
9
POSTRETIREMENT BENEFIT PLAN
The components of the net periodic postretirement benefit cost charged to
expense for 1997, 1996 and 1995 consisted of the following:
1997 1996 1995
(In Thousands)
Service cost $ 44 $ 38 $ 35
Interest cost on projected benefit
obligation 98 92 94
Net amortization and deferral 54 56 56
Total expense $196 $ 186 $185
The following sets forth the plans' funded status reconciled with the
amount recognized in the Company's consolidated balance sheets as of December
31, 1997 and 1996:
1997 1996
(In Thousands)
Actuarial present value of accumulated
postretirement benefit obligations:
Retirees $ (390) $ (398)
Fully eligible active employees (531) (497)
Other active members (516) (442)
(1,437) (1,337)
Unrecognized transition obligation 844 900
Unrecognized net (gain) (156) (160)
Accrued postretirement cost $ (749) $ (597)
Assumptions used by the Company in the determination of postretirement
benefit plan information consisted of the following:
1997 1996 1995
Projected health care cost trend rate 8.0% 8.5% 9.5%
Ultimate trend rate 5.5 6.0 6.0
Year ultimate trend rate is achieved 2000 2000 2000
Discount rate 7.0% 7.5% 7.0%
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1997 by approximately $ 213,000 and the aggregate service
and interest cost components of net periodic postretirement benefit cost for
1997 by approximately $ 25,000.
10
REDEEMABLE PREFERRED STOCK
The Company has outstanding 196,618 shares of Series A Convertible Preferred
Stock. Cumulative dividends of $ 3.42 per share per annum are paid semi-
annually. Each share of preferred stock may be converted, at the option of
the holder, into shares of Common Stock at a conversion price of $ 34.425,
subject to adjustment under certain circumstances. Each holder may require the
Company to redeem all or a portion of such holder's preferred stock, after May
31, 1998, for $ 65 per share plus accrued dividends.
The Company may redeem the stock, in whole or in part for $ 66.95, $ 66.30,
$ 65.65 and $ 65.00 per share beginning on May 31, 2000, 2001, 2002 and 2003
and thereafter respectively, plus all accumulated and unpaid dividends. In
the event of liquidation of the Company, the holders of preferred stock shall
be entitled to receive a distribution of $ 65 per share plus accrued dividends.
11
COMMON STOCK AND DIVIDEND REINVESTMENT PLAN
CTT had a Stock Purchase Plan for all employees who met minimum eligibility
requirements which provided for the issuance and sale of CEI common stock. The
Plan was implemented by a series of offerings. Under the fifth offering of
the Plan, participating employees of CTT authorized deductions for a period of
two years ended August 31, 1997. The Company issued 3,531 shares under the
fifth offering of the Plan. The Plan was terminated in 1997.
Effective January 1, 1998, CEI established an employee stock purchase plan
for eligible employees of CEI and its subsidiaries. Shares of common stock
will be purchased monthly by participating employees at a price of 95% of the
stock's fair market value, as defined in the Plan document. A maximum of
100,000 shares are authorized for issuance under 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.
The Company sponsors a Dividend Reinvestment Plan for all shareholders who
wish to participate. Participants' dividends will be used to purchase shares
of common
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMMON STOCK AND DIVIDEND REINVESTMENT PLAN (continued)
stock. A participant's purchase price per share will be the fair market
value, as defined in the Plan document.
12
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
1997 1996 1995
(In Thousands, Except Per Share Data)
Numerator:
Net income $ 9,314 $ 8,506 $ 6,531
Preferred stock dividend (672) (392) -
Numerator for basic earnings per share,
income available to common stockholders 8,642 8,114 6,531
Effect of dilutive securities, preferred
stock dividends 672 392 -
Numerator for diluted earnings per share,
income available to common stockholders
after assumed conversions $ 9,314 $ 8,506 $ 6,531
Denominator:
Denominator for basic earnings per share,
weighted-average shares 4,620 4,260 3,849
Effect of dilutive securities, convertible
preferred stock 371 217 -
Dilutive potential common shares,
denominator for diluted earnings per
share, adjusted weighted-average shares and
assumed conversions 4,991 4,477 3,849
Basic earnings per share $ 1.87 $ 1.91 $ 1.70
Diluted earnings per share $ 1.87 $ 1.90 $ 1.70
13
COMMITMENTS
At December 31, 1997, the Company had commitments for the purchase of
equipment and materials approximating $ 5,339,000.
