SOURCE: D & E Communications, Inc.

May 05, 2006 09:00 ET

D&E Communications Reports First Quarter 2006 Results

EPHRATA, PA -- (MARKET WIRE) -- May 5, 2006 -- D&E Communications, Inc. ("D&E"or "Company") (NASDAQ: DECC), a leading provider of integrated communications services in central and eastern Pennsylvania, today announced the results of its operations for the first quarter ended March 31, 2006.

For the first quarter of 2006, the Company reported total operating revenue of $42.6 million, as compared to $42.8 million in the first quarter of 2005. Net income for the first quarter was $1.6 million, or $0.11 per share, as compared to $2.9 million, or $0.20 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 ownership interest in PenTeleData. Net income before this item was $1.5 million, or $0.10 per share, for the first quarter of 2005.

D&E President and CEO, James W. Morozzi, said, "The first quarter of 2006 was on track and the Company performed as anticipated. With our continuing emphasis on broadband and on-net profitable CLEC customers, we experienced considerable growth, particularly in the number of DSL subscribers and CLEC lines. These advances offset the expected line losses in our RLEC. In our Systems Integration line of business, we have concentrated on cutting costs, and on narrowing our focus to emphasize the value offered by Managed Services and Professional Services to our business customers."

"We are pleased with the strides the Company is making." Morozzi continued, "We have made steady improvement in keeping expenses down, we are proceeding according to plan and, overall, we've shown good progress year over year."

Summary Statistics
                           March 31, 2006  March 31,2005  Change  % Change
                           --------------  -------------  ------  --------
  RLEC lines                      133,387        138,494  (5,107)    (3.7%)
  CLEC lines                       41,818         39,514   2,304      5.8%
  DSL/High-Speed Internet
    subscribers                    22,489         13,142   9,347     71.1%
  Dial-up Internet subscribers      7,163         10,716  (3,553)   (33.2%)
  Video subscribers                 6,760          5,877     883     15.0%
  Web-hosting customers               959            929      30      3.2%
On a segment by segment basis, the company reported the following information:

Rural Local Exchange Carrier (RLEC)

First quarter 2006 revenues from the RLEC segment were $26.8 million, as compared to $27.2 million for first quarter 2005. The decrease was due primarily to fewer special access circuits in service and lower access lines, offset by an increase in basic service fees effective August 1, 2005.

RLEC operating expenses for the first quarter 2006 were $19.6 million, compared to $19.8 million during the same period last year, with the reduction caused primarily by decreases of $0.4 million in depreciation expense and $0.2 million of corporate overhead expenses, offset by a $0.2 million cost for new software to provide enhanced customer service and communication facility maintenance support. Operating income for the quarter was $7.2 million, down from $7.4 million in the first quarter 2005.

Competitive Local Exchange Carrier (CLEC)

For the first quarter of 2006, CLEC segment revenues were $10.6 million, compared to $9.8 million for the same period of 2005. This increase was due to a larger number of access lines and increased long distance circuit revenue, offset by a reduction in long distance toll revenues due to rate reductions and fewer minutes of use.

CLEC operating expenses for the first quarter of 2006 were $10.7 million, up from $10.4 million for the same period last year. This increase was due primarily to an increase in cost of leased facilities to provide services to our additional customers and depreciation expense, offset by a decrease in network access expense as a result of savings achieved from an agreement to provide a least-cost routing service for completion of long distance toll calls. For the first quarter of 2006 operating losses were $0.1 million, compared to an operating loss of $0.6 million in the first quarter 2005.

Internet Services Segment

Internet services revenues for the first quarter of 2006 were $3.7 million, as compared to $3.1 million in the first quarter of 2005, due to increased DSL revenues.

Operating expenses for the first quarter of 2006 were $3.8 million, compared to $3.3 million for the same period of 2005, as a result of DSL subscriber growth and VoIP service costs. For the first quarter, Internet Services had an operating loss of $0.1 million, compared to $0.2 million during the same period in 2005.

Systems Integration

System integration revenues for the quarter were $3.8 million, as compared to $4.9 million for the same period last year. This decrease was due mainly to the expiration of a large government services contract as of June 30, 2005.

First quarter 2006 operating expenses were $5.5 million, compared to $6.3 million in the previous year. The decrease was due primarily to lower labor and subcontractor costs. Systems integration operating losses for the quarter ended March 31, 2006 were $1.7 million, as compared to $1.4 million in the first quarter of 2005.

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.

