SOURCE: D & E Communications, Inc.

May 06, 2008 16:00 ET

D&E Communications Reports First Quarter 2008 Results

Net Income of $5.1 Million and Earnings per Share of $0.35

EPHRATA, PA--(Marketwire - May 6, 2008) - D&E Communications, Inc. ("D&E" or the "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, 2008.

For the first quarter of 2008, the Company reported net income of $5.1 million, or $0.35 per share, compared to net income of $2.6 million, or $0.18 per share, for the same period last year. Operating income for the first quarter of 2008 was $8.1 million, compared to operating income of $5.5 million in the first quarter of 2007. The Company reported total operating revenue of $37.8 million for the first quarter of 2008, compared to $38.4 million in the first quarter of 2007.

The revenue decrease of $0.6 million for the first quarter of 2008 was primarily the result of a reduction in Systems Integration revenue of $0.9 million due mainly to the March 31, 2007 expiration of a contract with a retail services customer, partially offset by an increase in Wireline segment revenue of $0.3 million.

Included in the first quarter 2008 results was income of $2.9 million ($1.7 million, or $0.12 per common share, after tax) from the termination of a lease guarantee described below. The first quarter 2008 results were also affected by a decrease in depreciation expense in the Wireline segment of $1.6 million ($1.0 million, or $0.06 per share, after tax) primarily due to revisions in the estimated useful lives of certain fixed assets effective July 2007, in addition to certain fixed assets becoming fully depreciated in the first and second quarters of 2007. Results for the first quarter of 2007 included a gain of $0.6 million ($0.6 million, or $0.04 per share, after tax) from life insurance proceeds. Net income before the items described above was $2.4 million, or $0.17 per share, for the first quarter of 2008, compared to $2.0 million, or $0.14 per share, for the first quarter of 2007.

In the first quarter of 2008, D&E entered into an agreement with subsidiaries of Crown Castle International Corp. ("Crown") releasing the Company from its obligations under a guarantee agreement with Crown for lease obligations for wireless tower sites of Keystone Wireless LLC. In connection with the termination of the lease guarantee, D&E and Crown agreed to additional renewal periods through June 2066 for a ground lease agreement under which D&E is the lessor. In the first quarter of 2008, the Company recognized a gain of $2.9 million based on the difference between the carrying value of the guarantee liability of $3.2 million and the fair value of the additional renewal periods of $0.3 million. The fair value of the lease extension will be deferred and recognized over the original lease term and initial renewal periods that expire in June 2026.

"The overall results of the first quarter were quite positive," stated James W. Morozzi, D&E's President and Chief Executive Officer. "Net income for the first quarter of 2008 increased 95% compared to the first quarter of 2007. Excluding certain events noted above, the increase in net income was approximately 20%. From an operating perspective, we continue to execute on our strategies of broadband growth, increased On-Net CLEC business, and improved performance in our Systems Integration segment. The recent changes we've made in Systems Integration are showing tangible results, as the operating loss for the first quarter of 2008 has improved by approximately $0.7 million compared to the same quarter in 2007. We continue to focus on serving our core customers and in driving to eliminate the operating losses in this segment."

Summary Statistics

                             March 31,   March 31,
                               2008        2007       Change    % Change
                            ----------- ----------- ---------- ----------
  RLEC access lines             123,563     128,538     (4,975)     (3.9%)
  CLEC access lines              46,021      44,267      1,754       4.0%
  DSL/High-speed Internet
    Subscribers                  39,970      33,726      6,244      18.5%
  Dial-up Internet
   subscribers                    2,984       4,864     (1,880)    (38.7%)
  Video subscribers               8,099       7,606        493       6.5%
  Web-hosting customers           1,013         975         38       3.9%
                            ----------- ----------- ----------
  Total customer
   connections                  221,650     219,976      1,674       0.8%
                            =========== =========== ==========

On a segment by segment basis, the Company reported the following information:

Wireline

First quarter 2008 revenues from the Wireline segment were $36.5 million, as compared to $36.2 million for the first quarter 2007. The increase was due in large part to additional DSL/High-speed Internet revenue of $0.7 million because of subscriber growth, partially offset by a directory revenue decrease of $0.4 million as a result of a new directory contract which became effective in the fourth quarter of 2006 and which covers three of the Company's four directories. Under the new contract, the responsibility for publication and distribution of the directory and the related financial risks became the responsibility of the publisher beginning in the fourth quarter of 2006 for two directories and in the first quarter of 2007 for the third directory.