The Company leases remote sites and buildings under operating lease
agreements which expire between February 1998 and June 2026. Future minimum
payments under the leases are (in thousands):
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
COMMITMENTS (CONTINUED)
1998 $ 481
1999 477
2000 348
2001 348
2002 322
Thereafter 449
$ 2,425
14
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 and cash equivalents:
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.
Letters of credit:
It was not practicable to estimate the fair value of the letters of credit
due to the absence of definite issuance fee terms.
Note payable and long-term debt:
The fair values of the note payable and long-term debt are estimated based on
interest rates for the same or similar debt offered to the Company having the
same or similar remaining maturities. The carrying amounts approximate fair
value.
Redeemable preferred stock:
The carrying amount approximates fair value based on the fixed redemption
price available to holders of preferred stock.
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15
QUARTERLY DATA (UNAUDITED)
First Second Third Fourth
(In Thousands, Except Per Share Data)
1997
Operating revenues $12,189 $13,748 $15,871 $ 4,377
Operating income 3,762 3,578 4,128 4,084
Net income 2,115 1,845 3,462 1,892
Basic earnings per share 0.43 0.36 0.70 0.37
Diluted earnings per share 0.43 0.36 0.68 0.37
1996
Operating revenues $8,694 $ 9,535 $12,284 $12,386
Operating income 3,032 2,937 4,391 3,704
Net income 1,921 1,792 2,406 2,387
Basic earnings per share 0.50 0.42 0.49 0.50
Diluted earnings per share 0.50 0.42 0.49 0.49
The 1996 and first three quarters of 1997 earnings per share amounts have
been restated to comply with Statement of Financial Accounting Standards No.
128, Earnings Per Share.
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 2, 1998 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 2, 1998 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 2, 1998 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.
CONESTOGA ENTERPRISES, INC.
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, 1997 and 1996
Consolidated statements of income - years ended December 31, 1997,
1996 and 1995
Consolidated statements of stockholders' equity - years ended
December 31, 1997, 1996, and 1995
Consolidated statements of cash flows - years ended December 31,
1997, 1996 and 1995
Notes to consolidated financial statements
(a)(2) Financial Statement Schedules
All schedules are omitted because they are not applicable, not
required, or because the required information is included in the
financial statements or notes thereto.
(a)(3) Exhibits -
(10) Material contracts Attachment 10 E & F
(12) Statement re: Computation
of Ratios Attachment 12
(21) Subsidiaries of the
registrant Attachment 21 E
(b) Reports on Form 8-K
None filed during the fourth quarter of 1997.
CONESTOGA ENTERPRISES, INC.
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 47 - 51**
Albert H. Kramer, Vice-President,
Finance and Administration
(d) Agreement dated May 29, 1996 with 44 - 50***
Joseph J. Laffey, Vice-President,
Regulatory and External Affairs
(e) Agreement dated April 30, 1997 with 44 - 52
Harrison H. Clement, Jr., President
of Infocore, Inc.
(f) Agreement dated April 30, 1997 with 53 - 61
Henry M. Stringer, Sr. Vice-President
of Infocore, Inc.
Statement re: Computation of Ratios 62
Subsidiaries of the registrant 21 E
*These exhibits appear in the 1992 10K.
** This exhibit appears in the 1995 10K.
*** This exhibit appears in the 1996 10K.
CONESTOGA ENTERPRISES, INC.
EXIBIT 10 E
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made April 30, 1997, by and between CI MERGER
CORPORATION (the "Company"), a Pennsylvania corporation, and HARRISON H.
CLEMENT, JR. (the "Employee"), of Stafford, Chester County, Pennsylvania.
BACKGROUND
Pursuant to an Agreement and Plan of Merger dated March 14, 1997, by and
among Conestoga Enterprises, Inc. ("CEI"), Infocore, Inc. ("Infocore") and the
Company, Infocore in the near future will be merged with and into the Company,
which will be the surviving corporation. Pursuant to such plan of merger (the
"Plan of Merger"), as of the Effective Date of the merger specified therein
(the "Effective Date"), the corporate name of the Company will become
"Infocore, Inc.". The Employee is currently President and Chief Executive
Officer of Infocore and the parties have agreed that he shall be employed by
the Company as of the Effective Date under the terms and provisions contained
in this Agreement.
