UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 000-20709
---------
D&E Communications, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA
--------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
I.R.S. Employer Identification Number: 23-2837108
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Brossman Business Complex
124 East Main Street
P.O. Box 458
Ephrata, Pennsylvania 17522
----------------------------------------
(Address of principal executive offices)
Registrant's Telephone Number: (717) 733-4101
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
-- --
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 5, 1999
----- -------------------------------
Common Stock, par value $.16 per share 7,346,956 Shares
<PAGE>
Form 10-Q
D&E Communications, Inc. and Subsidiaries
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item No. Page
- -------- ----
PART I. FINANCIAL INFORMATION
1. Financial Statements
<S> <C> <C>
Consolidated Statements of Operations --
For the three months and nine months ended
September 30, 1999 and 1998 ..................... 1
Consolidated Balance Sheets --
September 30, 1999 and December 31, 1998 ........ 2
Consolidated Statements of Cash Flows --
For the nine months ended
September 30, 1999 and 1998...................... 3
Consolidated Statement of Comprehensive Income --
For the three months and nine months ended
September 30, 1999 and 1998 ..................... 4
Notes to Consolidated Financial Statements ............... 5-8
2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................... 9-16
3. Quantitative and Qualitative Disclosure
about Market Risks ....................................... 17
PART II. OTHER INFORMATION
1. Legal Proceedings.................................................. 18-19
6. Exhibits and Reports on Form 8-K .................................. 19
SIGNATURES ........................................................ 20
</TABLE>
i
<PAGE>
Form 10Q - Financial Information
Item 1. Financial Statements
D&E Communications, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except per-share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months Ended
September 30, September 30,
------------------------ --------------------
OPERATING REVENUE 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Communication service revenues............................................. $ 12,716 $ 11,036 $ 37,516 $ 32,401
Communication products sold................................................ 2,849 1,921 9,082 5,405
Other...................................................................... 297 283 897 872
-------- -------- ------- --------
Total Operating Revenues................................................ 15,862 13,240 47,495 38,678
-------- -------- ------- --------
OPERATING EXPENSE
Communication service expenses............................................. 5,150 4,109 15,055 12,213
Cost of communication products sold........................................ 2,020 1,334 6,636 3,717
Depreciation and amortization.............................................. 2,530 2,355 7,191 7,108
Marketing and customer services............................................ 1,260 881 3,592 2,575
General and administrative services........................................ 2,637 2,446 8,131 7,714
-------- -------- ------- --------
Total Operating Expenses................................................ 13,597 11,125 40,605 33,327
-------- -------- ------- --------
Operating Income................................................... 2,265 2,115 6,890 5,351
-------- -------- ------- --------
OTHER INCOME (EXPENSE)
Allowance for funds used during construction............................... 11 9 25 47
Equity in net losses of affiliates......................................... (3,506) (2,971) (9,875) (7,550)
Interest expense........................................................... (459) (524) (1,383) (1,889)
Gain on sale of investment................................................. --- --- 8,982 1,659
Other, net................................................................. 349 412 1,061 1,365
-------- -------- ------- --------
Total Other Income (Expense)............................................ (3,605) (3,074) (1,190) (6,368)
-------- -------- ------- --------
Income (loss) before income taxes,
dividends on utility preferred stock and
extraordinary item.............................................. (1,340) (959) 5,700 (1,017)
INCOME TAXES AND DIVIDENDS ON
UTILITY PREFERRED STOCK
Income taxes .............................................................. 159 332 3,450 923
Dividends on utility preferred stock....................................... 16 16 49 49
-------- -------- ------- --------
Total Income taxes and dividends
on utility preferred stock........................................... 175 348 3,499 972
-------- -------- ------- --------
Income (loss) before extraordinary item ........................... (1,515) (1,307) 2,201 (1,989)
Extraordinary loss on early extinguishment of
debt, net of income tax benefit of $220 ............................... -- -- -- (7,901)
-------- -------- ------- --------
NET INCOME (LOSS) ......................................................... $ (1,515) $ (1,307) $ 2,201 $ (9,890)
======== ======== ======= ========
Average common shares outstanding.......................................... 7,381 7,447 7,398 7,411
BASIC EARNINGS (LOSS) PER COMMON SHARE
Net income (loss) before extraordinary item................................ $ (0.21) $ (0.18) $ 0.30 $ (0.27)
Extraordinary item ........................................................ 0.00 0.00 0.00 (1.06)
-------- -------- ------- --------
Net income (loss) per common share..................................... $ (0.21) $ (0.18) $ 0.30 $ (1.33)
======== ======== ======= ========
Dividends per common share................................................. $ 0.10 $ 0.10 $ 0.29 $ 0.29
====== ====== ====== ======
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
D&E Communications, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ............................................. $ 2,436 $ 7,192
Temporary investments ................................................. 14,647 14,805
Accounts receivable ................................................... 7,295 7,109
Accounts receivable - affiliated companies ............................ 5,261 2,903
Inventories, lower of cost or market, at average cost ................. 1,113 1,028
Prepaid expenses ...................................................... 2,204 3,658
Other ................................................................. 327 689
--------- ---------
TOTAL CURRENT ASSETS ............................................... 33,283 37,384
--------- ---------
INVESTMENTS
Investments and advances in affiliated companies ...................... 3,664 9,303
Investment available for sale ......................................... 5,656 --
Other ................................................................. 359 359
--------- ---------
9,679 9,662
--------- ---------
PROPERTY, PLANT AND EQUIPMENT
In service ............................................................ 129,685 123,766
Under construction .................................................... 2,120 426
--------- ---------
131,805 124,192
