| [November 09, 2004] |
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D&E Communications Reports Third Quarter Results
EPHRATA, Pa. --(Business Wire)-- Nov. 9, 2004 -- -D&E Communications, Inc. ("D&E") (Nasdaq:DECC), a leading provider of integrated communications services in central and eastern Pennsylvania, today announced the following unaudited operating results: -0- *T (Unaudited) (in thousands, except per share amounts) Quarter Ended Nine Months Ended September 30, September 30, 2004 2003 Change 2004 2003 Change -------- -------- -------- --------- --------- -------- Operating Revenues $43,692 $43,031 $ 661 $131,592 $128,403 $ 3,189 Operating Income 4,460 5,298 (838) 14,665 16,968 (2,303) Income (Loss) from Continuing Operations 719 155 564 (304) 1,420 (1,724) Loss from Discontinued Operations --- --- --- --- (53) 53 Change Accounting Principle --- --- --- --- 260 (260) Net Income (Loss) 719 155 564 (304) 1,627 (1,931) Basic and Diluted Earnings (Loss) Per Common Share $ 0.05 $ 0.01 $ 0.04 ($0.02) $ 0.11 ($0.13) *T
D&E reported quarterly revenues of $43.7 million, up 1.5% from $43.0 million in the third quarter of 2003. The increase was due to growth in sales of dedicated data circuits and leased facilities in our RLEC and CLEC segments of approximately $0.7 million and increased directory revenue of $0.3 million offset, by $0.5 million decrease in long distance revenue. Operating income in the quarter ended September 30, 2004, was $4.5 million, compared to $5.3 million in the third quarter of 2003. The operating income decrease was primarily attributable to cost increases, including wage and benefit costs of $1.0 million and directory expenses of $0.2 million, which more than offset the increased revenues described above. Employee costs were lower in the RLEC, but increased in all other segments. The video service trial we have been conducting, which is not part of a segment but is reported as part of the corporate and other amounts, also contributed to the decrease in operating profit. Income from continuing operations was $0.7 million in 2004, compared with an income of $0.2 million in the prior year. Income from continuing operations was favorably impacted by a decrease in interest expense of $1.0 million due to lower interest rates as a result of our debt refinancing in March 2004 and the voluntary principal payment on long-term debt of $10 million in the second quarter of 2004. Net income was $0.7 million, or $0.05 per share, for the third quarter of 2004 compared to net income of $0.2 million, or $0.01 per share, in the comparable period of 2003.
For the nine months ended September 30, 2004, revenues were $131.6 million, up 2.5% from $128.4 million in 2003. The sale of assets of Conestoga Wireless in January of 2003 resulted in a decrease in revenue of $0.5 million from the prior year. Operating income in the nine months ended September 30, 2004, was $14.7 million, compared to $17.0 million in the prior year. The loss from continuing operations was $0.3 million in 2004, compared with an income of $1.4 million in the prior year. The loss from continuing operations for the nine months ended September 30, 2004 included a $4.8 million ($3.0 million, or $0.19 per common share, after-tax) one-time loss on early extinguishment of debt.
