EX-99.1 2 dex991.htm PRESS RELEASE Press Release

EXHIBIT 99.1

 

D&E COMMUNICATIONS, INC.    CONTACT:
FOR IMMEDIATE RELEASE    Thomas E. Morell
MAY 7, 2009    Sr. Vice President, Chief Financial Officer,
   Secretary and Treasurer
   (717) 738-8315

D&E COMMUNICATIONS REPORTS FIRST QUARTER 2009 RESULTS

  Operating income of $8.7 million

  Net income attributable to common shareholders of $4.0 million and earnings per share of $0.28

EPHRATA, PENNSYLVANIA (May 7, 2009) – 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, 2009.

For the first quarter of 2009, the Company reported a net income attributable to common shareholders of $4.0 million, or $0.28 per share, compared to $5.1 million, or $0.35 per share, for the same period last year. Operating income for the first quarter of 2009 was $8.7 million, compared to $8.1 million in the first quarter of 2008. Total operating revenue for the first quarter of 2009 was $35.9 million, compared to $37.8 million in the first quarter of 2008.

Operating income increased $0.6 million due to a reduction in operating expenses of $2.5 million, partially offset by a decline in operating revenue of $1.9 million. Operating expenses declined as a result of a pension curtailment gain of $1.0 million, of which $0.9 million ($0.5 million, or $0.03 per share, after tax) was recorded as a reduction of operating expenses and the remaining $0.1 million was capitalized. Wireline depreciation expense decreased $0.8 million ($0.5 million, or $0.04 per share, after tax) due to certain fixed assets becoming fully depreciated in June and July 2008 and other operating expenses decreased $0.8 million. In the first quarter of 2009, the Company offered a one-time payment to non-union employees who were eligible and elected to retire by December 31, 2009. The Company recorded an expense of $0.2 million ($0.1 million, or $0.01 per share, after tax) in the first quarter of 2009 for those employees who elected to retire. The revenue decrease of $1.9 million for the first quarter of 2009 was the result of decreases in Wireline and Systems Integration segment revenues of $1.7 million and $0.2 million, respectively.

The first quarter 2008 results included income of $2.9 million ($1.7 million, or $0.12 per common share, after tax) from the termination of a lease guarantee and a reserve of $0.2 million ($0.1 million, or $0.01 per share, after tax) recognized on a note receivable from the sale of assets in 2006. Adjusted net income attributable to common shareholders for the first quarter of 2009 before the items described above was $3.1 million, or $0.22 per share. Adjusted net income attributable to common shareholders for the first quarter of 2008 before the items described above was $3.5 million, or $0.24 per share.

“Even in light of the current economic conditions, we continue to see growth in both our DSL/High-Speed Internet subscribers and our CLEC access lines, albeit at a slower rate than this time last year. We’re especially pleased to see our total revenue from private line circuits, dedicated circuits, Ethernet and IP VPN services grow by $0.4 million, or 10.7%, over the first quarter of 2008. This is a reflection of our business customers continuing to place high value on D&E’s advanced data networking services,” stated James W. Morozzi, D&E’s President and Chief Executive Officer. “During the first quarter of 2009, D&E’s operating income increased $0.6 million, mainly due to a pension curtailment gain of $0.9 million as a result of a hard freeze to our non-union pension plan and a reduction in depreciation expense of $0.8 million. Net income decreased $1.1 million in comparison to the 2008 period primarily due to a one-time after-tax gain of $1.7 million in the first quarter of 2008.”

 

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Mr. Morozzi continued, “On April 23, 2009, the D&E board of directors declared a quarterly dividend of $0.125 per common share, continuing our long-standing practice of paying quarterly dividends from operating cash flows of the business.”

