Iowa Telecommunications Services, Inc. (NYSE: IWA) today
announced operating results for the first quarter ended March 31,
2010. Quarterly highlights for the Company include:
- Operating revenues were $67.4
million.
- Operating income was $14.8
million.
- Net income was $4.1 million or
$0.11 per diluted share.
- Adjusted EBITDA (as defined
herein) was $32.6 million.
“We’re pleased with our results for the quarter, which reflect
the stability of our business,” said Alan L. Wells, Iowa Telecom
Chairman and Chief Executive Officer. “Despite the challenging
economic environment, our revenues and Adjusted EBTIDA increased
sequentially over the fourth quarter of last year. We ended the
quarter with 249,100 total telephone access lines, as well as
155,300 long distance subscribers, 95,900 DSL subscribers, 27,500
video subscribers and 9,100 dial up subscribers.
“Our previously announced agreement for Windstream Corporation
to acquire our Company, in a transaction valued at approximately
$1.1 billion, is proceeding as planned,” added Wells. “Our
shareholders voted overwhelmingly to approve the merger agreement
on March 25, 2010, with 97.8% of the votes cast in favor of the
transaction. We continue to anticipate a closing in mid-year.”
FINANCIAL DISCUSSION FOR FIRST QUARTER 2010:
- Revenues and Sales were
$67.4 million in the first quarter, compared to $61.3 million in
the first quarter of 2009. The increase was primarily the result of
the acquisition of the assets of Sherburne Tele Systems, Inc. in
July 2009.
- Operating Costs and
Expenses increased $6.2 million to $52.6 million in the first
quarter of 2010, compared to $46.4 million in the first quarter of
2009. The 2010 period includes $5.0 million of expense (excluding
depreciation and amortization) related to the Sherburne acquisition
and $252,000 of transaction-related costs. The 2009 period included
$1.2 million of transaction costs. Depreciation and amortization
increased $2.3 million for 2010, as compared to the first quarter
of 2009.
- Operating Income was
$14.8 million, compared to $14.9 million in the first quarter of
2009.
- Interest Expense was $8.2
million, compared to $7.6 million in the first quarter of
2009.
- Earnings Before Income
Taxes was $7.1 million, compared to $8.0 million in the first
quarter of 2009.
- Income Tax Expense for
the first quarter was $3.0 million, compared to $3.5 million in the
first quarter of 2009. The recorded book tax expense did not impact
the cash taxes paid during the quarter. Cash income taxes reflect
the continued utilization of net operating loss carry forwards and
continued goodwill amortization for tax purposes. The Company paid
$151,000 in cash income taxes during the first quarter, primarily
related to alternative minimum tax and state income tax.
- Net Income was $4.1
million for the quarter, compared to net income of $4.5 million in
the first quarter of 2009.
- Adjusted Earnings Before
Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA as
defined herein) was $32.6 million for the first quarter of
2010, compared with $31.5 million in the same period in 2009.
- Total Access Lines
decreased by 3,900 during the first quarter of 2010, as compared to
the fourth quarter in 2009, as ILEC access lines decreased by 3,000
lines and CLEC lines decreased by 900 lines. DSL subscribers
increased by 700 while video subscribers increased by 400. Long
distance subscribers decreased by 3,200 and dial-up Internet
subscribers decreased by 1,100.
