0001144204-12-015267.txt : 20120315 0001144204-12-015267.hdr.sgml : 20120315 20120315160118 ACCESSION NUMBER: 0001144204-12-015267 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 20111231 FILED AS OF DATE: 20120315 DATE AS OF CHANGE: 20120315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WARWICK VALLEY TELEPHONE CO CENTRAL INDEX KEY: 0000104777 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 141160510 STATE OF INCORPORATION: NY FISCAL YEAR END: 1220 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-11174 FILM NUMBER: 12694008 BUSINESS ADDRESS: STREET 1: 47 49 MAIN ST CITY: WARWICK STATE: NY ZIP: 10990 BUSINESS PHONE: 9149861101 MAIL ADDRESS: STREET 1: 47 49 MAIN ST STREET 2: PO BOX 592 CITY: WARWICK STATE: NY ZIP: 10990 10-K 1 v305807_10k.htm FORM 10-K

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-K

 

RANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2011 

 

OR

 

£TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from__________ to __________ 

 

Commission File No. 0-11174

 

 

 

Warwick Valley Telephone Company

(Exact name of registrant as specified in its charter)

 

New York 14-1160510
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
   
47 Main Street  
Warwick, New York 10990
(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone, including area code: (845) 986-8080

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Name of each exchange on which registered
Common Stock, $.01 Par Value   The NASDAQ Global Market

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES £ NO R

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES £ NO R

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES R NO £

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES R NO £

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. £

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer £ Accelerated filer R
Non-accelerated filer £ (Do not check if a smaller reporting company) Smaller reporting company £

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES £ NO R

 

The aggregate market value of Warwick Valley Telephone Company common stock as of June 30, 2011 held by non-affiliates computed by reference to the price at which the common stock was last sold on June 30, 2011 was $78,040,085.

 

The number of shares of Warwick Valley Telephone Company common stock outstanding as of March 9, 2012 was 5,801,208

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Where indicated, the information required by Part III, Items 10, 11, 12, 13 and 14 of this report is incorporated by reference from the registrant’s definitive proxy statement relating to the Annual Meeting of Shareholders to be held on April 25, 2012, which definitive proxy statement will be filed with the Securities and Exchange Commission within 120 days after the year ended December 31, 2011.

 

 
 

 

Table of Contents

 

Item   Page
     
  Part I  
     
1. Business 3
     
1A. Risk Factors 9
     
1B. Unresolved Staff Comments 13
     
2. Properties 13
     
3. Legal Proceedings 13
     
4. Mine Safety Disclosures 13
     
  Part II  
     
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 13
     
6. Selected Financial Data 15
     
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16
     
7A. Quantitative and Qualitative Disclosures about Market Risk 25
     
8. Financial Statements and Supplementary Data 26
     
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 56
     
9A. Controls and Procedures

56

     
9B. Other Information 56
     
  Part III  
     
10. Directors, Executive Officers and Corporate Governance 57
     
11. Executive Compensation 58
     
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 58
     
13. Certain Relationships and Related Transactions, and Director Independence 58
     
14. Principal Accountant Fees and Services 58
     
  Part IV  
     
15. Exhibits, Financial Statement Schedules 58
     
  Signatures 61

 

2
 

 

Part I.

 

Item 1. BUSINESS.

GENERAL

 

Warwick Valley Telephone Company (the “Company,” “we,” “our” or “us”) was incorporated in New York on January 16, 1902 and is qualified to do business as a foreign corporation in various states. We also do business under the name WVT Communications Group. Our executive offices are located at 47 Main Street, Warwick, New York 10990 and our telephone number is 845-986-8080. We also have offices in Philadelphia, Pennsylvania and Syracuse, New York.

 

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, and any amendments thereto, are available free of charge on our website at www.wvtcg.com under the “Investors” tab as soon as reasonably practical after filing with the Securities and Exchange Commission. This website address is for information only and is not intended to be an active link or to incorporate any website information into this document. In addition, our reports filed with the Securities and Exchange Commission may be read at the public reference facility maintained by the SEC at its public reference room at 100 F. Street, N.E., Room 1580, Washington, DC 20549 and copies of all or any part thereof may be obtained from that office upon payment of the prescribed fees. You may call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room and you can request copies of the documents upon payment of a duplicating fee, by writing to the SEC. In addition, the SEC maintains a website that contains reports, proxy and information statements and other information regarding registrants, including us, that file electronically with the SEC that can be accessed at www.sec.gov.

 

Our subsidiaries consist of Hometown Online, Inc. (doing business as Warwick Online), Warwick Valley Long Distance Company, Inc. (“WVLD”), Warwick Valley Mobile Telephone Company, Inc., and Warwick Valley Networks, Inc. (“WVN”). On January 24, 2012, we filed certificates of amendment with the New York Department of State to change the name of WVN to Alteva Inc. (“Alteva”) and to change the name of Warwick Valley Mobile Telephone Company, Inc. to USA Datanet Inc. (“USA Datanet”).

 

We are a cloud-based communications company that provides Unified Communications (“UC”) solutions and enterprise hosted Voice over Internet Protocol (“VoIP”), and operates as a regional Incumbent Local Exchange Carrier (“ILEC”) in southern Orange County, New York and northern New Jersey. Our ILEC operations consist of providing our historic local and toll telephone service to residential and business customers, Internet high speed broadband service, landline and satellite video service. Our ILEC service areas are primarily rural and have an estimated population of 50,000. We also operate as a Competitive Local Exchange Carrier (“CLEC”) in areas that are adjacent to our ILEC territories and beyond, where we believe we can provide service profitably, effectively and efficiently.

 

On August 5, 2011, our wholly-owned subsidiary WVN, now Alteva, purchased substantially all of the assets and assumed certain liabilities of Alteva, LLC, a cloud-based UC solutions provider and the largest provider of enterprise hosted VoIP in North America. On April 24, 2009, we purchased certain assets from USA Datanet Corporation, a New York corporation, which significantly expanded our UC business to upstate New York and various other states. These acquisitions are a significant part of our future strategy as we continue to transform our operations from one primarily dependent upon ILEC and related revenues, to one more focused on developing and implementing a UC solutions strategy.

 

UC is the unification of an organization’s communications systems. By combining voice service with Microsoft Communications Services products, customers receive a voice-enabled UC solution that integrates with a customer’s existing business applications. Through our Alteva and USA Datanet subsidiaries, we deliver cloud-based UC solutions including enterprise hosted VoIP, hosted Microsoft Communication Services, fixed mobile convergence and advanced voice applications for the desktop. Alteva’s solutions are designed for the enterprise market (35 or more users), whereas USA Datanet services organizations with 35 or less users.

 

We are both an operating telephone company and the parent company for our wholly-owned subsidiaries. Our operating telephone company is subject to extensive utility regulations in both New York and New Jersey. These regulations require us, among other things, to seek prior approval from the New York State Public Service Commission (“NYPSC”) and New Jersey Board of Public Utilities (“NJBPU”) before we issue common stock and long-term debt. In addition, utility regulators in New York must approve our use of the proceeds from any of our stock or long-term debt issuances.

 

On December 16, 2011, we submitted the required regulatory petitions in both New York and New Jersey to reorganize our corporate structure. The goal of the reorganization is to enable us to function with the same flexibility for deploying capital as other diversified telecommunications companies. If approved as submitted, the reorganization petitions will permit a new subsidiary to conduct our telephone operations and we will operate solely as a holding company. This new subsidiary would have all of the operating assets needed to function as a telephone company. In addition, we would perform accounting, legal, human resource, and other administrative functions, which would be cross charged to our operating subsidiaries. As a holding company, we will be able to issue stock, issue long-term debt, and utilize the proceeds in any manner we see fit, all without the need for prior approval from state utility regulators. We anticipate that the reorganization will occur during the 2nd quarter of 2012.

 

The dollar amounts in this Form 10-K are presented in thousands, except for share and per share amounts.

 

3
 

 

BUSINESS OPERATIONS

 

We report our results in two operating segments: telephone and online. In addition, we report as income from equity method investments the results of our interest in the Orange County-Poughkeepsie Limited Partnership. We evaluate the performance our two operating segments based upon factors such as revenue growth, expense containment, market share and operating income. We do not believe our sales in any segment are seasonal.

 

Operating Segments

 

Telephone

 

The telephone segment provides telecommunications services including local network services, network access services, long distance services, directory services and other services and sales. The telephone segment generated revenues from external customers of $16,523, $17,141 and $17,026 in the years ended December 31, 2011, 2010 and 2009, respectively. This segment generated operating income (loss), exclusive of depreciation and amortization of ($4,605), ($2) and $1,753 in 2011, 2010 and 2009, respectively. The telephone segment assets decreased $13,894 to $35,630 in 2011 from $49,524 in 2010. This decrease is primarily associated with a decrease in cash of $9,047 and investments of $5,702. The telephone segment assets at December 31, 2009 were $48,929.

 

Local network services — Our local network services include traditional dial tone that is primarily used to make or to receive voice, fax or analog modem calls from a residence or business. Our local network services are regulated by the Federal Communication Commission (“FCC”), NYPSC and NJBPU. Included under local network services are custom calling services such as caller ID, call waiting, voice mail and other value-added services. These features allow users to display the number and/or name of callers, signal to the telephone user that additional calls are coming in, and send and receive voice messages. The sale of telephone and other equipment does not constitute a material part of our business.

 

Network access services — Our network access services connect a customer’s telephone or other equipment to the transmission facilities of other carriers that provide long distance and other communications services.

 

Long distance services — These services result from the transport of intraLATA telecommunications traffic (traffic within our Local Access and Transport Area) to a destination that is outside of a local calling area. We also provide wire line interLATA long distance (commonly known as traditional long distance service) to our customers.

 

Directory services — Our directory service group publishes and sells yellow and white page advertising in both print and online.

 

Wholesale carrier services — Our wholesale carrier services significantly expanded with the acquisition of certain assets from USA Datanet. These services provide origination and termination services to carriers as well as mid-sized and large business customers. Additionally, we offer wholesale UC services through our wholly-owned subsidiary Alteva.

 

Conference services — We began to offer voice conferencing services upon the acquisition of certain assets of USA Datanet. Our voice conferencing services consist of providing a conference by telephone in which three or more persons in different locations participate by means of a central switching unit.

 

Other services and sales — These services relate primarily to billing and collections provided to other carriers, inside wire revenue, circuit revenue, wireless services, and reciprocal compensation.

 

Within the telephone segment, we have a wholly-owned subsidiary, WVLD. WVLD resells toll telephone services to our subscribers and has operated since 1993. WVLD operates in an extremely competitive marketplace with other interexchange carriers.

 

As of June 30, 2012, we will no longer offer our landline video service as all our franchises will have expired and we are exiting this business.

 

We began operating as a CLEC in Middletown, New York in 1999, in Scotchtown, New York in 2001 and Vernon, New Jersey in 2002.

 

Online

 

The online segment provides UC services consisting of enterprise hosted VoIP services, broadband and dial-up Internet access services, and in partnership with DIRECTV, Inc., a global provider of digital television service (“DIRECTV”), our TV service. The Online segment generated revenues from external customers of $9,413, $7,285 and $6,896 and operating losses, exclusive of depreciation and amortization of ($1,718), ($606) and ($614) in 2011, 2010 and 2009, respectively. The online segment assets increased $18,735 to $22,286 in 2011 from $3,551 in 2010. This increase is primarily associated with the purchase of certain assets of Alteva, LLC. The online segment assets decreased $4,086 to $3,551 in 2010 from $7,637 in 2009. This decrease was primarily due to the impairment of our landline video assets.

 

4
 

 

Services and Products

 

Broadband Internet and dial-up Internet access services are provided using our network and by reselling other suppliers’ access services.

 

Enterprise hosted VoIP is provided by Alteva and USA Datanet, our unified communications businesses. Alteva’s solutions are designed for the enterprise market (35 or more users), whereas USA Datanet services organizations with 35 or less users. Both Alteva and USA Datanet compete with a variety of other types and sizes of service providers. As hosted VoIP providers, they compete with both premise-based VoIP providers, such as Avaya, Inc. and Cisco Systems, Inc., and with other cloud-based voice providers such as M5 Networks, Inc.

 

Our TV service enables us to bundle voice, TV and data, known as the “Triple Play”, to our customers. We have a reseller agreement with DIRECTV that allows us to provide the TV component of the Triple Play. This service competes with cable carriers and companies in the telephone space that have far greater resources. As a result, in our ILEC service areas, the success of our Triple Play has been limited by a competing package offered by Cablevision in New York and Service Electric in New Jersey.

 

Additional products offered by our Online segment include domain name registration and web-hosting.

 

Orange County-Poughkeepsie Limited Partnership

 

We currently own an 8.108% limited partnership interest in the Orange County-Poughkeepsie Limited Partnership (the “O-P”). Verizon Wireless of the East, L.P. (“Verizon”) is the general partner and currently has a 91.892% ownership interest in the O-P. The O-P provides cellular telephone service throughout the Orange County-Poughkeepsie Metropolitan Service Area.

 

On May 26, 2011, we entered into an agreement with Verizon, the general partner and a limited partner of the O-P, and Cellco Partnership, the other limited partner, in the O-P, to make certain changes to the O-P partnership agreement which, among other things, specifies that the O-P will provide 4G cellular services (the “4G Agreement”) and that the O-P will be converted from a wholesale business to a retail business. The conversion of the O-P from a wholesale business to a retail business increased the cellular service costs and sales and marketing expenses incurred by the O-P, which caused a subsequent reduction in the O-P’s net income. Regardless of the O-P’s net income, pursuant to the 4G agreement, we received an annual cash distribution of $13,600 in 2011 and will receive annual cash distributions of $13,000 in 2012 and 2013 from the O-P. These guaranteed payments must be first recorded as a return of capital and as such cannot be recorded on our income statement until all of our capital is returned and our O-P partnership capital account is at zero. Although our share of the O-P net income recorded in our income statement decreased as a result of the way we record the guaranteed payments, the annual cash distributions we receive from the O-P will remain unchanged pursuant to the terms of the 4G Agreement. The 4G Agreement also gives us the right (the “Put”) to require one of the O-P’s limited partners to purchase all of our ownership interest in the O-P during April 2013 or April 2014 for an amount equal to the greater of (a) $50,000 or (b) the product of five times 0.081081 times the O-P’s EBITDA, as defined in the 4G Agreement for the calendar year preceded by the Put.

 

We will continue to monitor the results of the O-P. Without the benefit of our guaranteed payments our O-P distributions would be considerably less. However, as the 4G and successor cellular technologies develop and customer usage increases, the O-P retail business model could improve. The Put Right grants us an ability to decide whether the improvement is significant enough for us to remain a limited partner of the O-P.

 

As of December 31, 2011, the book value of our investment in the O-P is as follows:

 

8.108% interest in the O-P Partnership's Capital  $0 
Goodwill   1,979 
Total  $1,979 

 

Our interest in the O-P represented 3% and 15% of our total assets as of December 31, 2011 and 2010, respectively, and the income from the O-P that we record as income from equity method investment represented 308%, 299% and 124% of our income before income taxes and extraordinary item for the years ended December 31, 2011, 2010 and 2009, respectively. For more information on our O-P interest, see Note 12 to the Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.

 

Major Customers

 

None of our customers accounted for more than 10% of our consolidated operating revenues in 2011, 2010 and 2009. We do not believe that the loss of a single customer or a few customers would have a material adverse effect on any of our segments.

 

We receive a significant portion of our revenues from the Universal Service Fund (“USF”). The USF accounted for 11%, 16% and 14% of our revenues for the years ended December 31, 2011, 2010 and 2009, respectively. For information regarding changes to USF funding, see the section entitled “Federal Universal Service Fund” below.

 

5
 

 

COMPETITION

 

Telephone

 

The Telecommunications Act of 1996 (the “1996 Act”) created a nationwide structure in which competition is allowed and encouraged between incumbent local exchange carriers, interexchange carriers, competitive access providers, cable TV companies and other entities. Our local network, network access and long distances services compete with large cellular telephone providers, cable companies and VoIP providers that offer alternative voice products. These competitors are much larger and have greater resources and regulatory flexibility than us. During the last several years we have experienced overall declines in telephone access lines as customers have migrated towards cellular and VoIP providers for telephone services in our regulated franchise area. We primarily compete on the basis of price, convenience, call quality and reliability for telephone services.

 

We provide wholesale carrier and conferencing services in our telephone segment through our USA Datanet subsidiary. Our wholesale carrier and conferencing services compete with XO Communications, LLC and Level 3 Communications, Inc. We primarily compete on the basis of price for wholesale carrier and conferencing services.

 

We also provide directory services in our telephone segment. Our directory services compete with other online providers of directory listings as well as in market competitors of print services, such as Yellow Book, Verizon, Frontier, and Century Link. We primarily compete on the basis of price, our local presence and our loyal customer base who use our directory listings.

 

Our ILEC service areas are surrounded by competitive telephone companies located within a 30-mile radius of Warwick, New York. For voice, video and data services, we compete with Cablevision in our New York serving area and Service Electric in our New Jersey serving area.

 

We currently compete for local service (access lines) with incumbent local exchange carriers in the Middletown, New York area, as well as the Vernon, New Jersey area. The local exchange carriers in these markets are larger and have greater resources than us.

 

Online

 

We offer enterprise hosted VoIP through our wholly-owned subsidiaries Alteva and USA Datanet. Both Alteva and USA Datanet compete with a variety of other types and sizes of service providers. As hosted VoIP providers, they compete with both premise-based VoIP providers, such as Avaya Inc. and Cisco Systems, Inc., and with other cloud-based voice providers such as M5 Networks Inc. These competitors tend to be larger and have greater resources than us. Alteva and USA Datanet compete primarily on the basis of service and price for enterprise hosted VoIP services.

 

Our broadband Internet and dial-up internet services primarily compete with Cablevision in New York and Service Electric in New Jersey. These cable companies are much larger and have greater resources and regulatory flexibility than us. The present market environment requires that our Online segment compete on the basis of service, speed and price. Whether customer and pricing levels can be maintained depends, in part, on the actions of existing competitors, the possible entry into the market of new competitors, the rate of technological change and the evolving level of demand for voice, video and high speed data services.

 

Our TV service competes against entrenched cable companies and satellite television companies. To stay competitive in the current market environment we must be able to offer a television service on par with our competitors at a competitive price. We offer DIRECTV, which enables us to offer our Triple Play bundle. In our ILEC service areas, we compete with Cablevision in New York and Service Electric in New Jersey. As a result, in our ILEC service areas, the success of our Triple Play offering has been limited by a competing package offered by Cablevision in New York and Service Electric in New Jersey.

 

REGULATION

 

The communications industry has been and remains the subject of significant legislative and regulatory oversight at both the federal and state level. The 1996 Act updated the Communications Act of 1934. The 1996 Act provided a structure for local competition, but required implementation and interpretation by the FCC, states and courts. Congress has also frequently proposed legislative amendments to the 1996 Act.

 

The 1996 Act opened local telecommunications markets to competition, preempting state and local laws to the extent that they prevented competitive entry into a market. The 1996 Act allows states to retain the authority to preserve universal service, protect public safety and welfare, ensure quality of service, protect consumers and mediate and arbitrate disputes involving interconnection agreements between carriers. The 1996 Act generally requires local carriers to interconnect with other carriers, unbundle their services at wholesale rates, permit resale of their services, enable distribution of equipment, provide Local Number Portability (“LNP”) and dialing parity, provide access to poles, ducts, conduits and rights-of-way, and complete calls originating by competing carriers under termination agreements. As a result of the 1996 Act’s requirement to interconnect with other carriers, we entered into interconnection agreements with other carriers.

 

6
 

 

We serve as an ILEC and as a video and broadband service provider through our Hometown Online, Inc. subsidiary. As such, we are subject to both state and federal regulation. We pursue regulatory and legislative policies that will further diminish regulatory burdens imposed on us. However, as an ILEC, we remain subject to more regulation than our competitors. The following summary of the regulatory environment in which our business operates does not describe all present and proposed federal and state regulations affecting the communications industry. These laws and regulations are subject to change and any change may have an adverse effect on us in the future.

 

Federal Regulation

 

Interstate toll and access service revenues are subject to the jurisdiction of the FCC. In addition to the compensation we receive from providing services to our end use customers we receive reimbursement from carriers in the form of charges for providing carriers with access to and from our local network.

 

As an ILEC providing carriers access to and from our local network, we are subject to regulation that is generally more extensive than the regulation of our competitors for these services. This regulation covers our rates and service terms, and also affects the terms on which we must provide connections and network elements to competitors.

 

In contrast, wireless service providers are not regulated from a retail pricing standpoint, but are subject to various licensing and technical requirements imposed by the FCC, including provisions related to the acquisition, assignment or transfer of radio licenses, and mandates, such as enhanced 911, or E-911, and wireless LNP. Long distance and wireless service providers, which compete against us and are also our wholesale customers, are less regulated, but subject to significant, rate regulations or tariffing obligations.

 

Cable operators offering local and long distance voice services face less regulation of these services than we face as an ILEC. A small but growing category of VoIP providers offers services that compete with our wire line offerings and also face a lighter regulatory burden. The FCC has preempted states from exercising entry and related economic regulation of such VoIP providers, but the FCC has not preempted state regulation of fixed VoIP service commonly offered by cable operators.

 

We are a provider of VoIP services and also compete against VoIP providers. The advent of VoIP services being provided by cable television and other companies has heightened the need for federal and state regulators to determine whether VoIP is subject to the same regulatory and financial constraints as wire line telephone service. On November 9, 2004, the FCC issued an order in response to a petition from Vonage declaring that Vonage-style VoIP services were exempt from state telecommunications regulations. The FCC order applies to all VoIP offerings provided over broadband services. However, this order did not clarify: whether or under what terms VoIP traffic may be subject to intercarrier compensation requirements; whether VoIP was subject to state tax or commercial business regulations; or whether VoIP providers had to comply with obligations related to 911 emergency calls, the USF and the Communications Assistance for Law Enforcement Act (“CALEA”). The FCC addressed these issues through its “IP-Enabled Services Proceedings,” which opened in February 2004.

 

On June 3, 2005, the FCC issued an order establishing rules requiring VoIP service providers to incorporate 911 emergency call capabilities for their customers as a standard feature of their services, rather than an optional enhancement. On September 23, 2005, the FCC required interconnected VoIP and broadband internet access service providers to comply with CALEA by mid-2007. In 2006, the FCC began the assessment of USF charges on VoIP providers. On October 31, 2007, Congress enacted the Internet Tax Freedom Act Amendments Act, which established that state and local authorities could tax VoIP services.

 

Other issues regarding VoIP, such as whether VoIP that interconnects with switched networks qualifies as an “information service” or a “telecommunications service,” continue to be the subject of pending FCC proceedings. These issues continue to generate interest within the industry because they can affect ILEC charges for terminating VoIP calls and provide for competitive parity among services and service providers. We cannot be certain whether or when the FCC will further clarify or modify rules governing treatment of VoIP services, or how any rule changes may ultimately affect us.

 

Our online segment offers services as an Internet Service Provider (“ISP”). Federal government authorities, including the FCC and the U.S. Congress, have considered proposals to regulate ISPs and network operators regarding the management of their networks and the use of information about their subscribers. The FCC has also decided several cases addressing these issues, relying on its existing authority, such as the general non-discrimination principles applicable to common carriers and extended through ancillary jurisdiction to all telecommunications, including broadband information services. Although rules have not been adopted, we cannot predict whether regulations or legislation affecting Internet services will be adopted that may increase costs, reduce potential revenues, or create regulatory disadvantages. In addition, we must operate in accordance with any decisions the FCC has made or may make in the future regarding our network management obligations.

 

Under federal law, the FCC may exempt a video franchise from rate regulation based on a finding of effective competition in the franchise area. Online has obtained this exemption for all its video franchises except for a portion of Goshen, New York.

 

State Regulation

 

Our New York telephone service operations are subject to the jurisdiction of the NYPSC. Our New Jersey telephone service operations are subject to the jurisdiction of the NJBPU. These two bodies have authority over our local exchange operations with respect to rates, facilities, services, reports, issuance of securities and other matters such as corporate restructuring. As a result, our ability to respond quickly to changing market conditions or to implement a new business organization can be limited by the necessity of obtaining regulatory approvals or reviews or responding to interrogatories that can slow down or even prevent the desired transaction. As an ILEC, we generally face carrier of last resort, or COLR, obligations that include an ongoing requirement to provide service to all prospective and current customers in our service territories who request service and are willing to pay rates prescribed in our tariffs. In competitively-bid situations, such as newly-constructed housing developments or multi-tenant dwellings, this may constitute a competitive disadvantage to us if competitors can choose to exclusively tie service to homeowner’s association fees or choose not to provide service to customers who are poor credit risks or customers they believe would not be economically viable to serve.

 

7
 

 

Intrastate billing and collection services remain partially regulated in New York. The regulated services are provided under tariff. Some carriers provide their own billing and collection services and do not use our services.

 

We, along with other carriers, have been granted pricing flexibility under a March 4, 2008 NYPSC ruling for various intrastate retail telecommunications services. We have taken advantage of this flexibility to raise our rates for these services. We have the option to apply for further increases.

 

Our New Jersey telephone operations were granted pricing flexibility in 2010 for certain intrastate retail services for three years. We subsequently raised our prices in July 2010 in New Jersey.

 

Online’s franchised video business operates in New York pursuant to franchises authorized by New York municipalities, which are governed and approved by the NYPSC, and in New Jersey pursuant to municipal consents provided by New Jersey municipalities and franchises awarded by the NJBPU. The NYPSC, the NJBPU and the FCC have various regulations applicable to the operation of the franchised video business, including requirements related to facilities, services, reports, issuance of securities and other matters such as corporate restructuring.

 

Federal Universal Service Fund

 

Federal universal service programs provide funding for services provided in high-cost areas, reduced-rate services to low-income consumers, and discounted communications and Internet access services for schools, libraries and rural health care facilities. These programs are funded by contributions from telecommunications carriers and VoIP providers who are interconnected to the network. These contributions are based on an FCC-prescribed percentage and are recovered from customers through surcharges. In September 2005, the FCC deregulated ILECs’ high-speed Internet access service and in the process eliminated the universal service assessments on end users of such services. However, universal service assessments on the wholesale provision of such services remain in place. In June 2006, the FCC required certain VoIP providers to contribute to the USF.

 

On November 28, 2011, the FCC released a comprehensive order regarding reform of the Universal Service Fund and Intercarrier Compensation (“ICC”). The order specified that the USF would be renamed the Connect America Fund (“CAF”). Funds from CAF will be allocated with a greater emphasis on stimulating broadband build out in the United States. Additionally, the order mandated a decline in overall revenues deemed interstate. Currently these revenues are received from end users, interexchange carriers and the USF. The total of these revenues will decline 5% a year and the USF or CAF support must decline accordingly. This change will commence on July 1, 2012 and continue annually for the next 10 years.

 

Finally, the order contains a provision that implements a “ceiling” on the amount of corporate overhead expenses that can be recovered by an ILEC through CAF. Historically, the USF fund has allowed ILECs to recover their reasonable costs without restriction. In 2012, a ceiling was established based on corporate overhead cost per access line. Accordingly, we anticipate a significant reduction in funds that we are eligible to receive from the USF.

 

Pursuant to FCC requirements mentioned above, we contribute to the USF. Our obligation to this fund was $601, $398, and $501 in 2011, 2010, and 2009, respectively. The Universal Service Administration Company ("USAC") establishes a contribution rate for eligible revenues which in turn determines the amount of the annual obligation to the fund. Future contribution levels will therefore depend on revenues and USAC mandated contribution rates.

 

We have been designated as an Eligible Telecommunications Carrier (“ETC”) in New York and New Jersey, which has enabled us to receive substantial USF monies from USAC since January 1, 1998. As a result of FCC orders, all local exchange carriers have been required to reduce interstate access charges billed to toll carriers. To offset this revenue reduction, monthly payments from the high cost portion of the USF are provided to carriers with ETC status and other requirements set forth in the orders. We meet these requirements. As a further assurance of stability of cost recovery, we elected to participate in the Tariff/Pool administrated by National Exchange Carrier Association, Inc. (“NECA”) effective July 1, 2006.

 

USF/CAF revenue pool settlements (“regulatory revenue”) has accounted for revenue of $2,812, $3,902 and $3,352 in 2011, 2010, and 2009, respectively. This is included in operating revenue in our consolidated statements of operations.

 

Intercarrier Compensation

 

Intercarrier compensation includes regulated interstate and intrastate switched access charges, and reciprocal compensation received by ILECs, CLECs and wireless service providers. This compensation is received from long distance carriers to pay for the origination and termination of long distance calls, and from interconnected local carriers to pay for terminating local and wireless calls. On average, intrastate switched access charges, which are currently regulated by the state Public Utility Commissions, are generally higher than interstate switched access charges, which are regulated by the FCC. As a result, interstate switched access charges are generally higher on a per-minute basis than are reciprocal compensation rates. In February 2010, the NJBPU ordered the intrastate switched access rates for New Jersey to be transitioned to the lower interstate rates over a two year period of time. Also in 2010, the NYPSC commenced an inquiry of intrastate switched access rates in a New York docket. This docket includes an investigation into the establishment of a state universal service fund. The New York Public Service Commission has not yet issued an order for this docket.

 

8
 

 

As mentioned above, on November 28, 2011, the FCC released a comprehensive order concerning Intercarrier Compensation. The order reflected the FCC’s desire that telephone companies eventually eliminate intercarrier compensation altogether. To implement this, the FCC has mandated that companies lower their access rates at the intrastate level to the interstate rate level by 2013. In addition, a rate of return carrier, such as us, must reduce its rates for some access elements to zero within nine years. While this will be offset to some extent by additional end user charges (known as ARC or Access Recovery Charge), the overall effect will be a decline in revenue. In addition, the order clarified that VoIP traffic must pay access charges. However, on July 1, 2012, VoIP providers will begin paying interstate rates for all toll traffic.

 

IMPACT OF INFLATION

 

Inflation is a factor in our economy and we seek ways to mitigate its impact. To the extent permitted by competition or regulation, we attempt to pass increased costs on to our customers by increasing sales prices over time.

 

EMPLOYEES

 

As of February 27, 2012, we had 131 full-time and 12 part-time employees, including 53 non-management employees, 43 of which are represented by Local 503 of the International Brotherhood of Electrical Workers. The existing contract with our union employees expires on April 30, 2013.

 

Item 1A. RISK FACTORS.

 

RISK FACTORS

 

We have a history of operating losses and there is no assurance we will generate profits in the future.

 

We have a history of operating losses. We have sustained operating losses of $11,589, $8,671 and $4,329 for the years ended December 31, 2011, 2010 and 2009, respectively. We cannot predict if we will generate profitable operations in the future. If we cannot generate profits in the future, our failure to do so could adversely affect the market price of our common stock, which in turn could adversely affect our ability to raise additional equity capital or to incur additional debt. We have a proud history of paying dividends on our common stock since 1907. We anticipate that we will continue to pay cash dividends in the future. However, the amount and timing of future dividend payments is subject to applicable law and will be made at the discretion of our Board of Directors based on factors such as our cash flow and cash requirements, necessary capital expenditures, financial condition and other factors.

 

We provide services to customers over access lines. If access lines continue to decline, our operating results may be adversely affected.

 

Our business generates revenues by delivering voice, video and data services over access lines. We continue to experience access line losses due to competition from wireless and broadband service providers. For example, access lines declined 8% in 2011, 12% in 2010 and 10% in 2009. We may continue to experience access line losses in our primary markets. Our inability to retain access lines could adversely affect our business and results of operations.

 

Reductions in USF funding and intercarrier compensation may negatively impact our financial results. Additional regulatory changes may have a material adverse effect on our operations as well.

 

We operate in a heavily regulated industry. A significant portion of our revenues generally have been supported by regulations that provide for local and network access revenues and USF funds. Changes in the funding and/or payout rules for the USF will further reduce our revenues obtained from the USF.

 

On November 28, 2011, the FCC released a comprehensive order regarding reform of the Universal Service Fund and Intercarrier Compensation (“ICC”). The order specified that the USF would be renamed the Connect America Fund (“CAF”). Funds from CAF will be allocated with a greater emphasis on stimulating broadband build out in the United States. Additionally, the order mandated a decline in overall revenues deemed interstate. Currently these revenues are received from end users, interexchange carriers and the USF. The total of these revenues will decline 5% a year and the USF or CAF support must decline accordingly. This change will commence on July 1, 2012 and continue annually for the next 10 years.

 

Finally, the order contains a provision that implements a “ceiling” on the amount of corporate overhead expenses that can be recovered by an ILEC through CAF. Historically, the USF fund has allowed ILECs to recover their reasonable costs without restriction. In 2012, a ceiling was established based on corporate overhead cost per access line. Accordingly, we anticipate a significant reduction in funds that we are eligible to receive from the USF. This reduction in USF revenue is expected to significantly impact our revenues and financial results over the next several years.

 

9
 

 

On November 28, 2011, the FCC released a comprehensive order concerning Intercarrier Compensation. The order reflected the FCC’s desire for telephone companies to eventually eliminate intercarrier compensation altogether. To implement this, the FCC has mandated that companies lower their access rates at the intrastate level to the interstate rate level by 2013. In addition, a rate of return carrier, such as us, must reduce its rates for some access elements to zero within nine years. While this will be offset to some extent by additional end user charges (known as ARC or Access Recovery Charge), the overall effect will be a decline in revenue.

 

Additional regulatory changes could adversely impact the rates we are permitted to charge our customers, reduce payments to us from the USF or restrict our ability to effectively compete in the market place. Regulatory changes could also restrict our ability to secure new sources of capital and/or grow through strategic acquisitions or alliances. In addition, the failure of regulations to change in a manner that would establish an environment in which we may compete on more even terms with our actual economic competitors could also adversely affect our profitability.

 

Our acquisitions may not result in the revenue growth and profitability that we expect. In addition, we may not be able to successfully integrate our acquisitions.

 

In 2011, we acquired substantially all of the assets and assumed certain liabilities of Alteva, LLC. We are in the process of integrating this acquisition into our business and assimilating its operations, services, products and personnel with our management policies, procedures and strategies. We can provide no assurances that we will achieve the revenue growth and profitability that we expect from this acquisition or that we will not incur unforeseen additional costs or expenses in connection with the integration of this acquisition. To effectively manage our expected growth, we must continue to successfully manage our integration of this business and continue to improve our operational and information technology systems, internal procedures, accounts receivable and management, financial and operational controls to accommodate this acquisition. If we fail in any of these areas, our business could be adversely affected.

 

The integration of recent, and future, acquisitions could place an increased burden on our management team, which could adversely impact our ability to effectively manage these businesses. Integrating a new business can be expensive and time consuming and could disrupt our ongoing business and negatively affect cash flow.

 

Any impairment of goodwill or other intangible assets could negatively impact our results of operations.

 

Our goodwill and other intangible assets are subject to an impairment test on an annual basis and are also tested whenever events and circumstances indicate that goodwill and/or intangible assets may be impaired. Any excess goodwill and/or indefinite-lived intangible assets value resulting from the impairment test must be written off in the period of determination. Intangible assets (other than goodwill and indefinite-lived intangible assets) are generally amortized over the useful life of such assets. In addition, from time to time, we may acquire or make an investment in a business that will require us to record goodwill based on the purchase price and the value of the acquired tangible and intangible assets. During the past fiscal year, we significantly increased our goodwill as a result of our acquisition of substantially all of the assets and assumed certain liabilities of Alteva, LLC. We may subsequently experience unforeseen issues with the businesses we acquire, which may adversely affect the anticipated returns of the business or value of the intangible assets and trigger an evaluation of the recoverability of the recorded goodwill and intangible assets for such business. Future determinations of significant write-offs of goodwill or intangible assets as a result of an impairment test or any accelerated amortization of other intangible assets could have a material negative impact on our results of operations and financial condition. We have completed our annual impairment analysis for goodwill and indefinite-lived intangible assets, in accordance with the applicable accounting guidance, and have concluded that we do not have any impairment of goodwill or other intangible assets for the year ended December 31, 2011.

 

A significant portion of our income is derived from our O-P Limited Partnership.

 

We rely significantly on income derived from our O-P partnership interest. We receive quarterly cash distributions from O-P, which comprises a substantial percentage of our cash flow. On May 26, 2011, the Company entered into an agreement with Verizon Wireless of the East LP, the general partner and a limited partner, and Cellco Partnership, the other limited partner, in the O-P to make certain changes to the O-P partnership agreement which, among other things, specifies that the O-P will provide 4G cellular services (the “4G Agreement”). The 4G Agreement provides that the O-P’s business will be converted from a wholesale business to a retail business. The 4G Agreement provides for guaranteed annual cash distributions to the Company from the O-P through 2013. For 2012 and 2013, the annual cash distribution will be $13,000. Beyond 2013, O-P distributions will be made at the discretion of the O-P general partner. The failure of the general partner to make a cash distribution to the limited partners or decreases in distributions in any quarter would have a significant negative impact on our business.

 

We are subject to competition that may adversely impact us.

 

As an ILEC, we historically faced little competition in our markets. As a direct result of deregulation, we now face direct competition in our traditional ILEC territories by CLEC operations and other providers of telecommunications services that offer comparable voice, video and data products. The primary competitor in our market has brand recognition and financial, personnel, marketing and other resources that are significantly greater than ours. In addition, consolidations and strategic alliances within the telecommunications industry, as well as ongoing technological innovation, are likely to affect our competitive position. With increased substitution of wireless for landline services, wireless carriers are now competing aggressively for our voice customers. The UC market is also becoming increasingly competitive as tier one and smaller providers grow more sophisticated in their UC product offerings. We cannot predict the number of competitors that will ultimately emerge, but increased competition from existing and new entities could have an adverse effect on our business.

 

10
 

 

We rely on Internet Protocol (“IP”) licenses to offer our Unified Communication services.

 

Our Voice over Internet Protocol (“VoIP”) customers, are primarily based on Broadsoft voice and Microsoft data platform infrastructures. We rely on licenses with Broadsoft and Microsoft to provide our Unified Communication services to customers. If we were unable to continue licensing technology from Broadsoft or Microsoft we would need to transfer our Unified Communication services to a new technology platform. This could disrupt our service, require us to incur significant transition costs and could have a material adverse effect on our financial results.

 

Any inability to protect our proprietary information and trade secrets could allow our competitors and others to produce competing products based on our proprietary information.

 

Our success depends more on the knowledge, ability, experience and technological expertise of our employees than on the legal protection of patents and other proprietary rights. We claim proprietary rights in various unpatented technologies, know-how, trade secrets and trademarks relating to the services we offer. We cannot guarantee the degree of protection these various claims may or will afford, or that competitors will not independently develop or patent technologies that are substantially equivalent or superior to our technology. We protect our proprietary rights in our products and operations through contractual obligations, including nondisclosure agreements with certain employees, customers, consultants and strategic partners. There can be no assurance as to the degree of protection these contractual measures may or will afford.

 

If we cannot continue to license or enforce the intellectual property rights on which our business depends, or if third parties assert that we violate their intellectual property rights, then our business, financial condition and results of operations could be materially adversely affected.

 

We rely upon patent, copyright, trademark and trade secret laws in the United States, and similar laws in other countries, and non-disclosure, confidentiality and other types of agreements with our employees, customers, suppliers and other parties, to establish, maintain and enforce our intellectual property rights. Despite these measures, any of our direct or indirect intellectual property rights could be challenged, invalidated, circumvented, infringed or misappropriated, or such intellectual property rights may not be sufficient to permit us to take advantage of current market trends or otherwise to provide competitive advantages, which could result in costly software redesign efforts, discontinuance of certain product offerings or other competitive harm. Further, the laws of certain countries do not protect proprietary rights to the same extent as the laws of the United States. Therefore, in certain jurisdictions, we may be unable to protect our proprietary technology adequately against unauthorized third party copying, infringement or use, which could adversely affect our competitive position. Also, because of the rapid pace of technological change in the telecommunications industry, much of our Online business and many of our Online products rely on key technologies developed or licensed by third parties, and we may not be able to obtain or continue to obtain licenses and technologies from these third parties at all or on reasonable terms.

 

In addition, third parties may claim that we are infringing upon their intellectual property rights. Such claims may be made by competitors seeking to block or limit our access to telecommunications markets. Additionally, in recent years, individuals and groups have begun purchasing intellectual property assets for the sole purpose of making claims of infringement and attempting to extract settlements from companies. Even if we believe that the claims are without merit, the claims can be time consuming and costly to defend and distract management’s attention and resources. For instance, on November 1, 2011, Alteva, LLC was sued by Klausner Technologies, Inc. for patent infringement. Although we were not a party to this matter, we purchased from Alteva, LLC the technology that Klausner Technologies, Inc. claimed was infringing its patent. Although we believe this claim to be without merit, we are seeking to settle this matter.

 

Claims of intellectual property infringement also might require us to redesign affected products, enter into costly settlement or license agreements or pay costly damage awards, or face a temporary or permanent injunction prohibiting us from marketing or selling certain of our products. Even if we have an agreement to indemnify us against such costs, the indemnifying party may be unable to uphold its contractual obligations. If we cannot or do not license the infringed technology at all, license the technology on reasonable terms or substitute similar technology from another source, our revenue and earnings could be adversely impacted. Finally, we use open source software in connection with our products and services. Companies that incorporate open source software into their products have, from time to time, faced claims challenging the ownership of open source software and/or compliance with open source license terms. As a result, we could be subject to suits by parties claiming ownership of what we believe to be open source software or noncompliance with open source licensing terms. Some open source software licenses require users who distribute open source software as part of their software to publicly disclose all or part of the source code to such software and/or make available any derivative works of the open source code on unfavorable terms or at no cost. Any requirement to disclose our source code or pay damages for breach of contract could be harmful to our business results of operations and financial condition.

 

We may not be able to successfully integrate new technologies, respond effectively to customer requirements or provide new services.