The following table provides a reconciliation of reported and adjusted net income attributable to common shareholders and earnings per share:

 

     Three Months Ended  
      March 31,  

(Dollar amounts in millions, except per-share amounts)

   2009     2008  
     Amount     Per-
Share
    Amount     Per-
Share
 

Reported net income attributable to common shareholders

   $ 4.0     $ 0.28     $ 5.1     $ 0.35  

Items impacting comparability:

        

Retirement payments, net of tax

     0.1       0.01       —         —    

Decrease in depreciation, net of tax, compared to 2008

     (0.5 )     (0.04 )     —         —    

Pension curtailment gain, net of tax

     (0.5 )     (0.03 )     —         —    

Note receivable reserve, net of tax

     —         —         0.1       0.01  

Lease guarantee termination, net of tax

     —         —         (1.7 )     (0.12 )
                                

Adjusted net income attributable to common shareholders

   $ 3.1     $ 0.22     $ 3.5     $ 0.24  
                                

Summary Statistics

 

      March 31, 2009    March 31, 2008    Change     % Change  

RLEC access lines

   117,872    123,563    (5,691 )   (4.6 %)

CLEC access lines

   46,747    46,021    726     1.6 %

DSL/High-Speed Internet

Subscribers

   44,216    39,970    4,246     10.6 %

Dial-up Internet subscribers

   1,986    2,984    (998 )   (33.4 %)

Video subscribers

   8,528    8,099    429     5.3 %

Web-hosting customers

   985    1,013    (28 )   (2.8 %)
                  

Total customer connections

   220,334    221,650    (1,316 )   (0.6 %)
                  

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

Wireline

First quarter 2009 Wireline segment revenues were $34.8 million compared to $36.5 million for the first quarter of 2008. The decrease was due in large part to lower network access revenue of $1.4 million primarily due to a decline in NECA revenue and minutes of use. Local telephone service revenue decreased $0.3 million primarily due to a decrease in RLEC access lines. Long distance revenue declined $0.2 million primarily due to a decline in the average rate per minute of use. Communication services revenue increased $0.2 million primarily due to increased DSL/high-speed Internet subscribers.

Wireline operating expenses for the first quarter of 2009 were $25.7 million compared to $27.9 million during the same period last year. Depreciation expense decreased $0.8 million primarily due to certain fixed assets that became

 

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fully depreciated in June and July of 2008. Employee benefits expense decreased $0.9 million primarily due to a pension plan curtailment gain as a result of the amendment to one of the Company’s pension plans to discontinue future benefit accruals to all active participants effective January 2010. Corporate overhead expenses decreased $0.3 million.

Operating income was $9.1 million for the first quarter of 2009 compared to operating income of $8.6 million for the first quarter of 2008.

Systems Integration

System Integration revenue for the first quarter of 2009 was $0.7 million compared to $0.9 million for the same period last year. The primary reason for the decline was lower communication services revenue.

First quarter 2009 operating expenses were $0.8 million compared to $1.1 million in the first quarter of 2008. Labor and benefits costs declined approximately $0.2 million primarily due to a reduction in the number of employees.

The operating loss for the first quarter of 2009 was $0.1 million compared to an operating loss of $0.2 million in the first quarter of 2008.

Adjusted EBITDA

We present the non-GAAP (generally accepted accounting principles) measure Adjusted EBITDA (as defined herein) below and anticipate referring to this measure in the conference call referenced below. Presentation of Adjusted EBITDA is consistent with how we evaluate performance of our business segments and Adjusted EBITDA is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. Adjusted EBITDA is a non-GAAP operating measure under Regulation G of the Securities and Exchange Commission. We compute Adjusted EBITDA by adding depreciation, amortization and goodwill and intangible asset impairments to operating income. Each of these GAAP financial measures is a line item in our income statement and thus Adjusted EBITDA can be reconciled to net income attributable to common shareholders, the most comparable GAAP financial measure to it. However, other companies in our industry may calculate Adjusted EBITDA differently than we do. Adjusted EBITDA is not a measurement of financial performance under GAAP and should not be considered as a substitute for cash flow from operating activities as a measure of liquidity or a substitute for net income as an indicator of operating performance or any other measure of performance derived in accordance with GAAP. Net income attributable to common shareholders is reconciled to consolidated Adjusted EBITDA for the three months ended March 31, 2009 and 2008, respectively, in the following table:

 

(Dollar amounts in thousands)

   Three months ended
March 31,
 
     2009     2008  

Consolidated Adjusted EBITDA

   $ 15,764     $ 15,970  

Depreciation and amortization

     (7,058 )     (7,848 )
                

Operating income

     8,706       8,122  

Interest expense, net of interest capitalized

     (2,902 )     (3,349 )

