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, 1999 Commission File Number 024064
CONESTOGA ENTERPRISES, INC.
a Pennsylvania Corporation Employer IRS No. 23 2565087
202 East First Street, Birdsboro, Pennsylvania 19508
Registrants telephone number, including area code (610) 582 8711
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock (par value $1.00 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 registrants 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, 1999
Common Stock, $1.00 par value 7,080,393
The aggregate market value of the voting stock held by non affiliates
on February 29, 2000, was $157,054,634. 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 Companys 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 6, 2000, 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. (CCI); Conestoga Mobile Systems,
Inc. (CMS); Conestoga Wireless Company (CWC); and Infocore Inc. (INF).
CEIs subsidiary CTT owns an 10.05% interest in the PenTeleData Limited
Partnership I.
CTT and BVT are independent local exchange carriers (ILEC), 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.
CTTs and BVTs entire telephone systems are digitally equipped. The
population of CTTs service area is estimated to be 122,700, with an
average annual growth rate of .7%. The population of BVTs service area
is estimated to be 37,000, with an average annual growth rate of .4%.
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.
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 provides digital wireless telecommunication services called PCS
in Eastern and Central Pennsylvania, pursuant to Federal Communications
Commission PCS licenses.
CCI as a full service interexchange carrier and provides services as
a Competitive Local Exchange Carrier (CLEC), operating in adjacent Bell
of Pennsylvania territories.
PenTeleData Limited Partnership I provides data transmission and
interconnection services, including Internet services.
CMS is engaged in the business of providing radio paging services in
the Eastern and Central Pennsylvania regions.
CEI entered into an agreement to merge on November 12, 1999 with
TeleBeam, Inc. (TLB) a non regulated, diversified telecommunications
services company, located in State College, Pennsylvania. The
ITEM 1. BUSINESS (Continued)
merger was finalized on January 31, 2000 and is being accounted for
under the pooling of interests method of accounting.
CEIs earnings for 1999 were impacted by several events as follows:
1. CWC continued its aggressive expansion, adding 25 additional
towers and base stations and opening 3 new retail stores. For
the year, CWC incurred a loss of $6.2 million on target with
the overall business plan.
2. CCI grew its long distance service customer base (IXC service)
and aggressively marketed its competitive local exchange
service (CLEC). CWC incurred an operating loss for the year
of $447 thousand due to price competition in the IXC segment
and expenses associated with the expansion of the CLEC
business.
3. CEI also incurred a loss from its limited partnership interest
in PenTelData, L. P. I for the year of $350,000.
Percentages of the Companys consolidated operating revenue in
local, long distance, equipment sale and lease, and other services are
shown on the following table:
1999 1998 1997 1996 1995
Local* 18% 18% 18% 19% 19%
Long Distance
and Access 54% 58% 61% 67% 67%
Equipment Sales
and Lease** 18% 15% 13% 8% 9%
Wireless 3% 1% 1% 1% 1%
Other*** 7% 8% 7% 5% 4%
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
sales and lease of telecommunication equipment, CMS
nonregulated sale and lease of pager equipment, INF sale
and lease of telecommunications equipment and CWC sale of
PCS equipment.
*** Includes consulting revenue, rent revenues, billing and
collection revenues, directory advertising revenues, net of
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 wireless and nonregulated sale and
lease gross revenues.
ITEM 1. BUSINESS (Continued)
On December 31, 1999, the Company had 78,869 telephone access lines
in service, of which 24% served business customers. The Company also
had 3,849 CLEC lines in service as well as 9,792 PCS lines, as set
forth in the following table:
LINES BY COMPANY
YEAR
END CTT BVT CWC CCI
12/31 TOTAL TOTAL TOTAL TOTAL
1995 45,696
1996 48,133 19,086
1997 51,015 20,124
1998 53,829 20,951 2,949 866
1999 56,791 22,078 9,792 3,849
CTT had a total of 146 employees as of December 31, 1999, of which
91 were covered by one collective bargaining agreement. BVT had a
total of 57 employees; INF had a total of 56; CWC had a total of 36;
CCI had a total of 9, none of which are covered by a bargaining
agreement.
ITEM 2. PROPERTIES
CTT, BVT, CWC 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.
As of December 31, 1999, investment in telephone plant in service by
CTT and BVT consisted of the following categories and approximate
percentages:
A. Digital Switching equipment 35%;
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)
56%;
D. General purpose computers 2%;
E. Motor vehicles, other work equipment and furniture and
office equipment 3%.
As of December 31, 1999 investment in plant in service by CWC CMS
and CCI consisted of the following categories and approximate
percentages:
A. Land, Buildings, and Towers 37%
B. Transmitters and terminal equipment 57%;
C. Customer premise equipment 1%;
D. Computers and other plant 5%.
ITEM 2. PROPERTIES (continued)
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 of CTT and BVT are located on leased
properties, as are the towers of CWC. CTT, BVT and CWC are leasing
some office space for corporate purposes.
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, 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 7.8 miles of fiber optic cable
during 1999 and at the end of 1999 had 456 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, 1999, 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 REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) CEIs Common Stock is trading on the NASDAQ National Market
under the Ticker Symbol CENI. The high and low sales prices for each
quarter of 1999 and 1998 are listed below.
1999 High Low
1st Quarter $23.83 $19.83
2nd Quarter $24.00 $18.17
3rd Quarter $22.00 $18.25
4th Quarter $20.25 $17.00
1998* High Low
1st Quarter $21.75 $19.17
2nd Quarter $22.33 $21.33
3rd Quarter $22.42 $21.00
4th Quarter $23.50 $20.67
*adjusted for 3 for 2 split in 1999
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS (continued)
(b) Approximate Number of Equity Security Holders.
Approximate Number of Record Holders (as of
Title of Class December 31, 1999)
Common Stock 1,906 (1)
Preferred Stock 47 (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 Companys 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 1998 and 1999, the total
cash dividends paid each year by the Company was $.814 and $.833 per
share respectively. Dividends were paid quarterly throughout the
years. Under the most restrictive covenants of the Companys debt
agreements, $19,200,000 of the consolidated retained earnings is
available for payment of cash dividends in 2000.
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 1998 and 1999, the Company
paid annual cash dividends of $3.42 per share on the Series A
Convertible Preferred Stock.
ITEM 6. SELECTED FINANCIAL DATA (in thousands, except shares and per
share data)
1999 1998 1997 1996 1995
Selected Income Statement Data:
Operating Revenue $71,199 $62,833 $56,185 $42,899 $32,553
Net Income 3,826 10,352 9,314 8,506 6,531
Basic Earnings per
Common Share* $0.46 $1.39 $1.25 $1.27 $1.13
Diluted Earnings per
Common Share* $0.46 $1.38 $1.25 $1.27 $1.13
Cash Dividends declared
per Common Share* $0.833 $0.814 $0.806 $0.800 $0.800
*adjusted for the 3 for 2 stock split in 1999 and 5% stock dividend in
1995
Selected Balance Sheet Data:
Net Plant $ 91,732 $87,385 $70,573 $ 62,934 $46,140
Total Assets 149,072 150,609 129,290 119,852 58,595
Long term Debt
Less Current
Maturities 38,250 41,250 23,250 27,218 4,645
ITEM 6. SELECTED FINANCIAL DATA (continued)
(in thousands, except shares and per share data)
1999 1998 1997 1996 1995
Redeemable Preferred
Stock 10,191 11,719 12,780 12,780
Stockholders Equity 74,683 74,860 71,553 63,074 42,089
When comparing 1996 through 1999 with 1995 many of the variances are
a direct result of the merger with BVT effective June 1996 and INF
effective May 1997.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The Company aggressively pursued its strategic plan to become an
integrated communications provider in 1999. It grew its core
telecommunications businesses, entered new markets, developed new
businesses and pursued acquisitions. As a result, Operating Revenue
showed a dramatic increase from $62.833 million in 1998 to $71.199
million in 1999, an increase of 13.3%. The local service revenues of
its telephone utility subsidiaries from the provision of local
telephone services increased by 19.7% in 1999, due in substantial part
to a continued increase in access lines in service. Wireless service
revenues generated by CWC from wireless telecommunications services
increased by 225.3%, due to the continued expansion of CWCs customer
base resulting from the development and expansion of CWCs wireless
infrastructure and marketing facilities. Long distance and access
revenues increased 6.0% in 1999, lead by CCIs provision of full long
distance service with increased revenues of over $2.6 million. CCI, as
a Competitive Local Exchange Carrier (CLEC), expanded local telephone
service outside of CTTs local exchange service territories into
adjacent Bell Atlantic Pennsylvania territories.
In November, 1999, the Company entered into an agreement to acquire
TeleBeam, Inc. (TLB) in State College, Pennsylvania, and closed on that
acquisition in January, 2000. TLB is a data CLEC company that provides
high speed data, long distance voice and cable television. TLBs
revenues are not included in CEI consolidated revenues for 1999.
1999 Net Income fell to $3.826 million, or $0.46 per common share,
from 1998 Net Income of $10.352 million, or $1.39 per common share, and
1997 Net Income of $9.314 million, or $1.25 per common share. The
decline in net income was caused by (1) the impact of the operating
expenses of the new businesses of CWC and CCI in a very competitive
environment; (2) the investment in the infrastructure of CWCs wireless
system and CCIs CLEC and long distance systems; (3) losses resulting
from CTTs unconsolidated partnership interest in PenTeleData, LLP, an
internet access provider in which CTT owns a 10.05% limited partnership
interest; (4) pre acquisition costs of the TLB acquisition; and (5) the
amortization of the Companys investment in the goodwill of BVT and INF.
Furthermore, in 1997 and 1998 the Companys net income was increased as
the result of one time gains from the sale of its partnership interests
in cellular service providers in Lancaster and Berks Counties,
Pennsylvania.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
The continued strong operating performance of the Companys local
networks and related markets provides the Company with the financial
resources to pursue its strategic plan to become a fully integrated
communications provider.
RESULTS OF OPERATIONS
REVENUES
0perating Revenues:
Increase
(in thousands)
1998 1999 $ 8,366 13.3%
1997 1998 6,648 11.8
The 13.3% increase in Operating Revenues during 1999 resulted from
increases in all the various operating segments, except Other Revenues,
as explained below. INF generated $9.2 million, CWC generated $2.1
million and CCI generated over $8.1 million in revenues during 1999,
compared with $7.7 million, $0.5 million and $4.9 million,
respectively, in 1998. The 1997 to 1998 increase of 11.8% was
partially due to the initial inclusion of the revenues of INF, which
was acquired in the second quarter of 1997.
Local Service Revenues
Increase
(in thousands)
1998 1999 $ 2,060 19.7%
1997 1998 1,084 11.6
Local Service Revenues are generated from the provision of local
exchange services, including enhanced services, primarily by the
Companys operating telephone subsidiaries, CTT and BVT. Enhanced
services include Caller ID, Call Waiting and Return Call. These
services are regulated by the Pennsylvania Public Utility Commission
(PUC).
The substantial increase in Local Service Revenues in 1999,
reflected the continued growth in access lines in service and CLEC
revenues in the amount of $0.8 million generated by CCI.
The number of in service access lines of CTT, BVT, and now CCI has
increased substantially in recent years. During 1999, the number of
CTTs and BVTs telephone access lines in service increased 4,089, or
5.5%, to a total of 78,869; and CCIs CLEC access lines in service
increased by over 2,900, to a total of 3,849. During the past three
years, the installation by residential customers of more than one
access line, largely as a result of increasing Internet usage, has been
a major factor in such increases within the Companys franchise
territories. The Company anticipates this trend to continue for the
next few years. The Company has been aggressively pursuing the
strategy of providing CLEC services in neighboring franchise
territories.
In September 1998, CTT and BVT received approval from the PUC to
rebalance their rates. The impact of this reduced intrastate access
charges, as well as some custom calling feature charges, and increased
local service rates in certain areas. The impact of rebalancing should
be revenue neutral.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Long Distance and Access Service Revenues
Increase
(in thousands)
1998 1999 $ 2,181 6.0%
1997 1998 2,158 6.3
Long Distance and Access Service Revenues are generated by the
telephone companies and CCI. Long Distance Service Revenues are
derived from customer calls to locations outside of the customers local
calling area. CTT and BVT provide intralata toll services for calls
outside of the customers local calling area but within the same local
access and transport area. CCI provides intralata and interlata toll
services, the latter being for calls outside of the customers local
calling area and local access and transport area.
Long distance toll service is becoming increasingly competitive.
The Pennsylvania Public Utility Commission adopted a regulation,
effective January 1, 1998, requiring intralata toll competition within
the Commonwealth of Pennsylvania. The intralata toll revenues of CTT
and BVT have declined as a result of such increased competition.
