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D&E Communications Reports Fourth Quarter and Year End 2005 Results16 March 2006
D&E Communications, Inc. ("D&E") (NASDAQ: DECC), a leading provider of integrated communications services in centraland eastern Pennsylvania, today announced the results of its operations forthe fourth quarter and year ended December 31, 2005.
For the fourth quarter of 2005 the company reported total operating revenueof $45.1 million, as compared to $44.7 million in the fourth quarter of2004. Net income for the fourth quarter was $7.1 million, or $0.49 pershare, as compared to a net loss of $2.4 million, or ($0.17) per share, forthe same period last year. Included in the fourth quarter 2005 results wasincome of $6.4 million ($6.0 million, or $0.42 per common share, after tax)from the sale of the company's direct and indirect investment in PilickaTelefonia Sp. z o.o. ("Pilicka") on December 19, 2005. Results for thefourth quarter 2004 included a loss of $2.1 million ($2.1 million, or($0.14) per common share, after tax) for our share of an impairment ofassets at Pilicka and an impairment of our investment in EuroTel.
Total operating revenue for the full year 2005 was $176.2 million, ascompared to $176.3 million for the previous year. Net income for the yearwas $13.7 million, or $0.96 per share, as compared to a net loss of $2.7million, or ($0.18) per share, for 2004. Results for 2005 include incomeof $6.4 million ($6.0 million, or $0.42 per common share, after tax) fromthe sale of the company's direct and indirect investment in Pilicka, a gainon investment of $2.0 million ($1.3 million, or $0.09 per common share,after tax) from the sale of our interest in PenTeleData and other income of$2.1 million ($1.2 million, or $0.08 per common share, after tax) frominterest and principal payments collected on the note received from thesale of assets of Conestoga Wireless. Included in the 2004 results is aloss of $5.3 million ($3.6 million, or ($0.24) per common share, after tax)on early extinguishment of debt related to the company's refinancing of itsdebt in March and November 2004, a loss of $2.1 million ($2.1 million, or($0.14) per common share after tax) for our share of an impairment ofassets at Pilicka and an impairment of our investment in EuroTel, and otherincome of $0.8 million ($0.5 million, or $0.03 per common share, after tax)from interest and principal payments collected on the note received fromthe sale of assets of Conestoga Wireless. Net income before these items was$5.2 million, or $0.37 per share, for the year ended December 31, 2005,compared to $2.5 million, or $0.17 per share, for the year ended December31, 2004.
"This has been a very good year for D&E Communications," said D&E Presidentand CEO, James Morozzi. "We are confident that we have taken the rightsteps toward changing our business model to enable us to continue to makestrides and refine ways to move the company forward. We have intensifiedour focus on broadband deployment, in both the RLEC and CLEC business, andin managing our overall costs. We strongly believe that delivering thebroadband connection to the customers' homes and businesses is a keyelement to our future success. In 2005, we had exceptional success inbroadband growth with an 80% increase over 2004. Overall, the RLEC segmenthas performed as expected, and we continue to be alert to the competitionin that segment. Broadband and CLEC growth, particularly on-net CLECcustomer growth, has and will continue to enable us to move forward in apositive direction. In our Systems Integration segment we've put more focuson professional and managed services which provide recurring revenues andon cutting costs in that segment."
Summary Statistics December 31, December 31, Change % Change 2005 2004 ----------- ------------ -------- --------RLEC lines 134,698 139,607 (4,909) (3.5%)CLEC lines 40,796 38,461 2,335 6.1%DSL Subscribers 19,795 11,015 8,780 79.7%Dial-up Internet subscribers 7,959 11,535 (3,576) (31.0%)Video subscribers 6,630 5,498 1,132 20.6%Web-hosting customers 952 909 43 4.7%
On a segment by segment basis, the company reported the followinginformation:
Rural Local Exchange Carrier (RLEC)
Fourth quarter 2005 revenues from the RLEC segment were $28.4 million, ascompared to $28.0 million for fourth quarter 2004. The increase was due inlarge part to an increase in NECA settlement revenues, offset by a decreasein special access circuit revenue. Full-year 2005 revenue for the RLECsegment was approximately $110 million, as compared to $111 million for2004. The decrease was due mainly to reductions in special access circuitrevenue, offset by increases in NECA settlement revenue.
RLEC operating expenses for the fourth quarter were $19.0 million, comparedto $20.1 million during the same period last year, with the reductioncaused primarily by decreases of $0.4 million in depreciation expense and$0.4 million of corporate overhead expenses. RLEC operating expenses forthe year decreased $3.9 million, or 4.7%, to $78.0 million in 2005 due inlarge part to decreases in depreciation expense of $1.3 million, contractedbilling services of $1.0 million and corporate overhead expenses of $1.2million. Operating income for the quarter was $9.4 million, up from $8.0million in fourth quarter 2004. As a result of the decreased expensesdescribed above, operating income for 2005 increased $3.4 million, or11.6%, to $32.5 million.
