SOURCE: D & E Communications, Inc.

May 09, 2005 17:28 ET

D&E Communications Reports First Quarter 2005 Results

EPHRATA, PA -- (MARKET WIRE) -- May 9, 2005 -- D&E Communications, Inc. ("D&E") (NASDAQ: DECC), a leading provider of broadband integrated communications services in central and eastern Pennsylvania, today announced the results of its operations for the first quarter ended March 31, 2005.

For the first quarter of 2005 the company reported total operating revenue of $42.8 million, as compared to $43.8 million in the first quarter of 2004. Net income for the first quarter was $2.9 million, or $0.20 per share, as compared to a net loss of $2.3 million, or $0.15 per share, for the same period last year.

Included in the 2005 results was a gain on investment of $2.1 million ($1.4 million, or $0.10 per common share, after tax) from the sale of our interest in PenTeleData. The 2004 first quarter results included a loss on early extinguishment of debt amounting to $4.8 million ($3.3 million, or $0.21 per common share, after tax) related to the company's refinancing of its debt in March 2004.

"The results of the quarter reflect the importance of our competitive business segments to the growth of our company. In particular, we saw significant year-over-year growth in our Internet services segment, with our broadband DSL subscriber count up 65 percent from March 31, 2004, to March 31, 2005," said James W. Morozzi, President and Chief Executive Officer of D&E Communications. "Access line counts in our traditional telephone company territories declined over the year, following a trend we see throughout the industry. However, this decline was more than offset by increasing line counts in our Competitive Local Exchange Carrier segment. One of our strategies this year is to work to serve more of our CLEC customers on our own network facilities, enabling us to better control quality of service and improve margins in this segment."

"Results in our Systems Integration segment reflect another challenging quarter. However, we have implemented a plan to move this segment forward and improve results," Morozzi said. "Specifically, we have organized sales, operations and financial planning under one vice president to improve focus, accountability and decision-making. The team is focused on providing solutions for our business customers, concentrating on the opportunities provided by VoIP and our new Managed Services, which include monitoring the performance and reliability of a company's Internet access, e-mail system and website."

Summary Statistics
                                 March      March      Change      %Change
                                  2005       2004
                                -------    -------    -------      -------
RLEC lines                      138,494    142,118     (3,624)      (2.5%)
CLEC lines                       39,514     35,578      3,936       11.1%
DSL Subscribers                  13,247      8,030      5,217       65.0%
Dial-up Internet subscribers     10,716     12,790     (2,074)     (16.2%)
Web hosting customers               929        849         80        9.4%
Rural Local Exchange Carrier (RLEC)

First quarter 2005 revenues from the RLEC segment were $27.2 million, as compared to $28.0 million for first quarter 2004. This decrease was due in part to fewer access lines, decreased network access revenue from lower minutes of use and rate reductions for certain network access elements and lower long distance revenue.

RLEC operating expenses for the first quarter were $19.8 million, compared to $20.5 million during the same period last year. A wage and benefit increase was more than offset by decreases in expenses for contracted billing services, depreciation expense and network access expense.

Competitive Local Exchange Carrier (CLEC)

For the first quarter of 2005 CLEC segment revenues were $9.8 million, compared to $9.1 million for the same period of 2004. This increase was due to increased dedicated data circuit revenue and a larger number of access lines, offset by a reduction in long distance service revenues due to rate reductions and fewer minutes of use.

CLEC operating expenses for the first quarter of 2005 were $10.4 million, compared to $10.0 million for the same period last year. The increased number of access lines resulted in higher expenses for wages and benefits, depreciation and network access expenses. These increases were partially offset by cost reductions in customer billing expenses resulting from the completion of the billing conversion late in 2004. Expense savings were also achieved from implementing a new agreement to provide a least cost routing service for completion of long distance calls.

Internet Services Segment

Internet services revenues for the first quarter of 2005 were $3.1 million as compared to $2.5 million in the first quarter of 2004, due to increased DSL revenues. The company achieved a 25% increase in Internet services segment revenues over the prior year.

