SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): March 21, 1997
D & E COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in its Charter)
Pennsylvania 000-20709 23-2837108
------------ --------- ----------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification Number)
Brossman Business Complex,
124 East Main Street, P.O. Box 458, Ephrata, PA 17522
- ----------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (717) 733-4101
<PAGE>
D & E Communications, Inc.
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K filed
on April 7, 1997, as set forth hereto.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
The following financial statements and exhibits are filed as part of this
Report, where indicated.
(a) Financial Statements of business acquired.
The audited financial statements of PCS One, Inc. as of December 31, 1996,
and the related statements of operations and accumulated deficit, stockholders'
equity and cash flows including footnotes and the report of the independent
public auditors follow as listed on the Index to Financial Statements.
(b) Pro Forma financial information.
The required pro forma financial information follows as listed on the Index
to Financial Statements.
(c) Exhibits.
Not Applicable.
1
<PAGE>
D & E Communications, Inc.
Index to Financial Statements
PCS One, Inc.
December 31, 1996
Report of Independent Public Auditors (McKonly & Asbury) F - 1
Balance Sheet F - 2
Statement of Stockholders' Equity F - 4
Statement of Operations and Accumulated Deficit F - 6
Statement of Cash Flows F - 7
Notes to Financial Statements F - 9
D & E Communications, Inc. and Subsidiaries
December 31, 1996
Pro Forma Combined Balance Sheet (Unaudited) F - 15
Pro Forma Combined Income Statement (Unaudited) F - 16
Notes to Unaudited Pro Forma Financial Statements F - 17
2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
PCS One, Inc.
We have audited the accompanying balance sheet of PCS One, Inc. (a New Jersey
corporation in the development stage) as of December 31, 1996, and the related
statements of operations and accumulated deficit, stockholders' equity and cash
flows for the year then ended and for the period from inception (October 4,
1994) to December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PCS One, Inc. as of December
31, 1996, and the results of its operations and its cash flows for the year then
ended and for the period from inception to December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ McKonly & Asbury
- --------------------------
McKonly & Asbury
Harrisburg, Pennsylvania
May 7, 1997
F - 1
<PAGE>
PCS ONE, INC.
(A Development-Stage Company)
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
1996
-----------
Current assets
Cash and cash equivalents $ 4,329
Deferred income taxes (note 10) 32,411
-----------
Total current assets 36,740
Long-term assets
PCS license (note 4) 13,496,989
System pre-operating costs (note 5) 122,056
Organizational costs (net of amortization
of $133,614) 261,131
-----------
Total assets $13,916,916
===========
The accompanying notes are an integral
part of these financial statements.
F - 2
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
1996
------------
Current liabilities
Line of credit - The D and E Group (note 6) $ 1,559,041
Accounts payable 187,593
Accrued interest 59,374
------------
Total current liabilities 1,806,008
Long-term liabilities
Note payable - FCC (note 7) 11,878,574
------------
Total liabilities 13,684,582
------------
Commitments and contingencies (note 11)
Stockholders' equity
Class I Common Stock, $.001 per value;
authorized 6,000,000 shares; issued
and outstanding 4,800,000
shares 4,800
Class II Common Stock, $.001 par value;
authorized 57,975,000 shares;
issued and outstanding 450,000 shares 450
Preferred Stock, $.01 par value; authorized
50,000,000 shares, of which 22,500,000 shares
have been designated Series A Convertible Preferred
Stock; issued and outstanding 22,000,000 Series A
Convertible Preferred shares 220,000
Additional paid-in capital 70,000
Deficit accumulated during development stage (62,916)
------------
Total stockholders' equity 232,334
------------
Total liabilities and stockholders' equity $ 13,916,916
============
F - 3
<PAGE>
PCS ONE, INC.