First Quarter 2010 Financial
Summary
(Unaudited)
(dollars in thousands, except
per share amounts)
1st
Quarter
1st
Quarter
Change
2010
2009
Amount
Percent
Revenue $ 67,406 $ 61,288 $ 6,118 10.0 % Operating Income $
14,827 $ 14,862 $ (35 ) -0.2 % Interest Expense $ 8,152 $ 7,596 $
556 7.3 % Earnings Before Income Taxes $ 7,119 $ 7,980 $ (861 )
-10.8 % Income Tax Expense $ 3,035 $ 3,471 $ (436 ) -12.6 % Net
Income $ 4,084 $ 4,509 $ (425 ) - 9.4 % Basic Earnings Per Share $
0.11 $ 0.14 $ (0.03 ) -21.4 % Diluted Earnings Per Share $ 0.11 $
0.14 $ (0.03 ) -21.4 %
Adjusted EBITDA (1)
$ 32,622 $ 31,451 $ 1,171 3.7 % Capital Expenditures $ 3,043 $
3,627 $ (584 ) -16.1 % Dividends Paid $ 13,341 $ 12,949 $ 392 3.0 %
(1) See the definition of Adjusted
EBITDA under Explanation and Reconciliation to Non-GAAP Concepts at
the end of the financial statements.
Key Operating
Statistics
1st
Quarter
1st
Quarter
Change
2010(4)
2009
Amount
Percent
Telephone Access Lines
ILEC Lines (1)
207,300 206,100 1,200 0.6 %
CLEC Lines (2)
41,800 32,400 9,400 29.0 % Total Telephone Access Lines 249,100
238,500 10,600 4.4 % Long Distance Subscribers 155,300
145,000 10,300 7.1 % Dial-up Internet Subscribers 9,100 15,100
(6,000 ) -39.7 % DSL Subscribers 95,900 78,200 17,700 22.6 %
Video Subscribers (3)
27,500 21,400 6,100 28.5 %
1st
Quarter
4th
Quarter
Change
2010(4)
2009(4)
Amount
Percent
Telephone Access Lines
ILEC Lines (1)
207,300 210,300 (3,000 ) -1.4 %
CLEC Lines (2)
41,800 42,700 (900 ) -2.1 % Total Telephone Access Lines 249,100
253,000 (3,900 ) -1.5 % Long Distance Subscribers 155,300
158,500 (3,200 ) -2.0 % Dial-up Internet Subscribers 9,100 10,200
(1,100 ) -10.8 % DSL Subscribers 95,900 95,200 700 0.7 %
Video Subscribers (3)
27,500 27,100 400 1.5 %
(1) Includes lines subscribed by
our incumbent local exchange carrier retail customers and lines
subscribed by our “wholesale” customers who are competing local
exchange carriers. Wholesale access lines include: lines subscribed
by our local exchange carrier competitors pursuant to
interconnection agreements on an unbundled network element basis,
for which the competitive local exchange carrier pays us a monthly
fee; lines that we provide to competitive local exchange carriers
for resale to their subscribers, for which the competitive local
exchange carrier pays us a monthly fee equal to what we would
charge our customers for local service less an agreed discount; and
shared lines, for which a competitive local exchange carrier pays
us a monthly fee to provide DSL service to its customers. We had
2,100 wholesale lines subscribed at March 31, 2009, 1,700 at March
31, 2010 and 1,800 at December 31, 2009.
(2) Access lines subscribed by
customers of our competitive local exchange carrier subsidiaries,
Iowa Telecom Communications, Inc., IT Communications, LLC, En-Tel
Communications, LLC, Lakedale Link, Inc. and Lakedale Link,
LLC.
(3) Includes subscribers served
via our facilities as well as subscribers of satellite services
which we resell.
(4) Includes units acquired from
Sherburne Tele Systems, Inc. as of July 1, 2009.
Windstream Merger Agreement
On November 23, 2009, we entered into a definitive Agreement and
Plan of Merger (the “Merger Agreement”) with Windstream Corporation
(“Windstream”) and Buffalo Merger Sub, Inc., a wholly-owned
subsidiary of Windstream (“Newco”). The Merger Agreement provides
that, upon the terms and subject to the conditions set forth in the
Merger Agreement, we will merge with and into Newco, with Newco
continuing as the surviving corporation (the “Merger”).
Pursuant to the Merger Agreement, at the effective time and as a
result of the Merger, each share of Iowa Telecom common stock
outstanding immediately prior to the effective time of the Merger
will be converted into and become exchangeable for (i) shares of
common stock of Windstream at a fixed exchange ratio of 0.804 and
(ii) $7.90 in cash.