In late 1997, CCI converted to a full service, facilities based
interexchange carrier to offer full long distance service, in order to
attract new long distance customers, as well as retain its existing
customer base. As a result, its long distance revenues almost doubled
to $4.9 million in 1998 and increased 54.4% in 1999 to $7.4 million.
In contrast, the long distance revenues of CTT and BVT fell 26.5% or
$1.6 million during 1999. As of December 31, 1999, CCI had over 24,000
long distance customers. CCI is the long distance provider with the
second largest number of customers within the franchised territories of
CTT and BVT.
Access Service Revenues consist of payments from end user
subscribers and long distance carriers to access the Companys local
exchange facilities to provide long distance services. Total switched
access minutes of use on the Companys networks increased 16.3% during
1999. Intrastate access rates were reduced in 1998. We anticipate
that access rates will continue to decline as local competition in the
telecommunications industry becomes more widespread. This could
negatively impact future Access Service Revenues of CTT and BVT.
Long Distance and Access Service Revenues increased by 12.7% during
the 1997 to 1999 period, but such revenues as a percentage of total
Company revenues declined from 60.8% in 1997 to 54% in 1999.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Wireless Service Revenues
Increase
(in thousands)
1998 1999 $ 1,665 225.3%
1997 1998 215 41.0
Wireless Service Revenues are derived from the PCS service of CWC
and the paging service of Conestoga Mobile Systems. CWC began
commercial operations of its PCS system in May 1998. In 1999, CWCs PCS
revenues were $1.844 million. During 1999 the Company added over 6,800
customers as a direct result of several very successful promotional
campaigns, the expansion of its geographic service areas, and the
opening of several additional retail centers throughout its service
territory.
Equipment and Other Revenues
Increase
(in thousands)
1998 1999 $ 2,460 16.0%
1997 1998 3,191 26.3
Equipment and Other Revenues include: (1) sale and lease of
telephone equipment, such as telephones, PBX equipment, pagers and PCS
wireless telephones by all Companys subsidiaries; (2) the revenues of
CTT and BVT from directory advertising, rents, and billing and
collection; (3) the revenues of INF from facility management and
consulting services; and (4) the uncollectible accounts of all
subsidiaries which are netted against such revenues.
Equipment sales and lease revenues increased by 46.5% during the
1997 to 1999 period. The growth during 1999 is due to the sale and
installation of several large telephone systems and security systems.
Billing and collection revenues of both CTT and BVT are declining due
to long distance toll competition and declined 22% in 1999. However,
directory advertising revenues continue to increase and increased 9% in
1999.
The Companys more competitive business segments experienced
increases in uncollectible accounts during 1999. Uncollectible
revenues for 1999 were 1.1% of total operating revenues, compared with
.5% in 1998. CWC experienced substantial increases in bad debt expense
in 1999 and wrote off $295,000 in bad debts during the third and fourth
quarters. INF experienced higher than usual bad debt expense in
equipment sales in 1999, primarily due to the write off of one large
account.
EXPENSES
Operating Expenses
Increase
(in thousands)
1998 1999 $ 9,573 19.0%
1997 1998 9,630 23.7
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
The 19.0% increase in Operating Expenses in 1999 resulted from
increases in the operating expenses of all business segments. CWC and
CCI, as start up businesses, sustained the largest increases in
operating expenses during 1999. CWCs 1999 operating costs were $10.2
million compared with $5.7 million in 1998. CCIs 1999 operating costs
were $8.6 million compared with $5.1 million in 1998. CWC and CCI are
new ventures in very competitive businesses and incur high customer
acquisition costs through advertising and marketing. The 23.7%
increase in operating expenses from 1997 to 1998 reflects the inclusion
of INFs costs after the acquisition of INF during the second quarter of
1997. INFs operating expenses in 1999 were $10.2 million compared with
$8.3 million in 1998, mostly due to increased equipment sales in 1999.
Network Operations and Cost of Sales Expenses
Increase
(in thousands)
1998 1999 $ 3,330 18.3%
1997 1998 2,985 19.7%
Network Operations and Cost of Sales Expenses include outside plant
expenses, digital switching and other network expenses, engineering
expenses, cost of sales and related administrative expenses. The
expenses of CTT and BVT, the local exchange carriers, are primarily
regulated expenses for network and outside plant maintenance. Cost of
sales expenses are incurred by CTT, BVT, CWC and INF mostly for
equipment sales and leases.
Network Operations and Cost of Sales Expenses increased by 41.6%
during the 1997 to 1999 period partially due to the acquisition of INF
and CWCs business development expenses.
Depreciation and Amortization Expenses
Increase
(in thousands)
1998 1999 $ 1,929 15.5%
1997 1998 2,061 19.8
Depreciation and Amortization expenses include charges from all of
the subsidiaries. The increases in 1999 and 1998 are directly related
to the depreciation of the capitalized costs of CWCs PCS network. The
depreciation rates of CTT and BVT deceased slightly in 1999, as the
result of a depreciation study. Depreciation expense for 1999,
computed by the straight line method, totaled $12.5 million and equated
to a 7.46% effective composite rate, compared with 7.40% for 1998.
Customer Operations Expenses
Increase
(in thousands)
1998 1999 $ 3,024 25.0%
1997-1998 3,529 41.1
Customer Operations Expenses, including expenses from all of the
Companys subsidiaries, consist of cost of services, customer services
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
for ordering and billing, and marketing and advertising expenses. The
increase in 1999 is directly related to the expanding operations of CWC
and CCI. CCIs customer care operations expense increased 64% to over
$8.0 million in 1999, and CWCs increased to $1.6 millon, for an
increase of 82%. Also the acquisition of INF contributed substantially
to the 41.1% increase in the 1997 to 1998 period.
Corporate Operations Expenses
Increase
(in thousands)
1998 1999 $ 1,070 19.0%
1997 1998 1,019 22.1
Corporate Operations Expenses include regulatory, executive, and
insurance expenses and professional fees, such as fees for legal and
accounting services. These expenses include regulated expenses of CTT
and BVT and expenses of CEI and the other subsidiaries. The increase
in Corporate Operations Expenses in 1999 is mainly from increased
personnel in the management information and human resource departments,
along with some one time costs associated with the implementation of a
new corporate information and accounting system. 1999 Corporate
Operations Expenses includes a portion of the acquisition costs of TLB.
The increases in Corporate Operations Expenses during the 1997 through
1999 period resulted from the inclusion of a full year of INFs
corporate operations expenses in 1998 and expenses incurred by CCI and
CWC in developing their businesses, especially expenses and fees
related to the build out and start up of CWCs PCS system. Corporate
Operations Expenses increased 45.2% during the 1997 through 1999
period.
Taxes Other than Income Taxes
Increase
(in thousands)
1998 1999 $ 220 11.4%
1997 1998 42 2.2
Taxes Other Than Income Taxes consist primarily of gross receipts,
property, and capital stock taxes. The increase in 1999 reflects the
expanded business of CCIs long distance service.
Other Income/Expenses (net)
Increase (decrease)
(in thousands)
1998 1999 $ (9,333) (146.6%)
1997 1998 4,833 315.1
Other Income/Expenses (net) consist primarily of interest and
dividend income, interest expense, income from unconsolidated
partnership interests, and gains from the sale of unconsolidated
partnership interests or assets in 1998 and 1997. In 1999 the Company
incurred a loss from its limited partnership interest in PenTeleData,
L.P.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Interest expense declined slightly during 1999, primarily due to the
reduction of long term debt. The increase in interest from 1997 to
1998 was caused by interest on the Companys borrowing of $21 million to
finance the build out of the PCS system.
The Company drew on its bank lines of credit for interim financing
in 1999, but did not draw thereon in 1997 or 1998. At the end of 1999,
a balance of $1.0 million remained on its bank lines of credit.
In February, 1997, CTT obtained a $5.0 million unsecured term loan
from a bank at an interest rate of 6.89% to refinance two 10 year
unsecured term loans with interest rates at prime with ceilings of 8.5%
and 8.4%, respectively. In June, 1997, BVT retired, without early
payment penalty, a $1.4 million indebtedness with an interest rate of
8.5%.
During 1998, the Berks and Reading Area Cellular Enterprises,
limited partnership (BRACE), in which subsidiaries of the Company held
a 70% interest, sold its 39% limited partnership interest in the
Reading SMSA Limited Partnership. The Reading SMSA Limited Partnership
provides cellular telephone service in the Reading metropolitan area.
The Company received $11.1 million and realized a $7.7 million pretax
gain upon the liquidation of BRACE after the sale. In 1997, the
Company sold its interest in Lancaster Area Cellular Enterprises (LACE)
for $2.8 million and realized a pretax gain of $1.9 million. LACE,
through the Susquehanna Cellular Communications Limited Partnership,
provides cellular telephone service in the Lancaster SMSA. The Company
recognized that CWC would be in direct competition with BRACE and LACE
and sold its interests therein to raise capital to finance CWCs build
out of the PCS network. CTT owns a 10.05% limited partnership interest
in the PenTeleData, L.P., which provides Internet access.
BRACEs income for the relevant period was: $493 thousand in 1998;
and $1.4 million in 1997. LACEs income was $158 thousand in 1997.
Income Taxes
Income taxes decreased in 1999 as a result of the decline in the
Companys net income. The federal and state income tax rates over the
period remained unchanged. The Companys effective tax rate (income tax
expense as a percentage of income before income taxes) was 54.4%, 45.3%
and 45.6% in 1999, 1998 and 1997 respectively. The increase in the
effective tax rate in 1999 is due primarily to a valuation allowance on
state net operating losses and the relationship of nondeductible
goodwill amortization to pretax income.
NET INCOME
Increase (decrease)
(in thousands)
1998 1999 $ (6,526) (63.0%)
1997 1998 1,038 11.1
1999 Net Income was $3.826 million, a 63% decrease from 1998. 1998
income included a one time gain of $7.7 million from the sale of BRACEs
interest in the Reading SMSA Limited Partnership.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
As projected, 1999 net income was negatively impacted by the
operating losses of CWC and CCI, and the goodwill amortization
associated with the acquisitions of BVT and INF. The Company
anticipates that net income will be negatively impacted in the near
future as a result of (i) the expenses associated with the continued
build out and development of CWCs wireless PCS business, (ii) the
continued amortization of goodwill arising from the acquisitions of BVT
and INF, (iii) the loss of the income of BRACE and LACE, and (iv) the
expansion of, and the build out of, TLBs telecommunications system in
State College, Pennsylvania, and other areas.
The net income of CTT and BVT, the local exchange carriers,
increased in 1999 by 5.5% to $8.8 million and 15.0 % to $2.2 million,
respectively, primarily due to excellent growth in access lines and
minutes of use on their networks.
FINANCIAL CONDITION
Liquidity and Capital Commitments
Years Ended December 31, 1999 1998 1997
Cash Flows From (Used In): (in thousands)
Operating activities $20,335 $14,253 $17,427
Investing activities (19,257) (17,500) (8,665)
Financing activities (7,675) 9,133 (8,202)
The Company uses the net cash generated from its operations and from
external financing to fund capital expenditures for network expansion
and modernization, and invest in new businesses. The Companys 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 including the TLB build out
of its CLEC business, along with the expansion of the PCS business into
State College, will require additional debt financing in order to
maintain our capital structure and ensure our financial flexibility.
On December 31, 1999, the Company had commitments totaling $1.8
million, including commitments to purchase equipment and materials to
continue the upgrade of its telecommunications plant base and to build
the PCS network. The Company plans to finance its projected capital
budget requirements for 2000, including the TLB build out, totaling
$34.3 million, from internally generated funds, and some additional
debt financing.
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 1999 were $20 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
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
depreciation expenses 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 investment
necessary to maintain and upgrade its network and build and develop
PCS.
Cash Flows Used in Investing Activities
Capital expenditures are the Companys primary use of cash resources.
The Companys capital expenditures in 1999 included $10.4 million for
the Companys local exchange operations and $5.9 million for the build
out and further development of its PCS operation. The investment in
local exchange operations was consistent with the investments made in
1996 and 1997. The investment in the PCS operation was $ 5.9 million
in 1999, $20.8 million in 1998 and $7.2 million in 1997. The
investments are made to support the Companys 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. The investment in the PCS
system is treated by the Company as an investment in a new business.
During 1998, the Company received proceeds in excess of $11 million
from the liquidation of its partnership interest in BRACE and in 1997
received approximately $2.8 million from the sale of its partnership
interest in LACE. In 1998, it also received proceeds totaling $220,000
from the sale of equity securities.