(A Development-Stage Company)
STATEMENT OF STOCKHOLDER'S EQUITY
THE PERIOD FROM INCEPTION (OCTOBER 11, 1994)
THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
Deficit
Series A Convertible Accumulated
Preferred Stock Class II Common Stock Class I Common Stock Additional During
--------------------- --------------------- -------------------- Paid-In Development
Shares Amount Shares Amount Shares Amount Capital Stage Total
-------- -------- -------- --------- -------- -------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, October
11, 1994 through
January 1, 1995 $ $ $ $ $ $
Issuance of
4,800,000 shares of
Class I Common
Stock at
$.001 per share 4,800,000 4,800 4,800
Issuance of
450,000 shares
of Class II
Common Stock at
$.001 per share 450,000 450 450
Issuance of
22,000,000 shares
of Series A
Convertible
Preferred Stock
at $1.00 per
share 22,000,000 220,000 21,780,000 22,000,000
Net loss (57,810) (57,810)
---------- ------- ------- --- --------- ----- ---------- ------- -----------
Balance,
December 31,
1995 22,000,000 220,000 450,000 450 4,800,000 4,800 21,780,000 (57,810) 21,947,440
---------- ------- ------- --- --------- ----- ---------- ------- -----------
</TABLE>
(continued)
F - 4
<PAGE>
PCS ONE, INC.
(A Development-Stage Company)
STATEMENT OF STOCKHOLDER'S EQUITY (Cont'd)
THE PERIOD FROM INCEPTION (OCTOBER 11, 1994)
THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
Deficit
Series A Convertible Accumulated
Preferred Stock Class II Common Stock Class I Common Stock Additional During
--------------------- --------------------- -------------------- Paid-In Development
Shares Amount Shares Amount Shares Amount Capital Stage Total
-------- -------- -------- --------- -------- -------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
January 1,
1996 (brought
forward) 22,000,000 $220,000 450,000 $450 4,800,000 $4,800 $21,780,000 $(57,810) $21,947,440
Return of
additional
paid-in
capital (21,710,000) (21,710,000)
Net loss (5,106) (5,106)
---------- -------- ------- ---- --------- ------ ----------- -------- -----------
Balance,
December 31,
1996 22,000,000 $220,000 450,000 $450 4,800,000 $4,800 $ 70,000 $(62,916) $ 232,334
========== ======== ======= ==== ========= ====== =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F - 5
<PAGE>
PCS ONE, INC.
(A Development-Stage Company)
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE PERIOD FROM INCEPTION (OCTOBER 11, 1994) THROUGH
DECEMBER 31, 1996
Period From
Inception
Through
December
1996 31, 1996
---------- ----------
Revenues $ 0 $ 0
--------- ---------
Operating expenses
Amortization expense 66,807 133,614
Auction administration 70,602 70,602
Marketing 25,549 25,549
Other 79,036 79,631
--------- ---------
Total operating expenses 241,994 309,396
--------- ---------
Loss from operations (241,994) (309,396)
Other income
Interest income 100,477 110,069
--------- ---------
Loss before provision for income
taxes and extraordinary item (141,517) (199,327)
Provision for income tax (benefit)
(note 10) (32,411) (32,411)
--------- ---------
Net loss before extraordinary items (109,106) (166,916)
Extraordinary income (less applicable
income taxes of $0) (note 8) 104,000 104,000
--------- ---------
Net (loss) income (5,106) (62,916)
Retained earnings (deficit) - beginning (57,810)
---------
Retained earnings (deficit) - ending $ (62,916) $ (62,916)
========= =========
Earnings (loss) per share (note 2)
Before extraordinary item $ (.0040) $ (.0061)
Extraordinary item .0038 .0038
--------- ---------
Total $ (.0002) $ (.0023)
========= =========
The accompanying notes are an integral
part of these financial statements.
F - 6
<PAGE>
PCS ONE, INC.