The transaction is expected to close in the middle of 2010.
Completion of the Merger with Windstream is conditioned upon the
receipt of certain governmental consents and approvals, and our
shareholders’ approval. The shareholders of Iowa Telecom approved
the transaction at a special meeting on March 25, 2010. No
assurance can be given that the other required conditions to
closing will be satisfied or that the Merger will be completed.
The merger agreement is attached as Exhibit 2.1 to the Current
Report on Form 8-K that Iowa Telecom filed with the Securities and
Exchange Commission on November 24, 2009.
Iowa Telecom will not host an investor call with respect to the
financial results.
About Iowa Telecom
Iowa Telecommunications Services, Inc. (d/b/a Iowa Telecom) is a
telecommunications service provider that offers local telephone,
long distance, Internet, broadband and network access services to
business and residential customers. The Company and its
subsidiaries serve over 450 Iowa communities and 10 Minnesota
communities, and employ nearly 800 people. The company’s
headquarters are in Newton, Iowa. The Company trades on the New
York Stock Exchange under the symbol IWA. For further information
regarding Iowa Telecom, please go to www.iowatelecom.com and select
“Investor Relations.” The Iowa Telecom logo is a registered
trademark of Iowa Telecommunications Services, Inc. in the United
States.
Cautionary Statement Regarding Forward-Looking
Statements
This report contains forward-looking statements within the
meaning of the “safe harbor” provisions of the Private Securities
Litigation Reform Act of 1995. These statements are based on
management’s current expectations and beliefs and are subject to a
number of factors and uncertainties that could cause actual results
to differ materially from those described in the forward-looking
statements. The forward-looking statements contained in this report
include statements concerning the closing of the proposed
transaction. These statements are not guarantees of future
performance, involve certain risks, uncertainties and assumptions
that are difficult to predict, and are based upon assumptions as to
future events that may not prove accurate. Therefore, actual
outcomes and results may differ materially from what is expressed
herein. For example, if the Company fails obtain regulatory
approvals or to satisfy other conditions to closing, the
transaction may not be consummated. The following factors, among
others, could cause actual results to differ materially from those
described in the forward-looking statements: risks associated with
uncertainty as to whether the transaction with Windstream will be
completed, costs and potential litigation associated with the
transaction, the failure of either party to meet the closing
conditions set forth in the merger agreement, the extent and timing
of regulatory approvals, changes in the extensive governmental
legislation and regulations governing telecommunications providers
and the provision of telecommunications services, high costs of
regulatory compliance, the competitive impact of legislation and
regulatory changes in the telecommunications industry, and the
other risk factors discussed from time to time by the Company in
its reports filed with the SEC. The Company urges you to carefully
consider the risks that are described in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2009 and
in the Company’s other SEC filings. The Company is under no
obligation to (and expressly disclaims any such obligation to)
update or alter its forward-looking statements whether as a result
of new information, future events, or otherwise.