Substantial amounts of additional capital will be needed for the
remaining build out of the PCS network and the build out of the TLB
network. CWCs capital requirements over the next several years to
complete the build out of its entire PCS network and the CLEC network
could exceed $35 million. Additional financing could come from (1)
internal sources, (2) long term debt, (3) common stock issue, or a
combination of the three.
Cash Flows Used in Financing Activities
As in prior years, dividend payments were a significant use of cash.
In 1999 the Company paid dividends totaling $6.4 million and $191,900
to redeem preferred stock.
In 1998, the Company borrowed $21 million to finance the capital
requirements for the build out and development of CWCs wireless PCS
network. At the end of 1999, the Company also had unadvanced amounts
from two bank lines of credit of $5 million and $9 million,
respectively.
In January, 1998, the Company in a private transaction purchased
86,074 shares of common stock at $31.00 per share. In September, 1996
the Company undertook to repurchase up to one hundred thousand shares
of common stock on the open market or in negotiated transactions at a
maximum price of $24.00 per share depending on the market conditions
and other factors. As of June 30, 1997, the close of the offer, the
Company had purchased 91,273 common shares at an average price of
$23.632 per share. Some of these shares have been reissued under the
Companys Dividend Reinvestment Plan and Employee Stock Purchase Plan.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
As of December 31, 1999, a balance of 82,225 of these shares remained
in Treasury.
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 1999, the
Companys total value in this stock increased due to unrealized
appreciation. The current market value of the Companys investment
stock is $3.5 million. Management views this investment as a source of
future liquidity. In February, 1998, the Company sold some of its
investment stock for $220,000.
OTHER FACTORS
Personal Communication Services (PCS)
CWC began commercial operations as a provider of wireless
telecommunications services in May, 1998. By the end of 1999 it had 95
base stations in service throughout the Reading, Sunbury and
Williamsport areas. CWC plans to put an additional 38 base stations
into service during 2000, to augment coverage in those markets and to
start the build out of the State College, Pa. Area.
CWC holds licenses to provide wireless services known as Personal
Communication Services (PCS) in radio spectrum in the C and D 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 holds
licenses are Reading, Pottsville, Sunbury, Williamsport, and State
College, Pennsylvania, covering ten counties in Pennsylvania. In April
1999 CWC was the successful bidder in the Federal Communications
Commission C Block re auction for additional bandwidth in the Basic
Trading Areas (BTA) where the Company already held licenses and for
bandwidth in the State College BTA.
Management views participation in PCS as an important part of its
future business. PCS is 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 Companys current customer base.
The development of the PCS network and business is subject to the
risks and delays associated with the design and construction of the
wireless system and the commencement of a new business. The Company
has already invested almost $35 million in the PCS network and business
and could invest an additional $25 million over the next several years.
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 Companys earnings.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Effects of Substantial Indebtedness and Preferred Stock on Future
Operations
At December 31, 1999, the Company had approximately $41.3 million of
long term debt outstanding and approximately $10.2 million of
redeemable preferred stock, compared to approximately $74.7 million of
common equity. This resulted in a ratio of 41% debt and preferred
stock to 59% equity. At December 31, 1998 the ratio was 43% debt to
57% equity. The decreased debt ratio reflects the required debt
redemption in 1999.
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 Companys future
operations, including: (i) the Company will incur additional interest
expense and significant principal repayment obligations; (ii) the
Company is subject to significant unscheduled preferred stock
redemption obligations; (iii) the Companys 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 Companys common shares may be restricted by
the level of financial resources needed to service the Companys
additional debt and preferred stock.
Acquisition of TeleBeam, Incorporated
On January 31, 2000, the Company acquired TeleBeam, Incorporated, a
telecommunications company headquartered in State College,
Pennsylvania, by merger into a merger subsidiary of the Company, the
name of which was changed to TeleBeam, Incorporated at the time of the
merger. More information is available in the Companys current reports
on Form 8 K which were filed with the Securities and Exchange
Commission (SEC) on February 15, 2000 and November 18, 1999, and the
Companys Registration Statement on Form S 4, filed with the SEC on
December 30, 1999. The TeleBeam acquisition is likely to have a
negative impact on the Companys year 2000 earnings.
Regulated Industry
CTT and BVT are subject to a rate making process regulated jointly
by the Pennsylvania Public Utility Commission (PUC) and the Federal
Communications Commission (FCC) 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 for the
state jurisdiction. This new regulation referred to as Chapter 30,
provides a price stability mechanism in which a telephone companys
annual revenues from non competitive services may be permitted to
change in line with the gross domestic producer 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 filed Chapter 30 Plans in
July 1998 and approval is expected in March 2000.
The telecommunication industry continues to undergo fundamental
changes, which may have a significant impact on financial performance.
The Federal Telecommunications Act of 1996, creates a regulatory
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
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
Pennsylvania PUC of a petition that has significantly strengthened the
companies competitive position relative to non facilities based
competition. However, facilities based competition is not precluded.
Management believes that competition will continue to 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.
During 1999 CCI significantly grew its long distance business both in
the CTT and BVT franchise territories, as well a surrounding areas. In
addition CCIs competitive local telephone business became operational
in 1998 and began offering service in Bell Atlantics franchise
territory. Strong growth in this business segment was experienced in
1999 and is expected to continue in 2000.
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 return on
investment as such amounts are recovered through regulatory authorized
rates. As of December 31, 1999, the Company had no regulated assets
but had regulated liabilities totaling $746 thousand. The Company
currently expects to follow the accounting practices prescribed by SFAS
71 in the foreseeable future, but, if the Company discontinued this
practice, the effect of writing off any regulatory assets and
liabilities would not be material to the Companys operations.
Effects of Inflation
It is the opinion of management that the effects of inflation on
operating revenues and expenses over the past three years have been
immaterial. Management anticipates that this trend will continue in
the near future.
Forward Looking Statements
Information contained above in this Managements Discussion and
Analysis and elsewhere in this Annual 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; and (iii) the impact of new technologies. You should not
place undue reliance on these forward looking statements, which are
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.
ITEM 7A. QUANTITATIVE and QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not invest funds in derivative financial
instruments or other market risk sensitive instruments for any purpose.
Furthermore, management believes that the market risk of its fixed rate
debt is immaterial to the Companys financial statements as a whole.
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 1999
INDEPENDENT AUDITORS 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, 1999 and
1998, 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, 1999. These financial statements are the
responsibility of the Companys 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, 1999
and 1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999 in
conformity with generally accepted accounting principles.
BEARD & COMPANY, INC
Reading, Pennsylvania
January 31, 2000
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1999 1998
(In Thousands, Except Shares
And Per Share Data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,806 $ 8,403
Accounts receivable, including unbilled revenue 9,397 7,840
Inventories, at average cost 1,784 1,520
Prepaid taxes 332
Prepaid expenses 194 127
Total current assets 13,181 18,222
INVESTMENTS AND OTHER ASSETS
Cost in excess of net assets of businesses
acquired, less amortization 1999 $ 5,874;
1998 $ 3,994 35,746 37,626
Investments in partnerships 65 415
Investments in equity securities 3,724 3,306
Prepaid pension costs 2,871 2,730
Other 1,753 925
44,159 45,002
PLANT
In service 173,908 157,414
Under construction 3,620 4,991
177,528 162,405
Less accumulated depreciation 85,796 75,020
91,732 87,385
$ 149,072 $ 150,609
See Notes to Consolidated Financial Statements.
December 31, 1999 1998
(In Thousands, Except Shares
And Per Share Data)
LIABILITIES AND COMMON STOCKHOLDERS EQUITY
CURRENT LIABILITIES
Current maturities of long term debt $ 3,000 $ 3,000
Note payable 1,000 -
Accounts payable 5,616 5,777
Accrued expenses:
Payroll and vacation pay 1,422 1,065
Taxes 1,237 -
Other 929 1,019
Total current liabilities 13,204 10,861
LONG TERM LIABILITIES
Long term debt, less current maturities 38,250 41,250
Accrued postretirement cost 1,108 960
Other 885 934
40,243 43,144
DEFERRED INCOME TAXES 10,751 10,025
COMMITMENTS
REDEEMABLE PREFERRED STOCK, par value $ 65 per
share; authorized 900,000 shares; issued and
outstanding 1999 156,779 shares; 1998 180,289
shares 10,191 11,719
COMMON STOCKHOLDERS EQUITY
Common stock, par value 1999 $ 1 per share;
1998 $ 5 per share; authorized 1999 20,000,000
shares; 1998 10,000,000 shares; issued 1999
7,162,618 shares; 1998 7,162,951 shares 7,163 35,814
Additional paid in capital 42,010 13,018
Retained earnings 25,362 27,972
Accumulated other comprehensive income 1,667 1,523
Less cost of treasury stock 1999 82,225 shares;
1998 187,675 shares (1,519) (3,467)
74,683 74,860
$ 149,072 $150,609
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Years Ended December 31, 1999 1998 1997
(In Thousands, Except
Per Share Data)
Operating revenues:
Local service $ 12,512 $ 10,452 $ 9,368
Long distance and access service 38,479 36,298 34,140
Wireless service 2,404 739 524
Equipment and other 17,804 15,344 12,153
71,199 62,833 56,185
Operating expenses:
Network operations and cost of sales 21,494 18,164 15,179
Depreciation and amortization 14,377 12,448 10,387
Customer operations 15,119 12,095 8,572
Corporate operations 6,704 5,634 4,615
Taxes other than income 2,142 1,922 1,880
59,836 50,263 40,633
Operating income 11,363 12,570 15,552
Other income (expense), net:
Interest expense (2,922) (2,984) (2,017)
Income (loss) from unconsolidated
partnership interests (350) 424 1,345
Gain on sale of unconsolidated partnership
interests - 7,740 1,890
Interest and dividend income 327 826 307
Other, net (21) 361 9
(2,966) 6,367 1,534
Income before income taxes 8,397 18,937 17,086
Income taxes 4,571 8,585 7,782
Income before minority interest 3,826 10,352 9,304
Minority interest in net loss of subsidiary - - 10
Net income $ 3,826 $ 10,352 $ 9,314
Basic earnings per share $ 0.46 $ 1.39 $ 1.25
Diluted earnings per share $ 0.46 $ 1.38 $ 1.25
See Notes to Consolidated Financial Statements.
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS EQUITY
Three Years Ended December 31, 1999, 1998 and 1997
Additional
Common Stock Paid In
Shares Amount Capital
(In Thousands, Except Shares And
Per Share Data)
Balance, December 31, 1996 64,568,500 $ 22,842 $ 20,420
Comprehensive income:
Net income - - -
Change in net unrealized gains
(losses) on securities - - -
Total comprehensive income
Common stock dividends ($ 0.81 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 - - -
Balance, December 31, 1997 4,775,301 23,876 24,742
Comprehensive income:
Net income - - -
Change in net unrealized gains
(losses) on securities, net of
reclassification adjustment - - -
Total comprehensive income
Common stock dividends ($ 0.81 per share) - - -
Preferred stock dividends - - -
Issuance of stock under employee stock
purchase plan - - 13
Issuance of stock under dividend
reinvestment plan - - 120
Conversion of preferred shares - - 81
Purchase of common stock for the treasury - - -
3 for 2 stock split in the form of a
50% stock dividend 2,387,650 11,938 (11,938)
Balance, December 31, 1998 7,162,951 35,814 13,018
Comprehensive income:
Net income - - -
Change in net unrealized gains
(losses) on securities - - -
Total comprehensive income
Cash paid for fractional shares (333) (1) (9)
Reduction in par value from $ 5 per
share to $ 1 per share - (28,650) 28,650
Common stock dividends ($ 0.83 per share) - - -
Preferred stock dividends - - -
Issuance of stock under employee stock
purchase plan - - 8
Issuance of stock under dividend
reinvestment plan - - 83
Conversion of preferred shares - - 260
Balance, December 31, 1999 7,162,618 $ 7,163 $ 42,010
See Notes to Consolidated Financial Statements.