 

The communications industry is subject to rapid and significant changes in technology, the development of new types of content, frequent new service offerings and a changing regulatory and economic environment. We cannot predict the changes in our competitive position or profitability. Technological developments may reduce the competitiveness of our networks and require significant expenditures of capital to upgrade and/or replace outdated technologies. In addition, new products and services arising out of technological developments in the industry may reduce the attractiveness of our products and services. If we fail to adapt successfully to technological changes or obsolescence, or fail to obtain access to important new technologies or content, we could lose existing customers and fail to attract new customers. For this reason, we have entered into the UC business. However, even the UC business can be affected by technological change. Our UC business currently depends on the use of desktop telephones and related systems. The rise of social media and soft phones in the future could potentially reduce the use of desktop telephones, which could have an adverse affect on our UC business. A key element of our long-term growth strategy is our ability to deliver new and enhanced products and services to our customers. The successful delivery of new products and services is uncertain and dependent on many factors. There is no guarantee that delivery of these services will generate the anticipated increase in customers and revenues.

 

11
 

 

There is a history of disputes regarding intercarrier billing, which may materially impact our results of operations.

 

We are periodically involved in disputes related to our billings to other carriers for access to our network. In the event that a claim is made related to revenues previously recognized, we assess the validity of the claim and adjust the amount of revenue being recognized to the extent that the claim adjustment is considered probable and estimable. We are, in the ordinary course of business, billed certain charges from other carriers that we believe are either erroneous or relate to prior periods. We carefully review our vendor invoices and dispute inaccurate or inappropriate charges. In cases where we dispute certain charges, we frequently pay only undisputed amounts on vendor invoices. The amount of disputed charges may remain outstanding for some time pending resolution or compromise. We periodically review the outstanding disputes and reassess the likelihood of success in the event of the resolution of these disputes. However, it is possible that the actual settlement of any disputes may be material. In view of the length of time historically required to resolve these disputes, they may be resolved or require adjustment in future periods and relate to billings and or costs invoiced, which were either accrued or paid in prior periods.

 

Risks associated with our unfunded pension and postretirement plan liabilities.

 

As of December 31, 2011, our unfunded pension liability was $7,291 and our unfunded postretirement plan was $2,975. While we believe our current cash position coupled with expected cash management and monitoring of our funds will allow us to adequately fund our pension and our postretirement plans, if the stock market declines significantly or interest rates fluctuate or become volatile, it will be more difficult for us to adequately fund the plans. Weak economic conditions caused a decline in plan assets, which increased pension plan expense and required contributions during 2011, 2010 and 2009. With the subsequent decrease in pension plan assets during 2011 and lower interest rates, our anticipated contribution to the pension plan is expected to increase during 2012. If market conditions result in a decrease in plan assets during 2012, required pension plan contributions may increase in 2013.

 

We need to retain a highly skilled, technologically savvy workforce to compete in Unified Communications.

 

As a result of our acquisition of substantially all of the assets and assumption of certain liabilities of Alteva, LLC, we have entered the Unified Communications business. To succeed as a Unified Communication provider we must retain a highly skilled workforce. Our ability to retain and compete in the Unified Communications industry will require us to attract highly skilled technical personnel. We can provide no assurances that we can recruit this type of personnel. An inability to hire sufficient numbers of people or to find people with the desired skills could result in greater demands being placed on limited management resources, which could have a material adverse effect on our business, financial condition and results of operation.

 

Our relationships with other communications companies are material to our operations.

 

We originate and terminate calls for long distance carriers and other interexchange carriers over our network and for that service we receive payments for access charges. These payments represent a significant portion of our revenues. Should these carriers go bankrupt or experience substantial financial difficulties, our inability to collect access charges from them could have a significant negative impact on our business and results of operations.

 

We depend heavily on our senior management team and the loss of the services of one or more of our key executives could harm our business.

 

Our success depends, in large part, on the skills, experience and efforts of our senior management team. The loss of the services of one or more members of our senior management team, particularly our chief executive officer or chief operating officer, could significantly harm our business. To this end, we are reviewing our relevant insurance policies and will be seeking key man insurance for Messrs. Albro and Cuthbert. We are currently unsure whether any such policies will be cost prohibitive. In addition, we could be adversely affected if we fail to adequately plan for the succession of members of our senior management team. The loss of any member of our senior management team could have a material adverse effect on our business, financial condition and results of operations.

 

Our business and reputation may be affected by our ability to keep clients’ information confidential.

 

Our business involves the use of private and confidential customer information, including customer credit card information. This information is critical to us receiving timely payment for our services from customers and may be transmitted to us via the Internet. While we have systems and processes in place to protect this information, there is no guarantee that our systems and processes are adequate to protect against all security breaches. If our systems are disrupted, fail for any reason, or are infiltrated by unauthorized persons, our customers could experience data or financial loss. Such events may expose us to unexpected liability, litigation, regulation, investigation and penalties, loss of customers’ business and unfavorable impact to our business reputation, all of which could result in a material adverse effect on our business and results of operations.

 

12
 

 

Weak economic conditions may impact demand for our services.

 

We could realize a change in demand for services due to the ongoing weak economic conditions. Downturns in the economy and continued competition in our markets may cause some of our existing customers to disconnect or scale back basic and enhanced services, broadband Internet or video service, and it may become more difficult for us to acquire new customers. Furthermore, the current weak economic condition may prolong our payment collections interval and in some cases increase our need to discontinue service for nonpayment.

  

Item 1B. UNRESOLVED STAFF COMMENTS.

 

This item is not applicable.

 

Item 2. PROPERTIES.

 

We own an approximately 22,000 square-foot building in Warwick, New York, which houses our general offices, data processing equipment and the central office switch for the Warwick exchange. In addition, we own several smaller buildings that serve as office space, workshops, storage space or garages, or that house switching equipment at our other exchanges. We also own a building in Middletown, New York in order to support our CLEC operations in our Middletown exchange. We lease space located in Warwick and Syracuse, New York, Philadelphia, Pennsylvania and Vernon, New Jersey. The operating business segments share space in our various properties.

 

Item 3. LEGAL PROCEEDINGS.

 

None.

 

Item 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

 

Part II.

 

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Our common stock trades on the NASDAQ Global Market under the symbol WWVY. As of March 15, 2012, there were 613 common shareholders of record.

 

We have paid quarterly cash dividends on our common stock since April 1931 and paid cash dividends semi-annually from July 1907 until December 1930. Quarterly cash dividends are usually declared in February, May, August and November and are paid on March 31, June 30, September 30 and December 27. The declaration and payment of dividends on our common stock are subject to the discretion of our board of directors and compliance with applicable laws. Our decision to pay dividends in the future will depend on general business conditions, the effect of such payments on our financial condition and other factors our board of directors may consider to be relevant. Dividend payments are discussed further in Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Cash dividends paid per common share December 31 (in cents):

 

Quarter  2011   2010 
First (March 31)  $0.26   $0.24 
Second (June 30)   0.26    0.24 
Third (September 30)   0.26    0.24 
Fourth (December 27)   0.26    0.24 
Total  $1.04   $0.96 

 

13
 

 

The high and low bid prices for our common stock as reported by NASDAQ for the first, second, third and fourth quarters of 2011 and 2010 were as follows:

 

   Quarter Ended 
   March 31,   June 30,   September 30,   December 31, 
   2011   2011   2011   2011 
High  $15.49   $15.21   $14.78   $13.90 
Low  $13.80   $14.30   $12.24   $11.61 

 

   Quarter Ended 
   March 31,   June 30,   September 30,   December 31, 
   2010   2010   2010   2010 
High  $14.88   $15.55   $16.04   $15.00 
Low  $12.19   $13.27   $13.76   $13.72 

 

Sales of unregistered securities

 

On September 8, 2008, the New York State Public Service Commission approved our 2008 Long Term Incentive Plan (“LTIP”) that was approved by our shareholders on April 25, 2008. Between September 8, 2008 and September 8, 2010, we granted shares of restricted stock and stock options to members of our management team, other employees and to our non-employee directors.

 

Date  Number of   Number of   Number of 
   Restricted Shares   Stock Options   Individuals 
             
9/8/2008   19,000    90,500    4 
3/20/2009   9,921    45,985    4 
4/27/2009   1,879    7,517    1 
6/1/2009   500    3,000    1 
11/25/2009   3,500    7,000    7 
12/3/2009   250    -    1 
12/28/2009   500    1,000    1 
1/1/2010   12,949    -    6 
1/8/2010   4,000    -    80 
2/23/2010   12,397    43,768    10 
2/23/2010   558    -    8 
4/23/2010   3,000    -    6 
5/3/2010   2,000    -    1 
6/25/2010   100    -    1 

 

These shares of restricted stock and stock options were issued without registration under the Securities Act of 1933 as amended (the "Securities Act”) in reliance on the exemption from registration pursuant to Section 4(2) of the Securities Act. These shares of restricted stock are subject to the resale prohibition under the Securities Act and may not be sold or transferred without registration except in accordance with Rule 144 of the Securities Act. On September 8, 2010, we filed a Form S-8 Registration Statement registering the resale of these restricted stock and stock option awards.

 

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Item 6. SELECTED FINANCIAL DATA

   For the Year Ended December 31, 
   2011   2010   2009   2008   2007 
   ($ in thousands except per share amounts) 
Selected financial data:                         
Total operating revenues  $25,936   $24,426   $23,922   $22,990   $24,042 
Total operating expenses   37,525    33,097    28,251    24,226    25,140 
Income (loss) from continuing operations   (2,921)   2,852    6,815    6,068    5,493 
Extraordinary item   -    -    -    (73)   - 
Net income (loss) attributable to common shareholders   (2,946)   2,827    6,790    5,970    5,468 
Total assets   57,916    53,075    56,566    55,267    56,651 
Long-term debt, net of current maturities   -    1,139    2,658    4,176    5,695 
                          
Common Share data:                         
Basic earnings (loss) per common share from continuing operations                         
Income (loss) before extraordinary item  $(0.54)  $0.53   $1.27   $1.13   $1.02 
Extraordinary item   -    -    -    (0.01)   - 
Basic earnings per share  $(0.54)  $0.53   $1.27   $1.12   $1.02 
Diluted earnings (loss) per common share from continuing operations                         
Income (loss) before extraordinary item  $(0.54)  $0.52   $1.26   $1.13   $1.02 
Extraordinary item   -    -    -    (0.01)   - 
Basic earnings per share  $(0.54)  $0.52   $1.26   $1.12   $1.02 
Cash dividends per common share  $1.04   $0.96   $0.88   $0.80   $0.80 

 

15
 

 

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS

 

Certain statements contained in this Form 10-K, including, without limitation, statements containing the words “believes,” “anticipates,” “intends,” “expects” and words of similar import, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions, both nationally and in the geographic regions in which we operate; industry capacity; our ability to successfully integrate Alteva; goodwill impairment; resolution of a billing dispute with a carrier; demographic changes; technological changes and changes in consumer demand; existing governmental regulations and changes in or our failure to comply with, governmental regulations; legislative proposals relating to the businesses in which we operate; changes to the USF; risks associated with our unfunded pension liability; competition; the loss of any significant ability to attract and retain highly skilled personnel and any other factors that are described in “Risk Factors.” Given these uncertainties, current and prospective investors should be cautioned regarding reliance on such forward-looking statements. Except as required by law, we disclaim any obligation to update any such factors or to publicly announce the results of any revision to any of the forward-looking statements contained herein to reflect future events or developments.

 

OVERVIEW

 

Revenues increased 6% to $25,936 for the twelve months ended December 31, 2011, in comparison to $24,426 for the twelve months ended December 31, 2010, which includes $3,111 of additional revenue from our acquisition of substantially all of the assets and assumed certain of Alteva, LLC on August 5, 2011. Operating expense increased 13% to $37,525 for the twelve months ended December 31, 2011, in comparison to $33,097 for the twelve months ended December 31, 2010. The increase in operating expense was primarily attributable to the acquisition related expenses we incurred to purchase substantially all of the assets and assumed certain liabilities of Alteva, LLC, and includes the additional operating expenses of Alteva, LLC during that period. During the twelve-month period ended December 31, 2011, we had a net loss of $2,921, compared to net income of $2,852 for the twelve-month period ended December 31, 2010. This decrease of $5,773 in income was primarily attributable to the increase in operating expenses from the Alteva acquisition and lower Orange County-Poughkeepsie Limited Partnership (“O-P”) earnings as a result of the transition of the O-P from a wholesale business to a retail business pursuant to the 4G Agreement.

 

On May 26, 2011, we entered into an agreement with Verizon, the general partner and a limited partner of the O-P, and Cellco Partnership, the other limited partner in the O-P to make certain changes to the O-P partnership agreement which, among other things, specifies that the O-P will provide 4G cellular services (the “4G Agreement”) and that the O-P will be converted from a wholesale business to a retail business. The conversion of the O-P from a wholesale business to a retail business increased the cellular service costs and sales and marketing expenses incurred by the O-P, which caused a subsequent reduction in the O-P’s net income. Regardless of the O-P’s net income, pursuant to the 4G Agreement, we received an annual cash distribution of $13,600 in 2011 and we expect annual cash distributions of $13,000 in 2012 and 2013 from the O-P. Under equity method accounting, we currently report as income our proportionate share of the O-P income, which is less than the guaranteed cash distributions that we receive from the O-P. The cash distributions we receive from the O-P that are in excess of our proportionate share of the O-P income are recorded as a reduction of our investment account. As a result of receiving the fixed cash distributions from the O-P in excess of our proportionate share of the O-P income, our investment account is expected to be reduced to zero within the first six months of 2012. Thereafter, once the investment account has been reduced to zero, we will record the fixed cash distributions that we receive from the O-P directly to our statement of operations as other income. Although our share of the O-P net income recorded in our statement of operations decreased, the annual cash distributions we receive from the O-P will remain unchanged pursuant to the terms of the 4G Agreement. The 4G Agreement also gives us the right (the “Put”) to require one of the O-P’s limited partners to purchase all of our ownership interest in the O-P during April 2013 or April 2014 for an amount equal to the greater of (a) $50,000 or (b) the product of five times 0.081081 times the O-P’s EBITDA, as defined in the 4G Agreement for the calendar year preceded by the Put.

 

We will continue to monitor the results of the O-P. Without the benefit of our guaranteed payments our O-P distributions would be considerably less. However, as the 4G and successor cellular technologies develop and customer usage increases, the O-P retail business model could improve. The Put Right grants us an ability to decide whether the improvement is significant enough for us to remain a limited partner of the O-P.

 

On August 5, 2011, we, through our wholly-owned subsidiary Warwick Valley Networks, Inc., now Alteva Inc., purchased substantially all of the assets and assumed certain of the liabilities of Alteva, LLC, a cloud-based Unified Communications solutions provider and enterprise hosted Voice over Internet Protocol (“VoIP”) provider in exchange for cash and stock with an estimated combined value of approximately $17.8 million. In exchange for the assets purchased from Alteva, LLC, we paid $10,250 in cash to Alteva, LLC at closing and issued 272,479 shares of our puttable common stock to the members of Alteva, LLC as of October 21, 2011, upon receiving necessary regulatory approvals. In connection with such issuance, the members of Alteva, LLC entered into a Lock-Up and Put Agreement with us effective October 21, 2011. Under the Lock-Up and Put Agreement, each member of Alteva, LLC may transfer to any of the permitted transferees up to 50% of their shares between October 21, 2012 and December 14, 2012. The members of Alteva, LLC may sell their remaining shares without restriction beginning on December 15, 2012. In addition, the Lock-Up and Put Agreement gives each member of Alteva, LLC the option to sell their shares to us within a certain prescribed time period at a predetermined price (the “Alteva Put”). The Alteva, LLC members may exercise their Alteva Put with respect to half of their shares within a 60-day period commencing on October 21, 2012 and the other half within a 60-day period commencing on December 15, 2012. The purchase price of the Alteva Put will be the greater of (i) the closing price of our common stock on the date of exercise of the Alteva Put or (ii) $11.74. The Lock-Up and Put Agreement also includes a purchase price protection for the Alteva, LLC selling shareholders. The purchase price protection provides that if the price of our common stock for the 30 trading days immediately prior to October 21, 2012 or December 15, 2012 (but excluding the three trading days prior to and after the record date for any cash dividend declared by us) (the “Release Date Price”) is less than $11.74, then we will issue to the Alteva, LLC members the aggregate number of shares of our common stock equal to the difference between $1,600 and the market value of 50% of the aggregate shares on October 21, 2012 or December 15, 2012, or 100% of the aggregate shares if the Release Date Price is less than $11.74 on both dates.

 

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We financed $5,000 of the purchase price by drawing down our entire $5,000 revolving loan facility with CoBank, ACB.

 

In addition, up to a total of $2,000 in cash is payable to Alteva, LLC, on August 5, 2012 and 2013 (or prior to January 1, 2013 depending on certain tax law changes), if certain performance-based conditions are satisfied. There was also a post-closing working capital adjustment that increased the purchase price by $648 of which $478 was paid by December 31, 2011 and the balance was paid in February 2012. We also withheld $750 from the purchase price as security for a potential working capital adjustment, the payment of certain liabilities and for possible indemnification claims. On August 5, 2012, we will pay to Alteva, LLC the sum of $750, less any amounts offset against such amount pursuant to the terms of our agreement with Alteva, LLC.

 

As of December 31, 2011, we had a working capital deficit of $3,485 which was primarily due to short-term financing of $5,600 we incurred in connection with the Alteva transaction and amounts due in conjunction with the business acquisition of $2,377 that we may be required to make to Alteva, LLC. We believe this working capital deficiency is short-term in nature and we expect to satisfy these short-term obligations by using cash distributions received from the O-P and, if necessary, cash from refinancing our short-term debt. We believe that our guaranteed payments from the O-P in 2012 and 2013 will allow us to refinance our debt on favorable terms.

 

We are a cloud-based communications company that provides Unified Communications (“UC”) solutions, enterprise hosted Voice over Internet Protocol (“VoIP”) and operates as a regional Incumbent Local Exchange Carrier (“ILEC”) in southern Orange County, New York and northern New Jersey. Our ILEC operations consist of providing our historic local and toll telephone service to residential and business customers, Internet high speed broadband service, video service and DIRECTV. Through our Alteva and USA Datanet subsidiaries, we deliver cloud-based UC solutions including enterprise hosted VoIP, hosted Microsoft Communication Services, fixed mobile convergence and advanced voice applications for the desktop. UC is the unification of an organization’s communications systems. By combining voice service with Microsoft Communications Services products, our customers receive a voice-enabled UC solution that integrates with existing business applications. Alteva’s solutions are designed for the enterprise market of 35 or more users, whereas USA Datanet services organizations with 35 or less users.

 

Consistent with the past several years, we have continued to experience overall declines in telephone access lines due to sustained competition and cellular substitution for landline telephone services in our regulated franchise area. In transforming the ILEC, we will continue to focus our efforts on identifying and pursuing growth opportunities to increase our ILEC broadband Internet business.

 

In 2010, we determined that we would withdraw from our landline video business. Regulatory restrictions require our subsidiary, Hometown Online Inc., to continue service into 2012 at which time we plan to wind down our land line video business. We conducted a fair value estimation of the head end equipment and customer premise equipment given only two more years of service. The fair value was estimated to be zero for these assets. Accordingly, we recorded an impairment of our video assets of $2,283, which was equal to the entire carrying value of these assets at December 31, 2010.

 

Through our Alteva and USA Datanet subsidiaries, we are focused on gaining deeper UC market penetration within our targeted markets in the Northeast geographic corridor.

 

While operating expenses grew faster than revenue during 2011, we did not incur debt to finance our business operations. Cash distributions from the O-P enabled us to increase our common stock dividend by 8%, service our debt and fund our capital cash expenditures (excluding our business acquisition).

 

Reorganization of Operations – We have a reorganization petition pending in New York and another pending in New Jersey that would allow us to operate as a holding company, and a new wholly-owned subsidiary would conduct our regulated telephone operation. As a result of the proposed reorganization, we anticipate being able to function with the same flexibility for deploying capital as other diversified telecommunications companies.

 

We are currently both an operating telephone company and the parent company for our wholly-owned subsidiaries. Our operating telephone company is subject to extensive utility regulations in both New York and New Jersey. These regulations require us, among other things, to seek prior approval before we issue common stock and long-term debt. In addition, utility regulators in New York must approve the use of the proceeds from any of our stock or long-term debt issuances. We also own the minority interest in the Orange-Poughkeepsie Partnership.

 

The proposed reorganization would allow us to function strictly as a holding company. As a holding company, we will be able to issue stock and long-term debt, and utilize the proceeds in any manner we see fit, all without the need for prior approval from state utility regulators. In addition, we would perform accounting, legal, human resource, and other administrative functions, which would be cross charged to our operating subsidiaries.

 

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A new wholly-owned subsidiary will be created to conduct our telephone operations. This new subsidiary would have all of the operating assets needed to function as a telephone company and, as a result, it would be the only entity within the purview of New York and New Jersey utility regulation. We anticipate that the reorganization will occur during the second quarter of 2012.

 

CRITICAL ACCOUNTING POLICIES

 

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. Certain of these accounting policies require management to make estimates and assumptions about future events that could materially affect the reported amounts of assets, liabilities, revenues and expenses and any disclosure of contingent assets and liabilities. Significant estimates include, but are not limited to, depreciation expense, allowance for doubtful accounts, long-lived assets, pension and postretirement expenses and income taxes. Actual results could differ from those estimates.

 

The consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in the consolidated financial statements.

 

Our interest in the O-P is accounted for under the equity method of accounting.

 

We recognize revenue when (i) persuasive evidence of an arrangement between us and the customer exists, (ii) the delivery of the product to the customer has occurred or service has been provided to the customer, (iii) the price to the customer is fixed or determinable, and (iv) collectability of the sales or service price is assured. Telephone and network access revenues are primarily derived from usage of our network and facilities. Telephone and network access revenues are recognized as the corresponding services are rendered to customers. Long distance revenue is recognized monthly as services are provided. Directory advertising revenue is recorded ratably over the life of the directory. Revenues from online services, which include broadband Internet, video, UC and VoIP are recorded when the services are rendered. Other service and sales revenue is recognized when services are provided or the sales transactions are completed. It is our policy to classify sales taxes collected from our customers as a reduction of revenue.

 

We record deferred taxes that arise from temporary differences between the financial statements and the tax basis of assets and liabilities. Deferred taxes are classified as current or non-current, depending on the classification of the assets and liabilities to which they relate. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws on the date of enactment. Our deferred taxes result principally from differences in the timing of depreciation, and in the accounting for pensions and other postretirement benefits. We have recorded a valuation allowance against our deferred tax assets which are not expected to be realized.

 

We review business conditions to determine the recoverability of the carrying value of our long-lived assets and goodwill, including equity investments and intangible assets, on a periodic basis in order to identify business conditions that may indicate a possible impairment. The assessment for potential impairment is based primarily on our ability to recover the carrying value of our long-lived assets from expected future undiscounted cash flows. If total expected future undiscounted cash flows are less than the carrying value of the assets, a loss is recognized for the difference between the fair value (computed based upon the expected market value or future discounted cash flows) and the carrying value of the assets. We periodically perform evaluations of the recoverability of the carrying value of our long-lived assets using gross undiscounted cash flow projections. The cash flow projections include long-term forecasts of revenue growth, gross margins and capital expenditures. All of these items require significant judgment and assumptions. We believe our estimates are reasonable, based on information available at the time they were made. However, if the estimates of future cash flows had been different, we may have concluded that some of its long-lived assets were not recoverable, which would likely have caused us to record a material impairment charge. Also, if future cash flows are significantly lower than projections, we may determine at some future date that some of our long-lived assets are not recoverable. For the year ended December 31, 2010, we determined that our landline video assets consisting of head-end equipment, related network equipment and customer premise equipment were impaired. We recorded impairment in 2010 of $2,283 that represents 100% of the net carrying value of our landline video assets. This impairment loss resulted from customers who migrated to DIRECTV or a competitor, resulting in lost landline video revenue.

 

We record property, plant and equipment at cost. Construction costs, labor and applicable overhead related to installations and interest during construction are capitalized. Costs of maintenance and repairs of property, plant and equipment are charged to operating expense. The estimated useful life of support equipment (vehicles, computers, etc.) ranges from 3 to 19 years. The estimated useful life of Internet equipment ranges from 2 to 5 years. The estimated useful life of communication and network equipment ranges from 10 to 15 years. The estimated useful life of buildings and other equipment ranges from 14 to 50 years. Depreciation expense is computed using the straight line method.

 

We issued common stock with redemption features that are not solely within our control and is classified outside of permanent equity (often referred to as classification in “temporary equity”). We also included a price protection under a Lock-Up and Put Agreement concurrent with issuing the common stock. We may be obligated to issue additional shares based upon the market value of such shares issued. The price protection creates an obligation we may be required to settle with a variable number of shares, the amount of which varies inversely to changes in fair value of our stock. We have determined that the carrying value of the derivative liabilities approximates fair value based on the intrinsic value method and binomial models.

 

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In connection with the issuance of 272,479 shares of our common stock to the members of Alteva, LLC, the members of Alteva, LLC entered into a Lock-Up and Put Agreement with us effective October 21, 2011. Under the Lock-Up and Put Agreement, each member of Alteva, LLC may transfer to any of the permitted transferees up to 50% of their shares between October 21, 2012 and December 14, 2012. The members of Alteva, LLC may sell their remaining shares without restriction beginning on December 15, 2012. In addition, the Lock-Up and Put Agreement gives each member of Alteva, LLC the option to sell their shares to us within a certain prescribed time period at a predetermined price (the “Alteva Put”). The Alteva, LLC members may exercise their Alteva Put with respect to half of their shares within a 60-day period commencing on October 21, 2012 and the other half within a 60-day period commencing on December 15, 2012. The purchase price of the Alteva Put will be the greater of (i) the closing price of our common stock on the date of exercise of the Alteva Put or (ii) $11.74. The Lock-Up and Put Agreement also includes a purchase price protection for the Alteva, LLC selling shareholders. The purchase price protection provides that if the price of our common stock for the 30 trading days immediately prior to October 21, 2012 or December 15, 2012 (but excluding the three trading days prior to and after the record date for any cash dividend declared by us) (the “Release Date Price”) is less than $11.74, then we will issue to the Alteva, LLC members the aggregate number of shares our common stock equal to the difference between $1,600 and the market value of 50% of the aggregate shares on October 21, 2012 or December 15, 2012, or 100% of the aggregate shares if the Release Date Price is less than $11.74 on both dates. The Alteva Put and purchase price protection provisions are considered derivative instruments. We measure these derivatives at fair value and recognize the price protection derivative value as a current liability and recorded the Alteva Put option derivative value with the puttable common stock on our consolidated balance sheet. The derivatives are valued primarily using models based on readily observable market parameters for all substantial terms of these derivatives and thus are classified as Level 3. Changes in the fair values of the derivatives are recognized in earnings in the current period.

 

New Accounting Pronouncements

 

In May 2011, an accounting standards update regarding fair value measurement was issued. This update was issued to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. This update also changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. This update becomes effective for annual periods beginning after December 15, 2011. We do not believe this will have a material impact on our consolidated financial statements.

 

In June 2011, an accounting standards update regarding the presentation of comprehensive income was issued. This update was issued to increase the prominence of items reported in other comprehensive income and requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This update becomes effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. We do not believe this will have a material impact on our consolidated financial statements.

 

In September 2011, an accounting standards update regarding the testing of goodwill for impairment was issued. This update allows a company to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount to determine whether it is necessary to perform the two-step goodwill impairment test. This update becomes effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 and earlier adoption is permitted. We do not believe this will have a material impact on our disclosures or consolidated financial statements.

  

CONSOLIDATED RESULTS OF OPERATIONS — 2011 compared to 2010 and 2010 compared to 2009
($ in thousands)

 

A discussion of the factors that affected our overall financial results for the past two years is presented below. We also discuss our expected revenue and expense trends in “Operating Environment and Business Trends” below.

 

OPERATING RevenueS

 

Operating revenues increased $1,510 (or 6%) to $25,936 in 2011 from $24,426 in 2010. This increase was due primarily to:

 

·An increase in VoIP revenue of $3,111 due to the additional revenue from the acquisition of the assets and the assumption of certain liabilities of Alteva, LLC.

 

·An increase in wholesale carrier services of $607 or 49% due to increases in usage by existing and new wholesale carrier customers.

 

·An increase in local network service revenue of $241 or 9% associated with rate increases in July 2011 for New Jersey customers and November 2010 for New York customers offset by access line loss attributable to competitive landline telephone service and wireless substitution.

 

Partially offset by:

 

·A decrease in network access revenue of $1,200 or 14% due mainly to lower USF revenues of $1,090, lower end user regulatory revenues of $152 attributable to the loss of access lines, and lower billing to carriers of $341, offset in part by increased revenues of $382 associated with additional sales of special circuits.

 

·A decrease in DIRECTV revenue of $77 due to the termination of the National Rural Telecommunications Cooperative (“NRTC”) contract as of August, 15, 2011. We no longer bill and collect for the monthly recurring revenue for NRTC. We now only receive a commission on DIRECTV sales and reimbursement for installation costs.

 

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·A decrease in high-speed broadband revenue of $277 due primarily to the loss in landline video subscribers whose service was bundled with our broadband services.

 

·A decrease in landline video services of $520 due to customers switching to our DIRECTV services or to a competitor.

 

·A decrease in long distance revenue of $184 or 9% due mainly to the effect of customers switching to our promotional prices, declining minutes of use, and access line loss attributable to competitive landline telephone service and wireless substitution.

 

·A decrease in directory services of $148 or 14% due primarily to lower sales of yellow page advertising.

 

Operating revenues increased $504 (or 2%) to $24,426 in 2010 from $23,922 in 2009. This increase was due primarily to (a) an increase in data services revenue of $403 (or 6%) due mainly to the acquisition of the VoIP line of business of USA Datanet and the full year of revenues from that business, as well as increased DIRECTV revenue slightly offset by decreases in revenue for high-speed broadband and land line video services (losses in landline video services were due to customers switching to our DIRECTV services or to a competitor), (b) an increase in wholesale and conferencing services of $629 (or 81%) primarily from the assets which we acquired from USA Datanet and additional sales for wholesale services which were recorded for the full year, and (c) an increase in network access revenue of $624 (or 8%) due mainly to an increase in USF funding.

 

The increase in operating revenues discussed above was partially offset by (w) a decrease in other services and sales revenue of $542 (or 30%) due primarily to lower revenue associated with circuit revenue, leased equipment, inside wire and other ancillary services, (x) a decrease in long distance revenue of $259 (or 11%) due mainly to the effect of customers switching to our promotional prices and declining minutes of use, and as a result of access line loss attributable to competitive land line telephone service and wireless and VoIP substitutions, (y) a decrease in directory services of $178 (15%) due mainly to lower sales of yellow page advertising, and (z) a decrease in local network service revenue of $175 (or 6%) mainly as a result of access line loss attributable to competitive land line telephone service and wireless and VoIP substitutions.

 

OPERATING EXPENSES

 

Operating expenses increased $4,428 (or 13%) to $37,525 in 2011 from $33,097 in 2010. This increase was due primarily to:

 

·Cost of services and products increased $2,723 or 23% primarily due to an increase of $3,387 attributable to:

 

oan increase of $668 in the access expense associated with increased usage by various wholesale carrier customers,

 

oincreased costs of $1,252 resulting from the operations of Alteva since its acquisition in August,

 

ohigher installation costs of $501 resulting from the increase in hosted VoIP customers,

 

oadditional repairs of $66 to traditional phone service due to inclement weather during the first quarter of 2011, and

 

oan increase of $900, which is the amount we have agreed to pay pursuant to a non-binding term sheet to resolve a dispute with another carrier.

 

Partially offset by:

 

oa decrease in content costs for landline video of $400 due to the elimination of channel offerings,

 

oa decrease of $104 due to lower directory production costs and sales commissions associated with the decrease in directory sales revenue, and

 

oa decrease of $135 resulting from lower DIRECTV installation costs due to improved efficiencies.

 

·Selling, general and administrative expenses increased $4,502 (or 34%) due mainly to:

 

oAn increase of $2,948 resulting from the acquisition costs and additional expenses from the acquisition of substantially all of the assets and the assumption of certain liabilities of Alteva, LLC,

 

oaccelerated compensation expenses associated with the severance agreement with our former Chief Financial Officer and other increases in compensation and benefits of $901,

 

ohigher director and professional fees of $520 resulting from non-ordinary course additional board meetings to consider and approve changes to the O-P Agreement and consider and approve the Alteva acquisition,

 

ohigher fees paid for USF of $147, and

 

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ohigher bad debt expense of $102 due to a customer bankruptcy filing, that caused us to increase our reserve for bad debt.

 

These increases were offset by lower building expenses of $126.

 

·Depreciation and amortization expense decreased $514 (or 9%) primarily associated with a decrease of $961 due to the impairment of video equipment in 2010 included in Online plant, the full depreciation of central office switches, computer equipment and leasehold improvements, partially offset by an increase of $447 associated with assets purchased from Alteva, LLC.

 

Operating expenses increased $4,846 (or 17%) to $33,097 in 2010 from $28,251 in 2009. This increase was due primarily to (a) an increase in cost of services and products of $1,234 (or 11%) due mainly to the increases attributable to access and trunk line costs and wages for additional workforce mainly associated with the full year of operations of USA Datanet of $1,243, (b) an increase associated with additional DIRECTV installations attributable to promotions run during the year of $277, offset by a decrease in content costs of our landline video product of $286. Selling, general and administrative expenses increased $1,017 (or 8%) due mainly to the addition of our Syracuse, New York office in which we operated our USA Datanet business for the full year and wages for additional USA Datanet related workforce, which resulted in an increase of sales and marketing expense of $682, rent expense of $229 and higher wages, benefits and compensation of $1,051. These increases were offset by lower professional fees of $586, taxes and regulatory fees of $241 and computer operating costs of $118. Depreciation and amortization expense increased $312 (or 6%) primarily associated with the depreciation of USA Datanet assets and an impairment loss of $2,283 related to the fixed assets from our landline video business.

 

OTHER INCOME (EXPENSE)

 

Other income, net decreased $5,089 or 40% to $7,783 in 2011 from $12,872 in 2010. This decrease is due mainly to:

 

·A decrease in other income from equity method investment of $4,680, as a result of the transition of the O-P from a wholesale to a retail business pursuant to the 4G Agreement.

 

·An increase in other expenses of $207, the result of the New York State sales tax audit for the time period of March 2008 through December 2010.

 

·An increase in other expenses of $94, which is primarily associated with a loss on sales of short-term bonds we sold in connection with the Alteva transaction.

 

·An increase in interest expense of $63, resulting from the additional debt we incurred in connection with the Alteva transaction.

 

Other income, net decreased $1,508 (or 10%) to $12,872 in 2010 from $14,380 in 2009. This decrease was due primarily to a decrease in other income (expense) of $1,508 is mainly due to the bargain purchase gain of $1,749 in 2009 associated with the purchase of certain assets of USA Datanet on April 24, 2009, and receipt of an insurance refund of $250 with respect to damages incurred in a December 2008 ice storm. Those amounts were offset by an increase in equity method investments of $108 from increased earnings in O-P and higher interest income of $80 from short term investments and a reduction of settlement expenses of $225.

 

In 2010, we determined that we would withdraw from our landline video business. Regulatory restrictions require our subsidiary, Hometown Online Inc., to continue service into 2012 at which time we plan to wind down our landline video business. We conducted a fair value estimation of the head end equipment and customer premise equipment given only two more years of service. The fair value was estimated to be zero for these assets. Accordingly, we recorded an impairment of our video assets of $2,283, which was equal to the entire carrying value of these assets at December 31, 2010.

 

SEGMENT RESULTS OVERVIEW

 

Our Telephone segment, which operates as a retail and wholesale seller of communications services, accounted for approximately 64% and 70% of our consolidated segment operating revenues in 2011 and 2010, respectively. This segment provides telecommunications services, including local networks, network access, long distance voice, customer premise equipment, PBX equipment, wireless and directory advertising services (yellow and white pages advertising and electronic publishing).

 

Our Online segment accounted for approximately 36% and 30% of our consolidated segment operating revenues in 2011 and 2010, respectively. This segment provides high speed (broadband Internet) and dial-up Internet access services, video, UC services and enterprise hosted VoIP.

 

In 2009, our Telephone segment accounted for approximately 70% and our Online segment accounted for 30% of our consolidated operating revenue.

 

For further segment information see Note 9 to the Consolidated Financial Statements contained in Item 8.

 

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Telephone

 

Local network service revenue increased in 2011 associated with rate increases in July 2011 for New Jersey and November 2011 for New York, offset by 8% decline in access lines. Access line losses were mainly the result of customers switching to a competing cable provider’s bundle package and the continued loss of second access lines used for dial-up Internet connections by customers switching to broadband Internet outside of our service area and wireless substitution.

 

Network access service revenue includes end user, local switching support, switched access and special access revenue categories. These revenues decreased due to lower end user revenue, lower USF/NECA settlements and, lower billing for switched access, offset by additional sales associated with special access.

 

Long distance services revenue includes network services resulting from the transport of intraLATA (outside the local calling area) and interLATA (traditional long distance) calls and subscribers to our long distance plan. These revenues declined due to customers switching to our promotional prices and declining minutes of use as well as a result of access line loss attributable to competitive land line telephone services and customers switching to wireless and VoIP products and services.

 

Wholesale revenue increased in 2011 primarily from the increase in usage for wholesale customers and additional sales.

 

Conferencing revenue decreased due to less usage by conferencing customers.

 

Directory advertising revenue decreased 14% in 2011 as the sale of local and regional ad pages declined. We expect an industry trend of a slowdown in the growth in the demand for traditional directory ad pages to continue as more customers migrate to web-based advertising.

 

Other service and sales revenues includes services related to billing and collections provided to other carriers, inside wire revenue, circuit revenue and reciprocal compensation. These revenues decreased 2% in 2011, primarily due to lower revenue associated with leased equipment, cellular services and other ancillary services, offset by increased circuit revenue and sale of IP PBX.

 

Telephone operations expenses increased in 2011 mainly due to increases in access charges, public company compliance costs, legal and auditing fees.

 

Other income (expense) decreased in 2011 mainly due to lower earnings from the O-P as a result of the transition of the O-P from a wholesale to a retail business pursuant to the 4G Agreement.

 

Online

 

Online revenues increased in 2011 largely due to higher hosted VoIP revenues associated with the purchase of certain assets of Alteva, LLC as of August 2011 and from the growth from DIRECTV which is replacing our landline video services. This increase was partially offset by a decrease in high-speed broadband revenue due to the loss in landline video subscribers whose service was bundled with our broadband services.

 

Online expenses increased in 2011 mainly due to costs associated with the purchase of certain assets from Alteva, LLC.

  

Orange County-Poughkeepsie Limited Partnership

 

We currently own an 8.108% limited partnership interest in the Orange County-Poughkeepsie Limited Partnership (the “O-P”). Verizon Wireless of the East, L.P. (“Verizon”) is the general partner and currently has a 91.892% ownership interest in the O-P. The O-P provides cellular telephone service throughout the Orange County-Poughkeepsie Metropolitan Service Area. Our interest in the O-P represented 3% and 15% of our total assets as of December 31, 2011 and 2010, respectively, and the income from the O-P that we record as income from equity method investment represented 308%, 299% and 124% of our income before income taxes for the years ended December 31, 2011, 2010 and 2009, respectively. For more information on our O-P interest, see Note 12 to the Consolidated Financial Statements contained in Item 8.

 

On May 26, 2011, we entered into an agreement with Verizon, the general partner and a limited partner of the O-P, and Cellco Partnership, the other limited partner in the O-P, to make certain changes to the O-P partnership agreement which, among other things, specifies that the O-P will provide 4G cellular services (the “4G Agreement”) and that the O-P will be converted from a wholesale business to a retail business. The conversion of the O-P from a wholesale business to a retail business increased the cellular service costs and sales and marketing expenses incurred by the O-P, which caused a subsequent reduction in the O-P’s net income. Regardless of the O-P’s net income, pursuant to the 4G Agreement, we received an annual cash distribution of $13,600 in 2011 and we will receive annual cash distributions of $13,000 in 2012 and 2013 from the O-P. These guaranteed payments must be first recorded as a return of capital and as such cannot be recorded on our income statement until all of our capital is returned and our O-P partnership capital account is at zero. Although our share of the O-P net income recorded in our income statement decreased as a result of the way we record the guaranteed payments, the annual cash distributions we receive from the O-P will remain unchanged pursuant to the terms of the 4G Agreement. The 4G Agreement also gives us the right (the “Put”) to require one of the O-P’s limited partners to purchase all of our ownership interest in the O-P during April 2013 or April 2014 for an amount equal to the greater of (a) $50,000 or (b) the product of five times 0.081081 times the O-P’s EBITDA, as defined in the 4G Agreement, for the calendar year preceded by the Put.

 

22
 

 

We will continue to monitor the results of the O-P. Without the benefit of our guaranteed payments our O-P distributions would be considerably less. However, as the 4G and successor cellular technologies develop and customer usage increases, the O-P retail business model could improve. The Put Right grants us an ability to decide whether the improvement is significant enough for us to remain a limited partner.

 

Under equity method accounting, we currently report as income our proportionate share of the O-P income that is less than the guaranteed cash distributions that we receive from the O-P. The cash distributions we receive from the O-P that are in excess of our proportionate share of the O-P income are applied to our investment account. As a result of receiving the fixed cash distributions from the O-P in excess of our proportionate share of the O-P income, our investment account is expected to be reduced to zero within the first six months of 2012. Thereafter, once the investment account has been reduced to zero, we will record the fixed cash distributions that we receive from the O-P directly to our statement of operations as other income.

