-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WifIaS1PocwxFN3WS71Voq1mrUF7JR6VL0HgyPujfLD3SsGtB/BByeBVpBFVvDIz NY+ZGcXFX8489O6jTcbfEQ== 0000893220-03-000536.txt : 20030401 0000893220-03-000536.hdr.sgml : 20030401 20030401144532 ACCESSION NUMBER: 0000893220-03-000536 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020401 ITEM INFORMATION: Regulation FD Disclosure FILED AS OF DATE: 20030401 FILER: COMPANY DATA: COMPANY CONFORMED NAME: D&E COMMUNICATIONS INC CENTRAL INDEX KEY: 0001011737 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 232837108 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-20709 FILM NUMBER: 03634052 BUSINESS ADDRESS: STREET 1: BROSSMAN BUSINESS COMPLEX STREET 2: 124 EAST MAIN ST PO BOX 458 CITY: EPHRATA STATE: PA ZIP: 17560 BUSINESS PHONE: 7177334101 MAIL ADDRESS: STREET 1: BROSSMAN BUSINESS COMPLEX STREET 2: 124 EAST MAIN STREET CITY: EPHRATA STATE: PA ZIP: 17560 8-K 1 w85076e8vk.txt D&E COMMUNICATIONS, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 Date of Report: April 1, 2002 ------------- Date of earliest event reported: March 31, 2002 -------------- Commission File No. 0-20709 D&E COMMUNICATIONS, INC. ----------------------------------------------------------------------- (Exact Name of Registrant as specified in its charter) Pennsylvania 23-2837108 - --------------------------------------------- -------------------------------------- (State or other jurisdiction of incorporation) (IRS Employer Identification Number) 124 East Main Street P.O. Box 458 Ephrata, PA 17522-0458 17522 - ---------------------------------------------- --------------------------------------- (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (717) 733-4101 ITEM 9. REGULATION FD DISCLOSURE The following information is being filed pursuant to Item 9 and Item 12: On March 31, 2003, D&E Communications, Inc. issued the press release attached hereto as Exhibit 99, and incorporated into this Item 12 by reference. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, D&E Communications, Inc. has caused this Report to be signed on its behalf by the undersigned hereunto fully authorized. D&E COMMUNICATIONS, INC. By: /s/ Thomas E. Morell ----------------------- Thomas E. Morell Senior Vice President, Chief Financial Officer and Treasurer Date: April 1, 2003 Exhibit Index Exhibit 99 - Press Release dated March 31, 2003 EX-99 3 w85076exv99.txt PRESS RELEASE... EXHIBIT 99 D&E COMMUNICATIONS, INC. NEWS RELEASE FOR IMMEDIATE RELEASE CONTACT PERSON: March 31, 2003 W. Garth Sprecher (717)738-8304 D&E COMMUNICATIONS REPORTS RESULTS FOR 2002 Ephrata, Pennsylvania - D&E Communications, Inc. ("D&E") (Nasdaq: DECC), a provider of integrated communications services in central and eastern Pennsylvania, today announced the following operating results for the year ended December 31, 2002 (dollar amounts in thousands, except per share information):
YEAR ENDED DECEMBER 31 2002(1)(2) 2001 CHANGE ---------- ---- ------ Operating Revenues $ 137,334 $ 76,055 $ 61,279 Operating Income (Loss) 7,275 (530) 7,805 Income (Loss) from continuing (7,105) 4,026 (11,131) operations Net Income (Loss) 48,394 (4,052) 52,446 Basic and Diluted Earnings Earnings(Loss) Per Common Share $ 3.95 ($ 0.55) $ 4.50
More information regarding D&E's operating results for the year ended December 31, 2002 can be found in its Annual Report on Form 10-K, which was filed today with the Securities and Exchange Commission. G. William Ruhl, D&E CEO, stated that, "This year was marked by tremendous growth and transformation at D&E. The acquisition of Conestoga Enterprises more than doubled the size of our company and created the 19th largest local exchange carrier in the United States. The _________________ 1 D&E's results for the year ended December 31, 2002, reflect the completion of its acquisition of Conestoga Enterprises, Inc. ("Conestoga") on May 24, 2002. 