AGREEMENT
Therefore, each intending to be legally bound hereby, the parties agree as
follows:
1. Employment and Employment Duties. Under the terms and conditions
contained in this Agreement, the Company employs the Employee as President
and Chief Executive Officer and the Employee accepts such employment. The
Employee's employment duties shall be those specified for the President of
the Company in the Company's by-laws and those additional duties,
commensurate with such position, assigned by the Board of Directors of the
Company (the "Board"). The Employee shall report directly to the Board. The
Employee's employment shall be on a full-time basis and he shall not be engaged
or employed in other business activities (whether for pecuniary advantage or
not) during the term of this Agreement, except that he shall be permitted to
serve on the boards of directors of business or charitable organizations,
provided such service does not materially affect the performance of his
employment duties for the Company. The Employee shall discharge his employment
duties in a diligent and conscientious fashion.
2. Term. The Employee's employment hereunder shall be for a period of two
(2) years, commencing upon the Effective Date. Notwithstanding the foregoing:
(i) the Company may terminate the Employee's employment at any time (A) upon
fifteen (15) days prior written notice for any reason or for no reason, or (B)
without prior notice for cause (as defined below); and
CONESTOGA ENTERPRISES, INC.
EXIBIT 10 e (CONTINUED)
(ii) the Employee may terminate the Employee's employment at any time without
prior notice for any reason or for no reason. For purposes of this Agreement,
the Employee's employment shall be deemed to have been terminated for cause in
the event the Company terminates it as a result of:
(a)the Employee's breach of his confidentiality obligations specified in
Section 5;
(b)the willful failure or refusal by the Employee to perform any of his
material employment duties or his material obligations under this
Agreement which shall not have ceased or been corrected within fifteen
(15) days following a written warning from the Company; or
(c)the commission of any act or the failure to act by the Employee which
constitutes a crime or offense involving money or other property of any
of the CEI Companies (as defined in Section 5) or which constitutes a
felony in the jurisdiction involved.
3. Severance Compensation.
3.1General Rule. Unless the provisions of Section 3.2 apply, in the event
of the termination of the Employee's employment by the Company other
than for cause prior to the expiration of the two (2) year term referred
to in Section 2, the Company shall be obligated to pay to the Employee,
within fifteen (15) days after the date of termination, an amount equal
to the greater of: (i) fifty percent (50%) of the Employee's annual
salary determined as of the date of termination of employment, or (ii)
the aggregate salary otherwise payable to the Employee for the balance
of the two (2) year term referred to in Section 2, determined as of the
date of termination of employment.
3.2Change of Control. If, during the term of this Agreement,the Employee's
employment with the Company is terminated within ninety (90) days of the
date of a change of control (as defined below), either by the Employee
or by the Company other than for cause, the Company shall pay to the
Employee, within fifteen (15) days of the date of termination of
employment, an amount equal to the greater of: (i) the amount payable
to the Employee as determined by the application of the provisions of
Section 3.1, or (ii) one and one-half (1.5) times the Employee's annual
salary, determined as of the date of termination of employment.
The Company shall be obligated to make such payment in lieu of, and not
in addition to, the Company's payment obligations under Section 3.1. For
purposes of this Agreement, a change of control shall be deemed to have
occurred in the event of: (i) the acquisition, directly or indirectly,
by any person or entity, or persons or entities acting in concert,
whether by purchase, merger, consolidation or otherwise, of voting power
over that number of voting shares of the capital stock of either the
Company or CEI which, when combined with the existing voting power of
such persons or entities, would enable them to cast fifty percent (50%)
or more of the votes which all shareholders of the Company or CEI,
respectively, would be entitled to cast in the election of directors of
either the Company or CEI, or (ii) the sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of
all, or substantially all, of the assets of the Company to a transferee
other than CEI or a company or entity of which a
CONESTOGA ENTERPRISES, INC.
EXIBIT 10 E (CONTINUED)
controlling interest is owned by CONESTOGA ENTERPRISES, INC.
3.3 Termination for Cause. In the event of the termination of the
Employee's employment at any time by the Company for cause, the Company
shall have no obligation to pay the Employee any sums following the
termination of his employment.
4. Compensation. As compensation for the performance of his employment
duties, during the term hereof the Company shall pay or provide to the Employee
the following:
(a)A salary in the annual amount of One Hundred Two Thousand
Dollars ($102,000), payable in accordance with the Company's normal payroll
practices in effect from time to time. The Employee's salary shall be reviewed
by the Board at the same time and in the same manner as is customary for the
employees of CEI and its subsidiaries and may be increased, in the sole
discretion of the Board, based upon the Employee's satisfactory performance of
his employment duties.