Other income (expense), net

     593       3,418  

Income taxes

     (2,345 )     (3,043 )

Dividends on utility preferred stock

     (16 )     (16 )
                

Net income attributable to common shareholders

   $ 4,036     $ 5,132  
                

 

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Operating income is reconciled to segment and consolidated Adjusted EBITDA for the quarters ended March 31, 2009 and 2008, respectively, in the following table:

 

(Dollar amounts in thousands)

   Wireline     Systems
Integration
    Corporate
& Other
    Consolidated  
     Quarter ended March 31, 2009  

Adjusted EBITDA

   $ 15,914     $ (55 )   $ (95 )   $ 15,764  

Depreciation and amortization

     (6,809 )     (24 )     (225 )     (7,058 )
                                

Operating income (loss)

   $ 9,105     $ (79 )   $ (320 )   $ 8,706  
                                
     Quarter ended March 31, 2008  

Adjusted EBITDA

   $ 16,246     $ (116 )   $ (160 )   $ 15,970  

Depreciation and amortization

     (7,614 )     (45 )     (189 )     (7,848 )
                                

Operating income (loss)

   $ 8,632     $ (161 )   $ (349 )   $ 8,122  
                                

Conference Call

The Company will host a conference call and live webcast Friday, May 8, 2009 at 11:00 a.m. Eastern Time. Parties in the United States and Canada can call 877-852-6581 to access the conference call. Parties outside the United States and Canada can access the call at 719-325-4784. The live webcast of the conference call will be accessible from the “Investors” section of the Company’s website (www.decommunications.com). The webcast will be archived for a period of 90 days.

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 and co-location services, 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: changes in the competitive and technological environment in which we operate; our ability to further penetrate our markets and the related cost of that effort; reductions in rates or call volume that generate network access revenues; government and regulatory policies at both the federal and state levels, including potential intercarrier compensation reform; current economic conditions; a decline in value of our pension fund assets; our current level of debt financing; potential future goodwill or intangible asset impairment charges; and our ability to fund necessary investment in plant and equipment 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.

 

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D&E COMMUNICATIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, expect per share amounts)

(Unaudited)

 

     Three Months Ended
March 31,
 
     2009     2008  

OPERATING REVENUES

    

Communication service revenues

   $ 34,773     $ 36,613  

Communication products sold

     344       459  

Other

     822       725  
                

Total operating revenues

     35,939       37,797  
                

OPERATING EXPENSES

    

Communication service expenses (exclusive of depreciation and amortization below)

     11,268       12,256  

Cost of communication products sold

     260       372  

Depreciation and amortization

     7,058       7,848  

Marketing and customer services

     3,273       3,540  

General and administrative services

     5,374       5,659  
                

Total operating expenses

     27,233       29,675  
                

Operating income

     8,706       8,122  
                

OTHER INCOME (EXPENSE)

    

Interest expense, net of interest capitalized

     (2,902 )     (3,349 )

Other, net

     593       3,418  
                

Total other income (expense)

     (2,309 )     69  
                

Income before income taxes

     6,397       8,191  

INCOME TAXES

     2,345       3,043  
                

NET INCOME

     4,052       5,148  

NONCONTROLLING INTERESTS

    

Dividends on utility preferred stock

     16       16  
                

NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS

   $ 4,036     $ 5,132  
                

Weighted average common shares outstanding (basic)

     14,403       14,462  

Weighted average common shares outstanding (diluted)

     14,418       14,514  

BASIC AND DILUTED EARNINGS PER COMMON SHARE

    

Earnings per common share

   $ 0.28     $ 0.35  
                

Dividends per common share

   $ 0.13     $ 0.13  
                

 

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D&E COMMUNICATIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)

(Unaudited)

 

      March 31,
2009
    December 31,
2008
 

ASSETS

    

CURRENT ASSETS

    

Cash and cash equivalents

   $ 15,052     $ 18,280  

Accounts receivable, net of reserves of $507 and $466

     12,492       13,086  

Inventories-materials and supplies

     2,536       2,651  

Prepaid expenses

     5,206       9,367  

Other

     2,177       2,500  
                

TOTAL CURRENT ASSETS

     37,463       45,884  
                

PROPERTY, PLANT AND EQUIPMENT

    

