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Otelco Reports Second Quarter 2012 Results

Change in Fair Value of Derivatives

The Company had two interest rate swap agreements intended to hedge changes in interest rates on its senior debt that expired during first quarter 2012. The liability for the swap increased $0.5 million in second quarter 2011, accounting for the difference.

Adjusted EBITDA

Adjusted EBITDA for the three months ended June 30, 2012, was $10.8 million compared to $11.9 million for the same period in 2011 and $11.5 million in the first quarter of 2012. See financial tables for a reconciliation of Adjusted EBITDA to net income (loss).

Balance Sheet

As of June 30, 2012, the Company had cash and cash equivalents of $23.0 million compared to $12.4 million at the end of 2011. The second quarter distribution of $3.2 million in interest to our shareowners, and $0.3 million in interest to our bond holders, occurred on July 2, 2012 as June 30, 2012 was a non-banking day.

Capital Expenditures

Capital expenditures were $1.2 million for the quarter, reflecting continued investment in infrastructure and cost saving projects.

Second Quarter Earnings Conference Call

Otelco has scheduled a conference call, which will be broadcast live over the internet, on Wednesday, August 8, 2012, at 10:00 a.m. ET. To participate in the call, participants should dial (719) 325-4833 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 Confirmation Code 6504766.

ABOUT OTELCO

Otelco Inc. provides wireline telecommunications services in Alabama, Maine, Massachusetts, Missouri, New Hampshire, Vermont 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 101,000 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 eleven 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, including as a result of the inherent unreliability of guidance. In addition to statements which explicitly describe such risks and uncertainties, such as guidance related to Adjusted EBITDA, 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
(unaudited)
 
December 31, June 30,
2011 2012
Assets
Current assets
Cash and cash equivalents $ 12,393,792 $ 22,982,962
Accounts receivable:

Due from subscribers, net of allowance for doubtful accounts of $260,568 and $230,872, respectively

4,355,632 4,085,651
Unbilled receivables 2,183,465 2,163,482
Other 5,449,074 5,450,758
Materials and supplies 1,780,820 1,939,586
Prepaid expenses 1,328,475 1,223,321
Deferred income taxes   726,310     816,933  
Total current assets   28,217,568     38,662,693  
 
Property and equipment, net 65,881,975 59,630,728
Goodwill 188,954,840 44,956,840
Intangible assets, net 20,545,691 10,328,865
Investments 1,943,805 1,931,049
Deferred financing costs 4,485,324 3,831,358
Deferred income taxes 7,454,443 7,575,073
Other assets   240,667     497,002  
Total assets $ 317,724,313   $ 167,413,608  
 
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable $ 1,490,717 $ 968,450
Accrued expenses 6,034,104 10,918,327
Advance billings and payments 1,590,689 1,599,186
Deferred income taxes 353,285 387,720
Customer deposits   143,657     137,342  
Total current liabilities   9,612,452     14,011,025  
Deferred income taxes 48,112,384 22,951,513
Interest rate swaps 241,438 -
Advance billings and payments 615,584 815,205
Other liabilities 403,823 476,380
Long-term notes payable   271,106,387     271,049,888  
Total liabilities   330,092,068     309,304,011  
 
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
Retained deficit   (12,499,969 )   (142,022,617 )
Total stockholders' deficit   (12,367,755 )   (141,890,403 )
Total liabilities and stockholders' deficit $ 317,724,313   $ 167,413,608  
 
       
OTELCO INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
Three Months Ended

June 30,

Six Months Ended

June 30,

2011 2012 2011 2012
Revenues $ 25,501,062 $ 24,713,773 $ 50,893,060 $ 50,088,014
 
Operating expenses
Cost of services 10,756,512 10,648,458 21,776,724 21,677,291
Selling, general and administrative expenses 2,909,960 3,623,941 6,237,017 6,830,018
Depreciation and amortization 4,507,979 5,882,402 10,231,997 10,404,995
Long-lived assets impairment - PP&E - 2,874,000 - 2,874,000
Long-lived assets impairment - intangibles - 5,748,000 - 5,748,000
Goodwill impairment   -     143,998,000     -     143,998,000  
Total operating expenses   18,174,451     172,774,801     38,245,738     191,532,304  
 
Income (loss) from operations   7,326,611     (148,061,028 )   12,647,322     (141,444,290 )
 
Other income (expense)
Interest expense (6,199,172 ) (5,654,655 ) (12,369,303 ) (11,488,305 )
Change in fair value of derivatives 480,086 - 986,241 241,438
Other income (expense)   33,148     (7,957 )   382,497     310,212  
Total other expenses   (5,685,938 )   (5,662,612 )   (11,000,565 )   (10,936,655 )
 
Income (loss) before income tax 1,640,673 (153,723,640 ) 1,646,757 (152,380,945 )
Income tax benefit (expense)   (357,396 )   25,713,027     (358,828 )   25,188,570  
 
Net income (loss) available to common stockholders $ 1,283,277   $ (128,010,613 ) $ 1,287,929   $ (127,192,375 )
 
Common shares outstanding 13,221,404 13,221,404 13,221,404 13,221,404
 
Net income (loss) per common share $ 0.10 $ (9.68 ) $ 0.10 $ (9.62 )
 
Dividends declared per common share $ 0.18 $ - $ 0.35 $ 0.18
 
   
OTELCO INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
June 30,
2011 2012
Cash flows from operating activities:
Net income (loss) $ 1,287,929 $ (127,192,375 )
Adjustments to reconcile net income (loss) to cash flows from operating activities:
Depreciation 5,829,266 5,475,268
Amortization 4,402,731 4,929,727
Long-lived assets impairment - PP&E - 2,874,000
Long-lived assets impairment - intangibles

-

5,748,000
Goodwill impairment - 143,998,000
Amortization of debt premium (50,319 ) (56,499 )
Amortization of loan costs 684,048 684,048
Change in fair value of derivatives (986,241 ) (241,438 )
Provision for deferred income tax benefit - (25,337,689 )
Provision for uncollectible revenue 322,029 201,950
Changes in operating assets and liabilities; net of operating assets and liabilities acquired:
Accounts receivables (778,135 ) 86,329
Material and supplies (88,264 ) (158,766 )
Prepaid expenses and other assets 345,828 (152,533 )
Accounts payable and accrued liabilities (1,267,317 ) 4,167,246
Advance billings and payments (90,624 ) 208,118
Other liabilities   (6,935 )   260,949  

Net cash from operating activities

  9,603,996     15,494,335  
 
Cash flows used in investing activities:
Acquisition and construction of property and equipment   (6,350,827 )   (2,544,811 )
 
Net cash used in investing activities   (6,350,827 )   (2,544,811 )
 
Cash flows used in financing activities:
Cash dividends paid (4,660,544 ) (2,330,272 )
Principal repayment of long-term debt (385,828 ) -
Loan origination costs   -     (30,082 )
 
Net cash used in financing activities   (5,046,372 )   (2,360,354 )
 
Net (decrease) increase in cash and cash equivalents (1,793,203 ) 10,589,170
Cash and cash equivalents, beginning of period   18,226,374     12,393,792  
 
Cash and cash equivalents, end of period $ 16,433,171   $ 22,982,962  
 
Supplemental disclosures of cash flow information:
Interest paid $ 11,735,574   $ 10,860,755  
 
Income taxes paid $ 158,003   $ 65,749  




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