2 Net income of $48,394, and earnings per common share of $3.95, for the year ended December 31, 2002 reflect D&E's sale of its 50% interest in the PCS ONE wireless joint venture on April 1, 2002, which resulted in the recognition of an after-tax gain of $55.5 million in the year ended December 31, 2002. sale of our interest in PCS ONE in April 2002, the sale of the assets of Conestoga Wireless in January 2003, and the definitive agreement that we entered into in January 2003 to sell our paging operations advanced our strategy to be a wireline focused telecommunications provider. The growth of our Internet, long distance and edge-out local exchange services of the business, which, combined with our Systems Integration business, advanced our objective to become a leading regional integrated communications provider." OVERVIEW OF 2002 COMPARED TO 2001 Consolidated operating revenues from continuing operations in 2002 increased $61,279, or 80.6%, to $137,334, in 2002. The revenue increase was primarily due to approximately $60,932 in incremental revenue attributable to the acquisition of Conestoga on May 24, 2002. The increased revenue from the former D&E operating divisions was primarily due to increases in our customer bases in our CLEC and Internet Services segments, offset by decreased service and product sales revenues in our Systems Integration segment. Before corporate eliminations, the former D&E segment's CLEC revenues increased $1,912,or 27.4%, Internet Services revenue increased $1,824, or 91.5%, and D&E Systems Integration segment's revenues decreased $3,615, or 15.5%. Consolidated operating results from continuing operations for 2002 resulted in operating income of $7,275. The increase in operating income in 2002 of $7,805 was primarily attributable to $7,513 in operating income from the acquisition of Conestoga. Operating losses in our former D&E CLEC, Internet Services and Systems Integration segments were smaller by $211, $1,220 and $1,147, respectively. We experienced a decrease of $1,299 in operating income from our D&E RLEC primarily due to costs of the abandoned bond offering and other merger related costs. Goodwill amortization was discontinued as of January 1, 2002 as a result of adopting Statement of Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets", which resulted in $1,436 less expense in 2002. Income from continuing operations decreased $11,131 to a loss of $7,105 in 2002. Equity in income of affiliates decreased $3,520 as a result of an arbitration award received by a subsidiary of our EuroTel affiliate in 2001. Realized gains/losses on securities held for sale decreased $6,035 to a loss of $2,999 in 2002. Interest expense increased $9,653, to $11,895, in 2002, primarily from increased debt incurred to complete the Conestoga acquisition. These increased expenses were offset by the $7,805 increase in operating income discussed above. Net income in 2002 of $48,394 was an increase of $52,446. The increase was due to the sale of the investment in PCS ONE on April 1, 2002, which resulted in the recognition of an after-tax gain of $55,506. 2 RESTATEMENT AND DISCONTINUED OPERATIONS Subsequent to the May 24, 2002 acquisition of Conestoga Enterprises, Inc. the Company made preliminary estimates related to purchase price allocation for purposes of preparing the financial statements included in the Company's quarterly reports on Form 10-Q for the quarters ended June 30, 2002 and September 30, 2002. The Company relied on preliminary reports of independent appraisers to determine the purchase price allocation. As part of this preliminary analysis, only customer base and goodwill were identified as intangible assets. Amortization of the customer base and depreciation of the property, plant and equipment were based on initial estimates of economic useful lives. Prior to the issuance of our financial statements for the year ended December 31, 2002, the Company finalized its valuation with the independent appraisers. The final valuation resulted in recognition of additional intangible assets, changes in estimated fair values and changes in estimated useful lives of the tangible and intangible assets. The most significant impact resulted from changes to shorten the estimated useful life of property, plant and equipment from the initial lives used in the Company's preliminary evaluation. The Company has restated the financial statements and is filing Forms 10-Q/A for the quarters ended June 30, and September 30, 2002, which reflect additional expense and its impact on net income related to these adjustments. Also, prior to the issuance of our financial statements for the year ended December 31, 2002, the Company became aware of certain factors arising from our disposition of Conestoga Wireless Company, which was consummated on January 14, 2003. These factors, which include various guarantees made by the Company, have rendered this disposition unable to qualify for accounting treatment as a discontinued operation. These guarantees constitute continuing involvement in