  

LIQUIDITY AND CAPITAL RESOURCES

 

We had $4,834 of cash and cash equivalents and short term investments available at December 31, 2011. This is a reduction of $8,701 from the same period last year. This reduction in cash and cash equivalents is a result of our purchase of substantially all of the assets and the assumption of certain liabilities of Alteva, LLC.

 

Our 2012 capital plan includes expenditures relating to the expansion of our broadband and UC products. We expect that we will have sufficient cash on hand to fund these activities.

 

As of December 31, 2011, we had a working capital deficit of $3,485 which was primarily due to short-term financing of $5,600 we incurred in connection with the Alteva transaction and contingent payments that we may be required to make to Alteva, LLC of $2,377. We believe this working capital deficiency is short-term in nature and we expect to satisfy these short-term obligations by using cash distributions received from the O-P and, if necessary, cash from refinancing our short-term debt. We believe that our guaranteed payments from the O-P in 2012 and 2013 will allow us to refinance our debt on favorable terms.

 

We have an unsecured term loan with CoBank ACB that had a principal balance of $1,139 at December 31, 2011 and matures in July 2012 (the “Maturity Date”). The unpaid principal balance accrues interest at an interest rate determined or selected by us. We may select a variable rate option, a long-term fixed rate option or a London Inter Bank Offered Rate (“LIBOR”) option. We selected the variable rate option, and the average interest rate on borrowings for the year ended December 31, 2011 was approximately 2.98%. Interest is paid quarterly each January, April, July and October. The outstanding principal is being repaid in 32 consecutive quarterly installments. Such payments commenced in October 2004, with the last such installment due on the Maturity Date. On the Maturity Date, the amount of the then unpaid principal plus accrued interest and fees is due in full.

 

On August 3, 2011, we entered into a supplement to our master loan agreement with CoBank, ACB. The supplement provides for a $5,000 revolving loan facility in the principal amount of $5,000 (the “CoBank Revolving Loan”). Also on August 3, 2011, we drew down the entire $5,000 principal amount of the CoBank Revolving Loan to fund a portion of the purchase price of the transaction with Alteva, LLC. The CoBank Revolving Loan becomes due and payable on August 2, 2012. Under the terms of the CoBank facility, we are required to comply with certain loan covenants, which include but are not limited to the achievement of certain financial ratios, as set forth in the agreement, as well as certain financial reporting requirements. As of December 31, 2011, we are in compliance with these loan covenants.

 

We have an unsecured $4,000 line of credit with Provident Bank. As of December 31, 2011, $600 was outstanding on the line of credit which becomes due and payable on July 28, 2012. Interest is at a variable rate and borrowings are on a demand basis without restrictions. At December 31, 2011, we are in compliance with all loan covenants under the line of credit.

 

Cash distributions from the O-P have a significant impact on our liquidity. Also, we have currently entered into a non-binding term sheet to resolve a dispute with another carrier. Management does not expect that the final executed agreement to be materially different than the non-binding term sheet.

 

CASH FROM OPERATING ACTIVITIES

 

Our source of funds continues to be primarily generated from cash distributions from the O-P which differs from the income from equity method investments reported in our statement of operations as described under the heading “O-P Income” above. For the year ended December 31, 2011, we recorded $7,898 of income from the O-P and $13,600 in cash distributions. For the year ended December 31, 2010, we recorded $12,578 of income from the O-P and $12,566 in cash distributions. Pursuant to the terms of the 4G Agreement, we are guaranteed cash distributions from the O-P of $13,000 for both 2012 and 2013.

 

23
 

 

CASH FROM INVESTING ACTIVITIES

 

Capital expenditures totaled $2,397 during the year ended December 31, 2011 compared to $1,373 for the corresponding period in 2010. This increase in capital expenditures was primarily attributable to the construction of additional outside plant facilities and central office switching equipment. Intangible asset expenditures totaled $484 during the year ended December 31, 2011 compared to $63 for the corresponding period of 2010. This increase was primarily attributable to an increase in the VoIP license fees caused by increased VoIP revenues. Short-term investments at December 31, 2011 totaled $259, which consists of a certificate of deposit with Provident Bank. In 2011 we sold all of our short-term corporate and municipal bonds in the amount of $2,408 to fund a portion of the purchase price for the Alteva, LLC assets. On August 5, 2011, we purchased substantially all of the assets and assumed certain of the liabilities of Alteva, LLC and we used $10,250 in cash towards the total acquisition price.

 

CASH FROM FINANCING ACTIVITIES

 

Dividends, declared by our board of directors, were $1.04 per share for the year ended December 31, 2011 compared to $0.96 in 2010 and $0.88 in 2009. The total amount of dividends paid on our common stock for the year ended December 31, 2011 was $5,769, compared to $5,200 in 2010 and $4,736 in 2009.

 

Inflation is a factor in our economy and we seek ways to mitigate its impact. To the extent permitted by competition or regulation, we attempt to pass increased costs on to our customers by increasing sales prices over time.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

As of December 31, 2011, we did not have any material off-balance sheet arrangements.

  

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

 

A summary of our material contractual obligations and commitments as of December 31, 2011 is presented below:

 

   Payments Due by Period 
   Less           More     
   than   1 - 3   3 - 5   than     
   1 Year   Years   Years   5 Years   Total 
   ($ in thousands) 
Short-term debt, including current maturities (a)  $1,139   $-   $-   $-   $1,139 
Notes payable (b)   5,600    -    -    -    5,600 
Interest expense (b)   114    -    -    -    114 
Operating leases (c)   261    173    2    -    436 
Trunk line agreements (d)   312    -    -    -    312 
Amounts due in connection with business acquisition (e)   2,377    472    -    -    2,849 
Other long-term obligations (f)   622    -    -    -    622 
Total Contractual obligations and commitments  $10,425   $645   $2   $-   $11,072 

 

(a)Pursuant to the loan agreement, principal payments relating to long-term debt commenced on October 2004 and will continue for 32 consecutive quarters from that date until repaid in full in July 2012.
   
(b)Short-term debt is at a variable rate. Interest payments are calculated based upon a current interest rates between 2.5% - 4.0%. These rates are subject to fluctuation in the future.
   
(c)We lease tower space for transmission of content for our Video product. In addition, we also lease office and parking space, and vehicles.
   
(d)Represents contractual commitments, with a specified contract life, to purchase access to trunk lines from other carriers for the transmission of voice, data and video.
   
(e)Pursuant to the Asset Purchase Agreement, we may be required to pay an earnout, holdback and working capital adjustment.

 

(f)We are required to make minimum contributions to our pension and postretirement plans. These amounts are not estimable for years after 2011.

 

24
 

 

OPERATING ENVIRONMENT AND BUSINESS TRENDS

 

2012 Revenue Trends

 

In 2012, it is anticipated that we will continue to face the challenges endemic to the telecommunications industry, namely continued declines associated with our traditional service offerings and a reduction in USF revenue as a result of the FCC order dated November 28, 2011. As of June 30, 2012, we will no longer offer our landline video service because we have determined to discontinue offering such services after the expiration of relevant franchise, on that date. These declines are currently expected to be offset by increases in UC and broadband services. As a result of our Alteva acquisition on August 5, 2011, our revenue in 2012 is expected to increase due to a full year of revenue from this acquisition.

 

2012 Expense Trends

 

Expense trends are substantially driven by personnel and network costs. Significant investments in our network infrastructure are expected to continue to increase operating efficiencies and provide the technology necessary to meet market demand and respond to competition. Competition is also expected to increase the cost of advertising and promotions. As we expand our CLEC and UC operations, costs of goods sold and customer acquisition costs are expected to increase.

 

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

We are not subject to any material market risk. Our exposure to changes in interest rates results from our borrowing activities. In the event interest rates were to move by 1%, our yearly interest expense would increase or decrease by less than $100, assuming our average borrowing level remains constant, which would not materially affect our business and results of operations. An increase in the assumed health care cost trend rate by 1.0% would increase the accumulated postretirement benefit obligation as of December 31, 2011 by approximately $644 and the aggregate of the service and interest cost components of postretirement expense for the year then ended by approximately $27. A 1.0% decrease in the health care cost trend rate would decrease these components by $540 and $23, respectively.

 

25
 

 

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

    Page
  Report of Independent Registered Public Accounting Firm 27
     
  Consolidated Statements of Operations — Years Ended December 31, 2011, 2010 and 2009 28
  Consolidated Balance Sheets — December 31, 2011 and 2010 29
  Consolidated Statements of Cash Flows — Years Ended December 31, 2011, 2010 and 2009 30
  Consolidated Statements of Shareholders’ Equity — Years Ended December 31, 2011, 2010 and 2009 31
  Notes to Consolidated Financial Statements 32
     
  Financial Statement Schedules  
     
  Report of Independent Registered Public Accounting Firm on Consolidated Financial Statement Schedule   59
  Schedule II. Valuation and Qualifying Accounts 60

 

26
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Shareholders,

Warwick Valley Telephone Company:

 

We have audited the accompanying consolidated balance sheets of Warwick Valley Telephone Company and Subsidiaries (the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the years in the three year period ended December 31, 2011. We have also audited the Company’s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in management’s report on internal control over financial reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal controls over financial reporting based on our audits. We did not audit the financial statements of the Orange County-Poughkeepsie Limited Partnership (the “O-P Partnership”), an investment that was reflected in the consolidated financial statements using the equity method of accounting. The investment in the O-P Partnership represented 3% and 15% of total assets as of December 31, 2011 and 2010, respectively, and 308%, 299% and 124% of income (loss) before income taxes for the years ended December 31, 2011, 2010 and 2009, respectively. The financial statements of the O-P Partnership were audited by other auditors whose report thereon has been furnished to us and our opinion expressed herein, insofar as it relates to the amounts included for the O-P Partnership, is based solely on the report of the other auditors.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall consolidated financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinions.

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. A company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Warwick Valley Telephone Company and Subsidiaries as of December 31, 2011 and 2010, and the consolidated results of their operations and their cash flows for each of the years in the three year period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, Warwick Valley Telephone Company and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

 

As described in “Management’s Report on Internal Control over Financial Reporting”, Management has excluded Warwick Valley Networks, Inc. from its assessment of internal controls over financial reporting as of December 31, 2011 because substantially all of the assets were acquired in a business combination during 2011. We have also excluded Warwick Valley Networks, Inc. from our audit of internal controls over financial reporting. Warwick Valley Networks, Inc. is a wholly-owned subsidiary whose total assets and total revenues represents approximately $19,449,000 or 34% and $3,111,000 or 12%, respectively of the related consolidated financial statement amounts as of and for the year ended December 31, 2011.

 

/s/WithumSmith+Brown, PC

Princeton, New Jersey

March 15, 2012

 

27
 

 

WARWICK VALLEY TELEPHONE COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

  

   For the Years Ended December 31, 
   2011   2010   2009 
   ($ in thousands except share 
   and per share amounts) 
             
Operating revenues  $25,936   $24,426   $23,922 
                
Operating expenses:               
Cost of services and products (exclusive of depreciation and amortization expense)   14,701    11,978    10,744 
Selling, general and administrative expenses   17,558    13,056    12,039 
Depreciation and amortization   5,266    5,780    5,468 
Loss on impairment of fixed assets   -    2,283    - 
Total operating expenses   37,525    33,097    28,251 
Operating loss   (11,589)   (8,671)   (4,329)
                
Other income (expense):               
Interest income (expense), net of capitalized interest   (64)   33    (36)
Income from equity method investment   7,898    12,578    12,470 
Bargain purchase gain on acquisition   -    -    1,749 
Other income (expense), net   (51)   261    197 
Total other income, net   7,783    12,872    14,380 
Income (loss) before income taxes   (3,806)   4,201    10,051 
                
Income taxes (benefit)   (885)   1,349    3,236 
Net income (loss)   (2,921)   2,852    6,815 
Preferred dividends   25    25    25 
Net income (loss) applicable to common stock  $(2,946)  $2,827   $6,790 
                
Basic earnings (loss) per common share  $(0.54)  $0.53   $1.27 
Basic earnings (loss) per puttable common share  $(0.54)  $-   $- 
                
Diluted earnings (loss) per common share  $(0.54)  $0.52   $1.26 
Diluted earnings (loss) per puttable common share  $(0.54)  $-   $- 
                
Weighted average shares of common stock used to calculate earnings (loss) per share               
Basic (common)   5,413,144    5,363,543    5,353,763 
Basic (puttable common)   186    -    - 
Diluted (common)   5,413,144    5,407,994    5,384,506 
Diluted (puttable common)   186    -    - 
                
Dividends declared per common share  $1.04   $0.96   $0.88 

 

Please see the accompanying notes, which are an integral part of the consolidated financial statements.

 

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WARWICK VALLEY TELEPHONE COMPANY

CONSOLDIDATED BALANCE SHEET

 

   December 31, 
   2011   2010 
   ($ in thousands, except share 
   and per share amounts) 
ASSETS          
Current assets:          
Cash and cash equivalents  $4,575   $10,899 
Short term investments   259    2,636 
Accounts receivable - net of allowance for uncollectibles - $759 and $350 in 2011 and 2010, respectively   2,717    2,451 
Other accounts receivable   174    94 
Materials and supplies   832    986 
Prepaid expenses   731    538 
Prepaid income taxes   2,715    - 
Deferred income taxes   405    - 
Total current assets   12,408    17,604 
Property, plant and equipment, net   25,425    27,258 
Unamortized debt issuance costs   45    21 
Intangibles, net   8,605    217 
Investments   1,979    7,681 
Goodwill   9,121    - 
Other assets   333    294 
Total assets  $57,916   $53,075 
LIABILITIES AND SHAREHOLDERS' EQUITY          
Current liabilities:          
Short term borrowings  $5,600   $- 
Current maturities of long-term debt   1,139    1,519 
Accounts payable   1,715    1,174 
Amounts due in connection with business acquisition   2,377    - 
Derivative liability in connection with business acquisition   131    - 
Advance billing and payments   390    397 
Customer deposits   51    56 
Deferred income taxes   -    38 
Accrued taxes   521    1,041 
Pension and post retirement benefit obligations   622    529 
Other accrued expenses   3,347    2,262 
Total current liabilities   15,893    7,016 
Long-term debt, net of current maturities   -    1,139 
Amounts due in connection with business acquisition   472    - 
Deferred income taxes   1,358    1,941 
Pension and postretirement benefit obligations   9,915    6,554 
Total liabilities   27,638    16,650 
           
Commitments and contingencies          
           
Puttable common stock, $.01 par value, 272,479 and 0 shares issued and outstanding at at December 31, 2011 and 2010, respectively   4,125    - 
           
Shareholders' equity          
Preferred Shares - $100 par value; authorized and issued shares of 5,000; $0.01 par value authorized and unissued shares of 10,000,000   500    500 
Common stock - $0.01 par value; authorized shares of 10,000,000; issued 6,490,318 and 6,054,741 shares at December 31, 2011 and 2010, respectively   62    60 
Treasury stock - at cost, 735,391 and 635,189 common shares at December 31, 2011 and 2010, respectively   (6,262)   (4,770)
Additional paid in capital   6,191    4,063 
Accumulated other comprehensive loss   (4,979)   (2,784)
Retained earnings   30,641    39,356 
Total shareholders' equity   26,153    36,425 
Total liabilities and shareholders' equity  $57,916   $53,075 

 

Please see the accompanying notes, which are an integral part of the consolidated financial statements.

 

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WARWICK VALLEY TELEPHONE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   For the Years Ended December 31, 
   2011   2010   2009 
   ($ in thousands) 
CASH FLOW FROM OPERATING ACTIVITIES:               
Net income (loss)  $(2,921)  $2,852   $6,815 
Adjustments to reconcile net income (loss) to net cash provided               
    by operating activities:               
Depreciation and amortization   5,266    5,780    5,468 
Allowance for uncollectibles   409    (5)   107 
Stock based compensation expense   960    341    128 
Deferred income taxes   214    (1,859)   1,084 
Impairment loss on video assets   -    2,283    - 
Income from equity investment, net of distributions   5,702    (12)   99 
Change in fair value of derivative liability   15    -    - 
Bargain purchase gain   -    -    (1,749)
Changes in assets and liabilities, net of effects of business acquisitions               
Accounts receivable   113    213    (283)
Other accounts receivable   (80)   66    68 
Materials and supplies   154    2    268 
Prepaid income taxes   (2,715)   674    (498)
Prepaid expenses   (123)   (91)   147 
Other assets   (103)   (45)   (19)
Accounts payable   379    141    258 
Customers' deposits   (72)   (46)   2 
Advance billing and payment   (7)   64    108 
Accrued taxes   (520)   792    131 
Pension and post retirement benefit obligations   (14)   127    (625)
Other accrued expenses   924    896    (171)
Net cash provided by operating activities   7,582    12,173    11,338 
CASH FLOW FROM INVESTING ACTIVITIES:               
Capital expenditures   (2,397)   (1,373)   (1,693)
Purchase of intangible assets   (484)   (63)   (16)
Sales of short-term investments   2,408    1,002    - 
Purchase of short-term investments   -    (3,432)   (254)
Business acquisition, net of cash acquired   (10,250)   -    (1,487)
Net cash used in investing activities   (10,723)   (3,866)   (3,450)
CASH FLOW FROM FINANCING ACTIVITIES:               
Proceeds from short-term borrowings   9,000    -    - 
Repayment of long term debt and short-term borrowings   (4,919)   (1,519)   (1,518)
Repayments of amount due in connection with business acquisition   (478)   -    - 
Repayment of capital leases   (671)   -    - 
Dividends (Common and Preferred)   (5,794)   (5,225)   (4,761)
Exercise of stock options   -    50    - 
Purchase of treasury stock   (321)   -    - 
Net cash used in financing activities   (3,183)   (6,694)   (6,279)
Net increase (decrease) in cash and cash equivalents   (6,324)   1,613    1,609 
Cash and cash equivalents at beginning of year   10,899    9,286    7,677 
Cash and cash equivalents at end of year  $4,575   $10,899   $9,286 
Supplemental disclosure of cash flow information:               
Interest paid  $64   $110   $184 
Income taxes paid  $2,325   $2,025   $2,805 
                
Supplemental disclosure of non-cash investing and financing activities:               
Non-cash consideration used in business acquisition  $7,568   $-   $- 
Treasury stock acquired in connection with cashless exercise of stock options  $1,171   $-   $- 

 

Please see the accompanying notes, which are an integral part of the consolidated financial statements.

 

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WARWICK VALLEY TELEPHONE COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

 

                                   Accumulated     
   Treasury   Treasury   Preferred   Preferred   Common   Common   Additional       Other     
   Stock   Stock   Stock   Stock   Stock   Stock   Paid in   Retained   Comprehensive     
   Shares   Amount   Shares   Amount   Shares   Amount   Capital   Earnings   Loss   Total 
Balance, December 31, 2008   633,683   $(4,748)   5,000   $500    6,004,463   $60   $3,522   $39,675   $(4,291)  $34,718 
                                                   
Net income for the year                                      6,815         6,815 
                                                   
Change in Pension and Postretirement Benefit plans, net                                           1,005    1,005 
                                                   
Total Comprehensive Income                                                7,820 
                                                   
Stock options and restricted stock  issued to employees as compensation                                 128              128 
                                                   
Restricted stock issued to employees                       8,958                          
                                                   
Dividends:                                                  
                                                   
Common ($.88 per share)                                      (4,736)        (4,736)
                                                   
Preferred ($5.00 per share)                                      (25)        (25)
                                                   
Balance, December 31, 2009   633,683    (4,748)   5,000    500    6,013,421    60    3,650    41,729    (3,286)   37,905 
Net income for the year                                      2,852         2,852 
                                                   
Change in Pension and Postretirement Benefit plans and unrealized losses on short-term investments, net                                           502    502 
Total Comprehensive Income                                                3,354 
                                                   
Stock options and restricted stock  issued to employees as compensation                                 341              341 
                                                   
Restricted stock issued to employees                       34,654                          
Treasury stock purchased   1,506    (22)                                      (22)
Stock options exercised                       6,666         72              72 
Dividends:                                                  
Common ($.96 per share)                                      (5,200)        (5,200)
Preferred ($5.00 per share)                                      (25)        (25)
                                                   
Balance, December 31, 2010   635,189    (4,770)   5,000    500    6,054,741    60    4,063    39,356    (2,784)   36,425 
Net loss for the year                                      (2,921)        (2,921)
                                                   
Change in Pension and Postretirement Benefit plans and unrealized losses on short-term investments, net                                           (2,195)   (2,195)
Total Comprehensive loss                                                (5,116)
                                                   
Stock options and restricted stock issued to employees as compensation                                 960              960 
                                                   
Restricted stock issued to employees                       59,779    1                   1 
                                                   
Tax benefit for the exercise of stock options                                 31              31 
Treasury stock purchased   100,202    (1,492)                                      (1,492)
Stock options exercised                       103,319    1    1,137              1,138 
Dividends:                                                  
Common ($1.04 per share)                                      (5,769)        (5,769)
Preferred ($5.00 per share)                                      (25)        (25)
                                                   
Balance, December 31, 2011   735,391   $(6,262)   5,000   $500    6,217,839   $62   $6,191   $30,641   $(4,979)  $26,153 

 

Please see the accompanying notes, which are an integral part of the consolidated financial statements.

 

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NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Operations

 

Warwick Valley Telephone Company (the “Company”) is a cloud-based communications company that provides Unified Communications (“UC”) solutions and enterprise hosted Voice over Internet Protocol (“VoIP”) and operates as a regional Incumbent Local Exchange Carrier (“ILEC”) operating in southern Orange County, New York and northern New Jersey. The Company’s ILEC operations consist of providing historic local and toll telephone service to residential and business customers, Internet high speed broadband service, satellite video service and DIRECTV. Through its wholly-owned subsidiaries, the Company delivers cloud-based Unified Communications solutions including Voice over Internet Protocol (“VoIP”), hosted Microsoft Communication Services, fixed mobile convergence and advanced voice applications for a broad customer base including enterprise customers, small and medium-sized businesses and other business customers.

 

Basis of Presentation

 

The accompanying consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in the consolidated financial statements

 

The Company’s interest in the Orange County-Poughkeepsie Limited Partnership (“O-P”) is accounted for under the equity method of accounting (Note 12).

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. Significant estimates include, but are not limited to, depreciation expense, allowance for doubtful accounts, long-lived assets, derivative liabilities, pension and postretirement expenses and income taxes. Actual results could differ from those estimates.

 

Revenue Recognition

 

The Company recognizes revenue when (i) persuasive evidence of an arrangement between the Company and the customer exists, (ii) the delivery of the product to the customer has occurred or service has been provided to the customer, (iii) the price to the customer is fixed or determinable and, (iv) collectability of the sales or service price is assured. Telephone and network access revenues are primarily derived from usage of the Company’s network and facilities. Telephone and network access revenues are recognized as the corresponding services are rendered to customers. Long distance revenue is recognized monthly as services are provided. Directory advertising revenue is recorded ratably over the life of the directory. Revenues from online services, which include broadband Internet, video, UC and VoIP are recorded when the services are rendered. Other service and sales revenue is recognized when services are provided or the sales transactions are completed. It is the Company’s policy to classify sales taxes collected from its customers as a reduction of revenue. The Company recognizes federal Universal Service Fund (“USF”) revenue monthly when the payment is received from the National Exchange Carrier Association, Inc. (“NECA”).

 

Accounting for Asset Retirement and Environmental Obligations

 

Accounting for Asset Retirement and Environmental Obligations (“ASC Topic 410”) addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This standard applies to legal obligations associated with the retirement of long-lived assets that results from the acquisition, construction, development, or normal use for the assets. ASC Topic 410 requires that a liability for an asset retirement obligation be recognized when incurred and reasonably estimable, recorded at fair value, and classified as a liability in the balance sheet. When the liability is initially recorded, the entity capitalizes the cost and increases the carrying value of the related long-lived asset. The liability is then accreted to its present value each period and the capitalized cost is depreciated over the estimated useful life of the related asset. At the settlement date, the Company will settle the obligation for its recorded amount and recognize a gain or loss upon settlement. The Company has concluded that it does not have an asset retirement and environmental obligation as defined by ASC Topic 410 at December 31, 2011 and 2010.

 

Allowance for Uncollectible Accounts

 

The Company maintains an allowance for uncollectible accounts for estimated losses resulting from the inability of customers to make payments. Such an allowance is based upon historical trends of accounts receivable write offs, net of subsequent cash recoveries of previously written-off balances. Uncollectible accounts are charged against the allowance for doubtful accounts and subsequent cash recoveries of previously written-off bad debts are credited to the account.

 

32
 

 

Advertising and Promotional Costs

 

Advertising and promotional costs are expensed as incurred. Advertising and promotional expenses were $1,060, $471 and $235 for 2011, 2010 and 2009, respectively.

 

Income Taxes

 

The Company records deferred taxes that arise from temporary differences between the financial statement and the tax basis of assets and liabilities. Deferred taxes are classified as current or non-current, depending on the classification of the assets and liabilities to which they relate. Deferred tax assets and deferred tax liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment. The Company’s deferred taxes result principally from differences in the timing of depreciation and in the accounting for pensions and other postretirement benefits. The Company has recorded a valuation allowance against its deferred tax assets which are not expected to be realized.

 

Property, Plant and Equipment

 

The Company records property, plant and equipment at cost or fair market value for our acquired properties. Construction costs, labor and applicable overhead costs related to installations, and interest during construction are capitalized. Costs of maintenance and repairs of property, plant and equipment are charged to operating expense. The estimated useful life of support equipment (vehicles, computers, etc.) ranges from 3 to 19 years. The estimated useful lives of communication and network equipment range from 10 to 15 years. The estimated useful lives of Internet equipment range from 3 to 5 years. The estimated useful lives of buildings and other support equipment range from 14 to 50 years. Depreciation expense is computed using the straight line method.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid instruments with an initial maturity from the date of purchase of three months or less to be cash equivalents. Cash equivalents consist primarily of money market mutual funds. The Company places its cash in a limited number of financial institutions. The balances are insured by the Federal Deposit Insurance Corporation up to $250. At times the deposits in banks may exceed the amount of insurance provided on such deposits. The Company monitors the financial health of those banking institutions. Historically, the Company has not experienced any losses on deposits.

 

Fair Value of Financial Instruments

 

As of December 31, 2011 and 2010, the Company’s financial instruments consisted of cash, cash equivalents, short-term investments, accounts receivable, accounts payable, short-term debt and derivative liability. The Company believes that the carrying values of cash, cash equivalents, short-term investments, accounts receivable and accounts payable at December 31, 2011 and 2010 approximated fair value due to their short term maturity. Based on the borrowing rates currently available to the Company for loans of similar terms, the Company has determined that the carrying value of its short-term debt (including current maturities) approximates fair value. The Company has determined that the fair value of the derivative liabilities based on binomial models.

 

Derivative Instrument

 

In connection with the issuance of 272,479 shares of the Company’s common stock to the members of Alteva, LLC, the members of Alteva, LLC entered into a Lock-Up and Put Agreement with the Company effective October 21, 2011. Under the Lock-Up and Put Agreement, each member of Alteva, LLC may transfer to any of the permitted transferees up to 50% of their shares between October 21, 2012 and December 14, 2012. The members of Alteva, LLC may sell their remaining shares without restriction beginning on December 15, 2012. In addition, the Lock-Up and Put Agreement gives each member of Alteva, LLC the option to sell their shares to the Company within a certain prescribed time period at a predetermined price (the “Alteva Put”). The Alteva, LLC members may exercise their Alteva Put with respect to half of their shares within a 60-day period commencing on October 21, 2012 and the other half within a 60-day period commencing on December 15, 2012. The purchase price of the Alteva Put will be the greater of (i) the closing price of the Company’s common stock on the date of exercise of the Alteva Put or (ii) $11.74. The Lock-Up and Put Agreement also includes a purchase price protection for the Alteva, LLC selling shareholders. The purchase price protection provides that if the price of the Company’s common stock for the 30 trading days immediately prior to October 21, 2012 or December 15, 2012 (but excluding the three trading days prior to and after the record date for any cash dividend declared by the Company) (the “Release Date Price”) is less than $11.74, then the Company will issue to the Alteva, LLC members the aggregate number of shares of the Company’s common stock equal to the difference between $1,600 and the market value of 50% of the aggregate shares on October 21, 2012 or December 15, 2012, or 100% of the aggregate shares if the Release Date Price is less than $11.74 on both dates. The Alteva Put and purchase price protection provisions are considered a derivative instrument. The Company measures the derivative at fair value and recognizes the price protection derivative value as a current liability and recorded the Alteva Put option derivative value with the puttable common stock liability as the two financial instruments are not required to be accounted for separately under US GAAP. The price protection derivative instrument is valued primarily using models based on readily observable market parameters for all substantial terms of these derivatives and thus are classified as Level 3. Changes in the fair values of the derivative are recognized in earnings in the current period.

 

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Intangible Assets

 

Intangible assets that have finite useful lives are amortized by the straight-line method over their useful lives ranging from 3 to 15 years. Intangible assets are considered impaired if the fair value of the intangible asset is less than its net book value.

 

Impairment testing for goodwill is performed annually in the fourth fiscal quarter or more frequently if indications of potential impairment exist. The impairment test for goodwill uses a two-step approach, which is performed at the reporting unit level. We have determined that our operating segments are the applicable reporting units because they are the lowest level at which discrete, reliable financial and cash flow information is regularly reviewed by our chief operating decision maker. Step one compares the fair value of the reporting unit (calculated using a market approach and/or a discounted cash flow method) to its carrying value. If the carrying value exceeds the fair value, there is a potential impairment and step two must be performed. Step two compares the carrying value of the reporting unit’s goodwill to its implied fair value (i.e., fair value of reporting unit less the fair value of the unit’s assets and liabilities, including identifiable intangible assets). If the implied fair value of goodwill is less than the carrying amount of goodwill, an impairment is recognized.

 

Impairment of Long-Lived Assets

 

The Company reviews business conditions to determine the recoverability of the carrying value of its long-lived assets and goodwill related to equity investments on a periodic basis in order to identify business conditions that may indicate a possible impairment. The assessment for potential impairment is based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future undiscounted cash flows. If total expected future undiscounted cash flows are less than the carrying value of the assets, a loss is recognized for the difference between the fair value (computed based upon the expected market value or future discounted cash flows) and the carrying value of the assets. The Company periodically performs evaluations of the recoverability of the carrying value of its long-lived assets using gross undiscounted cash flow projections. The cash flow projections include long-term forecasts of revenue growth, gross margins and capital expenditures. All of these items require significant judgment and assumptions. The Company believes its estimates are reasonable, based on information available at the time they were made (see Note 11). However, if the estimates of future cash flows are different, the Company may conclude that some of its long-lived assets were not recoverable, which would likely cause the Company to record a material impairment charge. Also, if future cash flows are significantly lower than projections, the Company may determine at some future date that all or a portion of its long-lived assets are not recoverable.

 

Pension and Postretirement Obligations

 

The Company follows ASC Topic 715, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans. This guidance requires the recognition of the funded status of a benefit plan, measured as the difference between plan assets at fair value and the benefit obligation, in its balance sheet. For a pension plan, the benefit obligation is the projected benefit obligation; for any other postretirement benefit plan, such as a retiree health care plan, the benefit obligation is the accumulated postretirement benefit obligation. The Company is also required to recognize as a component of accumulated other comprehensive loss changes to the balances of the unrecognized prior service cost and the unrecognized actuarial loss, net of income taxes that arise during the period. The Company is also required to measure defined benefit plan assets and obligations as of the date of the Company’s year-end. ASC 715 requires additional disclosures about investment policies and strategies, categories of plan assets, fair value measurements of plan assets and significant concentrations of risk.

 

Comprehensive Income (Loss)

 

The Company reports comprehensive income (loss) on the Consolidated Statements of Shareholders’ Equity and accumulated other comprehensive loss on the Consolidated Balance Sheets. Additional information regarding comprehensive income (loss) is contained in Note 8.

 

Changes to the balances of the unrecognized prior service cost and the unrecognized net actuarial loss, net of income taxes, associated with the Company’s pension and postretirement benefit plans and unrealized losses associated with short-term investments are recorded as a component of other comprehensive loss. Additional information regarding accounting policies associated with benefit plans is contained in Note 15.

 

Stock-Based Compensation

 

The Company has adopted the fair value recognition provisions of ASC Topic 718 Stock Compensation Share Based Payments, which requires that companies measure and recognize compensation expense at an amount equal to the fair value of share-based payments granted under compensation arrangements. The Company provides compensation benefits by issuing restricted stock and stock options. The Company recorded $960, $341 and $128 in 2011, 2010 and 2009, respectively, as stock based compensation.

 

Reclassifications

 

Certain items in the 2010 property, plant and equipment footnote (see Note 11) have been reclassified in order to conform to the 2011 presentation.

 

34
 

 

NOTE 2: BUSINESS ACQUISITION

 

On August 5, 2011, Warwick Valley Networks, Inc. (“WVN”), which has since changed its name to Alteva Inc., a wholly-owned subsidiary of the Company, purchased substantially all of the assets and assumed certain of the liabilities (including certain of its contracts, debt owed under specified capital leases and certain accounts payable) of Alteva, LLC, a cloud-based Unified Communications solutions provider and enterprise hosted VoIP provider, in exchange for cash and stock valued at $17,818 pursuant to the terms of the asset purchase agreement between the Company and Alteva, LLC (the “Alteva Agreement”). The issuance of the Company’s common stock contemplated under the Alteva Agreement was subject to regulatory approval by the New York State Public Service Commission (“NYPSC”) and the New Jersey Board of Public Utilities (“NJBPU”), both of which approved the transaction in October 2011. The assets acquired included Alteva, LLC’s VoIP line of business, which provides communication services for commercial customers and unified communication lines of business. This acquisition extends the Company’s VoIP services to New Jersey, Pennsylvania and various other states and continues the Company’s corporate strategy to expand its business beyond its regulated franchise area.

 

The results of Alteva, LLC’s operations have been included in the Company’s consolidated financial statements since August 5, 2011.

 

The Company utilized cash, issued stock and incurred certain liabilities to acquire certain assets and assumed certain liabilities of Alteva, LLC as follows:

 

Cash (1)  $10,250 
Issued puttable common stock (2)   4,125 
Contingent consideration payable (3)   1,929 
Hold-back payable (4)   750 
Working capital adjustment payable (5)   648 
Price protection (6)   116 
Total consideration  $17,818 

 

1)$5,000 of this amount was borrowed from CoBank, ACB (see Note 13).

 

2)The Company issued 272,479 shares of the Company’s common stock with an embedded put option. The members of Alteva, LLC have the option to put the 272,479 shares back to the Company on October 21, 2012 and December 15, 2012.

 

3)Up to a total of $2,000 in cash is payable to Alteva, LLC on August 5, 2012 and 2013 (or prior to January 1, 2013 depending on certain tax law changes), if certain performance-based conditions are satisfied. The contingent consideration was adjusted to reflect its fair value on August 5, 2011.

 

4)This hold-back amount, withheld at closing, is payable to Alteva, LLC on August 5, 2012, less any amounts offset against such amount pursuant to the terms of the Alteva Agreement.

 

5)Working capital adjustment is payable to Alteva, LLC pursuant to the terms of the Alteva Agreement. As of December 31, 2011, the Company had repaid $478 to Alteva, LLC leaving a balance due of $170.

 

6)The purchase price protection provides that if the price of the Company’s common stock for the 30 trading days immediately prior to October 21, 2012 or December 15, 2012 (but excluding the three trading days prior to and after the record date for any cash dividend declared by the Company) (the “Release Date Price”) is less than $11.74, then the Company will issue to the Alteva, LLC members the aggregate number of shares of the Company’s common stock equal to the difference between $1,600 and the market value of 50% of the aggregate Alteva Shares on October 21, 2012 or December 15, 2012, or 100% of the aggregate Alteva Shares if the Release Date Price is less than $11.74 on both dates. The Company recorded the valuation of the price protection derivative liability using a binomial method based on significant inputs not observed in the market and thus will represent a Level 3 instrument. Level 3 instruments are valued based on unobservable inputs that are supported by little or no market activity and reflect the Company’s own assumptions in measuring fair value.

 

35
 

 

The total purchase price has been allocated as follows:

 

Accounts receivable, net  $788 
Prepaid expenses   70 
Property, plant and equipment   530 
Seat licenses   570 
Trade name   2,400 
Customer relationships   5,400 
Goodwill   9,121 
   Total assets acquired   18,879 
      
Accounts payable   (162)
Accrued expenses   (132)
Customer deposits   (67)
Capital leases payable   (671)
Deferred revenue   (29)
   Total liabilities assumed   (1,061)
      
Total transaction value  $17,818 

 

The purchase price was allocated to the assets acquired and liabilities assumed based on their fair values on the acquisition date. The excess of the purchase consideration over the fair value of the net assets acquired has been allocated to goodwill. The Company engaged a third-party valuation group to assist them in the valuation of the assets acquired, liabilities assumed and the Lock-Up and Put Agreement.

 

The Company entered into a Lock-Up and Put Agreement, effective October 21, 2011, with the members of Alteva, LLC pursuant to which each of the members agreed to certain restrictions on their ability to sell shares of the Company’s common stock issued in connection with the Alteva Agreement (the “Alteva Shares”). Under the Lock-Up and Put Agreement, each member of Alteva, LLC may transfer to any of the permitted transferees up to 50% of their Alteva Shares between October 21, 2012 and December 14, 2012. The members of Alteva, LLC may sell their remaining Alteva Shares without restriction beginning on December 15, 2012. In addition, the Lock-Up and Put Agreement gives each member of Alteva, LLC the option to sell their Alteva Shares to the Company within a certain prescribed time period at a predetermined price (the “Alteva Put”). The Alteva, LLC members may exercise the Alteva Put with respect to half of their Alteva Shares within a 60-day period commencing on October 21, 2012 and the other half within a 60-day period commencing on December 15, 2012. The purchase price of the Alteva Put will be the greater of (i) the closing price of the Company’s common stock on the date of exercise of the Alteva Put or (ii) $11.74. The Lock-Up and Put Agreement also includes a purchase price protection for the Alteva, LLC selling shareholders. The purchase price protection provides that if the price of the Company’s common stock for the 30 trading days immediately prior to October 21, 2012 or December 15, 2012 (but excluding the three trading days prior to and after the record date for any cash dividend declared by the Company) (the “Release Date Price”) is less than $11.74, then the Company will issue to the Alteva, LLC members the aggregate number of shares of the Company’s common stock equal to the difference between $1,600 and the market value of 50% of the aggregate Alteva Shares on October 21, 2012 or December 15, 2012, or 100% of the aggregate Alteva Shares if the Release Date Price is less than $11.74 on both dates.

 

The customer relationships intangible asset has a weighted-average useful life of eight years and the trade name intangible asset has an estimated useful life of 15 years. In addition, the Company recorded goodwill in the amount of $9,121. For tax purposes goodwill will be amortized over 15 years.

 

The Company incurred $835 of acquisition-related costs as general and administrative expenses in the Consolidated Statements of Operations. The revenue from the Alteva business included in the Company’s statement of operations for the five months (since August 2011) ended December 31, 2011 was $3,111 and the net loss before income taxes was $712.

 

36
 

 

On April 24, 2009, Warwick Valley Mobile Telephone Company (“WVMT”), a wholly-owned subsidiary of the Company, purchased certain assets of USA Datanet under the terms of an Asset Purchase Agreement entered into in April 2009. The assets acquired included its VoIP line of business, which provides communication services for commercial customer’s conferencing and wholesale lines of business. This asset purchase extended the Company’s VoIP services to upstate New York and various other states, and expanded the scope of the Company’s product offerings to include conferencing and wholesale. This transaction was a step in the execution of the Company’s corporate strategy to expand the Company’s business beyond its regulated franchise area.

 

Under the terms of the Asset Purchase Agreement, the Company purchased certain assets from USA Datanet for $1,487 in cash. Additionally, included in selling, general and administrative expenses are $214 of expenses relating to the acquisition in 2009. The seller, USA Datanet, was in bankruptcy under Chapter 11, and its assets were sold under a court approved sale. The acquisition has been accounted as a business combination. The values of the acquired assets have been calculated by independent appraisers as of the acquisition date. These appraisals were completed in the fourth quarter of 2009.

 

The fair values of the tangible assets acquired were determined using the cost and market approaches. The fair value measurements of the tangible assets were primarily based on significant inputs that are not observable in the market and thus represent a Level 3 measurement as defined in the accounting standard regarding fair value measurements. The cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent economic utility, was used for inventory and, property, plant and equipment. The cost to replace a given asset reflects the estimated reproduction or replacement cost for the property, less an allowance for loss in value due to depreciation. After values were determined using the cost approach, they were tested for reasonableness using the market approach.

 

The fair values of intangible assets were based on the cost approach and the income approach. Level 3 inputs were used for both approaches.

 

The following table summarizes the consideration and the fair values of the assets acquired on April 24, 2009:

 

Consideration     
Cash  $1,487 
      
Recognized fair value amounts of identifiable assets acquired     
Inventory  $98 
Internet communications equipment and furniture and fixtures   3,017 
Intangible assets   121 
   $3,236 
      
Bargain purchase gain  $1,749 

 

As of the acquisition date, the Company recorded a deferred tax liability in the amount of $676, relating to the difference in basis between financial statements and income tax of the assets acquired. This resulted in a net of tax bargain purchase gain of $1,073.

 

The revenue and earnings (loss) before bargain purchase gain from the acquired assets since April 24, 2009 are included in the Company’s consolidated income statement for the year ended December 31, 2009 and were $1,964 and ($927), respectively.

 

The following unaudited pro forma condensed consolidated results of operations for the Company for December 31, 2011, 2010 and 2009, respectively, assume that the purchase of certain assets and the assumption of certain liabilities of Alteva, LLC and USA Datanet occurred on January 1, 2011, 2010 and 2009. They also assume that the asset purchase of USA Datanet occurred on January 1, 2009. The unaudited pro forma information presents the combined operating results of the acquired Alteva, LLC and USA Datanet businesses and the Company, with the results prior to the date of the acquisitions adjusted for amortization of intangibles and depreciation of fixed assets, based on the purchase price allocation, interest expense on borrowings and the elimination of acquisition related costs.

