SOURCE: D & E Communications, Inc.

November 07, 2005 19:37 ET

D&E Communications Reports Third Quarter 2005 Results

EPHRATA, PA -- (MARKET WIRE) -- November 7, 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 third quarter ended September 30, 2005.

For the third quarter of 2005, the company reported total operating revenue of $44.3 million, as compared to $43.7 million in the third quarter of 2004. Net income for the third quarter was $2.4 million, or $0.17 per share, as compared to a net income of $0.7 million, or $0.05 per share, for the same period last year.

For the nine months ended September 30, 2005, the company reported total operating revenue of $131.2 million, as compared to $131.6 million in the same period last year. Net income for the nine months ended September 30, 2005 was $6.6 million, or $0.46 per share, as compared to a net loss of $0.3 million, or $0.02 per share, for the same period last year.

Included in the 2005 year to date results was a gain on investment of $2.0 million ($1.3 million, or $0.09 per common share, after tax) from the sale of our interest in PenTeleData. The 2004 year-to-date 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. Earnings before these items were $0.37 per share in the nine months of 2005 compared with $0.19 per share in the nine months of 2004.

"Highlights of this quarter demonstrate that we continue to make steady progress in the growth of our Digital Subscriber Lines and Competitive Local Exchange Carrier access lines," said James W. Morozzi, President and Chief Executive Officer of D&E Communications. "Our broadband DSL subscriber count is up 74% and our CLEC lines are up 9%, offsetting the 3% loss of RLEC lines year over year from September 30, 2004 to September 30, 2005. These results indicate that, in spite of pressure on RLEC access lines from increasing competition, revenue has increased and operating income is up in the RLEC segment. Expense reduction in the RLEC has helped drive operating income up this quarter."

"In our ISP segment," Morozzi continued, "even though operating revenue is up, operating income is down slightly due to new capacity that has been added to handle the growth in this business. The start up of VoIP activity also increased expenses that were not being incurred in the third quarter of 2004."

Summary Statistics

                  September 30, 2005  September 30, 2004  Change  % Change
                  ------------------  ------------------  ------  --------
RLEC lines              135,457              140,243      (4,786)    (3.4%)
CLEC lines               40,703               37,398       3,305      8.8%
DSL Subscribers          17,375               10,008       7,367     73.6%
Dial-up Internet
 subscribers              8,957               12,071      (3,114)   (25.8%)
Web-hosting
 customers                  946                  901          45      5.0%
Rural Local Exchange Carrier (RLEC)

Third quarter 2005 revenues from the RLEC segment were $27.3 million, as compared to $27.1 million for third quarter 2004. This increase was due in part to a 5% to 10% increase in basic telephone rates effective August 1, 2005 and offset by fewer access lines and lower long distance revenue.

RLEC operating expenses for the third quarter were $19.4 million, compared to $20.7 million during the same period last year. This decrease was primarily related to lower expenses for contracted billing services, depreciation, maintenance contracts and operating taxes.

Competitive Local Exchange Carrier (CLEC)

For the third quarter of 2005 CLEC segment revenues were $10.4 million, compared to $9.6 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 a decline in the average rate per minute of use.

CLEC operating expenses for the third quarter of 2005 were $10.4 million, compared to $10.4 million for the same period last year. Wages and benefits, as well as depreciation expense, increased as a result of supporting a larger customer base. Network access expenses were lower partially from savings achieved by 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 third quarter of 2005 were $3.3 million, as compared to $2.6 million in the third quarter of 2004, due to increased DSL revenues resulting from new customers and upgrade of dial-up customers to our DSL service. The company achieved a 27% increase in Internet services segment revenues over the prior year.

Operating expenses for the third quarter of 2005 were $3.4 million, as compared to $2.5 million for the same period of 2004, due to an increase in labor and benefits and other expenses related to the initiation of the new VoIP phone service. The direct cost of services increased as a result of a broadband capacity upgrade implemented to accommodate expected continued DSL subscriber growth. Depreciation expense increased as a result of more assets being employed, and a larger percentage of corporate overhead was charged to this segment beginning in 2005.

Systems Integration

Systems integration revenues for the third quarter of 2005 were $5.5 million, as compared to $6.2 million for the same period last year. This decrease was due mainly to a reduction in communication service revenue of $1.4 million, offset by increased computer and voice equipment sales of $0.6 million.

Third quarter 2005 operating expenses were $6.8 million, as compared to $7.3 million in the third quarter of the previous year. Reductions in labor and subcontractor services were the primary reason for decreased expenses.