In service

     419,292       417,209  

Under construction

     7,307       5,235  
                
     426,599       422,444  

Less accumulated depreciation

     263,073       258,642  
                
     163,526       163,802  
                

OTHER ASSETS

    

Goodwill

     138,441       138,441  

Intangible assets, net of accumulated amortization

     96,018       97,344  

Other

     7,898       7,449  
                
     242,357       243,234  
                

TOTAL ASSETS

   $ 443,346     $ 452,920  
                

LIABILITIES AND EQUITY

    

CURRENT LIABILITIES

    

Long-term debt maturing within one year

   $ 7,077     $ 7,076  

Accounts payable and accrued liabilities

     12,213       10,690  

Accrued taxes

     393       543  

Accrued interest and dividends

     1,082       1,178  

Advance billings, customer deposits and other

     4,023       4,706  

Derivative financial instruments

     2,505       3,091  
                

TOTAL CURRENT LIABILITIES

     27,293       27,284  
                

LONG-TERM DEBT

     177,284       179,054  
                

OTHER LIABILITIES

    

Deferred income taxes

     50,794       50,071  

Defined benefit plans

     22,925       34,749  

Other

     5,648       5,181  
                
     79,367       90,001  
                

COMMITMENTS AND CONTINGENCIES

    

EQUITY

    

Common shareholders’ equity:

    

Common stock, par value $0.16, authorized shares – 100,000; issued shares – 16,285 at March 31, 2009 and 16,187 at December 31, 2008; outstanding shares – 14,412 at March 31, 2009 and 14,410 at December 31, 2008

     2,605       2,590  

Additional paid-in capital

     164,684       164,526  

Accumulated other comprehensive loss

     (20,875 )     (21,908 )

Retained earnings

     32,143       29,917  

Treasury stock at cost, 1,873 shares at March 31, 2009
and 1,777 shares at December 31, 2008

     (20,601 )     (19,990 )
                

Total common shareholders’ equity

     157,956       155,135  

Noncontrolling interests:

    

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  
                

TOTAL EQUITY

     159,402       156,581  
                

TOTAL LIABILITIES AND EQUITY

   $ 443,346     $ 452,920  
                

 

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D&E COMMUNICATIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

 

     Three Months Ended
March 31,
 
     2009     2008  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net income

   $ 4,052     $ 5,148  

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     7,058       7,848  

Bad debt expense

     126       38  

Deferred income taxes

     83       456  

Stock-based compensation expense

     142       106  

Gain on retirement of property, plant and equipment

     —         (11 )

Termination of lease guarantee

     —         (2,904 )

Note receivable reserve

     —         200  

Changes in operating assets and liabilities:

    

Accounts receivable

     468       1,213  

Inventories

     115       134  

Prepaid expenses

     4,119       (2,608 )

Accounts payable and accrued liabilities

     865       (1,586 )

Accrued taxes and accrued interest

     (246 )     958  

Advance billings, customer deposits and other

     (683 )     (145 )

Defined benefit plans

     (10,724 )     (928 )

Other, net

     297       (403 )
                

Net Cash Provided by Operating Activities

     5,672       7,516  
                

CASH FLOWS FROM INVESTING ACTIVITIES

    

Purchases of property, plant and equipment

     (4,957 )     (7,599 )

Proceeds from sales of property, plant and equipment

     158       288  

Collection of note receivable

     —         34  
                

Net Cash Used In Investing Activities

     (4,799 )     (7,277 )
                

CASH FLOWS FROM FINANCING ACTIVITIES

    

Dividends on common stock

     (1,726 )     (1,736 )

Preferred dividends on noncontrolling interests

     (16 )     (16 )

Payments on long-term debt

     (1,768 )     (2,517 )

Proceeds from issuance of common stock and stock options exercised

     20       22  

Excess tax benefits from stock compensation plans

     —         37  

Purchase of treasury stock

     (611 )     —    
                

Net Cash Used In Financing Activities

     (4,101 )     (4,210 )
                

DECREASE IN CASH AND CASH EQUIVALENTS

     (3,228 )     (3,971 )

CASH AND CASH EQUIVALENTS

    

BEGINNING OF PERIOD

     18,280       17,845  
                

END OF PERIOD

   $ 15,052     $ 13,874  
                

 

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