Results of Operations
The following table is a summary of our operating results by segment for the three months ended September 30, 2004 and 2003: -0- *T Dollars in Thousands Internet RLEC CLEC Services -------- -------- --------- September 30, 2004 ------------------ Revenues - External $24,691 $ 9,212 $ 2,565 Revenues - Intercompany 2,406 389 4 -------- -------- --------- Total Revenues 27,097 9,601 2,569 -------- -------- --------- Depreciation and Amortization 7,716 1,041 280 Other Operating Expenses 12,955 9,397 2,192 -------- -------- --------- Total Operating Expenses 20,671 10,438 2,472 -------- -------- --------- Operating Income (Loss) $ 6,426 $ (837) $ 97 ======== ======== ========= September 30, 2003 ------------------ Revenues - External $26,698 $ 8,761 $ 1,543 Revenues - Intercompany 1,853 219 154 -------- -------- --------- Total Revenues 28,551 8,980 1,697 -------- -------- --------- Depreciation and Amortization 7,991 1,011 207 Other Operating Expenses 12,346 9,125 1,657 -------- -------- --------- Total Operating Expenses 20,337 10,136 1,864 -------- -------- --------- Operating Income (Loss) $ 8,214 $(1,156) $ (167) ======== ======== ========= Dollars in Thousands Corporate, Systems Other and Total Integration Eliminations Company ------------ ------------- -------- September 30, 2004 ------------------ Revenues - External $ 6,223 $ 1,001 $43,692 Revenues - Intercompany 18 (2,817) -- ------------ ------------- -------- Total Revenues 6,241 (1,816) 43,692 ------------ ------------- -------- Depreciation and Amortization 443 244 9,724 Other Operating Expenses 6,894 (1,930) 29,508 ------------ ------------- -------- Total Operating Expenses 7,337 (1,686) 39,232 ------------ ------------- -------- Operating Income (Loss) $ (1,096) $ (130) $ 4,460 ============ ============= ======== September 30, 2003 ------------------ Revenues - External $ 5,485 $ 544 $43,031 Revenues - Intercompany 7 (2,233) -- ------------ ------------- -------- Total Revenues 5,492 (1,689) 43,031 ------------ ------------- -------- Depreciation and Amortization 375 61 9,645 Other Operating Expenses 6,182 (1,222) 28,088 ------------ ------------- -------- Total Operating Expenses 6,557 (1,161) 37,733 ------------ ------------- -------- Operating Income (Loss) $ (1,065) $ (528) $ 5,298 ============ ============= ======== *T
Third Quarter Segment Results
Total RLEC revenues decreased 5.1%, to $27.1 million in the third quarter of 2004, from $28.6 million in the same period last year. Local telephone service revenues decreased partially as a result of decreasing access lines and network access revenues decreased from lower settlement rates, from decreased minutes of use and from a revision to our National Exchange Carrier Association (NECA) overearnings liability estimate. Both local and network access revenues were affected positively from growth in dedicated data circuits and leased facilities. Other revenue changes include an increase in directory advertising revenue offset by decreases in regional long distance toll service and equipment sales.
RLEC operating income decreased 21.8%, to $6.4 million (23.7% of revenue), in the third quarter of 2004 compared to $8.2 million (28.8% of revenue) in the same period last year.
Total CLEC revenues grew 6.9% for the third quarter of 2004, to $9.6 million from $9.0 million in the same period last year, driven by new customer additions. The increase was related to the addition of access lines for new customers and growth in dedicated data circuits, which increased local telephone service and network access revenues. Long distance revenues decreased approximately $0.3 million due to rate reductions and decreased minutes of use.
The CLEC operating loss decreased 27.6%, to a $0.8 million loss (negative 8.7% of revenue), in the third quarter of 2004 compared to a $1.2 million loss (negative 12.9% of revenue) in the same period last year.
The Internet Services segment revenues grew 51.4% for the third quarter of 2004, to $2.6 million from $1.7 million in the same period of last year. The increase resulted from growth in the number of DSL customers and web hosting subscribers. Effective October 2003, the Internet segment began selling DSL data transmission services in addition to DSL Internet connection services, which increased revenue by $0.7 million. Operating income for this segment increased to $0.1 million (3.8% of revenue), in the third quarter of 2004 from a $0.2 million operating loss (negative 9.8% revenue) in the same period last year.
Systems Integration revenues increased 13.6% for the third quarter of 2004 to $6.2 million from $5.5 million in the third quarter 2003. The increase included $0.4 million in communication services revenue and $0.3 million in telecommunications and computer equipment sales.
The Systems Integration operating loss was a $1.1 million loss (negative 17.6% of revenue), in the third quarter of 2004 and in the third quarter of 2003, (negative 19.4% of revenue).