Operating expenses for the first quarter of 2005 were $3.3 million, as compared to $2.4 million for the same period of 2004, due to an increase in labor and benefits and an increase in the costs of providing additional broadband capacity. Depreciation expense increased as a result of more assets being employed and management fees increased as a larger percentage of corporate overhead was charged to this segment beginning in 2005.

Systems Integration

Systems integration revenues for the first quarter of 2005 were $4.9 million, as compared to $6.2 million for the same period last year. This decrease was due mainly to a reduction in computer and voice equipment sales of $0.8 million and service revenues of $0.5 million.

First quarter 2005 operating expenses were $6.3 million, as compared to $7.3 million in the first quarter in the previous year. Material costs decreased in proportion to equipment sales declines while labor and subcontractor services decreased at a slower pace.

On a segment-by-segment basis, the company reported the following information (in thousands):


                                                      Internet    Systems
Three months ended              RLEC        CLEC      Services  Integration
                              --------    --------    --------    --------

       March 31, 2005
Revenues - External           $ 24,724    $  9,275    $  3,077    $  4,876
Revenues - Intercompany          2,440         525           6           6
                              --------    --------    --------    --------
Total Revenues                  27,164       9,800       3,083       4,882
                              --------    --------    --------    --------
Depreciation and Amortization    7,466       1,135         325         448
Other Operating Expenses        12,332       9,254       2,998       5,849
                              --------    --------    --------    --------
Total Operating Expenses        19,798      10,389       3,323       6,297
                              --------    --------    --------    --------
Operating Income (Loss)       $  7,366    $   (589)   $   (240)   $ (1,415)
                              ========    ========    ========    ========

       March 31, 2004
Revenues - External           $ 25,679    $  8,772    $  2,464    $  6,142
Revenues - Intercompany          2,305         313           5          11
                              --------    --------    --------    --------
Total Revenues                  27,984       9,085       2,469       6,153
                              --------    --------    --------    --------

Depreciation and Amortization    7,668       1,060         249         498
Other Operating Expenses        12,815       8,915       2,114       6,786
                              --------    --------    --------    --------
Total Operating Expenses        20,483       9,975       2,363       7,284
                              --------    --------    --------    --------

Operating Income (Loss)       $  7,501    $   (890)   $    106    $ (1,131)
                              ========    ========    ========    ========


                              Corporate                Total
Three months ended            and Other Eliminations  Company
                              --------    --------    --------

       March 31, 2005
Revenues - External           $    887    $      -    $ 42,839
Revenues - Intercompany              -      (2,977)          -
                              --------    --------    --------
Total Revenues                     887      (2,977)     42,839
                              --------    --------    --------
Depreciation and Amortization      276           -       9,650
Other Operating Expenses         1,116      (2,977)     28,572
                              --------    --------    --------
Total Operating Expenses         1,392      (2,977)     38,222
                              --------    --------    --------
Operating Income (Loss)       $   (505)   $      -    $  4,617
                              ========    ========    ========

       March 31, 2004
Revenues - External           $    708    $      -    $ 43,765
Revenues - Intercompany              -      (2,634)          -
                              --------    --------    --------
Total Revenues                     708      (2,634)     43,765
                              --------    --------    --------

Depreciation and Amortization      226           -       9,701
Other Operating Expenses         1,054      (2,634)     29,050
                              --------    --------    --------
Total Operating Expenses         1,280      (2,634)     38,751
                              --------    --------    --------

Operating Income (Loss)       $   (572)   $      -    $  5,014
                              ========    ========    ========


                  D&E COMMUNICATIONS, INC. AND SUBSIDIARIES
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  (In thousands, expect per share amounts)
                                (Unaudited)

