Press Release
03-11-08 - D&E COMMUNICATIONS REPORTS FOURTH QUARTER AND YEAR END 2007 RESULTS
D&E COMMUNICATIONS, INC. FOR IMMEDIATE RELEASE March 11, 2008 | FOR IMMEDIATE RELEASE CONTACT PERSON: |
Full year 2007 net income of $10.6 million and earnings per share of $0.74
EPHRATA, PENNSYLVANIA (March 11, 2008) - 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 fourth quarter and year ended December 31, 2007. For the fourth quarter of 2007, the Company reported total operating revenue of $38.8 million, compared to $39.8 million in the fourth quarter of 2006. Operating income for the fourth quarter of 2007 was $4.1 million, compared to operating income of $7.2 million in the fourth quarter of 2006. Net income for the fourth quarter of 2007 was $2.0 million, or $0.14 per share, compared to a net income of $3.5 million, or $0.24 per share, for the same period last year. Net income before certain one-time items described below was $2.8 million, or $0.19 per share, for the fourth quarter of 2007, compared to $2.7 million, or $0.18 per share, for the fourth quarter of 2006.
In the fourth quarter of 2007, the Company recognized a non-cash goodwill impairment charge of $5.2 million ($4.7 million, or $0.32 per common share, after tax) in the Systems Integration segment. Going forward, the Company expects the Systems Integration segment to focus on a more limited set of core customers. As a result of this strategic change, the Company compared the estimated future cash flows from this smaller business segment to the value of goodwill ascribed to the segment which resulted in the impairment. As a result of this non-cash goodwill impairment charge, the Systems Integration segment is left with no remaining goodwill or intangible asset value on the segment's balance sheet.
The revenue decrease of $1.0 million for the fourth quarter 2007 is primarily the result of a new directory contract which became effective in the fourth quarter of 2006. Under the new contract, the responsibility for publication and distribution of the directory and the related financial risks became the responsibility of the publisher. As new directories covered by this contract are published, directory revenue is only the annual fee paid to the Company for access to our customers. As a result, directory revenue decreased $1.2 million and directory expenses decreased $1.1 million from the fourth quarter of 2006 to the fourth quarter of 2007.
Also included in the fourth quarter 2007 results was income of $4.6 million ($2.7 million, or $0.19 per common share, after tax) from the collection of remaining outstanding principal on the note received from the sale of Conestoga Wireless assets, which was scheduled to be paid in monthly installments through June 1, 2009. These principal payments collected during the 2007 period compared to $0.7 million ($0.4 million, or $0.03 per common share, after tax) in principal payments collected in the fourth quarter of 2006. The note receivable was fully reserved on our balance sheet because the note was from a highly leveraged entity and the business sold had not generated positive cash flow prior to its sale. Thus, the Company recognized income upon collection of the principal and interest. The fourth quarter 2007 results were also affected by a decrease in depreciation expense in the Wireline segment of $1.8 million ($1.2 million, or $0.08 per share, after tax) primarily due to revisions in the estimated useful lives of certain fixed assets effective July 2007, in addition to certain fixed assets becoming fully depreciated in the first and second quarters of 2007. Results for the fourth quarter 2006 included a loss from discontinued operations of $0.3 million, or $0.02 per share, and a gain on investment of $1.0 million ($0.7 million, or $0.05 per common share, after tax) as a result of a $1.0 million cash payment received in December related to advances to our international operations that had been written off in a previous year.
Total operating revenue for the full year 2007 was $152.6 million, compared to $162.1 million for the previous year. The revenue decrease of $9.5 million for the year 2007 was primarily the result of a decline in directory revenue of $10.3 million, due to the terms of the new directory contract described above. Directory expenses decreased $9.6 million as a result of this contract. Operating income for 2007 was $24.6 million, compared to operating income of $22.5 million in 2006. Net income for the year was $10.6 million, or $0.74 per share, compared to a net income of $6.7 million, or $0.47 per share, for 2006. Net income before certain one-time items described below was $9.2 million, or $0.64 per share, for the year ended December 31, 2007, compared to $7.6 million, or $0.53 per share, for the year ended December 31, 2006.
