EX-99.1 2 v103762_ex99-1.htm

Contact:
Curtis Garner
Chief Financial Officer
Otelco Inc.
205-625-3571
Curtis@otelcotel.com

Otelco Reports Fourth Quarter and Year 2007 Results

ONEONTA, Alabama (Feb. 14, 2008) - 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.
 
Otelco Reports Fourth Quarter Results
Page 2
Feb. 14, 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.
 
Otelco Reports Fourth Quarter Results
Page 3
Feb. 14, 2008

       
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.
 
Otelco Reports Fourth Quarter Results
Page 4
Feb. 14, 2008
 
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 Reports Fourth Quarter Results
Page 5
Feb. 14, 2008

OTELCO INC.
Consolidated Balance Sheets

   
 As of
  
 As of
  
   
 December 31, 2006
  
 December 31, 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 Reports Fourth Quarter Results
Page 6
Feb. 14, 2008
 
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 Reports Fourth Quarter Results
Page 7
Feb. 14, 2008

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
  
$
-