Less accumulated depreciation ......................................... 68,542 62,526
--------- ---------
63,263 61,666
--------- ---------
OTHER ASSETS
Accounts receivable - affiliated companies ............................ 412 461
Other ................................................................. 883 904
--------- ---------
1,295 1,365
--------- ---------
TOTAL ASSETS .......................................................... $ 107,520 $ 110,077
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Long-term debt maturing within one year ............................... 1,063 1,063
Accounts payable ...................................................... 7,409 7,924
Accrued taxes ......................................................... 248 491
Accrued interest and dividends ........................................ 603 449
Advance billings, customer deposits and other ......................... 1,533 3,423
--------- ---------
TOTAL CURRENT LIABILITIES .......................................... 10,856 13,350
--------- ---------
LONG-TERM DEBT ............................................................... 22,657 22,657
--------- ---------
OTHER LIABILITIES
Deferred income taxes ................................................. 9,727 7,660
Other ................................................................. 692 802
--------- ---------
10,419 8,462
--------- ---------
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 14,456 shares ............................ 1,446 1,446
--------- ---------
COMMITMENTS
SHAREHOLDERS' EQUITY
Common stock, par value $.16, authorized shares 30,000,000 ............ 1,193 1,190
Outstanding shares: 7,350,940 at September 30, 1999
7,422,396 at December 31, 1998
Additional paid-in capital ............................................ 36,902 36,546
Unrealized loss on investment ......................................... (764) --
Unearned ESOP Compensation ............................................ (429) (429)
Retained earnings ..................................................... 27,362 27,294
Treasury stock at cost, 93,532 shares at September 30, 1999,
38,480 shares at December 31, 1998 ................................. (2,122) (439)
--------- ---------
62,142 64,162
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............................ $ 107,520 $ 110,077
========= =========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
D&E Communications, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES ........................... $ 11,644 $ 8,672
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ................................... (8,721) (5,770)
Proceeds from sale of temporary investments ............ 29,519 12,000
Purchase of temporary investments ...................... (29,361) (27,000)
Proceeds from sale of investment in affiliated company . 2,420 2,375
Increase in investments and advances to affiliates ..... (22,353) (24,979)
Decrease in investments and repayments from affiliates . 15,558 22,355
-------- --------
Net Cash Used In Investing Activities ............. (12,938) (21,019)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends on common stock .............................. (2,005) (2,029)
Payments on long-term debt ............................. -- (6,000)
Proceeds from issuance of common stock ................. 225 26,177
Purchase of treasury stock ............................. (1,682) --
-------- --------
Net Cash Provided By (Used In) Financing Activities (3,462) 18,148
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............... (4,756) 5,801
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD ....................................... 7,192 61
-------- --------
END OF PERIOD ............................................. $ 2,436 $ 5,862
======== ========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
D&E Communications, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) ................ $(1,515) $(1,307) $ 2,201 $(9,890)
Other comprehensive income (loss):
Unrealized (loss) on investment,
net of tax .................. (1,096) -- (764) --
------- ------- ------- -------
Total comprehensive income (loss) $(2,611) $(1,307) $ 1,437 $(9,890)
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
Form 10-Q
D&E Communications, Inc. and Subsidiaries
Part I - Financial Information (continued)
Item 1. Notes to Consolidated Financial Statements
--------------------------------------------------
(Dollar amounts are in thousands)
(Unaudited)
(1) BASIS OF PRESENTATION
D&E Communications, Inc. is a telecommunications holding company. The
accompanying consolidated financial statements include the accounts of
Denver and Ephrata Telephone and Telegraph Company (D&E Telephone); D&E
Holdings, L.P. (Holdings L.P.); D&E Telephone and Data Systems (TDS); D&E
Marketing Corp. (Marketing); D&E Wireless, Inc. (Wireless); D&E
Investments, Inc. (Investments); and D&E Systems, Inc. (Systems). D&E
Communications, Inc., including these subsidiary companies, is defined and
referred to herein as (D&E).
The accompanying financial statements are unaudited and have been
prepared by D&E pursuant to generally accepted accounting principles and
the rules and regulations of the Securities and Exchange Commission (SEC).
In the opinion of management, the financial statements include all
adjustments (consisting of normal recurring adjustments) necessary to
present fairly the results of operations, financial position, and cash
flows of D&E for the periods presented. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such SEC rules and regulations. The use of
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 the financial statements and the reported amount of revenues and
expenses during the reporting period. Actual results could differ from
those estimates. D&E believes that the disclosures made are adequate to
make the information presented not misleading. These financial statements
should be read in conjunction with the financial statements and notes
thereto included in the D&E Annual Report on Form 10-K for the fiscal year
ended December 31, 1998.
(2) NON-CASH FINANCING AND INVESTING ACTIVITIES
On March 25, 1999, D&E exchanged its shares of D&E SuperNet, Inc.
(SuperNet)for cash and shares of OneMain.com, Inc. (OneMain). The non-cash
value of the share exchange was recorded as a net increase in investments
of $6,562. The decrease in market price of the OneMain shares subsequent to
the share
5
<PAGE>
Form 10-Q
D&E Communications, Inc. and Subsidiaries
Part I - Financial Information (continued)
Item 1. Notes to Consolidated Financial Statements
--------------------------------------------------
(Dollar amounts are in thousands)
(Unaudited)
exchange decreased the investment by $1,158 and the unrealized net of tax
loss on investment by $764. See Note 3.
(3) EXCHANGE OF INVESTMENT
On March 25, 1999, Investments sold its fifty percent interest in
SuperNet in exchange for $2,420 cash and $6,814 in shares of OneMain. D&E
owns less than 5% of the outstanding shares of OneMain. D&E records trades
of equity securities on a trade date basis. The shares of OneMain are held
as available-for-sale securities and are no longer valued at a discount
from market price since certain of the trading restrictions on the shares
have expired. The market value of D&E's investment in OneMain at September
30, 1999 was $5,656.