the business and as such would no longer qualify under Statement of Financial Accounting Standard No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". The Company has reclassified the results of Conestoga Wireless Company, previously reported as discontinued operations, to continuing operations for the periods ended June 30, 2002 and September 30, 2002. Such adjustments are also included in the financial statements being filed under Forms 10-Q/A. Finally, the Company has also reclassified in the Form 10-Q/A for the second quarter, the results of our paging business as a discontinued operation. In conjunction with the filing of our Annual Report on Form 10-K for the year ended December 31, 2002, the Company believes that it would be appropriate to amend Forms 10-Q for the second and third quarter 2002, to reflect the aforementioned revised purchase price allocation and the reclassifications between discontinued operations and continuing operations. 3 The following summary highlights the information that is revised in the Forms 10-Q/A for the periods ended June 30, 2002 and September 30, 2002:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 2002 JUNE 30, 2002 ------------- ------------- As Previously As Previously Reported As Restated Reported As Restated -------- ----------- -------- ----------- OPERATING REVENUES $ 26,149 $ 26,830 $ 45,753 $ 46,407 OPERATING EXPENSES Communication service expenses 8,260 8,618 15,284 15,624 Cost of communication products sold 3,098 3,257 5,874 6,032 Depreciation and amortization 5,581 5,847 9,465 9,728 Marketing and customer services 2,713 2,865 4,862 5,007 Merger-related costs 1,058 973 1,058 973 General and administrative services 5,601 5,961 9,140 9,497 ------ ------ ------ ------ Total operating expenses 26,311 27,521 45,683 46,861 ------ ------ ------ ------ Operating income (loss) (162) (691) 70 (454) ------ ------ ------ ------ INCOME (LOSS) FROM CONTINUING OPERATIONS (3,674) (3,975) (4,482) (4,781) INCOME (LOSS) FROM DISCONTINUED OPERATIONS 55,626 55,779 55,626 55,776 ------ ------ ------ ------ NET INCOME (LOSS) $ 51,952 $ 51,804 $ 51,144 $ 50,995 ====== ====== ====== ====== BASIC AND DILUTED EARNINGS PER SHARE From Continuing Operations $ (0.34) $ (0.37) $ (0.50) $ (0.53) From Discontinued Operations $ 5.19 $ 5.20 $ 6.15 $ 6.17 Net Income (Loss) per Common Share $ 4.85 $ 4.83 $ 5.65 $ 5.64 $ 5,448 $ 2,721 Cash Flows provided by Operating Activities $(170,200) $(167,623) Cash Flows from Investing Activities Cash Flows from Discontinued Operations $ 75,325 $ 75,475
JUNE 30, 2002 ------------- As Previously Reported As Restated -------- ----------- BALANCE SHEET Property, Plant and Equipment $ 304,889 $ 303,722 Accumulated Depreciation $ (95,456) $ (95,631) Goodwill $ 231,664 $ 147,488 Intangible Assets, net $ 30,455 $ 182,079 Total Assets $ 560,626 $ 611,347 Total Liabilities $ 348,337 $ 398,924 Retained Earnings $ 58,946 $ 58,797 Total Shareholders' Equity $ 210,843 $ 210,977
4
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 2002 SEPTEMBER 30, 2002 ------------------ ------------------ As Previously As Previously Reported As Restated Reported As Restated -------- ----------- -------- ----------- OPERATING REVENUES $ 41,966 $ 45,237 $ 87,608 $ 91,644 OPERATING EXPENSES Communication service expenses 14,780 16,609 29,995 32,234 Cost of communication products sold 2,625 3,104 8,493 9,136 Depreciation and amortization 7,064 9,402 16,519 19,130 Marketing and customer services 4,744 5,111 9,606 10,118 Merger-related costs -- -- 973 973 General and administrative services 5,940 6,952 15,126 16,449 ------ ------ ------ ------ Total operating expenses 35,153 41,178 80,712 88,040 ------ ------ ------ ------ Operating income (loss) 6,813 4,059 6,896 3,604 ------ ------ ------ ------ INCOME (LOSS) FROM CONTINUING OPERATIONS 554 (1,064) (3,920) (5,846) INCOME (LOSS) FROM DISCONTINUED OPERATIONS (563) (269) 55,056 55,508 ------ ------ ------ ------ NET INCOME (LOSS) $ (9) $ (1,333) $ 51,136 $ 49,662 ====== ====== ====== ====== BASIC AND DILUTED EARNINGS PER SHARE From Continuing Operations $ 0.04 $ (0.07) $ (0.35) $ (0.52) From Discontinued Operations $ (0.04) $ (0.02) $ 4.92 $ 4.96 Net Income (Loss) per Common Share -- $ (0.09) $ 4.57 $ 4 .44 Cash Flows provided by Operating Activities $ 16,070 $ 13,380 Cash Flows from Investing Activities $(175,921) $(173,683) Cash Flows from Discontinued Operations $ 75,064 $ 75,516
