FORM 10-Q QUARTERLY REPORT UNDER SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
For quarter ended March 31, 1999
Commission File Number 0-24064
CONESTOGA ENTERPRISES, INC.
(Exact name of Registrant as specified in its charter)
PENNSYLVANIA
(State of Incorporation)
23-2565087
(IRS Employer Number)
202 East First Street, Birdsboro, Pennsylvania 19508
(Address of Principal Executive Offices)
Registrant's telephone number, including area code (610) 582-8711
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
* As of March 31,1999, the number of shares of Common Stock, par value $5.00
outstanding was 7,043,277.
*adjusted for 3-for-2 stock split payable May 14, 1999
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS ( UNAUDITED )
March 31, 1999 and December 31, 1998
( In Thousands, Except Shares and Per Share Data)
ASSETS
3/31 3/31
1999 1998
Current Assets
Cash and Cash Equivalents $6,424 $8,403
Accounts receivable, including unbilled
revenue 9,067 7,840
Inventories, at average cost 1,565 1,520
Prepaid taxes 0 332
Prepaid expenses 1,616 127
Total Current Assets 18,672 18,222
Investments and Other Assets
Cost in Excess of Net Assets of Business Acquir 37,156 37,626
Investments in partnerships 405 415
Investments in equity securities 3,090 3,306
Prepaid Pension Costs 2,753 2,730
Other 753 925
44,157 45,002
Plant
In Service 158,954 157,414
Under Construction 5,602 4,991
164,556 162,405
Less accumulated depreciation 77,629 75,020
86,927 87,385
Total Assets $149,756 $150,609
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS ( UNAUDITED )
March 31, 1999 and December 31, 1998
( In Thousands, Except Shares and Per Share Data)
LIABILITIES AND STOCKHOLDERS' EQUITY 3/31 3/31
1999 1998
Current Liabilities
Current maturities of long term debt $3,000 $3,000
Accounts payable 4,021 5,777
Accrued:
Taxes 1,158 0
Interest 260 216
Payroll & Vacation Pay 1,093 1,065
Advance billings/Customer Deposits 988 803
Total Current Liabilities 10,520 10,861
Long Term Liabilities
Long Term Debt, less Current Maturities 41,000 41,250
Accrued Post Retirement Cost 996 960
Other 934 934
42,930 43,144
Deferred Income Taxes 9,798 10,025
Convertible\Redeemable Preferred Stock
Par value $65 per share; authorized 900,000
shares; issued and outstanding; 3/31/99 - 160,556
12/31/98 - 180,289 10,436 11,719
Common Stockholders' Equity
Common Stock par value $5 per share; authorized
10,000,000 shares; issued;
3/31/99 and 12/31/98 7,162,951 35,814 35,814
Additional Paid-In Capital 13,297 13,018
Retained earnings 27,791 27,972
Net unrealized appreciation on
marketable equity securities 1,381 1,523
Less cost of treasury stock; 3/31/99 119,674 shares and
12/31/98 187,675 shares (2,211) (3,467)
76,072 74,860
Total Liabilities and Stockholders' Equity $149,756 $150,609
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 and 1998
( In Thousands, Except Per Share Data)
1999 **1998
Operating Revenues:
Local Exchange Services $2,957 $2,503
Long Distance and Access Services 9,500 9,108
Wireless Services 345 152
Equipment and Other 3,769 3,402
16,571 15,165
Operating Expenses:
Network Operations and Cost of Sales 4,593 3,772
Depreciation and Amortization 3,490 2,757
Customer Operations 3,140 2,914
Corporate Operations 1,623 1,394
Taxes, other than income 552 480
13,398 11,317
Operating Income 3,173 3,848
Other Income(Deductions), Net:
Interest Expense (753) (659)
Income (loss) from unconsolidated
partnerships interests (10) 329
Other, Net 90 291
(673) (39)