Accumulated
Other
Retained Comprehensive Treasury Stock
Earnings Income Shares Amount Total
$ 20,864 $ 316 (58,400) $ (1,369) $ 63,073
9,314 - - - 9,314
- 446 - - 446
9,760
(5,548) - - - (5,548)
(672) - - - (672)
- - 3,531 83 93
- - 12,206 289 512
- - - - 5,123
- - (32,873) (788) (788)
23,958 762 (75,536) (1,785) 71,553
10,352 - - - 10,352
- 761 - - 761
- - - - 11,113
(5,675) - - - (5,675)
(663) - - - (663)
- - 3,565 96 109
- - 20,901 557 677
- - 12,027 333 414
- - (86,074) (2,668) (2,668)
- - (62,558) - -
27,972 1,523 (187,675) (3,467) 74,860
3,826 - - - 3,826
- 144 - - 144
3,970
- - - - (10)
- - - - -
(5,876) - - - (5,876)
(560) - - - (560)
- - 5,814 107 115
- - 41,416 765 848
- - 58,220 1,076 1,336
$ 25,362 $ 1,667 (82,225) $ (1,519) $ 74,683
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Years Ended December 31, 1999 1998 1997
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,826 $ 10,352 $ 9,314
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 14,377 12,448 10,387
(Income) loss from unconsolidated
partnership interests 350 (424) (1,345)
Gain on sale of unconsolidated
partnership interest - (7,740) (1,890)
Gain on sale of nonregulated property - (63) (181)
Gain on sale of equity securities - (73) -
Minority interest in loss of subsidiary - - (10)
Change in assets and liabilities, net of
effects from acquisition of business:
(Increase) decrease in:
Accounts receivable (1,557) (945) 1,000
Materials and supplies (264) (416) (71)
Prepaid expenses 265 (245) 15
Prepaid pension costs (141) (307) (274)
Other assets 204 (220) 304
Increase (decrease) in:
Accounts payable 1,021 2,116 (890)
Accrued expenses and other current
liabilities 1,504 (513) 1,151
Other liabilities 99 158 306
Deferred income taxes 651 125 (389)
Net cash provided by operating
activities 20,335 14,253 17,427
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of plant, net of removal costs
and salvage from retirements (17,895) (28,594) (14,424)
Purchase of FCC licenses (1,162) - -
Proceeds on sale of nonregulated property - 146 734
Capital investments in unconsolidated
partnership interests - (356) (237)
Capital distributions from unconsolidated
partnership interests - - 1,091
Proceeds from sale of unconsolidated
partnership interests - 11,084 2,779
Purchase of equity securities (200) - -
Proceeds from sale of equity securities - 220 -
Proceeds from surrender of life insurance
policies - - 427
Acquisition of business, net of cash and
cash equivalents acquired - - 965
Net cash used in investing
activities (19,257) (17,500) (8,665)
CONESTOGA ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Three Years Ended December 31, 1999 1998 1997
(In Thousands)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long term borrowings $ - $ 21,000 $ 5,000
Principal payments on long term debt (3,000) (3,000) (6,799)
Borrowings on line of credit 1,500 - -
Principal payments on line of credit (500) - -
Proceeds from issuance of stock under the
employee stock purchase plan 115 109 93
Proceeds from issuance of stock under the
dividend reinvestment plan 848 677 512
Cash paid for fractional shares (10) - -
Common and preferred dividends paid (6,436) (6,338) (6,220)
Purchase of common stock for the treasury - (2,668) (788)
Redemption of preferred stock (192) (647) -
Net cash provided by (used in)
financing activities (7,675) 9,133 (8,202)
Increase (decrease) in cash and
cash equivalents (6,597) 5,886 560
Cash and cash equivalents:
Beginning 8,403 2,517 1,957
Ending $ 1,806 $ 8,403 $ 2,517
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 2,931 $ 2,826 $ 1,980
Income taxes $ 3,272 $ 9,591 $ 7,544
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Acquisition of business:
Working capital acquired, net of
cash and cash equivalents $ 967 $ - $ - $ 314
Plant and other assets acquired - - 1,098
Cost in excess of net assets acquired - - 2,746
Long term liabilities assumed - - -
Redeemable preferred stock issued - - -
Common stock issued - - (5,123)
$ - $ - $ (965)
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. CEIs
wholly owned operating subsidiaries 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. (CCI), which provides long
distance and competitive local services.
Conestoga Mobile Systems, Inc. (CMS), which provides paging
communication services.
Conestoga Wireless Company (CWC), which provides personal
communication services (PCS).
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 Companys local exchange carriers are subject to rate
regulations 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.
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 Companys 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 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. Amortization expense
for the years 1999, 1998 and 1997 was approximately $1,880,000,
$1,880,000 and $1,577,000, respectively.
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 gains, net of taxes, are
reported in other comprehensive income. 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 1999, 1998
and 1997 were 7.46%, 7.40% and 7.08%, respectively.
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Plant and depreciation (continued):
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
propertys 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
differences between the reported amounts of assets and
liabilities and their tax basis and net operating loss
carryforwards. 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 Companys 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
Companys 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
Companys 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.
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Employee benefits (continued):
401(k) savings plans:
The Company has contributory 401(k) 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 $458,000, $404,000 and $312,000 to the plans
for 1999, 1998 and 1997, respectively.
Deferred compensation agreement:
The Company has a deferred compensation agreement with an
officer which provides benefits payable to him upon
retirement. The estimated liability under the agreement is
being accrued over the expected remaining years of
employment.
Reclassification:
Certain items in the 1998 and 1997 financial statements have
been reclassified to conform to the 1999 financial statement
presentation. Such reclassifications had no impact on net
income.
2
PURCHASE ACQUISITION
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 three
years using the straight line method.
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
INVESTMENTS IN EQUITY SECURITIES
The following is a summary of the Companys investments in equity
securities:
December 31,
1999 1998
(In Thousands)
Marketable equity securities:
Aggregate cost $ 998 $ 998
Gross unrealized gains 2,526 2,308
Fair value $ 3,524 $ 3,306
The Companys investments in equity securities are concentrated in
the telecommunications industry. The Company also has a $200,000
investment in a non marketable equity security.
Proceeds and gross gains from the sale of equity securities were
$220,000 and $73,000, respectively, for the year ended December31,
1998. There were no sales of equity securities in 1999 and 1997.
4
INVESTMENTS IN PARTNERSHIPS
The following is a summary of the Companys investments in
partnerships:
December 31,
1999 1998
(In Thousands)
PenTeleData, 10.05% interest $ 65 $ 415
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 May 1998, Berks and Reading Area Cellular Enterprises (BRACE),
in which subsidiaries of the Company held a 70% interest, sold
its partnership interest in Reading SMSA for $15,835,000, of
which the Company received $11,084,000 and realized a pretax gain
of $7,740,000. BRACEs sole activity was a 39% limited
partnership interest in the Reading SMSA Limited Partnership,
which provides cellular telephone service to the Reading
metropolitan area. BRACE was reported on the equity method since
the Company effectively had a 27.3% interest in the operating
partnership.
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
INVESTMENTS IN PARTNERSHIPS (CONTINUED)
In September 1997, the Company sold its partnership interest in
Lancaster Area Cellular Enterprises (LACE) for $2,779,000 and
realized a pretax gain of $1,890,000 on the sale. LACE was 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.
The Companys equity in undistributed net income (loss) of the
partnerships was approximately $(350,000), $424,000 and $1,345,000
for 1999, 1998 and 1997, respectively, which includes $ 0 ,
$493,000 and $1,544,000, respectively, from BRACE and LACE.
5
PLANT
Plant is carried at cost less accumulated depreciation and
consists of the following:
December 31,
1999 1998
(In Thousands)
Telephone plant:
In service:
Land and buildings $ 5,516 $ 5,341
Digital switching equipment 47,373 44,649
Other equipment 7,910 6,742
Outside plant facilities 75,418 71,521
136,217 128,253
Under construction 1,929 1,343
138,146 129,596
Less accumulated depreciation 78,440 71,230
59,706 58,366
Nonregulated property and equipment:
Land and buildings 113 113
Equipment 37,578 29,048
37,691 29,161
Under construction 1,691 3,648
39,382 32,809
Less accumulated depreciation 7,356 3,790
32,026 29,019
$ 91,732 $ 87,385
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
LONG TERM DEBT AND CREDIT ARRANGEMENTS
Long term debt is summarized as follows:
December 31,
1999 1998
(In Thousands)
6.91% Series A Senior Notes, interest payable
quarterly, principal due in annual install
ments of $ 2,000,000 through 2000. $ 2,000 $ 4,000
7.59% Series B Senior Notes, interest payable
quarterly, principal due in annual install
ments of $ 1,454,000 from 2001 through 2011. 16,000 16,000
6.22% Senior Notes, interest payable quarterly,
principal due in quarterly installments of
$ 750,000 from 2001 through 2008. 21,000 21,000
6.89% term loan, interest payable quarterly,
principal due in quarterly installments of
$ 250,000 through 2002. 2,250 3,250
41,250 44,250
Less current maturities 3,000 3,000
$ 8,250 $ 41,250
The aggregate amounts of maturities of long term debt for each of
the five years subsequent to December 31, 1999 are as follows (in
thousands):
2000 $ 3,000
2001 4,705
2002 4,705
2003 4,455
2004 4,455
The Company has an unsecured credit agreement through June 30,
2000 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 Companys option of either one percent below the
banks prime rate or .35 percent above the banks overnight base
rate. There was $1,000,000 outstanding on the line of credit at
December 31, 1999 and no borrowings outstanding at December 31,
1998. The prime and overnight base interest rates were 8.50% and
5.625% at December 31, 1999 and 7.75% and 5.50% at December 31,
1998. 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 AND CREDIT ARRANGEMENTS (CONTINUED)
The Company also has an unsecured $5,000,000 line of credit from a
bank available until June 30, 2000 with interest at the London
Interbank Offered Rate plus .75% or at a rate to be negotiated.
There were no borrowings outstanding on the line of credit at
December 31, 1999 and 1998. The interest rate applicable to the
line of credit was 6.58% and 5.75% at December 31, 1999 and 1998,
respectively. In January 2000, the bank increased the available
line of credit to $10,000,000.
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 $19,200,000 of the consolidated retained
earnings is available for payment of cash dividends in 2000.
7
INCOME TAX MATTERS
The provision for income taxes for the years ended December 31,
1999, 1998 and 1997 was as follows:
1999 1998 1997
(In Thousands)
Current:
Federal $ 1,934 $ 6,007 $ 6,251
State 1,956 2,426 1,974
3,890 8,433 8,225
Deferred:
Federal 877 228 (357)
State (196) (76) (86)
681 152 (443)
$ 4,571 $ 8,585 $ 7,782
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, 1999, 1998 and 1997 due to
the following:
1999 1998 1997
Normal statutory federal income tax rate 34.0% 35.0% 35.0%
Increase (decrease) resulting from:
State income tax, net of federal tax
benefit 13.9 8.1 7.2
Goodwill amortization 7.6 3.5 3.2
Other (1.1) (1.3) 0.2
54.4% 45.3% 45.6%
Net deferred tax liabilities consist of the following components
as of December 31, 1999 and 1998:
1999 1998
(In Thousands)
Deferred tax liabilities:
Plant, in service $ 10,352 $ 9,542
Prepaid pension costs 1,165 1,108
Investments 908 834
12,425 11,484
Deferred tax assets:
Employee benefits (1,018) (952)
Net operating loss carryforwards (2,942) (1,449)
Other (195) (185)
(4,155) (2,586)
Valuation allowance 2,481 1,127
$ 10,751 $ 10,025
The Company has approximately $933,000 of net operating loss
carryforwards for federal income tax purposes, which expire
between the years 2006 and 2012.
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
INCOME TAX MATTERS (CONTINUED)
The Company has approximately $26,203,000 of net operating loss
carryforwards for state income tax purposes which expire between
the years 2005 and 2009. A valuation allowance of $2,481,000 and
$1,127,000 was recorded at December 31, 1999 and 1998 for these
state loss carryforwards which may expire unutilized. The
valuation allowance was increased by approximately $1,354,000,
$848,000 and $279,000 in 1999, 1998 and 1997, respectively.