                                                       Three Months Ended
                                                            March 31,
OPERATING REVENUES                                       2005      2004
                                                       --------  --------
  Communication service revenues                       $ 39,637  $ 40,059
  Communication products sold                             2,417     3,016
  Other                                                     785       690
                                                       --------  --------
    Total operating revenues                             42,839    43,765
                                                       --------  --------
OPERATING EXPENSES
  Cost of communication service revenues  (exclusive
   of depreciation and amortization below)               16,273    15,584
  Cost of communication products sold                     1,792     2,419
  Depreciation and amortization                           9,650     9,701
  Marketing and customer services                         3,715     3,981
  General and administrative services                     6,792     7,066
                                                       --------  --------
    Total operating expenses                             38,222    38,751
                                                       --------  --------
      Operating income                                    4,617     5,014
                                                       --------  --------
OTHER INCOME (EXPENSE)
  Equity in net losses of affiliates                        (59)     (532)
  Interest expense                                       (3,385)   (4,095)
  Gain on investment                                      2,053         -
  Loss on early extinguishment of debt                        -    (4,841)
  Other, net                                                948       673
                                                       --------  --------
    Total other income (expense)                           (443)   (8,795)
                                                       --------  --------
      Income (loss) before income taxes and
       dividends on utility preferred stock               4,174    (3,781)
INCOME TAXES AND DIVIDENDS ON UTILITY PREFERRED STOCK
  Income taxes (benefit)                                  1,270    (1,541)
  Dividends on utility preferred stock                       16        16
                                                       --------  --------
    Total income taxes and dividends On utility
     preferred stock                                      1,286    (1,525)
                                                       --------  --------
NET INCOME (LOSS)                                      $  2,888  $ (2,256)
                                                       ========  ========
  Weighted average common shares outstanding (basic)     14,273    15,550
  Weighted average common shares outstanding (diluted)   14,308    15,550
BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE
  Net income (loss) per common share                   $   0.20  $  (0.15)
                                                       ========  ========
  Dividends per common share                           $   0.13  $   0.13
                                                       ========  ========


               D&E COMMUNICATIONS, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED BALANCE SHEETS
                          (in thousands)
                           (Unaudited)

                                                March 31,     December 31,
                  ASSETS                          2005            2004
                                              ------------    ------------
CURRENT ASSETS
  Cash and cash equivalents                   $      6,218    $      8,517
  Accounts receivable, net of reserves of
   $905 and $1,024                                  15,533          16,570
  Inventories, lower of cost or market, at
   average cost                                      3,669           3,523
  Prepaid expenses                                  11,824           8,466
  Other                                              2,672           2,465
                                              ------------    ------------
    TOTAL CURRENT ASSETS                            39,916          39,541
                                              ------------    ------------
INVESTMENTS
  Investments in and advances to affiliated
   companies                                            43              52
                                              ------------    ------------
PROPERTY, PLANT AND EQUIPMENT
  In service                                       339,448         335,883
  Under construction                                12,485           8,768
                                              ------------    ------------
                                                   351,933         344,651
  Less accumulated depreciation                    169,818         162,078
                                              ------------    ------------
                                                   182,115         182,573
                                              ------------    ------------
OTHER ASSETS
  Goodwill                                         149,032         149,032
  Intangible assets, net of accumulated
   amortization                                    165,846         167,396
  Other                                              8,210           8,191
                                              ------------    ------------
                                                   323,088         324,619
                                              ------------    ------------
    TOTAL ASSETS                              $    545,162    $    546,785
                                              ============    ============

       LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
  Long-term debt maturing within one year     $     10,000    $     10,000
  Accounts payable and accrued liabilities          20,452          18,701
  Accrued taxes                                      2,001           1,819
  Accrued interest and dividends                     1,620           1,683
  Advance billings, customer deposits and
   other                                            12,518          11,585
                                              ------------    ------------
    TOTAL CURRENT LIABILITIES                       46,591          43,788
                                              ------------    ------------
LONG-TERM DEBT                                     213,000         218,500
                                              ------------    ------------
OTHER LIABILITIES
  Deferred income taxes                             85,791          86,402
  Other                                             20,390          20,530
                                              ------------    ------------
                                                   106,181         106,932
                                              ------------    ------------
PREFERRED STOCK OF UTILITY SUBSIDIARY,
 Series A 4 ½%, par value $100, cumulative,
 callable at par at the option of the
 Company, authorized 20 shares, outstanding
 14 shares                                           1,446           1,446
                                              ------------    ------------
COMMITMENTS AND CONTINGENCIES SHAREHOLDERS'
 EQUITY
  Common stock, par value $0.16, authorized
   shares 100,000                                    2,544           2,542
     Outstanding shares: 14,286 at
      March 31, 2005 and 14,268 at
      December 31, 2004
  Additional paid-in capital                       160,438         160,255
  Accumulated other comprehensive income
   (loss)                                           (6,041)         (6,574)
  Retained earnings                                 39,620          38,513
  Treasury stock at cost, 1,640 shares at
   March 31, 2005 and December 31, 2004            (18,617)        (18,617)
                                              ------------    ------------
                                                   177,944         176,119
                                              ------------    ------------
    TOTAL LIABILITIES AND SHAREHOLDERS'
     EQUITY                                   $    545,162    $    546,785
                                              ============    ============


               D&E COMMUNICATIONS, INC AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                         (in thousands)
                          (Unaudited)

                                                  Three Months Ended
                                                       March 31,
                                                  2005            2004
                                              ------------    ------------
CASH FLOWS FROM OPERATING ACTIVITIES          $      9,562    $     12,444
                                              ------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures, net of proceeds
   from sales                                       (7,866)         (4,721)
  Collection of note receivable                        250             ---
  Proceeds from sale of investment                   2,900             ---
  Increase in investments and advances to
   affiliates                                          (50)           (150)
  Decrease in investments and repayments
   from affiliates                                     ---              25
                                              ------------    ------------

    Net Cash Used In Investing Activities           (4,766)         (4,846)
                                              ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES
  Dividends on common stock                         (1,703)         (1,863)
  Payments on long-term debt                        (5,500)       (197,710)
  Proceeds from long-term debt financing               ---         200,000
  Payment of debt issuance costs                       ---          (1,902)
  Proceeds from issuance of common stock               108              78
                                              ------------    ------------

    Net Cash Used In Financing Activities
     from Continuing Operations                     (7,095)         (1,397)
                                              ------------    ------------
INCREASE (DECREASE) IN CASH AND CASH
 EQUIVALENTS                                        (2,299)          6,201
CASH AND CASH EQUIVALENTS
    BEGINNING OF PERIOD                              8,517          12,446
                                              ------------    ------------
    END OF PERIOD                             $      6,218    $     18,647
                                              ============    ============
About D&E Communications

D&E is an integrated communications provider offering high-speed data, Internet access, local and long distance telephone, voice and data networking, network management and security, and video services. Based in Lancaster County, D&E has been serving communities in central Pennsylvania for more than 100 years. For more information, visit www.decommunications.com.

This press release contains forward-looking statements. These forward-looking statements are found in various places throughout this press release and include, without limitation, statements regarding financial and other information. These statements are based upon the current beliefs and expectations of D&E's management concerning the development of our business, are not guarantees of future performance and involve a number of risks, uncertainties, and other important factors that could cause actual developments and results to differ materially from our expectations. Those factors include, but are not limited to, the effect of the convergence of voice, data, and video technologies on our historical competitive advantages; the increasingly competitive nature of the communications industry; the significant indebtedness of the company; and other key factors that we have indicated could adversely affect our business and financial performance contained in our past and future filings and reports, including those filed with the United States Securities and Exchange Commission. D&E undertakes no obligation to revise or update its forward-looking statements whether as a result of new information, future events, or otherwise.

Contact Information

  • CONTACT:
    W. Garth Sprecher
    Sr. Vice President and Corporate Secretary
    (717) 738-8304