Otelco Reports Fourth Quarter and Year 2007 Results



    ONEONTA, AL, Feb. 14 /CNW/ - Otelco Inc. (AMEX:   OTT; TSX: OTT.un), the
sole wireline telephone services provider in several rural communities in
Alabama, Maine and Missouri, today announced results for its fourth quarter
and year ended December 31, 2007. Key quarterly highlights for Otelco include:

    
      -  Total revenues of $17.9 million.
      -  Operating income of $5.0 million.
      -  Adjusted EBITDA (as defined below) of $8.7 million.
    

    "We are pleased with our fourth quarter results as both our operating and
financial performance experienced growth," stated Mike Weaver, President and
Chief Executive Officer of Otelco. "On the operating front, the quarter
resulted in continued growth in our access lines, digital high-speed Internet
and long distance customers. Our total access line equivalents increased 1.2%
for the fourth quarter and 6.2% this year to 67,931 total access line
equivalents, an increase of nearly 4,000 lines for the year. Our digital
high-speed Internet offering continues to be successful as we increased our
subscribers by 3.1% over third quarter of this year and 19.4% for the full
year. Our Maine CLEC business produced a 4.6% increase in CLEC access lines in
this quarter when compared to third quarter.
    "Adjusted EBITDA was $8.7 million for the quarter and $34.6 million for
the year, a growth of 10.7% for the year," added Weaver. "Our balance sheet
has been strengthened by the sale of an additional 3,000,000 Income Deposit
Securities in July, further demonstrating our commitment to the total return
for our shareholders."

    Distribution to IDS Holders
    ---------------------------
    Each quarter, the Board will consider the declaration of dividends during
its normally scheduled meeting. For this quarter, the Board is meeting on
February 21, 2008. The scheduled interest and any dividend declared will be
paid on March 31, 2008 to holders of record as of the close of business on
March 14, 2008. The interest payment will cover the period from December 30,
2007 through March 29, 2008.

    
                    Fourth Quarter 2007 Financial Summary
               (Dollars in thousands, except per share amounts)

                                                             Change
                                                    -------------------------
                              4Q 2006      4Q 2007       Amount      Percent
    -------------------------------------------------------------------------

    Revenues              $    17,381  $    17,864  $       483        2.8 %
    Operating income      $     5,084  $     4,989  $       (95)      (1.9)%
    Interest expense      $    (5,324) $    (4,745) $      (579)     (10.9)%
    Net income available
     to stockholders      $      (772) $     1,070  $     1,842      238.5 %
    Basic net income
     per share            $     (0.08) $      0.08  $      0.16      200.0 %
    Diluted net income
     per share            $     (0.01) $      0.04  $      0.05      500.0 %
    Adjusted EBITDA(a)    $     8,661  $     8,708  $        47        0.5 %
    Capital expenditures  $     1,955  $     2,186  $       231       11.8 %

                                                             Change
                                                    -------------------------
                                 2006         2007       Amount      Percent
    -------------------------------------------------------------------------

    Revenues              $    57,589  $    69,749  $    12,160       21.1 %
    Operating income      $    19,803  $    19,266  $      (537)      (2.8)%
    Interest expense      $   (20,082) $   (21,378) $     1,296        6.4 %
    Net income available
     to stockholders      $     1,161  $       179  $      (982)     (84.6)%
    Basic net income
     per share            $      0.12  $      0.02  $     (0.10)     (83.3)%
    Diluted net income
     per share            $      0.18  $     (0.10) $     (0.28)    (155.6)%

    Adjusted EBITDA(a)    $    31,288  $    34,636  $     3,348       10.7 %
    Capital expenditures  $     5,618  $     6,572  $       954       17.0 %


    Reconciliation of Adjusted EBITDA to Net Income
    -----------------------------------------------

                                Three Months Ended       Twelve Months Ended
                                    December 31,              December 31,
                                 2006         2007         2006         2007
                          ------------ ------------ ------------ ------------
    Adjusted EBITDA
    Net Income            $      (772) $     1,070  $     1,161  $       179
    Add: Depreciation           2,836        2,818        9,527       11,752
         Interest Expense,
          net of premium        4,796        4,155       17,698       17,881
         Interest Expense
          - Caplet Cost           212          217          756          891
         Interest Expense
          - Amortize Loan
            Cost                  316          373        1,628        2,606
         Gain/Loss from
          Investments               -            -          (63)           -
         Other non-operating
          income                    -            -       (2,687)           -
         Income Tax Expense
          (Benefit)               (20)        (277)       1,211         (374)
         Accretion Expense         97            -          430            -
         Change in Fair Value
          of Derivatives          616         (316)         278         (970)
         Loan Fees                 19           19           95           76
         Amortization
          - Intangibles           561          649        1,254        2,595
                          ------------ ------------ ------------ ------------
    Adjusted EBITDA       $     8,661  $     8,708  $    31,288  $    34,636
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------
    