(b)The provision of those fringe benefits which were
provided to the Employee in his position as President and CEO of Infocore as of
the Effective Date under plans or insurance policies maintained by the Company
from time to time, but in no event having benefits less than comparable to
those of Infocore. Such fringe benefits include four (4) weeks paid vacation,
personal use of a Company automobile, medical health and disability insurance
coverage, inclusion in the Company's 401(k) profit sharing plan and its
officers'profit sharing plan, and reimbursement of business expenses under
policies similar to those in effect with Infocore.
(c)Maintenance of a life insurance policy insuring the Employee's life
with a death benefit of Three Hundred Fifty Thousand Dollars ($350,000.00)
payable to the beneficiary or beneficiaries designated by the Employee.
5. Confidentiality. The Employee acknowledges that he has had, and in
fulfilling his duties under this Agreement he will have, access to confidential
information regarding the business and financial affairs of the Company, CEI,
and/or the other subsidiaries of CEI (collectively, the "CEI Companies"). The
Employee hereby agrees to hold all such information in the strictest
confidence, to discuss such information only with authorized personnel of the
CEI Companies, and, except as required by law or compelled by legal process,
to refrain from disclosing such information to any other party, both during the
term of this Agreement and after the termination hereof. The provisions of this
Section 5 shall not apply to information which is or becomes generally
available to or known by the public other than as a result of disclosure by the
Employee.
6. Covenant Not to Compete. The Employee agrees that, in order to protect
the legitimate interests and property rights of the Employer, for a period of
one (1) year after the termination of the Employee's employment with the
Company (regardless of the reason for the termination), the Employee shall not:
(a)Engage, directly or indirectly, either as owner, partner, agent, employee,
consultant, member, or shareholder, or otherwise operate, control, join or
participate in, lend money to, or be connected with any
CONESTOGA ENTERPRISES, INC.
EXIBIT 10 e (CONTINUED)
commercial enterprise or business which is engaged within the Territory (as
defined below) in any facet of the wireless telecommunications business carried
on by any of the CEI Companies as of the date of termination of the Employee's
employment; (b)Approach, solicit, contact, or otherwise establish a business
relationship with any customer of any of the CEI Companies or any prospective
customer of any of the CEI Companies with whom any of such companies has had
significant contact on or before the date of termination of the Employee's
employment, for a purpose related to the business carried on by any of the CEI
Companies as of the date of termination of the Employee's employment; (c)Assist
any other person, partnership, corporation, limited liability company, or other
entity in the pursuit of the activities from which the Employee is prohibited
in engaging under the provisions of Subsections (a) and (b) above; or (d)
Induce by active solicitation any present or future employees or agents of the
Company or the other CEI Companies to directly or indirectly engage in any
competitive business or to terminate their employment with any of the CEI
Companies. For purposes of this Agreement, the term "Territory" shall mean
those geographical areas encompassed by the Reading, Pottsville, Sunbury, and
Williamsport Basic Trading Areas, as defined by the Federal Communications
Commission for the issuance of personal communication services licenses.
Nothing contained in this Section 6 shall prohibit the Employee from: (i)
investing in and owning securities issued by any publicly-held company which
are traded on any recognized securities exchange or in the over-the-counter
market; or (ii) accepting employment, after termination of his employment with
the Company, with a customer of the Company which is not a significant
customer.
7. Equitable Relief. The Employee recognizes and agrees that, in the event
of a breach or threatened breach of his covenants and obligations contained in
Section 5 and/or Section 6 of this Agreement, the Company will suffer
irreparable harm and damage, that such harm and damage may be extremely
difficult or impossible to quantify, and that therefore the Company shall be
entitled to injunctive relief. Nothing contained herein, however, shall be
construed as precluding the Company from pursuing any other remedies available
to it for such breach or threatened breach, including the recovery of damages
at law.
8. Restrictions Excessive. In the event the restrictions imposed by the
covenant contained in Section 6 are deemed by any court having jurisdiction to
be unreasonable or otherwise unenforceable by reason of their duration,
territory or the scope of the activities prohibited, it is agreed by the
parties that such court may construe and enforce this Agreement by reducing the
time period, territory, or scope of activities to an extent which such court
deems to be reasonable and enforceable.
9. Severability. If any provision or provisions of this Agreement shall be
deemed to contravene or be invalid under the laws of any
CONESTOGA ENTERPRISES, INC.
EXIBIT 10 E (CONTINUED)
jurisdiction where this Agreement is in force, the parties agree that such
contravention or invalidity shall not invalidate the entire Agreement, but it
shall be construed as not containing the particular provision or provisions
held to be invalid and the rights and obligations of the parties shall be
construed and enforced accordingly.