Wireline operating expenses for the first quarter of 2008 were $27.9 million, compared to $29.6 million during the same period last year, with the reduction caused primarily by the decrease in depreciation expense of $1.6 million. Depreciation expense decreased approximately $0.9 million due to July 2007 revisions in the estimated useful lives of certain fixed assets to update composite depreciation rates for regulated telephone property and $0.9 million because certain fixed assets became fully depreciated in the first and second quarters of 2007, partially offset by the depreciation expense on fixed assets placed in service in the current year. Directory expense decreased $0.3 million due to the new directory contract described above. Cost of services decreased $0.3 million due to a settlement reached with a vendor on estimated amounts owed to them. Network access expense increased $0.4 million due to a higher rate per minute of use and increased minutes of use. Operating income was $8.6 million for the first quarter of 2008 and $6.6 million for the first quarter of 2007.

Systems Integration

System Integration revenues for the quarter were $0.9 million, compared to $1.8 million for the same period last year. Communication services revenue decreased $0.7 million primarily due to the expiration of a contract with a large retail services customer on March 31, 2007. Computer product sales decreased $0.2 million.

First quarter 2008 operating expenses were $1.1 million, compared to $2.7 million in the first quarter of 2007. Labor, benefits and subcontractor costs declined $1.0 million mainly as a result of the contract expiration described above. The operating loss was $0.2 million for the first quarter of 2008 and $0.9 million for the first quarter of 2007.

About D&E Communications

D&E is a leading integrated communications provider offering high-speed data, Internet access, local and long distance telephone, business continuity services, co-location facilities, data and professional IT services, network monitoring, security solutions and video services. Based in Lancaster County, D&E has been serving communities in central and eastern 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 the historical losses of the Systems Integration segment 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 INCOME
                 (In thousands, expect per share amounts)
                                (Unaudited)


                                                        Three Months Ended
                                                        ------------------
                                                            March 31,
                                                        ------------------
OPERATING REVENUES                                        2008      2007
                                                        --------  --------
  Communication service revenues                        $ 36,613  $ 36,954
  Communication products sold                                459       624
  Other                                                      725       786
                                                        --------  --------
    Total operating revenues                              37,797    38,364
                                                        --------  --------
OPERATING EXPENSES
  Communication service expenses (exclusive of
   depreciation and amortization below)                   12,256    13,093
  Cost of communication products sold                        372       514
  Depreciation and amortization                            7,848     9,508
  Marketing and customer services                          3,540     3,367
  General and administrative services                      5,659     6,376
                                                        --------  --------
    Total operating expenses                              29,675    32,858
                                                        --------  --------
      Operating income                                     8,122     5,506
                                                        --------  --------

OTHER INCOME (EXPENSE)
  Interest expense, net of interest capitalized           (3,349)   (3,736)
  Other, net                                               3,418     1,716
                                                        --------  --------
    Total other income (expense)                              69    (2,020)
                                                        --------  --------
      Income before income taxes and dividends on
       utility preferred stock                             8,191     3,486
INCOME TAXES AND DIVIDENDS ON
  UTILITY PREFERRED STOCK
  Income taxes                                             3,043       860
  Dividends on utility preferred stock                        16        16
                                                        --------  --------
    Total income taxes and dividends on utility
     preferred stock                                       3,059       876
                                                        --------  --------
NET INCOME                                              $  5,132  $  2,610
                                                        ========  ========
Weighted average common shares outstanding (basic)        14,462    14,399
Weighted average common shares outstanding (diluted)      14,514    14,487

BASIC AND DILUTED EARNINGS PER COMMON SHARE
  Earnings per common share                             $   0.35  $   0.18
                                                        ========  ========
  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                            2008         2007
                                                  ----------  ------------
CURRENT ASSETS
  Cash and cash equivalents                       $   13,874  $     17,845
  Accounts and notes receivable, net of reserves
   of $367 and $500                                   13,437        14,688
  Inventories, lower of cost or market, at
   average cost                                        2,531         2,666
  Prepaid expenses                                     5,496         2,887
  Other                                                3,186         2,520
                                                  ----------  ------------
    TOTAL CURRENT ASSETS                              38,524        40,606
                                                  ----------  ------------

PROPERTY, PLANT AND EQUIPMENT
  In service                                         400,485       396,659
  Under construction                                   8,273         6,648
                                                  ----------  ------------
                                                     408,758       403,307
  Less accumulated depreciation                      243,456       237,243
                                                  ----------  ------------
                                                     165,302       166,064
                                                  ----------  ------------
OTHER ASSETS
  Goodwill                                           137,614       137,623
  Intangible assets, net of accumulated
   amortization                                      147,050       148,376
  Other                                                8,673         8,512
                                                  ----------  ------------
                                                     293,337       294,511
                                                  ----------  ------------
  TOTAL ASSETS                                    $  497,163  $    501,181
                                                  ==========  ============

      LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
  Long-term debt maturing within one year         $    7,072  $      7,071
  Accounts payable and accrued liabilities            13,132        17,188
  Accrued taxes                                        1,825         1,093
  Accrued interest and dividends                       1,041           816
  Advance billings, customer deposits and other        4,565         4,709
                                                  ----------  ------------
    TOTAL CURRENT LIABILITIES                         27,635        30,877
                                                  ----------  ------------

LONG-TERM DEBT                                       184,361       186,879
                                                  ----------  ------------

OTHER LIABILITIES
  Deferred income taxes                               71,597        70,977
  Defined benefit plans                               14,284        15,465
  Other                                                7,132         7,663
                                                  ----------  ------------
                                                      93,013        94,105
                                                  ----------  ------------
PREFERRED STOCK OF UTILITY SUBSIDIARY, Series A
 4 1/2%, par value $100, cumulative, callable at
 par at the option of the Company, authorized
 20,000 shares, outstanding 14 shares                  1,446         1,446
                                                  ----------  ------------
COMMITMENTS AND CONTINGENCIES

  SHAREHOLDERS’ EQUITY
  Common stock, par value $0.16, authorized
   shares-100,000; issued shares-16,141 at March
   31, 2008 and 16,092 at December 31, 2007;
   outstanding shares-14,474 at March 31, 2008
   and 14,425 at December 31, 2007                     2,583         2,575
  Additional paid-in capital                         163,797       163,560
  Accumulated other comprehensive income (loss)       (7,942)       (7,216)
  Retained earnings                                   51,462        48,147
  Treasury stock at cost, 1,667 shares at March
   31, 2008 and December 31, 2007                    (19,192)      (19,192)
                                                  ----------  ------------
                                                     190,708       187,874
                                                  ----------  ------------
  TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY      $  497,163  $    501,181
                                                  ==========  ============





                 D&E COMMUNICATIONS, INC. AND SUBSIDIARIES
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (In Thousands)
                                (Unaudited)




                                                       Three Months Ended
                                                            March 31,
                                                        2008       2007
                                                      ---------  ---------
CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                        $   5,132  $   2,610
    Adjustments to reconcile net income to net cash
     provided by operating activities:
      Depreciation and amortization                       7,848      9,508
      Bad debt expense                                       38        172
      Deferred income taxes                                 456     (1,589)
      Gain from cash recovery of note receivable             --       (300)
      Gain from life insurance proceeds                      --       (588)
      Stock-based compensation expense                      106         86
      Gain on retirement of property, plant and
       equipment                                            (11)        (1)
      Termination of lease guarantee                     (2,904)        --
      Note receivable reserve                               200         --
    Changes in operating assets and liabilities:
      Accounts receivable                                 1,213      1,234
      Inventories                                           134         11
      Prepaid expenses                                   (2,608)    (2,568)
      Accounts payable and accrued liabilities           (1,586)       (88)
      Accrued taxes and accrued interest                    958        473
      Advance billings, customer deposits and other        (145)      (269)
      Defined benefit plans                                (928)      (150)
      Other, net                                           (403)       707
                                                      ---------  ---------
      Net Cash Provided by Operating Activities           7,500      9,248
                                                      ---------  ---------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of property, plant and equipment             (7,599)    (6,301)
  Proceeds from sales of property, plant and
   equipment                                                288        235
  Collection of note receivable                              34        452
  Proceeds from sale of short-term investments               --      9,946
  Purchase of short-term investments                         --     (3,187)
  Life insurance proceeds                                    --      1,000
  Acquisition of customer list intangible asset              --       (606)
                                                      ---------  ---------
    Net Cash (Used In) Provided By Investing
     Activities                                          (7,277)     1,539
                                                      ---------  ---------
CASH FLOWS FROM FINANCING ACTIVITIES
  Dividends on common stock                              (1,736)    (1,713)
  Payments on long-term debt                             (2,517)    (3,516)
  Proceeds from issuance of common stock and stock
   options exercised                                         22         49
  Excess tax benefits from stock compensation plans          37         --
  Purchase of treasury stock                                 --        (48)
                                                      ---------  ---------
    Net Cash Used In Financing Activities                (4,194)    (5,228)
                                                      ---------  ---------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS         (3,971)     5,559

CASH AND CASH EQUIVALENTS
  BEGINNING OF PERIOD                                    17,845      3,101
                                                      ---------  ---------
  END OF PERIOD                                       $  13,874  $   8,660
                                                      =========  =========

Contact Information

  • CONTACT:
    Thomas E. Morell
    Sr. Vice President, Chief Financial Officer, Secretary and Treasurer
    (717) 738-8315