 

37
 

 

The unaudited pro forma results shown in the table below do not purport to be indicative of the results that would have been obtained had the Alteva, LLC Agreement and the USA Datanet Asset Purchase Agreement been entered into as of January 1, 2011, 2010 and 2009, nor does the unaudited pro forma data intend to be a projection of results that may be obtained in the future.

 

   (unaudited) 
   December 31, 
   2011   2010   2009 
             
Operating revenues  $29,997   $30,374   $28,282 
                
Net Income (loss)  $(3,697)  $1,960   $4,479 
                
Basic earnings (loss) per share  $(0.65)  $0.35   $1.05 
Dilluted earnings (loss) per share  $(0.65)  $0.35   $1.04 

 

NOTE 3: NEW ACCOUNTING PRONOUNCEMENTS

 

In May 2011, an accounting standards update regarding fair value measurement was issued. This update was issued to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. This update also changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. This update becomes effective for annual periods beginning after December 15, 2011. The Company does not believe this will have a material impact on its consolidated financial statements.

 

In June 2011, an accounting standards update regarding the presentation of comprehensive income was issued. This update was issued to increase the prominence of items reported in other comprehensive income and requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This update becomes effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company does not believe this will have a material impact on its consolidated financial statements.

 

In September 2011, an accounting standards update regarding the testing of goodwill for impairment was issued. This update allows a company to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount to determine whether it is necessary to perform the two-step goodwill impairment test. This update becomes effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, and earlier adoption is permitted. The Company does not believe this will have a material impact on its disclosures or consolidated financial statements.

 

NOTE 4: SHORT-TERM INVESTMENTS

 

The following is a summary of the Company’s short-term investments classified as available for sale at December 31, 2011 and December 31, 2010, respectively:

 

       Unrealized     
   Amortized   Gains   Fair 
   Cost   (Losses)   Value 
December 31, 2011               
Bank certificate of deposit  $259   $-   $259 
                
December 31, 2010               
Bank certificate of deposit  $257   $-   $257 
Corporate bonds   2,143    (44)   2,099 
Foreign bonds   284    (4)   280 
   $2,684   $(48)  $2,636 

 

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NOTE 5: FAIR VALUE

 

Fair value is the estimated price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company is required by accounting standards to provide the disclosure framework for measuring fair value and expands disclosure about fair value measurements. Fair value measurements are classified and disclosed in one of the following categories:

 

Level 1:              Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

 

Level 2:               Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes those derivative instruments that the Company values using observable market data. Substantially all of these inputs are observable in the marketplace throughout the term of the derivative instruments, can be derived from observable data, or supported by observable levels at which transactions are executed in the marketplace.

 

Level 3:               Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e. supported by little or no market activity). The Company’s valuation models are primarily industry standard models. Level 3 instruments include derivative warrant instruments. The Company does not have sufficient corroborating evidence to support classifying these assets and liabilities as Level 1 or Level 2.

 

Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

 

The following table represents the Company’s fair value hierarchy for its financial assets measured at fair value on a recurring basis as of December 31, 2011:

  

   Level 1   Level 2   Level 3   Total 
                     
Short-term investments  $259   $0   $-   $259 

 

The following table represents the Company’s fair value hierarchy for its financial assets measured at fair value on a recurring basis as of December 31, 2010:

 

   Level 1   Level 2   Level 3   Total 
                     
Short-term investments  $257   $2,379   $-   $2,636 

 

Derivative liability

 

In connection with Asset Purchase Agreement, the members of Alteva, LLC entered into a Lock-Up and Put Agreement with the Company effective October 21, 2011. The purchase price protection provision is considered to be a derivative instrument and must be valued and recognized at the instrument’s current fair market value as of the date of issuance and adjusted each period the financial statements are presented. The Company employed a binomial pricing model to calculate the fair value of the price protection and recorded the fair value as a current liability on its consolidated balance sheet. Inputs are adjusted each period to reflect changes in the Company’s estimate of value of the underlying common stock.

 

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The fair value of the price protection was estimated utilizing the binomial pricing model with the following assumptions for the year ended December 31, 2011:

 

Binomial method     
Model iterations   100.5 
Simulated median price  $13.45 
Exercise price per share  $11.74 
Expected volatility   12.03%
Risk free interest rate   0.15%
Yield rate   7.73%

 

The following table represents the Company’s fair value hierarchy for its financial liabilities measured at fair value on a recurring basis as of December 31, 2011:

 

   Level 1   Level 2   Level 3   Total 
                     
Derivative liability in connection with business acquisition  $0   $0   $131   $131 

 

The following table represents a summary of changes in the fair value of the Company’s Level 3 liability for the year ended December 31, 2011 and 2010:

 

Derivative liability balance December 2010  $0 
Fair value of price protection instrument   116 
Decrease in fair value of price protection instrument   15 
Derivative liability balance December 2011  $131 

 

NOTE 6: GOODWILL AND INTANGIBLE ASSETS

 

Impairment testing for goodwill is performed annually in the fourth fiscal quarter or more frequently if indications of potential impairment exist. The impairment test for goodwill uses a two-step approach, which is performed at the reporting unit level. The Company has determined that our operating segments are the applicable reporting units because they are the lowest level at which discrete, reliable financial and cash flow information is regularly reviewed by our chief operating decision maker. Step one compares the fair value of the reporting unit (calculated using a market approach and/or a discounted cash flow method) to its carrying value. If the carrying value exceeds the fair value, there is a potential impairment and step two must be performed. Step two compares the carrying value of the reporting unit’s goodwill to its implied fair value (i.e., fair value of reporting unit less the fair value of the unit’s assets and liabilities, including identifiable intangible assets). If the implied fair value of goodwill is less than the carrying amount of goodwill, an impairment is recognized.

 

The following table presents details of the Company’s goodwill:

 

   Amount 
Balance as of December 31, 2010  $0 
Goodwill acquired with the Alteva acquisition   9,121 
Balance as of December 31, 2011  $9,121 

 

The Company performs an annual goodwill impairment test during the fourth quarter of the fiscal year and when triggering events are present.

 

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The following table presents details of the Company’s total purchased intangible assets:

 

  Estimated   Gross   Accumulated   Net 
  Useful Lives   Value   Amortization   Value 
As of December 31, 2011                    
Customer relationships   8 years   $5,400   $(281)  $5,119 
Trade name   15 years    2,400    (67)   2,333 
Telephone seat licenses   5 years    1,372    (219)   1,153 
Total      $9,172   $(567)  $8,605 

 

  Estimated   Gross   Accumulated   Net 
  Useful Lives   Value   Amortization   Value 
As of December 31, 2010                    
Telephone seat licenses   5 years   $318   $(101)  $217 
Total       $318   $(101)  $217 

 

The amortization expense is recorded in the Consolidated Statements of Operations under depreciation and amortization in the amounts of $466, $59, and $36 for the years ended December 31, 2011, 2010, and 2009, respectively.

 

Future amortization expense is expected to be recorded as follows:

 

Year  Amount 
2012  $1,110 
2013   1,104 
2014   1,071 
2015   1,051 
2016   992 

 

NOTE 7: EARNINGS (LOSS) PER SHARE

 

Basic earnings (loss) per share are computed by dividing net income (loss) applicable to common shares by the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed by dividing net income (loss) applicable to common shares by the weighted average number of common shares adjusted to include the effect of potentially dilutive securities. Potentially dilutive securities include incremental shares issuable upon exercise of outstanding stock options and shares of unvested restricted stock. Diluted earnings per share exclude all dilutive securities if their effect is anti-dilutive.

 

The weighted average number of shares of common stock used in diluted earnings per share for the years ended December 31:

 

   2011 (1)   2010   2009 
Weighted average shares of common stock used in basic earnings per share   5,424,927    5,363,543    5,353,763 
Effects of puttable common stock   10,922    -    - 
Effects of stock options   -    24,621    8,284 
Effects of restricted stock   -    19,830    22,459 
    5,435,849    5,407,994    5,384,506 

 

(1)Basic and diluted weighted average shares were the same for the year ended December 31, 2011 because the effects of the potentially diluted securities were anti-dilutive and they were excluded from the calculation.

 

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NOTE 8: OTHER COMPREHENSIVE INCOME (LOSS)

 

Other comprehensive income (loss) consisted of the following for the years ended December

 

   2011   2010   2009 
Pension and postretirement benefits plans  $(3,465)  $868   $1,561 
Unrealized gain (loss) on investments   -    (48)   - 
Reclassification of unrealized gain upon realization from sale   31    -    - 
Related deferred income taxes   1,239    (318)   (556)
Total other comprehensive income (loss)  $(2,195)  $502   $1,005 

 

NOTE 9: SEGMENT INFORMATION

 

The Company’s segments are strategic business units that offer different products and services and are managed as Telephone and Online services. The Company evaluates the performance of the segments based upon factors such as revenue growth, expense containment, market share and operating results.

 

The Telephone segment provides telecommunications services including local, network access, wholesale, conferencing, long distance services, wireless and directory services. The Online segment provides high speed and dial-up Internet services, VoIP, UC Services, DIRECTV and video. The Company’s Alteva and USA Datanet businesses are part of the Online segment.

 

The segment results presented below are not necessarily indicative of the results of operations these segments would have achieved had they operated as stand-alone entities during the periods presented.

 

Segment income statement information for the years ended December 31:

 

   2011   2010   2009 
Segment operating revenues               
Telephone  $16,523   $17,141   $17,026 
Online   9,413    7,285    6,896 
Total segment operating revenues  $25,936   $24,426   $23,922 
                
Depreciation and amortization               
Telephone  $3,810   $4,086   $4,119 
Online   1,456    1,694    1,349 
Total depreciation and amortization  $5,266   $5,780   $5,468 
                
Operating loss               
Telephone  $(11,109)  $(6,275)  $(4,176)
Online   (480)   (113)   (153)
Total segment operating loss, exclusive of impairment loss  $(11,589)  $(6,388)  $(4,329)

 

The following table reconciles segment operating loss to income before income taxes for the years ended December 31, 2011, 2010 and 2009;

 

   2011   2010   2009 
             
Segment operating loss  $(11,589)  $(6,388)  $(4,329)
Impairment loss on video assets   -    (2,283)   - 
Interest income, (expense), net   (64)   33    (36)
Income from equity investments   7,898    12,578    12,470 
Bargain purchase gain   -    -    1,749 
Other (expenses) income, net   (51)   261    197 
Income before income taxes  $(3,806)  $4,201   $10,051 

 

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Certain regulatory revenue which includes USF and NECA pool settlements, has accounted for $2,812 or 11%, $3,902 or 16% and $3,352 or 14% of the Company’s revenues for the years ended December 31, 2011, 2010 and 2009, respectively. Accounts receivable for certain regulatory revenue represents 7% and 18% of consolidated accounts receivable at December 31, 2011 and 2010, respectively.

 

Segment balance sheet information as of December 31:

 

   2011   2010 
Assets          
Telephone  $35,630   $49,524 
Online   22,286    3,551 
Total assets  $57,916   $53,075 

 

NOTE 10: MATERIAL AND SUPPLIES

 

Material and supplies are carried at average cost. As of December 31, 2011 and 2010, material and supplies consisted of the following:

 

   2011   2010 
Inventory for outside plant  $322   $368 
Inventory for central office   266    295 
Inventory for online equipment   77    79 
Inventory for video equipment   68    72 
Inventory of equipment held for sale or lease   16    24 
Inventory for VoIP telephone equipment   83    148 
   $832   $986 

 

NOTE 11: PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment, at cost, consisted of the following as of December 31:

 

   2011   2010 
Land, buildings and other support equipment  $10,908   $9,677 
Network communications equipment   36,187    35,131 
Telephone plant   30,571    29,847 
Online plant   6,885    7,113 
Plant in service   84,551    81,768 
Plant under construction   297    108 
    84,848    81,876 
Less:  Accumulated depreciation   59,423    54,618 
Property, plant and equipment, net  $25,425   $27,258 

 

Depreciation expense is principally based on the composite group method. Depreciation expense for the years ended December 31, 2011, 2010, and 2009 was $4,760, $5,703 and $5,419, respectively.

 

The Company reviews the recoverability of our long-lived assets, including buildings, equipment, internal-use software and other intangible assets, when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on the Company’s ability to recover the carrying value of the asset from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. The primary measure of fair value is based on discounted cash flows, which are considered to be a Level 3 input. For the year ended December 31, 2010, the Company determined that its landline video assets, consisting of head-end equipment, related network equipment and customer premise equipment, were impaired. The Company recorded an asset impairment charge of $2,283, which represents 100% of the carrying net value of the landline video assets. This impairment charge resulted from customers who migrated to DIRECTV under the Company’s reseller agreement with DIRECTV or to a competitor, resulting in lost landline video revenue.

 

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NOTE 12: ORANGE COUNTY-POUGHKEEPSIE LIMITED PARTNERSHIP

 

The Company is a limited partner in the Orange County-Poughkeepsie Limited Partnership (“O-P”) and had 8.108% equity interest as of December 31, 2011 and 2010, which is accounted for under the equity method of accounting. The majority owner and general partner of the O-P is Verizon Wireless of the East LP.

 

On May 26, 2011, the Company entered into an agreement with Verizon Wireless of the East LP, the general partner and a limited partner, and Cellco Partnership, the other limited partner, in the O-P to make certain changes to the O-P partnership agreement which, among other things, specifies that the O-P will provide 4G cellular services (the “4G Agreement”). The 4G Agreement provides that the O-P’s business will be converted from a wholesale business to a retail business. The 4G Agreement provides for guaranteed annual cash distributions to the Company from the O-P through 2013. For 2011, annual cash distributions from the O-P were $13,600 and for 2012 and 2013 the annual cash distributions will be $13,000. Annual cash distributions will be paid in equal quarterly amounts. The 4G Agreement also gives the Company the right (the “Put”) to require one of the O-P’s limited partners to purchase all the Company’s ownership interest in the O-P during April 2013 or April 2014 for an amount equal to the greater of (a) $50,000 or (b) the product of five (5) times 0.081081 times the O-P’s EBITDA, as defined in the 4G Agreement for the calendar year preceding the exercise of the Put.

 

The conversion of the O-P from a wholesale business to a retail business pursuant to the 4G Agreement will increase the cellular service costs and operating expenses incurred by the O-P, which is expected to cause a subsequent reduction in the O-P’s net income primarily due to the inclusion of sales and marketing expenses. Although the Company’s share of the O-P net income recorded in the Company’s income statement is expected to decrease, the annual cash distributions the Company receives from the O-P will remain unchanged pursuant to the terms of the 4G Agreement.

Pursuant to the equity method accounting of the Company’s investment income, the Company is required to record the income from the O-P as an increase to the Company’s investment account. The Company is required to apply the cash payments made under the 4G Agreement as a return on its investment when received. Under equity method accounting, the Company currently reports as income its proportionate share of the O-P income that is less than the guaranteed cash distributions it receives from the O-P. The cash distributions the Company receives from the O-P that are in excess of the Company’s proportionate share of the O-P income is recorded as a reduction of its investment account. As a result of receiving the fixed guaranteed cash distributions from the O-P in excess of the Company’s proportionate share of the O-P income, the investment account is expected to be reduced to zero within the first six months of 2012. Thereafter, the Company will record the fixed guaranteed cash distributions that are received from the O-P in excess of the proportionate share of the O-P income directly to the Company’s statement of operations as other income.

 

As of December 31, the value of the Company’s holding in O-P is as follows:

 

   2011   2010 
Equity interest in O-P Partnership  $-   $3,600 
Goodwill   1,979    4,081 
   $1,979   $7,681 

 

The following summarizes O-P’s audited income statement for the years ended December 31:

 

   2011 (1)   2010   2009 
Net Revenue  $273,340   $187,985   $183,839 
Cellular service cost   122,142    23,859    21,735 
Operating expenses   53,832    10,035    9,830 
Operating income   97,366    154,091    152,274 
Other income   40    1,034    1,522 
Net income  $97,406   $155,125   $153,796 
Company share  $7,898   $12,578   $12,470 

 

(1) The twelve months ended December 31, 2011 income statement represents five months of the O-P operating as a wholesale business and seven months of the O-P operating as a retail business in accordance with Amendment 6 to the O-P Limited Partnership Agreement effective May 1, 2011.

 

 

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The following summarizes the O-P’s audited balance sheet that O-P provided to the Company as of December 31:

 

   2011   2010 
Current assets  $20,525   $10,916 
Property, plant and equipment, net   39,596    34,294 
Total assets  $60,121   $45,210 
           
Total liabilities  $42,500   $818 
Partners' capital   17,621    44,392 
Total liabilities and partners' capital  $60,121   $45,210 

 

NOTE 13: DEBT OBLIGATIONS

 

Debt obligations consisted of the following at December 31:

 

   2011   2010 
Long-term debt:          
Current maturities CoBank ACB, unsecured term credit facility  $1,139   $1,519 
Long-term portion CoBank ACB, unsecured term credit facility   -    1,139 
    1,139    2,658 
Short-term debt:          
CoBank ACB revolving loan facility   5,000    - 
Provident Bank credit line   600    - 
    5,600    - 
Total debt obligations  $6,739   $2,658 

 

On February 18, 2003, the Company entered into its master loan agreement with CoBank, ACB with respect to an $18,475 unsecured term credit facility. The CoBank ACB, unsecured term credit facility loan remains outstanding until all indebtedness and obligations of the Company under the facility have been paid or satisfied, but no later than July 2012 (the “Maturity Date”). The unpaid principal balance of $1,139 accrues interest at an interest rate determined or selected by the Company. The Company may select a variable rate option, a long-term fixed rate option or a LIBOR option. The Company selected the variable rate option, and the average interest rate on borrowings for the years ended December 31, 2011, 2010, and 2009 was approximately 2.98%, 2.96%, and 3.04%, respectively. Interest is paid quarterly each January, April, July and October. The outstanding principal is being repaid in 32 consecutive quarterly installments which started in October 2004, with the last such installment due on the Maturity Date. On the Maturity Date, the amount of the unpaid principal plus accrued interest and fees is due in full.

 

On August 3, 2011, the Company entered into a supplement to its master loan agreement with CoBank, ACB. The supplement provides for a revolving loan facility in the principal amount of $5,000 (the “CoBank Revolving Loan”). Also on August 3, 2011, the Company drew down the entire $5,000 principal amount of the CoBank Revolving Loan to fund a portion of the purchase price of the Alteva, LLC acquisition. The CoBank Revolving Loan becomes due and payable on August 2, 2012. The CoBank Revolving Loan incurs interest at a variable rate determined by CoBank, ACB or, if selected by the Company, at LIBOR plus 3.50%. Interest is payable quarterly in arrears. The interest rate on the outstanding amount is variable and, as of December 31, 2011, the rate was 3.75%. The Company paid CoBank, ACB a $50 origination fee in connection with the CoBank Revolving Loan.

 

Under the terms of the CoBank facility, the Company is required to comply with certain loan covenants, which include, but are not limited to, the achievement of certain financial ratios, as set forth in the agreement, as well as certain financial reporting requirements. As of December 31, 2011, the Company was in compliance with all loan covenants.

 

The Company has an unsecured $4,000 line of credit with Provident Bank. On August 1, 2011, the Company drew down its entire $4,000 line of credit with Provident Bank and placed the proceeds in an escrow account, pursuant to the terms of the agreement with Alteva, LLC. The Company paid $649 for certain capital leases of Alteva, LLC from the escrow account. On October 21, 2011, the NYPSC approved the Company’s petition for authority to issue stock as partial consideration for the purchase of the assets of Alteva, LLC and on September 22, 2011, the NJBPU also approved the Company’s petition for authority to issue stock. As a result, the balance of $3,351, which was placed in escrow, was returned to the Company. As of December 31, 2011, $600 remains outstanding on the line of credit with Provident Bank. The Company had no outstanding balance on this facility as of December 31, 2010. Interest is at a variable rate and borrowings are on a demand basis without restrictions. At December 31, 2011, the Company was in compliance with all loan covenants under the line of credit.

 

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NOTE 14: INCOME TAXES

 

The federal and state components of the provision for (benefit from) income taxes are presented in the following table:

 

   For the Years Ended 
   December 31, 
   2011   2010   2009 
Provision (benefit) for income tax               
Current:               
Federal  $(1,150)  $3,208   $2,195 
State and local   51    -    (43)
    (1,099)   3,208    2,152 
Deferred:               
Federal   (269)   (1,548)   936 
State and local   483    (311)   148 
    214    (1,859)   1,084 
Provision for income taxes  $(885)  $1,349   $3,236 

 

Deferred income tax liabilities are taxes the Company expects to pay in future periods. Similarly, deferred income tax assets are recorded for expected reductions in taxes payable in future periods. Deferred income taxes arise because of differences in the book and tax basis of certain assets and liabilities.

 

Deferred income tax liabilities and assets consist of the following:

 

   At December 31, 
   2011   2010 
Deferred income tax assets:          
Employee pensions and other benefits  $3,823   $2,594 
State net operating loss carryforward   687    489 
Accrued liabilities   322    - 
Other   564    19 
Total deferred income tax assets   5,396    3,102 
           
Valuation allowance   (693)   (125)
           
Deferred income tax liabilities:          
Property, plant and equipment   4,743    4,446 
Intangible assets   -    47 
Other   913    463 
Total deferred income tax liabilities   5,656    4,956 
Net deferred income tax liability  $(953)  $(1,979)

 

The Company established a valuation allowance of $693 at December 31, 2011, and $125 at December 31, 2010 against certain state net operating loss (principally New Jersey) carryforwards. The Company was unable to conclude that it was more likely than not that it would realize these losses prior to their expiration. The Company will continue to refine and monitor all available evidence during future periods to evaluate the recoverability of its deferred tax assets.

 

The difference between tax expense (benefit) and the amount computed by applying the statutory federal income tax rate (34%) to income (loss) before income taxes is as follows:

 

   Years Ended December 31, 
   2011   2010   2009 
Statutory rate applied to pre-tax income (loss)  $(1,294)  $1,428   $3,417 
Add (deduct):               
State income taxes, net   (215)   (330)   69 
Valuation allowance - state   568    125    - 
Other   56    126    (250)
Income taxes (benefit)  $(885)  $1,349   $3,236 

 

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Accounting for uncertainty in income taxes requires uncertain tax positions to be classified as non-current income tax liabilities unless they are expected to be paid within one year. The Company has adopted the accounting guidance for uncertain tax positions and has concluded that there are no uncertain tax positions requiring recognition in its consolidated financial statements as of December 31, 2011 and 2010.

 

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense. For the years ended December 31, 2011, 2010 and 2009, there was no interest expense relating to unrecognized tax benefits.

 

The Company has state net operating loss carry-forwards in the amount of approximately $26,000 as of December 31, 2011. These losses expire through 2017.

 

The Company and its subsidiaries file a U.S. federal consolidated income tax return. The U.S. federal statute of limitations remains open for the years 2008 and thereafter. In 2010, the IRS completed its examination of the Company’s 2006 and 2007 federal income tax returns. As a result of such examination, the Company received a net refund of approximately $459 from the IRS.

 

State income tax returns are generally subject to examination for a period of 3 to 5 years after filing the respective return. The impact of any federal changes on state returns remains subject to examination by the relevant states for a period of up to one year after formal notification to the states.

 

Note 15: PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

 

The Company has two defined benefit pension plans covering all management and non-management employees who are at least 21 years of age, have completed one year of service and have been hired before May 1, 2003 for the non-management plan and March 1, 2005 for the management plan. Benefits are based on years of service and the average of the employee’s three highest consecutive years’ of base compensation. The Company’s policy is to fund the minimum required contribution disregarding any credit balance arising from excess amounts contributed in the past.

 

The Company sponsors a postretirement medical benefit plan that covers all employees that retire directly from active service on or after age 55 with at least 10 years of service. The projected unit credit actuarial method was used in determining the cost of future benefits. Assets of the plan are principally invested in fixed income securities and a money market fund. The Company uses an annual measurement date of December 31 for all of its benefit plans.

 

The components of the pension and postretirement expense (credit) for the years ended December 31 are as follows:

 

   Pension Benefits   Postretirement Benefits 
   2011   2010   2009   2011   2010   2009 
Components of Net Periodic Costs:                              
Service cost  $-   $-   $-   $14   $11   $37 
Interest cost   860    869    875    238    246    236 
Expected return on plan assets   (913)   (820)   (668)   (168)   (161)   (158)
Amortization of transition asset   -    -    -    28    28    28 
Amortization of prior service cost   56    56    56    (330)   (330)   (330)
Recognized actuarial (gain) loss   755    873    713    94    94    101 
Net periodic loss (gain)  $758   $978   $976   $(124)  $(112)  $(86)

 

Amounts recognized in other comprehensive loss (income) and net periodic cost (income) before tax for pension and other postretirement plan consisted of the following:

 

   Pension Benefits   Postretirement Benefits 
   2011   2010   2009   2011   2010   2009 
                         
Actuarial net (gain) loss:  $2,787   $(1,244)  $(1,621)  $432   $130   $(186)
Transition obligation (asset)   -    -    -    (28)   (28)   (28)
Prior service (credit) cost   (56)   (56)   (56)   330    330    330 
Total recognized in other comprehensive (income) loss  $2,731   $(1,300)  $(1,677)  $734   $432   $116 
                               
Total recognized in net periodic benefit cost (income) and other comprehensive (income) loss  $3,489   $(322)  $(701)  $610   $320   $30 

 

47
 

 

The estimated amounts for the defined benefit pension plans and the postretirement benefit plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost (income) over the next fiscal year are as follows:

 

       Postretirement 
   Pension Plans   Benefits 
         
Amortization of net actuarial loss  $926   $128 
           
Amortization of prior service cost (credit)  $56   $(330)
           
Amortization of transition obligation  $-   $28 

 

The following table presents a summary of the projected benefit obligation and plan assets of the plans at December 31:

 

           Postretirement 
   Pension Benefits   Benefits 
Change in Benefit Obligation  2011   2010   2011   2010 
Benefit obligation, beginning of year  $16,020   $15,708   $4,580   $4,301 
Service cost   -    -    14    11 
Interest cost   860    869    238    246 
Plan amendments   -    -    -    - 
Actuarial losses (income)   2,602    326    431    142 
Benefit payments   (926)   (883)   (120)   (120)
Impact of curtailment   -    -    -    - 
Benefit obligation, end of year   18,556    16,020    5,143    4,580 
                     
Changes in fair value of plan assets                    
Fair value of plan assets, beginning of year   11,690    10,469    2,096    2,018 
Actual return on plan   (28)   1,518    72    78 
Employer contributions   529    586    120    120 
Benefit payments   (926)   (883)   (120)   (120)
                     
Fair value of plan assets, end of year   11,265    11,690    2,168    2,096 
Unfunded status at end of year  $(7,291)  $(4,330)  $(2,975)  $(2,484)

 

Amounts recognized in the Consolidated Balance Sheets consisted of the following:

 

           Postretirement 
   Pension Benefits   Benefits 
   2011   2010   2011   2010 
                 
Pension and postretirement benefit obligations-current  $(502)  $(569)  $(120)  $(120)
Pension and postretirement benefit obligations-long term   (6,789)   (3,761)   (2,855)   (2,364)
Total  $(7,291)  $(4,330)  $(2,975)  $(2,484)

 

Amounts recognized in the accumulated other comprehensive loss, net of tax, consisted of the following:

 

           Postretirement 
   Pension Benefits   Benefits 
   2011   2010   2011   2010 
                 
Actuarial net (loss) gain  $(3,967)  $(2,177)  $(1,557)  $(1,279)
Transition obligation / (asset)   -    -    (18)   (37)
Net prior service credit   (187)   (222)   750    962 
Total  $(4,154)  $(2,399)  $(825)  $(354)

 

48
 

 

Actuarial assumptions used to calculate the projected benefit obligation were as follows for the years ended December 31:

 

   Pension Benefits   Postretirement Benefits 
   2011   2010   2011   2010 
Discount rate   4.25%   5.50%   4.25%   5.50%
Expected return on plans   8.00%   8.00%   8.00%   8.00%
Healthcare cost trend   -    -    6.50 - 8.50%    7.00 - 9.00% 

 

Actuarial assumptions used to calculate net periodic benefit cost were as follows for the years ended December 31:

 

   Pension   Postretirement 
   Benefits   Benefits 
   2011   2010   2011   2010 
Discount rate   4.25%   5.50%   4.25%   5.50%
Expected return on assets   8.00%   8.00%   8.00%   8.00%

 

The rate of return assumption, currently 8%, estimates the portion of plan benefits that will be derived from investment return and the portion that will come directly from Company contributions. Accordingly, the Company, utilizing the investment policy described below, strives to maintain an investment portfolio that generates annual returns from funds invested consistent with achieving the projected long-term rate of return required for plan assets. The investment policy followed by the Pension Plan Manager can be described as an “adaptive” approach that is essentially structured towards achieving a compromise between the static long-term approach and the short-term opportunism of the dynamic or tactical approaches. The objective is to modify asset allocations based on changing economic and financial market conditions so as to capture the major position of excess returns and then shift the priority to risk containment after valuations become stretched.

 

The Company’s pension plans had an unfunded projected benefit obligation of $7,291 as of December 31, 2011. The projected benefit obligation of $18,556 at December 31, 2011 was in excess of plan assets of $11,265. The Company’s postretirement plans had an unfunded projected benefit obligation of $2,975 as of December 31, 2011. The projected benefit obligation of $5,143 at December 31, 2011 was in excess of plan assets of $2,168.

 

The Company’s pension plans had an unfunded projected benefit obligation of $4,330 as of December 31, 2010. The projected benefit obligation of $16,020 at December 31, 2010 was in excess of plan assets of $11,690. The Company’s postretirement plans had an unfunded projected benefit obligation of $2,484 as of December 31, 2010. The projected benefit obligation of $4,580 at December 31, 2010 was in excess of plan assets of $2,096.

 

The projected benefit obligations exceeded the fair value of plan assets and the Company was required to record an additional pension liability in the Consolidated Balance Sheet as of December 31, 2011. The effect of this adjustment was an increase in the pension liability of $7,751 and an increase in accumulated other comprehensive loss of $4,979, net of tax. The health care cost trend rates (representing the assumed annual percentage increase in claim costs by year) was 6.5% for the pre-65 trend rate and 8.5% for the post-65 trend rate, with each of these grading down to 5.0%, by 0.5% per year. The Company’s most recent actuarial calculation anticipates that this trend will continue into 2012. An increase in the assumed health care cost trend rate by 1.0% would increase the accumulated postretirement benefit obligation as of December 31, 2011 by approximately $644 and the aggregate of the service and interest cost components of postretirement expense for the year then ended by approximately $27. A 1.0% decrease in the health care cost trend rate would decrease these components by $540 and $23, respectively.

 

Plan Assets

 

The Company diversifies its pension and postretirement plan assets across domestic and international common stock and fixed income asset classes.

 

As of December 31, 2011, the current target allocations for pension and postretirement plan assets are 50-60% for equity securities, 40-50% for fixed income securities and 0-5% for cash and certain other investments.

 

49
 

 

The fair values of our pension plan assets at December 31, 2011 by asset category are as follows:

 

Asset  Total             
Category  Market             
   Value   Level 1   Level 2   Level 3 
                 
Equity securities (a)  $5,826   $5,826   $-   $- 
Fixed income securities (b)   4,605    4,605    -    - 
Cash and cash equivalents (c)   834    834    -    - 
Total pension assets  $11,265   $11,265   $-   $- 

 

The fair values of our postretirement plan assets at December 31, 2011 by asset category are as follows:

 

   Total             
Asset  Market             
Category  Value   Level 1   Level 2   Level 3 
                 
Fixed income securities (b)  $1,706   $1,706   $-   $- 
Cash and cash equivalents (c)   461    461    -    - 
Total pension assets  $2,167   $2,167   $-   $- 

 

(a)This category includes funds invested in equity securities of large, medium and small-sized companies and equity securities of international markets. The funds are valued using the market value for the underlying investments.
(b)This category includes funds invested in fixed income instruments. The funds are valued using the market value for the underlying investments.
(c)This category comprises cash held to pay beneficiaries. The fair value equals its book value.

 

The fair values of our pension plan assets at December 31, 2010 by asset category are as follows:

 

   Total             
Asset  Market             
Category  Value   Level 1   Level 2   Level 3 
                 
Equity securities (a)  $6,125   $6,125   $-   $- 
Fixed income securities (b)   5,073    5,073    -    - 
Cash and cash equivalents (c)   492    492    -    - 
Total pension assets  $11,690   $11,690   $-   $- 

 

The fair values of our postretirement plan assets at December 31, 2010 by asset category are as follows:

 

   Total             
Asset  Market             
Category  Value   Level 1   Level 2   Level 3 
                 
Fixed income securities (b)  $1,635   $1,635   $-   $- 
Cash and cash equivalents (c)   461    461    -    - 
Total pension assets  $2,096   $2,096   $-   $- 

 

This category includes funds invested in equity securities of large, medium and small-sized companies and equity securities of international markets. The funds are valued using the market value for the underlying investments.

(a)This category includes funds invested in fixed income instruments. The funds are valued using the market value for the underlying investments.
(b)This category includes funds invested in fixed income instruments. The funds are valued using the market value for the underlying investments.
(c)This category comprises cash held to pay beneficiaries. The fair value equals its book value.

 

In accordance with its contribution policy, in 2012 the Company expects to contribute $622 to its pension plan.

 

50
 

 

 

Benefit payments, under the provisions of the plans, are expected to be paid as follows:

 

   Pension   Postretirement 
   Benefits   Benefits 
2012  $986   $258 
2013   979    270 
2014   991    287 
2015   1,010    279 
2016   1,048    266 
2017-2021   5,970    1,528 

 

The Company also has a Defined Contribution 401(k) Profit Sharing Plan covering substantially all employees. Under the plan, employees may contribute up to 100% of compensation not to exceed certain legal limitations. The Company matches 100% of the participant’s contributions, up to 4.5% of salary. The Company contributed and expensed $289, $586 and $246 for the years ended December 31, 2011, 2010 and 2009, respectively.

 

The Company has deferred compensation agreements in place with certain former officers that became effective upon retirement. These non-qualified plans are not currently funded and a liability representing the present value of future payments has been established, with balances of $270 and $269 as of December 31, 2011 and 2010, respectively.

 

NOTE 16: STOCK BASED COMPENSATION

 

The Company adopted and, at the annual meeting held on April 29, 2011, its shareholders approved, the Amended and Restated 2008 Long-Term Incentive Plan (the “Amended and Restated LTIP”) to assist the Company and its affiliates in attracting, motivating and retaining selected individuals to serve as employees, directors, consultants and advisors of the Company and its affiliates by providing incentives to such individuals through the ownership and performance of the Company’s common stock. The Amended and Restated LTIP increases the total number of shares authorized under the Amended and Restated LTIP from 500,000 shares to 1,100,000 shares of common stock. The increases in the number of shares available under the Amended and Restated LTIP required approval from the NYPSC and NJBPU. As of December 31, 2011, the Company had not received approval from the NYPSC or the NJBPU. Approval has been received subsequent to December 31, 2011 (See Note 20). Shares available for grant under the Amended and Restated LTIP may be either authorized but unissued shares or shares that have been reacquired by the Company and designated as treasury shares. As of December 31, 2011 and 2010, 137,590 and 270,089 shares of the Company’s common stock were available for grant under the Amended and Restated LTIP. The Amended and Restated LTIP permits the issuance by the Company of awards in the form of stock options, stock appreciation rights, restricted stock and restricted stock units and performance shares. The exercise price per share of the Company’s common stock purchasable under any stock option or stock appreciation right may not be less than 100% of the fair market value of one share of common stock on the date of grant. The term of any stock option or stock appreciation may not exceed ten years. The Amended and Restated LTIP also provides plan participants with a cashless mechanism to exercise their stock options. For the year ended December 31, 2011, the Company purchased treasury stock of $1,171 as a result of plan participants using the cashless mechanism when exercising stock options. Issued restricted stock, stock options and restricted stock units are subject to vesting restrictions.

 

Restricted Stock Awards

 

The following table summarizes the restricted stock granted to certain eligible participants for the years ended December 31, 2011, 2010 and 2009:

 

Restricted stock granted  2011   2010   2009 
             
Shares   61,636    35,004    16,550 
                
Grant date weighted average fair value per share  $14.62   $13.22   $10.99 

 

Stock-based compensation expense for restricted stock awards of $684, $272 and $86 was recorded for the years ended December 31, 2011, 2010 and 2009, respectively. Restricted stock awards are amortized over their respective vesting periods of two or three years. The Company records stock-based compensation for grants of restricted stock awards on a straight-line basis. The Company has determined expected forfeitures based on recent activity and is recognizing compensation expense only for those restricted common shares expected to vest.

 

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The following table summarizes the restricted common stock activity during the years ended December 31, 2011, 2010 and 2009:

 

       Grant Date Weighted 
   Shares   Average per Share 
Balance - January 1, 2009   19,000   $- 
Granted   16,550    10.99 
Vested   (6,332)   10.78 
Forfeited   (7,592)   10.53 
Balance - December 31, 2009   21,626    11.03 
           
Granted   35,004    13.22 
Vested   (8,807)   10.99 
Forfeited   (450)   12.78 
Balance - December 31, 2010   47,373    12.64 
           
Granted   61,636    14.62 
Vested   (38,447)   13.04 
Forfeited   (2,003)   14.10 
Balance - December 31, 2011   68,559    14.15 

 

Stock Options

 

The following tables summarize stock option activity for the years ended December 31, 2011, 2010 and 2009, along with options exercisable at the end of each period:

 

       Weighted Average 
Options  Shares   Exercise Price 
Outstanding - January 1, 2009   90,500   $10.78 
Stock options granted   64,499    10.64 
Exercised   -    - 
Forfeited   (31,368)   10.60 
Outstanding - December 31, 2009   123,631   $10.76 
           
Stock options granted   43,768    12.88 
Exercised   (6,666)   10.78 
Forfeited   -    - 
Outstanding - December 31, 2010   160,733   $11.33 
           
Stock options granted   149,293    14.83 
Exercised   (103,319)   11.01 
Forfeited   (2,843)   14.02 
Outstanding - December 31, 2011   203,864   $14.02 
           
Vested and expected to vest at December 31, 2009   123,631      
Exercisable at December 31, 2009   30,166      
           
Vested and expected to vest at December 31, 2010   160,733      
Exercisable at December 31, 2010   62,486      
           
Vested and expected to vest at December 31, 2011   203,864      
Exercisable at December 31, 2011   73,071      

 

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The stock options vest over a three-year period. The following table summarizes information about fixed price stock options outstanding at December 31, 2011, 2010 and 2009:

 

           Weighted Average     
       Weighted   Remaining   Aggregate 
   Shares   Average   Contractual   Intrinsic 
Exercise Price per Share  Outstanding   Exercise Price   Life (Years)   Value 
December 31, 2009                    
$10.78   77,166   $10.78    8.69      
$10.02   30,948   $10.02    9.22      
$11.20   7,517   $11.20    9.32      
$12.97   7,000   $12.97    9.90      
$12.76   1,000   $12.76    9.99      
    123,631   $10.76    8.94   $289 
                     
Exercisable at December 31, 2009   30,166   $10.78    8.69   $70 
                     
December 31, 2010                    
$10.78   70,500   $10.78    7.69      
$10.02   30,948   $10.02    8.22      
$11.20   7,517   $11.20    8.32      
$12.97   7,000   $12.97    8.90      
$12.76   1,000   $12.76    8.99      
$12.88   43,768   $12.88    9.15      
    160,733   $11.33    8.09   $421 
                     
Exercisable at December 31, 2010   62,486   $10.76    7.73   $205 
                     
December 31, 2011                    
$10.78   15,166   $10.78    6.69      
$10.02   4,051   $10.02    7.22      
$11.20   7,517   $11.20    7.32      
$12.97   7,000   $12.97    7.90      
$12.76   333   $12.76    7.99      
$12.88   22,328   $12.88    8.15      
$14.70   18,849   $14.70    9.15      
$14.85   128,620   $14.85    9.19      
    203,864   $14.02    8.73   $0 
                     
Exercisable at December 31, 2011   73,071   $13.56    8.42   $0 

 

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last trading day, December 31, 2011, 2010 and 2009, respectively, and the exercise price times the number of shares) that would have been received by the option holders had all the option holders exercised in-the-money stock options on December 31, 2011, 2010 and 2009, respectively. This amount will change based on the fair market value of the Company’s common stock.

 

The fair value of the above stock-based awards was estimated using the Black-Scholes model with the following weighted-average assumptions for the years ended December 31, 2011, 2010 and 2009:

 

Options  2011   2010   2009 
Expected life (in years)   10    10    10 
Interest rate   3.40%   3.78%   2.75%
Volatility   32.77%   31.70%   30.74%
Dividend yield   7.00%   6.83%   8.34%
Weighted-average fair value per share at grant date  $2.16   $1.92   $1.04 

 

Compensation expense related to stock options granted was $287, $69 and $42 in 2011, 2010 and 2009, respectively.

 

53
 

 

The following table presents the total stock-based compensation expense resulting from stock options and restricted stock granted to employees that are included in the Company’s consolidated statements of operations for the years ended December 31, 2011, 2010 and 2009.

 

Stock-Based Compensation Expense  2011   2010   2009 
             
Cost of services and products  $66   $40   $- 
Selling, general and administrative expense   894    301    128 
   $960   $341   $128 

 

As of December 31, 2011, $795 of total unrecognized compensation expense related to stock options and restricted stock is expected to be recognized over a weighted average period of approximately 1.42 years.