    (a) Adjusted EBITDA is defined as consolidated net income (loss) plus
    interest expense, depreciation and amortization, income taxes and certain
    non-recurring fees, expenses or charges and other non-cash charges
    reducing consolidated net income. Adjusted EBITDA is not a measure
    calculated in accordance with generally acceptable accounting principles
    (GAAP). While providing useful information, Adjusted EBITDA should not be
    considered in isolation or as a substitute for consolidated statement of
    operations data prepared in accordance with GAAP. The Company believes
    Adjusted EBITDA is useful as a tool to analyze the Company on the basis
    of operating performance and leverage. The definition of Adjusted EBITDA
    corresponds to the definition of Adjusted EBITDA in the indenture
    governing the Company's senior subordinated notes and its credit facility
    and certain of the covenants contained therein. The Company's
    presentation of Adjusted EBITDA may not be comparable to similarly titled
    measures used by other companies.

    
                                             Third         Year
                                           Quarter          End     % Change
    Key Operating Statistics     2006         2007         2007      Quarter
    -------------------------------------------------------------------------
    Access line
     equivalents(1)
      Residential access
       lines                   29,832       29,156       28,788       (1.3)%
      Business access
       lines                   22,171       24,122       24,872        3.1 %
                          ------------ ------------ ------------
    Total access lines         52,003       53,278       53,660        0.7 %
      High-speed lines         11,951       13,845       14,271        3.1 %
                          ------------ ------------ ------------
    Total access line
     equivalents               63,954       67,123       67,931        1.2 %

    Cable television
     customers                  4,188        4,170        4,161        0.0 %
    Dial-up internet
     customers                 19,587       16,263       15,249       (6.2)%

    (1) We define access line equivalents as access lines, cable modems, and
    digital subscriber lines, including wholesale digital subscriber lines.
    

    FINANCIAL DISCUSSION FOR FOURTH QUARTER 2007:

    Revenue
    -------
    Total revenues grew 2.8% in the three months ended December 31, 2007 to
$17.9 million from $17.4 million in the three months ended December 31, 2006.
The growth in revenue reflected growth in CLEC customers in Maine and
increased digital high-speed Internet penetration throughout the areas we
serve. Local services revenue grew 4.8% in the fourth quarter to $6.7 million
from $6.4 million in the quarter ended December 31, 2006. Network access
revenue declined 2.3% in the fourth quarter to $6.5 million from $6.6 million
in the quarter ended December 31, 2006. Cable television revenue in the three
months ended December 31, 2007 was flat at $0.5 million when compared to the
three months ended December 31, 2006. Internet revenue for the fourth quarter
2007 increased 5.3% to $3.0 million from $2.8 million in the quarter ended
December 31, 2006. Transport services revenue grew 20.9% to $1.2 million in
the three months ended December 31, 2007 from $1.0 million in the same period
in 2006.

    Operating Expenses
    ------------------
    Operating expenses in the three months ended December 31, 2007 increased
4.7% to $12.9 million from $12.3 million in the three months ended
December 31, 2006. Cost of services increased 5.8% to $6.6 million from $6.2
million in the quarter ended December 31, 2006. The cost associated with
increased CLEC revenue in Maine, increased Internet bandwidth in Alabama and
increased long distance customers in Missouri was partially offset by network
and Internet help desk efficiencies. Selling, general and administrative
expenses increased 5.6% to $2.8 million in the quarter ended December 31, 2007
from $2.7 million in the quarter ended December 31, 2006. Increased operating
taxes and public company expenses were the cause of the increase. Depreciation
and amortization for fourth quarter increased 2.1% to $3.5 million from $3.4
million.

    Interest Expense
    ----------------
    Interest expense decreased 10.9% to $4.8 million in the quarter ended
December 31, 2007 from $5.3 million a year ago, reflecting the reduction in
total debt associated with the sale of 3,000,000 Income Deposit Securities
units in July 2007 and a lower margin on senior debt, partially offset by the
increased non-cash caplet cost associated with our interest rate cap.

