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Otelco Reports Fourth Quarter And Year 2011 Results

Stocks in this article: OTT

“We believe that our extensive broadband network is an important element of the network fabric of the future. We are enhancing speeds and options while remaining price competitive in our markets,” Weaver concluded. “We remain focused on delivering value for our customers and our shareholders. The Board declared and we paid our twenty-eighth consecutive IDS dividend last quarter.”

Distribution to Income Deposit Security Holders

Each quarter, the Board evaluates the Company’s dividend policy and the declaration of dividends during its normally scheduled meeting. For this quarter, the next scheduled Board meeting is on February 27, 2012. The scheduled interest and any dividend declared will be paid on March 30, 2012, to holders of record as of the close of business on March 15, 2012. The interest payment will cover the period from December 30, 2011 through March 29, 2012. Given its recent acquisition of Shoreham Telephone, the Company is currently performing an earnings and profits study to determine how 2012 dividends should be classified for shareowner tax purposes. It is anticipated that a portion of the dividends will be considered qualified dividends and the balance will be treated as a return of capital for tax purposes. The Company has made twenty-eight successive quarterly distributions of dividends and interest since its IDS units were originally offered to the public in December 2004.

Fourth Quarter 2011 Financial Summary
(Dollars in thousands, except per share amounts)
(Unaudited)
  Three Months Ended December 31,   Change  
  2010     2011     Amount   Percent  
Revenues $ 25,950   $ 25,648 $ (302 )   (1.2 ) %
Operating income $ 6,761 $ 5,859 $ (902 ) (13.3 ) %
Interest expense $ (6,258 ) $ (6,184 ) $ (74 ) (1.2 ) %
Net income available to stockholders $ 596 $ 24 $ (572 ) * %
Basic net income per share $ 0.04 $ 0.00 $ (0.04 ) *
Diluted net income per share $ 0.04 $ 0.00 $ (0.04 ) *
 
Adjusted EBITDA (a) $ 12,780 $ 10,909 $ (1,871 ) (14.6 ) %
Capital expenditures $ 3,782 $ 2,100 $ (1,682 ) (44.5 ) %
 
* Not a meaningful calculation
 
Year Ended December 31, Change  
  2010   2011   Amount   Percent  
Revenues $ 104,400 $ 101,844 $ (2,556 ) (2.4 ) %
Operating income $ 26,369 $ 24,630 $ (1,739 ) (6.6 ) %
Interest expense $ (24,747 ) $ (24,776 ) $ 29 0.1 %
Net income available to stockholders $ 691 $ 2,197 $ 1,506 * %
Basic net income per share $ 0.05 $ 0.17 $ 0.12 *
Diluted net income per share $ 0.05 $ 0.17 $ 0.12 *
 
Adjusted EBITDA (a) $ 50,672 $ 45,302 $ (5,370 ) (10.6 ) %
Capital expenditures $ 10,225 $ 10,548 $ 323 3.2 %
 
* Not a meaningful calculation
 
Reconciliation of Adjusted EBITDA to Net Income
Three Months Ended December 31, Year Ended December 31,
  2010     2011     2010     2011  
Net income $ 596 $ 24 $ 691 $ 2,197

Add:   Depreciation

3,673 3,140 13,838 11,891
Interest expense - net of premium 5,916 5,842 23,385 23,408
Interest expense - amortize loan cost 342 342 1,361 1,368
Income tax expense 473 214 610 250
Change in fair value of derivatives (543 )

 

(589 ) 879 (2,230 )
Loan fees 19 19 76 76
Amortization - intangibles   2,304     1,917     9,832     8,342  
Adjusted EBITDA $ 12,780   $ 10,909   $ 50,672   $ 45,302  

(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 or increasing 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 Inc. - Key Operating Statistics

           
(Unaudited) Quarterly Annual
As of           % Change % Change
December 31, September 30, December 31, from

2010

 

2011⁽²⁾

2011

 

2011⁽²⁾

September 30, 2011   2010-2011  
Otelco access line equivalents (1) 99,639 102,378 97,958 102,378 4.5 % 2.7 %
 