8
DEFINED BENEFIT PENSION PLANS
Information pertaining to the activity in the Companys defined
benefit pension plans is as follows:
Years Ended December 31,
1999 1998 1997
(In Thousands)
Change in benefit obligation:
Benefit obligation at beginning of
year $ 16,223 $ 14,689 $ 12,649
Service cost 605 540 481
Interest cost 1,083 1,052 960
Amendment 298 84 -
Actuarial (gain) loss (448) 983 977
Benefits paid (791) (1,125) (378)
Benefit obligation at
end of year 16,970 16,223 14,689
Change in plan assets:
Fair value of plan assets at
beginning of year 20,851 18,980 15,826
Actual return on plan assets 2,834 2,779 3,251
Employer contribution - 217 281
Benefits paid (791) (1,125) (378)
Fair value of plan assets at
end of year 22,894 20,851 18,980
Funded status 5,924 4,628 4,291
Unrecognized net actuarial (gain) (3,314) (1,811) (1,648)
Unrecognized prior service cost 1,043 809 790
Unrecognized net transition (asset) (782) (896) (1,010)
Prepaid benefit cost $ 2,871 $ 2,730 $ 2,423
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8
DEFINED BENEFIT PENSION PLANS (CONTINUED)
Net pension cost (benefit) for these Plans consisted of the
following components:
Years Ended December 31,
1999 1998 1997
(In Thousands)
Service cost $ 605 $ 540 $ 481
Interest cost on projected benefit
obligation 1,083 1,052 960
Expected return on plan assets (1,750) (1,600) (1,363)
Net amortization and deferral (79) (10) (71)
$ (141) $ (18) $ 7
Assumptions used by the Company in the determination of pension
plan information for 1999, 1998 and 1997 consisted of the
following:
1999 1998 1997
Discount rate 7.00% 6.75% 7.00%
Rate of increase in compensation levels 5.00 5.00 5.00
Expected long term rate of return on
plan assets 8.50 8.50 8.50
Plan assets consist primarily of U.S. Government securities,
corporate bonds and common stocks, including CEIs common stock of
$215,000, $293,000 and $239,000 at December 31, 1999, 1998 and
1997, respectively.
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9
POSTRETIREMENT BENEFIT PLAN
Information pertaining to the activity in the postretirement
benefit plan is as follows:
Years Ended December 31,
1999 1998 1997
(In Thousands)
Change in benefit obligation:
Benefit obligation at beginning of
year $ 1,415 $ 1,438 $ 1,337
Service cost 74 58 44
Interest cost 91 86 98
Actuarial (gain) (91) (130) (8)
Benefits paid (36) (37) (33)
Benefit obligation at end of year 1,453 1,415 1,438
Fair value of plan assets at
end of year - - -
Funded status (1,453) (1,415) (1,438)
Unrecognized net actuarial (gain) (386) (332) (155)
Unrecognized net transition obligation 731 787 844
Accrued benefit cost $(1,108) $ (960) $ (749)
Net postretirement benefit cost for this Plan consisted of the
following components:
Years Ended December 31,
1999 1998 1997
(In Thousands)
Service cost $ 74 $ 58 $ 44
Interest cost on projected benefit
obligation 91 86 98
Net amortization and deferral 43 37 54
$ 208 $ 181 $ 196
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9
POSTRETIREMENT BENEFIT PLAN (CONTINUED)
Assumptions used by the Company in the determination of
postretirement benefit plan information consisted of the
following:
Years Ended December 31,
1999 1998 1997
Discount rate 7.00% 6.75% 7.00%
For measurement purposes, a 6.0 percent annual rate of increase in
the per capita cost of covered health care benefits was assumed
for 1999. The rate was assumed to decrease gradually to 5.5
percent for 2000 and remain at that level thereafter.
Assumed health care trend rates have a significant impact on the
amounts reported. A one percentage point change in assumed health
care cost trend rates would have the following effects:
One One
Percentage Percentage
Point Point
Increase Decrease
(In Thousands)
Effect on total of service and interest
cost components $ 32 $ (25)
Effect on postretirement benefit
obligation 230 (187)
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10
REDEEMABLE PREFERRED STOCK
The Company has outstanding 156,779 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 $22.95, (adjusted for the effect of
the 3 for 2 stock split), subject to adjustment under certain
circumstances. Each holder may require the Company to redeem all
or a portion of such holders preferred stock 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.
During 1999, preferred stockholders converted 20,558 shares of
preferred stock in exchange for 58,220 shares of common stock and,
during 1998, preferred stockholders converted 6,370 shares of
preferred stock in exchange for 12,027 shares of common stock. In
addition, preferred stockholders redeemed 2,952 shares for
$192,000 and redeemed 9,959 shares for $647,000 during the years
ended December 31, 1999 and 1998, respectively.
11
STOCKHOLDERS EQUITY
Stock split:
On January 26, 1999, the Companys Board of Directors authorized
a 3 for 2 stock split effected in the form of a 50% stock
dividend distributable on May 14, 1999. Stockholders equity
was restated to give retroactive recognition to the stock split
as of December 31, 1998. References in the consolidated
financial statements and the notes thereto with regard to per
share and related data were restated in 1998 to give effect to
this transaction.
Reduction in par value and increase in number of authorized
shares:
On May 1, 1999, the stockholders approved an amendment to the
Companys Articles of Incorporation reducing the par value of
the common stock from $5 per share to $1 per share, and
increasing the number of authorized shares from 10 million to
20 million shares. As a result of the reduction in par value,
common stock was reduced by $28,650,000 and additional paid in
capital was increased by the same amount.
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11
STOCKHOLDERS EQUITY (CONTINUED)
Stock Purchase 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 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 are purchased monthly by
participating employees at a price of 95% of the stocks fair
market value, as defined in the Plan document. A maximum of
150,000 shares are authorized for issuance under the Plan.
Dividend Reinvestment Plan:
The Company sponsors a Dividend Reinvestment Plan for all
stockholders who wish to participate. Participants dividends
and optional cash considerations are used to purchase shares of
common stock. A participants purchase price per share is fair
market value, as defined in the Plan document.
12
STOCK OPTION PLAN
The Company adopted a Stock Option Plan for the officers and
employees of the Company which was approved by stockholders in May
1999. An aggregate of 450,000 shares of authorized but unissued
common stock of the Company are reserved for future issuance under
the Plan. The stock options have an expiration term of 10 years.
The per share exercise price of a stock option shall be not less
than the fair market value of the underlying common stock on the
date the option is granted.
During 1999, 41,750 options were granted to employees at an
exercise price of $22.34 per share. These options are not
exercisable for three years after the grant date. The weighted
average remaining life of the option granted is 9.4 years.
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12
STOCK OPTION PLAN (CONTINUED)
The Company applies APB Opinion 25 and related interpretations in
accounting for the stock option plan. Accordingly, no
compensation cost has been recognized. Had compensation cost for
the Companys Stock Option Plan been determined based on the fair
value at the grant dates for awards under the Plan consistent with
the method prescribed by FASB Statement No. 123, the Companys net
income and earnings per share for the year ended December 31, 1999
would have been adjusted to the pro forma amounts indicated below
(in thousands, except per share data):
Net income:
As reported $ 3,826
Pro forma 3,799
Basic and diluted earnings per share:
As reported $ 0.46
Pro forma 0.46
The fair value of each option grant of $ 3.27 is estimated on the
date of the grant using the Black Scholes option pricing model
with the following weighted average assumptions:
Dividend yield 4.00%
Expected life 9 years
Expected volatility 14.80%
Risk free interest rate 6.01%
13
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income, establishes standards for the reporting and
display of comprehensive income and its components in financial
statements. Comprehensive income includes all nonowner changes in
equity, and consists of net income and unrealized gains and losses
on available for sale securities.
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13
COMPREHENSIVE INCOME (CONTINUED)
The components of other comprehensive income and related tax
effects for the years ended December 31, 1999, 1998 and 1997 are
as follows:
1999 1998 1997
(In Thousands)
Unrealized holding gains on available for
sale securities, less tax effect
1999 $74; 1998 $415; 1997 $240 $ 144 $ 803 $ 446
Less reclassification adjustment for
gains realized in net income, less
tax effect 1998 $31 - 42 -
$ 144 $ 761 $ 446
14
EARNINGS PER SHARE
The following table sets forth the computation of basic and
diluted earnings per share:
1999 1998 1997
(In Thousands, Except
Per Share Data)
Numerator:
Net income $3,826 $10,352 $ 9,314
Preferred stock dividends (553) (659) (672)
Numerator for basic earnings per
share, income available to
common stockholders 3,273 9,693 8,642
Effect of dilutive securities,
preferred stock dividends - 659 672
Numerator for diluted earnings per
share, income available to common
stockholders after assumed
conversions $3,273 $10,352 $ 9,314
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14
EARNINGS PER SHARE (CONTINUED)
1999 1998 1997
(In Thousands) Except
Per Share Data)
Denominator:
Denominator for basic earnings per
share, weighted average shares 7,044 6,971 6,930
Effect of dilutive securities,
convertible preferred stock and stock
options - 548 557
Dilutive potential common shares,
denominator for diluted earnings per
share, adjusted weighted average shares
and assumed conversions 7,044 7,519 7,487
Basic earnings per share $0.46 $1.39 $1.25
Diluted earnings per share $0.46 $1.38 $1.25
The Company has excluded the convertible preferred stock from the
computation of dilutive earnings per share for 1999, since they
would have had an anti dilutive effect. In addition, options to
purchase 41,750 shares of common stock were outstanding since June
1, 1999, but were not included in the computation of dilutive
earnings per share since they were also anti dilutive.
15
COMMITMENTS
At December 31, 1999, the Company had commitments for the purchase
of equipment and materials approximating $1,753,000.
The Company leases remote sites and buildings under operating
lease agreements which expire between August 2002 and June 2026.
Future minimum payments under the leases are (in thousands):
2000 $1,082
2001 1,078
2002 1,047
2003 720
2004 359
Thereafter 476
$4,762
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15
COMMITMENTS (CONTINUED)
Rental expense included in the financial statements for the years
ended December 31, 1999, 1998 and 1997 approximated $1,022,000,
$603,000 and $177,000, respectively.
16
PENDING MERGER
On November 12, 1999, the Company entered into an agreement to
merge with TeleBeam, Incorporated (TeleBeam), a nonregulated,
diversified telecommunications services company. The merger was
approved by TeleBeams stockholders and settlement occurred on
January 31, 2000. The Company will issue a total of approximately
735,000 shares in the transaction. The transaction is being
accounted for under the pooling of interests method of accounting.
Under the terms of the agreement, TeleBeam merged with and into TE
Merger Corporation, a wholly owned subsidiary of the Company.
The following unaudited pro forma data summarizes the combined
results of operations of the Company and TeleBeam as if the
combination had been consummated on December 31, 1999:
Years Ended December 31,
1999 1998 1997
(In Thousands, Except Per Share Data)
Operating revenues $87,015 $77,348 $59,305
Net income $ 2,440 $10,682 $ 9,476
Basic earnings per share $ 0.24 $ 1.33 $ 1.18
Diluted earnings per share $ 0.24 $ 1.30 $ 1.17
The pro forma results are not necessarily indicative of the
combined results of future operations.
On January 31, 2000, the Company borrowed $12,000,000 from its
available lines of credit to pay principal of $12,135,000 plus
accrued interest on TeleBeams existing long term debt.
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17
OPERATING SEGMENTS
Statement of Financial Accounting Standards No. 131, Disclosures
about Segments of an Enterprise and Related Information
establishes standards for the way that public enterprises report
information about operating segments in annual financial
statements.
The Companys 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 and for the years ended December 31,
1999, 1998 and 1997 is as follows:
Telephone Wireless Other Total
(In Thousands)
1999:
Operating revenues from
external customers:
Local service $ 11,707 $ - $ 805 $ 12,512
Long distance and
access service 31,154 - 7,325 38,479
Wireless service - 2,404 - 2,404
Equipment and other 8,366 478 8,960 17,804
51,227 2,882 17,090 71,199
Intersegment operating
revenues 2,835 15 143 2,993
Operating profit (loss) 20,858 (8,029) (1,466) 11,363
Total assets 111,091 33,672 8,611 153,374
Capital expenditures 10,373 6,987 535 17,895
Depreciation and
amortization 10,110 3,153 1,114 14,377
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17
OPERATING SEGMENTS (CONTINUED)
Segment information as of and for the years ended December 31,
1999, 1998 and 1997 is as follows (continued):
Telephone Wireless Other Total
(In Thousands)
1998:
Operating revenues from
external customers:
Local service $10,368 $ - $ 84 $10,452
Long distance and
access service 31,674 - 4,624 36,298
Wireless service - 739 - 739
Equipment and other 7,433 532 7,379 15,344
49,475 1,271 12,087 62,833
Intersegment operating
revenues 1,676 19 447 2,142
Operating profit (loss) 19,006 (5,235) (1,201) 12,570
Total assets 106,924 33,315 10,897 151,136
Capital expenditures 7,477 20,848 269 28,594
Depreciation and
amortization 9,932 1,432 1,084 12,448
1997:
Operating revenues:
Local service 9,368 $ - $ - $ 9,368
Long distance and
access service 31,603 - 2,537 34,140
Wireless service - 524 - 524
Equipment and other 7,607 207 4,339 12,153
48,578 731 6,876 56,185
Intersegment operating
revenues 313 19 517 849
Operating profit (loss) 16,403 (466) (385) 15,552
Total assets 107,900 10,860 11,133 129,893
Capital expenditures 7,011 7,246 167 14,424
Depreciation and
amortization 9,599 83 705 10,387
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17
OPERATING SEGMENTS (CONTINUED)
Certain items in the schedule above need to be reconciled to the
consolidated financial statements and are provided in the
schedules below:
Years Ended December 31,
1999 1998 1997
(In Thousands)
Revenues:
Total revenues for reportable
segments $ 56,959 $ 52,604 $ 49,899
Other revenues 17,233 12,371 7,135
Elimination of intersegment
revenues (2,993) (2,142) (849)
Total consolidated revenues $ 71,199 $ 62,833 $ 56,185
Total assets:
Total assets for reportable
segments $144,763 $140,239 $118,760
Other assets 8,611 10,897 11,133
Elimination of intersegment
receivables (4,302) (527) (603)
Total consolidated assets $149,072 $ 150,609 $129,290
18
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.