IOWA TELECOMMUNICATIONS
SERVICES, INC. AND SUBSIDIARIES
Balance Sheets
(Unaudited)
(dollars in thousands, except
per share amounts)
As of
As of
March 31, 2010
December 31, 2009
ASSETS
CURRENT ASSETS Cash and cash equivalents $ 11,368 $ 12,259
Accounts receivable, net 23,412 22,632 Inventories 5,224 5,105
Prepayments and other current assets 6,990
7,857 Total Current Assets 46,994
47,853 PROPERTY, PLANT AND EQUIPMENT Property, plant
and equipment 674,358 672,270 Accumulated depreciation
(380,155 ) (365,631 ) Property, Plant and Equipment, net
294,203 306,639 GOODWILL 492,956
492,956 INTANGIBLE ASSETS AND OTHER, NET 50,280 51,238 INVESTMENT
IN AND RECEIVABLE FROM
THE RURAL TELEPHONE FINANCE
COOPERATIVE
16,696 17,141 Total Assets $ 901,129
$ 915,827
LIABILITIES AND STOCKHOLDERS’
EQUITY
CURRENT LIABILITIES Revolving credit facility $ 35,000 $
37,000 Accounts payable 10,404 12,408 Advanced billings and
customer deposits 10,479 10,470 Accrued and other current
liabilities 28,415 33,195 Current maturities of long-term debt
2,470 3,276 Total Current Liabilities
86,768 96,349 LONG-TERM DEBT
565,513 565,214 DEFERRED TAX LIABILITIES 63,717 60,783 OTHER
LONG-TERM LIABILITIES 25,943 25,914
Total long-term liabilities 655,173 651,911
Total Liabilities 741,941
748,260 STOCKHOLDERS’ EQUITY
Common stock, $.01 par value,
100,000,000 shares authorized, 32,224,844 and 32,193,036 shares
issued and outstanding
322 322 Additional paid-in capital 333,614 332,722 Accumulated
deficit (162,757 ) (153,383 ) Accumulated other comprehensive loss
(11,991 ) (12,094 ) Total Stockholders’ Equity
159,188 167,567 Total
Liabilities and Stockholders’ Equity $ 901,129 $ 915,827
IOWA TELECOMMUNICATIONS
SERVICES, INC. AND SUBSIDIARIES
Income Statements
(Unaudited)
(in thousands, except per share
amounts)
Three Months Ended
March 31,
2010
2009
REVENUE AND SALES Local services $ 19,274 $ 18,085 Network
access services 21,868 21,854 Toll services 5,377 5,566 Data and
internet services 12,235 9,655 Other services and sales
8,652 6,128 Total revenues and sales 67,406
61,288 OPERATING COSTS AND EXPENSES
Cost of services and sales
(exclusive of items shown separately below)
23,634 20,234 Selling, general and administrative 12,683 12,202
Depreciation and amortization 16,262 13,990
Total operating costs and expenses 52,579 46,426
OPERATING INCOME 14,827 14,862 OTHER INCOME (EXPENSE)
Interest and dividend income 617 873 Interest expense (8,152 )
(7,596 ) Other, net (173 ) (159 ) Total other
expense, net (7,708 ) (6,882 ) EARNINGS BEFORE INCOME TAXES
7,119 7,980 INCOME TAX EXPENSE 3,035
3,471 NET INCOME 4,084 4,509 Noncontrolling interest
- 98 NET INCOME ATTRIBUTABLE TO
IOWA TELECOMMUNICATIONS $ 4,084 $ 4,607
COMPUTATION OF EARNINGS PER SHARE Basic - Earnings Per Share $ 0.11
$ 0.14
Basic - Weighted average number of
shares outstanding
32,200 31,594 Diluted - Earnings Per Share $ 0.11 $ 0.14
Diluted - Weighted average number
of shares outstanding
32,231 32,149
IOWA TELECOMMUNICATIONS
SERVICES, INC. AND SUBSIDIARIES
Statements of Cash
Flows
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2010
2009
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 4,084 $ 4,509
Adjustments to reconcile net
income to net cash provided by operating activities:
Depreciation 15,438 13,582 Amortization of intangible assets 824
408 Amortization of debt issuance costs 384 174 Deferred income
taxes 2,857 3,421
Non-cash stock-based compensation
expense
1,090 885 Changes in operating assets and liabilities: Receivables
(780 ) 1,902 Inventories (119 ) (454 ) Accounts payable (2,004 )
(2,447 ) Other assets and liabilities (5,820 ) (4,457
) Net cash provided by operating activities 15,954 17,523 CASH
FLOWS FROM INVESTING ACTIVITIES Capital expenditures (3,043 )
(3,627 ) Business acquisitions and settlements 2,244
(324 ) Net cash used in investing activities (799 )
(3,951 ) CASH FLOWS FROM FINANCING ACTIVITIES Net change in
revolving credit facility (2,000 ) (6,000 ) Proceeds from exercise
of stock options 9 589 Payment on long-term debt (507 ) (297