 

NOTE 17: SHAREHOLDERS’ EQUITY AND PUTTABLE COMMON STOCK

 

The Company has 10,000,000 authorized shares of common stock at a par value of $0.01; 5,000 authorized Preferred Shares at a par value of $100; and 10,000,000 authorized shares of preferred stock at a par value of $0.01.

 

The Company issued 272,479 shares of the Company’s common stock with a put option pursuant to the Lock-Up and Put Agreement entered into on October 21, 2011 and in connection with the Asset Purchase Agreement. The members of Alteva, LLC have the option to put the 272,479 shares back to the Company on October 21, 2012 and December 15, 2012. The puttable common stock in connection with the Company’s purchase of substantially all of the assets and certain liabilities of Alteva, LLC was issued with redemption features that are not solely within the control of the Company and is classified outside of permanent equity (often referred to as classification in “temporary equity”). The Company fair valued the puttable common stock at the date of acquisition in the amount of $4,125.

 

NOTE 18: COMMITMENTS AND CONTINGENCIES

 

In connection with the Alteva Agreement, the Company has entered into two-year employment agreement with its Executive Vice President and Chief Operating Officer, its Executive Vice President and Chief Sales Officer, and its Executive Vice President and Chief Network Officer. Their annual salaries per the agreements are $285, $180, and $180, respectively. The Company entered into a two-year employment agreement with its Executive Vice President, Chief Financial Officer and Treasurer on May 9, 2011 effective May 5th, 2011 and a three-year employment agreement with its President and Chief Executive Officer on December 14, 2011 effective April 11, 2012. Their annual salaries per the agreement are $200 and $375, respectively. The Company entered into two-year employment agreements with its Executive Vice President and Chief Administrator Officer on August 11, 2011 and Executive Vice President and Chief Technology Officer on August 8, 2011 and both were effective August 5, 2011. Their annual salaries per the agreement are $180, respectively.

 

The Company currently has an operating lease to rent space on a tower to transmit video content from its headend facility. The Company also leases vehicles for operations as well as office space in Vernon, New Jersey, Syracuse, New York and Philadelphia, Pennsylvania. In addition, the Company has entered into certain long-term agreements to access trunk lines from other carriers to transmit voice, video and data. Total expenses associated with these agreements were $2,342, $2,259 and $2,114 in 2011, 2010 and 2009, respectively.

 

The future aggregate lease commitments as of December 31, 2011 is as follows:

 

2012  $573 
2013   137 
2014   36 
2015 and thereafter   2 
Total  $748 

 

From time to time the Company is involved in litigation relating to legal claims arising in the normal course of business. These claims are generally covered by insurance. The Company is not currently subject to any litigation which, singularly or in the aggregate, could reasonably be expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows.

 

54
 

 

NOTE 19: QUARTERLY INFORMATION (UNAUDITED)

 

   Calendar Year Quarters 
   First   Second   Third   Fourth   Total 
                     
Year ended December 31, 2011                         
Revenue  $6,178   $5,811   $6,829   $7,118   $25,936 
Operating loss   (1,951)   (2,577)   (3,443)   (3,618)   (11,589)
Net income (loss) (1)   872    (240)   (1,689)   (1,864)   (2,921)
                          
Basic earnings (loss) per common share  $0.16   $(0.05)  $(0.31)  $(0.34)  $(0.54)
Diluted earnings (loss) per common share (3)  $0.16   $(0.05)  $(0.31)  $(0.34)  $(0.54)
                          
Weighted average shares of common stock used to calculate earnings per share:                         
                          
Basic   5,389,842    5,406,894    5,424,927    5,435,849    5,413,330 
Diluted   5,416,020    5,406,894    5,424,927    5,435,849    5,413,330 
                          
Year ended December 31, 2010                         
Revenue  $6,059   $5,888   $6,250   $6,229   $24,426 
Operating loss   (1,464)   (1,578)   (1,626)   (4,003)   (8,671)
Net income (loss) (2)   945    876    1,266    (235)   2,852 
                          
Basic earnings per common share Basic earnings per share  $0.18   $0.16   $0.24   $(0.05)  $0.53 
Diluted earnings per common share  $0.17   $0.16   $0.23   $(0.05)  $0.52 
                          
Weighted average shares of common stock used to calculate earnings per share:                         
                          
Basic   5,358,366    5,360,611    5,362,433    5,369,749    5,363,543 
Diluted   5,378,114    5,398,727    5,407,192    5,369,749    5,407,994 

 

(1) Included in net loss in the fourth quarter of 2011 is an accrual with respect to a dispute with a another carrier of $900.

(2) Included in net loss in the fourth quarter of 2010 is a loss on impairment on fixed assets of $2,283.

(3) As a result of the net loss, there is no difference between basic and diluted earnings (loss) per share.

  

NOTE 20: SUBSEQUENT EVENTS

 

The Company has evaluated subsequent events occurring after the balance sheet date. Based on this evaluation, the Company has determined that no subsequent events, except for the matters discussed below, have occurred which require disclosure in the consolidated financial statements.

 

On January 11, 2012, the Company received notice from the NYPSC approving the Company’s petition for the Amended and Restated Warwick Valley Telephone Company 2008 Long-Term Incentive Plan. On January 18, 2012, NJBPU approved the Company’s petition for Approval of the Amended and Restated Warwick Valley Telephone Company 2008 Long-Term Incentive Plan.

 

On January 24, 2012, the Company filed and completed a name change for two of its subsidiaries. Warwick Valley Mobile Inc. changed its name to USA Datanet Inc. and Warwick Valley Networks Inc. changed its name to Alteva Inc.

 

Effective February 1, 2012, the Company revised the Employment Agreement with its executive Vice President and Chief Operating Officer, increasing his annual salary to $315 per year.

 

On February 21, 2012, the Company’s Board of Directors declared a regular quarterly dividend of $0.27 per share of the Company’s common stock and $1.25 per share of the Company’s preferred stock. The dividends are payable on March 27, 2012 to the shareholders of record on March 15, 2012.

 

In January 2012, the Company awarded 14,608 shares of restricted stock to directors of the Company under the Company’s Amended and Restated LTIP. In February 2012, the Company awarded 31,673 shares of restricted stock and 81,504 stock options to its employees under the Company’s Amended and Restated LTIP.

 

On March 9, 2012, the Company entered into a non-binding term sheet to resolve a dispute with another carrier for $900 and management does not expect the final executed settlement agreement to be materially different than the non-binding term sheet.

 

55
 

 

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

This item is not applicable.

 

Item 9A. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our Exchange Act reports are recorded, processed, summarized, and reported within the time periods specified in rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

 

As of December 31, 2011, our management carried out an assessment, under the supervision of and with the participation of our Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(b) and 15d-15(b). As a result of this assessment, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2011.

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the interim or annual consolidated financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

 

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2011. In performing its assessment of the effectiveness of our internal control over financial reporting, management applied the criteria described in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, our management, with the participation of our Chief Executive Officer and the Chief Financial Officer, concluded that our internal control over financial reporting was effective as of December 31, 2011.

 

As permitted by the rules and regulations of the SEC, we have excluded Warwick Valley Networks Inc., our wholly-owned subsidiary based in Philadelphia, Pa., from our assessment of internal control over financial reporting as of December 31, 2011 because all of the assets owned by that entity were acquired as a result of the purchase of certain assets and the assumption of certain liabilities of Alteva, LLC on August 5, 2011. Total assets and total revenues of Alteva Inc. represent approximately 33.5% and 12.0%, respectively, of the related consolidated financial statement amounts as of, and for the year ended December 31, 2011.

 

The effectiveness of internal control over financial reporting as of December 31, 2011 has been audited by WithumSmith+Brown, PC, our independent registered public accounting firm, as stated in their report which is included herein.

 

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of our fiscal year ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. OTHER INFORMATION.

 

This item is not applicable.

 

56
 

 

Part III.

 

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

Except as set forth below, the information required by this Item 10 is incorporated into this Form 10-K by reference from our proxy statement to be issued in connection with our Annual Meeting of Shareholders to be held on April 25, 2012, under the headings “Information about Nominees for Election as Directors”, “Corporate Governance”, and “Section 16(a) Beneficial Ownership Reporting Compliance”, which proxy statement will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2011.

 

Executive Officers

 

Information regarding our executive officers is presented below.

 

Duane W. Albro, age 65, is our President and Chief Executive Officer.  Prior to joining us in 2007, from 2005 to 2007, Mr. Albro served as President and Chief Executive Officer of Refinish LP, a privately-held company in the cellular phone refurbishing business.  From 2003 to 2005, Mr. Albro served as an industry consultant and provided strategic consulting services to private equity investors.  Prior to that, he served in senior executive positions as Operations Vice President at Cablevision Systems Corporation, a metro-NY cable operator, from 2002 to 2003; President and Chief Operating Officer of Net2000 Communications, a northeast US-based telecommunications service provider, from 2001 to 2002; Operations Vice President at Bell Atlantic-New York, a predecessor company to Verizon, from 1997 to 2000; and Group Vice President at Nynex-New York, also a predecessor company to Verizon, from 1994 to 1997.  Mr. Albro has been an active advocate for the use of technology in education.  He served on a White House Advisory Council on Technology in Education and provided testimony to Congress on the benefits of technology used in education.  He has also served on the boards of several recognized universities and foundations, and has participated in various philanthropic endeavors and economic development initiatives.  He is a member of the American Mensa Society and holds a B.S. in Business Administration from the State University of New York at Buffalo and an MBA from New York Institute of Technology.  He has also completed Executive Management Programs at the Darden School at the University of Virginia and the Wharton School at the University of Pennsylvania.  Mr. Albro also serves on the board of directors of Lakeland Industries, Inc., a NASDAQ-listed company, where he is a member of both the Compensation and Governance and Nominating Committees.

 

David J. Cuthbert, age 37, is our Executive Vice President and Chief Operating Officer. Mr. Cuthbert joined us in August 2011 in connection with our acquisition of substantially all of the assets of Alteva, LLC, a cloud-based Unified Communications solutions provider and enterprise hosted Voice over Internet Protocol provider.  Mr. Cuthbert also serves as President of our subsidiaries, USA Datanet Inc. and Alteva Inc.  Mr. Cuthbert has 14 years of broad operational management and leadership experience.  He joined Alteva, LLC in 2006 as the Director of Operations and in August 2010 became President and Chief Executive Officer.  Mr. Cuthbert is a graduate of the United States Naval Academy and a former Naval Special Operations Officer. In this capacity, he led underwater and land bomb disposal teams domestically and abroad.  In 2003, Mr. Cuthbert was assigned leadership responsibility for the Navy's leading nuclear weapon casualty response detachment. His process innovation and mission accomplishment record earned him several high level unit and individual awards for leadership.  Mr. Cuthbert is active in groups advocating cloud-based unified communications solutions and is a founding member of “The Captains”– a Naval Academy networking group focused on professional development, peer mentorship, and social responsibility.  Mr. Cuthbert also serves on the Board of Trustees for the United States Naval Academy Foundation.

 

Ralph Martucci, Jr., age 58, is our Executive Vice President, Chief Financial Officer and Treasurer. Mr. Martucci joined us in October 2010 as the Director of Finance. In May 2011, he was appointed Executive Vice President, Chief Financial Officer and Treasurer. From 2009 until October 2010, Mr. Martucci served as Vice President of Finance and Operations for Liberty Environmental Management, a privately-held company in the residential and commercial property management business. From 2006 to 2008, he served as Director of Corporate Business Operations for Ottaway Newspapers, Inc., a wholly-owned subsidiary of News Corp. (formerly Dow Jones and Company), the owner and operator of community media franchises across North America. From 2000 to 2005 he served as a Director of Finance and Administration for Hudson Valley Media Group, a division of Ottaway Newspapers, Inc. Prior to that, Mr. Martucci had a 17-year career in financial management and business development at Frontier Communications Corporation, a publicly-held provider of telecommunications services. Mr. Martucci holds a B.S. in Business Economics from the State University of New York at Oneonta and an MBA from Fairleigh Dickinson University.

 

John S. Mercer, age 51, is our Executive Vice President and Chief Technology Officer, a position he has held since August 2011. He is currently responsible for strategic technology platform selection and all management information systems development and operations. Mr. Mercer joined us in April 2009 as our Senior Vice President of Network Operations where he was responsible for all aspects of the internal and external network in both our Warwick and Syracuse locations as well as the day-to-day financial operations in Syracuse. Prior to joining us, Mr. Mercer served as Chief Technology Officer at US Datanet Corporation, a telecommunications provider, from 1998 to 2009, as Senior Systems Engineer at Global Crossing, a global provider of telecommunication services, from 1996 to 1998, and as Senior systems engineer at RG Data, a Network and telecom solutions provider, from 1993 to 1996. Mr. Mercer also worked as a Telecom engineer at ITT, University of Rochester and Rotelcom. Mr. Mercer served in the United States Air Force for 4 years and attended both the University of Rochester and Rochester Institute of Technology.

 

57
 

 

Item 11. EXECUTIVE COMPENSATION.

 

The information required by this Item 11 is incorporated herein by reference from the information set forth under the headings “Compensation of Named Executive Officers” and “Compensation Committee Interlocks and Insider Participation” in our 2012 definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the year ended December 31, 2011.

 

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

 

Except as set forth below, the information required by this Item 12 is incorporated herein by reference from the information set forth under the headings “Security Ownership of Certain Beneficial Owners” and “Security Ownership of Management” in our 2012 definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the year ended December 31, 2011.

 

Securities Authorized for Issuance Under Equity Compensation Plans as of December 31, 2011:

 

           Number of securities 
   Number of securities   Weighted average   available for future 
   to be issued upon   exercise price   issuance under equity 
   exercise of   per share of   compensation plans 
   outstanding options,   outstanding options,   (excluding securities 
Plan category    warrants and rights   warrants and rights   reflected in column (a) 
    (a)    (b)    (c) 
Equity compensation plans approved by security holders (1)   203,864   $14.02    137,590 
Equity compensation plans not approved by security holders   -    -    - 
Total   203,864   $14.02    137,590 

 

(1)See Note 16 to the consolidated financial statements.

 

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

 

The information required by this Item 13 is incorporated herein by reference from the information set forth under the headings “Corporate Governance – Director Independence;” and “Certain Relationships and Related Transactions” in our 2012 definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the year ended December 31, 2011.

 

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

 

The information required by this Item 14 is incorporated herein by reference from the information set forth under the headings “Ratification of the Selection of Our Independent Registered Public Accounting Firm” in our 2012 definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the year ended December 31, 2011.

 

Part IV.

 

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

 

We filed our consolidated financial statements in Item 8 of Part II of this Form 10-K. Additionally, the financial statement schedule entitled “Schedule II – Valuation and Qualifying Accounts” is filed as part of this Form 10-K under this Item 15.

 

All other schedules have been omitted because they are not applicable, or not required, or because the required information is included in the consolidated financial statements or notes thereto.

 

The exhibits filed as part of this Form 10-K are listed in the Index to Exhibits immediately following the signature page of this Form 10-K.

 

58
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON

CONSOLIDATED FINANCIAL STATEMENT SCHEDULE

 

To the Board of Directors and Shareholders

Of Warwick Valley Telephone Company:

 

Our audits of the consolidated financial statements and of the effectiveness of internal control over financial reporting referred to in our report dated March 15, 2012 appearing in the 2011 Annual Report on Form 10-K of Warwick Valley Telephone Company also included an audit of the financial statement schedule listed in Item 15 of this Annual Report on Form 10-K for the year ended December 31, 2011. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.

 

In our opinion, this consolidated financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

 

/s/ WithumSmith+Brown, PC  
Princeton, New Jersey  
March 15, 2012  

 

59
 

 

WARWICK VALLEY TELEPHONE COMPANY

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

Years Ended December 31, 2011, 2010 and 2009

 

Column A  Column B   Column C   Column D   Column E 
       Additions         
       Charged   Charged         
   Balance at   to   to       Balance 
   Beginning   Costs and   Other       At end of 
Description   of Period   Expenses   Accounts(b)  Deductions(c)  Period 
                     
   ($ in thousands) 
Allowance for Uncollectible:                         
Year 2011  $350   $534(a)  $44   $169   $759 
Year 2010  $355   $341(a)  $24   $370   $350 
Year 2009  $248   $330(a)  $24   $247   $355 
Valuation allowance on deferred tax assets:                         
Year 2011  $125   $568(d)  $0   $0   $693 
Year 2010  $0   $125(d)  $0   $0   $125 
Year 2009  $0   $0(d)  $0   $0   $0 

 

(a)Provision for uncollectible as included in consolidated statements of operations.

 

(b)Amounts previously written off which were credited directly to this account when recovered.

 

(c)Amounts written off as uncollectible.

 

(d)Allowance for certain state net operating losses (principally in New Jersey)

 

60
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

WARWICK VALLEY TELEPHONE COMPANY

 

  /s/ Duane W. Albro  
By: Duane W. Albro  
  President and Chief Executive Officer  

 

Dated: March 15, 2012

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature Title Date
     
/s/ Duane W. Albro President, Chief Executive Officer and Director March 15, 2012
Duane W. Albro (Principal Executive Officer)  
     
/s/ David J. Cuthbert Executive Vice President, Chief Operating Officer and Director March 15, 2012
David J. Cuthbert    
     
/s/ Ralph Martucci, Jr. Executive Vice President, Chief Financial Officer and Treasurer March 15, 2012
Ralph Martucci, Jr.  (Principal Financial and Accounting Officer)  
     
/s/ Robert J. DeValentino Director March 15, 2012
Robert J. DeValentino    
     
/s/ Jeffrey D. Alario Director March 15, 2012
Jeffrey D. Alario    
     
/s/ Douglas B. Benedict Director March 15, 2012
Douglas B. Benedict    
     
/s/ Kelly C. Bloss Director March 15, 2012
Kelly C. Bloss    
     
/s/ Douglas J. Mello Director March 15, 2012
Douglas J. Mello    

 

61
 

 

INDEX TO EXHIBITS

 

(2) Plan of acquisition, reorganization, arrangement, liquidation or succession
   
  2.1 Asset Purchase Agreement by and among Warwick Valley Networks, Inc., Warwick Valley Telephone Company and Alteva, LLC dated as of July 14, 2011 is incorporated herein by reference from Exhibit 2.1 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2011.
     
  2.2 First Amendment to Asset Purchase Agreement by and among Warwick Valley Networks, Inc., Warwick Valley Telephone Company and Alteva, LLC dated as of August 5, 2011 is incorporated herein by reference from Exhibit 2.2 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2011.
   
(3) Articles of Incorporation and By-Laws
   
  3.1 Articles of Incorporation, as amended, are incorporated herein by reference from Exhibit 3(i) to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.
     
  3.2 By-Laws, as amended, are incorporated herein by reference from Exhibit 3.2 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2008.
     
(4) Instruments defining the rights of security holders, including indentures
   
  4.1 Form of common stock certificate is incorporated herein by reference from Exhibit 4 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2003.
   
(9) Voting trust agreement
   
    Not applicable.
   
(10) Material contracts
     
  10.1 Orange County-Poughkeepsie Limited Partnership Agreement dated as of April 21, 1987 is incorporated herein by reference from Exhibit 10.1 to our Annual Report on Form 10-K for the year ended December 31, 2010.
     
  10.2 Orange County-Poughkeepsie Limited Partnership Amendment No. 1 dated January 17, 1988 is incorporated herein by reference from Exhibit 10.2 to our Annual Report on Form 10-K for the year ended December 31, 2010.
     
  10.3 Orange County-Poughkeepsie Limited Partnership Amendment No. 2 dated October 11, 2001 is incorporated herein by reference from Exhibit 10.3 to our Annual Report on Form 10-K for the year ended December 31, 2010.
     
  10.4 Orange County-Poughkeepsie Limited Partnership Amendment No. 3 dated July 1, 2002 is incorporated herein by reference from Exhibit 10.4 to our Annual Report on Form 10-K for the year ended December 31, 2010.
     
  10.5 Orange County-Poughkeepsie Limited Partnership Amendment No. 4 dated August 15, 2002 is incorporated herein by reference from Exhibit 10.5 to our Annual Report on Form 10-K for the year ended December 31, 2010.
     
  10.6 Orange County-Poughkeepsie Limited Partnership Fifth Amendment dated April 10, 2007 is incorporated herein by reference from Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.

 

62
 

 

  10.7 Orange County-Poughkeepsie Limited Partnership Sixth Amendment dated May 26, 2011 is incorporated herein by reference from Exhibit 10.3 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.
     
  10.8 Agreement dated as of May 26, 2011 by and among Verizon Wireless of the East LP, Cellco Partnership and the Company is incorporated herein by reference from Exhibit 10.4 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.
   
  10.9 Master Loan Agreement dated as of February 18, 2003 by and between CoBank, ACB and the Company is incorporated herein by reference from Exhibit 4(d) to our Annual Report on Form 10-K for the year ended December 31, 2002.
     
  10.10 Second Supplement to the Master Loan Agreement dated as of August 3, 2011 by and between CoBank, ACB and Warwick Valley Telephone Company is incorporated herein by reference from Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2011.
     
  10.11 Promissory Note in the amount of $5,000,000 from Warwick Valley Telephone Company to CoBank, ACB dated August 3, 2011 is incorporated herein by reference from Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2011.
   
# 10.12 Form of Indemnification Agreement entered into by the Company with our officers and directors is incorporated herein by reference from Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2006.
   
# 10.13

Employment Agreement with Duane W. Albro, President and Chief Executive Officer, dated as of February 12, 2010 is incorporated herein by reference from Exhibit 10.8 to our Annual Report on Form 10-K for the year ended December 31, 2009.

 

†# 10.14 Employment Agreement with Duane W. Albro, President and Chief Executive Officer dated as of December 14, 2011.
   
# 10.15 Confidentiality, Non-Solicitation and Non-Competition Agreement with Kenneth H. Volz, Chief Financial Officer and Treasurer, effective June 4, 2007 is incorporated herein by reference from Exhibit 10.2 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.
     
# 10.16 Employment Agreement with Kenneth H. Volz, Executive Vice President, Chief Financial Officer and Treasurer dated as of February 12, 2010 is incorporated herein by reference from Exhibit 10.9 to our Annual Report on Form 10-K for the year ended December 31, 2009.
     
# 10.17 Severance Agreement dated May 6, 2011 by and between the Company and Kenneth H. Volz, former Executive Vice President, Chief Financial Officer and Treasurer is incorporated herein by reference from Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2011.
   
# 10.18 Warwick Valley Telephone Company 2008 Long-Term Incentive Plan is incorporated herein by reference from Appendix B to our definitive proxy statement filed on March 25, 2008 in connection with the 2008 annual meeting of shareholders.
   
# 10.19 Amended and Restated Warwick Valley Telephone Company 2008 Long-Term Incentive Plan is incorporated herein by reference from Appendix A to our definitive proxy statement filed on March 28, 2011 in connection with the 2011 annual meeting of shareholders.
   
# 10.20 Employment Agreement with Ralph Martucci, Executive Vice President, Chief Financial Officer and Treasurer dated as of May 9, 2011 is incorporated herein by reference from Exhibit 10.1 to our Current Report on Form 8-K filed on May 20, 2011.

 

63
 

 

†# 10.21 Addendum to Employment Agreement with Ralph Martucci, Executive Vice President, Chief Financial Officer and Treasurer, effective August 5, 2011.
     
# 10.22 Employment Agreement effective August 5, 2011 between Warwick Valley Telephone Company and David Cuthbert is incorporated herein by reference from Exhibit 10.3 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2011.
     
†# 10.23 Revision to David Cuthbert Employment Agreement, effective December 15, 2011.
     
†# 10.24 Revision to David Cuthbert Employment Agreement, effective February 1, 2012.
     
† 10.25 Lock-Up and Put Agreement effective as of October 21, 2011 among the Company and the members of Alteva, LLC.
     
†# 10.26 Employment Agreement with John Mercer, Executive Vice President and Chief Technology Officer dated as of August 8, 2011.
   
(11) Statement re computation of per share earnings
   
    Computation can be clearly determined from the Consolidated Statements of Income included herein under Item 8.
   
(12) Statements re computation of ratios
   
    Not applicable.
   
(13) Annual report to security holders, Form 10-Q or quarterly report to security holders
   
    Not applicable.
   
(14) Code of Ethics
   
    Not applicable.
   
(16) Letter re change in certifying accountant
   
    Not applicable.
   
(18) Letter re change in accounting principles
   
    Not applicable.
   
(21) Subsidiaries of the registrant
   
† 21.1 Subsidiaries of the registrant
   
(22) Published report regarding matters submitted to vote of security holders.
     
    Not applicable.
     
(23) Consents of experts and counsel
     
 † 23.1 Consent of WithumSmith+Brown, PC
     
 † 23.2 Consent of Deloitte & Touche LLP

 

64
 

 

 

(24)   Power of Attorney
     
    Not applicable.
   
(31) Rule 13a-14(a)/15d-14(a) Certifications
     
† 31.1 Rule 13a-14(a)/15d-14(a) Certification of Duane W. Albro, President and Chief Executive Officer
     
† 31.2 Rule 13a-14(a)/15d-14(a) Certification of Ralph Martucci, Jr. Executive Vice President, Chief Financial Officer and Treasurer
     
(32) Section 1350 Certifications
     
 † 32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Duane W. Albro, President and Chief Executive Officer
     
† 32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Ralph Martucci, Executive Vice President, Chief Financial Officer and Treasurer
     
(99) Additional Exhibits
   
† 99.1 Orange County-Poughkeepsie Limited Partnership Financial Statements as of December 31, 2011 and 2010 and for the years ended December 31, 2011, 2010 and 2009
     
(101) Interactive data files
 
  *101.INS XBRL Instance Document
 
  *101.SCH XBRL Taxonomy Extension Schema Document
 
  *101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
 
  *101.DEF XBRL Taxonomy Extension Definition Linkbase Document
 
  *101.LAB XBRL Taxonomy Extension Label Linkbase Document
 
  *101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
       

# Management contract or compensatory plan or arrangement
   
* Pursuant to Rule 406T of Regulation S-T, the information in this exhibit is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
   
† Filed with this Annual Report on Form 10-K.

 

65

 EX-10.14 2 v305807_ex10-14.htm EXHIBIT 10.14

 

EXHIBIT 10.14

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (this “Agreement”) is made and entered into as of December 14, 2011 and shall be effective April 11, 2012 (the “Effective Date”), by and between Warwick Valley Telephone Company (the “Company”) and Duane W. Albro (“Executive”). Notwithstanding the foregoing, Sections 4(e)

and 4(f) shall be effective as of December 31, 2011.

 

1.Employment.

 

The Company hereby agrees to employ Executive, and Executive hereby agrees to be employed by the Company, upon the terms and subject to the conditions set forth in this Agreement.

 

2.Term of Employment.

 

(a)       The period of Executive’s employment under this Agreement shall begin as of the Effective Date and shall continue until April 10, 2015 (the “Initial Term”), and shall be renewed automatically for successive one-year periods thereafter (each, a “Renewal Period”), unless Executive or the Company gives written notice of nonrenewal to the other at least sixty (60) days before the expiration of the Initial Term or any subsequent Renewal Period.

 

(b)       Notwithstanding the foregoing, Executive’s employment may be terminated by the Company or by Executive at any time for any reason.

 

(c)       As used in this Agreement, the term “Employment Term” refers to Executive’s period of employment from the Effective Date until the date his employment terminates.

 

3.Duties and Responsibilities.

 

(a)       The Company will employ Executive as its President and Chief Executive Officer. In such capacity, Executive shall perform the customary duties and have the customary responsibilities of such positions and such other duties as may be assigned to Executive from time to time by the Board of Directors of the Company (the “Board”) or the Compensation Committee of the Board of Directors (the “Compensation Committee”) pursuant to the Compensation Committee’s properly delegated authority. Executive will exercise his judgment in accordance with the highest ethical standards.

 

(b)       Executive agrees to faithfully serve the Company, devote his full working time, attention and energies to the business of the Company, its subsidiaries and affiliated entities, and perform the duties under this Agreement to the best of his abilities.

 

 
 

 

(c)       Executive agrees (i) to comply with all applicable laws, rules and regulations; (ii) to comply with the Company’s rules, procedures, policies, requirements, and directions; and (iii) not to engage in any other business or employment without the written consent of the Company except as otherwise specifically provided herein.

 

(d)       Executive acknowledges that he has received a copy of the Company’s Code of Ethics, that he has read the Code of Ethics and that this Agreement does not supersede that policy.

 

4.Compensation and Benefits.

 

(a)       Base Salary. During the Employment Term, the Company shall pay Executive a base salary at the annual rate of $375,000 per year or such higher rate as may be determined annually by the Company (“Base Salary”). Such Base Salary, less applicable withholdings, shall be paid in accordance with the Company’s standard payroll practice for executives.

 

(b)       Annual Bonus. During the Employment Term, Executive will be eligible to receive an Annual Bonus each year, as determined in accordance with the Applicable Plan approved by the Board (or Compensation Committee as the case may be) for Executive for such year. An example of the Applicable Plan for 2012 is attached as Appendix A to this Agreement for illustration purposes only. Subsequent measurement metrics will be determined by the Board (or Compensation Committee as the case may be) at their sole discretion for 2012 and each subsequent year. The Board (or Compensation Committee as the case may be) has the right to change or eliminate the Applicable Plan in its sole discretion at any time. The Annual Bonus to be paid to Executive in 2013 shall be based on the Company’s financial performance in 2012, continuing in like progression with the Annual Bonus to be paid in any year based on the Company’s prior year’s performance. Such Annual Bonus, less applicable withholdings, shall be paid within 2.5 months of the end of the taxable fiscal year during which it was earned. Except as otherwise provided by Section 7, in order to be eligible to receive payment of any portion of an Annual Bonus, Executive must be actively employed by the Company on the payment date. Notwithstanding the foregoing, Executive acknowledges that whether any Annual Bonus is to be paid for a given year and the amount of that Annual Bonus is completely at the discretion of the Board (or Compensation Committee as the case may be).

 

(c)       Incentive Compensation. Executive shall be eligible to receive incentive compensation (“Incentive Compensation”) each year, in accordance with the Applicable Plan approved by the Board (or Compensation Committee as the case may be) for Executive for such year. The Incentive Compensation shall be in the form of equity-based awards (stock options and restricted stock of the Company) under the Company’s incentive compensation plans. An example of the Applicable Plan for 2012 is attached as Appendix A to this Agreement for illustration purposes only. Subsequent measurement metrics will be determined by the Board (or Compensation Committee as the case may be) at their sole discretion for 2012 and each subsequent year. The Board (or Compensation Committee as the case may be) has the right to change or eliminate the Applicable Plan in its sole discretion at any time. The Incentive Compensation to be paid to Executive in 2013 shall be based on the Company’s financial performance in 2012, continuing in like progression with the Incentive Compensation to be paid in any year based on the Company’s prior year performance. Such Incentive Compensation shall be delivered to Executive within 2.5 months of the end of the taxable fiscal year during which it was earned. Except as otherwise provided by Section 7, in order to be eligible to receive payment of any portion of the Incentive Compensation, Executive must be actively employed by the Company on the payment date. Notwithstanding the foregoing, Executive acknowledges that whether any Incentive Compensation is to be paid for a given year and the amount of that Incentive Compensation is completely at the discretion of the Board (or Compensation Committee as the case may be).

 

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(d)       Benefit Plans, Fringe Benefits and Vacation. Executive shall be eligible to participate in any 401(k) savings plan generally made available by the Company to other executives in accordance with the eligibility requirements of such plans and subject to the terms and conditions set forth in such plans, except for any pension benefit. Executive shall be eligible to participate in any health and welfare plans made available to other executives, including, but not limited to, any medical and dental benefits plan, life insurance plan, short-term and long-term disability plans, or other executive benefit or fringe benefit plan. Executive will also be eligible to receive at least five (5) weeks of vacation per calendar year, accrued and earned on a daily basis, as well as other types of paid time-off (e.g., holidays, personal days, absence due to illness, etc.) according to the Company’s vacation and paid time-off policy.

 

(e)       Housing and Travel Allowance. Effective January 1, 2012, Executive shall no longer be entitled to a monthly Housing and Travel Allowance or tax gross-up thereon.

 

(f)       Signing Bonus. The Company shall make a lump-sum payment to Executive of $200,000 (the “Signing Bonus”) on or before December 31, 2011. The Signing Bonus shall be subject to clawback in the event that Executive voluntarily terminates his employment with the Company, Executive dies or the Company terminates Executive for Cause, in each case, before January 1, 2015. The amount to be repaid to the Company by Executive or his estate in the event he dies under this clawback shall be $200,000 multiplied by a fraction the denominator of which is 36 and the numerator of which is 36 less the number of full months from January 1, 2012 through the date of Executive’s termination or death. Such clawback shall be paid to the Company by Executive or his estate in cash within ten days following Executive’s termination or death.

 

(g)       Expense Reimbursement. The Company shall promptly reimburse Executive for the ordinary and necessary business expenses incurred by Executive in the performance of the duties under this Agreement in accordance with the Company’s customary practices applicable to executives, provided that such expenses are incurred and accounted for in accordance with the Company’s expense reimbursement policy. Reimbursement shall be made as soon as administratively practicable following Executive’s submission of the necessary documents and receipts required under the Company’s expense reimbursement policy, but in no event later than December 31st of the calendar year following the calendar year in which the expense was incurred.

 

(h)       Concession. Executive will be provided with paid PDA or mobile phone service for one electronic device, as well as concession Telephone and Toll Service, DSL Internet Service and in territory Digital TV service benefits consistent with those available to other executives.

 

(i)       Indemnification. Executive will be covered by the Company’s standard Director’s and Officer’s Indemnification Agreement, providing for indemnification consistent with the New York Business Corporation Law and the Company’s by-laws.

 

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5.Termination of Employment.

 

Executive’s employment may be terminated by the Company or by Executive at any time for any reason. Upon termination, Executive shall be entitled to receive the compensation and benefits described in Section 7. Executive’s employment will terminate under the following conditions:

 

(a)           Death. Executive’s employment shall terminate upon Executive’s death.

 

(b)          Total Disability. The Company may terminate Executive’s employment upon his becoming Totally Disabled. For purposes of this Agreement, Executive shall be “Totally Disabled” if Executive is physically or mentally incapacitated so as to render Executive incapable of performing his usual and customary duties under this Agreement without reasonable accommodation. Executive’s receipt of disability benefits under the Company’s long-term disability plan, if any, or receipt of Social Security disability benefits shall be deemed conclusive evidence of Total Disability for purpose of this Agreement; provided, however, that in the absence of Executive’s receipt of such long-term disability benefits or Social Security benefits, the Company may, in its reasonable discretion (but based upon appropriate medical evidence), determine that Executive is Totally Disabled.

 

(c)          Termination by the Company for Cause.

 

(i)The Company may terminate Executive’s employment for Cause at any time after providing written notice to Executive.

 

(ii)For purposes of this Agreement, the term “Cause” shall mean any of the following: (A) conviction of a crime or a nolo contendere plea involving the alleged commission by Executive of a felony or of a criminal act involving, in the good faith judgment and sole discretion of the Board, fraud, dishonesty, or moral turpitude; (B) deliberate and continual refusal to perform employment duties reasonably requested by the Board after fifteen (15) days’ written notice by certified mail of such failure to perform, specifying that the failure constitutes cause (other than as a result of vacation, sickness, illness or injury); (C) fraud or embezzlement as determined by the Board; (D) gross misconduct or gross negligence in connection with the business of the Company or an affiliate which has a substantial adverse effect on the Company or the affiliate; or (E) breach of the terms of the confidentiality, non-solicitation and non-competition provisions of Section 9.

 

(iii)Regardless of whether Executive’s employment initially was considered to be terminated for any reason other than Cause, Executive’s employment will be considered to have been terminated for Cause for purposes of this Agreement if the Board subsequently determines that Executive engaged in an act constituting Cause during the Employment Period or Executive breached the terms of the terms of the confidentiality, non-solicitation and non-competition provisions of Section 9 after his termination.

 

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(d)       Termination by the Company Without Cause. The Company may terminate Executive’s employment at any time under this Agreement without Cause after providing written notice to Executive.

 

(e)       Termination by Executive. Executive may terminate his employment under this Agreement after providing thirty (30) days’ written notice to the Company.

 

(f)       Expiration of Initial Term or Renewal Period. In the event that either party gives written notice of non-renewal of the Initial Term or a Renewal Period, as applicable, pursuant to Section 2, Executive’s employment shall terminate upon the expiration of the Initial Term or Renewal Period.

 

6.Return of Property and Information.

 

Executive agrees that when his employment with the Company ends, he will immediately return to the Company all property, data, information and knowledge which are in his possession or under his control, including without limitation all documents, forms, correspondence, financial records and forecasts, operation manuals, notebooks, reports, proposals, computer programs, software, software documentation, employee handbooks, supervisor’s manuals, lists of clients and referral sources, client data, and all copies thereof, relating in any way to the business of the Company, whether relating to the Company directly or to a client of the Company, made or obtained by Executive during his employment with the Company, whether or not such data, information, or knowledge constitute confidential or trade secret information.

 

7.Compensation Following Termination of Employment.

 

(a)          Termination for Any Reason. Upon termination of Executive’s employment for any reason under this Agreement, Executive (or his designated beneficiary or estate, as the case may be) shall be entitled to receive the following compensation:

 

(i)Earned but Unpaid Compensation. The Company shall pay Executive any accrued but unpaid Base Salary for services rendered through the date of termination, any appropriately documented and accrued but unpaid expenses required to be reimbursed under this Agreement, and any unused vacation accrued to the date of termination.

 

(ii)Other Compensation and Benefits. Except as may be provided under this Agreement, any benefits to which Executive may be entitled through the date of Executive’s termination pursuant to the plans, policies and arrangements referred to in Section 4(d) shall be determined and paid in accordance with the terms of such plans, policies and arrangements, and except as otherwise provided by this Agreement, Executive shall have no right to receive any other compensation, or to participate in any other plan, arrangement or benefit, with respect to future periods after such termination or resignation.

 

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(b)          Termination by the Company Without Cause not in Connection With a Change in Control. In the event Executive’s employment is terminated without Cause before a Change in Control (as defined by Section 7(c)(iii)) or more than twenty-four (24) months after a Change in Control, if Executive executes the Release and Waiver required by Section 8 and such Release and Waiver is not revoked on or before the expiration of the revocation period thereof, and Executive has complied with the return of property and information provision set forth in Section 6, then in addition to the payments to be made pursuant to Section 7(a), the Company shall also:

 

(i)Severance Pay. Pay to Executive severance pay in an amount equal to 100% of his Base Salary in effect as of the date of his termination of employment. Payment of such Severance Pay shall be made in a lump sum as soon as administratively practicable after the date of Executive’s termination (or if required by Section 409A, on the six (6) month anniversary of his termination), but no later than ninety (90) days thereafter, and not before the expiration of the revocation period for the Release and Waiver.

 

(ii)Annual Bonus. Pay to Executive the target amount of the Annual Bonus under the Applicable Plan for the year in which the termination of Executive’s employment occurs. Payment of such Annual Bonus shall be made in a lump sum as soon as administratively practicable after the date of Executive’s termination (or if required by Section 409A, on the six (6) month anniversary of his termination), but no later than ninety (90) days thereafter, and not before the expiration of the revocation period for the Release and Waiver.

 

(iii)Benefits Continuation. Continue to provide Executive and his family for the one-year period following Executive’s termination with the health and welfare benefits, including, but not limited to, benefits under any medical and dental benefits plan, life insurance plan, short-term and long-term disability plans, or other executive benefit or fringe benefit plan, which Executive and his family were receiving as of the date of Executive’s termination. The Company shall provide such benefits at the same cost to Executive as the cost, if any, charged to Executive for those benefits at the time of his termination. To the extent that the provision of such benefits at the Company’s expense during the six (6) month period following Executive’s termination would violate the requirements of Section 409A, then Executive shall be required to pay to the Company the Company portion of the cost of such benefits during such six (6) month period, and the Company shall reimburse Executive for the amounts so paid by Executive on the six (6) month anniversary of his termination, or as soon as administratively practicable thereafter, but no later than ninety (90) days thereafter.

 

(c)          Termination by the Company Without Cause or by Executive for Good Reason in Connection With a Change in Control.

 

(i)In the event Executive’s employment is terminated by the Company without Cause, or by Executive for Good Reason, within the twenty-four (24) month period following a Change in Control, if Executive executes the Release and Waiver required by Section 8 and such Release and Waiver is not revoked on or before the expiration of the revocation period thereof, and Executive has complied with the return of property and information provision set forth in Section 6, then in addition to the payments to be made pursuant to 7(a), but subject to Section 7(c)(iv), the Company shall also:

 

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(A)Severance Pay. Pay to Executive severance pay in an amount equal to 150% of his Base Salary at its highest level in effect from the date of the Change in Control through his termination of employment. Payment of such Severance Pay shall be made in a lump sum as soon as administratively practicable after the date of Executive’s termination (or if required by Section 409A, on the six (6) month anniversary of his termination), but no later than ninety (90) days thereafter, and not before the expiration of the revocation period for the Release and Waiver.

 

(B)Annual Bonus. Pay to Executive 150% of the target amount of the Annual Bonus under the Applicable Plan for the year in which the termination of Executive’s employment occurs. Payment of such Annual Bonus shall be made in a lump sum as soon as administratively practicable after the date of Executive’s termination (or if required by Section 409A, on the six (6) month anniversary of his termination), but no later than ninety (90) days thereafter, and not before the expiration of the revocation period for the Release and Waiver.

 

(C)Equity Vesting Acceleration. Accelerate the vesting of and the lapsing of restrictions on any unvested or restricted equity compensation (e.g., stock options, restricted stock, etc.).