Results for the year 2007 included a non-cash goodwill impairment charge of $5.2 million ($4.7 million, or $0.32 per common share, after tax) described above, a gain of $0.6 million ($0.6 million, or $0.04 per share, after tax) from life insurance proceeds, a decrease in depreciation expense in the Wireline segment of $3.6 million ($2.3 million, or $0.16 per share, after tax) described above and income of $5.5 million ($3.2 million, or $0.22 per common share, after tax) from the collection of the remaining outstanding principal on the note received from the sale of Conestoga Wireless assets as described above, which was scheduled to be paid in monthly installments through June 1, 2009. These principal payments collected during 2007 compare to $2.9 million ($1.6 million, or $0.11 per common share, after tax) in principal payments collected in 2006. Results for 2006 included a gain on investment of $1.0 million ($0.7 million, or $0.05 per common share, after tax) as a result of a $1.0 million cash payment received in December related to advances to our international operations that had been written off in a previous year, a loss on early extinguishment of debt of $1.1 million ($0.6 million, or $0.04 per share after tax), a non-cash customer relationships intangible asset impairment loss of $1.9 million ($1.1 million, or $0.08 per share, after tax) and a loss from discontinued operations of $1.5 million, net of tax, or $0.10 per share.
"D&E continued to advance its corporate objectives in 2007," stated James W. Morozzi, D&E's President and Chief Executive Officer. "We continue to execute upon our broadband growth initiative as we ended the year with 38,333 DSL/ High-speed Internet subscribers, an increase of 21% over last year. We have also made progress in our CLEC's "On-Net" initiative with an increase to 34% of our customers being served entirely on our own network at year-end, as compared to 30% On-Net at year-end 2006. At the same time, we increased the number of traditional access lines in our CLEC markets by almost 7% for business customers and more than 5% in total, which also reflects our strategy to reduce the number of residential customers that we serve on a low-margin resale basis. We are experiencing growth in the non-traditional data equivalent lines in our markets and were successful in completing network enhancements during this past year that allow us to provide new products like Metro Ethernet/MPLS."
Morozzi noted, "While not yet satisfied with the results of the Systems Integration segment, we have seen positive results in 2007 of the steps that we have taken to improve the financial performance of the segment. There was a $2.1 million reduction in the Systems Integration operating loss when comparing the results for 2007 and 2006 and excluding the effects of the 2007 non-cash goodwill impairment charge of $5.2 million and the 2006 non-cash intangible asset impairment charge of $1.9 million. We are making more changes in 2008 in an effort to eliminate the operating loss. We have incorporated the Systems Integration's sales team into our existing Wireline sales management structure, allowing us to reduce our employee count. We have assessed our sales results and modified our compensation plans to place more emphasis on developing additional business from our core customers. We have attained Microsoft Gold Certified Partner status, which provides us with additional support and training from Microsoft. We continue to enhance our Cisco qualifications and certifications around core network infrastructure, architecture and design skills that directly complement our Wireline products and services. We plan to further align the segment's core service of information technology solutions with the products and services that we offer to our Wireline segment customers. The intended result will initially be a smaller Systems Integration segment, focused on serving our core customers, and driving to eliminate the operating losses."
Morozzi added, "We continue to see the competitive pressures in our RLEC markets, demonstrated by the 4.0% reduction in traditional access lines in those areas. However, we continue to find ways to control costs in the business, evidenced in 2007 by our ability to maintain benefit costs without sacrificing our ability to attract and retain employees. These reductions in cost enable us to recognize increases in our operating income and cash flows, helping us to continue to pay down our long-term debt, which we were able to reduce by slightly more than $13 million in 2007."
Summary Statistics
| December 31, 2007 | December 31,2006 | Change | %Change | |
| RLEC lines | 124,600 | 129,848 | (5,248) | (4.0%) |
| CLEC lines | 46,002 | 43,720 | 2,282 | 5.2% |
| DSL/High-speed Internet Subscribers | 38,333 | 31,724 | 6,609 | 20.8% |
| Dial-up Internet subscribers | 3,254 | 5,337 | (2,083) | (39.0%) |
| Video subscribers | 7,986 | 7,437 | 549 | 7.4% |
| Web hosting customers | 1,009 | 951 | 58 | 6.1% |
| Total Customer Connections | 221,184 | 219,017 | 2,167 | 1.0% |
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