(A Development-Stage Company)
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE PERIOD FROM INCEPTION (OCTOBER 11, 1994) THROUGH
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Period From
Inception
Through
December
1996 31, 1996
----------- ----------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (5,106) $ (62,916)
Adjustments to reconcile net loss
to net cash provided by operating
activities
Amortization 66,807 133,614
(Increase) decrease in
Deferred income taxes (32,411) (32,411)
Increase (decrease) in
Advance - GSC (104,000)
Accounts payable 174,691 187,593
Accrued interest 59,374 59,374
------------ ------------
Net cash provided by
operating activities 159,355 285,254
------------ ------------
Cash flows from investing activities
Acquisition of PCS license (13,496,989) (13,496,989)
System pre-operating costs (122,056) (122,056)
FCC auction deposit 18,000,000
Organizational costs (60,712) (394,745)
------------ ------------
Net cash provided by (used
in) investing activities 4,320,243 (14,013,790)
============ ============
</TABLE>
(continued)
F - 7
<PAGE>
PCS ONE, INC.
(A Development-Stage Company)
STATEMENTS OF CASH FLOWS (Cont'd)
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE PERIOD FROM INCEPTION (OCTOBER 11, 1994) THROUGH
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Period From
Inception
Through
December
1996 31, 1996
----------- ----------
<S> <C> <C>
Cash flows from financing activities
Proceeds from the issuance of Class I
Common Stock 4,800
Proceeds from the issuance of Class II
Common Stock 450
Proceeds from the issuance of Series A
Convertible Preferred Stock 22,000,000
Return of capital (21,710,000) (21,710,000)
Increase (decrease) in
Line of credit - The D and E Group 1,559,041 1,559,041
Note payable to FCC 11,878,574 11,878,574
------------ ------------
Net cash provided by (used
in) financing activities (8,272,385) 13,732,865
------------ ------------
Net increase (decrease) in cash (3,792,787) 4,329
Cash and cash equivalents - beginning 3,797,116
------------ ------------
Cash and cash equivalents - ending $ 4,329 $ 4,329
============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F - 8
<PAGE>
PCS ONE, INC.
(A Development-Stage Company)
NOTES TO FINANCIAL STATEMENTS
1. DEVELOPMENT-STAGE RISKS
PCS One, Inc. (the Company) is a development-stage company incorporated in
New Jersey on October 11, 1994. The Company was created to provide personal
communication services in selected basic trading areas throughout the
United States. These services will be offered on the personal communication
service band which is currently being pursued via the Federal Communication
Commission (FCC) C Block competitive licensed auctions.
The Company has incurred losses since its inception and is subject to risks
associated with being a development-stage company. Substantial financing
will be required by the Company to fund development of the operating
systems and to fund operations for the first several years. There is no
assurance that such financing will be available when needed or that the
Company's planned services will be commercially successful.
There was no activity of the Company from October 11, 1994 through December
31, 1994.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents at December 31, 1996 consist of investments in money repurchase
agreements.
Nature of Operations and Concentration of Credit Risk
The Company has acquired the C Band license to provide wireless
communications services to the Lancaster, Pennsylvania market area. The
Company may be affected by general business conditions, zoning laws, and
existing competitors within this defined area.
Organizational Costs
Organizational costs of $394,745 have been capitalized and represent the
legal fees, professional fees and other costs of bringing the Company into
legal existence and negotiating certain agreements. These costs are
amortized to expense over a 60-month period. Amortization expense related
to these organizational costs for the year ended December 31, 1996 was
$66,807.
Income Taxes
The Company follows the accounting provisions of SFAS No. 109, Accounting
for Income Taxes. SFAS No. 109 requires the liability method of accounting
for deferred income taxes.
(continued)
F - 9
<PAGE>
PCS ONE, INC.
(A Development-Stage Company)
NOTES TO FINANCIAL STATEMENTS (Cont'd)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Common Stock
The Company is authorized to issue 6,000,000 shares of Class I Common
Stock, $.001 par value (the "Class I Common Stock") and 57,975,000 shares
of Class II Common Stock, $.001 par value (the "Class II Common Stock" and
together with the Class I Common Stock, the "Common Stock"). At December
31, 1996, 4,800,000 shares of Class I Common Stock and 450,000 shares of
Class II Common Stock were issued and outstanding.
The Class I Common Stock is entitled to such number of votes per share as
is required so that the outstanding shares of Class I Common Stock at all
times represent a majority of the votes held by the outstanding Class I
Common Stock, the Class II Common Stock, and the Preferred Stock, voting
together as a single class. The Class II Common Stock will be entitled to
one vote per share.