Selected Operating Statistics -0- *T September 30, 2004 September 30, 2003 Change ------------------ ------------------ ------ RLEC Lines 140,243 143,870 -2.5% CLEC Lines 37,398 (1) 35,106 +6.5% DSL Subscribers 10,008 6,734 +48.6% Dial-up Subscribers 12,071 12,855 -6.1% Web Hosting Customers 901 795 +13.3% (1) The number of CLEC lines reported in this report has been adjusted cumulatively to include 110 lines as of December 31, 2003, 362 as of March 31, 2004, and 700 lines as of June 30, 2004 associated with one customer which were not included in our CLEC access line counts for the previous periods, beginning in the fourth quarter of 2003. *T
Other Matters
On October 22, 2004, D&E reported on Form 8-K that previously issued financial statements for the first and second quarters of 2004 should not be relied upon and would be restated to make certain necessary accounting adjustments. The financial statements were amended to restate the loss on early extinguishment of debt related to a syndicated senior secured debt financing completed on March 5, 2004. D&E reported a loss on extinguishment of debt, consisting of a non-cash write-off of unamortized debt issuance costs of the previous credit facility and the expensing of debt issuance costs related to the new credit facility. Additionally, D&E capitalized certain debt issuance costs related to the new facility. Management of the Company concluded that the loss on extinguishment of debt recorded in connection with such financing was overstated as a result of the misapplication of the accounting guidance of EITF 96-19, "Debtor's Accounting for a Modification or Exchange of Debt Instruments" and EITF 98-14, "Debtor's Accounting for the Changes in Line-of-Credit or Revolving Debt Arrangements." Amended reports on Form 10-Q/A for the quarters ended March 31, 2004 and June 30, 2004 have been filed with the Securities and Exchange Commission.
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 risk that the Conestoga and D&E billing systems will not successfully be converted into a single billing system; the effect of the convergence of voice, data, and video technologies on our historical competitive advantages; the outcome of our trial of video services; 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. is a leading provider of integrated communications services to residential and business customers in markets throughout central and eastern Pennsylvania. D&E offers its customers a comprehensive package of communications services including local and long distance telephone service, high speed data services and Internet access service. D&E also provides business customers with systems integration services including voice and data network solutions. -0- *T D&E Communications, Inc. and Subsidiaries Consolidated Statements of Operations (in thousands, except per-share amounts) (Unaudited) Three Months Ended Nine Months Ended ------------------- ------------------- September 30, September 30, ------------------- ------------------- OPERATING REVENUES 2004 2003 2004 2003 --------- --------- --------- --------- Communication service revenues $ 39,877 $ 39,764 $120,261 $117,596 Communication products sold 3,225 2,778 9,210 9,121 Other 590 489 2,121 1,686 --------- --------- --------- --------- Total operating revenues 43,692 43,031 131,592 128,403 --------- --------- --------- --------- OPERATING EXPENSES Communication service expenses (exclusive of depreciation and amortization below) 17,033 15,822 48,884 45,250 Cost of communication products sold 2,547 1,979 7,372 6,995 Depreciation and amortization 9,724 9,645 29,343 28,772 Marketing and customer services 3,845 4,149 11,992 12,079 General and administrative services 6,083 6,138 19,336 18,339 --------- --------- --------- --------- Total operating expenses 39,232 37,733 116,927 111,435 --------- --------- --------- --------- Operating income 4,460 5,298 14,665 16,968 --------- --------- --------- --------- OTHER INCOME (EXPENSE) Equity in net losses of affiliates (576) (513) (1,426) (1,873) Interest expense (3,456) (4,492) (10,947) (13,689) Loss on early extinguishment of debt -- -- (4,841) -- Other, net 346 (6) 1,339 922 --------- --------- --------- --------- Total other income (expense) (3,686) (5,011) (15,875) (14,640) --------- --------- --------- --------- Income (loss) from continuing operations before income taxes and dividends on utility preferred stock 774 287 (1,210) 2,328 INCOME TAXES AND DIVIDENDS ON UTILITY PREFERRED STOCK Income taxes (benefit) 39 116 (955) 859 Dividends on utility preferred stock 16 16 49 49 --------- --------- --------- --------- Total income taxes and dividends on utility preferred stock 55 132 (906) 908 --------- --------- --------- --------- Income (loss) from continuing operations 719 155 (304) 1,420 Discontinued operations: Loss from operations