SEPTEMBER 30, 2002 As Previously Reported As Restated -------- ----------- BALANCE SHEET Property, Plant and Equipment $ 308,904 $ 307,918 Accumulated Depreciation $ (99,716) $(102,227) Goodwill $ 222,289 $ 147,488 Intangible Assets, net $ 36,898 $ 180,513 Total Assets $ 551,889 $ 601,045 Total Liabilities $ 341,186 $ 391,816 Retained Earnings $ 57,006 $ 55,532 Total Shareholders' Equity $ 209,257 $ 207,783
5 DISCUSSION OF SEGMENT OPERATING RESULTS The following table is a summary of our operating results by segment for the years ended December 31, 2002 and 2001:
CORPORATE, INTERNET SYSTEMS CONESTOGA OTHER AND TOTAL RLEC CLEC SERVICES(3) INTEGRATION(4) WIRELESS ELIMINATIONS COMPANY ---- ---- ----------- -------------- -------- ------------ ------- 2002 Revenues - External $76,442 $ 21,626 $ 4,407 $ 23,582 7,568 $ 3,709 $ 137,334 Revenues - Intercompany 6,484 478 282 37 72 (7,353) -- ------- -------- ------- -------- ------- ------- --------- Total Revenues 82,926 22,104 4,689 23,619 7,640 (3,644) 137,334 ------- -------- ------- -------- ------- ------- --------- Depreciation and Amortization 23,272 2,775 460 1,592 -- 591 28,690 Other Operating Expenses 42,517 23,531 4,943 25,169 9,405 (4,196) 101,369 ------- -------- ------- -------- ------- ------- --------- Total Operating Expenses 65,789 26,306 5,403 26,761 9,405 (3,605) 130,059 ------- -------- ------- -------- ------- ------- --------- Operating Income (Loss) 17,137 (4,202) (714) (3,142) (1,765) (39) 7,275 ------- -------- ------- -------- ------- ------- --------- 2001 Revenues - External $41,131 $ 6,662 $ 1,970 $ 23,177 -- $ 3,115 $ 76,055 Revenues - Intercompany 3,866 323 23 96 -- (4,308) -- ------- -------- ------- -------- ------- ------- --------- Total Revenues 44,997 6,985 1,993 23,273 -- (1,193) 76,055 ------- -------- ------- -------- ------- ------- --------- Depreciation and Amortization 11,118 772 259 2,751 -- 389 15,289 Other Operating Expenses 25,441 9,169 3,824 24,059 -- (1,197) 61,296 ------- -------- ------- -------- ------- ------- --------- Total Operating Expenses 36,559 9,941 4,083 26,810 -- (808) 76,585 ------- -------- ------- -------- ------- ------- --------- Operating Income (Loss) 8,438 (2,956) (2,090) (3,537) -- (385) (530) ------- -------- ------- -------- ------- ------- ---------
RLEC segment revenues increased 84.3% to $82,926 in 2002. In 2002, the Conestoga acquisition added $36,516 while D&E RLEC revenues increased $1,413. D&E local telephone service revenues increased $2,465, or 20.2%, to $14,685 in 2002, as a result of rate increases in December 2001 and July 2002. The Conestoga companies had similar increases in July 2001 and July 2002. D&E network access revenues decreased $1,392, or 5.6%, to $23,434 in 2002, as a result of lower call volumes and a decrease in certain network access rate elements. The Conestoga RLECs were experiencing similar trends with higher local telephone service revenue being offset by declining network access revenues. Other revenues, which include, regional long distance service, directory advertising, and billing and collection increased $8,630 in 2002. The Conestoga acquisition added $8,289 in other revenues while D&E increased $212. RLEC operating expenses increased 80.0%, to $65,789 in 2002. The increase in 2002 was primarily attributable to the Conestoga acquisition. Operating income increased $8,699, or 103.1%, in 2002 to $17,137. __________________ 3 We commenced our Internet Services operations on October 1, 2000. 4 We acquired two Systems Integration businesses in 2000. 6 CLEC segment revenues increased 216.4%, to $22,104 in 2002. In 2002, the Conestoga acquisition added $13,682 of revenue, while D&E revenues increased $1,437. The increase in 2002 was also largely attributable to expanding our CLEC business customer base. CLEC operating expenses increased 164.6%, to $26,306 in 2002. The increase in 2002 was primarily attributable to the Conestoga acquisition. Operating losses increased $1,246, or 42.2%, to $4,202 in 2002, primarily due to increased operating expenses. Internet Services segment revenues increased 135.3%, to $4,689, in 2002. The Conestoga acquisition added $775 to revenue in 2002. The other primary source of the revenue increases was from the addition of new Internet subscribers. Operating expenses were $5,403 in 2002, resulting in an operating loss of $714 in 2002. Systems Integration segment revenues increased 1.5%, to $23,619, in 2002. The Conestoga acquisition added revenues of $3,961, but was