TYPE: 425
Sequence: 1
DESCRIPTION: Letter to security holders
Filed by: NTELOS Inc.
Pursuant to Rule 425 under the Securities Act of 1933
Subject Company: NTELOS Inc.
Commission File No. 000-16751
Dear Shareholder,
The second quarter of 2001 was one of significant accomplishment for our
company. The final phase of the integration of the Virginia East markets,
acquired last summer, was completed as the billing function was converted to the
NTELOS platform in July. With this conversion, no further costs associated with
the transition services agreement will be incurred. Also, the conversion to the
NTC pre-paid platform, which provides for enhanced customer features, was
completed for these markets. With the completion of this transition on schedule,
we have shown the ability to integrate a business that doubled the size of our
company into our organizational structure and operating platforms.
Consistent with our business plan, the company negotiated the sale of certain
non-core assets during the quarter. On July 20, 2001, the company entered into a
definitive agreement to sell the non-operational PCS license in Kingsport,
Tennessee to Lafayette Communications for $11.6 million. On July 24, 2001,
NTELOS announced the sale of up to 82 communications towers in the Virginia East
market to American Towers, Inc. for up to $27.9 million. Also, during the period
of May 24 to August 15, 2001, the company sold 471,400 shares of Illuminet
Holdings, Inc. for proceeds of approximately $14.6 million.
Most significantly, on July 25, 2001, we announced the signing of a definitive
merger agreement to acquire Conestoga Enterprises, Inc. Conestoga is a
Birdsboro, Pennsylvania based integrated communications provider with a service
area contiguous to NTELOS' Virginia and West Virginia operations. This merger
represents another important step as we execute our Mid-Atlantic ICP strategy.
The combined company will have over 135,000 ILEC and 40,000 CLEC access lines
and, equally important, the Conestoga management team and organization will
provide an established base of operations for our expansion in Pennsylvania.
Through all these activities we kept our focus on the business and continued to
show improvement in our operating fundamentals. Gross PCS subscriber additions
for second quarter were 35,043 of which more than 76% were high-value post-pay
additions. Post pay net additions set a new quarterly record at 17,333. Monthly
blended subscriber churn for all markets finished the quarter at 3.89%, down
from 4.45% in the previous quarter and 5.60% in the fourth quarter 2000. Post
pay churn led this improvement, dropping to 2.35%, the lowest level in over a
year. Average revenue per subscriber (ARPU) was $42.60 for the second quarter,
an increase of $2.11 from first quarter 2001.
In the wireline segments, CLEC access lines totaled 26,509 at quarter-end, an
increase of about 12% over the previous quarter, and CLEC operating cash flows
were again positive. Four new co-locations were placed in service. The Internet
segment finished with 64,801 dial-up and 2,297 DSL customers and continued to
show positive cash flows. DSL service was introduced for customers in Covington
and Clifton Forge, Virginia and fiber from Waynesboro to Winchester, Virginia
was turned up during the quarter. ILEC finished the period with an access line
total of 51,938.
Total operating revenues for the quarter were $54.7 million, compared to $21.5
million for second quarter 2000. Results for 2001 include amounts reflecting the
acquisition of Virginia East, the consolidation of the Virginia PCS Alliance,
the merger with R&B and the concurrent consolidation of the West Virginia PCS
Alliance. Operating results for 2000 include the RSA 6 analog cellular
operations, a July 26, 2000 disposition. Operating Cash Flows (operating income
before depreciation and amortization) for second quarter were $5.2 million,
compared to $7.0 million for second quarter 2000, reflecting the above
transactions. Before costs of subscriber acquisition, PCS operating cash flows
increased to $8.0 million for second quarter 2001, $2.0 million better than the
previous quarter, indicating continued improvement in fixed-cost efficiencies.
If you need assistance with stock transfers and transactions, please dial
toll-free 1-888-221-4239 or locally dial 946-3584 and ask for Sharon Herbert,
shareholder relations administrator, or, contact us via e-mail at
investor@ntelos.com. For an updated quote on our stock, you may dial
1-800-946-8227 or locally dial 946-5144. Look for additional information on
operating results for the quarter and other press releases and announcements on
Company activities at http://www.ntelos.com.