Competitive Local Exchange Carrier (CLEC)
For the fourth quarter of 2005, CLEC segment revenues were $10.5 million,compared to $9.6 million for the same period of 2004. This increase wasdue to increased special access circuit revenue and a larger number ofaccess lines, offset by a reduction in long distance service revenues dueto rate reductions and fewer minutes of use. CLEC segment revenues for2005 increased $3.2 million, or 8.5%, to $40.8 million. The increase wasprimarily related to the addition of access lines for new customers andgrowth in special access circuits partially offset by a $1.4 milliondecrease in long distance revenues due to rate reductions and decreasedminutes of use.
CLEC operating expenses for the fourth quarter of 2005 were $10.9 million,up from $9.8 million for the same period last year. This increase was dueprimarily to an increase in cost of leased facilities to provide servicesto our additional customers. Full year 2005 CLEC segment operating expensesincreased $2.0 million, or 5.0%, to $42.3 million, with the increaseprimarily due to the same factors cited above for the fourth quarter.
For the fourth quarter of 2005 operating losses were $0.3 million comparedto an operating loss of $0.2 million in the fourth quarter 2004. For theyear the CLEC segment reported a smaller operating loss of $1.5 million,down 43.9% from an operating loss of $2.7 million during 2004.
Internet Services Segment
Internet services revenues for the fourth quarter of 2005 were $3.5million, as compared to $2.7 million in the fourth quarter of 2004, due toincreased DSL revenues. For the year, the company's internet servicessegment revenues increased 25.9%, to $13.0 million, in 2005, as compared to$10.4 million for 2004, primarily due to the factors cited above for thefourth quarter.
Operating expenses for the fourth quarter of 2005 were $3.4 million, ascompared to $2.6 million for the same period of 2004, due to an increase inlabor and benefits and an increase in the costs of providing additionalbroadband capacity. Operating expenses for the year were $13.7 million, ascompared to $10 million in 2004, also due to the factors cited above forthe fourth quarter of 2005.
For the fourth quarter, Internet Services had operating income of $0.04million, compared to $0.13 million during the same period in 2004. For theyear, the operating loss was $0.6 million, compared to operating income of$0.3 million in 2004.
Systems Integration
System integration revenues for the quarter were $4.6 million, as comparedto $6.2 million for the same period last year. This decrease was due mainlyto the expiration of a large government services contract as of June 30,2005. For the year, systems integration segment revenue was $20.3 million,compared to $24.8 million in 2004. The decrease was primarily due to theexpiration of a government services contract and reduction in equipmentsales.
Fourth quarter 2005 operating expenses were $6.1 million, compared to $7.4million in the previous year. The decrease was due primarily to lower laborand subcontractor costs. For the year, operating expenses were $26.1million, compared to $29.4 million in the previous year. Decreased laborand subcontractor costs and cost of equipment sales were the primaryreasons for the lower operating expenses.
Systems integration operating losses for the quarter ended December 31,2005 were $1.5 million, as compared to $1.2 million in the fourth quarterof 2004. Operating losses for the year increased $1.2 million, to $5.8million, as compared to $4.6 million in 2004.
About D&E Communications
D&E is an integrated communications provider offering high-speed data,Internet access, local and long distance telephone, voice and datanetworking, network management and security, and video services. Based inLancaster County, D&E has been serving communities in central Pennsylvaniafor more than 100 years. For more information, visitwww.decommunications.com.
This press release contains forward-looking statements. Theseforward-looking statements are found in various places throughout thispress release and include, without limitation, statements regardingfinancial and other information. These statements are based upon thecurrent beliefs and expectations of D&E's management concerning thedevelopment of our business, are not guarantees of future performance andinvolve a number of risks, uncertainties, and other important factors thatcould cause actual developments and results to differ materially from ourexpectations. Those factors include, but are not limited to, the effect ofthe convergence of voice, data, and video technologies on our historicalcompetitive advantages; the increasingly competitive nature of thecommunications industry; the significant indebtedness of the company; andother key factors that we have indicated could adversely affect ourbusiness and financial performance contained in our past and future filingsand reports, including those filed with the United States Securities andExchange Commission. D&E undertakes no obligation to revise or update itsforward-looking statements whether as a result of new information, futureevents, or otherwise.