(4) INVESTMENTS IN AFFILIATED COMPANIES
(a) PCS ONE
D&E owns a fifty percent partnership interest in D&E/Omnipoint
Wireless Joint Venture, L.P. (PCS ONE) which was formed in November 1997 to
provide PCS wireless communications services and equipment to customers in
the Lancaster, Harrisburg, York/Hanover and Reading, Pennsylvania Basic
Trading Areas. The results of PCS ONE were as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------- -----------------------
1999 1998 1999 1998
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales ............ $4,467 $1,280 $11,624 $ 2,755
Net loss ............. ($4,252) ($3,406) ($13,637) ($10,148)
D&E's share
of loss ............. ($2,126) ($1,703) ($ 6,818) ($ 5,074)
</TABLE>
6
<PAGE>
Form 10-Q
D&E Communications, Inc. and Subsidiaries
Part I - Financial Information (continued)
Item 1. Notes to Consolidated Financial Statements
--------------------------------------------------
(Dollar amounts are in thousands)
(Unaudited)
(b) EuroTel
As previously reported, D&E holds a one-third ownership interest in
EuroTel L.L.C. (EuroTel), a domestic corporation which owns 100% of
PenneCom B.V. (PenneCom), a Netherlands corporation which provides local
exchange telephone, cable television and data transmission services in
Central Europe. On April 12, 1999, D&E announced that PenneCom had signed a
definitive agreement to sell the shares of its Polish operations (Pilicka
Telefonia, S.A.) to Elektrim S.A. (Elektrim) for $140,000 in cash and notes
during 1999 and that the sale was subject to, among other things, Polish
regulatory review. It was projected that after payment of outstanding debt
and other expenses, the sale would generate approximately $80,000 of net
cash to PenneCom. On July 27, 1999, Polish regulatory authorities approved
the proposed share purchase. However, on July 28, 1999, Elektrim issued
written notice to PenneCom that it was terminating the purchase agreement
and on August 2, 1999, PenneCom filed an arbitration request with the
International Court of Arbitration seeking specific performance of the
agreement as well as compensatory and punitive damages. Arbitration
proceedings are underway at the date of this filing. See Item 1(a) of Part
II of this Report.
(5) SUBSEQUENT EVENTS
On October 18, 1999, D&E announced that PenneCom had signed a
definitive agreement to sell the shares of its Hungarian operations, Monor
Telephone Company (MTT), to United Pan-Europe Communications, N.V.
PenneCom's 48.3% ownership in MTT is expected to be sold, subject to
Hungarian regulatory review and customary closing conditions, by the end of
1999 for $45,000. D&E's one-third interest in EuroTel includes
approximately $6,000 invested in MTT.
(6) CONTINGENCIES
See Item I of Part II of this Report for discussion of legal
proceedings.
7
<PAGE>
Form 10-Q
D&E Communications, Inc. and Subsidiaries
Part I - Financial Information (continued)
Item 1. Notes to Consolidated Financial Statements
--------------------------------------------------
(Dollar amounts are in thousands)
(Unaudited)
(7) BUSINESS SEGMENT DATA
Financial results for D&E's four primary operating segments are as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------- -------------------------
1999 1998 1999 1998
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
External Revenues
Telecommunication Services ................................... $ 9,666 $ 8,823 $ 28,709 $ 26,563
Telephone & Data Services .................................... 4,285 3,173 13,235 8,785
Wireless Services ............................................ 1,633 902 4,498 2,496
International Communication Services ......................... 277 196 1,052 511
Corporate, Other and Eliminations ............................ 1 146 1 323
--------- --------- --------- ---------
Total Company ............................................. $ 15,862 $ 13,240 $ 47,495 $ 38,678
========= ========= ========= =========
Intersegment Revenues
Telecommunication Services ................................... $ 365 $ 414 $ 1,081 $ 933
Telephone & Data Services .................................... 88 15 285 232
Corporate, Other and Eliminations ............................ (453) (429) (1,366) (1,165)
--------- --------- --------- ---------
Total Company ............................................. $ -- $ -- $ -- $ --
========= ========= ========= =========
Net Income (Loss)
Telecommunication Services ................................... $ 1,358 $ 1,164 $ 3,888 $ 2,682
Telephone & Data Services .................................... (42) (7) 52 12
Wireless Services ............................................ (1,385) (1,253) (4,498) (3,754)
International Communication Services ......................... (1,280) (1,410) (3,423) (2,756)
Corporate, Other and Eliminations ............................ (166) 199 6,182 (6,074)
--------- --------- --------- ---------
Total Company ............................................. $ (1,515) $ (1,307) $ 2,201 $ (9,890)
========= ========= ========= =========
September 30, December 31,
Assets ....................................................... 1999 1998
------------- ------------
Telecommunication Services ................................... $ 93,550 $ 94,139
Telephone & Data Services .................................... 6,408 6,452
Wireless Services ............................................ 2,722 7,038
International Communication Services ......................... 6,624 5,723
Corporate, Other and Eliminations ............................ (1,784) (3,275)
--------- ---------
Total Company ............................................. $ 107,520 $ 110,077
========= =========
</TABLE>
8
<PAGE>
Form 10-Q
D&E Communications, Inc. and Subsidiaries
Part I - Financial Information (continued)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
(Dollar amounts are in thousands)
Monetary amounts presented in the following discussion are rounded to
the nearest thousand dollars. Certain items in the financial statements for
the three months and nine months ended September 30, 1998 have been
reclassified for comparative purposes.
RESULTS OF OPERATIONS
Summary. Operating revenues increased 19.8% for the three months and
22.8% for the nine months ended September 30, 1999 compared with the same
periods of 1998. The increases were primarily from increases in
communication products sold. Operating profits as a percentage of revenue
decreased to 14.3% for the third quarter of 1999 compared to 16.0% for the
third quarter of 1998. For the nine months, operating income as a
percentage of revenue increased to 14.5% in 1999 from 13.8% in 1998.
For the nine months ended September 30, 1999, other income included a
gain of $8,982 from the exchange of SuperNet stock for cash and stock in
OneMain. The net-of-tax gain was $5,921. A similar gain on the sale of
D&E's last cellular partnership investment resulted in other income of
$1,659 in the first half of 1998. No loss was recorded in 1999 similar to
the extraordinary loss in June 1998 from the return of the C-Block PCS
license for the Lancaster, PA Basic Trading Area (BTA), and the related
Federal Communications Commission (FCC) debt extinguishment. The 1998
license return and debt extinguishment transaction resulted in a loss (net
of tax) of $7,901. Net income (loss) for the third quarter of 1999 was a
loss of $1,515 or $0.21 per share compared to a loss of $1,307 or $0.18 per
share in 1998. For the nine months ended September 30, 1999 net income
(loss) was an income of $2,201 or $0.30 per share compared to a loss of
$9,890 or $1.33 per share in 1998.