)
Capital contributions from
noncontrolling interests
- 195 Shares reacquired (207 ) - Dividends paid (13,341 )
(12,949 )
Net cash used in financing
activities
(16,046 ) (18,462 ) Net Change in Cash and Cash
Equivalents (891 ) (4,890 )
Cash and Cash Equivalents at
Beginning of Period
12,259 11,605
Cash and Cash Equivalents at End
of Period
$ 11,368 $ 6,715
IOWA TELECOMMUNICATIONS
SERVICES, INC. AND SUBSIDIARIES
EXPLANATIONS AND
RECONCILIATIONS TO NON-GAAP CONCEPTS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2010
2009
ADJUSTED EBITDA: Net income $ 4,084 $ 4,509 Income tax
expense 3,035 3,471 Interest expense 8,152 7,596 Depreciation and
amortization 16,262 13,990
Unrealized (gains) losses on
financial derivatives
192 173
Non-cash stock-based compensation
expense (1)
1,090 885 Extraordinary or unusual (gains) losses - -
Non-cash portion of RTFC Capital
Allocation (2)
(193 ) (337 ) Other non-cash losses (gains) - -
Loss (gain) on disposal of assets
not in ordinary course
- - Transaction costs - 1,164 ADJUSTED
EBITDA $ 32,622 $ 31,451
(1) Included in Selling, General
and Administrative Expense on the Consolidated Statements of
Operations.
(2) Included in Interest and
Dividend Income on the Consolidated Statements of Operations.
We present Adjusted EBITDA because we believe it is a useful
indicator of our historical debt capacity and our ability to
service debt and pay dividends. We also present Adjusted EBITDA
because covenants in our credit facilities contain ratios based on
Adjusted EBITDA. - END -
Adjusted EBITDA is defined in our credit facilities as: (1)
consolidated net income, as defined therein; plus (2) the following
items, to the extent deducted from consolidated net income: (a)
interest expense; (b) provision for income taxes; (c) depreciation
and amortization; (d) transaction expenses related to the IPO and
the related debt refinancing and other limited expenses related to
permitted securities offerings, investments and acquisitions
incurred after the closing date of the IPO, to the extent not
exceeding $5.0 million; (e) unrealized losses on financial
derivatives; (f) non-cash stock-based compensation expense; (g)
extraordinary or unusual losses (including extraordinary or unusual
losses on permitted sales of assets and casualty events); (h)
losses on sales of assets other than in the ordinary course of
business; and (i) all other non-cash charges that represent an
accrual for which no cash is expected to be paid in the next twelve
months; minus (3) the following items, to the extent any of them
increases consolidated net income: (w) extraordinary or unusual
gains (including extraordinary or unusual gains on permitted sales
of assets and casualty events); (x) gains on asset disposals not in
the ordinary course; (y) unrealized gains on financial derivatives;
and (z) all other non-cash income (including the non-cash portion
of any RTFC patronage capital allocation). If our Adjusted EBITDA
were to decline below certain levels, covenants in our credit
facilities that are based on Adjusted EBITDA, including our fixed
charge coverage and total leverage ratio covenants, may be violated
and could cause, among other things, a default or mandatory
prepayment under our credit facilities, or result in our inability
to pay dividends.
We believe that net income is the most directly comparable
financial measure to Adjusted EBITDA under GAAP. Adjusted EBITDA
should not be considered in isolation or as a substitute for
consolidated statement of operations and cash flows data prepared
in accordance with GAAP. Adjusted EBITDA is not a complete measure
of an entity’s profitability because it does not include costs and
expenses identified above; nor is Adjusted EBITDA a complete net
cash flow measure because it does not include reductions for cash
payments for an entity’s obligation to service its debt, fund its
working capital, capital expenditures and acquisitions and pay its
income taxes and dividends.
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