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Otelco Reports Second Quarter 2011 Results

Adjusted EBITDA

Adjusted EBITDA for the three months ended June 30, 2011, was $11.9 million compared to $12.9 million for the same period in 2010 and $11.4 million in the first quarter of 2011. A one-time settlement in 2010 was a significant factor in the difference. See financial tables for a reconciliation of Adjusted EBITDA to net income.

Balance Sheet

As of June 30, 2011, the Company had cash and cash equivalents of $16.4 million compared to $18.2 million at the end of 2010. The Company made a $0.4 million voluntary prepayment in May 2011 on its senior long-term notes payable, reducing the balance to $162.0 million. This represents a combined reduction of $11.5 million since October 2008. The second quarter distribution of $5.6 million in interest and dividends to our shareowners, and $0.3 million in interest to our bond holders, occurred on June 30, 2011. This represents the twenty-sixth consecutive quarterly distribution since going public in December 2004.

Capital Expenditures

Capital expenditures were $3.5 million for the quarter as the Company continues to grow and invest in its infrastructure; implement cost saving projects; and complete the repairs associated with the spring tornados in Alabama and Missouri.

Second Quarter Earnings Conference Call

Otelco has scheduled a conference call, which will be broadcast live over the internet, on Thursday, August 4, 2011, at 11:00 a.m. ET. To participate in the call, participants should dial (719) 457-2679 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 website at www.OtelcoInc.com or www.earnings.com. To listen to the live call online, please visit the website at least 15 minutes early to register, download and install any necessary audio software. For those who cannot listen to the live webcast, a replay of the webcast 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 5292035.

ABOUT OTELCO

Otelco Inc. provides wireline telecommunications services in Alabama, Maine, Massachusetts, Missouri, New Hampshire and West Virginia. The Company’s services include local and long distance telephone, network access, transport, digital high-speed data lines and dial-up internet access, cable television and other telephone related services. With more than 98,000 voice and data access lines, which are collectively referred to as access line equivalents, Otelco is among the top 25 largest local exchange carriers in the United States based on number of access lines. Otelco operates ten incumbent telephone companies serving rural markets, or rural local exchange carriers. It also provides competitive retail and wholesale communications services through several subsidiaries. For more information, visit the Company’s website 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
       
December 31,     June 30,
2010 2011
Assets (unaudited)
Current assets
Cash and cash equivalents $ 18,226,374 $ 16,433,171
Accounts receivable:

Due from subscribers, net of allowance for doubtful accounts of $230,752 and $280,924, respectively

4,406,257 3,981,258
Unbilled receivables 2,161,277 2,182,458
Other 4,299,088 5,209,607
Materials and supplies 1,817,311 1,905,575
Prepaid expenses 1,305,028 946,894
Deferred income taxes   626,267     626,267  
Total current assets   32,841,602     31,285,230  
 
Property and equipment, net 63,887,213 63,644,065
Goodwill 188,190,078 188,190,078
Intangible assets, net 25,934,042 22,312,111
Investments 1,967,095 1,954,340
Deferred financing costs 5,757,825 5,073,776
Deferred income taxes 4,415,097 4,415,097
Other assets   183,946     142,326  
Total assets $ 323,176,898   $ 317,017,023  
 
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable $ 768,055 $ 657,999
Accrued expenses 7,926,954 6,769,695
Advance billings and payments 1,595,133 1,525,201
Deferred income taxes 353,285 353,285
Customer deposits   172,479     183,349  
Total current liabilities   10,815,906     9,489,529  
Deferred income taxes 42,512,576 42,512,576
Interest rate swaps 2,471,331 1,485,090
Advance billings and payments 656,968 636,276
Other liabilities 368,349 350,543
Long-term notes payable   271,595,855     271,159,708  
Total liabilities 328,420,985 325,633,722
 
Stockholders' Deficit

Class A Common Stock, $.01 par value-authorized 20,000,000 shares; issued and outstanding 13,221,404 shares