10.Miscellaneous. (a)This Agreement shall be construed, interpreted and
enforced in accordance with the laws (but not the law of conflict of laws) of
the Commonwealth of Pennsylvania. (b)This Agreement and its provisions shall
be binding upon and inure to the benefit of the respective legal
representatives, successors, heirs, and permitted assigns of the parties. The
Employee shall not assign any of his rights nor delegate any of his duties
under this Agreement without the prior written consent of the Company. (c)This
Agreement constitutes the entire Agreement between the parties and supersedes
all prior negotiations, understandings and agreements of any nature whatsoever,
whether oral or written, with respect to the subject matter hereof. No
amendment, waiver or discharge of any provision of this Agreement shall be
effective against any party, unless that party shall have consented thereto in
writing. (d)The headings to the sections of this Agreement are inserted only
for convenience of reference and are not intended, nor shall they be construed,
to modify, define, limit or expand the intent of the parties as expressed in
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
WITNESS: CI MERGER CORPORATION
\s\ Gregory R Young By: \s\ John R Bentz
President
\s\ David Antzis \s\ Harrison H Clement, Jr. (SEAL)
Harrison H. Clement, Jr.
INTENDING TO BE LEGALLY BOUND HEREBY, CONESTOGA ENTERPRISES, INC. hereby
guarantees the performance of all of the obligations of and payment of all
sums due from CI Merger Corporation under the foregoing Employment Agreement.
CONESTOGA ENTERPRISES, INC.
By: \s\ John R Bentz
President
CONESTOGA ENTERPRISES, INC.
EXIBIT 10 F
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made APRIL 30, 1997, by and between CI MERGER
CORPORATION (the "Company"), a Pennsylvania corporation, and HENRY M. STRINGER
(the "Employee"), of Berwyn, Chester County, Pennsylvania.
BACKGROUND
Pursuant to an Agreement and Plan of Merger dated March 14, 1997, by and
among Conestoga Enterprises, Inc. ("CEI"), Infocore, Inc. ("Infocore") and the
Company, Infocore in the near future will be merged with and into the Company,
which will be the surviving corporation. Pursuant to such plan of merger (the
"Plan of Merger"), as of the Effective Date of the merger specified therein
(the "Effective Date"), the corporate name of the Company will become
"Infocore, Inc.". The Employee is currently Senior Vice President of Infocore
and the parties have agreed that he shall be employed by the Company as of the
Effective Date under the terms and provisions contained in this Agreement.
AGREEMENT
Therefore, each intending to be legally bound hereby, the parties agree as
follows:
1. Employment and Employment Duties. Under the terms and conditions
contained in this Agreement, the Company employs the Employee as Senior Vice
President and the Employee accepts such employment. The Employee's employment
duties shall include primary management of the Company's sales and marketing
functions and those additional duties, commensurate with his position, assigned
by the President and/or the Board of Directors of the Company (the "Board").
The Employee shall report directly to the President. The Employee's employment
shall be on a full-time basis and he shall not be engaged or employed in other
business activities (whether for pecuniary advantage or not) during the term of
this Agreement. The Employee shall discharge his employment duties in a
diligent and conscientious fashion.
2. Term. The Employee's employment hereunder shall be for a period of two
(2) years, commencing upon the Effective Date. Notwithstanding the foregoing:
(i) the Company may terminate the Employee's employment at any time (A) upon
fifteen (15) days prior written notice for any reason or for no reason, or (B)
without prior notice for cause (as defined below); and (ii) the Employee may
terminate the Employee's employment at any time without prior notice for any
reason or for no reason. For purposes of this
CONESTOGA ENTERPRISES, INC.
EXIBIT 10 f (CONTINUED)
Agreement, the Employee's employment shall be deemed to have been terminated
for cause in the event the Company terminates it as a result of: (a)the
Employee's breach of his confidentiality obligations specified in Section 5;
(b)the willful failure or refusal by the Employee to perform any of his
material employment duties or his material obligations under this Agreement
which shall not have ceased or been corrected within fifteen (15) days
following a written warning from the Company; or (c)the commission of any act
or the failure to act by the Employee which constitutes a crime or offense
involving money or other property of any of the CEI Companies (as defined in
Section 5) or which constitutes a felony in the jurisdiction involved.