At such time as the Company is no longer required to maintain voting
control in the Control Group under applicable FCC regulations, each share
of Class I Common Stock will automatically convert into one share of Class
II Common Stock.
Preferred Stock
The Company is authorized to issue 50,000,000 shares of Preferred Stock
(the "Preferred Stock"), 22,500,000 of which have been designated Series A
Convertible Preferred Stock, $.01 per value (the "Convertible Preferred
Stock"). At December 31, 1996, 22,000,000 shares of the Convertible
Preferred Stock were issued and outstanding. Each share of Series A
Convertible Preferred Stock shall have voting privileges equivalent to the
number of shares of Class II Common Stock into which the Preferred Stock is
convertible. Each share of Convertible Preferred Stock is convertible at
any time into the Company's Class II Common Stock at a conversion price of
$1 per share. This stock is redeemable in certain circumstances after ten
years.
(continued)
F - 10
<PAGE>
PCS ONE, INC.
(A Development-Stage Company)
NOTES TO FINANCIAL STATEMENTS (Cont'd)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
Earnings Per Share
Earnings per share are computed by dividing the loss by the weighted
average number of common shares and common stock equivalents outstanding
for each period. Common shares outstanding at December 31, 1996 consisted
of 4,800,000 shares of Class I Common Stock and 450,000 shares of Class II
Common Stock. Common Stock equivalents outstanding at December 31, 1996
consisted of 22,000,000 shares of Series A Convertible Preferred Stock.
Each share of the Series A Convertible Preferred Stock is equivalent to one
share of common stock.
3. FEDERAL COMMUNICATIONS COMMISSION AUCTION DEPOSIT
The Company had deposited $18,000,000 with the FCC as an up front payment
in order to qualify as a bidder in the C Band competitive licensed
auctions. During 1996, the Company won the Lancaster, Pennsylvania license
and the deposit was refunded. At the same time, the Company returned
$21,710,000 of additional paid-in capital to the stockholders.
4. PCS LICENSE
The Company was the successful bidder for the Lancaster, Pennsylvania C
Band license. A total of $13,198,416 was paid for the license, of which
90%, or $11,878,574, was financed by the FCC (see note 7). The Company has
capitalized interest costs of $298,573 which were incurred to finance the
license since date of acquisition. Amortization of the licensing costs will
begin with the commencement of service to customers.
5. SYSTEM PRE-OPERATING COSTS
System pre-operating costs in the amount of $122,056 at December 31, 1996
represent the cost of engineering fees, permits, and studies to develop the
Lancaster, Pennsylvania digital wireless communication system. These costs
will be depreciated over the estimated useful life of the system once the
system becomes operational.
(continued)
F - 11
<PAGE>
PCS ONE, INC.
(A Development-Stage Company)
NOTES TO FINANCIAL STATEMENTS (Cont'd)
6. LINE OF CREDIT - THE D AND E GROUP
Line of credit, in the amount of $1,559,040 at December 31, 1996 to The D
and E Group (a related party) is payable within 270 days of demand and
bears interest at The Wall Street Journal prime rate plus 2% (a total of
10.25 percent at December 31, 1996). The agreement permits the Company to
borrow up to $14,000,000. The proceeds of the loan may only be used for the
acquisition of the Lancaster PCS license and, subject to The D and E Group
approval, for the design, construction and operation of the Lancaster PCS
system.
The weighted-average interest rate under this agreement was 10.25% in 1996.
7. LONG-TERM DEBT
Long-term debt at December 31, 1996 consisted of the following:
Amount
-----------
Note payable to Federal Communications Commission
requires quarterly payments of interest only
through September 30, 2002; commencing December
31, 2002, payments of principal and interest of
$857,628 are due through June 30, 2006.
Effective March 31, 1997, the FCC suspended
interest payments until further notice. (See
note 12) $11,878,574
===========
The Company incurred interest costs of $298,573 during the year ended
December 31, 1996 and paid interest of $239,199.
There are no scheduled maturities of long-term debt within the next five
years.