132,214 132,214
Additional paid in capital 921,718 -
Retained deficit   (6,298,019 )   (8,748,913 )
Total stockholders' deficit   (5,244,087 )   (8,616,699 )
Total liabilities and stockholders' deficit $ 323,176,898   $ 317,017,023  
 
OTELCO INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
    Three months ended

June 30,

    Six months ended

June 30,

2010     2011 2010     2011
Revenues $ 26,510,944 $ 25,501,062 $ 52,305,153 $ 50,893,060
 
Operating expenses
Cost of services and products 10,427,781 10,756,512 21,037,973 21,776,724
Selling, general and administrative expenses 3,236,515 2,909,960 6,467,512 6,237,017
Depreciation and amortization   5,835,311     4,507,979     11,919,602     10,231,997  
Total operating expenses   19,499,607     18,174,451     39,425,087     38,245,738  
 
Income from operations   7,011,337     7,326,611     12,880,066     12,647,322  
 
Other income (expense)
Interest expense (6,179,470 ) (6,199,172 ) (12,168,112 ) (12,369,303 )
Change in fair value of derivatives (176,279 ) 480,086 (1,062,449 ) 986,241
Other income   24,027     33,148     382,859     382,497  
Total other expenses   (6,331,722 )   (5,685,938 )   (12,847,702 )   (11,000,565 )
 
Income before income tax 679,615 1,640,673 32,364 1,646,757
Income tax expense   (262,339 )   (357,396 )   (744 )   (358,828 )
 
Net income available to common stockholders $ 417,276   $ 1,283,277   $ 31,620   $ 1,287,929  
 
Weighted average common shares outstanding:
Basic 12,812,901 13,221,404 12,747,540 13,221,404
Diluted 13,221,404 13,221,404 13,221,404 13,221,404
Basic net income per common share $ 0.03 $ 0.10 $ - $ 0.10
Diluted net income per common share $ 0.03 $ 0.10 $ - $ 0.10
 
Dividends declared per common share $ 0.18 $ 0.18 $ 0.35 $ 0.35
 
OTELCO INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
    Six months ended
June 30,
2010     2011
Cash flows from operating activities:
Net income $ 31,620 $ 1,287,929
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation 6,900,218 5,829,266
Amortization 5,019,383 4,402,731
Amortization of debt premium (44,820 ) (50,319 )
Amortization of loan costs 677,302 684,048
Change in fair value of derivatives 1,062,449 (986,241 )
Provision for uncollectible revenue 65,581 322,029
Changes in operating assets and liabilities; net of operating assets and liabilities acquired:
Accounts receivable (16,151 ) (778,135 )
Material and supplies (25,002 ) (88,264 )
Prepaid expenses and other assets 373,651 345,828
Income tax receivable 389,486 -
Accounts payable and accrued liabilities (358,957 ) (1,267,317 )
Advance billings and payments (58,444 ) (90,624 )
Other liabilities   (2,041 )   (6,935 )
 
Net cash from operating activities   14,014,275     9,603,996  
 
Cash flows used in investing activities:
Acquisition and construction of property and equipment (4,087,263 ) (6,350,827 )
Deferred charges   (1,041 )   -  
 
Net cash used in investing activities   (4,088,304 )   (6,350,827 )
 
Cash flows used in financing activities:
Cash dividends paid (4,564,546 ) (4,660,544 )
Direct cost of exchange of Class B shares for Class A common shares (194,053 ) -
Principal repayment of long-term debt - (385,828 )
Loan origination costs   (155,160 )   -  
 
Net cash used in financing activities   (4,913,759 )   (5,046,372 )
 
Net increase (decrease) in cash and cash equivalents 5,012,212 (1,793,203 )
Cash and cash equivalents, beginning of period   17,731,044     18,226,374  
 
Cash and cash equivalents, end of period $ 22,743,256   $ 16,433,171  
 
Supplemental disclosures of cash flow information:
Interest paid $ 11,535,629   $ 11,735,574  
 
Income taxes paid (received) $ (289,163 ) $ 158,003  




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