CONESTOGA ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18
FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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.
19
QUARTERLY DATA (UNAUDITED)
First Second Third Fourth
(In Thousands, Except Per Share Data)
1999
Operating revenues $ 16,571 $ 17,879 $ 17,827 $ 18,922
Operating income 3,173 3,623 2,326 2,241
Net income 1,250 1,486 634 456
Basic earnings per share 0.16 0.19 0.07 0.04
Diluted earnings per share 0.16 0.19 0.07 0.04
1998
Operating revenues $ 15,165 $ 15,622 $ 15,996 $ 16,050
Operating income 3,848 2,812 3,438 2,472
Net income 2,061 5,641 1,718 932
Basic earnings per share 0.27 0.79 0.22 0.11
Diluted earnings per share 0.27 0.75 0.22 0.11
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
EXECUTIVE OFFICERS
The names, ages, and positions of the executive officers of the
Company are set forth below. All officers of the Company serve for
terms of one year and until re elected or until a successor is duly
elected at the Annual Meeting of directors, which follows the annual
shareholders meeting. No officers have any arrangements or
understandings with any other person pursuant to which such officer was
or is to be selected as an officer.
Albert H. Kramer; Age 45; President
Mr. Kramer was appointed President in May, 1998. He has been
employed by the Company since September, 1995, serving as Vice
President, Finance and Administration from September, 1995, until
August, 1997, and as Executive Vice President from August, 1997 until
May, 1998. Prior to that he was employed by Denver and Ephrata
Telephone Company for 11 years, serving as Chief Financial Officer
during the last 5 years of his employment.
Joseph P. Laffey; Age 47; Vice President, Regulatory and External
Affairs
Mr. Laffey has been employed by the Company as Vice President,
Regulatory and External Affairs, since May 1996. Prior to that he was
employed by Commonwealth Telephone Company for 17 years, serving as
Vice President of Revenue Requirements during the last year of his
employment; and Director of Revenue Requirements for four years prior
thereto.
Donald R. Breitenstein; Age 59; Controller
Mr. Breitenstein has been employed by CT&T since 1962. He worked
as Accountant until September, 1979, when he was appointed Accounting
Supervisor. He was appointed CT&Ts Accounting Manager in 1981, and
Controller in 1986. He was appointed to the board of directors of CT&T
in 1987. He was elected the Companys Controller and a member of its
Board at its organizational meeting in June, 1989.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(continued)
Thomas C. Keim; Age 54; Vice President Telecom Group
Mr. Keim was appointed Vice President Telecom Group in August,
1997. He had previously served as Vice President, Operations, since
October, 1994, and prior to that as Network Services Manager since
February 1984. Mr. Keim has been employed by CT&T since 1964.
Kenneth A. Benner; Age 52; Secretary/Treasurer
Mr. Benner has been employed by CT&T since 1974. He was elected to
the board of directors of CT&T in 1972, and has served as its
Secretary/Treasurer since 1982. He was elected Secretary/Treasurer and
a member of the Companys Board at its organizational meeting in June,
1989. In June, 1996, he was appointed Vice President and General
Manager of BVT.
Lawrence T. Killeen; Age 56; Vice President, Conestoga Communications,
Inc.
Mr. Killeen was appointed Vice President of Conestoga
Communications, Inc. in August, 1997. Prior to that he had served as
Director of Customer Services of CT&T. He has been employed by CT&T
since 1982.
Harrison H. Clement, Jr.; Age 56; Vice President Wireless Group and
President of Infocore, Inc.
Mr. Clement began his career in the telecommunications industry
in 1966 with the Bell system holding a variety of management positions
of increasing responsibility until 1981. In 1981 he co founded
Infocore, Inc. serving as president since that time.
William D. Chamblin, III; Age 43; President of Conestoga Wireless
Company
Mr. Chamblin was appointed President of Conestoga Wireless Company
in February, 1996. He had been employed by Infocore, Inc. since 1984.
His latest position with Infocore, Inc. was Vice President,
Development, in which position he was active in processing the PCS
licenses from the FCC for Conestoga Wireless Company.
The information as to the Directors as set forth under the caption
Election of Directors of the Proxy Statement relating to the Annual
Meeting of Shareholders to be held on May 6, 2000 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 6,
2000 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 6, 2000 is
incorporated by reference into this Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information as to Certain Relationships and Related
Transactions set forth under the caption Directors Compensation of the
Proxy Statement relating to the Annual Meeting of Shareholders to be
held on May 6, 2000 is incorporated by reference into this Report.
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, 1999 and 1998
Consolidated statements of income years ended December 31, 1999,
1998 and 1997
Consolidated statements of common stockholders equity years ended
December 31, 1999, 1998, and 1997
Consolidated statements of cash flows years ended December 31,
1999, 1998 and 1997
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 10G, 10H,
10I, 10J
(12) Statement re: Computation of Ratios Attachment 12
(21) Subsidiaries of the registrant Attachment 21E
(23) Letter of Consent Attachment 23
(b)Reports on Form 8 K
A report on Form 8 K has been filed by the registrant on
November 18, 1999 to report that on November 4, 1999 CEI signed a
definitive agreement for the acquisition of all the outstanding shares
of TeleBeam, Inc. for 735,000 shares of common stock of CEI.
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) Amendment dated June 1, 1999 to Agreement 72 74
Dated March 22, 1989 with Donald R. Breitenstein, Controller
(b) Agreement dated September 1, 1998 with 59 67**
Albert H. Kramer, President
(c) Agreement dated May 29, 1999 with 61 67
Joseph J. Laffey, Vice President, Regulatory and External Affairs
(d) Agreement dated June 30, 1999 with 67 72
Harrison H. Clement, Jr., President of Infocore, Inc.
(e) Agreement dated June 1, 1999 with 55 61
Thomas C. Keim Vice President of Telecom Group
Statement re: Computation of Ratios 75
Letter of Consent 75
Subsidiaries of the registrant 76
*These exhibits appear in the 1992 10K.
** This exhibit appears in the 1998 10K.
Attachment 10 G EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT
AGREEMENT made as of this 1st day of June, 1999, between
CONESTOGA ENTERPRISES, INC., a Pennsylvania business corporation,
having its principal office in the Borough of Birdsboro, County of
Berks and State of Pennsylvania (hereinafter called Employer) and
THOMAS C. KEIM, of Birdsboro, Berks County, Pennsylvania (hereinafter
called the Employee).
A G R E E M E N T
1. Employment. The Employer employs the Employee and
the Employee accepts employment by Employer and its subsidiaries and
affiliates, upon the terms and conditions of this Agreement.
2. Term. The term of this Agreement shall be three (3)
years commencing on June 1, 1999 and shall terminate on May 31, 2002.
It is the intention of the Employer and the Employee that this
relationship shall continue beyond the three (3) years period but
either party may terminate the same under the terms hereinafter set
forth in this Agreement.
3. Compensation.
(a) For all services rendered by the Employee, the
Employer shall (i) pay Employee a base salary of One Hundred Twelve
Thousand Five Hundred Dollars ($112,500.00) per year, payable in equal
weekly installments at the end of each week, (ii) include the Employee
as a participant in the Employers Executive Incentive Plan, and (iii)
include the Employee as a participant in the Employers salaried
employees benefit programs. Salary payments shall be subject to
withholding and other applicable taxes.
(b) Employer will review Employees compensation on
an annual basis along with the review of all its management employees.
4. Duties. The Employee shall serve as the Employers
Vice President Telecommunications Group and shall be responsible for
the Employers telecommunications matters. The exact responsibilities
for the position are set forth in the job description for Vice
President Telecommunications Group of the Employer. A copy of said job
description is attached hereto and referred to as Schedule A.
5. Extent of Services. The Employee shall devote his
entire time and attention to the Employers business. During the term
of this Agreement, the Employee shall not engage in any other business
activity, regardless of whether it is pursued for gain or profit.
Employee, however, may invest his assets in other companies so long as
they do not require the Employees services in the operation of their
affairs.
6. Working Facilities. The Employee shall have a
private office, stenographic help, a personal computer and other
facilities and services that are suitable to his position and
appropriate for the performance of his duties.
7. Disclosure of Information. The Employee acknowledges
that the list of the Employers customers, as the Employer may determine
from time to time, is a valuable, special and unique asset of the
Employers business. The Employee shall not, during and after the term
of his employment, disclose all or any part of the Employers customer
list to any person, firm, corporation, association, or other entity for
any reason or purpose. In the event of the Employees breach or
threatened breach of this paragraph, the Employer shall be entitled to
a preliminary restraining order and an injunction restraining and
enjoining the Employee from disclosing all or any part of the Employers
customer list to any person, firm, corporation, association, or other
entity for any reason or purpose and from rendering any services to any
person, firm, corporation, association, or other entity to whom all or
any part of such list has been, or is threatened to be, disclosed. In
addition to or in lieu of the above, the Employer may pursue all other
remedies available to the Employer for such breach or threatened
breach, including the recovery of damages from the Employee.
8. Expenses. The Employer shall reimburse Employee for
all reasonable and necessary expenses incurred in carrying out his
duties under this Agreement. Employee shall present to the Employer,
from time to time, an itemized account of such expenses in any form
required by the Employer.
9. Vacations. The Employee shall be entitled each year
to a vacation of five (5) weeks, during which time his compensation
shall be paid in full.
10. Termination By Employee. Employee may, without
cause, terminate this Agreement by giving sixty (60) days written
notice to the Employer. In such event, the Employee shall continue to
render his services and shall be paid his regular compensation up until
the date of termination.
11. Termination for Proper Cause. Employer may terminate
Employees employment at any time for proper cause. Proper cause for
the termination of Employees employment shall be as follows:
(a) Violation by Employee of the restrictive
covenants set forth in Paragraph 7 hereof;
(b) Employees disloyal, dishonest or illegal
conduct; or
(c) Employees willful dereliction of his duties to
Employer.
12. Severance Compensation.
12.1 General Rule. Unless the provisions of
Paragraph 12.2 apply, in the event of the termination of the Employees
employment by the Employer, other than for cause, prior to the
expiration of the three (3) year term referred to in Paragraph 2, the
Employer 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 Employees 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 three (3) year
term referred to in Paragraph 2, determined as of the date of
termination of employment.
12.2 Change of Control. If, during the term of this
Agreement, the Employees employment with the Employer is terminated
after a change of control, as defined below, (hereinafter called
Control Termination), either by the Employee or by the Employer, the
Employer shall pay to the Employee the Employees annual salary,
determined as of the date of the Control Termination, for a period of
three (3) years from and after the date of the Control Termination in
such periodic installments as were being paid at the time of the
Control Termination. The Employer shall be obligated to make such
payment in lieu of, and not in addition to, the Employers payment
obligations under Paragraph 12.1. 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 the Employer 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 Employer would be entitled to cast in the election
of directors of the Employer, 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 Employer to a
transferee other than Employer or an entity of which a controlling
interest is owned by Employer.
12.3 Termination for Cause. In the event of the
termination of the Employees employment at any time by the Employer for
cause, except for a Control Termination, the Employer shall have no
obligation to pay the Employee any sums following the termination of
his employment.
13. Death During Employment. If the Employee dies during
the term of employment, the Employer shall pay to the Employees estate
the compensation that would otherwise be payable to the Employee up to
the end of the month in which his death occurs. In addition, if
Employee qualifies under the terms of the Employers existing life
insurance coverage, Employer will provide life insurance on the life of
Employee amounting to two and one half (2 1/2) times his annual salary
up to a maximum of Three Hundred Thousand Dollars ($300,000.00).