8. EXTRAORDINARY ITEM
Extraordinary item of $104,000 of income in 1996 arose from the forgiveness
of an advance to the Company by a corporation controlled by a
director/shareholder of the Company. The transaction is considered to be
both unusual in nature and infrequent in occurrence, thus meeting the
criteria for recognition as an extraordinary item.
(continued)
F - 12
<PAGE>
PCS ONE, INC.
(A Development-Stage Company)
NOTES TO FINANCIAL STATEMENTS (Cont'd)
9. RELATED PARTY TRANSACTIONS
The line of credit - The D and E Group constitutes a related party note
since The D and E Group owned 9.17% of the Company. The D and E Group is
80% owned by D & E Communications, Inc., which acquired the Company through
merger in March 1997 (see note 12).
10. DEFERRED INCOME TAXES
The Company provides deferred income taxes for temporary differences
between amounts reported for financial reporting and income tax purposes.
As of December 31, 1996, there were no deferred tax liabilities. Deferred
tax assets consist of the following:
Amount
-----------
Tax benefit of net operating
loss carryforwards - Federal $ 32,411
Less valuation allowance 0
-----------
$ 32,411
===========
As a result of the merger agreement with D & E Communications, Inc. in 1997
(see note 12),the tax benefits of the loss carryforwards are expected to be
realized. The net operating loss carryforwards are available to offset
future federal taxable income through the year 2011.
The Company paid no income taxes in 1996.
11. COMMITMENTS AND CONTINGENCIES
Pursuant to agreements between the Company and its shareholders, the
Company is required to offer to each Series A Convertible Preferred
shareholder the right of first refusal, subject to certain restrictions, to
purchase new securities to be issued by the Company. The Company also
agreed to reserve sufficient shares of unissued Class II common stock to
enable the Series A Convertible Preferred Shareholders to exercise their
conversion rights. In addition, the Series A shareholders have the right of
first refusal to purchase any Class I common stock shares offered for sale
by any current Class I shareholders.
(continued)
F - 13
<PAGE>
PCS ONE, INC.
(A Development-Stage Company)
NOTES TO FINANCIAL STATEMENTS (Cont'd)
11. COMMITMENTS AND CONTINGENCIES (Cont'd)
The Company has entered into a participation agreement with Red Rose
Communications, Inc. and The D and E Group (a related party - see note 9)
whereby Red Rose Communications, Inc. has the right of first offer, and the
right to match any offer, should the Company decide to sell the Lancaster,
Pennsylvania PCS license.
Following the approval of the Plan of Merger with D & E Communications,
Inc. on February 20, 1997 (see note 12), the Series A Convertible Preferred
Stock has been effectively retired, and the above agreements have no
further impact.
The Company has entered into a contract to purchase engineering services in
connection with locating, acquiring and testing antenna sites for the
Lancaster PCS system. The contract calls for total fees not to exceed
approximately $280,000. Of this amount, $129,846 has been paid or is
recorded as accounts payable at December 31, 1996.
12. SUBSEQUENT EVENTS
On February 20, 1997, the shareholders consented to grant bonus options to
purchase 2,000,000 shares of Class II common stock at the exercise price of
$.0132 per share to 2 shareholders. These options were exercised in March,
1997.
On February 20, 1997, the shareholders consented to grant reserved share
options to purchase 475,000 shares of Class II common stock at the exercise
price of $.0132 per share to 5 shareholders. These options were exercised
in March, 1997.
On February 20, 1997, the shareholders of the Company approved a Plan of
Merger pursuant to which the Company was merged with and into D & E
Communications, Inc. (D & E). The merger agreement calls for the equivalent
of $8,000,000 in D & E Communications, Inc. stock, less the Company's costs
and expenses of the merger plus one-half of D & E's costs and expenses, to
be exchanged for all of the issued and outstanding Class I Common Stock,
Class II Common Stock, and Series A Convertible Preferred Stock of the
Company. On March 21, 1997 the merger was completed, pursuant to which a
total of 340,585 shares of D & E stock were issued in the exchange, which
is intended to be qualified as a tax-free reorganization under Internal
Revenue Code Section 368.