of discontinued Paging business, net of income tax benefit of $27 -- -- -- (53) --------- --------- --------- --------- Income (loss) before cumulative effect of change in accounting principle 719 155 (304) 1,367 Cumulative effect of change in accounting principle, net of income taxes of $177 -- -- -- 260 --------- --------- --------- --------- NET INCOME (LOSS) $ 719 $ 155 $ (304) $ 1,627 ========= ========= ========= ========= Weighted average common shares outstanding (basic) 14,867 15,522 15,325 15,465 Weighted average common shares outstanding (diluted) 14,910 15,591 15,325 15,526 BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE Income (loss) from continuing operations $ 0.05 $ 0.01 $ (0.02) $ 0.09 Income (loss) from discontinued operations 0.00 0.00 0.00 0.00 Cumulative effect of accounting change 0.00 0.00 0.00 0.02 --------- --------- --------- --------- Net income (loss) per common share $ 0.05 $ 0.01 $ (0.02) $ 0.11 ========= ========= ========= ========= Dividends per common share $ 0.13 $ 0.13 $ 0.38 $ 0.38 ========= ========= ========= ========= D&E Communications, Inc. and Subsidiaries Consolidated Balance Sheets (in thousands) (Unaudited) Sept. 30, Dec. 31, ASSETS 2004 2003 --------- --------- CURRENT ASSETS Cash and cash equivalents $ 6,399 $ 12,446 Accounts receivable, net of reserves of $1,205 and $1,410 17,552 20,956 Inventories, lower of cost or market, at average cost 3,551 3,552 Prepaid expenses 6,082 8,914 Other 1,704 1,141 --------- --------- TOTAL CURRENT ASSETS 35,288 47,009 --------- --------- INVESTMENTS Investments in and advances to affiliated companies 2,477 3,611 --------- --------- PROPERTY, PLANT AND EQUIPMENT In service 327,175 320,720 Under construction 13,078 5,964 --------- --------- 340,253 326,684 Less accumulated depreciation 156,986 137,533 --------- --------- 183,267 189,151 --------- --------- OTHER ASSETS Goodwill 149,045 149,127 Intangible assets, net of accumulated amortization 168,945 173,594 Other 8,392 11,756 --------- --------- 326,382 334,477 --------- --------- TOTAL ASSETS $547,414 $574,248 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Long-term debt maturing within one year $ 9,125 $ 11,001 Accounts payable and accrued liabilities 20,222 18,507 Accrued taxes 932 2,120 Accrued interest and dividends 1,749 1,949 Advance billings, customer deposits and other 7,406 10,323 --------- --------- TOTAL CURRENT LIABILITIES 39,434 43,900 --------- --------- LONG-TERM DEBT 221,000 222,765 --------- --------- OTHER LIABILITIES Deferred income taxes 86,478 88,295 Other 16,422 17,248 --------- --------- 102,900 105,543 --------- --------- 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 SHAREHOLDERS' EQUITY Common stock, par value $0.16, authorized shares 100,000 at September 30, 2004 and 30,000 at December 31, 2003 2,539 2,533 Outstanding shares: 14,254 at September 30, 2004 and 15,547 at December 31, 2003 Additional paid-in capital 160,091 159,515 Accumulated other comprehensive income (loss) (4,107) (4,865) Retained earnings 42,728 48,693 Treasury stock at cost, 1,640 shares at September 30, 2004 and 307 shares at December 31, 2003 (18,617) (5,282) --------- --------- 182,634 200,594 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $547,414 $574,248 ========= ========= D&E Communications, Inc. and Subsidiaries Consolidated Statements of Cash Flows (in thousands) (Unaudited) Nine Months Ended September 30, 2004 2003 --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS $ 34,824 $32,109 --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures, net of proceeds from sales (16,554) (14,139) Proceeds from Conestoga Wireless and Paging sales -- 10,176 Increase in investments and advances to affiliates (446) (1,199) Decrease in investments and repayments from affiliates 154 189 --------- -------- Net Cash Used In Investing Activities from Continuing Operations (16,846) (4,973) --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Dividends on common stock (5,425) (5,546) Payments on long-term debt (213,640) (12,364) Proceeds from long-term debt financing 210,000 12,000 Payment of debt issuance costs (1,971) -- Proceeds from issuance of common stock 346 951 Purchase of treasury stock (13,335) -- --------- -------- Net Cash Used In Financing Activities from Continuing Operations (24,025) (4,959) --------- -------- CASH PROVIDED BY (USED IN) CONTINUING OPERATIONS (6,047) 22,177 CASH USED IN DISCONTINUED OPERATIONS Cash Used in Operating Activities of Discontinued Operations -- (20,553) --------- -------- Net Cash Used In Discontinued Operations -- (20,553) --------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,047) 1,624 CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 12,446 15,514 --------- -------- END OF PERIOD $ 6,399 $17,138 ========= ======== *T
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