A week before shareholders will vote on its proposed merger with Paetec, US LEC reported a more than 9% increase in annual revenue and a 57% improvement in its net loss during 2006.

The competitive local exchange carrier reported more than $424 million in revenue for 2006 and a net loss of more than $16 million, or $1.10 per share.

Fourth-quarter revenue was up less than 4% sequentially and up 9% from a year earlier to more than $109 million. The company’s net loss for the quarter was less than $2 million, a fraction of the nearly $26 million net loss it reported a year earlier.

At the end of the year, US LEC had nearly 39,000 customers using more than half a million active voice channels and more than half a million data channels.

US LEC ended the year with 1035 employees--68 fewer than it had three months earlier and 108 fewer than it had six months earlier. “Our synergy expectations included this eventuality, and we made a decision not to backfill many positions as they opened,” said Lyle Patrick, US LEC’s chief financial officer.

Last summer, US LEC and Paetec announced their intention to merge into a nationwide CLEC worth about $1.3 billion. Through network consolidation, reduced spending and increased scale, the companies expect to generate $25 million in savings in their first year as a single entity and $40 million annually starting in 2008. The combined company, called New Paetec, would start with nearly $1 billion in annual revenue, $187 million in adjusted earnings before interest taxes depreciation and amortization and $109 million in free cash flow.

Shareholders of both US LEC and Paetec will vote on whether to approve the proposed merger of the two companies on Feb. 28.