 

(D)Benefits Continuation. Continue to provide Executive and his family for the one-year period following Executive’s termination with the health and welfare benefits, including, but not limited to, benefits under any medical and dental benefits plan, life insurance plan, short- term and long-term disability plans, or other executive benefit or fringe benefit plan, which Executive and his family were receiving as of the date of Executive’s termination. The Company shall provide such benefits at the same cost to Executive as the cost, if any, charged to Executive for those benefits at the time of his termination. To the extent that the provision of such benefits at the Company’s expense during the six (6) month period following Executive’s termination would violate the requirements of Section 409A, then Executive shall be required to pay to the Company the Company portion of the cost of such benefits during such six (6) month period, and the Company shall reimburse Executive for the amounts so paid by Executive on the six (6) month anniversary of his termination, or as soon as administratively practicable thereafter, but no later than ninety (90) days thereafter.

 

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(ii)“Good Reason.” For purposes of this Agreement, the term “Good Reason” shall mean the occurrence of any of the following in connection with a Change in Control, without Executive’s express written consent: (A) the assignment of duties to Executive materially inconsistent with Executive’s current authorities, duties, responsibilities and status; (B) any reduction in Executive’s title, position, or reporting lines; (C) the relocation of Executive to an office or location more than seventy-five (75) miles from the office or location of Executive’s work as of the date of the Change in Control; (D) requiring Executive to travel on Company business to a substantially greater extent than required as of the date of the Change in Control; or (E) the reduction in Executive’s Base Salary as in effect on the date of the Change in Control.

 

(iii)“Change in Control.” For purposes of this Agreement, the term “Change in Control” shall mean the happening of any of the following:

 

(A)Any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (a “Person”) becomes the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of either (1) the then outstanding common shares of the Company (the “Outstanding Company Common Shares”) or (2) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that such beneficial ownership shall not constitute a Change in Control if it occurs as a result of any of the following acquisitions of securities: (I) any acquisition directly from the Company, (II) any acquisition by the Company or any corporation, partnership, trust or other entity controlled by the Company (a “Subsidiary”), (III) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, (IV) any acquisition by an underwriter temporarily holding Company securities pursuant to an offering of such securities, (V) any acquisition by an individual, entity or group that is permitted to, and actually does, report its beneficial ownership on Schedule 13-G (or any successor schedule); provided that, if any such individual, entity or group subsequently becomes required to or does report its beneficial ownership on Schedule 13D (or any successor schedule), then, for purposes of this paragraph, such individual, entity or group shall be deemed to have first acquired, on the first date on which such individual, entity or group becomes required to or does so report, beneficial ownership of all of the Outstanding Company Common Stock and Outstanding Company Voting Securities beneficially owned by it on such date, or (VI) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (I ), (2) and (3) of Section 7(c)(iii)(C) are satisfied. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the “Subject Person”) became the beneficial owner of 25% or more of the Outstanding Company Common Shares or Outstanding Company Voting Securities as a result of the acquisition of Outstanding Company Common Shares or Outstanding Company Voting Securities by the Company which, by reducing the number of Outstanding Company Common Shares or Outstanding Company Voting Securities, increases the proportional number of shares beneficially owned by the Subject Person; provided, that if a Change in Control would be deemed to have occurred (but for the operation of this sentence) as a result of the acquisition of Outstanding Company Common Shares or Outstanding Company Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the beneficial owner of any additional Outstanding Company Common Shares or Outstanding Company Voting Securities which increases the percentage of the Outstanding Company Common Shares or Outstanding Company Voting Securities beneficially owned by the Subject Person, then a Change in Control shall then be deemed to have occurred; or

 

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(B)Individuals who, as of the date of this Agreement, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation; or

 

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(C)The consummation of a reorganization, merger, statutory share exchange, consolidation, or similar corporate transaction involving the Company or any of its direct or indirect Subsidiaries (each a “Business Combination”) in each case, unless, following such Business Combination, (1) the Outstanding Company Common Shares and the Outstanding Company Voting Securities immediately prior to such Business Combination, continue to represent (either by remaining outstanding or being converted into voting securities of the resulting or surviving entity or any parent thereof) more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from Business Combination (including, without limitation, a corporation that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries), (2) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company, a Subsidiary or such corporation resulting from such Business Combination or any parent or a subsidiary thereof, and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 25% or more of the Outstanding Company Common Shares or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination (or any parent thereof) or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors, and (3) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination (or any parent thereof) were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such Business Combination; or

 

(D)The consummation of the sale, lease, exchange or other disposition of all or substantially all of the assets of the Company, unless such assets have been sold, leased, exchanged or disposed of to a corporation with respect to which following such sale, lease, exchange or other disposition (1) more than 50% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation (or any parent thereof) entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Shares and Outstanding Company Voting Securities immediately prior to such sale, lease, exchange or other disposition in substantially the same proportions as their ownership immediately prior to such sale, lease, exchange or other disposition of such Outstanding Company Common Shares and Outstanding Company Voting Shares, as the case may be, (2) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or a Subsidiary of such corporation or a subsidiary thereof and any Person beneficially owning, immediately prior to such sale, lease, exchange or other disposition, directly or indirectly, 25% or more of the Outstanding Company Common Shares or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stock of such corporation (or any parent thereof) and the combined voting power of the then outstanding voting securities of such corporation (or any parent thereof) entitled to vote generally in the election of directors, and (3) at least a majority of the members of the board of directors of such corporation (or any parent thereof) were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale, lease, exchange or other disposition of assets of the Company; or

 

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(E)Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

 

(iv)Potential Section 280G Adjustment. In the event that any amount or benefit to be paid or provided to Executive pursuant to Section 7(c)(i), taken together with any amounts or benefits otherwise paid or provided to Executive by the Company or any affiliated company (collectively, the “Covered Payments”), would be an “excess parachute payment,” as defined in Section 280G of the Internal Revenue Code and the related Treasury Regulations and other guidance issued thereunder, and would thereby subject Executive to the tax imposed under Section 4999 of the Internal Revenue Code (the “Excise Tax”), then the Company shall either (A) make the Covered Payment to Executive without adjustment and subject to the Excise Tax, or (B) reduce the Covered Payments to the maximum amount that may be paid without Executive becoming subject to the Excise Tax (such reduced amount, the “Payment Cap”), whichever provides the greater net after-tax benefit to Executive. In the event that the reduction of the Covered Payments will provide Executive with the greater net after-tax benefit, Executive shall have the right to designate which of the payments and benefits otherwise provided for in Section 7(c)(i) that he will receive in connection with the application of the Payment Cap.

 

(d)         Termination of Employment. For purposes of this Section 7, the term “termination of employment” and words of similar import shall mean a “separation from service” as defined by Section 409A, and this Section 7 shall be interpreted and administered consistent with such definition.

 

(e)          No Mitigation; No Set-Off Against Severance Benefits. Executive shall not be required to mitigate damages or the amount of any payment or benefits provided for under Section 7 by seeking other employment or otherwise, nor shall the amount of any payment or benefits provided for in Section 7 be reduced by any compensation earned by Executive as a result of employment by another employer after the date of termination of Executive’s employment with the Company, except as otherwise provided by the confidentiality, non-solicitation and non-competition provisions of Section 9. In addition, the Company’s obligations under this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Executive.

 

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8.Release and Waiver.

 

(a)          In exchange for the additional consideration under Section 7 to which Executive would not otherwise be entitled, Executive shall generally and completely release the Company, its subsidiaries and affiliates, and its directors, officers, executives, shareholders, partners, agents, attorneys, predecessors, successors, insurers and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to or at Executive’s termination. Such general release shall include, but shall not be limited to: (i) all claims arising out of or in any way related to Executive’s employment with the Company or the termination of that employment; (ii) all claims related to Executive’s compensation or benefits from the Company, including salary, bonuses, incentive compensation, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, restricted stock, or any other ownership or equity interests in the Company, or its subsidiaries or affiliates under all State and federal statutes such as the Fair Labor Standards Act, the Family and Medical Leave Act, the Employee Retirement and Income Security Act, the New York Labor Law and any similar State or local statute, regulation or order; (iii) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (iv) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (v) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under, for example, the Age Discrimination in Employment Act (the “ADEA”), Title VII of the Civil Rights Act of 1964, as amended, the Rehabilitation Act of 1973, the Americans With Disabilities Act, the Equal Pay Act, the Family Medical Leave Act, the New York Human Rights Law and any similar State or local statute, regulation or order. Notwithstanding the foregoing, Executive shall not be required to release the Company or its subsidiaries or affiliates from: (A) any obligation to indemnify Executive pursuant to the articles and bylaws of the Company, any valid fully executed indemnification agreement with the Company, any applicable directors and officers liability insurance policy, and applicable law; or (B) any obligations to make payments to Executive under Section 7. Executive shall be required to represent that he has no lawsuits, claims or actions pending in his name, or on behalf of any other person or entity, against the Company or its subsidiaries or affiliates, or any other person or entity subject to the release to be granted under this Section.

 

(b)          Executive shall acknowledge that: (i) he is knowingly and voluntarily waiving and releasing any rights he may have under the ADEA; (ii) that the consideration given for the waiver and release (i.e., the additional consideration to be provided under Section 7) is in addition to anything of value to which he is already entitled; and (iii) that he has been advised, as required by the ADEA, that: (A) his waiver and release does not apply to any rights or claims that may arise after the date that he signs such release; (B) he should consult with an attorney prior to signing the release (although he may choose voluntarily not to do so); (C) he has twenty-one (21) days from the date he receives the proposed release to consider the release (although he may choose voluntarily to sign it earlier); (D) he has seven (7) days following the date he signs the release to revoke the release by providing written notice of his revocation to the Board; and (E) the release will not be effective until the date upon which the revocation period has expired, which will be the eighth day after the date that the release is signed by Executive. 

 

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(c)          The claims included in this release and waiver do not include vested rights, if any, under any qualified retirement plan in which Executive participates, and his COBRA, unemployment compensation and worker’s compensation rights, if any. Nothing in this release shall be construed to constitute a waiver of: (i) any claims Executive may have against the Company that arise from acts or omissions that occur after the effective date of this Release; (ii) Executive’s right to file an administrative charge with any governmental agency concerning the termination of that employment; or (iii) Executive’s right to participate in any administrative or court investigation, hearing or proceeding. Executive agrees, however, to waive and release any right to receive any individual remedy or to recover any individual monetary or non-monetary damages as a result of any such administrative charge or proceeding. In addition, this release does not affect Executive’s rights as expressly created by this Agreement, and does not limit his ability to enforce this Agreement.

 

9.Executive Covenants.

 

(a)          Non-Disclosure of Confidential Information and Trade Secrets.

 

(i)During the course of Executive’s employment with the Company, Executive will acquire and have access to Confidential Information and Trade Secrets belonging to the Company, its affiliates, subsidiaries, divisions and joint ventures (collectively referred to as the “Company” throughout and for purposes of this Section 9). Such Confidential Information and Trade Secrets include, without limitation, business and technical information, whatever its nature and form and whether obtained orally, by observation, from written materials or otherwise, as for example: (A) financial and business information, such as information with respect to costs, commissions, fees, profits, profit margins, sales, markets, mailing lists, accounts receivables and accounts payables, pricing strategies, strategies and plans for future business, new business, product or other development, potential acquisitions or divestitures, and new marketing ideas; (B) marketing information, such as information on markets, end users and applications, the identity of the Company’s customers, vendors, suppliers, and distributors, their names and addresses, the names of representatives of the Company’s customers, vendors, distributors or suppliers responsible for entering into contracts with the Company, the Company’s financial arrangements with its distributors and suppliers, the amounts paid by such customers to the Company, specific customer needs and requirements, leads and referrals to prospective customers; and (C) personnel information, such as the identity and number of the Company’s employees, personal information such as social security numbers, skills, qualifications, and abilities. Executive acknowledges and agrees that the Confidential Information and Trade Secrets are not generally known or available to the general public, but have been developed, complied or acquired by the Company at its great effort and expense and for commercial advantage and, therefore, takes every reasonable precaution to prevent the use or disclosure of any part of it by or to unauthorized persons. Confidential Information and Trade Secrets can be in any form or media, whether oral, written or machine readable, including electronic files.

 

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(ii)Executive agrees he will not, while associated with the Company and for so long thereafter as the pertinent information or documentation remains confidential, directly or indirectly use, disclose or disseminate to any other person, organization or entity or otherwise use any Confidential Information and Trade Secrets, except as specifically required in the performance of Executive’s duties on behalf of the Company or with prior written authorization from the Board.

 

(b)          Non-Solicitation of Customers. Executive acknowledges and agrees that during the course of and solely as a result of employment with the Company, he will come into contact with some, most or all of the Company’s customers and will have access to Confidential Information and Trade Secrets regarding the Company’s customers, distributors and suppliers. Consequently, Executive covenants and agrees that in the event of the termination of his employment, whether such termination is voluntary or involuntary, Executive will not, for a period of twelve (12) months following such termination, directly or indirectly, solicit or initiate contact with any customer, former customer or prospective customer of the Company for the purpose of selling products or services to the customer competitive with the products or services purchased by the customer from the Company. This restriction shall apply to any customer, former customer or prospective customer of the Company with whom Executive had contact or about whom Executive obtained Confidential Information or Trade Secrets during his employment with the Company. For the purposes of this Section, “contact” means interaction between Executive and the customer or then prospective customer which takes place to further the business relationship, or making sales to our performing services for the customer or prospective customer on behalf of the Company. This restriction will not apply when a former employee who is not working in a competitive capacity responds to a request for proposal on behalf of his new employer who is not engaged in the same or similar businesses as the Company.

 

(c)          Non-Compete. Executive acknowledges that his services are special and unique, and compensation is partly in consideration of and conditioned upon Executive not competing with Company, and that a covenant on Executive’s part not to compete is essential to protect the business and good will of the Company. Accordingly, except as hereinafter provided, Executive agrees that for twelve (12) months after the termination of his employment, Executive shall not be engaged or interested as a director, officer, stockholder (except as provided herein), employee, partner, individual proprietor, lender or in any other capacity, in any business, which competitive with the business of the Company as conducted at the time of Executive’s termination and which involves Executive’s knowledge, actions or assistance within the counties of Westchester, Rockland, Ulster, Orange, Duchess and Sullivan in New York and Sussex, Bergen and Passaic in New Jersey; however, this restriction will not apply to new kinds of business in which Executive may engage in the future, after such termination, unless Executive has been actively engaged in the development or otherwise involved in such business while an employee of the Company. In addition, Executive agrees that for this same twelve (12) months, he shall not recruit or recommend any other person who is or was an employee of the Company while Executive was also an employee, to any business which is competitive with the business of Executive as conducted at the time of Executive’s termination and which involves Executive’s knowledge, actions or assistance within the counties of Westchester, Rockland, Ulster, Orange, Duchess and Sullivan in New York and Sussex, Bergen and Passaic in New Jersey. Nothing herein shall prohibit Executive from investing in any securities of any corporation which is in competition with the Company, whose securities are listed on a national exchange or traded in the over-the-counter market if Executive shall own less than 5% of the outstanding securities of such operation.

 

14
 

 

(d)           Enforcement of Covenants. Executive acknowledges and agrees that compliance with the covenants set forth in this Section 9 is necessary to protect the Confidential Information and Trade Secrets, business and goodwill of the Company, and that any breach of this Section 9 will result in irreparable and continuing harm to the Company, for which money damages may not provide adequate relief. Accordingly, in the event of any breach or anticipatory breach of Section 9 by Executive, the Company and Executive agree that the Company shall be entitled to the following particular forms of relief as a result of such breach, in addition to any remedies otherwise available to it at law or equity: (i) injunctions, both preliminary and permanent, enjoining or restraining such breach or anticipatory breach, and Executive hereby consents to the issuance thereof forthwith and without bond; and (ii) recovery of all reasonable sums and costs, including attorneys’ fees, incurred by the Company to enforce the provisions of this Section 9.

 

10.Withholding of Taxes

 

The Company shall withhold from any compensation and benefits payable under this Agreement all applicable federal, state, local or other taxes.

 

11.No Claim Against Assets.

 

Nothing in this Agreement shall be construed as giving Executive any claim against any specific assets of the Company or as imposing any trustee relationship upon the Company in respect of Executive. The Company shall not be required to establish a special or separate fund or to segregate any of its assets in order to provide for the satisfaction of its obligations under this Agreement. Executive’s rights under this Agreement shall be limited to those of an unsecured general creditor of the Company and its affiliates.

 

12.Executive Acknowledgement.

 

Executive acknowledges that he has had the opportunity to discuss this Agreement with and obtain advice from his private attorney, has had sufficient time to and has carefully read and fully understands all of the provisions of this Agreement, and is knowingly and voluntarily entering into this Agreement.

 

13.Successors and Assignment.

 

(a)           Except as otherwise provided in this Agreement, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, representatives, successors and assigns.

 

15
 

 

(b)           The Company shall require any successor or successors (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance satisfactory to Executive, to acknowledge expressly that this Agreement is binding upon and enforceable against the Company in accordance with the terms hereof, and to become jointly and severally obligated with the Company to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession or successions had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement by the Company.

 

(c)           The rights and benefits of Executive under this Agreement are personal to him and no such right or benefit shall be subject to voluntary or involuntary alienation, assignment or transfer; provided, however, that nothing in this Section 13 shall preclude Executive from designating a beneficiary or beneficiaries to receive any benefit payable on his death.

 

14.Entire Agreement; Amendment.

 

This Agreement shall supersede any and all existing oral or written agreements, representations, or warranties between Executive and the Company (or any of its subsidiaries or affiliated entities) relating to the terms of Executive’s employment, except for the Company’s Code of Ethics and the Director’s and Officer’s Indemnification Agreement. This Agreement may not be amended except by a written agreement signed by both parties.

 

15.Governing Law.

 

This Agreement shall be governed by and construed in accordance with the domestic substantive laws of the State of New York, without giving effect to any conflicts or choice of laws rule or provision that would result in the application of the domestic substantive laws of any other jurisdiction.

 

16.Section 409A.

 

The parties intend that this Agreement and the payments and benefits to be provided hereunder are exempt from or satisfy the requirements of Section 409A, and this Agreement shall be administered and interpreted consistent with such intention.

 

17.Notices.

 

Any notice, consent, request or other communication made or given in connection with this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by registered or certified mail, return receipt requested, or by facsimile or by hand delivery, to those listed below at their following respective addresses or at such other address as each may specify by notice to the others:

 

To the Company:
Warwick Valley Telephone Company
Attention: Chairman
47 Main Street
Warwick, New York 10990

 

16
 

 

 To Executive:
 At the address set forth below

 

18.Miscellaneous.

 

(a)       Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver thereof or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.

 

(b)       Severability. If any term or provision of this Agreement is declared illegal or unenforceable by any court of competent jurisdiction and cannot be modified to be enforceable, such term or provision shall immediately become null and void, leaving the remainder of this Agreement in full force and effect.

 

(c)       Headings. Section headings are used herein for convenience of reference only and shall not affect the meaning of any provision of this Agreement.

 

(d)       Rules of Construction. Whenever the context so requires, the use of the singular shall be deemed to include the plural and vice versa.

 

(e)       Authority to Enter into this Agreement. The officer of the Company whose signature appears below has been authorized to enter into this Agreement on behalf of the Company.

 

(f)       Counterparts. This Agreement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, and such counterparts will together constitute but one agreement.

 

In Witness Whereof, the parties hereto have duly executed this Agreement as of the day and year set forth below.

 

Warwick Valley Telephone Company   Executive
     
By: /s/ Robert DeValentino   By: /s/ Duane W. Albro
         
Name: Robert DeValentino   Address:
         

 

Title: Chairman of the Board    
         
Date: December 14, 2011   Date: December 14, 2011

 

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APPENDIX A

 

Illustration of Annual Bonus and Incentive Compensation (Long Term Incentive Plan)

 

Table 1 below illustrates the format and components for calculating the Annual Bonus and Incentive Compensation:

 

Table 1:

ANNUAL BONUS & INCENTIVE COMPENSATION
     
Corporate Element   Individual Element
80%   20%
   >  Revenue: 50%     >  Revenue Quality
   >  EBITDA: 30%     >  Broadband ILEC
   >  Net Income: 20%         Market Penetration
      >  NYC Seat Penetration
          (seats in service)
      >  Succession Planning
      >  Other (i.e. discretion)

   

Annual Bonus Performance Matrix:

 

The performance matrix shown in Table 2 below will be used to calculate the Payout Factor amounts for the Corporate Element shown in Table 1 above. The Payout Factor amounts for both the Corporate Element and the Individual Element will then be applied to both the Target Annual Bonus and the Target Incentive Compensation amounts.

 

Target Annual Bonus:

 

Target Annual Bonus Amount: 70% x [base salary of $375,000] = $262,500

Actual Annual Bonus Payout: [Target Annual Bonus Amount of $262,500] x [Blended Payout Factor as determined by assessing the payout factors for the Corporate Element and the Individual Element].

Note: The Corporate Element of the Target Annual Bonus is 80% of $262,500 or $210,000

and the Individual Element of the Target Annual Bonus is 20% of $262,500 or $52,500.

 

Methodology:

 

Target Financial Metrics will be determined for each year by the Board of Directors on behalf of the Company and in collaboration with the CEO. These metrics will then be used to determine the Payout Factor applicable to determining the Corporate Element of the Actual Annual Bonus and the Incentive Compensation amounts to be paid. Similarly, the Board of Directors will determine in its discretion what the Payout Factor of the Individual Element will be (i.e. some percentage of the 20% Individual Element). The payout factors for each of the Corporate Element and the Individual Element will then result in a Blended Payout Factor which will be used to calculate the Incentive Compensation amounts to be paid (as shown in the illustrative example below)

 

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The matrix shown in Table 2 below reflects both the elements of performance that will be evaluated and the weightings associated with each Financial Metric to determine the applicable payout factor that will be used to calculate the Corporate Element of the Annual Bonus and Incentive Compensation amounts.

 

Table 2:

Financial Metric   Weighting   Result   Target   Actual/Target   Payout
Factor
Adjustment1		   Payout
Factor
    A   B   C   (B/C)   D   A x (B/C) x D
Revenue   0.50   TBD   $ TBD   TBD   TBD   TBD
EBITDA   0.30   TBD   $ TBD   TBD   TBD   TBD
Net Income   0.20   TBD   $ TBD   TBD   TBD   TBD
                         
Total Corporate Element Payout Factor   1.00                  

Total Payout Factor

  

Illustrative Example: By way of illustration only, assume the following annual Financial Metric targets for the fiscal year: (1) Revenue: $32,000,000; (2) EBITDA: $3,000,000; and (3) Net Income: $2,000,000. Assume the following actual financial results were realized for the fiscal year: (1) Actual Revenue: $30,000,000; (2) Actual EBITDA: $2,950,000; and (3) Actual Net Income: $1,000,000. The resulting payout factor calculations would be calculated as follows and shown in Table 3 below:

 

Table 3:

Financial
Metric		   Weighting   Result   Target   Actual/Target   Payout
Factor
Adjustment1		   Payout Factor
    A   B   C   (B/C)   D   A x (B/C) x D
Revenue   0.50   $ 30,000,000   $ 32,000,000   0.9375   0.7000   .3281
EBITDA   0.30   $ 2,950,000   $ 3,000,000   0.9833   1.0   .2950
Net Income   0.20   $ 1,000,000   $ 2,000,000   0.5000   0.0   0.0
                           
Total Corporate Element Payout Factor   1.00                     0.6231

  

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Based upon this illustrative example, the Corporate Element of the Target Annual Bonus would be paid out at 0.6231 x $210,000 and would be based on a payout factor of 0.6231 and result in a Corporate Element Annual Bonus payout amount of $210,000 x 0.6231 or $130,851

 

1 Notwithstanding the foregoing matrix, a Payout Factor Adjustment will be made according to the following:

 

§in the event that the actual results / target results for Revenue, EBITDA or Net Income is less than .9000 (90%), then the payout factor attributable to that metric of measurement will be adjusted (or multiplied) by a Payout Factor Adjustment of zero (0.0), respectively;

 

§in the event that the actual results / target results for Revenue, EBITDA or Net Income is on or between .9000 (90%) and on or between .9500 (95%), then the payout factor attributable to that metric of measurement will be adjusted (or multiplied) by a Payout Factor Adjustment of 70% (0.7), respectively; and

 

§in the event that actual results / target results for Revenue, EBITDA or Net Income is above .9500 (95%), then the payout factor attributable to that metric of measurement will be determined by straight line linear interpolation based on the actual / target result with no upside limit.

 

This methodology will also be applied to Incentive Compensation payout in the same manner.

 

In addition to the Corporate Element, there is an Individual Element as shown in Table 1 above which comprises 20% of the overall payout factor calculation for the Actual Annual Bonus and Incentive Compensation. While this element is discretionary in nature it will consider four (4) specific metrics of operating performance and its final determination will be assessed by the Board of Directors in its discretion. These four specific metrics include: (i) revenue quality, (ii) broadband ILEC market penetration – 15 Mbps, (iii) New York City seat penetration as measured by seats in service, and (iv) succession planning for CEO and other key officers. There will be an additional fifth factor that will be considered which is shown as “Other” in Table 1 above and this will be an additional discretionary element applied by the Board of Directors. While no exact weighting of all these five elements that comprise the Individual Element are fixed, the general approach to be used and applied in a reasonable manner will be 20% per element. The Board of Directors will, in its discretion, arrive at a payout factor for the Individual Element and apply this payout factor amount to the Target Annual Bonus amount of $262,500. For example, the Board of Directors may determine that only 90% of the Individual Element will be paid out which would therefore result in an Actual Annual Bonus payout attributable to the Individual Element of ..90 (the payout factor) x .2 (20% comprised by the Individual Element) x $262,500 (the Target Annual Bonus). The Individual Element payout amount would then be $47,250 (.9 x .2 x $262,500) which, when added to the $161,438 Corporate Element shown in the illustrative example above would result in an Actual Annual Bonus payout of $130,851 plus $47,250, or $178,101 which would result in a blended payout factor (Corporate Element plus Individual Element actual payouts) of .6785 ($178,101 divided by $262,500). This Blended Payout Factor of .6785 would then be applied to Incentive Compensation targets as shown below:

 

Incentive Compensation (Long Term Incentive Plan) Component:

 

ØTarget Incentive Compensation Component

 

Stock Options:   30,000 
      
Restricted Shares:   12,000 

  

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Applying blended payout factor of .6785 used to determine the Annual Bonus payout as shown above would result in an Incentive Compensation payout of: 

 

Stock Options: 30,000 x .6785 = 20,354
   
Restricted Shares: 12,000 x .6785 =   8,142

  

For calculating both the Annual Bonus and the Incentive Compensation, the Board of Directors retains the sole discretion to award compensation, if any, under this Appendix A. 

 

21

 EX-10.21 3 v305807_ex10-21.htm EXHIBIT 10.21

 

EXHIBIT 10.21

 

ADDENDUM TO EMPLOYMENT AGREEMENT

 

Effective: 08.05.11

 

Ralph Martucci

 

Effective with the successful closing of the acquisition of Alteva, LLC on August 5, 2011, the following changes are enforced:

 

4.(a) Base Salary. During the Employment Term, the Company shall pay Executive a base salary at the annual rate of $200,000.00 per year or such higher rate as may be determined annually by the Company (“Base Salary”). Such Base Salary, less applicable withholdings, shall be paid in accordance with the Company’s standard payroll practice for executives.

 

APPENDIX A

 

Incentive Compensation (Long Term Incentive Plan) Component:

 

ØTarget Incentive Compensation Component

 

Stock Options: 15,000

 

Restricted Shares: 3,750

 

WARWICK VALLEY TELEPHONE COMPANY:   EXECUTIVE:
         
By:         /s/ Duane W. Albro   By:        /s/ Ralph Martucci 
  Duane W. Albro     Ralph Martucci
  President and CEO     Executive Vice President, CFO, Treasurer
  August 8, 2011     August 8, 2011

 

 

 EX-10.23 4 v305807_ex10-23.htm EXHIBIT 10.23

exhibit 10.23

 

Revision to David Cuthbert EMPLOYMENT AGREEMENT

 

This Revision to David Cuthbert’s August 5, 2011 Employment Agreement is effective December 15, 2011.

 

1.Compensation and Benefits.

 

(a)    Base Salary. During the Employment Term, the Company shall pay Executive a base salary at the annual rate of $285,000 per year or such higher rate as may be determined annually by the Company (“Base Salary”). Such Base Salary, less applicable withholdings, shall be paid in accordance with the Company’s standard payroll practice for executives.

 

In Witness Whereof, the parties hereto have duly executed this Agreement as of the day and year set forth below.

 

Warwick Valley Telephone Company   Executive
     
By: /s/ Duane W. Albro   By: /s/ David Cuthbert
         
Name: Duane W. Albro   Address:  
         
Title: President and CEO    
         
Date: 12/14/11   Date: 12/14/11

   

 

 

 

 EX-10.24 5 v305807_ex10-24.htm EXHIBIT 10.24

 

 

exhibit 10.24

 

Revision to David Cuthbert EMPLOYMENT AGREEMENT

 

This Revision to David Cuthbert’s August 5, 2011 Employment Agreement is effective February 1, 2012. As a result of the transfer of Jay Mercer to report to David, the additional responsibilities warrant an increase in base pay.

 

1.Compensation and Benefits.

 

(a)        Base Salary. During the Employment Term, the Company shall pay Executive a base salary at the annual rate of $315,000 per year or such higher rate as may be determined annually by the Company (“Base Salary”). Such Base Salary, less applicable withholdings, shall be paid in accordance with the Company’s standard payroll practice for executives.

 

In Witness Whereof, the parties hereto have duly executed this Agreement as of the day and year set forth below.

 

Warwick Valley Telephone Company   Executive
     
By: /s/ Duane W. Albro   By: /s/ David Cuthbert
         
Name: Duane W. Albro   Address:  

 

Title: President and CEO    
         
Date: 1/26/12   Date: 1/30/12

 

 

 EX-10.25 6 v305807_ex10-25.htm EXHIBIT 10.25

 

EXHIBIT 10.25

 

Lock-Up and PUT AGREEMENT

 

THIS Lock-UP and PUT AGREEMENT (this “Agreement”) is made as of October 21, 2011, by and among Warwick Valley Telephone Company, a New York corporation with offices at 47 Main St., PO Box 592, Warwick, NY 10990 (“Parent”), and each of the individuals identified on the signature page of this Agreement (each, a “Holder” and collectively, the “Holders”). Parent and the Holders are sometimes referred to individually as a “Party” and collectively as the “Parties”.

 

WHEREAS, Parent, Warwick Valley Networks, Inc. (“Buyer”) and Alteva, LLC, a New Jersey limited liability company (“Alteva”) are parties to that certain Asset Purchase Agreement (the “Purchase Agreement”), dated as of July 14, 2011, pursuant to which Alteva sold substantially all of its assets to Buyer in exchange for consideration that includes the Parent Shares (as defined in the Purchase Agreement).

 

WHEREAS, as a condition of the closing of the transactions contemplated by the Purchase Agreement and the issuance of the Parent Shares, Alteva agreed to hold the Parent Shares subject to the terms and conditions of this Agreement, and Parent agreed to grant Alteva certain rights with respect to the Parent Shares, upon the terms and conditions hereinafter set forth.

 

WHEREAS, Alteva has assigned its rights to the Parent Shares to the Holders, who constitute all of the members of Alteva, and Alteva has authorized and directed Parent to issue the Parent Shares directly to the Holders, in the amounts set forth on Exhibit A attached hereto, subject, however, to the Holders agreeing to hold the Parent Shares in accordance with the terms and conditions of this Agreement.

 

NOW THEREFORE, in consideration of the foregoing and the mutual covenants contained in this Agreement, the Parties agree as follows:

 

1.             Definitions. Capitalized terms used in this Agreement, but not otherwise defined in this Agreement, have the respective meanings set forth in the Purchase Agreement. When used in this Agreement, the terms set forth below have the following meanings:

 

“Change of Control” means: (a) where any “person,” as such term is used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Parent representing more than 50% of the voting power of the then outstanding securities of the Parent; provided that a Change of Control shall not be deemed to occur as a result of a transaction in which the Parent becomes a subsidiary of another corporation and in which the stockholders of the Parent, immediately prior to the transaction, will beneficially own, immediately after the transaction, shares entitling such stockholders to more than 50% of all votes to which all stockholders of the parent corporation would be entitled in the election of directors; or (b) the consummation of (i) a merger or consolidation of the Parent with another corporation where the stockholders of the Parent, immediately prior to the merger or consolidation, will not beneficially own, immediately after the merger or consolidation, shares entitling such shareholders to more than 50% of all votes to which all stockholders of the surviving corporation would be entitled in the election of directors, (ii) a sale or other disposition of all or substantially all of the assets of the Parent, or (iii) a liquidation or dissolution of the Parent.

 

 
 

 

“Collar Adjustment Price” means $11.74.

 

“Effective Date” means the date of this Agreement.

 

“Release Date Price” means the per share price equal to the average of the closing prices of Parent Common Stock reported on the Nasdaq Stock Market for the 30 trading days immediately prior to (i) the First Release Date, or (ii) the Second Release Date, as applicable, but excluding the three trading days prior to and after the record date, and the record date, for any cash dividend declared by Parent on the Parent Common Stock.

 

“Total Parent Shares” means, collectively, the Parent Shares and the Additional Parent Shares (as defined in Section 4), if any, issued pursuant to Section 4.

 

“Transfer” means any sale, transfer, donation, gift, assignment, pledge, hypothecation, grant of a security interest in or other disposition or attempted disposition, whether voluntary or involuntary.

 

2.             Lock-Up Agreement.

 

(a)          Lock-Up. Subject to Section 2(b) and 2(c), each Holder may Transfer all or any Parent Shares held by such Holder only in accordance with this Section 2(a) (and then only in accordance with applicable securities laws):

 

(i)From the Effective Date until October 20, 2012, Holder may not Transfer any Parent Shares, without the prior written consent of Parent;

 

(ii)During the period beginning on October 21, 2012 (the “First Release Date”) and ending on December 14, 2012, each Holder may Transfer up to 50 percent of the Parent Shares held by such Holder as of the date of this Agreement (in each case, the “Initially Released Shares”), which Initially Released Shares are forth on Exhibit A with respect to each Holder, without the prior written consent of Parent; and

 

(iii)From and after December 15, 2012 (the “Second Release Date”), each Holder may Transfer any and all of (A) the Parent Shares held by such Holder that remained subject to restriction hereunder after the First Release Date (in each case, the “Secondary Released Shares”), which Secondary Released Shares are set forth on Exhibit A with respect to each Holder, and (B) any other Parent Shares held by Holder, in each case without the prior written consent of Parent.

  

(b)          Exceptions to Lock-Up. Notwithstanding the provisions of Section 2(a), each Holder may at any time, subject to applicable securities laws (and Parent acknowledges and agrees that Parent shall provide reasonable cooperation to each Holder to ensure that any such Transfer desired to be made by such Holder is made as promptly as practicable in accordance with applicable securities laws), Transfer the Parent Shares held by such Holder to any of the following (collectively, “Permitted Transferees”) (i) a spouse, a lineal ancestor or descendant, or adopted child, of such Holder; (ii) a trust for the primary benefit of such Holder or the foregoing individuals described in (i); (iii) charity; or (iv) to any Affiliate of such Holder; provided that the Permitted Transferee shall have first delivered to Parent the written agreement of such Permitted Transferee to become a party to (and hold its Parent Shares subject to) this Agreement to the same extent as if such Permitted Transferee was a Holder (and provided further that the restrictions above and the put rights and rights to receive Additional Parent Shares below shall apply on a proportional basis to any Permitted Transferee based on relative ownership of the Parent Shares held by a Permitted Transferee in the event there is more than one Permitted Transferee). In addition, the restrictions on Transfer set forth in Section 2(a) (the “Lock-Up Provisions”) shall not apply to any Additional Parent Shares issued pursuant to Section 4. In addition, the Lock-Up Provisions shall not apply to any Transfers to the Parent, any Transfers between Holders (provided, however, that any Parent Shares Transferred by a Holder to another Holder shall remain subject to the Lock-Up Provisions, as applicable, in accordance with the terms of such Lock-Up Provisions) and any Transfers pursuant to a tender offer or in connection with a Change of Control of Parent.

 

2
 

 

(c)          Covenants. Each Holder shall, during the Term, maintain the Parent Shares held by such Holder free and clear of all liens, encumbrances, and claims whatsoever, other than any of the foregoing created by Parent and any restrictions on transfer under applicable securities laws.

 

(d)          Violations. Any Transfer or proposed Transfer of Parent Shares made or attempted in contravention of this Section 2 shall not be recognized by Parent and shall be void and of no effect.

 

(e)          Legends. Each Holder agrees that appropriate legends may be placed on and stop Transfer orders may be placed against any certificate(s) representing the Parent Shares held by such Holder, to reflect the restrictions set forth herein and restrictions on Transfer that may be imposed under applicable securities laws, for so long as such restrictions exist.

 

(f)          Certificates. If and whenever a Holder holds a share certificate for Parent Shares on which a legend appears referencing the Lock-Up Provisions and such Holder becomes entitled to Transfer some or all of such Parent Shares pursuant to Section 2(a)(ii) or Section 2(a)(iii), then Parent shall deliver to such Holder, within ten (10) business days of Parent’s receipt of such Holder’s request therefor and delivery of the original share certificate containing the legend (and without requirement of any additional documentation), (i) a replacement share certificate without such legend for the Parent Shares that such Holder becomes entitled to Transfer, and (ii) a replacement share certificate with such legend for any additional Parent Shares evidenced by the original certificate which remain subject to the Lock-Up Provisions. The Parent shall otherwise provide reasonable cooperation to each Holder and the Parent’s transfer agent (including, if requested by the transfer agent, providing any opinion required by such transfer agent or Parent to effectuate the Transfer) to effectuate any Transfer permitted by this Agreement as promptly as practicable; it being understood that time is of the essence in connection with such Transfer.

 

3
 

 

(g)          Right to Dividends. Notwithstanding the Lock-Up Provisions set forth in this Section 2, each Holder shall receive and retain all rights of ownership of the Parent Shares held by such Holder including, without limitation, the right to receive from and after the Effective Date all dividends otherwise declared and payable by Parent with respect to its Parent Common Stock at the same time as such dividends are paid by Parent with respect to its Parent Common Stock.

 

3.             Grant of Put Right. Parent hereby irrevocably grants and issues to each Holder the right and option to sell to Parent (hereinafter referred to as the “Put”), for no additional consideration and without any action required on the part of such Holder except as provided for in this Section 3, all or any portion of the Total Parent Shares held by such Holder, subject to, and in accordance with the terms and conditions of, this Section 3.

 

(a)          Exercise of Put. Each Holder may exercise the Put and sell to Parent, and Parent agrees to purchase from such Holder at the Put Price, (i) as of and for a sixty (60) day period following the First Release Date (the “First Put Window”), any or all of the Initially Released Shares held by such Holder, and (ii) as of and for a sixty (60) day period following the Second Release Date (the “Second Put Window”), any or all of the Total Parent Shares held by such Holder.

 

(b)          Put Price. Upon exercise of the Put, Parent shall pay to the Holder exercising the Put for each Total Parent Share subject to the Put an amount (the “Put Price”) equal to the greater of (i) the closing price of Parent Common Stock reported on the Nasdaq Stock Market for the date of exercise of the Put (or, if the date of exercise is not a trading day, on the last trading day immediately prior to the date of exercise of the Put) and (ii) the Collar Adjustment Price.

 

(c)          Manner of Exercise. A Put is exercisable upon notice (the “Put Notice”) given by a Holder to Parent of such Holder’s election to exercise such Put and the date of the Put Closing (as determined by such Holder and specified in the Put Notice, subject, however, to adjustment pursuant to Section 3(d)) (the “Put Closing Date”), which will be not less than twelve (12) days nor more than ninety (90) days after the date of the Put Notice.

 

(d)          Put Closing. The closing for the sale and purchase of the Parent Shares made the subject of a Put will take place at the offices of Parent on the Put Closing Date (a “Put Closing”). Notwithstanding the provisions of Section 3(c) or any Put Closing Date specified by a Holder, if more than one Holder exercises the Put during the First Put Window or the Second Put Window, as applicable, Parent may elect to complete multiple Put Closings simultaneously, on one or more Put Closing Dates selected by Parent; provided, however, that if Parent selects any Put Closing Date pursuant to this Section 3(d), in no event shall the Put Closing Date with respect to any Put occur (i) before, or more than thirty-five (35) days after, the Put Closing Date designated in the Put Notice by the Holder exercising such Put, or (ii) after December 31, 2012 if the Holder exercising such Put designated in the applicable Put Notice a Put Closing Date on or before December 31, 2012. At any Put Closing, to the extent applicable, the Holder exercising the Put will deliver the certificates or instruments evidencing the Parent Shares being sold, duly endorsed or otherwise in transferable form. In consideration of such delivery, Parent will deliver to such Holder the Put Price for all Total Parent Shares being purchased from such Holder, payable in cash, either by bank check sent to such Holder at the address specified in the Put Notice or by wire transfer of immediately available funds in accordance with the wire instructions specified by such Holder in the Put Notice, in each case in accordance with the preference specified by such Holder in the Put Notice.

 

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4.             Purchase Price Protection.

 

(a)          Issuance of Additional Parent Shares. Subject to the terms and conditions of this Section 4, Parent shall issue additional shares of Parent Common Stock (collectively, the “Additional Parent Shares”) to the Holders (pro rata, based on the percentages set forth in Exhibit A), upon the expiration of the Lock-Up Provisions, if required by the provisions of this Section 4, as follows:

   

 (i)If (A) the Release Date Price as of the First Release Date is less than the Collar Adjustment Price, then Parent shall issue to the Holders, pursuant to Section 4(c), the aggregate number of Additional Parent Shares that would result in the aggregate value (as of the First Release Date and based on the applicable Release Date Price) of (1) 136,239.5 Parent Shares and (2) such aggregate Additional Parent Shares issued as of the First Release Date, being equal to $1,600,000 (with such value calculated based on the Release Date Price as of the First Release Date).