Income Before Income Taxes 2,500 3,809
Income Taxes 1,250 1,747
Net Income $1,250 $2,062
*Basic earnings per common share $0.16 $0.27
*Diluted earnings per common share $0.16 $0.27
*Dividends per common share $0.203 $0.203
* adjusted for the announced 3-for-2 stock split declared in January, 1999
** Some amounts have been adjusted for comparative purposes.
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 and 1998
( In Thousands, Except Per Share Data)
1999 1998
Net Income $1,250 $2,062
Unrealized gains on Securities
Unrealized holding gains (losses)
during period (142) 314
Less: reclassification adjustment
for gains included in net income 0 (38)
Comprehensive Income $1,108 $2,338
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
( In Thousands)
1999 1998
Cash Flows from Operating Activities
Net Income $1,250 $2,062
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and Amortization 3,491 2,757
Income from unconsolidated partnership interests 10 (329)
Gain on sale of marketable securities 0 (102)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts Receivable (1,227) 536
Material and supplies (46) 120
Prepaid expenses (1,489) 138
Prepaid pension costs (23) (1)
Other Assets 171 (5)
Increase (decrease) in:
Accounts Payable (1,755) 1,602
Accrued expenses and other current liabili 257 283
Accrued taxes 1,490 0
Other liabilities 36 49
Deferred income taxes (154) (191)
Net cash provided by operating activities 2,011 6,919
Cash Flows From Investing Activities
Purchase of Plant, net of removal costs and salvag (2,563) (7,960)
Proceeds from sale of marketable equity securities 0 208
Capital investments in unconsolidated partnershp i 0 0
Net cash used in investing activities (2,563) (7,752)
Cash Flows From Financing Activities
Proceeds from long-term borrowing 0 21,000
Principal payments on long term borrowing (250) (250)
Proceeds from issuance of stock under the
employee stock purchase plan 24 28
Proceeds from issuance of stock under the
dividend reinvestment plan 229 171
Common stock dividends paid (1,430) (1,434)
Preferred stock redemption 0 0
Preferred stock dividends paid 0 0
Purchase of common stock for the treasury 0 (2,668)
Net cash provided by (used in) financing acti (1,427) 16,847
Increase (decrease) in cash and cash equivale ($1,979) $16,014
Cash and cash equivalents
Beginning 8,403 2,517
Ending 6,424 18,531
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
( In Thousands)
1999 1998
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Payments for:
Interest $755 $ 493
Income Taxes $1,251 $ 363
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting only of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three months ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999. The
December 31, 1998 condensed balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles. For further information, refer to
the consolidated financial statements and footnotes included in Conestoga's
1998 Annual Report on Form 10-K.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts of 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.
NOTE 2: LONG TERM DEBT
Long term debt is summarized as follows:
(In thousands)
3/31/99 12/31/98
Series A Senior Note interest payable
quarterly at 6.91%, annual principal
payments of $2,000,000 starting
June 30, 1998 through June 30,
2000, unsecured 4,000 4,000
Series B Senior Note interest payable
quarterly at 7.59%, annual principal
payments of $1,454,545 starting
June 30, 2001 through June 30,
2011, unsecured 16,000 16,000
CONESTOGA ENTERPRISES, INC.
Promissory note, interest payable
quarterly at 6.89%. Quarterly principal
payments of $250,000 through
February 1, 2002 unsecured. 3,000 3,250
Senior Note interest payable
quarterly at 6.22%, quarterly
principal payments of $750,000
starting May 11, 2001 through
February 11, 2008,
Unsecured 21,000 21,000
$44,000 $44,250
Less current Maturities 3,000 3,000
$41,000 $41,250
NOTE 3: OPERATING SEGMENTS
During 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". This Statement
establishes standards for the way that public enterprises report
information about operating segments in annual financial statements.
The Company's reportable segments are strategic business units that
offer different services. They are managed separately because each
business unit requires different technology and marketing
strategies. The Company has two reportable segments: Telephone -
traditional telephone service provided by CTT and BVT; and wireless
paging and PCS communication services provided by CWC and CMS.
The "Other" column primarily includes the long distance and
consulting services provided by CCI and INF, and corporate related
items.
The accounting policies of the segments are the same as those
described in the summary of accounting policies. The Company
evaluates performance based on profit or loss from operations before
corporate allocations, interest, income taxes and non-recurring
gains and losses. Transactions occurring between segments are
recorded on the same basis as transactions with third parties.
Segment information as of March 31, 1999 and 1998 are as follows:
CONESTOGA ENTERPRISES, INC.