    Adjusted EBITDA
    ---------------
    Adjusted EBITDA for the three months ended December 31, 2007 was
$8.7 million, slightly up over the same period in 2006. For the year ended
December 31, 2007, Adjusted EBITDA was $34.6 million, an increase of 10.7%
from $31.3 million the year ended December 31, 2006. See financial tables for
a reconciliation of Adjusted EBITDA to net income.

    Balance Sheet
    -------------
    As of December 31, 2007, the Company had cash and cash equivalents of
$12.8 million and total long-term debt of $170.0 million. The third quarter
distribution of $5.3 million in interest and dividends to our share owners and
$0.3 million to our bond holders occurred on October 1, 2007. The fourth
quarter distribution of the same amounts was made on December 31, 2007.

    Capital Expenditures
    --------------------
    Capital expenditures were $2.2 million for the quarter and $6.6 million
year-to-date 2007. The Company added high definition and digital video
recording capability to its Alabama cable system; DSL capacity; twelve miles
to its fiber backbone in Maine; competitive customer specific equipment; and
other upgrades to its network and switching facilities.

    Fourth Quarter Earnings Conference Call
    ---------------------------------------
    Otelco has scheduled a conference call, which will be broadcast live over
the Internet, on Friday, February 15, 2008, at 11:00 a.m. ET. To participate
in the call, dial (913) 312-0939 and ask for the Otelco call 10 minutes prior
to the start time. Investors, analysts and the general public will also have
the opportunity to listen to the conference call free over the Internet by
visiting the Company's Web site at www.otelcoinc.com or www.earnings.com. To
listen to the live call online, please visit the Web site at least 15 minutes
early to register, download and install any necessary audio software. For
those who cannot listen to the live Web cast, a replay of the Web cast will be
available on the Company's website at www.otelcoinc.com or www.earnings.com
for 30 days. A one-week telephonic replay may also be accessed by calling
719-457-0820 and using the passcode 2314672.

    ABOUT OTELCO

    Otelco Inc., headquartered in Oneonta, Alabama, provides wireline
telephone services in Alabama, Maine and Missouri. The Company's services
include local and long distance telephone, network access, transport, digital
high-speed and dial-up Internet access, cable television and other telephone
related services. With almost 68,000 access lines, cable modems and digital
subscriber lines, which are collectively referred to as access line
equivalents, Otelco is among the top 40 largest local exchange carriers in the
United States based on number of access line. Otelco operates six incumbent
telephone companies serving rural markets, or rural local exchange carriers,
each of which can trace its history as a local telecommunications provider as
far back as the early 1900s. It also provides competitive telephone services
through several subsidiaries. For more information, visit the Company's web
site at www.otelcoinc.com.

    FORWARD LOOKING STATEMENTS

    Statements in this press release that are not statements of historical or
current fact constitute forward-looking statements. Such forward-looking
statements involve known and unknown risks, uncertainties, and other unknown
factors that could cause the actual results of the Company to be materially
different from the historical results or from any future results expressed or
implied by such forward-looking statements. In addition to statements which
explicitly describe such risks and uncertainties, readers are urged to
consider statements labeled with the terms "believes", "belief," "expects,"
"intends," "anticipates," "plans," or similar terms to be uncertain and
forward-looking. The forward-looking statements contained herein are also
subject generally to other risks and uncertainties that are described from
time to time in the Company's filings with the Securities and Exchange
Commission.

    
                                 OTELCO INC.
                         Consolidated Balance Sheets

                                                      As of            As of
                                                December 31,     December 31,
                                                       2006             2007
                                              --------------   --------------
    Assets
      Current Assets
        Cash and cash equivalents             $  14,401,849    $  12,810,497
        Accounts receivable:
          Due from subscribers, net
           of allowance for doubtful
           accounts of $207,539 and
           $257,862 respectively                  3,105,636        2,753,451
          Unbilled receivables                    2,324,213        2,616,867
          Other                                   1,680,144        1,760,207
        Materials and supplies                    1,962,938        1,991,724
        Prepaid expenses                          1,062,947        1,149,180
        Income tax receivable                             -          469,546
        Deferred income taxes                       766,225        1,486,439
                                              --------------   --------------
          Total current assets                   25,303,952       25,037,911
                                              --------------   --------------