Thank you for your continued support and interest in NTELOS.
/s/ James S. Quarforth
James S. Quarforth
Chief Executive Officer
NTELOS Inc.
=======================================================================================================================
Condensed Consolidated Statements of Operations
(Unaudited, in thousands except per share amounts) Three Months Ended Six Months Ended
- -----------------------------------------------------------------------------------------------------------------------
June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000
- ------------------------------------------------------------------------------------ --------------------------------
Operating Revenues $ 54,653 $ 21,517 $ 102,081 $ 42,128
Operating Expenses 67,047 17,931 126,789 34,844
- ------------------------------------------------------------------------------------ --------------------------------
Operating Income (Loss) (12,394) 3,586 (24,708) 7,284
Equity Loss from PCS Investees -- (2,988) (1,286) (6,656)
Other, Principally Interest Expense, Net (18,263) (493) (33,432) (911)
- ------------------------------------------------------------------------------------ --------------------------------
(30,657) 105 (59,426) (283)
Income Taxes (Benefit) (10,872) 84 (21,636) (87)
Minority Interests (1,311) 32 (3,058) 105
- ------------------------------------------------------------------------------------ --------------------------------
Loss from Continuing Operations (18,474) (11) (34,732) (301)
Income from Discontinued Operation, Net of Tax -- 348 -- 687
- ------------------------------------------------------------------------------------ --------------------------------
Net Income (Loss) (18,474) 337 (34,732) 386
Dividend Requirements on Preferred Stock 4,690 -- 9,377 --
- ------------------------------------------------------------------------------------ --------------------------------
Income (Loss) Applicable to Common Shares $ (23,164) $ 337 $ (44,109) $ 386
=======================================================================================================================
Net Income (Loss) per Common Share - Basic & Diluted $ (1.37) $ 0.03 $ (2.76) $ 0.03
Average Shares Outstanding - Basic 16,857 13,101 15,972 13,084
Average Shares Outstanding - Diluted 17,259 13,310 16,349 13,292
NTELOS Inc.
==============================================================================================
Condensed Consolidated Balance Sheets
(in thousands) (Unaudited)
- ----------------------------------------------------------------------------------------------
June 30, 2001 Dec. 31, 2000
- ----------------------------------------------------------------------------------------------
ASSETS
Current Assets $ 59,783 $ 71,530
Restricted Cash 39,707 50,903
Investments and Advances to Affiliates 42,054 83,615
Property & Equipment, Net 896,304 745,793
Other Assets 149,914 124,364
- ----------------------------------------------------------------------------------------------
Total Assets $1,187,762 $1,076,205
==============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities $ 73,869 $ 75,335
Long-Term Debt 618,353 556,287
Deferred Taxes and Other Long-Term Liabilities 65,624 63,405
Redeemable, Convertible Preferred Stock 256,282 246,906
Shareholders' Equity 173,634 134,272
- ----------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $1,187,762 $1,076,205
==============================================================================================
INVESTORS AND SECURITY HOLDERS ARE URGED TO READ NTELOS' REGISTRATION STATEMENT
ON FORM S-4 AND THE JOINT PROXY STATEMENT/PROSPECTUS AND ANY OTHER RELEVANT
DOCUMENTS RELATING TO THE MERGER TRANSACTION DESCRIBED ABOVE, WHEN THEY BECOME
AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. When these and other
documents relating to the transaction are filed with the Commission, investors
and security holders may obtain a free copy at the Commission's web site at
www.sec.gov. The documents filed with the Commission by NTELOS may also be
obtained for free from NTELOS by directing a request to NTELOS Inc., P. O. Box
1990, Waynesboro, Virginia 22980, Attn: Investor Relations, telephone: (540)
946-3500. Certain of these documents may also be available on NTELOS' website at
www.ntelos.com when they become available. READ THE DEFINITIVE REGISTRATION
STATEMENT AND JOINT PROXY STATEMENT/PROSPECTUS CAREFULLY BEFORE MAKING A
DECISION CONCERNING THE MERGER.