Three months ended September 30, 1999 compared to the three months ended
September 30, 1998
Operating Revenues. Consolidated operating revenues for the three
months ended September 30, 1999 were $15,862, up 19.8% from $13,240 for the
third quarter in 1998. The primary reason for the increase was the increase
in telephone system equipment sales and computer networking services.
9
<PAGE>
Form 10-Q
D&E Communications, Inc. and Subsidiaries
Part I - Financial Information (continued)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
(Dollar amounts are in thousands)
Telecommunications Services segment revenues increased 9.5% to $9,666
in 1999 from $8,823 in 1998. The increase was from an increase of
approximately 5% in the number of telephone access lines in service,
increased local private network revenues and volume increases in intrastate
and interstate network access revenues.
Telephone & Data Services segment revenues increased 35.0% to $4,285
in 1999 from $3,173 in 1998. The increase resulted from increased sales of
telecommunication equipment. The growth included computer networking
services with installations of software and computer hardware and an
increase in data cabling installations.
Wireless Services segment revenues increased 81.0% to $1,633 in 1999
from $902 in 1998. The increase was primarily from expansion of sales and
customer support services provided to PCS ONE.
International Communication Services segment revenues increased 41.3%
to $277 in 1999 from $196 in 1998. The increase was related to the
additional support services provided in connection with the build out of
the telephone company operation in Poland.
Operating Expenses. Consolidated operating expenses for the three
months ended September 30, 1999 were $13,597, up from $11,125 in 1998. The
primary reason for the increase was the increase in cost of goods sold
related to equipment sales.
Communication service expenses include network operations, network
access, and directory advertising which increased at approximately the same
rate as revenue growth. Other communication service costs included in this
category, increased 59.6% to $2,094 in 1999 from $1,312 in 1998. The
increase was approximately $670 for support services provided to PCS ONE
and $81 for European operations related to the development and expansion of
those businesses.
The cost of communication products sold increased 51.4% to $2,020 in
1999 from $1,334 in 1998. The increase related to increased equipment sales
and computer networking installations. The cost increase was a greater
percentage than revenue increases partially as a result of a higher mix of
hardware to software sales.
10
<PAGE>
Form 10-Q
D&E Communications, Inc. and Subsidiaries
Part I - Financial Information (continued)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
(Dollar amounts are in thousands)
Depreciation and amortization increased 7.4% to $2,530 in 1999 from
$2,355 in 1998. Depreciation increased $243 from continuing capital
additions. Several factors account for the amortization decrease of $68.
D&E adopted Statement of Position No. 98-5, "Reporting on the Costs of
Start-up Activities," in the fourth quarter of 1998. As a result,
organization costs were fully expensed in 1998, which decreased 1999
expenses by $29. Separately, a non-compete agreement was fully amortized
during 1998 which decreased 1999 costs by $28.
Marketing and customer services increased 43.0% to $1,260 in 1999 from
$881 in 1998. Advertising costs, primarily related to long distance
services, accounted for approximately $152 of the increase. Increased sales
expenses related to telecommunications products sold accounted for
approximately $95 of the increase.
General and administrative services increased 7.8% to $2,637 in 1999
from $2,446 in 1998. The increase was primarily attributable to the 1999
Long-Term Incentive Plan approved during the second quarter and other
benefit plan accruals.
Other Income (Expense). Other income (expense) for the three months
ended September 30, 1999 was a net expense of $3,605, compared with a net
expense of $3,074 in the same quarter of 1998. Equity in the net losses of
affiliates continued to grow with the development of new telephone systems
in Poland contributing $534 additional loss and PCS ONE contributing a $402
additional loss. These losses were partially offset by improved results
from MTT in Hungary. Future losses are expected to continue while PCS ONE
and Pilicka develop their business and until completion of the sale of
Pilicka, which is now in dispute and subject to arbitration before the
International Court of Arbitration. (See Item 1(a) of Part II of this
Report.)
Interest expense decreased 12.4% to $459 in 1999 from $524 in 1998.
Long-term debt repayments accounted for the decrease in interest expense.
Income taxes. Income taxes were $159 for the three months ended
September 30, 1999, compared to $332 in 1998. The decrease was primarily
the result of adjustments related to filing the final prior year return.
11
<PAGE>
Form 10-Q
D&E Communications, Inc. and Subsidiaries
Part I - Financial Information (continued)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
(Dollar amounts are in thousands)
Nine months ended September 30, 1999 compared to the nine months ended
September 30, 1998
Operating Revenues. Consolidated operating revenues for the nine
months ended September 30, 1999 were $47,495, up 22.8% from $38,678 for the
first nine months of 1998. The primary reason for the increase was the
increase in telephone system equipment sales and computer networking
services.
Telecommunications Services segment revenues increased 8.1% to $28,709
in 1999 from $26,563 in 1998. The increase was from an increase of
approximately 5% in the number of telephone access lines in service,
increased local private network revenues and volume increases in intrastate
and interstate network access revenues.
Telephone & Data Services segment revenues increased 50.7% to $13,235
in 1999 from $8,785 in 1998. The increase resulted from utilization of a
larger sales and marketing staff that increased the sales of
telecommunication equipment. The growth included computer networking
services with installations of software and large orders for computer
hardware for several multi-location clients.
Wireless Services segment revenues increased 80.2% to $4,498 in 1999
from $2,496 in 1998. The increase was from the continued engineering
services to build out the PCS ONE wireless network and expansion of sales
and customer support services provided to PCS ONE.
International Communication Services segment revenues increased 105.9%
to $1,052 in 1999 from $511 in 1998. The increase was related to the
additional support services provided in connection with the build out of
the telephone company operation in Poland.
Operating Expenses. Consolidated operating expenses for the nine
months ended September 30, 1999 were $40,605, up from $33,327 in 1998. The
primary reason for the increase was the increase in cost of goods sold
related to equipment sales.