        Property and equipment, net              60,493,789       54,610,355
        Goodwill                                134,182,309      134,570,435
        Intangible assets, net                   11,340,806        9,514,772
        Investments                               1,240,250        1,207,183
        Deferred financing costs                  6,652,393        5,878,943
        Interest rate cap                         4,542,160        1,510,951
        Deferred charges                             96,628          155,573
                                              --------------   --------------
          Total assets                        $ 243,852,287    $ 232,486,123
                                              --------------   --------------
                                              --------------   --------------

      Liabilities and Stockholders' Equity
        Current liabilities
          Accounts payable                    $   1,658,911    $   2,058,989
          Dividends payable                       1,705,524                -
          Accrued expenses                        5,875,863        3,716,880
          Advanced billings and payments          2,119,701        2,077,713
          Customer deposits                         197,496          185,147
                                              --------------   --------------
            Total current liabilities            11,557,495        8,038,729
                                              --------------   --------------

        Deferred income taxes                    24,712,213       25,223,656
        Advance billings and payments                     -          797,498
        Other liabilities                           187,037          183,756
        Long-term notes payable                 201,075,498      170,019,705
        Derivative liability                      2,107,877          814,005
        Class B common convertible to senior
         subordinated notes                       4,085,033        4,085,033
                                              --------------   --------------
          Total Liabilities                   $ 243,725,153    $ 209,162,382
                                              --------------   --------------
                                              --------------   --------------

      Stockholders' equity
        Class A Common stock, $.01 par
         value-authorized 20,000,000 shares;
         issued and outstanding 9,676,733 and
         12,676,733 shares at December 31,
         2006 and 2007 respectively                  96,767          126,767
        Class B Common stock, $.01 par value-
         authorized 800,000 shares; issued and
         outstanding 544,671 shares                   5,447            5,447
        Additional paid in capital                  284,041       28,215,056
        Retained deficit                         (1,137,166)      (4,084,797)
        Accumulated other comprehensive
         income                                     878,045         (938,732)
                                              --------------   --------------

          Total stockholders' equity                127,134       23,323,741
                                              --------------   --------------

          Total liabilities and
           stockholders' equity               $ 243,852,287    $ 232,486,123
                                              --------------   --------------
                                              --------------   --------------


                                 OTELCO INC.
                    Consolidated Statements of Operations

                             Three Months Ended       Twelve Months Ended
                                 December 31,              December 31,
                              2006         2007         2006         2007
                          ------------ ------------ ------------ ------------
    Revenues
      Local services      $ 6,414,036  $ 6,720,584  $21,523,406  $26,101,800
      Network access        6,632,111    6,479,950   23,481,490   25,670,619
      Cable television        559,225      541,087    2,191,210    2,184,072
      Internet              2,822,078    2,970,429    8,515,899   11,517,514
      Transport services      953,762    1,152,489    1,877,387    4,275,429
                          ------------ ------------ ------------ ------------
        Total revenues     17,381,212   17,864,539   57,589,392   69,749,434
                          ------------ ------------ ------------ ------------

    Operating expenses
      Cost of services
       and products         6,226,772    6,587,164   18,727,806   25,718,634
      Selling, general
       and administrative
       expenses             2,673,308    2,820,918    8,277,449   10,418,760
    Depreciation
     and amortization       3,397,044    3,467,108   10,781,333   14,346,620
                          ------------ ------------ ------------ ------------
        Total operating
         expenses          12,297,124   12,875,190   37,786,588   50,484,014
                          ------------ ------------ ------------ ------------

    Income from
     operations             5,084,088    4,989,349   19,802,804   19,265,420
                          ------------ ------------ ------------ ------------

    Other income
     (expense)
      Interest expense     (5,324,442)  (4,744,927) (20,082,037) (21,378,434)
      Change in fair
       value of
       derivative            (615,478)     315,809     (277,782)     970,281
      Other income            160,846      232,348    3,358,860      947,737
                          ------------ ------------ ------------ ------------
        Total other
         expense           (5,779,074)  (4,196,770) (17,000,959) (19,460,416)
                          ------------ ------------ ------------ ------------

    Income (loss) before
     income taxes and
     accretion expense       (694,986)     792,579    2,801,845     (194,996)

    Income tax (expense)
     benefit                   19,966      277,296   (1,211,269)     374,375
                          ------------ ------------ ------------ ------------