14. Restricted Covenant. For a period of three (3) years
after the termination or expiration of this Agreement, the Employee
shall not within Berks County or Union County, Pennsylvania, directly
or indirectly, own, manage, operate, control, be employed by,
participate in, or be connected in any manner with the ownership,
management, operation or control of any business similar and
competitive to the type of business conducted by the Employer at the
time this Agreement terminates. In the event of the Employees actual
or threatened breach of this paragraph, the Employer shall be entitled
to a preliminary restraining order and injunction restraining the
Employee from violating its provisions. Nothing in this Agreement
shall be construed to prohibit the Employer from pursuing any other
available remedies for such breach or threatened breach, including the
recovery of damages from the Employee.
15. Arbitration. Any controversy or claim arising out
of, or relating to this Agreement, or its breach, shall be settled by
arbitration in the City of Reading in accordance with the then
governing rules of the American Arbitration Association. Judgment upon
the award rendered may be entered and enforced in any court of
competent jurisdiction.
16. Notices. Any notice required or desired to be given
under this Agreement shall be deemed given if in writing and sent by
certified mail, return receipt requested, to the Employees residence or
to the Employers principal office, as the case may be.
17. Waiver of Breach. The Employers waiver of a breach
of any provision in this Agreement by the Employee shall not operate or
be construed as a waiver of any subsequent breach by the Employee. No
waiver shall be valid unless in writing and signed by an authorized
officer of the Employer.
18. Assignment. The Employee acknowledges that his
services are unique and personal. Accordingly, the Employee may not
assign his rights or delegate his duties or obligations under this
Agreement. The Employers rights and obligations under this Agreement
shall inure to the benefit of, and shall be binding upon, the Employers
successors and assigns.
19. Entire Agreement. This Agreement contains the entire
understanding of the parties. It may not be changed orally but only by
an agreement in writing signed by the party against whom enforcement of
any waiver, change, modification, extension, or discharge is sought.
20. Headings. Headings in this Agreement are for
convenience only and shall not be used to interpret
or construe its provisions.
21. Counterparts. This Agreement may be executed in two
(2) or more counterparts, each of which shall be
deemed an original but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement the day and year first above written.
CONESTOGA ENTERPRISES, INC.
By
Chairman
Attest
Secretary
(SEAL)
Thomas C. Keim
Attachment 10 H EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 29th day of May, 1999, between
CONESTOGA ENTERPRISES, INC., a Pennsylvania business corporation,
having its principal office in the Borough of Birdsboro, County of
Berks and State of Pennsylvania (hereinafter called Employer) and
JOSEPH J. LAFFEY, of 912 Ralph Lane, Moosic, Pennsylvania 18507
(hereinafter called the Employee).
A G R E E M E N T
1. Employment. The Employer employs the Employee and
the Employee accepts employment by Employer and its subsidiaries and
affiliates, upon the terms and conditions of this Agreement.
2. Term. The term of this Agreement shall be three (3)
years commencing on May 29, 1999 and shall terminate on May 28, 2002.
It is the intention of the Employer and the Employee that this
relationship shall continue beyond the three (3) years period but
either party may terminate the same under the terms hereinafter set
forth in this Agreement.
3. Compensation.
(a) For all services rendered by the Employee, the
Employer shall (i) pay Employee a base salary of One Hundred Twenty
seven Thousand Dollars ($127,000.00) per year, payable in equal weekly
installments at the end of each week, (ii) include the Employee as a
participant in the Employers Executive Incentive Plan, and (iii)
include the Employee as a participant in the Employers salaried
employees benefit programs. Salary payments shall be subject to
withholding and other applicable taxes.
(b) Employer will review Employees compensation on
an annual basis along with the review of all its management employees.
4. Duties. The Employee shall serve as the Employers
Vice President Regulatory and External Affairs and shall be responsible
for the Employers overall regulatory matters. The exact
responsibilities for the position are set forth in the job description
for Vice President Regulatory and External Affairs of the Employer. A
copy of said job description is attached hereto and referred to as
Schedule A.
5. Extent of Services. The Employee shall devote his
entire time and attention to the Employers business. During the term
of this Agreement, the Employee shall not engage in any other business
activity, regardless of whether it is pursued for gain or profit.
Employee, however, may invest his assets in other companies so long as
they do not require the Employees services in the operation of their
affairs.
6. Working Facilities. The Employee shall have a
private office, stenographic help, a personal computer and other
facilities and services that are suitable to his position and
appropriate for the performance of his duties.
7. Disclosure of Information. The Employee acknowledges
that the list of the Employers customers, as the Employer may determine
from time to time, is a valuable, special and unique asset of the
Employers business. The Employee shall not, during and after the term
of his employment, disclose all or any part of the Employers customer
list to any person, firm, corporation, association, or other entity for
any reason or purpose. In the event of the Employees breach or
threatened breach of this paragraph, the Employer shall be entitled to
a preliminary restraining order and an injunction restraining and
enjoining the Employee from disclosing all or any part of the Employers
customer list to any person, firm, corporation, association, or other
entity for any reason or purpose and from rendering any services to any
person, firm, corporation, association, or other entity to whom all or
any part of such list has been, or is threatened to be, disclosed. In
addition to or in lieu of the above, the Employer may pursue all other
remedies available to the Employer for such breach or threatened
breach, including the recovery of damages from the Employee.
8. Expenses. The Employer shall reimburse Employee for
all reasonable and necessary expenses incurred in carrying out his
duties under this Agreement. Employee shall present to the Employer,
from time to time, an itemized account of such expenses in any form
required by the Employer.
9. Vacations. The Employee shall be entitled each year
to a vacation of four (4) weeks, during which time his compensation
shall be paid in full.
10. Termination By Employee. Employee may, without
cause, terminate this Agreement by giving sixty (60) days written
notice to the Employer. In such event, the Employee shall continue to
render his services and shall be paid his regular compensation up until
the date of termination.
11. Termination for Proper Cause. Employer may terminate
Employees employment at any time for proper cause. Proper cause for
the termination of Employees employment shall be as follows:
(a) Violation by Employee of the restrictive
covenants set forth in Paragraph 7 hereof;
(b) Employees disloyal, dishonest or illegal
conduct; or
(c) Employees willful dereliction of his duties to
Employer.
12. Severance Compensation.
12.1 General Rule. Unless the provisions of
Paragraph 12.2 apply, in the event of the termination of the Employees
employment by the Employer, other than for cause, prior to the
expiration of the three (3) year term referred to in Paragraph 2, the
Employer 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 Employees 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 three (3) year
term referred to in Paragraph 2, determined as of the date of
termination of employment.
12.2 Change of Control. If, during the term of this
Agreement, the Employees employment with the Employer is terminated
after a change of control, as defined below, (hereinafter called
Control Termination), either by the Employee or by the Employer, the
Employer shall pay to the Employee the Employees annual salary,
determined as of the date of the Control Termination, for a period of
three (3) years from and after the date of the Control Termination in
such periodic installments as were being paid at the time of the
Control Termination. The Employer shall be obligated to make such
payment in lieu of, and not in addition to, the Employers payment
obligations under Paragraph 12.1. 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 the Employer 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 Employer would be entitled to cast in the election
of directors of the Employer, 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 Employer to a
transferee other than Employer or an entity of which a controlling
interest is owned by Employer.
12.3 Termination for Cause. In the event of the
termination of the Employees employment at any time by the Employer for
cause, except for a Control Termination, the Employer shall have no
obligation to pay the Employee any sums following the termination of
his employment.
13. Death During Employment. If the Employee dies during
the term of employment, the Employer shall pay to the Employees estate
the compensation that would otherwise be payable to the Employee up to
the end of the month in which his death occurs. In addition, if
Employee qualifies under the terms of the Employers existing life
insurance coverage, Employer will provide life insurance on the life of
Employee amounting to two and one half (2 1/2) times his annual salary
up to a maximum of Three Hundred Thousand Dollars ($300,000.00).
14. Restricted Covenant. For a period of three (3) years
after the termination or expiration of this Agreement, the Employee
shall not within Berks County or Union County, Pennsylvania, directly
or indirectly, own, manage, operate, control, be employed by,
participate in, or be connected in any manner with the ownership,
management, operation or control of any business similar and
competitive to the type of business conducted by the Employer at the
time this Agreement terminates. In the event of the Employees actual
or threatened breach of this paragraph, the Employer shall be entitled
to a preliminary restraining order and injunction restraining the
Employee from violating its provisions. Nothing in this Agreement
shall be construed to prohibit the Employer from pursuing any other
available remedies for such breach or threatened breach, including the
recovery of damages from the Employee.
15. Arbitration. Any controversy or claim arising out
of, or relating to this Agreement, or its breach, shall be settled by
arbitration in the City of Reading in accordance with the then
governing rules of the American Arbitration Association. Judgment upon
the award rendered may be entered and enforced in any court of
competent jurisdiction.
16. Notices. Any notice required or desired to be given
under this Agreement shall be deemed given if in writing and sent by
certified mail, return receipt requested, to the Employees residence or
to the Employers principal office, as the case may be.
17. Waiver of Breach. The Employers waiver of a breach
of any provision in this Agreement by the Employee shall not operate or
be construed as a waiver of any subsequent breach by the Employee. No
waiver shall be valid unless in writing and signed by an authorized
officer of the Employer.
18. Assignment. The Employee acknowledges that his
services are unique and personal. Accordingly, the Employee may not
assign his rights or delegate his duties or obligations under this
Agreement. The Employers rights and obligations under this Agreement
shall inure to the benefit of, and shall be binding upon, the Employers
successors and assigns.
19. Entire Agreement. This Agreement contains the entire
understanding of the parties. It may not be changed orally but only by
an agreement in writing signed by the party against whom enforcement of
any waiver, change, modification, extension, or discharge is sought.
20. Headings. Headings in this Agreement are for
convenience only and shall not be used to interpret or construe its
provisions.
21. Counterparts. This Agreement may be executed in two
(2) or more counterparts, each of which shall be deemed an original but
all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement the day and year first above written.
CONESTOGA ENTERPRISES, INC.
By
Chairman
Attest
Secretary
(SEAL)
Joseph J. Laffey
Attachment 10 I EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT
AGREEMENT made this day of , 1999, between
INFOCORE, INC., a Pennsylvania business corporation, having its
principal office in King of Prussia, County of Montgomery and State of
Pennsylvania (hereinafter called Employer) and HARRISON H. CLEMENT,
JR., of Stafford, Chester County, Pennsylvania (hereinafter called the
Employee).
B A C K G R O U N D:
A. Employee has been employed by Employer as President
and Chief Executive Officer.
B. Employer is a wholly owned subsidiary of Conestoga
Enterprises, Inc., a Pennsylvania corporation with its principal place
in the Borough of Birdsboro, Berks County, Pennsylvania (Conestoga
Enterprises).
C. Conestoga Enterprises, as the sole shareholder of
Employer, is willing to guarantee that the Employer will carry out the
terms and provisions of this Agreement.
A G R E E M E N T
1. Employment. The Employer employs the Employee and
the Employee accepts employment by Employer and its subsidiaries and
affiliates, upon the terms and conditions of this Agreement.
2. Term. The term of this Agreement shall be three (3)
years commencing on June 1, 1999 and shall terminate on May 31, 2002.
It is the intention of the Employer and the Employee that this
relationship shall continue beyond the three (3) year period, but
either party may terminate the same under the terms hereinafter set
forth in this Agreement.
3. Compensation.
(a) For all services rendered by the Employee, the
Employer shall (i) pay Employee a base salary of One Hundred Sixteen
Thousand Dollars ($116,000.00) per year, payable in equal weekly
installments at the end of each week, (ii) include the Employee as a
participant in the Employers Executive Incentive Plan, and (iii)
include the Employee as a participant in the Employers salaried
employees benefit programs. Salary payments shall be subject to
withholding and other applicable taxes.
(b) Employer will review Employees compensation on
an annual basis along with the review of all its management employees.
4. Duties. The Employee shall serve as President and
Chief Executive Officer of Employer. The exact responsibilities for
the position are set forth in the job description for President and
Chief Executive Officer of Employer. A copy of said job description is
attached hereto and referred to as Schedule A.
5. Extent of Services. The Employee shall devote his
entire time and attention to the Employers business. During the term
of this Agreement, the Employee shall not engage in any other business
activity, regardless of whether it is pursued for gain or profit.
Employee, however, may invest his assets in other companies so long as
they do not require the Employees services in the operation of their
affairs.
6. Working Facilities. The Employee shall have a
private office, stenographic help, a personal computer and other
facilities and services that are suitable to his position and
appropriate for the performance of his duties.