Communication service expenses include network operations, network
access, and directory advertising all of which increased at a slower rate
than revenue growth. Other communication service costs included in this
12
<PAGE>
Form 10-Q
D&E Communications, Inc. and Subsidiaries
Part I - Financial Information (continued)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
(Dollar amounts are in thousands)
category, increased 72.3% to $6,081 in 1999 from $3,529 in 1998. The
increase was approximately $1,851 for support services provided to PCS ONE
and $541 for European operations related to the development and expansion
of those businesses.
The cost of communication products sold increased 78.5% to $6,636 in
1999 from $3,717 in 1998. The increase related to increased equipment sales
and computer networking installations. The cost increase was a greater
percentage than revenue increases partially as a result of a higher mix of
hardware to software sales.
Depreciation and amortization increased 1.2% to $7,191 in 1999 from
$7,108 in 1998. Depreciation increased $537 primarily as a result of
continuing capital additions. Several factors account for the amortization
decrease of $454. As a result of returning the C-Block PCS license to the
Federal Communications Commission (FCC) in June 1998 amortization decreased
$256. Additionally, D&E adopted Statement of Position No. 98-5, "Reporting
on the Costs of Start-up Activities," in the fourth quarter of 1998. As a
result, organization costs were fully expensed in 1998, which decreased
1999 expenses by $88. Separately, a non-compete agreement was fully
amortized during 1998 which decreased 1999 costs for the nine months by
$103.
Marketing and customer services increased 39.5% to $3,592 in 1999 from
$2,575 in 1998. Marketing and advertising costs, largely in connection with
a corporate image advertising program, accounted for approximately $265 of
the increase. Other specific products such as long distance services were
also advertised which added approximately $350 to the expense in 1999
compared to 1998. Increased sales expenses related to telecommunications
products sold accounted for approximately $289 of the increase.
General and administrative services increased 5.4% to $8,131 in 1999
from $7,714 in 1998. The increase was primarily attributable to the 1999
Long-Term Incentive Plan approved in April 1999 and other benefit plan
accruals.
Other Income (Expense). Other income (expense) for the nine months
ended September 30, 1999 was a net expense of $1,190, compared with a net
expense of $6,368 in the first nine months of 1998. Equity in the net
losses of affiliates continued to grow with the development of new
13
<PAGE>
Form 10-Q
D&E Communications, Inc. and Subsidiaries
Part I - Financial Information (continued)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
(Dollar amounts are in thousands)
telephone systems in Poland contributing a $1,457 additional loss and PCS
ONE contributing a $1,720 additional loss. Future losses are expected to
continue while PCS ONE and Pilicka develop their business and until
completion of the sale of Pilicka, which is now in dispute and subject to
arbitration before the International Court of Arbitration at the
International Chamber of Commerce. (See Item 1(a) of Part II of this
Report.) A gain of $8,982 was recognized in March 1999 on the exchange of
SuperNet stock for an investment in OneMain. A decrease of approximately
$1,659 resulted from the second quarter 1998 gain on the sale of an
investment in Berks & Reading Area Cellular Enterprises (BRACE).
Interest expense decreased 26.8% to $1,383 in 1999 from $1,889 in
1998. The return of the C-Block license to the FCC reduced interest expense
by $347. Other long-term debt repayments accounted for the remaining
decrease in interest expense.
Income taxes. Income taxes were $3,450 for the nine months ended
September 30, 1999, compared to $923 in 1998. The increase was primarily
related to tax on the gain from the exchange of SuperNet shares. The total
tax accrued on the SuperNet transaction was $3,061 of which $2,238 was
deferred tax.
FINANCIAL CONDITION
Liquidity and Capital Resources. D&E believes that it has adequate
internal and external resources available to meet ongoing operating
requirements, including expansion and modernization of the existing local
exchange network and business development activities. D&E expects that
foreseeable capital requirements for its existing businesses will be
financed primarily through internally generated funds, use of its existing
cash or temporary investments, and additional debt. Additional short or
long-term debt or equity financing may be needed to fund growth of new
business development activities, and to enhance D&E's capital structure.
In addition to the $11,644 cash provided from operations, D&E's
primary single source of funds for the nine months ended September 30, 1999
was $2,420 from the exchange of SuperNet shares for an investment in
OneMain. Capital expenditures included approximately $3,500 for additions
14
<PAGE>
Form 10-Q
D&E Communications, Inc. and Subsidiaries
Part I - Financial Information (continued)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
(Dollar amounts are in thousands)
to digital circuit and switching equipment and $1,600 for outside plant
poles and cable expansion. During the first nine months of 1999, $1,682 was
used to repurchase treasury shares.
At September 30, 1999, $14,647 was invested in commercial paper, and
$2,436 was held in liquid cash balances. In June, D&E increased its
available short-term lines of credit from $15,000 to $25,000.
D&E's ratio of total debt to total debt plus capital increased to
27.1% at September 30, 1999 from 26.6% at December 31, 1998. This change
was primarily from the decrease in equity resulting from the acquisition of
treasury stock.
OTHER
In compliance with state statutory law, commonly known as Chapter 30,
D&E Telephone petitioned the Pennsylvania Public Utility Commission (PUC)
in July 1998 for a price-cap form of regulation as an alternative to the
PUC's existing rate base/rate of return form of regulation. The PUC is
scheduled to review the judge's decision and other relevant responses in
November, and is expected to render an Order in response to the petition.
If D&E Telephone accepts the PUC Order, an accelerated network
modernization plan will be adopted along with a new ratemaking process
where, instead of an opportunity return on investment, price adjustments
are based on the Gross Domestic Product Price Index possibly adjusted for a
productivity offset. If D&E Telephone rejects the PUC Order, another
Chapter 30 petition will be required within six months.
In July, D&E modified its Agreement for the Provision of Enhanced
9-1-1 Services with Lancaster County. The modification provides for the
construction and lease of additional space to the county and extends the
term of the agreement from 2004 through 2019. The agreement became
effective upon approval by the Pennsylvania Public Utility Commission
(PUC).