                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                                        2006     2005
                                                        -------- --------
  Communication service revenues                        $ 39,635 $ 39,637
  Communication products sold                              2,260    2,417
  Other                                                      727      785
                                                        -------- --------
  Total operating revenues                                42,622   42,839
                                                        -------- --------
OPERATING EXPENSES
  Communication service expenses (exclusive of
   depreciation and amortization below)                   15,886   16,273
  Cost of communication products sold                      1,759    1,792
  Depreciation and amortization                            9,606    9,650
  Marketing and customer services                          3,779    3,715
  General and administrative services                      6,824    6,792
                                                        -------- --------
    Total operating expenses                              37,854   38,222
                                                        -------- --------
     Operating income                                      4,768    4,617
                                                        -------- --------
OTHER INCOME (EXPENSE)
  Equity in net losses of affiliates                         (82)     (59)
  Interest expense, net of interest capitalized           (3,838)  (3,385)
  Gain on investment                                           -    2,053
  Other, net                                               1,468      948
                                                        -------- --------
    Total other income (expense)                          (2,452)    (443)
                                                        -------- --------
     Income before income taxes
      and dividends on utility preferred stock
                                                           2,316    4,174
INCOME TAXES AND DIVIDENDS ON
UTILITY PREFERRED STOCK

  Income taxes                                               669    1,270
  Dividends on utility preferred stock                        16       16
                                                        -------- --------
    Total income taxes and dividends
     on utility preferred stock
                                                             685    1,286
                                                        -------- --------
NET INCOME                                              $  1,631 $  2,888
                                                        ======== ========
  Weighted average common shares outstanding (basic)      14,348   14,273
  Weighted average common shares outstanding (diluted)    14,390   14,308
BASIC AND DILUTED EARNINGS
 PER COMMON SHARE
  Net income per common share                           $   0.11 $   0.20
                                                        ======== ========
  Dividends per common share                            $   0.13 $   0.13
                                                        ======== ========




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


                                                         March    December
                        ASSETS                          31, 2006  31, 2005
                                                       --------- ---------
CURRENT ASSETS
  Cash and cash equivalents                            $   7,179 $  10,325
  Accounts receivable, net of reserves
   of $646 and $748                                       16,144    16,864
  Accounts receivable-affiliated company                       -       351
  Inventories, lower of cost or market, at
   average cost                                            3,511     3,645
  Prepaid expenses                                        11,281     8,194
  Other                                                    1,399     1,243
                                                       --------- ---------
    TOTAL CURRENT ASSETS                                  39,514    40,622
                                                       --------- ---------
PROPERTY, PLANT AND EQUIPMENT
  In service                                             368,031   364,638
  Under construction                                      11,398     7,334
                                                       --------- ---------
                                                         379,429   371,972
  Less accumulated depreciation                          199,168   192,259
                                                       --------- ---------
                                                         180,261   179,713
                                                       --------- ---------
OTHER ASSETS
  Goodwill                                               145,347   145,448
  Intangible assets, net of accumulated amortization     160,194   161,572
  Other                                                    9,290     8,317
                                                       --------- ---------
                                                         314,831   315,337
                                                       --------- ---------
  TOTAL ASSETS                                         $ 534,606 $ 535,672
                                                       ========= =========
         LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
  Long-term debt maturing within one year              $  10,682 $  10,000
  Accounts payable and accrued liabilities                20,106    18,962
  Accrued taxes                                            1,434     2,890
  Accrued interest and dividends                           1,697     1,791
  Advance billings, customer deposits and other           11,916    11,087
                                                       --------- ---------
    TOTAL CURRENT LIABILITIES                             45,835    44,730
                                                       --------- ---------
LONG-TERM DEBT                                           203,881   205,500
                                                       --------- ---------
OTHER LIABILITIES
  Equity in net losses of affiliates in excess of
   investments and advances                                  128       196
  Deferred income taxes                                   78,429    79,063
  Other                                                   19,813    20,391
                                                       --------- ---------
                                                          98,370    99,650
                                                       --------- ---------
PREFERRED STOCK OF UTILITY SUBSIDIARY, Series A
  4 1/2%, 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
    Outstanding shares: 14,357 at March 31, 2006 and
                        14,345 at December 31, 2005        2,556     2,554
  Additional paid-in capital                             161,292   160,924
  Accumulated other comprehensive income (loss)           (5,080)   (5,598)
  Retained earnings                                       44,923    45,083
  Treasury stock at cost, 1,640 shares at March 31,
   2006 and December 31, 2005                            (18,617)  (18,617)
                                                       --------- ---------
                                                         185,074   184,346
                                                       --------- ---------
  TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY           $ 534,606 $ 535,672
                                                       ========= =========




                D&E Communications, Inc. and Subsidiaries
              Condensed Consolidated Statements of Cash Flows
                              (in thousands)
                                (Unaudited)

                                                        Three Months Ended
                                                              March 31,
                                                            2006    2005
                                                          ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES                      $ 7,181 $ 9,562
                                                          ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures, net of proceeds from sales         (6,850) (7,866)
  Collection of note receivable                               625     250
  Proceeds from sale of investment                              -   2,900
  Increase in investments and advances to affiliates         (150)    (50)
                                                          ------- -------

    Net Cash Used In Investing Activities                  (6,375) (4,766)
                                                          ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
  Dividends on common stock                                (1,709) (1,703)
  Payments on long-term debt                               (2,510) (5,500)
  Proceeds from issuance of common stock                      267     108
                                                          ------- -------

    Net Cash Used In Financing Activities                  (3,952) (7,095)
                                                          ------- -------
DECREASE IN CASH AND CASH EQUIVALENTS                      (3,146) (2,299)
CASH AND CASH EQUIVALENTS
    BEGINNING OF PERIOD                                    10,325   8,517
                                                          ------- -------
    END OF PERIOD                                         $ 7,179 $ 6,218
                                                          ======= =======

Contact Information

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