7. Disclosure of Information. The Employee acknowledges
that the list of the Employers customers, as the Employer may determine
from time to time, is a valuable, special and unique asset of the
Employers business. The Employee shall not, during and after the term
of his employment, disclose all or any part of the Employers customer
list to any person, firm, corporation, association, or other entity for
any reason or purpose. In the event of the Employees breach or
threatened breach of this paragraph, the Employer shall be entitled to
a preliminary restraining order and an injunction restraining and
enjoining the Employee from disclosing all or any part of the Employers
customer list to any person, firm, corporation, association, or other
entity for any reason or purpose and from rendering any services to any
person, firm, corporation, association, or other entity to whom all or
any part of such list has been, or is threatened to be, disclosed. In
addition to or in lieu of the above, the Employer may pursue all other
remedies available to the Employer for such breach or threatened
breach, including the recovery of damages from the Employee.
8. Expenses. The Employer shall reimburse Employee for
all reasonable and necessary expenses incurred in carrying out his
duties under this Agreement. Employee shall present to the Employer,
from time to time, an itemized account of such expenses in any form
required by the Employer.
9. Vacations. The Employee shall be entitled each year
to a vacation of four (4) weeks, during which time his compensation
shall be paid in full.
10. Termination By Employee. Employee may, without
cause, terminate this Agreement by giving sixty (60) days written
notice to the Employer. In such event, the Employee shall continue to
render his services and shall be paid his regular compensation up until
the date of termination.
11. Termination for Proper Cause. Employer may terminate
Employees employment at any time for proper cause. Proper cause for
the termination of Employees employment shall be as follows:
(a) Violation by Employee of the restrictive
covenants set forth in Paragraph 7 hereof;
(b) Employees disloyal, dishonest or illegal
conduct; or
(c) Employees willful dereliction of his duties to
Employer.
12. Severance Compensation.
12.1 General Rule. Unless the provisions of
Paragraph 12.2 apply, in the event of the termination of the Employees
employment by the Employer, other than for cause, prior to the
expiration of the three (3) year term referred to in Paragraph 2, the
Employer 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 Employees 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 three (3) year
term referred to in Paragraph 2, determined as of the date of
termination of employment.
12.2 Change of Control. If, during the term of this
Agreement, the Employees employment with the Employer is terminated
after a change of control, as defined below, (hereinafter called
Control Termination), either by the Employee or by the Employer, the
Employer shall pay to the Employee the Employees annual salary,
determined as of the date of the Control Termination, for a period of
three (3) years from and after the date of the Control Termination in
such periodic installments as were being paid at the time of the
Control Termination. The Employer shall be obligated to make such
payment in lieu of, and not in addition to, the Employers payment
obligations under Paragraph 12.1. 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 Employer or Conestoga
Enterprises 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 Employer or Conestoga
Enterprises, respectively, would be entitled to cast in the election of
directors of either the Employer or Conestoga Enterprises, 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 Employer to a transferee other than Conestoga Enterprises or an
entity of which a controlling interest is owned by Conestoga
Enterprises.
12.3 Termination for Cause. In the event of the
termination of the Employees employment at any time by the Employer for
cause, except for a Control Termination, the Employer shall have no
obligation to pay the Employee any sums following the termination of
his employment.
13. Death During Employment. If the Employee dies during
the term of employment, the Employer shall pay to the Employees estate
the compensation that would otherwise be payable to the Employee up to
the end of the month in which his death occurs. In addition, if
Employee qualifies under the terms of the Employers existing life
insurance coverage, Employer will provide life insurance on the life of
Employee amounting to two and one half (2 1/2) times his annual salary
up to a maximum of Three Hundred Thousand Dollars ($300,000.00).
14. Restricted Covenant. For a period of three (3) years
after the termination or expiration of this Agreement, the Employee
shall not within Berks, Union or Montgomery Counties, Pennsylvania,
directly or indirectly, own, manage, operate, control, be employed by,
participate in, or be connected in any manner with the ownership,
management, operation or control of any business similar and
competitive to the type of business conducted by the Employer at the
time this Agreement terminates. In the event of the Employees actual
or threatened breach of this paragraph, the Employer shall be entitled
to a preliminary restraining order and injunction restraining the
Employee from violating its provisions. Nothing in this Agreement
shall be construed to prohibit the Employer from pursuing any other
available remedies for such breach or threatened breach, including the
recovery of damages from the Employee.
15. Arbitration. Any controversy or claim arising out
of, or relating to this Agreement, or its breach, shall be settled by
arbitration in the City of Reading in accordance with the then
governing rules of the American Arbitration Association. Judgment upon
the award rendered may be entered and enforced in any court of
competent jurisdiction.
16. Notices. Any notice required or desired to be given
under this Agreement shall be deemed given if in writing and sent by
certified mail, return receipt requested, to the Employees residence or
to the Employers principal office, as the case may be.
17. Waiver of Breach. The Employers waiver of a breach
of any provision in this Agreement by the Employee shall not operate or
be construed as a waiver of any subsequent breach by the Employee. No
waiver shall be valid unless in writing and signed by an authorized
officer of the Employer.
18. Assignment. The Employee acknowledges that his
services are unique and personal. Accordingly, the Employee may not
assign his rights or delegate his duties or obligations under this
Agreement. The Employers rights and obligations under this Agreement
shall inure to the benefit of, and shall be binding upon, the Employers
successors and assigns.
19. Entire Agreement. This Agreement contains the entire
understanding of the parties. It may not be changed orally but only by
an agreement in writing signed by the party against whom enforcement of
any waiver, change, modification, extension, or discharge is sought.
20. Headings. Headings in this Agreement are for
convenience only and shall not be used to interpret or construe its
provisions.
21. Counterparts. This Agreement may be executed in two
(2) or more counterparts, each of which shall be deemed an original but
all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement the day and year first above written.
INFOCORE, INC.
By
Chairman
Attest
Secretary
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 Infocore, Inc. under
the foregoing Employment Agreement.
CONESTOGA ENTERPRISES, INC.
By
Chairman
Attachment 10 J EMPLOYMENT AGREEMENT
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT made as of the 1st day of
June, 1999, by and between CONESTOGA TELEPHONE AND TELEGRAPH COMPANY, a
Pennsylvania corporation, having its place of business in Birdsboro,
Berks County, Pennsylvania (hereinafter called the Company), and DONALD
R. BREITENSTEIN, an individual residing in Union Township, Berks
County, Pennsylvania (hereinafter called Breitenstein).
W I T N E S S E T H :
WHEREAS, the parties entered into an Employment Agreement dated
March 22, 1989 (the Employment Agreement), providing Breitenstein with
certain benefits upon his retirement, disability or death; and
WHEREAS, the parties wish to amend the Employment Agreement to
change the date of Breitensteins retirement.
NOW THEREFORE, the parties intending to be legally bound, hereby
agree as follows:
1. Paragraph 2 of the Employment Agreement is hereby amended
in its entirety to provide as follows:
2. Payment upon Retirement, Disability or Death. At such time
as Breitenstein (1) elects to retire on or after December 31, 2002,
from the active and daily service of the Company, (2) becomes so
disabled either physically or mentally, prior to attaining retirement
age that it becomes necessary to terminate his employment with the
Company (hereinafter referred to as Disability or Disabled), or (3)
dies at any time during the period of employment covered by this
Agreement, the additional compensation of ten percent (10%) of his
ususal gross salary, before deductions, for each year that Breitenstein
is employed after January 1, 1989, under the terms of this Agreement
(prior to his retirement on or after December 31, 2002, disability or
death) shall be paid to Breitenstein, or to his estate in the event of
his death, in equal monthly installments of 1/120 of the amount of
additional compensation accumulated. The installment payments shall
commence one (1) month after his retirement on or after December 31,
2002, or after his disability or death, as applicable, and payments for
succeeding months shall be paid to Breitenstein, or to his estate in
the event of his death, monthly, until all payments due hereunder have
been paid. If Breitenstein retires on or after December 31, 2002, or
is disabled, or dies in any year, he shall be entitled to compensation
of ten percent (10%) on the portion of the year he has worked for the
Company. If Breitenstein dies during the period of additional
compensation payments, the remaining payments provided for hereunder
shall be paid to Breitensteins estate; provided that, if Breitenstein
names in a writing submitted to the Company, a beneficiary for such
benefits upon his death during such period of additional compensation
payment, such remaining payments shall be paid to such beneficiary, if
such beneficiary survives Breitenstein, and to such beneficiarys estate
if such beneficiary survives Breitenstein but subsequently dies during
the period of additional compensation payments. If such beneficiary
predeceases Breitenstein, such payments shall be paid to Breitensteins
estate. Breitenstein may retire hereunder at any time on or after
December 31, 2002. If Breitenstein receives payments hereunder as the
result of his Disability and then resumes his employment with the
Company, the payments received by him during such period of disability
shall be credited against the payments to which he is entitled upon his
subsequent retirement on or after December 31, 2002, or disability or
death.
2. Paragraph 5 of the Employment Agreement is amended to
substitute the date December 31, 2002, for December 31, 2005, in the
third line thereof.
3. This Amendment to Employment Agreement shall only amend the
Employment Agreement as specifically provided herein. All of the other
terms and conditions of the Employment Agreement shall remain the same
and are hereby ratified and affirmed by the parties.
IN WITNESS WHEREOF, the parties hereto have hereunto set their
hands and seals the year and day set forth above.
CONESTOGA TELEPHONE AND TELEGRAPH
COMPANY
By
Chairman
Attest
Secretary
(SEAL)
Donald R. Breitenstein
EXHIBIT 12
CONESTOGA ENTERPRISES, INC.
STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Years Ended December 31, 1999 1998 1997 1996 1995
(In thousands, Except Ratios)
Consolidated pre tax income $ 8,397 $18,937 $17,086 $14,306 $10,907
Undistributed earnings from
unconsolidated partnerships
interests - - (1,345) (1,257) (660)
Equity in losses from
unconsolidated partnership
interests 350 69 - - -
Interest 2,922 2,984 2,017 1,297 428
Earnings $11,669 $21,990 $17,758 $14,346 $10,675
Interest 2,922 $ 2,984 $ 2,017 $ 1,297 $ 428
Preferred stock
dividends (1) 1,228 1,213 1,234 569 -
Fixed charges and preferred
stock dividends $ 4,150 $ 4,197 $ 3,251 $ 1,866 $ 428
Ratio 2.81 5.24 5.46 7.70 24.95
(1) Preferred stock dividends/(100% income tax rate)
EXHIBIT 23
CONSENT OF BEARD & COMPANY, INC.
We hereby consent to the incorporation by reference in the Registration
Statements (Forms S 8, File No. 333 79503 and File No. 333 41283 and
Form S 3, File No. 333 26663) of our report, dated January 31, 2000,
relating to the consolidated financial statements of Conestoga
Enterprises, Inc. included in its Annual Report (Form 10 K) for the year
ended December 31, 1999.
/s/BEARD & COMPANY, INC.
Reading, Pennsylvania
March 27, 2000
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 October 18, 1995
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 March 31, 2000 By \s\ Albert H. Kramer
Albert H. Kramer
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 3/31/00 \s\ John R. Bentz
John R. Bentz
Chairman of the Board
Date 3/31/00 \s\ James H. Murray
James H. Murray
Vice President
Date 3/31/00 \s\ Kenneth A. Benner
Kenneth A. Benner
Secretary/Treasurer
Date 3/31/00 \s\ Donald R. Breitenstein
Donald R. Breitenstein
Controller, Chief Accounting
Officer
Date 3/31/00 \s\ Thomas E. Brown
Thomas E. Brown
Director
Date 3/31/00 \s\ John M. Sausen
John M. Sausen
Director
Date 3/31/00 \s\ Richard G. Weidner
Richard G. Weidner
Director
Date 3/31/00 \s\ Robert M. Myers
Robert M. Myers
Director
Date 3/31/00 \s\ Jean M. Ruhl
Jean M. Ruhl
Director
Date 3/31/00 \s\ Thomas C. Keim
Thomas C. Keim
Vice President Telecom Group
Date 3/31/00 \s\ Joseph J. Laffey
Joseph J. Laffey
Vice President, Regulatory and
External Affairs
Date 3/31/00 \s\ Harrison H. Clement, Jr.
Harrison H Clement, Jr.
President, Infocore, Inc.
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<ARTICLE> UT
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<PERIOD-END> DEC-31-1999
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<TOTAL-NET-UTILITY-PLANT> 91,731,632
<OTHER-PROPERTY-AND-INVEST> 39,535,013
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<TOTAL-COMMON-STOCKHOLDERS-EQ> 74,683,141
0
10,190,635
<LONG-TERM-DEBT-NET> 41,250,000
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<NET-INCOME> 3,826,028
543,831
<EARNINGS-AVAILABLE-FOR-COMM> 3,282,197
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