On October 18, 1999, D&E announced that PenneCom had signed a
definitive agreement to sell the shares of its Hungarian operations, Monor
Telephone Company (MTT), to United Pan-Europe Communications, N.V.
PenneCom's 48.3% ownership in MTT is expected to be sold, subject to
15
<PAGE>
Form 10-Q
D&E Communications, Inc. and Subsidiaries
Part I - Financial Information (continued)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
(Dollar amounts are in thousands)
Hungarian regulatory review and customary closing conditions, by the end of
1999 for $45,000. D&E's one-third interest in EuroTel includes
approximately $6,000 invested in MTT.
A world wide Year 2000 remediation issue has arisen as a result of
computer programs having been written to use two digits rather than four to
identify the applicable year. Specifically, some of D&E's programs that
have date-sensitive software might possibly have recognized a date entry
using ?00" as the year 1900 rather than 2000. D&E addressed this issue by
identifying in Phase I, the programs that needed to be modified. In Phase
II, the renovation, validation and implementation of modifications has been
completed for essential programs, including the telecommunications
operating systems, the billing system software and the accounting data base
system. Operating systems in D&E's personal computers have been updated,
and Year 2000 compliance has been confirmed by vendors whose services are
critical to D&E's compliance. Other software program modifications are
nearing completion and testing will be an ongoing process. D&E anticipates
that training and implementation of the contingency plan will continue to
year end. The cost of completing the modifications has been immaterial to
the current operations and management believes the changes will be
completed without material impact on its financial condition or
interruption to ongoing business activities.
FORWARD-LOOKING STATEMENTS
This quarterly report contains certain forward-looking statements as
to the Year 2000 remediation issue and the future performance of D&E and
its various domestic and international joint venture investments. Actual
results may differ as a result of factors over which D&E has no control,
including, but not limited to, regulatory factors, uncertainties and
economic fluctuations in the domestic and foreign markets in which the
companies compete, foreign-currency risks and increased competition in
domestic markets due in large part to continued deregulation of the
telecommunications industry.
16
<PAGE>
Form 10-Q
D&E Communications, Inc. and Subsidiaries
Part I - Financial Information (continued)
Item 3. Quantitative and Qualitative Disclosure
About Market Risks
D&E does not invest excess funds in derivative financial instruments
or other market risk sensitive instruments for the purpose of managing its
foreign currency exchange rate risk or for any other purpose.
17
<PAGE>
Form 10-Q
D&E Communications, Inc. and Subsidiaries
Part II - Other Information
Item 1. Legal Proceedings
(a) Sale of Pilicka Telefonia S.A. to Elektrim S.A.
In April 1999, PenneCom B.V. (PenneCom), a Netherlands corporation
which provides communications services in Central Europe and is owned by
EuroTel, LLC (EuroTel), a domestic limited liability company in which D&E
Investments, Inc. has a one-third ownership interest, signed an agreement
to sell, subject to Polish regulatory review, its shares of Pilicka
Telefonia, S.A. (Pilicka), a Polish corporation, to Elektrim S.A.
(Elektrim), another Polish corporation, for $140,000,000 in cash and notes.
Polish regulatory authorities approved the proposed purchase on July 27,
1999. However, on July 28, 1999, Elektrim issued written notice that it was
terminating the purchase agreement alleging that unspecified actions of
representatives of Pilicka and PenneCom constituted fraudulent inducement,
thereby rendering the purchase agreement void (and of no further effect).
On August 2, 1999, PenneCom filed an arbitration request with the
International Court of Arbitration at the International Chamber of Commerce
seeking specific performance of the agreement as well as compensatory and
punitive damages. On September 27, 1999, Elektrim filed an answer and
counterclaim alleging that its termination of the agreement was justified
because, among other things, PenneCom altered its normal course of
business, constituting a "material adverse change" and a ground for
termination under the agreement. In its counterclaim, Elektrim requests a
dismissal of all claims brought by PenneCom, a declaration that the
agreement was void or that Elektrim was justified in terminating the
agreement, and a repayment by PenneCom of Elektrim's $10 million deposit.
PenneCom considers the counterclaim to be without merit and has filed a
reply in opposition to it. D&E fully expects that PenneCom will continue to
vigorously pursue enforcement of the agreement and defense of the
counterclaim. However, it is not possible at this time to express an
opinion as to the outcome of the arbitration.
(b) Boles Litigation
On March 26, 1999, representatives of PenneCom informed a
representative of Boles Knop L.L.C. (Boles) that PenneCom had accepted an
unsolicited offer from Elektrim to purchase 100% of the shares of Pilicka.
See Item 1(a) above. Later on March 26, 1999, Boles delivered a letter
asserting that it was due a substantial fee in connection with such
transaction under its investment banking agreement with Boles (the
Agreement). PenneCom disputed these assertions by Boles, and following
discussions among the parties, EuroTel and PenneCom commenced an action in
May 1999, in the United States District Court for the District of Nebraska
18
<PAGE>
Form 10-Q
D&E Communications, Inc. and Subsidiaries
Part II - Other Information
against Boles to resolve the dispute. In their federal court action,
EuroTel and PenneCom are seeking a declaratory judgment that they have no
obligation to Boles for a commission relating to the sale of Pilicka.
On June 7, 1999, Boles filed a counterclaim against EuroTel and
PenneCom and a third-party complaint and issued service of process upon
D&E, and the other two owners of EuroTel seeking recovery for the
additional fees it alleges to be due to it under the Investment Banking
Agreement and seeking punitive or treble damages on fraud, conspiracy and
misrepresentation theories. On August 6, 1999, D&E filed a motion seeking
to dismiss the fraud, conspiracy, and misrepresentation causes of action,
which form the basis for the punitive and treble damages claim, and for an
order requiring a more definitive complaint. On October 25, 1999, Boles
filed a motion to transfer venue from the United States District Court for
the District of Nebraska to the United States District Court for the
Eastern District of Virginia, Alexandria Division. An extension of time for
answering has been granted and EuroTel, PenneCom, D&E and the other two
owners of EuroTel expect to file an answer opposing a change of venue on or
before November 22, 1999. As the court has not ruled on either the motion
to dismiss or for change of venue, and the parties have not engaged in any
discovery, the facts have not been fully developed and it is not possible
at this time to determine the likelihood, if any, of Boles recovering
damages against D&E.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Identification
No. of Exhibit Reference
------- -------------- ---------
10.1 Modification #2 to the Agreement Filed herewith.
for the Provision of Enhanced
9-1-1 Services between the County
of Lancaster and D&E Telephone
Company, signed July 14, 1999.