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

                                                  Corp-
                                        Systems   orate
Three months                  Internet  Integra-  and     Elimina-  Total
 ended         RLEC     CLEC  Services  tion      Other   tions   Company
-----------  -------  -------  -------  -------  -------  -------  -------

September 30,
 2005
Revenues -
 External    $24,936  $ 9,806  $ 3,256  $ 5,446  $   844  $     -  $44,288
Revenues -
 Intercompany  2,391      633        8        6        -   (3,038)       -
             -------  -------  -------  -------  -------  -------  -------
Total
 Revenues     27,327   10,439    3,264    5,452      844   (3,038)  44,288
             -------  -------  -------  -------  -------  -------  -------
Depreciation
 and
 Amortization  7,470    1,324      347      380      293        -    9,814
Other
 Operating
 Expenses     11,963    9,109    3,003    6,390    1,049   (3,038)  28,476
             -------  -------  -------  -------  -------  -------  -------
Total
 Operating
 Expenses     19,433   10,433    3,350    6,770    1,342   (3,038)  38,290
             -------  -------  -------  -------  -------  -------  -------

Operating
 Income
 (Loss)      $ 7,894  $     6  $   (86) $(1,318) $  (498) $     -  $ 5,998
             =======  =======  =======  =======  =======  =======  =======


September 30,
 2004
Revenues -
 External    $ 24,691 $ 9,212  $ 2,565  $ 6,223  $ 1,001  $     -  $43,692
Revenues -
 Intercompany  2,406      389        4       18        -   (2,817)       -
             -------  -------  -------  -------  -------  -------  -------
Total
 Revenues     27,097    9,601    2,569    6,241    1,001   (2,817)  43,692
             -------  -------  -------  -------  -------  -------  -------

Depreciation
 and
 Amortization  7,716    1,041      280      443      244        -    9,724
Other
 Operating
 Expenses     12,955    9,397    2,192    6,894      887   (2,817)  29,508
             -------  -------  -------  -------  -------  -------  -------
Total
 Operating
 Expenses     20,671   10,438    2,472    7,337    1,131   (2,817)  39,232
             -------  -------  -------  -------  -------  -------  -------

Operating
 Income
 (Loss)      $ 6,426  $  (837) $    97  $(1,096) $  (130) $     -  $ 4,460
             =======  =======  =======  =======  =======  =======  =======
About D&E Communications

D&E is a regional integrated communications provider offering high-speed data, Internet access, local and long distance telephone, VoIP phone, voice and data network installation and maintenance, network performance 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  Nine Months Ended
                                       September 30,       September 30,
OPERATING REVENUES                    2005      2004       2005    2004
                                    --------  --------   -------- --------
  Communication service revenues    $ 39,846  $ 39,877   $120,142 $120,261
  Communication products sold          3,648     3,225      8,766    9,210
  Other                                  794       590      2,261    2,121
                                    --------  --------   -------- --------
  Total operating revenues            44,288    43,692    131,169  131,592
                                    --------  --------   -------- --------

OPERATING EXPENSES
  Communication service expenses
  (exclusive of depreciation and
   amortization below)                16,000    17,033     49,542   48,884
  Cost of communication
   products sold                       2,836     2,547      6,625    7,372
  Depreciation and amortization        9,814     9,724     29,195   29,343
  Marketing and customer services      3,875     3,845     11,335   11,992
  General and administrative
   services                            5,765     6,083     19,033   19,336
                                    --------  --------   -------- --------
    Total operating expenses          38,290    39,232    115,730  116,927
                                    --------  --------   -------- --------
      Operating income                 5,998     4,460     15,439   14,665
                                    --------  --------   -------- --------

OTHER INCOME (EXPENSE)
  Equity in net losses
   of affiliates                         (29)     (576)      (142)  (1,426)
  Interest expense, net of
   interest capitalized               (3,615)   (3,456)   (10,436) (10,947)
  Gain on investment                       -         -      2,043        -
  Loss on early extinguishment
   of debt                                 -         -          -   (4,841)
  Other, net                             762       346      2,458    1,339
                                    --------  --------   -------- --------
    Total other income (expense)      (2,882)   (3,686)    (6,077) (15,875)
                                    --------  --------   -------- --------
      Income (loss) before income
       taxes and dividends on
       utility preferred stock         3,116       774      9,362   (1,210)

INCOME TAXES AND DIVIDENDS ON
 UTILITY PREFERRED STOCK

  Income taxes (benefit)                 708        39      2,666     (955)
  Dividends on utility
   preferred stock                        16        16         49       49
                                    --------  --------   -------- --------
    Total income taxes and
     dividends on utility
     preferred stock                     724        55      2,715     (906)
                                    --------  --------   -------- --------
NET INCOME (LOSS)                   $  2,392  $    719   $  6,647 $   (304)
                                    ========  ========   ======== ========
  Weighted average common shares
   outstanding (basic)                14,316    14,867     14,295   15,325
  Weighted average common shares
   outstanding (diluted)              14,342    14,910     14,316   15,325