 

(ii)If (A) the Release Date Price as of the Second Release Date is less than the Collar Adjustment Price, then Parent shall issue to the Holders, pursuant to Section 4(c), the aggregate number of Additional Parent Shares that would result in the aggregate value (as of the Second Release Date and based on the applicable Release Date Price) of (1) 136,239.5 Parent Shares and (2) such aggregate Additional Parent Shares issued as of the Second Release Date, being equal to $1,600,000 (with such value calculated based on the Release Date Price as of the Second Release Date).

 

(b)          No Issuance of Additional Parent Shares. Parent shall not be required to issue any Additional Parent Shares to any Holder in connection with the First Release Date or the Second Release Date, as applicable, if the applicable Release Date Price is greater than or equal to the Collar Adjustment Price.

 

(c)          Issuance of Certificates. If Parent is required to issue any Additional Parent Shares pursuant to this Section 4, Parent shall issue and deliver to each Holder a pro rata portion of such Additional Parent Shares (based on the percentages set forth on Exhibit A), which Parent agrees shall be duly authorized, validly issued, fully-paid and non-assessable, shall be issued in compliance with all applicable federal and state securities laws, and shall be issued free of any preemptive rights, liens or restrictions other than those imposed pursuant to the Securities Act. Parent has duly reserved the Additional Parent Shares that are issuable pursuant to this Agreement. If Parent is required to issue any Additional Parent Shares pursuant to this Section 4, Parent shall issue and deliver to each Holder stock certificates representing the Additional Parent Shares to be issued to such Holder within ten (10) business days after the First Release Date or Second Release Date, as applicable. Any Additional Parent Shares issued pursuant to this Section 4 shall not be subject to the Lock-Up Provisions set forth in Section 4.

 

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5.             Assignments and Transfers; No Third Party Beneficiaries. This Agreement and the rights and obligations of the Parties hereunder shall inure to the benefit of, and be binding upon, their respective successors, assigns and legal representatives, but shall not otherwise be for the benefit of any third party; provided that any assignment of this Agreement by Parent shall not relieve Parent of its obligations hereunder. Each Holder may assign this Agreement, and the rights and obligations of such Holder hereunder, to any Permitted Transferee that acquires, pursuant to the terms of this Agreement, all or any portion of such Holder’s Parent Shares. Any Permitted Transferee to whom rights under this Agreement are Transferred will, as a condition of such Transfer, deliver to Parent a written agreement to become a party to this Agreement to the same extent as if such Permitted Transferee were named as a Holder herein.

 

6.             Notices. Any notice required or permitted by any provision of this Agreement shall be given in writing and shall be delivered personally or by courier, or by registered or certified mail, postage prepaid, addressed (i) in the case of Parent, to its principal office and set forth in the caption to this Agreement, (ii) in the case of any Holder, to such Holder’s registered address for its Parent Shares shown in the records of Parent (or of Parent’s transfer agent). Notices that are mailed shall be deemed received five (5) days after deposit in the United States mail. Notices sent by courier or overnight delivery shall be deemed received two (2) days after they have been so sent.

 

7.             Further Instruments and Actions. The Parties agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement.

 

8.             Term. The term of this Agreement (the “Term”) shall commence on the Effective Date and shall continue until the latest to occur of (a) the expiration of the Second Put Window and, if any one or more Holders exercises its Put during the First Put Widow or the Second Put Window, the completion of all Put Closings, and (b) the Second Release Date and, if and Additional Shares are to be released pursuant to Section 4 upon such Second Release Date, the issuance of such Additional Parent Shares.

 

9.             Entire Agreement. This Agreement, together with the Purchase Agreement, contains the entire understanding of the Parties hereto with respect to the subject matter hereof, supersedes all other agreements among the Parties with respect to the subject matter hereof and cannot be altered or otherwise amended except pursuant to an instrument in writing signed by each of the Parties to this Agreement. This Agreement shall be interpreted under the laws of New York without reference to conflicts of law provisions.

 

10.             Amendments and Waivers. Any provision of this Agreement may be amended and the observance of any provision of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of Parent and Holders holding a majority of the then outstanding Total Parent Shares that are subject to this Agreement.

 

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11.             Severability. In case any provision of the Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

 

12.             Counterparts; Facsimile Signatures. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The exchange of executed copies of this Agreement by facsimile, portable document format (PDF) or other reasonable form of electronic transmission shall constitute effective execution and delivery of this Agreement.

 

13.             Stock Splits and Stock Dividends. The Lock-Up Provisions shall also apply to any securities issued to any Holder in the event of a stock dividend or distribution, a forward or a reverse stock split or other reclassification of shares of Parent Common Stock to the extent and for the duration that the shares of Parent Common Stock with respect to which such securities were issued are subject to the Lock-Up Provisions hereunder. In addition, Parent shall make equitable adjustment (such equitable agreement to be reasonably satisfactory to the Holders) to the rights of the Holders under this Agreement (including the right to receive Additional Parent Shares and the Put right) to the benefit of such rights in the event of a stock dividend or distribution, a forward or a reverse stock split or other reclassification of shares of Parent Common Stock during the Term of this Agreement.

 

14.             Injunctive and Equitable Relief. If Parent fails to adhere fully to the terms and conditions of this Agreement, Parent shall be liable to the Holders for any damages (expressly including any direct, indirect, special, consequential or other damages) suffered by reason of any such breach of the terms and conditions hereof. Parent acknowledges and agrees that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Parent further agrees that in the event of a breach of any of the terms or conditions of this Agreement by Parent, and in addition to all other remedies that may be available in law or in equity to the Holders, a preliminary and permanent injunction, without bond or surety, and an order of a court requiring Parent to cease and desist from violating the terms and conditions of this Agreement and specifically requiring Parent to perform its obligations hereunder is fair and reasonable and that the Holders shall have the right to seek such injunction and order, and Parent hereby consents to the issuance of such injunction and order.

 

15.             Cumulative Remedies. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law or in equity.

 

16.             Costs of Enforcement. If any Holder seeks to enforce its rights under this Agreement, without limiting any other remedies hereunder, at law or in equity, Parent shall pay all costs and expenses incurred by such Holder in enforcing such rights, including, without limitation, all reasonable attorneys’ fees and other reasonable fees of outside advisors.

 

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17.             SEC Reports. With a view to making available to the Holders the benefits of Rule 144 promulgated by the SEC and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of Parent to the public without registration, Parent shall:

 

(a)          make and keep available adequate current public information, as those terms are understood and defined in SEC Rule 144, at all times following the date hereof;

 

(b)          use commercially reasonable efforts to file with the SEC in a timely manner all reports and other documents required of Parent under the Securities Act and the Exchange Act; and

 

(c)          furnish to each Holder, so long as such Holder owns any Total Parent Shares, forthwith upon request (i) to the extent accurate, a written statement by Parent that it has complied with the reporting requirements of SEC Rule 144, the Securities Act, and the Exchange Act; (ii) a copy of the most recent annual or quarterly report of Parent and such other reports and documents so filed by Parent; and (iii) such other information as may be reasonably requested in availing such Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration.

 

[Signature page follows.]

 

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IN WITNESS WHEREOF, and intending to be legally bound hereby, the Parties hereto have executed this Agreement as of the date first written above.

 

 

  PARENT:  
     
  WARWICK VALLEY TELEPHONE COMPANY  
       
       
  By: /s/ Duane W. Albro  
  Name: Duane W. Albro  
  Its: President and Chief Executive Officer  
       
       
       
  HOLDERS:  
       
       
  /s/ William Bumbernick  
  William Bumbernick  
       
       
  /s/ Mardoqueo Marquez  
  Mardoqueo Marquez  
       
       
  /s/ Louis Hayner  
  Louis Hayner  
       
       
  /s/ David Cuthbert  
  David Cuthbert  
       
       
  /s/ Kathleen Cuthbert  
  Kathleen Cuthbert  
       
       
  /s/ Stephen Cuthbert  
  Stephen Cuthbert  
       
       
  /s/ Bruce Baker  
  Bruce Baker  
       
       
  /s/ Thomas Daley  
  Thomas Daley  

 

[Signature Page to Lock-Up and Put Agreement]

 

 
 

 

  /s/ Cesidio Colasante  
  Cesidio Colasante  
     
     
  /s/ Vincent Colasante  
  Vincent Colasante  
     
     
  /s/ Joseph Weir  
  Joseph Weir  
     
     
  /s/ Gary Porter  
  Gary Porter  
     
     
  /s/ Deborah Deney  
  Deborah Deney  
     
     
  /s/ W. Anthony Hitschler  
  W. Anthony Hitschler  
     
     
  /s/ Linda Hitschler  
  Linda Hitschler  
     
     
  /s/ Christopher Lange  
  Christopher Lange  

 

[Signature Page to Lock-Up and Put Agreement]

 

 
 

 

Exhibit A

 

Holders and Parent Shares

 

Holder  Ownership of Alteva*   Parent
Shares		   Initially Released
Shares		   Secondary Released Shares 
                 
William Bumbernick   46.15181%   125,754    62,877    62,877 
Mardoqueo Marquez   9.22934%   25,148    12,574    12,574 
Louis Hayner   9.22934%   25,148    12,574    12,574 
David Cuthbert   9.22934%   25,148    12,574    12,574 
Kathleen Cuthbert   3.13822%   8,551    4,276    4,275 
Stephen Cuthbert   2.03062%   5,533    2,767    2,766 
Bruce Baker   2.95436%   8,050    4,025    4,025 
Thomas Daley   2.95436%   8,050    4,025    4,025 
Cesidio Colasante   1.47644%   4,023    2,012    2,011 
Vincent Colasante   1.47644%   4,023    2,012    2,011 
Joseph Weir   1.47644%   4,023    2,012    2,011 
Gary Porter   1.47644%   4,023    2,012    2,011 
Deborah Deney   1.47644%   4,023    2,012    2,011 
W. Anthony Hitschler   3.48027%   9,483    4,742    4,741 
Linda Hitschler   0.36994%   1,008    504    504 
Christopher Lange   3.85020%   10,491    5,246    5,245 
                     
    100.00000%   272,479    136,244    136,235 

 

*The Additional Parent Shares, if any, that may be issued to the Holders pursuant to Section 4 will be issued to the Holders pro rata based on their percentage ownership in Alteva, as set forth in this column.

 

 

 

 EX-10.26 7 v305807_ex10-26.htm

 

EXHIBIT 10.26

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (this “Agreement”) is made and entered into as of August 8, 2011 and shall be effective August 8, 2011 (the “Effective Date”), by and between Warwick Valley Telephone Company (the “Company”) and John Mercer (“Executive”).

 

RECITALS: 

 

A.        The Company’s subsidiary, Warwick Valley Networks Inc. (“WVN”), has purchased from Alteva, LLC, a New Jersey limited liability company (“Seller”), substantially all of the assets of Seller used in its business of providing telecommunications products and services, pursuant to an Asset Purchase Agreement dated as of August 5, 2011 (the “Purchase Agreement”) by and among the Company, WVN and Seller.

 

B.         As a condition precedent to the transactions contemplated by the Purchase Agreement, the Company and Executive agreed to enter into this Agreement. 

 

1.Employment.

 

The Company hereby agrees to employ Executive, and Executive hereby agrees to be employed by the Company, upon the terms and subject to the conditions set forth in this Agreement.

 

2.Term of Employment.

 

(a)         The period of Executive’s employment under this Agreement shall begin as of the Effective Date and shall continue until December 30, 2013 (the “Initial Term”), and shall be renewed automatically for successive one-year periods thereafter (each, a “Renewal Period”), unless Executive or the Company gives written notice of nonrenewal to the other at least sixty (60) days before the expiration of the Initial Term or any subsequent Renewal Period.

 

(b)         Notwithstanding the foregoing, Executive’s employment may be terminated by the Company or by Executive at any time for any reason.

 

(c)         As used in this Agreement, the term “Employment Term” refers to Executive’s period of employment from the Effective Date until the date his employment terminates.

 

3.Duties and Responsibilities.

 

(a)         The Company will employ Executive as its Executive Vice President, Chief Technology Officer. In such capacity, Executive shall perform the customary duties and have the customary responsibilities of such positions and such other duties as may be assigned to Executive from time to time by the President and Chief Executive Officer (the “President”) pursuant to the President’s properly delegated authority. Executive will exercise his judgment in accordance with the highest ethical standards.

 

 
 

 

(b)         Executive agrees to faithfully serve the Company, devote his full working time, attention and energies to the business of the Company, its subsidiaries and affiliated entities, and perform the duties under this Agreement to the best of his abilities.

 

(c)         Executive agrees (i) to comply with all applicable laws, rules and regulations; (ii) to comply with the Company’s rules, procedures, policies, requirements, and directions; and (iii) not to engage in any other business or employment without the written consent of the Company except as otherwise specifically provided herein.

 

(d)         Executive acknowledges that he has received a copy of the Company’s Code of Ethics, that he has read the Code of Ethics and that this Agreement does not supersede that policy.

 

4.Compensation and Benefits.

 

(a)         Base Salary. During the Employment Term, the Company shall pay Executive a base salary at the annual rate of $180,000 per year or such higher rate as may be determined annually by the Company (“Base Salary”). Such Base Salary, less applicable withholdings, shall be paid in accordance with the Company’s standard payroll practice for executives.

 

(b)         Annual Bonus. During the Employment Term, Executive will be eligible to receive an Annual Bonus each year, as determined in accordance with the Applicable Plan approved by the Board (or Compensation Committee as the case may be) for Executive for such year. An example of the Applicable Plan for 2011 is attached as Appendix A to this Agreement for illustration purposes only. Subsequent measurement metrics will be determined by the Board (or Compensation Committee as the case may be) at their sole discretion for 2011 and each subsequent year. The Board (or Compensation Committee as the case may be) has the right to change or eliminate the Applicable Plan in its sole discretion at any time. The Annual Bonus to be paid to Executive in 2011 shall be based on the Company’s financial performance in 2011, continuing in like progression with the Annual Bonus to be paid in any year based on the Company’s prior year’s performance. Such Annual Bonus, less applicable withholdings, shall be paid within 2.5 months of the end of the taxable fiscal year during which it was earned. Except as otherwise provided by Section 7, in order to be eligible to receive payment of any portion of an Annual Bonus, Executive must be actively employed by the Company on the payment date. Notwithstanding the foregoing, Executive acknowledges that whether any Annual Bonus is to be paid for a given year and the amount of that Annual Bonus is completely at the discretion of the Board (or Compensation Committee as the case may be).

 

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(c)         Incentive Compensation. Executive shall be eligible to receive incentive compensation (“Incentive Compensation”) each year, in accordance with the Applicable Plan approved by the Board (or Compensation Committee as the case may be) for Executive for such year. The Incentive Compensation shall be in the form of equity-based awards (stock options and restricted stock of the Company) under the Company’s incentive compensation plans. An example of the Applicable Plan for 2011 is attached as Appendix A to this Agreement for illustration purposes only. Subsequent measurement metrics will be determined by the Board (or Compensation Committee as the case may be) at their sole discretion for 2011 and each subsequent year. The Board (or Compensation Committee as the case may be) has the right to change or eliminate the Applicable Plan in its sole discretion at any time. The Incentive Compensation to be paid to Executive in 2012 shall be based on the Company’s financial performance in 2011, continuing in like progression with the Incentive Compensation to be paid in any year based on the Company’s prior year performance. Such Incentive Compensation shall be delivered to Executive within 2.5 months of the end of the taxable fiscal year during which it was earned. Except as otherwise provided by Section 7, in order to be eligible to receive payment of any portion of the Incentive Compensation, Executive must be actively employed by the Company on the payment date. Notwithstanding the foregoing, Executive acknowledges that whether any Incentive Compensation is to be paid for a given year and the amount of that Incentive Compensation is completely at the discretion of the Board (or Compensation Committee as the case may be).

 

(d)         Benefit Plans, Fringe Benefits and Vacation. Executive shall be eligible to participate in any 401(k) savings plan generally made available by the Company to other executives in accordance with the eligibility requirements of such plans and subject to the terms and conditions set forth in such plans, except for any pension benefit. Executive shall be eligible to participate in any health and welfare plans made available to other executives, including, but not limited to, any medical and dental benefits plan, life insurance plan, short-term and long-term disability plans, or other executive benefit or fringe benefit plan. Executive will also be eligible to receive at least four (4) weeks of vacation per calendar year, accrued and earned on a daily basis, as well as other types of paid time-off (e.g., holidays, personal days, absence due to illness, etc.) according to the Company’s vacation and paid time-off policy.

 

(e)         Expense Reimbursement. The Company shall promptly reimburse Executive for the ordinary and necessary business expenses incurred by Executive in the performance of the duties under this Agreement in accordance with the Company’s customary practices applicable to executives, provided that such expenses are incurred and accounted for in accordance with the Company’s expense reimbursement policy. Reimbursement shall be made as soon as administratively practicable following Executive’s submission of the necessary documents and receipts required under the Company’s expense reimbursement policy, but in no event later than December 31st of the calendar year following the calendar year in which the expense was incurred.

 

(f)         Concession. Executive will be provided with paid PDA or mobile phone service for one electronic device, as well as concession Telephone and Toll Service and Internet Service consistent with those benefits available to other executives.

 

(g)         Indemnification. Executive will be covered by the Company’s standard Director’s and Officer’s Indemnification Agreement, providing for indemnification consistent with the New York Business Corporation Law and the Company’s by-laws.

 

5.Termination of Employment.

 

Executive’s employment may be terminated by the Company or by Executive at any time for any reason. Upon termination, Executive shall be entitled to receive the compensation and benefits described in Section 7. Executive’s employment will terminate under the following conditions:

 

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(a)         Death. Executive’s employment shall terminate upon Executive’s death.

 

(b)         Total Disability. The Company may terminate Executive’s employment upon his becoming Totally Disabled. For purposes of this Agreement, Executive shall be “Totally Disabled” if Executive is physically or mentally incapacitated so as to render Executive incapable of performing his usual and customary duties under this Agreement without reasonable accommodation. Executive’s receipt of disability benefits under the Company’s long-term disability plan, if any, or receipt of Social Security disability benefits shall be deemed conclusive evidence of Total Disability for purpose of this Agreement; provided, however, that in the absence of Executive’s receipt of such longterm disability benefits or Social Security benefits, the Company may, in its reasonable discretion (but based upon appropriate medical evidence), determine that Executive is Totally Disabled.

 

(c)         Termination by the Company for Cause.

 

(i)The Company may terminate Executive’s employment for Cause at any time after providing written notice to Executive.

 

(ii)For purposes of this Agreement, the term “Cause” shall mean any of the following: (A) conviction of a crime or a nolo contendere plea involving the alleged commission by Executive of a felony or of a criminal act involving, in the good faith judgment and sole discretion of the Board, fraud, dishonesty, or moral turpitude; (B) refusal or failure to perform employment duties reasonably requested by the Board after fifteen (15) days’ written notice by certified mail of such failure to perform, specifying that the failure constitutes cause (other than as a result of vacation, sickness, illness or injury); (C) fraud or embezzlement as determined by the Board; (D) gross misconduct or gross negligence in connection with the business of the Company or an affiliate which has a substantial adverse effect on the Company or the affiliate; (E) breach of the terms of the confidentiality, non-solicitation and non-competition provisions of Section 9 or (F) job performance which, in the collective determination of the CEO, Chairman of the Board and Chairman of the Audit Committee, consistently or significantly, fails to fulfill the duties and responsibilities contemplated by this Agreement, as generally described in Section 3.

 

(iii)Regardless of whether Executive’s employment initially was considered to be terminated for any reason other than Cause, Executive’s employment will be considered to have been terminated for Cause for purposes of this Agreement if the Board subsequently determines that Executive engaged in an act constituting Cause during the Employment Period or Executive breached the terms of the terms of the confidentiality, non-solicitation and non-competition provisions of Section 9 after his termination.

 

(d)         Termination by the Company Without Cause. The Company may terminate Executive’s employment at any time under this Agreement without Cause after providing written notice to Executive.

 

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(e)         Termination by Executive. Executive may terminate his employment under this Agreement after providing thirty (30) days’ written notice to the Company.

 

(f)         Expiration of Initial Term or Renewal Period. In the event that either party gives written notice of non-renewal of the Initial Term or a Renewal Period, as applicable, pursuant to Section 2, Executive’s employment shall terminate upon the expiration of the Initial Term or Renewal Period.

 

6.Return of Property and Information.

 

Executive agrees that when his employment with the Company ends, he will immediately return to the Company all property, data, information and knowledge which are in his possession or under his control, including without limitation all documents, forms, correspondence, financial records and forecasts, operation manuals, notebooks, reports, proposals, computer programs, software, software documentation, employee handbooks, supervisor’s manuals, lists of clients and referral sources, client data, and all copies thereof, relating in any way to the business of the Company, whether relating to the Company directly or to a client of the Company, made or obtained by Executive during his employment with the Company, whether or not such data, information, or knowledge constitute confidential or trade secret information.

 

7.Compensation Following Termination of Employment.

 

(a)         Termination for Any Reason. Upon termination of Executive’s employment for any reason under this Agreement, Executive (or his designated beneficiary or estate, as the case may be) shall be entitled to receive the following compensation:

 

(i)Earned but Unpaid Compensation. The Company shall pay Executive any accrued but unpaid Base Salary for services rendered through the date of termination, any appropriately documented and accrued but unpaid expenses required to be reimbursed under this Agreement, and any unused vacation accrued to the date of termination.

 

(ii)Other Compensation and Benefits. Except as may be provided under this Agreement, any benefits to which Executive may be entitled through the date of Executive’s termination pursuant to the plans, policies and arrangements referred to in Section 4(d) shall be determined and paid in accordance with the terms of such plans, policies and arrangements, and except as otherwise provided by this Agreement, Executive shall have no right to receive any other compensation, or to participate in any other plan, arrangement or benefit, with respect to future periods after such termination or resignation.

 

(b)         Termination by the Company Without Cause not in Connection With a Change in Control. In the event Executive’s employment is terminated without Cause before a Change in Control (as defined by Section 7(c)(iii)) or more than twenty-four (24) months after a Change in Control, if Executive executes the Release and Waiver required by Section 8 and such Release and Waiver is not revoked on or before the expiration of the revocation period thereof, and Executive has complied with the return of property and information provision set forth in Section 6, then in addition to the payments to be made pursuant to Section 7(a), the Company shall also:

 

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(i)Severance Pay. Pay to Executive severance pay in an amount equal to 100% of his Base Salary in effect as of the date of his termination of employment. Payment of such Severance Pay shall be made in a lump sum as soon as administratively practicable after the date of Executive’s termination (or if required by Section 409A, on the six (6) month anniversary of his termination), but no later than ninety (90) days thereafter, and not before the expiration of the revocation period for the Release and Waiver.

 

(ii)Annual Bonus. Pay to Executive the target amount of the Annual Bonus under the Applicable Plan for the year in which the termination of Executive’s employment occurs. Payment of such Annual Bonus shall be made in a lump sum as soon as administratively practicable after the date of Executive’s termination (or if required by Section 409A, on the six (6) month anniversary of his termination), but no later than ninety (90) days thereafter, and not before the expiration of the revocation period for the Release and Waiver.

 

(iii)Benefits Continuation. Continue to provide Executive and his family for the one-year period following Executive’s termination with the health and welfare benefits, including, but not limited to, benefits under any medical and dental benefits plan, life insurance plan, short-term and long-term disability plans, or other executive benefit or fringe benefit plan, which Executive and his family were receiving as of the date of Executive’s termination. The Company shall provide such benefits at the same cost to Executive as the cost, if any, charged to Executive for those benefits at the time of his termination. To the extent that the provision of such benefits at the Company’s expense during the six (6) month period following Executive’s termination would violate the requirements of Section 409A, then Executive shall be required to pay to the Company the Company portion of the cost of such benefits during such six (6) month period, and the Company shall reimburse Executive for the amounts so paid by Executive on the six (6) month anniversary of his termination, or as soon as administratively practicable thereafter, but no later than ninety (90) days thereafter.

 

(c)         Termination by the Company Without Cause or by Executive for Good Reason in Connection With a Change in Control.

 

(i)In the event Executive’s employment is terminated by the Company without Cause, or by Executive for Good Reason, within the twenty-four (24) month period following a Change in Control, if Executive executes the Release and Waiver required by Section 8 and such Release and Waiver is not revoked on or before the expiration of the revocation period thereof, and Executive has complied with the return of property and information provision set forth in Section 6, then in addition to the payments to be made pursuant to 7(a), but subject to Section 7(c)(iv), the Company shall also:

 

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(A)Severance Pay. Pay to Executive severance pay in an amount equal to 150% of his Base Salary at its highest level in effect from the date of the Change in Control through his termination of employment. Payment of such Severance Pay shall be made in a lump sum as soon as administratively practicable after the date of Executive’s termination (or if required by Section 409A, on the six (6) month anniversary of his termination), but no later than ninety (90) days thereafter, and not before the expiration of the revocation period for the Release and Waiver.

 

(B)Annual Bonus. Pay to Executive 150% of the target amount of the Annual Bonus under the Applicable Plan for the year in which the termination of Executive’s employment occurs. Payment of such Annual Bonus shall be made in a lump sum as soon as administratively practicable after the date of Executive’s termination (or if required by Section 409A, on the six (6) month anniversary of his termination), but no later than ninety (90) days thereafter, and not before the expiration of the revocation period for the Release and Waiver.

 

(C)Equity Vesting Acceleration. Accelerate the vesting of and the lapsing of restrictions on any unvested or restricted equity compensation (e.g., stock options, restricted stock, etc.).

 

(D)Benefits Continuation. Continue to provide Executive and his family for the one-year period following Executive’s termination with the health and welfare benefits, including, but not limited to, benefits under any medical and dental benefits plan, life insurance plan, short- term and long-term disability plans, or other executive benefit or fringe benefit plan, which Executive and his family were receiving as of the date of Executive’s termination. The Company shall provide such benefits at the same cost to Executive as the cost, if any, charged to Executive for those benefits at the time of his termination. To the extent that the provision of such benefits at the Company’s expense during the six (6) month period following Executive’s termination would violate the requirements of Section 409A, then Executive shall be required to pay to the Company the Company portion of the cost of such benefits during such six (6) month period, and the Company shall reimburse Executive for the amounts so paid by Executive on the six (6) month anniversary of his termination, or as soon as administratively practicable thereafter, but no later than ninety (90) days thereafter.

 

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(ii)“Good Reason.” For purposes of this Agreement, the term “Good Reason” shall mean the occurrence of any of the following in connection with a Change in Control, without Executive’s express written consent: (A) the assignment of duties to Executive materially inconsistent with Executive’s current authorities, duties, responsibilities and status; (B) any reduction in Executive’s title, position, or reporting lines; (C) the relocation of Executive to an office or location more than seventy-five (75) miles from the office or location of Executive’s work as of the date of the Change in Control; (D) requiring Executive to travel on Company business to a substantially greater extent than required as of the date of the Change in Control; or (E) the reduction in Executive’s Base Salary as in effect on the date of the Change in Control.

 

(iii)“Change in Control.” For purposes of this Agreement, the term “Change in Control” shall mean the happening of any of the following:

 

(A)Any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (a “Person”) becomes the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of either (1) the then outstanding common shares of the Company (the “Outstanding Company Common Shares”) or (2) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that such beneficial ownership shall not constitute a Change in Control if it occurs as a result of any of the following acquisitions of securities: (I) any acquisition directly from the Company, (II) any acquisition by the Company or any corporation, partnership, trust or other entity controlled by the Company (a “Subsidiary”), (III) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, (IV) any acquisition by an underwriter temporarily holding Company securities pursuant to an offering of such securities, (V) any acquisition by an individual, entity or group that is permitted to, and actually does, report its beneficial ownership on Schedule 13-G (or any successor schedule); provided that, if any such individual, entity or group subsequently becomes required to or does report its beneficial ownership on Schedule 13D (or any successor schedule), then, for purposes of this paragraph, such individual, entity or group shall be deemed to have first acquired, on the first date on which such individual, entity or group becomes required to or does so report, beneficial ownership of all of the Outstanding Company Common Stock and Outstanding Company Voting Securities beneficially owned by it on such date, or (VI) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if, following such reorganization, merger or consolidation, the conditions described in clauses (I ), (2) and (3) of Section 7(c)(iii)(C) are satisfied. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the “Subject Person”) became the beneficial owner of 25% or more of the Outstanding Company Common Shares or Outstanding Company Voting Securities as a result of the acquisition of Outstanding Company Common Shares or Outstanding Company Voting Securities by the Company which, by reducing the number of Outstanding Company Common Shares or Outstanding Company Voting Securities, increases the proportional number of shares beneficially owned by the Subject Person; provided, that if a Change in Control would be deemed to have occurred (but for the operation of this sentence) as a result of the acquisition of Outstanding Company Common Shares or Outstanding Company Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the beneficial owner of any additional Outstanding Company Common Shares or Outstanding Company Voting Securities which increases the percentage of the Outstanding Company Common Shares or Outstanding Company Voting Securities beneficially owned by the Subject Person, then a Change in Control shall then be deemed to have occurred; or

 

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(B)Individuals who, as of the date of this Agreement, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation; or

 

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(C)The consummation of a reorganization, merger, statutory share exchange, consolidation, or similar corporate transaction involving the Company or any of its direct or indirect Subsidiaries (each a “Business Combination”) in each case, unless, following such Business Combination, (1) the Outstanding Company Common Shares and the Outstanding Company Voting Securities immediately prior to such Business Combination, continue to represent (either by remaining outstanding or being converted into voting securities of the resulting or surviving entity or any parent thereof) more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from Business Combination (including, without limitation, a corporation that, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries), (2) no Person (excluding the Company, any employee benefit plan (or related trust) of the Company, a Subsidiary or such corporation resulting from such Business Combination or any parent or a subsidiary thereof, and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 25% or more of the Outstanding Company Common Shares or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination (or any parent thereof) or the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors, and (3) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination (or any parent thereof) were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such Business Combination; or

 

(D)The consummation of the sale, lease, exchange or other disposition of all or substantially all of the assets of the Company, unless such assets have been sold, leased, exchanged or disposed of to a corporation with respect to which following such sale, lease, exchange or other disposition (1) more than 50% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation (or any parent thereof) entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Shares and Outstanding Company Voting Securities immediately prior to such sale, lease, exchange or other disposition in substantially the same proportions as their ownership immediately prior to such sale, lease, exchange or other disposition of such Outstanding Company Common Shares and Outstanding Company Voting Shares, as the case may be, (2) no Person (excluding the Company and any employee benefit plan (or related trust) of the Company or a Subsidiary of such corporation or a subsidiary thereof and any Person beneficially owning, immediately prior to such sale, lease, exchange or other disposition, directly or indirectly, 25% or more of the Outstanding Company Common Shares or Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stock of such corporation (or any parent thereof) and the combined voting power of the then outstanding voting securities of such corporation (or any parent thereof) entitled to vote generally in the election of directors, and (3) at least a majority of the members of the board of directors of such corporation (or any parent thereof) were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale, lease, exchange or other disposition of assets of the Company; or

 

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(E)Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

 

(iv)Potential Section 280G Adjustment. In the event that any amount or benefit to be paid or provided to Executive pursuant to Section 7(c)(i), taken together with any amounts or benefits otherwise paid or provided to Executive by the Company or any affiliated company (collectively, the “Covered Payments”), would be an “excess parachute payment,” as defined in Section 280G of the Internal Revenue Code and the related Treasury Regulations and other guidance issued thereunder, and would thereby subject Executive to the tax imposed under Section 4999 of the Internal Revenue Code (the “Excise Tax”), then the Company shall either (A) make the Covered Payment to Executive without adjustment and subject to the Excise Tax, or (B) reduce the Covered Payments to the maximum amount that may be paid without Executive becoming subject to the Excise Tax (such reduced amount, the “Payment Cap”), whichever provides the greater net after-tax benefit to Executive. In the event that the reduction of the Covered Payments will provide Executive with the greater net after-tax benefit, Executive shall have the right to designate which of the payments and benefits otherwise provided for in Section 7(c)(i) that he will receive in connection with the application of the Payment Cap.

 

(d)         Termination of Employment. For purposes of this Section 7, the term “termination of employment” and words of similar import shall mean a “separation from service” as defined by Section 409A, and this Section 7 shall be interpreted and administered consistent with such definition.

 

(e)         No Mitigation; No Set-Off Against Severance Benefits. Executive shall not be required to mitigate damages or the amount of any payment or benefits provided for under Section 7 by seeking other employment or otherwise, nor shall the amount of any payment or benefits provided for in Section 7 be reduced by any compensation earned by Executive as a result of employment by another employer after the date of termination of Executive’s employment with the Company, except as otherwise provided by the confidentiality, non-solicitation and non-competition provisions of Section 9. In addition, the Company’s obligations under this Agreement shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Executive.

 

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8.Release and Waiver.

 

(a)         In exchange for the additional consideration under Section 7 to which Executive would not otherwise be entitled, Executive shall generally and completely release the Company, its subsidiaries and affiliates, and its directors, officers, executives, shareholders, partners, agents, attorneys, predecessors, successors, insurers and assigns from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related to events, acts, conduct, or omissions occurring at any time prior to or at Executive’s termination. Such general release shall include, but shall not be limited to: (i) all claims arising out of or in any way related to Executive’s employment with the Company or the termination of that employment; (ii) all claims related to Executive’s compensation or benefits from the Company, including salary, bonuses, incentive compensation, vacation pay, expense reimbursements, severance pay, fringe benefits, stock, stock options, restricted stock, or any other ownership or equity interests in the Company, or its subsidiaries or affiliates under all State and federal statutes such as the Fair Labor Standards Act, the Family and Medical Leave Act, the Employee Retirement and Income Security Act, the New York Labor Law and any similar Pennsylvania or other state or local statute, regulation or order; (iii) all claims for breach of contract, wrongful termination, and breach of the implied covenant of good faith and fair dealing; (iv) all tort claims, including claims for fraud, defamation, emotional distress, and discharge in violation of public policy; and (v) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation, attorneys’ fees, or other claims arising under, for example, the Age Discrimination in Employment Act (the “ADEA”), Title VII of the Civil Rights Act of 1964, as amended, the Rehabilitation Act of 1973, the Americans With Disabilities Act, the Equal Pay Act, the Family Medical Leave Act, the New York Human Rights Law and any similar Pennsylvania or other state or local statute, regulation or order. Notwithstanding the foregoing, Executive shall not be required to release the Company or its subsidiaries or affiliates from: (A) any obligation to indemnify Executive pursuant to the articles and bylaws of the Company, any valid fully executed indemnification agreement with the Company, any applicable directors and officers liability insurance policy, and applicable law; or (B) any obligations to make payments to Executive under Section 7. Executive shall be required to represent that he has no lawsuits, claims or actions pending in his name, or on behalf of any other person or entity, against the Company or its subsidiaries or affiliates, or any other person or entity subject to the release to be granted under this Section.

 

(b)         Executive shall acknowledge that: (i) he is knowingly and voluntarily waiving and releasing any rights he may have under the ADEA; (ii) that the consideration given for the waiver and release (i.e., the additional consideration to be provided under Section 7) is in addition to anything of value to which he is already entitled; and (iii) that he has been advised, as required by the ADEA, that: (A) his waiver and release does not apply to any rights or claims that may arise after the date that he signs such release; (B) he should consult with an attorney prior to signing the release (although he may choose voluntarily not to do so); (C) he has twenty-one (21) days from the date he receives the proposed release to consider the release (although he may choose voluntarily to sign it earlier); (D) he has seven (7) days following the date he signs the release to revoke the release by providing written notice of his revocation to the Board; and (E) the release will not be effective until the date upon which the revocation period has expired, which will be the eighth day after the date that the release is signed by Executive.

 

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(c)         The claims included in this release and waiver do not include vested rights, if any, under any qualified retirement plan in which Executive participates, and his COBRA, unemployment compensation and worker’s compensation rights, if any. Nothing in this release shall be construed to constitute a waiver of: (i) any claims Executive may have against the Company that arise from acts or omissions that occur after the effective date of this Release; (ii) Executive’s right to file an administrative charge with any governmental agency concerning the termination of that employment; or (iii) Executive’s right to participate in any administrative or court investigation, hearing or proceeding. Executive agrees, however, to waive and release any right to receive any individual remedy or to recover any individual monetary or non-monetary damages as a result of any such administrative charge or proceeding. In addition, this release does not affect Executive’s rights as expressly created by this Agreement, and does not limit his ability to enforce this Agreement.

 

9.Executive Covenants.

 

(a)         Non-Disclosure of Confidential Information and Trade Secrets.

 

(i)During the course of Executive’s employment with the Company, Executive will acquire and have access to Confidential Information and Trade Secrets belonging to the Company, its affiliates, subsidiaries, divisions and joint ventures (collectively referred to as the “Company” throughout and for purposes of this Section 9). Such Confidential Information and Trade Secrets include, without limitation, business and technical information, whatever its nature and form and whether obtained orally, by observation, from written materials or otherwise, as for example: (A) financial and business information, such as information with respect to costs, commissions, fees, profits, profit margins, sales, markets, mailing lists, accounts receivables and accounts payables, pricing strategies, strategies and plans for future business, new business, product or other development, potential acquisitions or divestitures, and new marketing ideas; (B) marketing information, such as information on markets, end users and applications, the identity of the Company’s customers, vendors, suppliers, and distributors, their names and addresses, the names of representatives of the Company’s customers, vendors, distributors or suppliers responsible for entering into contracts with the Company, the Company’s financial arrangements with its distributors and suppliers, the amounts paid by such customers to the Company, specific customer needs and requirements, leads and referrals to prospective customers; and (C) personnel information, such as the identity and number of the Company’s employees, personal information such as social security numbers, skills, qualifications, and abilities. Executive acknowledges and agrees that the Confidential Information and Trade Secrets are not generally known or available to the general public, but have been developed, complied or acquired by the Company at its great effort and expense and for commercial advantage and, therefore, takes every reasonable precaution to prevent the use or disclosure of any part of it by or to unauthorized persons. Confidential Information and Trade Secrets can be in any form or media, whether oral, written or machine readable, including electronic files.

 

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(ii)Executive agrees he will not, while associated with the Company and for so long thereafter as the pertinent information or documentation remains confidential, directly or indirectly use, disclose or disseminate to any other person, organization or entity or otherwise use any Confidential Information and Trade Secrets, except as specifically required in the performance of Executive’s duties on behalf of the Company or with prior written authorization from the Board.

 

(b)         Non-Solicitation of Customers. Executive acknowledges and agrees that during the course of and solely as a result of employment with the Company, he will come into contact with some, most or all of the Company’s customers and will have access to Confidential Information and Trade Secrets regarding the Company’s customers, distributors and suppliers. Consequently, Executive covenants and agrees that in the event of the termination of his employment, whether such termination is voluntary or involuntary, Executive will not, for a period of twelve (12) months following such termination, directly or indirectly, solicit or initiate contact with any customer, former customer or prospective customer of the Company for the purpose of selling products or services to the customer competitive with the products or services purchased by the customer from the Company. This restriction shall apply to any customer, former customer or prospective customer of the Company with whom Executive had contact or about whom Executive obtained Confidential Information or Trade Secrets during his employment with the Company. For the purposes of this Section, “contact” means interaction between Executive and the customer or then prospective customer which takes place to further the business relationship, or making sales to our performing services for the customer or prospective customer on behalf of the Company. This restriction will not apply when a former employee who is not working in a competitive capacity responds to a request for proposal on behalf of his new employer who is not engaged in the same or similar businesses as the Company.

 

(c)         Non-Compete. Executive acknowledges that his services are special and unique, and compensation is partly in consideration of and conditioned upon Executive not competing with Company, and that a covenant on Executive’s part not to compete is essential to protect the business and good will of the Company. Accordingly, except as hereinafter provided, Executive agrees that for twelve (12) months after the termination of his employment, Executive shall not be engaged or interested as a director, officer, stockholder (except as provided herein), employee, partner, individual proprietor, lender or in any other capacity, in any business, which competitive with the business of the Company as conducted at the time of Executive’s termination and which involves Executive’s knowledge, actions or assistance within the states of Pennsylvania, New Jersey, New York, Delaware, Maryland, Connecticut, Rhode Island or Massachusetts (the “Restricted Territory”); however, this restriction will not apply to new kinds of business in which Executive may engage in the future, after such termination, unless Executive has been actively engaged in the development or otherwise involved in such business while an employee of the Company. In addition, Executive agrees that for this same twelve (12) months, he shall not recruit or recommend any other person who is or was an employee of the Company while Executive was also an employee, to any business which is competitive with the business of Executive as conducted at the time of Executive’s termination and which involves Executive’s knowledge, actions or assistance within the Restricted Territory. Nothing herein shall prohibit Executive from investing in any securities of any corporation which is in competition with the Company, whose securities are listed on a national exchange or traded in the over-the-counter market if Executive shall own less than 5% of the outstanding securities of such operation.

 

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(d)         Enforcement of Covenants. Executive acknowledges and agrees that compliance with the covenants set forth in this Section 9 is necessary to protect the Confidential Information and Trade Secrets, business and goodwill of the Company, and that any breach of this Section 9 will result in irreparable and continuing harm to the Company, for which money damages may not provide adequate relief. Accordingly, in the event of any breach or anticipatory breach of Section 9 by Executive, the Company and Executive agree that the Company shall be entitled to the following particular forms of relief as a result of such breach, in addition to any remedies otherwise available to it at law or equity: (i) injunctions, both preliminary and permanent, enjoining or restraining such breach or anticipatory breach, and Executive hereby consents to the issuance thereof forthwith and without bond; and (ii) recovery of all reasonable sums and costs, including attorneys’ fees, incurred by the Company to enforce the provisions of this Section 9. Executive understands and acknowledges that this Agreement, including the provisions of this Section 9, were conditions precedent to the performance by the Company and WVN of their obligations under the Purchase Agreement, and that the provisions hereof are essential elements of the transactions contemplated by the Purchase Agreement, and that the value of the Purchased Assets (as defined in the Purchase Agreement) would seriously diminished if Executive were to violate any of the provisions of this Section 9.