Telephone Wireless Other Total
( in thousands )
March 31, 1999:
Operating revenues
from external customers $ 12,632 $ 500 $ 3,439 $ 16,571
Intersegment operating
Revenues 652 4 67 723
Operating profit (loss) 5,100 (1,605) (322) 3,173
Total Assets 108,242 32,116 9,471 149,829
Capital expenditures 2,028 447 88 2,563
Depreciation and
Amortization 2,538 674 278 3,490
March 31, 1998:
Operating revenues
from external customers $ 12,345 $ 191 $ 2,629 $ 15,165
Intersegment operating
Revenues 94 5 161 260
Operating profit (loss) 4,528 (418) (262) 3,848
Total Assets 110,127 17,692 22,615 150,434
Capital expenditures 1,150 6,712 98 7,960
Depreciation and
Amortization 2,438 55 264 2,757
Certain items in the schedule above need to be reconciled to the consolidated
financial statements and are provided in the schedules below:
March 31,: 1999 1998
Revenues:
Total revenue for
Reportable segments $ 13,788 $ 12,636
Other Revenues 3,506 2,789
Elimination of
Intersegment revenues (723) (260)
Total consolidated revenues $ 16,571 $ 15,165
Total Assets:
Total assets for
Reportable segments $143,301 $ 129,018
Other assets 9,683 24,356
Elimination of
Intersegment receivables (3,228) (2,765)
Total consolidated assets $149,756 $ 150,609
CONESTOGA ENTERPRISES, INC.
NOTE 4: OTHER
Certain items of the March 31, 1998 consolidated financial statements have
been restated to conform to the March 31, 1999 financial statements. There
was no impact on net income.
Inventories, at average cost, are both material and supplies used to provide
service, and equipment held for resale.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE QUARTERLY INCOME STATEMENTS
Overview
During the first quarter of 1999, net income was $1.250 million or $0.16
per common share compared to $2.062 million or $0.27 per common share in the
first quarter of 1998 (per share net has been adjusted or the 3-for-2 stock
split effective on May 14, 1999). The Company's income was enhanced by the
continued strong operating results of its local exchange carriers which helped
to provide the Company with the financial resources to strengthen its position
in existing markets and expand into new ones. The Company's net income was
adversely effected by its operating expenses from the wireless
telecommunications system, known as Personal Communications Service (PCS)
provided by Conestoga Wireless Company (CWC) and from start up costs from
Conestoga Communications, Inc. for the provision of local telephone service in
the Bell Atlantic territory outside of the Company's local exchange service
territories, known as Competitive Local Exchange Carrier (CLEC) services.
RESULTS OF OPERATIONS
REVENUES
0perating Revenues:
Increase
(in thousands)
First Quarter Ended
March 31 1999-1998
Local Exchange Service $ 454 18.1%
Long Distance and Access Service 392 4.3%
Wireless Service 193 127.0%
Other 367 10.8%
Total $1,406 9.3%
CONESTOGA ENTERPRISES, INC.
The 9.3% increase in Operating Revenues during the first quarter of 1999
when compared with the first quarter of 1998 resulted from increases in all
of the various segments. Operating revenues are 3.3% above the fourth quarter
of 1998 operating revenues.
Local Exchange Service
The increase in local service revenue is primarily from the local
telephone companies, Conestoga Telephone Co. (CTT) and Buffalo Valley
Telephone Co (BVT). The growth in these revenues is attributed to the
continued growth in access lines in service over the last number of years.
However, one fourth of the increase in the first quarter of 1999, or $113
thousand, was from revenues generated by Conestoga Communications, Inc.(CCI)
from its CLEC operation.
Long Distance and Access Service
Long Distance and Access Service revenues are generated by the telephone
companies. Continued growth in the minutes of use in the interstate and
intrastate toll networks of the telephone companies is the primary reason for
the increase in access revenue. Together they experienced a 19.0% increase in
interlata minutes of use. CCI added $1.6 million in long distance revenue,
which is 52.8% greater than the first quarter of 1998. Within the franchised
territories of CTT and BVT, Conestoga Communications has 24% of the interlata
customers and 18% of the intralata customers.