27 Financial Data Schedule. Filed herewith.
(b) Reports on Form 8-K:
No reports on 8-K were filed during the quarter ended September 30,
1999.
19
<PAGE>
D&E Communications, Inc. and Subsidiaries
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
D & E Communications, Inc.
(Registrant)
Date: November 10, 1999
By: /s/ Anne B. Sweigart
--------------------
Anne B. Sweigart
President, Chairman of the Board, and
Chief Executive Officer
(On behalf of the Registrant)
Date: November 10, 1999
By: /s/ Thomas E. Morell
--------------------
Thomas E. Morell
Vice President, Chief Financial Officer
and Treasurer
(On behalf of the Registrant and as
Principal Financial Officer)
UNLESS OTHERWISE INDICATED, ALL INFORMATION IS AS OF
November 10, 1999.
20
<PAGE>
D&E Communications, Inc. and Subsidiaries
INDEX TO EXHIBITS
Exhibit Identification
No. of Exhibit Reference
------- -------------- ---------
10.1 Modification #2 to the Agreement Filed herewith.
for the Provision of Enhanced
9-1-1 Services between the County
of Lancaster and D&E Telephone
Company, signed July 14, 1999.
27 Financial Data Schedule. Filed herewith.
21
EXHIBIT 10.1
Page 1 of 5
CONTRACT MODIFICATION #2
The AGREEMENT, made the 4th day of May A.D. 1994, by and between the County of
Lancaster, PENNSYLVANIA, and Denver and Ephrata Telephone and Telegraph Company,
("D&E"), in which D&E agrees to furnish to the county Enhanced 9-1-1 Services,
is hereby modified as follows:
1. Pursuant to clause 50, Changes - Services, the County and D&E agree that
the following modification shall be made to the Term and Termination in the
Agreement and shall supersede all conflicting provisions of the Agreement.
(a) Section 3, Term and Termination, paragraph (a) should be changed
to read:
The contract period shall begin on the date this Agreement is
formally approved by the Pennsylvania Public Utility Commission
("PUC") or deemed approved in accordance with the provisions of
the Pennsylvania Public Utility Code and shall continue until
December 31, 2019 unless otherwise terminated or extended in
accordance with the terms of this Agreement or the Contract
Documents.
2. In connection with the modification of the Term and Termination of the
Agreement, the Best and Final Offer Price schedule correction, attached hereto
as Attachment A and incorporated by reference herein, shall supersede to the
extent therein, the Price Schedule included in Attachment No. 2 of the
Agreement.
3. Pursuant to clause 50, Changes - Services, the County and D&E agree that
the ADDENDUM TO ATTACHMENT #7, attached hereto as Attachment B and incorporated
by reference herein is included in the Agreement and shall supersede all
conflicting provisions of the Agreement.
COUNTY OF LANCASTER, PENNSYLVNIA
Date: 7-14-99 By: /s/ Paul Thibault
------- ------------------------------
/s/ Terry L. Kaufmann
------------------------------
/s/ Ron Ford
------------------------------
Lancaster County Commissioners
DENVER AND EPHRATA TELEPHONE
AND TELEGRAPH COMPANY
Date: 6/24/99 By: /s/ G. W. Ruhl
------- ------------------------------
Duly Authorized Representative
<PAGE>
EXHIBIT 10.1
Page 2 of 5
ATTACHMENT A
LANCO-93-P-0201
SCHEDULE
Solicitation NUMBER: LANCO-93-P0201
- --------------------------------------------------------------------------------
SCOPE OF WORK: PRICE SCHEDULE
<TABLE>
<CAPTION>
CONTRACT T O T A L
LINE ITEM PERFORMANCE PERIOD 20 YEAR COST
- --------- ------------------ ------------
<S> <C> <C> <C>
Group I: Enhanced 9-1-1 Services:
1. Non-Recurring Costs, Primary Facility:
1-a. D&E Non-PUC regulated E9-1-1 Services 20 Years $ 180,390
-------- -----------
1-b. D&E PUC regulated E9-1-1 Services 20 Years 1,200
-------- -----------
1-c. Other telephone companies E9-1-1 20 Years 0
-------- -----------
2. Recurring Costs, Primary Facility:
2-a. D&E Non-PUC regulated E9-1-1 Services 20 Years 18,728,595
-------- -----------
2-b. D&E PUC regulated E9-1-1 Services 20 Years 8,674,800
-------- -----------
2-c. Other telephone companies E9-1-1 Services 20 Years 4,978,344
-------- -----------
3. Non-Recurring Costs, Back-up Facility:
3-a. D&E Non-PUC regulated E9-1-1 Services 20 Years 0
-------- -----------
3-b. D&E PUC regulated E9-1-1 Services 20 Years 0
-------- -----------
3-c. Other telephone companies E9-1-1 Services 20 Years 0
-------- -----------
4. Recurring Costs, Back-up Facility:
4-a. D&E Non-PUC regulated E9-1-1 Services 20 Years 24,000
-------- -----------
4-b. D&E PUC regulated E9-1-1 Services 20 Years 1,433,020
-------- -----------
4-c. Other telephone companies E9-1-1 Services 20 Years 0
-------- -----------
5. TOTAL E-9-1-1 Service Costs
5-a. D&E Non-PUC regulated E9-1-1 Services 20 Years 18,932,985
-------- -----------
5-b. D&E PUC regulated E9-1-1 Services 20 Years 10,109,020
-------- -----------
5-c. Other telephone companies E9-1-1 Services 20 Years 4,978,344
-------- -----------
5-d. TOTAL E-9-1-1 Service Costs $34,020,349
-----------
</TABLE>
<PAGE>
EXHIBIT 10.1
Page 3 of 5
ADDENDUM TO ATTACHMENT #7
FACILITY LEASE
ENHANCED 9-1-1 SERVICES
LANCO 93-P-0201
THIS ADDENDUM, made and executed to become effective the day and the year
specified on the signature page hereof, and is attached to and incorporated into
and subject to the terms and conditions of Attachment # 7, which is a part of
the Agreement between the County of Lancaster and Denver and Ephrata Telephone
and Telegraph Company for furnishing Enhanced 9-1-1 Services LANCO 93-P-0201 May
4, 1994 (hereinafter referred to as "The Agreement").