On March 31, 1997, The Federal Communication Commission suspended interest
payments on its loan until further notice. The interest will still accrue
at the original interest rate.
F - 14
<PAGE>
D & E COMMUNICATIONS, INC. AND SUBSIDIARIES
PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
D&E PCS PRO FORMA The COMPANY
Communications One Adjustments PRO FORMA
-------------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents .......................... $ 312,125 $ 4,329 -- $ 316,454
Accounts receivable ................................ 8,454,775 0 ($ 1,618,415)(C) 6,836,360
Accounts receivable and note receivable -
affiliated companies ............................ 1,028,780 0 -- 1,028,780
Inventories, lower of cost or market, at
average cost .................................... 1,009,904 0 -- 1,009,904
Prepaid expenses ................................... 2,406,465 0 -- 2,406,465
Other current assets ............................... 1,393,336 32,411 -- 1,425,747
------------- ------------- ------------- ------------
TOTAL CURRENT ASSETS .......................... 14,605,385 36,740 (1,618,415) 13,023,710
------------- ------------- ------------- ------------
INVESTMENTS
Investments in affiliated companies ................ 9,580,320 0 -- 9,580,320
Other .............................................. 327,403 0 -- 327,403
------------- ------------- ------------- ------------
9,907,723 0 0 9,907,723
------------- ------------- ------------- ------------
PROPERTY, PLANT AND EQUIPMENT
Telephone plant in service ......................... 110,961,586 0 -- 110,961,586
Under construction ................................. 1,233,340 122,056 -- 1,355,396
------------- ------------- ------------- ------------
112,194,926 122,056 0 112,316,982
Less accumulated depreciation ...................... 47,207,238 0 -- 47,207,238
------------- ------------- ------------- ------------
64,987,688 122,056 0 65,109,744
------------- ------------- ------------- ------------
OTHER ASSETS
Unamortized software costs ......................... 126,825 0 -- 126,825
PCS License ........................................ 0 13,496,989 8,028,797 (A) 21,525,786
Accounts receivable - affiliated company ........... 101,342 0 -- 101,342
Other .............................................. 1,826,978 261,131 (261,131)(B) 1,826,978
------------- ------------- ------------- ------------
2,055,145 13,758,120 7,767,666 23,580,931
------------- ------------- ------------- ------------
TOTAL ASSETS ....................................... $ 91,555,941 $ 13,916,916 $ 6,149,251 $111,622,108
============= ============= ============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable ...................................... $ 7,140,000 $ 1,559,041 ($ 1,559,041)(C) $ 7,140,000
Long-term debt maturing within one year ............ 1,220,158 0 -- 1,220,158
Accounts payable ................................... 6,499,496 187,593 165,000 (D) 6,852,089
Accounts payable - affiliated companies ............ 196,941 0 -- 196,941
Accrued taxes ...................................... 493,546 0 -- 493,546
Accrued interest and dividends ..................... 468,780 59,374 (59,374)(C) 468,780
Advance billings, customer deposits & other ........ 2,842,432 0 -- 2,842,432
------------- ------------- ------------- ------------
TOTAL CURRENT LIABILITIES ..................... 18,861,353 1,806,008 (1,453,415) 19,213,946
------------- ------------- ------------- ------------
LONG-TERM DEBT ........................................... 24,888,193 11,878,574 36,766,767
------------- ------------- ------------- ------------
OTHER LIABILITIES
Deferred income taxes .............................. 6,545,013 0 -- 6,545,013
Regulatory liability, net .......................... 778,783 0 -- 770,783
Accrued retirement benefits ........................ 1,565,438 0 -- 1,565,438
Other .............................................. 108,835 0 -- 108,835
------------- ------------- ------------- ------------
8,998,069 0 -- 8,998,069
------------- ------------- ------------- ------------
MINORITY INTEREST ........................................ 229,973 0 -- 229,973
------------- ------------- ------------- ------------
PREFERRED STOCK, par value $100, cumulative, callable
at par, at the option of
the Company, authorized 20,000,000 shares,
outstanding:
Series A 4 1/2%, 14,456 shares ..................... 1,445,600 0 -- 1,445,600
------------- ------------- ------------- ------------
COMMITMENTS
SHAREHOLDERS' EQUITY
Common stock, par value $.16, authorized shares .... 918,508 0 54,494 (D) 973,002
30,000,000 and Outstanding shares:
5,740,674 at December 31, 1996
Common Stock .001 Par value (Class I) .............. 4,800 (4,800)(E) 0
Common Stock .001 Par value (Class II) ............. 450 (450)(E) 0
Preferred Stock .01 Par value ...................... 220,000 (220,000)(E) 0
Additional paid-in capital ......................... 2,020,656 70,000 7,710,506 (D)(F) 9,801,162
Unearned ESOP Compensation ......................... (950,740) -- -- (950,740)
Retained earnings.(Deficit) ........................ 35,144,329 (62,916) 62,916 (G)(B) 35,144,329
------------- ------------- ------------- ------------
37,132,753 232,334 7,602,666 44,967,753
------------- ------------- ------------- ------------
TOTAL LIABILITIES, MINORITY INTEREST,
PREFERRED STOCK AND SHAREHOLDERS'
EQUITY ............................................. $ 91,555,941 $ 13,916,916 $ 6,149,251 $111,622,108
============= ============= ============= ============
</TABLE>
F - 15
<PAGE>
D & E COMMUNICATIONS, INC. AND SUBSIDIARIES
PRO FORMA COMBINED INCOME STATEMENT
DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
D & E PCS PRO FORMA The COMPANY
Communications One Adjustments PRO FORMA
-------------- --- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Local network services.................................. $8,654,554 $0 - $8,654,554
Network access services................................. 15,842,753 0 - 15,842,753
Long distance network services.......................... 4,182,000 0 - 4,182,000
Directory advertising................................... 2,939,846 0 - 2,939,846
Sales & services........................................ 10,934,642 0 - 10,934,642
Other................................................... 1,842,581 0 - 1,842,581
---------- ---------- ----------- ----------
Total operating revenues.............................. 44,396,376 0 44,396,376
OPERATING EXPENSES
Network operations...................................... 6,034,923 0 - 6,034,923
Network access.......................................... 1,830,638 0 - 1,830,638
Depreciation and Amortization........................... 7,258,260 66,807 (66,807)(H) 7,258,260
Customer services....................................... 1,707,967 0 - 1,707,967
Financial and administrative services................... 5,397,382 0 - 5,397,382
Directory and other, net................................ 1,837,574 0 - 1,837,574
Operating taxes, other than income...................... 1,486,918 0 - 1,486,918
Costs of products sold.................................. 4,995,773 0 - 4,995,773
Other expenses.......................................... 5,448,153 175,187 - 5,623,340
---------- ---------- ----------- ----------
Total operating expenses.............................. 35,997,588 241,994 (66,807) 36,172,775
---------- ---------- ----------- ----------
Operating income...................................... 8,398,788 (241,994) 66,807 8,223,601
---------- ---------- ----------- ----------
OTHER INCOME (EXPENSE)
AFUDC................................................... 75,696 0 - 75,696
Equity in net loss of affiliates........................ 754,505 0 - 754,505
Interest income (expense)............................... (2,590,564) 100,477 - (2,490,087)
Other, net.............................................. (65,235) 0 - (65,235)
---------- ---------- ----------- ----------
Total other income (expense).......................... (1,825,598) 100,477 0 (1,725,121)
---------- ---------- ----------- ----------
Income before minority interest,
subsidiary preferred stock
dividends and income taxes.................... 6,573,190 (141,517) 66,807 6,498,480
MINORITY INTEREST............................................ 74,586 0 - 74,586
---------- ---------- ----------- ----------
Income before subsidiary preferred
stock dividends and income taxes.............. 6,647,776 (141,517) 66,807 6,573,066
DIVIDENDS ON UTILITY SERIES A 4 1/2%
PREFERRED STOCK......................................... 70,473 0 - 70,473
---------- ---------- ----------- ----------
Income before extraordinary items