Wireless Service
Wireless Service revenue is generated from Conestoga Wireless Company from
its PCS service and by Conestoga Mobile Systems from its paging service.
During the first quarter of 1999, wireless revenue was $345 thousand. This
is substantially better than the first quarter of 1998, primarily due the fact
that the PCS business began commercial operations in the second quarter of
1998.
Equipment and Other
Equipment and Other revenues include the sale and lease of communications
equipment by all of the subsidiaries for the sale of
CONESTOGA ENTERPRISES, INC.
telephones, PBX equipment, pagers and PCS wireless telephones.
Billing and collection revenue and directory advertising revenue are also
included and are recorded only on the telephone company entities. All of
the subsidiaries posted increases during the first quarter of 1999 when
compared with first quarter of 1998. 46% of the revenue in this section is
generated by Infocore, Inc.
EXPENSES:
Operating Expenses
Increase
(in thousands)
First Quarter Ended
March 31 1999-1998
Network Operations and
Cost of Sales $ 821 21.8%
Depreciation and Amortization 733 26.6%
Customer Operations 226 7.8%
Corporate Operations 229 16.4%
Taxes, Other than Income 72 15.0%
Total $2,081 18.4%
The 18.4% increase in operating Expenses for the first quarter of 1999 when
compared with the first quarter of 1998 resulted from increase in all segments
of the business. When compared with the fourth quarter of 1998 operating
expenses were down 1.3%.
Network Operations and Cost of Sales
The increase in network operations and cost of sales expenses is directly
related to the start up of commercial operation of the PCS business in the
second quarter of 1998. During the first quarter of 1999 Conestoga Wireless
experienced over $500 thousand of cost of service and equipment sold, and $175
thousand of system operating expenses. Conestoga Communications added another
$98 thousand. The telephone companies were relatively even with the first
quarter of 1998.
CONESTOGA ENTERPRISES, INC.
Depreciation and Amortization
Depreciation and amortization expenses include charges from all of the
subsidiaries. The increase is again a direct result of the timing of the
start of operations of Conestoga Wireless Company (CWC). From May to
December 1998 CWC had capital additions of over $25 million which were not
being depreciated during the first quarter of 1998. CWC recorded $636
thousand in depreciation expense during the first quarter of 1999.
Customer Operations
Customer operations expenses are recorded from all of the subsidiaries.
The increase in the first quarter can be attributed to some start up expenses
from the CLEC operations, increased operations from the long distance
business, and again more advertising and sales expenses from CWC for the PCS
business. The telephone companies were about even when comparing the two
periods.
Corporate Operations
Corporate operations expenses include charges from all the subsidiaries of
the Company. Most of the increases are a result of additional personnel in
the human resource department as well as additions to the management
information department.
Taxes, other than income
Taxes, other than income, increased primarily due to increases in the
operations of the various business segments. About half of the increase was
from operations of CCI long distance service.
Other Income (Deductions), Net
The increase in the deficit in this item to $673,000 in the first quarter
of 1999 compared to $39,000 in the first quarter of 1998 resulted from the
loss of income from unconsolidated partnership interests resulting from the
Company's sale of cellular partnership interest in the second quarter of 1998.
The gain from the sale of equity securities during the first quarter of 1998
also strongly impacted the differences between 1998 and 1999.
CONESTOGA ENTERPRISES, INC.
Income Taxes
Increase
(in thousands)
First Quarter Ended
March 31 1999-1998 $ (497) 28.4%
Income taxes for the first quarter of 1999 are lower due to decreased
pre-tax income when compared with the first quarter of 1998.
NET INCOME
Increase
(in thousands)
First Quarter Ended
March 31 1999-1998 $ (812) 39.4%
Net income was negatively impacted by the $1.6 million operating loss
recorded by Conestoga Wireless Company during the first quarter of 1999.
Net income when compared with the fourth quarter of 1998 was up 34.1%.