RLEC and other services:
Voice access lines 45,461 46,202 43,444 46,202 6.3 % 1.6 %
Data access lines   20,852   22,904 21,162 22,904 8.2 % 9.8 %
Access line equivalents (1) 66,313 69,106 64,606 69,106 7.0 % 4.2 %
Cable television customers 4,227 4,201 4,156 4,201 1.1 % (0.6 ) %
Satellite television customers 125 226 224 226 0.9 % 80.8 %
Additional internet customers 6,975 5,414 5,654 5,414 (4.2 ) % (22.4 ) %
RLEC dial-up 393 301 274 301 9.9 % (23.4 ) %
Other dial-up 4,300 2,797 3,085 2,797 (9.3 ) % (35.0 ) %
Other data lines 2,282 2,316 2,295 2,316 0.9 % 1.5 %
 
CLEC:
Voice access lines 29,944 30,189 30,145 30,189 0.1 % 0.8 %
Data access lines   3,382   3,083 3,207 3,083 (3.9 ) % (8.8 ) %
Access line equivalents (1) 33,326 33,272 33,352 33,272 (0.2 ) % (0.2 ) %
Wholesale network connections 149,043 157,144 155,691 157,144 0.9 % 5.4 %
 
 
For the Years Ended Annual Change
December 31, 2010-2011
  2010 2011⁽²⁾ Amount Percentage
Total Revenues (in millions): $ 104.4 $ 101.8 $ (2.6 ) (2.5 ) %
RLEC $ 58.1 $ 57.4 $ (0.7 ) (1.2 ) %
CLEC $ 46.3 $ 44.4 $ (1.9 ) (4.1 ) %

(1) We define access line equivalents as voice access lines and data access lines (including cable modems, digital subscriber lines, and dedicated data access trunks).

(2) We acquired Shoreham Telephone Company Inc. on October 14, 2011. At December 31, 2011, Shoreham had 3,309 voice access lines and 1,672 data access lines or 4,981 access line equivalents and 55 dial-up internet customers which are included in the Key Operating Statistics.

FINANCIAL DISCUSSION FOR FOURTH QUARTER 2011 (unaudited):

All financial information includes the acquisition of Shoreham Telephone Company Inc. (“Shoreham”) on and as of October 14, 2011 and for the period from October 14, 2011 through December 31, 2011.

Revenue

Total revenues decreased 1.2% in the three months ended December 31, 2011, to $25.6 million from $25.9 million in the three months ended December 31, 2010. CLEC revenue gains for local services and network access were offset by lower RLEC revenues.

`   Three Months Ended December 31,   Change
2010     2011   Amount     Percent  
(Dollars in Thousands)
Local services $ 12,066 $ 11,802 $ (264 ) (2.2 ) %
Network access 8,316 8,143 (173 ) (2.1 )
Cable television 717 751 34 4.7
Internet 3,456 3,591 135 3.9
Transport services   1,395   1,361   (34 ) (2.4 )
Total $ 25,950 $ 25,648 $ (302 ) (1.2 )

Local services revenue decreased 2.2% in the fourth quarter of 2011 to $11.8 million from $12.1 million in the quarter ended December 31, 2010. Shoreham added just under $0.2 million which was offset by lower RLEC basic services revenue of $0.3 million and lower CLEC revenue of $0.1. Network access revenue decreased 2.1% in the fourth quarter of 2011 to $8.1 million from $8.3 million in the quarter ended December 31, 2010. Shoreham added $0.3 million which was offset by lower access revenue related to RLEC subscriber usage and lower NECA settlements accounted of $0.5 million, including 2011 cost study estimates. Cable television revenue in the three months ended December 31, 2011, increased 4.7% to $0.8 million in fourth quarter 2011 compared to just over $0.7 million in the same period in 2010. Growth in digital family packages and IPTV of $0.1 million was partially offset by less than a $0.1 million decrease in basic cable services. Internet revenue for the fourth quarter 2011 increased 3.9% to $3.6 million from $3.5 million in the quarter ended December 31, 2010. Shoreham accounted for $0.2 million which was partially offset by the loss of dial-up subscribers. Transport services revenue decreased 2.4% to remain at $1.4 million in the three months ended December 31, 2011 and 2010. The reduction reflects small pricing changes for contract renewals.

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