BASIC AND DILUTED EARNINGS (LOSS)
 PER COMMON SHARE
  Net income (loss) per
   common share                     $   0.17  $   0.05   $   0.46 $  (0.02)
                                    ========  ========   ======== ========
  Dividends per common share        $   0.13  $   0.13   $   0.38 $   0.38
                                    ========  ========   ======== ========


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

                                                 September 30, December 31,
                                                      2005         2004
                           ASSETS                   ---------    ---------
CURRENT ASSETS
  Cash and cash equivalents                         $   3,690    $   8,517
  Accounts receivable, net of reserves of
   $590 and $1,024                                     16,187       16,570
  Inventories, lower of cost or market,
   at average cost                                      3,767        3,523
  Prepaid expenses                                      4,858        8,466
  Other                                                 2,478        2,465
                                                    ---------    ---------
      TOTAL CURRENT ASSETS                             30,980       39,541
                                                    ---------    ---------
INVESTMENTS
  Investments in and advances to affiliated companies      25           52
                                                    ---------    ---------
PROPERTY, PLANT AND EQUIPMENT
  In service                                          354,785      335,883
  Under construction                                   13,189        8,768
                                                    ---------    ---------
                                                      367,974      344,651
  Less accumulated depreciation                       185,463      162,078
                                                    ---------    ---------
                                                      182,511      182,573
                                                    ---------    ---------

OTHER ASSETS
  Goodwill                                            149,033      149,032
  Intangible assets, net of accumulated amortization  162,950      167,396
  Other                                                 8,364        8,191
                                                    ---------    ---------
                                                      320,347      324,619
                                                    ---------    ---------
  TOTAL ASSETS                                      $ 533,863    $ 546,785
                                                    =========    =========

          LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
  Long-term debt maturing within one year           $  10,000    $  10,000
  Accounts payable and accrued liabilities             21,312       18,701
  Accrued taxes                                           783        1,819
  Accrued interest and dividends                        1,741        1,683
  Advance billings, customer deposits and other         7,101       11,585
                                                    ---------    ---------
      TOTAL CURRENT LIABILITIES                        40,937       43,788
                                                    ---------    ---------
LONG-TERM DEBT                                        208,000      218,500
                                                    ---------    ---------
OTHER LIABILITIES
  Deferred income taxes                                84,971       86,402
  Other                                                19,802       20,530
                                                    ---------    ---------
                                                      104,773      106,932
                                                    ---------    ---------
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                            2,551        2,542
      Outstanding shares: 14,327 at September 30,
       2005 and 14,268 at December 31, 2004
  Additional paid-in capital                          160,782      160,255
  Accumulated other comprehensive income (loss)        (5,817)      (6,574)
  Retained earnings                                    39,808       38,513
  Treasury stock at cost, 1,640 shares at
   September 30, 2005 and December 31, 2004           (18,617)     (18,617)
                                                    ---------    ---------
                                                      178,707      176,119
                                                    ---------    ---------
  TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY        $ 533,863    $ 546,785
                                                    =========    =========


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

                                                       Nine Months Ended
                                                         September 30,
                                                       2005         2004
                                                    ---------    ---------

CASH FLOWS FROM OPERATING ACTIVITIES                $  29,323    $  34,824

CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures, net of proceeds from sales    (22,619)     (16,554)
  Collection of note receivable                         1,000            -
  Proceeds from sale of investment                      2,900            -
  Increase in investments and advances to affiliates     (115)        (446)
  Decrease in investments and repayments from
   affiliates                                               -          154
                                                    ---------    ---------

    Net Cash Used In Investing Activities             (18,834)     (16,846)
                                                    ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES
  Dividends on common stock                            (5,116)      (5,425)
  Payments on long-term debt                          (10,500)    (213,640)
  Proceeds from long-term debt financing                    -      210,000
  Payment of debt issuance costs                            -       (1,971)
  Proceeds from issuance of common stock                  300          346
  Purchase of treasury stock                                -      (13,335)
                                                    ---------    ---------
    Net Cash Used In Financing Activities
     from Continuing Operations                       (15,316)     (24,025)
                                                    ---------    ---------

DECREASE IN CASH AND CASH EQUIVALENTS                  (4,827)      (6,047)

CASH AND CASH EQUIVALENTS
    BEGINNING OF PERIOD                                 8,517       12,446
                                                    ---------    ---------
    END OF PERIOD                                   $   3,690    $   6,399
                                                    =========    =========

Contact Information

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