    Income (loss) before
     accretion expense       (675,020)   1,069,875    1,590,576      179,379

    Accretion of Class B
     common convertible
     to senior
     subordinated notes       (97,385)           -     (429,579)           -
                          ------------ ------------ ------------ ------------
    Net income (loss)
     available to common
     stockholders         $  (772,405) $ 1,069,875  $ 1,160,997  $   179,379
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------

    Weighted average
     shares outstanding:
      Basic                 9,676,733   12,676,733    9,676,733   11,156,185
      Diluted              10,221,404   13,221,404   10,221,404   11,700,856

    Net income (loss)
     per share:
      Basic               $     (0.08) $      0.08  $      0.12  $      0.02
      Diluted             $     (0.01) $      0.04  $      0.18  $     (0.10)

      Dividends declared
       per share          $      0.18  $      0.18  $      0.71  $      0.71



                                 OTELCO INC.
                    CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                    Twelve Months Ended
                                                        December 31,
                                                   2006             2007
                                              --------------   --------------
    Cash flows from operating activities:
      Net income (loss)                       $   1,160,997    $     179,379
      Adjustments to reconcile net income
       to cash flows from operating
       activities:
        Depreciation                              9,527,319       11,751,673
        Amortization                              1,254,014        2,594,943
        Interest rate caplet                        755,594          890,840
        Amortization of debt premium                      -          (33,552)
        Amortization of loan costs                1,627,960        2,606,422
        Accretion expense                           429,579                -
        Change in fair value of derivative          277,782         (970,281)
        Provision for deferred income taxes         983,786         (208,771)
        Provision for uncollectible revenue         193,561          225,615
        Gain on disposition of other assets      (2,686,745)               -
        Changes in assets and liabilities; net
         of assets and liabilities acquired:
          Accounts receivables                     (327,129)        (422,708)
          Material and supplies                       3,385         (183,373)
          Income tax receivable                   1,037,395         (469,546)
          Prepaid expenses and other assets        (365,795)         (86,233)
          Accounts payable and accrued
           liabilities                            2,757,784       (3,549,358)
          Advance billings and payments            (110,253)         755,510
          Other liabilities                         (22,029)         (15,630)
                                              --------------   --------------
            Net cash from operating
             activities                          16,497,205       13,064,930
                                              --------------   --------------

    Cash flows from investing activities:
      Acquisition and construction of property
       and equipment                             (5,618,295)      (6,572,336)
      Proceeds from retirement of investment      3,224,913            7,557
      Payment for the purchase Mid-Maine
       Communications, Inc., net of cash
       acquired                                 (16,000,040)               -
      Deferred charges/acquisition                  (44,296)        (110,923)
                                              --------------   --------------
            Net cash from investing
             activities                         (18,437,718)      (6,675,702)
                                              --------------   --------------

    Cash flows from financing activities:
      Cash dividends paid                        (5,116,572)      (7,879,596)
      Direct cost of subsequent public
       offering                                           -       (2,314,980)
      Repayment of long-term notes payable      (24,347,299)     (55,353,032)
      Loan origination costs and transaction
       costs                                        237,000       (1,832,972)
      Proceeds from long-term debt               40,000,000                -
      Proceeds from issuance of Income
       Deposit Securities (IDS)                           -       59,400,000
                                              --------------   --------------

            Net cash from financing
             activities                          10,773,129       (7,980,580)
                                              --------------   --------------

    Net increase (decrease) in cash and cash
     equivalents                                  8,832,616       (1,591,352)
    Cash and cash equivalents,
     beginning of period                          5,569,233       14,401,849
                                              --------------   --------------

    Cash and cash equivalents,
     end of period                            $  14,401,849    $  12,810,497
                                              --------------   --------------
                                              --------------   --------------

    Supplemental disclosures of cash flow
     information:
      Interest paid                           $  14,284,165    $  20,636,959
                                              --------------   --------------
                                              --------------   --------------

      Income taxes paid (received)            $    (698,336)   $    (133,218)
                                              --------------   --------------
                                              --------------   --------------

      Dividends declared but not paid         $   1,705,524    $           -
                                              --------------   --------------
                                              --------------   --------------
    





For further information:

For further information: Curtis Garner, Chief Financial Officer, Otelco
Inc., (205) 625-3571, Curtis@otelcotel.com

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