WHEREAS, the County of Lancaster (hereinafter referred to as the "lessee") and
Denver And Ephrata Telephone and Telegraph Company (hereinafter referred to as
the "lessor") have heretofore made and entered into that a certain facility
lease for premises located at 28 South Charlotte Street, Manheim, Pennsylvania,
17545, desire to extend and formalize such extension respecting such
arrangement,
WHEREAS, the lessee and lessor agree to extend the duration of the existing
Facility Lease Agreement that began on May 4, 1994, and is currently scheduled
to end July 31, 2004, for an additional term that ends on December 31, 2019,
therefor, as part of The Agreement, Attachment #7, the term of the Lease is now
extended to December 31, 2019. Therefor, the existing terms and conditions as
set forth in The Agreement shall apply to the extended Facility Lease Agreement
through the ending date of December 31, 2019.
WHEREAS, the existing building space of 6,160 square feet leased by the lessee
under the terms and conditions of The Agreement at six dollars and sixteen cents
($6.16) per square foot shall continue at the same rate until December 31, 2004.
On January 1, 2005, and at the end of each twelfth (12th) month afterwards
during the term hereof, the base rent for the ensuing twelve (12) month period
shall be increased by three percent (3%) as shown on Attachment A of this
Addendum.
1
<PAGE>
Page 4 of 5
WHEREAS, the lessee desires to lease newly constructed attached building space,
an additional 13,634 gross square feet (hereinafter referred to as "The
Additional Space"). Lessee agrees to pay lessor, thirteen dollars and nineteen
cents ($13.19) per square foot for The Additional Space, payable in equal
monthly installments of fourteen thousand nine hundred eighty-six dollars and
four cents ($14,986.04) for the first twelve (12)months of occupancy. The terms
and conditions as set forth in The Agreement shall also apply to The Additional
Space.
WHEREAS, during the term of this lease, starting with the thirteenth (13th)
month of occupancy, and at the end of each twelfth (12th) month afterwards, the
base rent of The Additional Space, for the ensuing twelve (12) month period
shall be increased by three percent (3%) as shown on Attachment A of this
Addendum. At the end of Fifteen (15) full years of occupancy and until the
ending date of this lease, December 31, 2019, the lessee will not be obligated
to pay lessor rent for The Additional Space as shown on Attachment A of this
Addendum.
WHEREAS, the lessor will meter the electrical usage supplied to The Additional
Space and lessee agrees to be responsible for payment of the electricity at the
actual billed rate.
WHEREAS, the lessee agrees to pay lessor a Construction Management Fee of one
hundred sixty-seven thousand eight hundred and ninety-one dollars ($167,891.00)
which is equal to ten percent (10%) of the lessors construction mortgage amount.
The Construction Management Fee shall be paid over the term of the construction
period of The Additional Space as follows.
Thirty percent (30%) at start of construction ($50,367.30)
Forty percent (40%) in nine (9) equal monthly payments of $7,461.82 during
the construction period ($67,156.40)
Thirty percent (30%) upon completion and acceptance of Newly Constructed
Building Space ($50,367.30)
WHEREAS, upon acceptance of final building plans for The Additional Space by the
lessee and the lessor, additions or deductions shall be made pursuant to the
provisions of clause #50, Change - Services of the Agreement.
2
<PAGE>
Page 5 of 5
IN WITNESS WHEREOF, the parties hereto have duly executed these presents and
intend to be legally bound thereby.
COUNTY OF LANCASTER, PENNSYLVANIA
Date: 7-14-99 By: /s/ Paul Thibault
------- --------------------
/s/ Terry L Kauffman
---------------------
/s/ Ron Ford
------------------------------
Lancaster County Commissioners
DENVER AND EPHRATA TELEPHONE AND
TELEGRAPH COMPANY
Date: 6/24/99 By: /s/ G. W. Ruhl
------- ------------------------------
Duly Authorizes Representative
3
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENTS
OF OPERATIONS, BALANCE SHEETS AND STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 63,263
<OTHER-PROPERTY-AND-INVEST> 9,679
<TOTAL-CURRENT-ASSETS> 33,283
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 1,295
<TOTAL-ASSETS> 107,520
<COMMON> 1,193
<CAPITAL-SURPLUS-PAID-IN> 38,902
<RETAINED-EARNINGS> 24,047
<TOTAL-COMMON-STOCKHOLDERS-EQ> 62,142
0
1,446
<LONG-TERM-DEBT-NET> 22,657
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 1,063
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 20,212
<TOT-CAPITALIZATION-AND-LIAB> 107,520
<GROSS-OPERATING-REVENUE> 47,495
<INCOME-TAX-EXPENSE> 3,450
<OTHER-OPERATING-EXPENSES> 40,605
<TOTAL-OPERATING-EXPENSES> 44,055
<OPERATING-INCOME-LOSS> 6,890
<OTHER-INCOME-NET> 193
<INCOME-BEFORE-INTEREST-EXPEN> 7,083
<TOTAL-INTEREST-EXPENSE> (1,383)
<NET-INCOME> 2,201
49
<EARNINGS-AVAILABLE-FOR-COMM> 2,201
<COMMON-STOCK-DIVIDENDS> 2,137
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 11,644
<EPS-BASIC> 0.30
<EPS-DILUTED> 0.30
</TABLE>