3. Severance Compensation.
3.1General Rule. Unless the provisions of Section 3.2 apply, in the event
of the termination of the Employee's employment by the Company other
than for cause prior to the expiration of the two (2) year term referred
to in Section 2, the Company shall be obligated to pay to the Employee,
within fifteen (15) days after the date of termination, an amount equal
to the greater of: (i) fifty percent (50%) of the Employee's annual
salary determined as of the date of termination of employment, or (ii)
the aggregate salary otherwise payable to the Employee for the balance
of the two (2) year term referred to in Section 2, determined as
of the date of termination of employment.
3.2Change of Control. If, during the term of this Agreement, the
Employee's employment with the Company is terminated within ninety (90)
days of the date of a change of control (as defined below), either by
the Employee or by the Company other than for cause, the Company shall
pay to the Employee, within fifteen (15) days of the date of
termination of employment, an amount equal to the greater of: (i) the
amount payable to the Employee as determined by the application of the
provisions of Section 3.1, or (ii) the amount of the Employee's annual
salary, determined as of the date of termination of employment. The
Company shall be obligated to make such payment in lieu of, and not in
addition to, the Company's payment obligations under Section 3.1. For
purposes of this Agreement, a change of control shall be deemed to have
occurred in the event of: (i) the acquisition, directly or indirectly,
by any person or entity, or persons or entities acting in concert,
whether by purchase, merger, consolidation or otherwise, of voting
power over that number of voting shares of the capital stock of either
the Company or CEI which, when combined with the existing voting power
of such persons or entities, would enable them to cast fifty percent
(50%) or more of the votes which all shareholders of the Company or
CEI, respectively, would be entitled to cast in the election of
directors of either the Company or CEI, or (ii) the sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the
Company to a transferee other than CEI or a company or entity of which
a controlling interest is owned by CEI.
3.3Termination for Cause. In the event of the termination
CONESTOGA ENTERPRISES,INC.
EXIBIT 10 F (CONTINUED)
of the Employee's employment at any time by the Company for cause,
the Company shall have no obligation to pay the Employee any sums
following the termination of his employment.
4. Compensation. As compensation for the performance of his employment
duties, during the term hereof the Company shall pay or provide to the Employee
the following: (a)A salary in the annual amount of Ninety Thousand Dollars
($90,000), payable in accordance with the Company's normal payroll practices
in effect from time to time. The Employee's salary shall be reviewed by the
Board at the same time and in the same manner as is customary for the employees
of CEI and its subsidiaries and may be increased, in the sole discretion of the
Board, based upon the Employee's satisfactory performance of his employment
duties. (b)The provision of those fringe benefits which were provided to the
Employee in his position as Senior Vice President of Infocore as of the
Effective Date under plans or insurance policies maintained by the Company
from time to time, but in no event having benefits less than comparable to
those of Infocore. Such fringe benefits include four (4) weeks paid vacation,
personal use of a Company automobile, medical health and disability insurance
coverage, inclusion in the Company's 401(k) profit sharing plan and its
officers' profit sharing plan, and reimbursement of business expenses under
policies similar to those in effect with Infocore. (c)Maintenance of a life
insurance policy insuring the Employee's life with a death benefit of Three
Hundred Fifty Thousand Dollars ($350,000.00) payable to the beneficiary or
beneficiaries designated by the Employee.
5. Confidentiality. The Employee acknowledges that he has had, and in
fulfilling his duties under this Agreement he will have, access to confidential
information regarding the business and financial affairs of the Company, CEI,
and/or the other subsidiaries of CEI (collectively, the "CEI Companies").
The Employee hereby agrees to hold all such information in the strictest
confidence, to discuss such information only with authorized personnel of the
CEI Companies, and, except as required by law or compelled by legal process,
to refrain from disclosing such information to any other party, both during
the term of this Agreement and after the termination hereof. The provisions of
this Section 5 shall not apply to information which is or becomes generally
available to or known by the public other than as a result of disclosure by
the Employee.
6. Covenant Not to Compete. The Employee agrees that, in order to protect
the legitimate interests and property rights of the Employer, for a period of
one (1) year after the termination of the Employee's employment with the
Company (regardless of the reason for the termination), the Employee shall not:
(a)Engage, directly or indirectly, either as owner, partner, agent, employee,
consultant, member, or shareholder, or otherwise operate, control, join or
participate in, lend money to, or be connected with any commercial enterprise
or business which is engaged within the Territory (as defined below) in any
facet of the wireless telecommunications business carried on by any of the CEI
Companies as of the date of termination of the
CONESTOGA ENTERPRISES, INC.