D&E COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, expect per share amounts)
Three Months Ended Twelve Months Ended December 31, December 31, (unaudited) 2005 2004 2005 2004 ----------- ----------- ----------- ---------
OPERATING REVENUES Communication service revenues $ 41,517 $ 40,558 $ 161,659 $ 160,820 Communication products sold 2,886 3,445 11,652 12,656 Other 675 676 2,936 2,795 ----------- ----------- ----------- ---------
Total operating revenues 45,078 44,679 176,247 176,271 ----------- ----------- ----------- ---------
OPERATING EXPENSES Communication service expenses (exclusive of depreciation and amortization below) 16,380 16,165 65,922 65,049 Cost of communication products sold 2,067 2,728 8,692 10,100 Depreciation and amortization 9,550 9,776 38,745 39,119 Marketing and customer services 4,152 3,984 15,487 15,977 General and administrative services 5,709 5,744 24,742 25,079 ----------- ----------- ----------- --------- Total operating expenses 37,858 38,397 153,588 155,324 ----------- ----------- ----------- --------- Operating income 7,220 6,282 22,659 20,947
OTHER INCOME (EXPENSE) Equity in net income (losses) of affiliates 1,142 (1,746) 1,000 (3,172) Interest expense (3,741) (3,441) (14,177) (14,389) Gain (loss) on investments 4,852 (1,057) 6,895 (1,057) Loss on early extinguishment of debt - (411) - (5,252) Other, net 747 339 3,205 1,679 ----------- ----------- ----------- --------- Total other income (expense) 3,000 (6,316) (3,077) (22,191) ----------- ----------- ----------- --------- Income (loss) from continuing operations before income taxes and dividends on utility preferred stock 10,220 (34) 19,582 (1,244)
INCOME TAXES AND DIVIDENDS ON UTILITY PREFERRED STOCK Income taxes 3,140 2,386 5,806 1,430 Dividends on utility preferred stock 16 16 65 65 ----------- ----------- ----------- --------- Total income taxes and dividends on utility preferred stock 3,156 2,402 5,871 1,495 ----------- ----------- ----------- ---------
NET INCOME (LOSS) $ 7,064 $ (2,436) $ 13,711 $ (2,739) =========== =========== =========== ========= Weighted average common shares outstanding (basic) 14,332 14,257 14,304 15,057 Weighted average common shares outstanding (diluted) 14,371 14,257 14,330 15,057
BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE Net income (loss) per common share $ 0.49 $ (0.17) $ 0.96 $ (0.18) =========== =========== =========== =========
Dividends per common share $ 0.12 $ 0.12 $ 0.50 $ 0.50 =========== =========== =========== =========
D&E COMMUNICATIONS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands)
December 31, 2005 2004 ---------- ---------- ASSETSCURRENT ASSETS Cash and cash equivalents $ 10,325 $ 8,517 Accounts receivable, net of reserves of $748 and $1,024 16,864 16,495 Accounts receivable - affiliated company 351 75 Inventories, lower of cost or market, at average cost 3,645 3,523 Prepaid expenses 8,194 8,466 Other 1,243 2,465 ---------- ---------- TOTAL CURRENT ASSETS 40,622 39,541 ---------- ----------INVESTMENTS Investments in and advances to affiliated companies - 52 ---------- ----------
PROPERTY, PLANT AND EQUIPMENT In service 364,638 335,883 Under construction 7,334 8,768 ---------- ---------- 371,972 344,651 Less accumulated depreciation 192,259 162,078 ---------- ---------- 179,713 182,573 ---------- ----------OTHER ASSETS Goodwill 145,448 149,032 Intangible assets, net of accumulated amortization 161,572 167,396 Other 8,317 8,191 ---------- ---------- 315,337 324,619 ---------- ---------- TOTAL ASSETS $ 535,672 $ 546,785 ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITYCURRENT LIABILITIES Long-term debt maturing within one year $ 10,000 $ 10,000 Accounts payable and accrued liabilities 18,962 18,701 Accrued taxes 2,890 1,819 Accrued interest and dividends 1,791 1,683 Advance billings, customer deposits and other 11,087 11,585 ---------- ---------- TOTAL CURRENT LIABILITIES 44,730 43,788 ---------- ----------
LONG-TERM DEBT 205,500 218,500 ---------- ----------OTHER LIABILITIES Equity in net losses of affiliates in excess of investments and advances 196 - Deferred income taxes 79,063 86,402 Other 20,391 20,530 ---------- ---------- 99,650 106,932 ---------- ----------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 ---------- ----------COMMITMENTSSHAREHOLDERS' EQUITY Common stock, par value $0.16, authorized shares: 100,000 at December 31, 2005 and 2004 Outstanding shares: 14,345 at December 31, 2005 and 14,268 at December 31, 2004 2,554 2,542 Additional paid-in capital 160,924 160,255 Accumulated other comprehensive income (loss) (5,598) (6,574) Retained earnings 45,083 38,513 Treasury stock at cost, 1,640 shares at December 31, 2005 and 2004 (18,617) (18,617) ---------- ---------- 184,346 176,119 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 535,672 $ 546,785 ========== ==========
CONTACT:D&E Communications, Inc.W. Garth SprecherSr. Vice President and Corporate Secretary(717) 738-8304
SOURCE: D & E Communications, Inc.
Source: marketwire
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