FINANCIAL CONDITION
Liquidity and Capital Commitments
First Quarter Ended March 31, 1999 1998
Cash Flows From (Used In):
Operating activities $ 2,011 $ 6,919
Investing activities ( 2,563) (7,752)
Financing activities ( 1,427) 16,847
The Company uses the net cash generated from its operations and from
external financing to fund capital expenditures for network expansion and
modernization, pay dividends, and invest in new businesses. The Company's
sources of funds, primarily from operations and, to the extent necessary,
from readily available external financing arrangements, are sufficient to
meet ongoing operating and investing requirements. We expect that presently
foreseeable capital requirements will be financed primarily through
CONESTOGA ENTERPRISES, INC.
internally generated funds. Additional debt or equity financing may be needed
to fund additional development activities or to maintain our capital structure
to ensure our financial flexibility.
Cash Flows From Operating Activities
Our primary source of funds continues to be cash generated from
operations. Taking into account net income plus the various adjustments
for depreciation and amortization, the cash flows from operating
activities in the first quarter of 1999 were $2 million. Although net
income for accounting purposes is decreased by the amortization of the
goodwill arising from the acquisitions of BVT and INF and the higher
depreciation expense arising from the capital investment in PCS,
amortization and depreciation are non-cash expenses and consequently,
a source of cash that the Company can use for the capital investments
necessary to maintain and upgrade its network and build and develop PCS.
Cash Flows Used in Investing Activities
Capital expenditures are the Company's primary use of cash resources.
The Company's capital expenditures in the first quarter of 1999 included
$2.0 million for the Company's local exchange operations and $447 thousand
for the continued build-out of its PCS operation. The investment in local
exchange operations was consistent with the investments made during the first
quarter of 1998. The investment in the PCS operation in the first quarter of
1998 was $6.7 million. The investments are made to support the Company's
businesses in order to facilitate the introduction of new products and
services, enhance responsiveness to competitive challenges and increase the
operating efficiency and productivity of its networks.
During the first quarter of 1998, the Company received proceeds totaling
$208,000 from the sale of equity securities.
Substantial amounts of additional capital will be needed for the
remaining build-out of the PCS network. CWC's capital requirements for 1999
are budgeted to be $10 million and over the next several years to complete the
build out of its entire PCS network could exceed $20 million. Additional
financing could come from (1) internal sources, (2) long term debt, (3) common
stock issue, or a combination of the three.
CONESTOGA ENTERPRISES, INC.
Cash Flows Used in Financing Activities
As in prior quarters, dividend payments were a significant use of
capital resources. In the first quarter of 1999 the Company paid dividends
totaling $1.4 million. There was no redemption of Preferred stock during the
first quarter of 1999, but 19,733 shares were converted into common shares
during the period.
During the fist quarter of 1999 there was no borrowing required against
the two lines of credit totaling $15 million. During the first quarter of
1998, the Company borrowed $21 million to finance the capital requirements for
the build-out and develop of CWC's wireless PCS network.
In January 1998, the Company in a private transaction purchased 86,074
shares of common stock at $31.00 per share. Some of these and other shares
held in the treasury have been reissued under the Company's Dividend
Reinvestment Plan and Employee Stock Purchase Plan. As of March 31, 1999,
a balance of 119,674 of these shares, as adjusted for the 3 for 2 split,
remained in Treasury.
The Company has received approval from the shareholders at the
shareholders meeting on May 1, 1999 to amend the articles of incorporation to
increase the number of authorized common shares to 20 million and to reduce
the par value from $5 to $1 per common share.
Equity Investments
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 the first quarter of 1999, the
market value of the Company's total investment decreased. The current market
value of the Company's investment stock as of March 31, 1999 was $3.1 million.
Management views this investment as a source of future liquidity.
The long-term Senior Notes are unsecured, but impose certain financial
covenants upon the Company including, but not limited to, restrictions upon
types of investments, the amount of dividends paid and the incurrence of
additional debt by the Company and its subsidiaries. The Company is currently
in compliance with all loan covenants.
CONESTOGA ENTERPRISES, INC.
OTHER FACTORS:
PCS SERVICE:
CWC began commercial operations as a provider of wireless
telecommunications services in May, 1998. As of March 31, 1999 it had 72 base
stations in service throughout the Reading, Sunbury and Williamsport areas.
CWC plans to put an additional 25 base stations into service during 1999, to
augment coverage in those markets.