EXIBIT 10 f (CONTINUED)
Employee's employment; (b)Approach, solicit, contact, or otherwise establish
a business relationship with any customer of any of the CEI Companies or any
prospective customer of any of the CEI Companies with whom any of such
companies has had significant contact on or before the date of termination of
the Employee's employment, for a purpose related to the business carried on by
any of the CEI Companies as of the date of termination of the Employee's
employment; (c)Assist any other person, partnership, corporation, limited
liability company, or other entity in the pursuit of the activities from which
the Employee is prohibited in engaging under the provisions of Subsections (a)
and (b) above; or (d)Induce by active solicitation any present or future
employees or agents of the Company or the other CEI Companies to directly or
indirectly engage in any competitive business or to terminate their employment
with any of the CEI Companies. For purposes of this Agreement, the term
"Territory" shall mean those geographical areas encompassed by the Reading,
Pottsville, Sunbury, and Williamsport Basic Trading Areas, as defined by the
Federal Communications Commission for the issuance of personal communication
services licenses. Nothing contained in this Section 6 shall prohibit the
Employee from: (i) investing in and owning securities issued by any publicly-
held company which are traded on any recognized securities exchange or in the
over-the-counter market; or (ii) accepting employment, after termination of his
employment with the Company, with a customer of the Company which is not a
significant customer.
7. Equitable Relief. The Employee recognizes and agrees that, in the event
of a breach or threatened breach of his covenants and obligations contained in
Section 5 and/or Section 6 of this Agreement, the Company will suffer
irreparable harm and damage, that such harm and damage may be extremely
difficult or impossible to quantify, and that therefore the Company shall be
entitled to injunctive relief. Nothing contained herein, however, shall be
construed as precluding the Company from pursuing any other remedies available
to it for such breach or threatened breach, including the recovery of damages
at law.
8. Restrictions Excessive. In the event the restrictions imposed by the
covenant contained in Section 6 are deemed by any court having jurisdiction to
be unreasonable or otherwise unenforceable by reason of their duration,
territory or the scope of the activities prohibited, it is agreed by the
parties that such court may construe and enforce this Agreement by reducing
the time period, territory, or scope of activities to an extent which such
court deems to be reasonable and enforceable.
9. Severability. If any provision or provisions of this Agreement
shall be deemed to contravene or be invalid under the laws of any
jurisdiction where this Agreement is in force, the parties agree that such
contravention or invalidity shall not invalidate the entire Agreement, but it
shall be construed as not containing the particular provision or provisions
held to be invalid and the rights and obligations of the parties shall be
construed and enforced accordingly.
CONESTOGA ENTERPRISES, INC.
EXIBIT 10 F (CONTINUED)
10. Miscellaneous. (a)This Agreement shall be construed, interpreted and
enforced in accordance with the laws (but not the law of conflict of laws) of
the Commonwealth of Pennsylvania. (b)This Agreement and its provisions shall
be binding upon and inure to the benefit of the respective legal
representatives, successors, heirs, and permitted assigns of the parties.
The Employee shall not assign any of his rights nor delegate any of his duties
under this Agreement without the prior written consent of the Company. (c)This
Agreement constitutes the entire Agreement between the parties and supersedes
all prior negotiations, understandings and agreements of any nature whatsoever,
whether oral or written, with respect to the subject matter hereof. No
amendment, waiver or discharge of any provision of this Agreement shall be
effective against any party, unless that party shall have consented thereto in
writing. (d)The headings to the sections of this Agreement are inserted only
for convenience of reference and are not intended, nor shall they be construed,
to modify, define, limit or expand the intent of the parties as expressed in
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
WITNESS: CI MERGER CORPORATION
\s\ Gregory R Young By: \s\ John R Bentz
President
\s\ David Antzis \s\ Henry M Stringer (SEAL)
Henry M. Stringer
INTENDING TO BE LEGALLY BOUND HEREBY, CONESTOGA ENTERPRISES, INC. hereby
guarantees the performance of all of the obligations of and payment of all sums
due from CI Merger Corporation under the foregoing Employment Agreement.
CONESTOGA ENTERPRISES, INC.
By: \s\ John R Bentz
President
EXHIBIT 12
CONESTOGA ENTERPRISES, INC.