offset by a decrease of $3,615 in D&E. The D&E decrease was primarily $2,408 of communication services and $1,207 of product sales. We believe these decreases partially relate to the effects of a slowing economy and reductions in customer spending for communications related infrastructure and consulting services. Systems Integration operating expenses decreased slightly to $26,761 in 2002. The 2002 decrease was the net result of increased Conestoga expenses and lower D&E expenses, both in line with revenue changes. The change in depreciation and amortization relates to increased depreciation for the assets of companies acquired in 2000 and a decrease in amortization of goodwill for such companies. We adopted a new accounting pronouncement in 2002, which eliminates amortization of goodwill that amounted to $1,436 in 2001. Operating losses decreased $395, to $3,142 in 2002, primarily due to these changes in operating expenses. Conestoga Wireless segment revenues were $7,640 from the May 24, 2002 date of acquisition until December 31, 2002. The 2002 operating loss was $ 1,765. SELECTED OPERATING STATISTICS
December 31, December 31, 2002 (1) 2001 Change -------- ---- ------ RLEC Lines 145,310 147,466 (1.5%) CLEC Lines 30,200 23,267 29.8% Dial-up Internet Subscribers 12,652 10,161 24.5% DSL Subscribers 5,615 2,209 154.2% Web-Hosting Customers 651 447 45.6%
(1) Access line data at December 31, 2001 has been adjusted to give effect to the Conestoga acquisition as if it had occurred on that date. In connection with the integration of the Conestoga acquisition, we reviewed certain of our access line count methodologies. As a result of this process, the total number of our RLEC access lines was adjusted upward by 526 lines from the number of RLEC lines reported at June 30, 2002. In addition, the total number of our CLEC lines was adjusted downward by 2,879 lines from the number of CLEC lines reported at June 30, 2002. The count correction and conforming 7 of methodology had no impact on revenues or expenses. We believe that at December 31, 2002 our count methodologies are applied consistently throughout our organization. OTHER MATTERS On May 24, 2002, we completed our acquisition of Conestoga Enterprises, Inc., a neighboring rural local exchange carrier providing integrated communications services throughout the eastern half of Pennsylvania. The integration process has continued to progress during 2002 with the majority of planned staff reductions and relocations being completed by December 31, 2002. We plan to continue the execution of our Conestoga integration strategy, which includes further reductions in non-personnel-related backoffice costs, the expansion of D&E internet dial-up service to customers in the Conestoga territories, savings resulting from the consolidation of leased space and further purchasing power efficiencies. On November 12, 2002, we entered into a definitive agreement to sell substantially all of the assets of the Conestoga wireless segment to Keystone Wireless, LLC, a Delaware limited liability company. Upon completion of the sale on January 14, 2003, we received $10.0 million in cash and $10.0 million in a senior secured promissory note issued by Keystone, each subject to certain purchase price adjustments to be determined after closing. Proceeds from the sales price are estimated to approximate the value of the assets recorded on the balance sheet and there will be no gain or loss recorded as a result of the sale. During the year ended December 31, 2002, we committed to a plan to sell all of the assets of our paging operations. We expect this sale to occur during the second quarter of 2003. ******* 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. They 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. These factors include, but are not limited to, the risk that Conestoga's business will not be successfully integrated into D&E; the costs related to the transaction; the significant indebtedness of the combined company; the risk that anticipated synergies of the merger will not be obtained; the sale of our paging operations; and other key factors that we have indicated that 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 provider of integrated communications services to residential and business customers in markets throughout central and eastern Pennsylvania. D&E offers its 8 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. 9 -----END PRIVACY-ENHANCED MESSAGE-----