CWC holds licenses to provide wireless services known as Personal
Communication Services ("PCS") in the D block radio spectrum. 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 holds licenses are Reading, Pottsville, Sunbury,
and Williamsport, Pennsylvania, covering nine counties in Pennsylvania. In
April 1999 CWC was the successful bidder in the Federal Communications
Commission auction for additional bandwidth in the Basic Trading Areas it
already held and also was successful in acquiring State College Basic Trading
Area.
Management views participation in PCS as an important part of its future
business. PCS is expected to be a reliable, convenient and inexpensive
vehicle for providing wireless telephone service. It will provide the
Company with an opportunity to expand its business into neighboring
territories while maintaining the Company's current customer base.
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
CONESTOGA ENTERPRISES, INC.
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 filed a Chapter 30 Plan in July
1998 and approval is expected in July 1999.
The telecommunication industry continues to undergo fundamental changes,
which may have a significant impact on financial performance. The Federal
Telecommunications Act of 1996 (TA 96) 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 in March 1998 CTT and BVT
received approval by the Pa. P.U.C. of a petition that has significantly
strengthened the companies' competitive position.
Management believes that competition will continue to bring many new
opportunities. Management is endeavoring to position the Company to take
advantage of these opportunities as they arise, and remains optimistic about
the future. During 1998 CCI significantly grew its long distance business
both in the CTT and BVT franchise territories, as well as surrounding areas.
In addition CCI's competitive local exchange business became operational in
1998 and began offering services in Bell Atlantic's franchise territory.
Strong growth in this business segment is anticipated in 1999.
YEAR 2000 ISSUES:
The information provided below constitutes a "Year 2000 Readiness Disclosure"
for purposes of the Year 2000 Information and Readiness Act.
The Year 2000 (Y2K") problem arises from the use of a two-digit field to
identify years in computer programs, e.g., 85=1985, and the assumption of a
single century, the 1900s. Any program so created may read, or attempt to
read, "00" as the year 1900. There are two other related issues which could
also lead to incorrect calculations or failure, such as (i) some systems'
programming assigns special meaning to certain dates, such as 9/9/99, and (ii)
the year 2000 is a leap year. Accordingly, some computer hardware and
software, including programs embedded within machinery and parts, will need to
be modified prior to the year 2000 in order to remain functional.
CONESTOGA ENTERPRISES, INC.
The Company is heavily dependent on computer systems and utilizes a
significant number of software programs and operating systems throughout the
organization. To the 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 is addressing the year 2000 problem. It has appointed a
task force to assess the scope of the risk and to bring its applications into
compliance. This has included utilizing outside service organizations.
Conestoga's digital network and all major billing and information systems have
been tested and are ready for the year 2000. Potential problems, which are
out of the Company's control, could present themselves, such as customer-owned
premise equipment that is attached to Conestoga's network. The potential
costs from such third party problems are difficult to estimate. No assurance
can be given that all of the Company's third party systems are or will be Year
2000 compliant. However the Company does not believe that the costs required
to address such problems will have a material adverse effect on the Company's
business, financial condition or results of operations, but it cannot be
certain given the complexities of the interactions of its systems with the
systems of third parties.
Forward-Looking Statements
Information contained in this Management's Discussion and Analysis and
elsewhere in this quarterly report with respect to expected financial results
and future events and trends is forward-looking, based on our estimates and
assumptions and subject to risks and uncertainties. For those statements, we
claim the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995.
The following important factors could affect the future results of our
company and could cause those results to differ materially from those
expressed in the forward-looking statements: (i) changes in economic and
market conditions; (ii) effects of state and federal regulation; (iii) the
impact of new technologies. You should not place undue reliance on these
forward-looking statements, which are
CONESTOGA ENTERPRISES, INC.
applicable only as of the date hereof. We have no obligation to revise or
update these forward-looking statements to reflect events or circumstances
that arise after the date hereof or to reflect the occurrence of unanticipated
events.
CONESTOGA ENTERPRISES, INC.
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
PART II. OTHER INFORMATION
ITEM 6(B) EXIBITS AND REPORTS ON FORM 8-K
NONE
CONESTOGA ENTERPRISES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE __May 14, 1999__ \s\ Albert H Kramer
Albert H Kramer
President
DATE __May 14, 1999__ \s\ Donald R Breitenstein
Donald R Breitenstein
Controller
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