and income taxes.............................. 6,577,303 (141,517) 66,807 6,502,593
EXTRAORDINARY INCOME......................................... 0 104,000 - 104,000
---------- ---------- ----------- ----------
Income before income taxes......................... 6,577,303 (37,517) 66,807 6,606,593
INCOME TAXES................................................. 2,667,337 (32,411) 22,700(J) 2,657,626
---------- ---------- ----------- ----------
NET INCOME................................................... $3,909,966 ($5,106) $44,107 $3,948,967
========== ========== =========== ==========
Average Common Shares Outstanding....................... 5,728,067 29,725,000 (29,384,415)(I) 6,068,652
Earnings Per Common Share............................... $0.68 0 - $0.65
Dividends per Common Share.............................. $0.39 0 - $0.39
</TABLE>
F - 16
<PAGE>
D & E Communications, Inc. and Subsidiaries
Notes to Unaudited Pro Forma Financial Statements
The following pro forma financial information is given with respect to
the merger of PCS One with and into D & E. The pro forma balance sheet is
presented as of December 31, 1996, which is the most recent period for which a
consolidated balance sheet of D & E is required. The pro forma condensed
statements of income are presented as of December 31, 1996. The pro forma
presentation shows (i) the combined balance sheet as if the merger had occurred
prior to December 31, 1996, and (ii) the combined income statements of D & E as
if the merger had occurred previous to the period indicated.
A Adjustment to record acquisition costs associated with the PCS license.
B Adjustment to write-off the organization costs of PCS One.
C Adjustment to reflect the elimination of D & E's note receivable from PCS One
and the corresponding debt recorded at PCS One.
D Adjustment to record accrued merger costs and par value at $0.16 per share of
Company Common Stock to be issued and outstanding. The number of shares of
Common Stock was calculated using the $8,000,000 purchase price, less agreed
upon costs of $165,000, divided by $23.00. The agreement states that the
$8,000,000 less costs be divided by the weighted average closing price of the
D & E Common Shares were traded immediately preceding the Closing Date, but no
less than $23.00, and no more than $27.00. The adjustment is summarized below:
Common Stock:
Purchase price $8,000,000
Less accrued costs (165,000)
Price per share $23.00
Number of shares issued, net of fractional shares 340,585
Par Value per share $0.16
Par Value $54,494
E Adjustment to reflect the elimination of PCS One (1) Common Stock and (2)
Preferred Stock as a result of the acquisition.
F Adjustment to eliminate the additional paid-in capital ("APIC") of PCS One
and, increase APIC by amount of issuance of common stock for the acquisition of
PCS One.
G Adjustment to eliminate the retained earnings of PCS One.
F - 17
<PAGE>
H Adjustment to eliminate amortization of PCS One organization costs.
I Adjustment to increase the number of common shares outstanding as a result of
the following:
Total D & E Communications, Inc. 5,728,067
Total PCS One, Inc. 29,725,000
-----------
35,453,067
Less - PCS One - Class I Common Shares (4,800,000)
Less - PCS One - Class II Common Shares (450,000)
Less - PCS One - Preferred Shares (22,000,000)
Less - PCS One - Class II Common Stock Options (2,475,000)
Plus - D & E Common Shares issued for the acquisition 340,585
-----------
Total 6,068,652
The PCS One Class II Common Stock options granted prior to the merger
were granted below the market value per share implicit in the merger.
Compensation cost of approximately $633,000 resulted from this transaction,
which has not been included in the Pro Forma Combined Income Statement. The
2,475,000 shares issuable pursuant to the options are shown as outstanding for
the year presented in the Pro Forma Combined Income Statement.
J Adjustment to record additional consolidated income tax expense resulting from
pro forma adjustments to the Pro Forma Combined Income Statement.
F - 18
<PAGE>
<PAGE>
D & E Communications, Inc.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
D & E COMMUNICATIONS, INC.
(Registrant)
Date: June 4, 1997 By: /s/ Thomas E. Morell
-----------------------------------
Mr. Thomas E. Morell, Vice President,
Chief Financial Officer and Treasurer
<PAGE>