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Years Ended December 31, 1997 1996 1995 1994 1993
(In thousands, Except Ratios)
Consolidated pre-tax income $17,086 $14,306 $10,907 $10,719 $10,340
Undistributed earnings from
unconsolidated partnerships
interests (1,345) (1,257) (660) (385) (424)
Interest 2,017 1,297 428 422 368
Earnings $17,758 $14,346 $10,675 $10,756 $10,284
Interest $ 2,017 $ 1,297 $ 428 $ 422 $ 368
Preferred stock dividends (1) 1,149 566 - - -
Fixed charges and preferred
stock dividends $ 3,166 $ 1,863 $ 428 $ 422 $ 368
Ratio 5.40 7.70 24.95 25.48 27.92
(1) Preferred stock dividends/(100% - income tax rate)
Attachment 21E
SUBSIDIARIES OF CONESTOGA ENTERPRISES, INC.
1. The Conestoga Telephone and Telegraph Company
Incorporated August 20, 1902
Pennsylvania
Operates - The Conestoga Telephone and Telegraph Company
2. Buffalo Valley Telephone Company
Incorporated September 13, 1904
Pennsylvania
Operates - Buffalo Valley Telephone Company
3. Conestoga Communications, Inc.
Incorporated March 5, 1981
Pennsylvania
Operates - Conestoga Communications, Inc.
4. Conestoga Mobile Systems, Inc.
Incorporated April 1, 1991
Pennsylvania
Operates - Conestoga Mobile Systems, Inc.
5. Conestoga Wireless Company
Incorporated January 1, 1998
Pennsylvania
Operates - Conestoga Wireless Company
6. Conestoga Investment Corporation
Incorporated November 27, 1996
Delaware
Operates - Conestoga Investment Corporation
7. Infocore, Inc.
Incorporated March 3, 1997
Pennsylvania
Operates - Infocore, Inc.
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 3/31/98 By __\s\ John R Bentz_______
John R Bentz
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 _3/31/98____ __\s\ F M Brown_______________
F. M. Brown
Chairman of the Board
Date __3/31/98___ _\s\ James H Murray___________
James H. Murray
Vice President
Date _3/31/98____ __\s\ Kenneth A Benner________
Kenneth A. Benner
Secretary/Treasurer
Date _3/31/98____ _\s\ Donald R Breitenstein____
Donald R. Breitenstein
Controller, Chief Accounting Officer
Date _3/31/98____ _\s\ John M Sausen____________
John M. Sausen
Director
Date _3/31/98____ _\s\ Richard G Weidner________
Richard G. Weidner
Director
Date _3/31/98____ _\s\ Robert M Myers___________
Robert M. Myers
Director
Date _3/31/98____ _\s\ Jean M Ruhl______________
Jean M. Ruhl
Director
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 (continued).
Date _3/31/98____ _\s\ Thomas C Keim____________
Thomas C. Keim
Vice President - Telecom Group
Date _3/31/98_____ _\s\ Albert H Kramer__________
Albert H. Kramer
Executive Vice President, Chief
Executive Officer
Date _3/31/98_____ _\s\ Joseph J Laffey__________
Joseph J. Laffey
Vice President, Regulatory and
External Affairs
<TABLE> <S> <C>
<ARTICLE> UT
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 70,572,862
<OTHER-PROPERTY-AND-INVEST> 42,699,905
<TOTAL-CURRENT-ASSETS> 10,730,275
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 5,286,842
<TOTAL-ASSETS> 129,289,884
<COMMON> 22,090,566
<CAPITAL-SURPLUS-PAID-IN> 24,742,130
<RETAINED-EARNINGS> 24,719,266
<TOTAL-COMMON-STOCKHOLDERS-EQ> 71,551,962
0
12,780,170
<LONG-TERM-DEBT-NET> 23,250,000
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 3,000,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 18,707,752
<TOT-CAPITALIZATION-AND-LIAB> 129,289,884
<GROSS-OPERATING-REVENUE> 56,184,525
<INCOME-TAX-EXPENSE> 7,782,268
<OTHER-OPERATING-EXPENSES> 0
<TOTAL-OPERATING-EXPENSES> 40,633,656
<OPERATING-INCOME-LOSS> 15,550,869
<OTHER-INCOME-NET> 3,563,108
<INCOME-BEFORE-INTEREST-EXPEN> 19,103,577
<TOTAL-INTEREST-EXPENSE> 2,017,686
<NET-INCOME> 9,314,023
672,434
<EARNINGS-AVAILABLE-FOR-COMM> 8,641,589
<COMMON-STOCK-DIVIDENDS> 5,548,126
<TOTAL-INTEREST-ON-BONDS> 2,017,686
<CASH-FLOW-OPERATIONS> 17,427,254
<EPS-PRIMARY> 1.87
<EPS-DILUTED> 1.87
</TABLE>