 

(e)         Limitations. Notwithstanding anything to the contrary contained in this Agreement, in the event (i) WVN defaults in its payment of any of the Purchase Price or Additional Consideration (each as defined in the Purchase Agreement), when due, under the Purchase Agreement, (ii) the Company defaults in its payment of any amounts due to Executive pursuant to this Agreement, or (iii) the Company defaults in its payment or performance of any of its obligations under the Lock-Up Agreement (as defined in the Purchase Agreement), and in each case such breach or default continues uncured by the Company or WVT for a period of thirty (30) days following written notice of any such breach, the restrictive covenants set forth in Section 9(b) and Section 9(c) (but expressly excluding Section 9(a), which shall continue to apply in full force and effect) shall be null, void and of no further force and effect and Executive shall forever be relieved of all restrictions thereunder.

 

10.Withholding of Taxes

 

The Company shall withhold from any compensation and benefits payable under this Agreement all applicable federal, state, local or other taxes.

 

11.No Claim Against Assets.

 

Nothing in this Agreement shall be construed as giving Executive any claim against any specific assets of the Company or as imposing any trustee relationship upon the Company in respect of Executive. The Company shall not be required to establish a special or separate fund or to segregate any of its assets in order to provide for the satisfaction of its obligations under this Agreement. Executive’s rights under this Agreement shall be limited to those of an unsecured general creditor of the Company and its affiliates.

 

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12.Executive Acknowledgement.

 

Executive acknowledges that he has had the opportunity to discuss this Agreement with and obtain advice from his private attorney, has had sufficient time to and has carefully read and fully understands all of the provisions of this Agreement, and is knowingly and voluntarily entering into this Agreement.

 

13.Successors and Assignment.

 

(a)         Except as otherwise provided in this Agreement, this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, representatives, successors and assigns.

 

(b)         The Company shall require any successor or successors (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance satisfactory to Executive, to acknowledge expressly that this Agreement is binding upon and enforceable against the Company in accordance with the terms hereof, and to become jointly and severally obligated with the Company to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession or successions had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement by the Company.

 

(c)         The rights and benefits of Executive under this Agreement are personal to him and no such right or benefit shall be subject to voluntary or involuntary alienation, assignment or transfer; provided, however, that nothing in this Section 13 shall preclude Executive from designating a beneficiary or beneficiaries to receive any benefit payable on his death.

 

14.Entire Agreement; Amendment.

 

This Agreement shall supersede any and all existing oral or written agreements, representations, or warranties between Executive and the Company (or any of its subsidiaries or affiliated entities) relating to the terms of Executive’s employment, except for the Company’s Code of Ethics and the Director’s and Officer’s Indemnification Agreement. This Agreement may not be amended except by a written agreement signed by both parties.

 

15.Governing Law.

 

This Agreement shall be governed by and construed in accordance with the domestic substantive laws of the State of New York, without giving effect to any conflicts or choice of laws rule or provision that would result in the application of the domestic substantive laws of any other jurisdiction.

 

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16.Section 409A.

 

The parties intend that this Agreement and the payments and benefits to be provided hereunder satisfy the requirements of Section 409A, and this Agreement shall be administered and interpreted consistent with such intention.

 

17.Notices.

 

Any notice, consent, request or other communication made or given in connection with this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by registered or certified mail, return receipt requested, or by facsimile or by hand delivery, to those listed below at their following respective addresses or at such other address as each may specify by notice to the others:

 

To the Company:
Warwick Valley Telephone Company
Attention: President and CEO
47 Main Street
Warwick, New York 10990
 
To Executive:
At the address set forth below

 

18.Miscellaneous.

 

(a)         Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver thereof or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.

 

(b)         Severability. If any term or provision of this Agreement is declared illegal or unenforceable by any court of competent jurisdiction and cannot be modified to be enforceable, such term or provision shall immediately become null and void, leaving the remainder of this Agreement in full force and effect.

 

(c)         Headings. Section headings are used herein for convenience of reference only and shall not affect the meaning of any provision of this Agreement.

 

(d)         Rules of Construction. Whenever the context so requires, the use of the singular shall be deemed to include the plural and vice versa.

 

(e)         Authority to Enter into this Agreement. The officer of the Company whose signature appears below has been authorized to enter into this Agreement on behalf of the Company.

 

(f)         Counterparts. This Agreement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, and such counterparts will together constitute but one agreement.

 

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In Witness Whereof, the parties hereto have duly executed this Agreement as of the day and year set forth below.

 

Warwick Valley Telephone Company   Executive
     
By: /s/ Duane W. Albro   By: /s/ John Mercer
         
Name: Duane W. Albro   Address:  
         

Title: President and CEO    
         
Date: 8/16/11   Date: 8/8/11

  

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APPENDIX A

 

Illustration of Annual Bonus and Incentive Compensation (Long Term Incentive Plan) — CTO

 

Annual Bonus Performance Matrix:

 

The performance matrix below will be used to calculate the Payout Factor amounts. The Payout Factor amounts will be applied to both the Target Annual Bonus and the Target Incentive Compensation amounts.

 

Target Annual Bonus:

Target Annual Bonus Amount: 30% x [base salary of $170,000] = $51,000

Actual Annual Bonus Payout: [Target Annual Bonus Amount of $51,000] x [calculated Payout Factor]

 

Methodology:

 

Target Financial Metrics will be determined for each year by the Board of Directors on behalf of the Company and in collaboration with the CEO.

 

The matrix below reflects both the elements of performance that will be evaluated and the weightings associated with each Financial Metric to determine the applicable payout factor that will be used to calculate the Annual Bonus and Incentive Compensation amounts. 

 

Financial Metric   Weighting   Result   Target   Actual/Target   Payout Factor
    A   B   C   (B/C)   A x (B/C)
Revenue   0.25   TBD   $ TBD   TBD   TBD
EBITDA   0.25   TBD   $ TBD   TBD   TBD
Free Cash Flow   0.25   TBD   $ TBD   TBD   TBD
Net Income   0.15   TBD   $ TBD   TBD   TBD
BOD Discretion   0.10   NA     NA   NA   TBD
Total   1.00                 Total Payout Factor

 

Illustrative Example: By way of illustration only, assume the following Financial Metric targets: (1) Revenue: $30,000,000; (2) EBITDA: $5,000,000; (3) Free Cash Flow: $2,000,000; and (4) Net Income: $6,000,000. Assume the following actual financial results for the fiscal year: (1) Actual Revenue: $28,000,000; (2) Actual EBITDA: $4,000,000; (3) Actual Free Cash Flow: $1,500,000; and (4) Actual Net Income: $5,000,000. The resulting payout factor calculations would be calculated as follows:

 

19
 

 

Financial Metric   Weighting   Result   Target   Actual/Target   Payout Factor
    A   B   C   (B/C)   A x (B/C)
Revenue   0.25   $ 28,000,000   $ 30,000,000   .9333   .2333
EBITDA   0.25   $ 4,000,000   $ 5,000,000   .8000   .2000
Free Cash Flow   0.25   $ 1,500,000   $ 2,000,000   .7500   .1875
Net Income   0.15   $ 5,000,000   $ 6,000,000   .8333   .1250
BOD Discretion   0.10   N/A   N/A   N/A   .1000
Total   1.00               .8458

  

Based upon this illustration, which also assumes the BOD Discretionary component is paid out in the full 10% amount, the actual Annual Bonus to be paid would be based on a payout factor of .8458 and result in an Annual Bonus of $51,000 x .8458 or $43,136.

 

Notwithstanding the foregoing matrix, in the event that the actual results / target results for Revenue and Net Income are less than .9000 (90%) then the payout factor attributable to those metrics of measurement will be zero, respectively. Likewise, in the event that the actual results / target results for EBITDA and Free Cash Flow are less than .7500 (75%) then the payout factor attributable to those metrics of measurement will be zero, respectively. This methodology will also be applied to Incentive Compensation payout in the same manner.

 

Incentive Compensation (Long Term Incentive Plan) Component:

 

ØTarget Incentive Compensation Component

  

Stock Options: 10,000
   
Restricted Shares:   2,500

 

Applying the same methodological approach used to determine the Annual Bonus payout as shown above would result in an Incentive Compensation payout of: 

 

Stock Options: 10,000 x .8458 = 8458
   
Restricted Shares: 2,500 x .8458 = 2,115

  

For calculating both the Annual Bonus and the Incentive Compensation, the Board of Directors retains the sole discretion to award compensation, if any, under this Appendix A. 

 

20

 

 EX-21.1 8 v305807_ex21-1.htm EXHIBIT 21.1

 

Exhibit 21.1

 

SUBSIDIARIES OF THE REGISTRANT

 

Name   State of
Incorporation		   Doing Business As
         
Warwick Valley Long Distance Company, Inc.   New York    
         
Hometown Online, Inc.   New York   Warwick Online
         
USA Datanet Inc.   New York    
         
Alteva Inc.   New York    

 

 

 

 EX-23.1 9 v305807_ex23-1.htm EXHIBIT 23.1

EXHIBIT 23.1

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 33-46836, 333-64799 and 333-169276) of Warwick Valley Telephone Company of our report dated March 15, 2012 relating to the consolidated financial statements, financial statement schedule and the effectiveness of internal control over financial reporting of Warwick Valley Telephone Company, which appears in this Annual Report on Form 10-K of Warwick Valley Telephone Company for the year ended December 31, 2011.

 

/s/ WithumSmith+Brown, PC  
Princeton, New Jersey  
March 15, 2012  

 

 

 

 EX-23.2 10 v305807_ex23-2.htm EXHIBIT 23.2

 

EXHIBIT 23.2

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We consent to the incorporation by reference in Registration Statements Nos. 33-46836, 333-64799 and 333-169276 on Form S-8 of Warwick Valley Telephone Company of our report dated March 15, 2012, relating to the financial statements of Orange County-Poughkeepsie Limited Partnership as of December 31, 2011 and 2010 and for each of the three years in the period ended December 31, 2011 (which report expresses an unqualified opinion and includes an explanatory paragraph regarding affiliate revenues), appearing in this Annual Report on Form 10-K of Warwick Valley Telephone Company for the year ended December 31, 2011.

 

/s/ Deloitte & Touche LLP  
Atlanta, Georgia  
March 15, 2012  

 

 

 

 

 EX-31.1 11 v305807_ex31-1.htm EXHIBIT 31.1

EXHIBIT 31.1

 

RULE 13a-14(a)/15d-14(a) CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

 

I, Duane W. Albro certify that:

 

1.            I have reviewed this Annual Report on Form 10-K of Warwick Valley Telephone Company;

 

2.            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.            Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.            The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a.            Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.            Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.            Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.            Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.            The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a.            All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b.            Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: March 15, 2012

 

/s/ Duane W. Albro  
Duane W. Albro  
President and Chief Executive Officer  
 

 

 EX-31.2 12 v305807_ex31-2.htm EXHIBIT 31.2

EXHIBIT 31.2

 

RULE 13a-14(a)/15d-14(a) CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

 

I, Ralph Martucci, Jr. certify that:

 

1.            I have reviewed this Annual Report on Form 10-K of Warwick Valley Telephone Company;

 

2.            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.            Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.            The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a.            Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b.            Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c.            Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d.            Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.            The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a.            All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b.            Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: March 15, 2012

 

/s/ Ralph Martucci, Jr.    
Ralph Martucci, Jr.  
Executive Vice President, Chief Financial Officer and Treasurer  

 

 

 

 EX-32.1 13 v305807_ex32-1.htm EXHIBIT 32.1

EXHIBIT 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT 0F 2002

 

In connection with the Annual Report of Warwick Valley Telephone Company, (the “Company”) on Form 10-K for the period ended December 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Duane W. Albro, the President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ Duane W. Albro    
Duane W. Albro  
President and Chief Executive Officer  

 

March 15, 2012

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

 

 

 EX-32.2 14 v305807_ex32-2.htm EXHIBIT 32.2

EXHIBIT 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT 0F 2002

 

In connection with the Annual Report of Warwick Valley Telephone Company, (the “Company”) on Form 10-K for the period ended December 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ralph Martucci, Jr., Executive Vice President, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/s/ Ralph Martucci, Jr.    
Ralph Martucci, Jr.  
Executive Vice President, Chief Financial Officer and Treasurer  

 

March 15, 2012

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

 

 

 

 

 EX-99.1 15 v305807_ex99-1.htm EXHIBIT 99.1

 

EXHIBIT 99.1

 

Orange County - Poughkeepsie Limited Partnership

 

Financial Statements

As of December 31, 2011 and 2010 and for the years ended

December 31, 2011, 2010 and 2009, and Report of Independent Registered Public Accounting Firm

 

The information contained herein is confidential and is not to be reproduced or published without the express authorization of Verizon Wireless. It is intended solely for the use by authorized Verizon Wireless and Orange County - Poughkeepsie Limited Partnership personnel.

 

 
 

 

Orange County - Poughkeepsie Limited Partnership

 

TABLE OF CONTENTS

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 1
   
Balance Sheets - As of December 31, 2011 and 2010 2
   
Statements of Operations - Years Ended December 31, 2011, 2010 and 2009 3
   
Statements of Changes in Partners’ Capital - Years Ended December 31, 2011, 2010 and 2009 4
   
Statements of Cash Flows - Years Ended December 31, 2011, 2010 and 2009 5
   
Notes to Financial Statements 6

  

 
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Partners of Orange County - Poughkeepsie Limited Partnership:

 

Basking Ridge, New Jersey

 

We have audited the accompanying balance sheets of Orange County - Poughkeepsie Limited Partnership (the "Partnership") as of December 31, 2011 and 2010, and the related statements of operations, changes in partners' capital, and cash flows for each of the three years in the period ended December 31, 2011. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, such financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.

.

As discussed in Note 1 to the financial statements, the Partnership’s business was converted from a wholesale business to a retail business.

 

March 15, 2012 

 

 
 

 

Orange County - Poughkeepsie Limited Partnership

 

Balance Sheets - As of December 31, 2011 and 2010

(Dollars in Thousands)

 

  2011   2010 
ASSETS         
         
CURRENT ASSETS:          
Accounts receivable, net of allowance of $945 and $0  $17,597   $186 
Unbilled revenue   2,765    1,288 
Due from affiliate   -    9,359 
Prepaid expenses and other current assets   163    83 
           
Total current assets   20,525    10,916 
           
PROPERTY, PLANT AND EQUIPMENT―Net   39,596    34,294 
           
TOTAL ASSETS  $60,121   $45,210 
           
LIABILITIES AND PARTNERS' CAPITAL          
           
CURRENT LIABILITIES:          
Accounts payable and accrued liabilities  $8,277   $191 
Distribution payable to partner   13,000    - 
Advance billings and customer deposits   7,421    - 
           
Total current liabilities   28,698    191 
           
LONG TERM LIABILITIES:          
Long term distribution payable to partner   13,000    - 
Other long term liabilities   802    627 
Total long term liabilities   13,802    627 
           
Total liabilities   42,500    818 
           
PARTNERS' CAPITAL   17,621    44,392 
           
TOTAL LIABILITIES AND PARTNERS' CAPITAL  $60,121   $45,210 

 

See notes to financial statements.

 

- 2 -
 

 

Orange County - Poughkeepsie Limited Partnership

 

Statements of Operations - Years Ended December 31, 2011, 2010 and 2009

(Dollars in Thousands) 

 

 

   2011   2010   2009 
             
OPERATING REVENUE:               
Service revenue  $245,161   $187,985   $183,839 
Equipment and other   28,179    -    - 
                
Total operating revenue   273,340    187,985    183,839 
                
OPERATING COSTS AND EXPENSES:               
Cost of service (exclusive of items shown below)   75,073    23,859    21,735 
Cost of equipment   39,476    -    - 
Selling, general and administrative   53,832    2,987    3,116 
Depreciation and amortization   7,593    7,048    6,714 
                
Total operating costs and expenses   175,974    33,894    31,565 
                
OPERATING INCOME   97,366    154,091    152,274 
                
INTEREST INCOME, Net   40    1,034    1,522 
                
NET INCOME  $97,406   $155,125   $153,796 
                
Allocation of Net Income:               
Limited Partners  $14,611   $23,269   $23,069 
General Partner  $82,795   $131,856   $130,727 

 

See notes to financial statements. 

 

- 3 -
 

 

Orange County - Poughkeepsie Limited Partnership

 

Statements of Changes in Partners’ Capital - Years Ended December 31, 2011, 2010 and 2009 

(Dollars in Thousands)

 

  

   General
Partner		   Limited Partners     
   Verizon
Wireless of
the East LP		   Cellco
Partnership		   Warwick
Valley
Telephone
Company		   Total
Partners'
Capital		 
                 
BALANCE―January 1, 2009  $38,650   $3,135   $3,686   $45,471 
                     
Distributions   (131,750)   (10,682)   (12,568)   (155,000)
                     
Net Income   130,727    10,599    12,470    153,796 
                     
BALANCE―December 31, 2009   37,627    3,052    3,588    44,267 
                     
Distributions   (131,750)   (10,682)   (12,568)   (155,000)
                     
Net Income   131,856    10,691    12,578    155,125 
                     
BALANCE―December 31, 2010   37,733    3,061    3,598    44,392 
                     
Distributions   (82,684)   (6,704)   (13,600)   (102,988)
                     
Contributions   -    4,811    -    4,811 
                     
Guaranteed Distributions   -    -    (26,000)   (26,000)
                     
Net Income   82,795    6,713    7,898    97,406 
                     
BALANCE―December 31, 2011  $37,844   $7,881   $(28,104)  $17,621 
                     
See notes to financial statements.                    

  

- 4 -
 

 

Orange County - Poughkeepsie Limited Partnership

 

Statements of Cash Flows - Years Ended December 31, 2011, 2010 and 2009 

(Dollars in Thousands) 

 

  

   2011   2010   2009 
CASH FLOWS FROM OPERATING ACTIVITIES:               
Net income  $97,406   $155,125   $153,796 
Adjustments to reconcile net income to net cash provided by               
operating activities:               
Depreciation and amortization   7,593    7,048    6,714 
Provision for losses on accounts receivable   1,403    -    - 
Changes in certain assets and liabilities:               
Accounts receivable   (18,814)   23    23 
Unbilled revenue   (1,477)   (82)   (24)
Prepaid expenses and other current assets   (80)   (6)   13 
Accounts payable and accrued liabilities   21,093    91    9 
Advance billings and customer deposits   7,421    -    - 
Long term liabilities   13,175    173    33 
                
Net cash provided by operating activities   127,720    162,372    160,564 
                
CASH FLOWS FROM INVESTING ACTIVITIES:               
Capital expenditures, net   (12,902)   (5,569)   (6,091)
Change in due from affiliate, net   9,359    (1,803)   527 
                
Net cash used in investing activities   (3,543)   (7,372)   (5,564)
                
CASH FLOWS FROM FINANCING ACTIVITIES:               
Distributions to partners   (128,988)   (155,000)   (155,000)
Contributions from partners   4,811    -    - 
                
Net cash used in financing activities   (124,177)   (155,000)   (155,000)
                
CHANGE IN CASH   -    -    - 
                
CASH―Beginning of year   -    -    - 
                
CASH―End of year  $-   $-   $- 
                
NONCASH TRANSACTIONS FROM INVESTING ACTIVITIES:          
                
Accruals for Capital Expenditures  $94   $100   $117 

 

See notes to financial statements.

 

- 5 -
 

 

Orange County - Poughkeepsie Limited Partnership

 

Notes to Financial Statements

(Dollars in Thousands)

 

  

1.ORGANIZATION AND MANAGEMENT

 

Orange County - Poughkeepsie Limited Partnership – Orange County - Poughkeepsie Limited Partnership (the “Partnership”) was formed in 1987 The principal activity of the Partnership is providing cellular service in the Orange County and Poughkeepsie, New York metropolitan service areas.

 

The partners and their respective ownership percentages as of December 31, 2011, 2010 and 2009 are as follows:

 

General Partner:     
Verizon Wireless of the East LP* ("General Partner")   85.0%
      
Limited Partners:     
Warwick Valley Telephone Company ("Warwick")*   8.1081%
Cellco Partnership   6.8919%

 

* Verizon Wireless of the East LP is a partnership between Verizon Wireless of Georgia LLC and Verizon Wireless Acquisition South LLC, which hold a controlling interest, and Verizon ELPI Holding Corp. (a subsidiary of Verizon Communications Inc.) which holds a preferred interest. Verizon Wireless of the East LP is consolidated by Cellco Partnership (d/b/a Verizon Wireless) (“Cellco”).

 

In accordance with the partnership agreement, Cellco is responsible for managing the operations of the partnership (See Note 5).

 

On May 26, 2011, the General Partner and Warwick executed an agreement (the “Agreement”) that converted the Partnership from a wholesale business to a retail business effective May 1, 2011. As part of the Agreement, Cellco contributed to the Partnership the assets and liabilities directly used in and arising out of the existing retail operations in the Orange County and Poughkeepsie metropolitan service areas. Per the terms of the Agreement, no adjustments were made to the Partnership interests as a result of this contribution. Pursuant to the Agreement, Warwick received guaranteed cash distributions from the Partnership of $13,600 in 2011 and is entitled to receive guaranteed cash distributions of $13,000 in 2012 and 2013. Warwick is only entitled to receive guaranteed distributions in periods during which Warwick holds its current partnership interest for the entire calendar periods. Annual cash distributions shall be paid in equal quarterly amounts.

 

- 6 -
 

 

The Agreement gave Warwick the right to require Cellco to purchase all of Warwick’s Partnership interest (the “Put Option”) at any time during April 2013 or April 2014. The purchase price under the Put Option shall be the greater of $50,000 or the product of five times the EBITDA of the Partnership for the calendar year preceding the exercise of the Put Option, times Warwick’s 8.1081% ownership.

 

In connection with the Agreement, Cellco leased to the Partnership certain 700 MHz spectrum to facilitate the build out of the wireless network (See Note 6).

 

2.SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates – The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts and disclosures. Actual results could differ from those estimates. Estimates are used for, but are not limited to, the accounting for: allocations, allowance for uncollectible accounts receivable, unbilled revenue, depreciation and amortization, useful lives and impairment of assets, accrued expenses, and contingencies.

 

Revenue Recognition – The Partnership offers products and services to our customers through bundled arrangements. These arrangements involve multiple deliverables which may include products, services, or a combination of products and services.

 

On May 1, 2011, the Partnership prospectively adopted the accounting standard updates regarding revenue recognition for multiple deliverable arrangements, and arrangements that include software elements. These updates require a vendor to allocate revenue in an arrangement using its best estimate of selling price if neither vendor specific objective evidence nor third party evidence of selling price exists. The residual method of revenue allocation is no longer permissible. These accounting standard updates do not change our units of accounting for bundled arrangements, nor do they materially change how we allocate arrangement consideration to our various products and services. Accordingly, the adoption of these standard updates did not have a significant impact on the financial statements. Additionally, we do not currently foresee any changes to our products, services or pricing practices that will have a significant effect on the financial statements in periods after the initial adoption, although this could change.

 

- 7 -
 

 

The Partnership earns revenue by providing access to its network (access revenue) and usage of its network (usage revenue), which includes voice and data revenue. Customers are associated with the Partnership based upon mobile identification number. For agreements involving the resale of third-party services in which the Partnership is considered the primary obligor in the arrangements, the Partnership records revenue gross at the time of sale. The roaming rates charged by the Partnership to Cellco do not necessarily reflect current market rates. The Partnership will continue to re-evaluate the rates on a periodic basis (See Note 5). Effective May 1, 2011 (See Note 1), access revenue is generally billed one month in advance and is recognized when earned; the unearned portion is classified in Advance billings on the balance sheet. Usage revenue is recognized when service is rendered and included in Unbilled revenue until billed. Equipment sales revenue associated with the sale of wireless devices and related equipment costs are recognized when the products are delivered to and accepted by the customer, as this is considered to be a separate earnings process from the sale of wireless services. Customer activation fees charged to customers are considered additional consideration and are recorded in Equipment and other revenue, generally, at the time of customer acceptance.

 

Wireless bundled service plans primarily consist of wireless voice and data services. The bundling of a voice plan with a text messaging plan (“Talk & Text”), for example, creates a multiple deliverable arrangement consisting of a voice component and a data component in the form of text messaging. For these arrangements, revenue is allocated to each deliverable using a relative selling price method. Under this method, arrangement consideration is allocated to each separate deliverable based on our standalone selling price for each product or service, up to the amount that is not contingent upon providing additional services. For equipment sales, the Partnership currently subsidizes the cost of wireless devices. The amount of this subsidy is generally contingent on the arrangement and terms selected by the customer. The equipment revenue is recognized up to the amount collected when the wireless device is sold.

 

Approximately 97% of the Partnership’s 2010 and 2009 revenue is affiliate revenue due to the fact that Cellco was the Partnership’s primary reseller. The wholesale rates charged to Cellco did not necessarily reflect current market rates.

 

The Partnership reports taxes imposed by governmental authorities on revenue-producing transactions between us and our customers on a net basis.

 

Operating Costs and Expenses – Operating expenses include expenses incurred directly by the Partnership, as well as an allocation of selling, general and administrative, and operating costs incurred by Cellco or its affiliates on behalf of the Partnership. Employees of Cellco provide services performed on behalf of the Partnership. These employees are not employees of the Partnership, therefore operating expenses include direct and allocated charges of salary and employee benefit costs for the services provided to the Partnership. Cellco believes such allocations, principally based on the Partnership’s percentage of total customers, customer gross additions or minutes-of-use, are in accordance with the Partnership Agreement. Effective May 1, 2011, the roaming rates charged by the Partnership to Cellco do not necessarily reflect current market rates. The Partnership will continue to re-evaluate the rates on a periodic basis (See Note 5).

 

Retail Stores– Effective May 1, 2011 (See Note 1), the daily operations of all retail stores owned by the Partnership are managed by Cellco. All fixed assets, liabilities, income and expenses related to these retail stores are recorded in the financial statements of the Partnership.

 

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Income Taxes – The Partnership is not a taxable entity for federal and state income tax purposes. Any taxable income or loss is apportioned to the partners based on their respective partnership interests and is reported by them individually.

 

Inventory – Inventory is owned by Cellco and is not recorded on the Partnership’s financial statements. Effective May 1, 2011 (See Note 1), upon sale, the related cost of the inventory is transferred to the Partnership at Cellco’s cost basis and included in the accompanying statements of operations.

 

Allowance for Doubtful Accounts – The Partnership maintains allowances for uncollectible accounts receivable for estimated losses resulting from the inability of customers to make required payments. Estimates are based on the aging of the accounts receivable balances and the historical write-off experience, net of recoveries.

 

Property, Plant and Equipment – Property, plant and equipment primarily represents costs incurred to construct and expand capacity and network coverage on mobile telephone switching offices and cell sites. The cost of property, plant and equipment is depreciated on a straight-line basis over its estimated useful life. Leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the related lease. Major improvements to existing plant and equipment are capitalized. Routine maintenance and repairs that do not extend the life of the plant and equipment are charged to expense as incurred.

 

Upon the sale or retirement of property, plant and equipment, the cost and related accumulated depreciation or amortization are eliminated and any related gain or loss is reflected in the statements of operations. All property, plant and equipment purchases are made through an affiliate of Cellco. Transfers of property, plant and equipment between Cellco and affiliates are recorded at net book value.

 

Interest expense and network engineering costs incurred during the construction phase of the Partnership’s network and real estate properties under development are capitalized as part of property, plant and equipment and recorded as construction in progress until the projects are completed and placed into service.

 

FCC Licenses – The Federal Communications Commission (“FCC”) issues licenses that authorize cellular carriers to provide service in specific cellular geographic service areas. The FCC grants licenses for terms of up to ten years. In 1993 the FCC adopted specific standards to apply to cellular renewals, concluding it will award a license renewal to a cellular licensee that meets certain standards of past performance. Historically, the FCC has granted license renewals routinely and at nominal costs, which are expensed as incurred. All wireless licenses issued by the FCC that authorize the Partnership to provide cellular services are recorded on the books of Cellco. The current terms of the Partnership’s FCC licenses expire in January 2018. Cellco believes it will be able to meet all requirements necessary to secure renewal of the Partnership’s cellular licenses.

 

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Valuation of Assets – Long-lived assets, including property, plant and equipment and intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. The impairment loss would be measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset.

 

Cellco re-evaluates the useful life determination for wireless licenses at least annually to determine whether events and circumstances continue to support an indefinite useful life. Moreover, Cellco has determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of the Partnership’s wireless licenses.

 

Cellco tests its wireless licenses for potential impairment annually, or more frequently if indications of impairment exist. Cellco evaluates its licenses on an aggregate basis, using a direct income-based value approach. This approach estimates fair value using a discounted cash flow analysis to estimate what a marketplace participant would be willing to pay to purchase the aggregated wireless licenses as of the valuation date. If the fair value of the aggregated wireless licenses is less than the aggregated carrying amount of the wireless licenses, an impairment is recognized. In addition, Cellco believes that under the Partnership agreement it has the right to allocate, based on a reasonable methodology, any impairment loss recognized by Cellco for all licenses included in Cellco’s national footprint. Cellco does not charge the Partnership for the use of any FCC license recorded on its books (except for the annual cost of $1,712 related to the spectrum leases). Cellco evaluated its wireless licenses for potential impairment as of December 15, 2011 and December 15, 2010. These evaluations resulted in no impairment of wireless licenses.

 

Concentrations – The Partnership maintains allowances for uncollectible accounts receivable for estimated losses resulting from the inability of customers to make required payments. Estimates are based on historical net write-off experience. No single customer receivable is large enough to present a significant financial risk to the partnership.

 

Cellco and the Partnership rely on local and long-distance telephone companies, some of which are related parties (See Note 5), and other companies to provide certain communication services. Although management believes alternative telecommunications facilities could be found in a timely manner, any disruption of these services could potentially have a material adverse impact on the Partnership’s operating results.

 

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Although Cellco attempts to maintain multiple vendors for its network assets and inventory, which are important components of its operations, they are currently acquired from only a few sources. Certain of these products are in turn utilized by the Partnership and are important components of the Partnership’s operations. If the suppliers are unable to meet Cellco’s needs as it builds out its network infrastructure and sells service and equipment, delays and increased costs in the expansion of the Partnership’s network infrastructure or losses of potential customers could result, which would adversely affect operating results.

 

Financial Instruments – The Partnership’s trade receivables and payables are short-term in nature, and accordingly, their carrying value approximates fair value.

 

Due from affiliate – Due from affiliate principally represents the Partnership’s cash position with Cellco. Cellco manages, on behalf of the Partnership, all cash, inventory, investing and financing activities of the Partnership. As such, the change in due from affiliate is reflected as an investing activity or a financing activity in the statements of cash flows depending on whether it represents a net asset or net liability for the Partnership.

 

Additionally, administrative and operating costs incurred by Cellco on behalf of the Partnership, as well as property, plant and equipment transactions with affiliates, are charged to the Partnership through this account. Starting in 2011, interest income is based on the Applicable Federal Rate which was approximately ..4% for the year ended December 31, 2011. Interest expense is calculated by applying Cellco’s average cost of borrowing from Verizon Communications, Inc, which was approximately 6.8% for the year ended December 31, 2011. For 2010 and 2009, interest income or interest expense was based on the average monthly outstanding balance in this account and was calculated by applying Cellco’s average cost of borrowing from Verizon Communications, Inc., which was approximately 5.8% for the years ended December 31, 2010 and 2009. Included in net interest income is interest income of $45, $1,034 and $1,522 for the years ended December 31, 2011, 2010 and 2009, respectively, related to due from affiliate.

 

Distributions - The Partnership is required to make distributions to its partners based upon the Partnership’s operating results, cash availability and financing needs as determined by the General Partner at the date of the distribution. See Note 1 regarding guaranteed distributions to Warwick related to the retail combination of the Partnership.

 

Recent Accounting Standards - In May 2011, an accounting standard update regarding fair value measurement was issued to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. This standard update also changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. We will adopt this standard update effective January 1, 2012. The adoption of this standard update is not expected to have a significant impact on the financial statements.

 

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In June 2011, an accounting standard update regarding the presentation of comprehensive income was issued to increase the prominence of items reported in other comprehensive income. The update requires that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate, but consecutive statements. This standard update is effective as of January 1, 2012. The adoption of this standard is not expected to have a significant impact on the financial statements.

 

In September 2011, an accounting standard update regarding testing of goodwill for impairment was issued. This standard update gives companies the option to perform a qualitative assessment to first assess whether the fair value of a reporting unit is less than its carrying amount. If an entity determines it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. This standard update is effective as of January 1, 2012. The adoption of this standard is not expected to have a significant impact on the financial statements.

 

3.PROPERTY, PLANT AND EQUIPMENT, NET

 

Property, plant and equipment consist of the following as of December 31, 2011 and 2010:

 

   2011   2010 
         
Buildings and improvements (20-40 years)  $18,895   $17,643 
Wireless plant and equipment (3-15 years)   56,346    49,401 
Furniture, fixtures and equipment (2-10 years)   1,583    21 
Leasehold improvements (5 years)   7,985    4,205 
           
    84,809    71,270 
           
Less: accumulated depreciation   45,213    36,976 
           
Property, plant and equipment, net  $39,596   $34,294 
           
Depreciation expense  $7,593   $7,048 

 

Capitalized network engineering costs of $714 and $534 were recorded during the years ended December 31, 2011 and 2010, respectively. Construction in progress included in certain classifications shown above, principally wireless plant and equipment, amounted to $1,819 and $1,560 as of December 31, 2011 and 2010, respectively.

 

4.CURRENT LIABILITIES

 

Accounts payable and accrued liabilities consist of the following as of December 31, 2011 and 2010:

 

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   2011   2010 
         
Accounts payable  $20,058   $191 
Accrued liabilities  $1,219   $- 
Accounts payable and accrued libilities  $21,277   $191*

 

* See Note 1.

 

Advance billings and customer deposits consist of the following as of December 31, 2011 and 2010:

 

   2011   2010 
         
Advance billings  $7,257   $- 
Customer deposits  $164   $- 
Advance billings and customer deposits  $7,421   $-*

 

* See Note 1.

 

5.TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

 

In addition to fixed asset purchases (see Note 2), substantially all of service revenues, equipment and other revenues, cost of service, cost of equipment, and selling, general and administrative expenses represent transactions processed by affiliates (Cellco and its related parties) on behalf of the Partnership or represent transactions with affiliates. These transactions consist of revenues and expenses that pertain to the Partnership which are processed by Cellco and directly attributed to or directly charged to the Partnership. They also include certain revenues and expenses, as discussed below, that are processed or incurred by Cellco which are allocated to the Partnership based on factors such as the Partnership’s percentage of customers, gross customer additions, net units sold or minutes of use. These transactions do not necessarily represent arms length transactions.

 

Service revenues – Effective May 1, 2011 (See Note 1), service revenues include monthly customer billings processed by Cellco on behalf of the Partnership and roaming revenues relating to customers of other affiliated markets that are specifically identified to the Partnership. Service revenue also includes long distance, data, and certain revenue reductions including revenue concessions that are processed by Cellco and allocated to the Partnership.

 

Equipment and other revenues – Effective May 1, 2011 (See Note 1), equipment revenue includes equipment sales processed by Cellco and specifically identified to the Partnership, as well as certain handset and accessory revenues, contra-revenues including equipment concessions, and coupon rebates that are processed by Cellco and allocated to the Partnership. Other revenues include other fees and surcharges charged to the customer that are specifically identified to the Partnership.

 

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Cost of Service – Cost of service includes switch costs that are specifically indentified to the Partnership. Cost of service also includes cost of telecom and long distance that are incurred by Cellco and allocated to the Partnership based on certain factors deemed appropriate by Cellco. Effective May 1, 2011 (See Note 1), roaming costs relating to customers roaming in other affiliated markets and application content that are incurred by Cellco and allocated to the Partnership were also included in cost of service. The Partnership has also entered into lease agreements for the right to use additional spectrum owned by Cellco. See Note 6 for further information regarding this arrangement.

 

Cost of equipment – Effective May 1, 2011 (See Note 1), cost of equipment includes the cost of inventory specifically identified and transferred to the Partnership (See Note 2). Cost of equipment also includes certain costs related to handsets, accessories and other costs incurred by Cellco and allocated to the Partnership.

 

Selling, general and administrative - Selling, general and administrative expenses include customer billing and salaries that are specifically identified to the Partnership as well as incurred by Cellco and allocated to the Partnership. Effective May 1, 2011 (See Note 1), selling, general and administrative expenses include commissions, customer billing, office telecom, customer care, salaries, sales and marketing and advertising expenses.

 

6.COMMITMENTS

 

Cellco, on behalf of the Partnership, and the Partnership itself have entered into operating leases for facilities, equipment, and spectrum used in its operations. Lease contracts include renewal options that include rent expense adjustments based on the Consumer Price Index as well as annual and end-of-lease term adjustments. Rent expense is recorded on a straight-line basis. The noncancellable lease term used to calculate the amount of the straight-line rent expense is generally determined to be the initial lease term, including any optional renewal terms that are reasonably assured. Leasehold improvements related to these operating leases are amortized over the shorter of their estimated useful lives or the noncancellable lease term. For the years ended December 31, 2011, 2010 and 2009, the Partnership incurred a total of $5,566, $3,553and $2,930, respectively, as rent expense related to these operating leases, which was included in cost of service and general and administrative expenses in the accompanying statements of operations. Aggregate future minimum rental commitments under noncancellable operating leases, excluding renewal options that are not reasonably assured for the years shown are as follows:

 

- 14 -
 

 

Years  Amount 
     
2012  $4,971 
2013   4,626 
2014   4,244 
2015   3,791 
2016   3,168 
2017 and thereafter   9,258 
      
Total minimum payments  $30,058 

 

On January 1, 2011, the Partnership entered into a 700 MHz upper band spectrum lease with Cellco. The lease includes an initial term extending through June 1, 2019 and a renewal option through June 1, 2029. The license, held by Cellco, is considered an indefinite-lived intangible as Cellco believes it will be able to meet all requirements necessary to secure renewal of this license. The Partnership accounts for this spectrum lease as an executory contract which is similar to an operating lease.

 

Based on the terms of the spectrum license lease as of December 31, 2011, future spectrum lease obligations, including the renewal period, are expected to be as follows:

 

Years  Amount 
     
2012  $767 
2013  $767 
2014  $767 
2015  $767 
2016  $767 
2017 and thereafter  $9,519 
      
Total minimum payments  $13,354 

 

The General Partner currently expects that the renewal option in the lease will be exercised.

 

From time to time Cellco enters into purchase commitments, primarily for network equipment, on behalf of the Partnership. These represent legal obligations of Cellco.

 

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7.CONTINGENCIES

 

Cellco and the Partnership are subject to lawsuits and other claims including class actions, product liability, patent infringement, intellectual property, antitrust, partnership disputes, and claims involving relations with resellers and agents. Cellco is also currently defending lawsuits filed against it and other participants in the wireless industry alleging various adverse effects as a result of wireless phone usage. Various consumer class action lawsuits allege that Cellco violated certain state consumer protection laws and other statutes and defrauded customers through misleading billing practices or statements. These matters may involve indemnification obligations by third parties and/or affiliated parties covering all or part of any potential damage awards against Cellco and the Partnership and/or insurance coverage. All of the above matters are subject to many uncertainties, and outcomes are not predictable with assurance.

 

The Partnership may be allocated a portion of the damages that may result upon adjudication of these matters if the claimants prevail in their actions. Consequently, the ultimate liability with respect to these matters as of December 31, 2011 cannot be ascertained. The potential effect, if any, on the financial statements of the Partnership, in the period in which these matters are resolved, may be material.

 

In addition to the aforementioned matters, Cellco and the Partnership are subject to various other legal actions and claims in the normal course of business. While Cellco’s legal counsel cannot give assurance as to the outcome of each of these matters, in management’s opinion, based on the advice of such legal counsel, the ultimate liability with respect to any of these actions, or all of them combined, will not materially affect the financial statements of the Partnership.

 

8.RECONCILIATION OF ALLOWANCE FOR DOUBTFUL ACCOUNTS

 

   Balance at   Balance at   Additions   Write-offs   Balance at 
   Beginning   Retail Combination   Charged to   Net of   End 
   of Year   May 1, 2011   Operations   Recoveries   of the Year 
                     
Accounts Receivable Allowances:                    
2011  $-*  $656   $1,403   $(1,114)  $945 

  

*See Note 1.

******

 

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This update was issued to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. This update also changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. This update becomes effective for annual periods beginning after December 15, 2011. The Company does not believe this will have a material impact on its consolidated financial statements.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">In June 2011, an accounting standards update regarding the presentation of comprehensive income was issued. This update was issued to increase the prominence of items reported in other comprehensive income and requires that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This update becomes effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company does not believe this will have a material impact on its consolidated financial statements.</font></p> <p style="text-align: left; margin-top: 0px; margin-bottom: 0px;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">In September 2011, an accounting standards update regarding the testing of goodwill for impairment was issued. This update allows a company to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount to determine whether it is necessary to perform the two-step goodwill impairment test. This update becomes effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, and earlier adoption is permitted. The Company does not believe this will have a material impact on its disclosures or consolidated financial statements.</font></p> </div> 94000 174000 1174000 1715000 2451000 2717000 1041000 521000 -2784000 -4979000 4063000 6191000 128000 128000 341000 341000 960000 960000 350000 759000 2283000 53075000 57916000 17604000 12408000 <div> <p style="text-align: left;"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">NOTE 2: BUSINESS ACQUISITION</font></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">On August 5, 2011, Warwick Valley Networks, Inc. ("WVN"), which has since changed its name to Alteva Inc., a wholly-owned subsidiary of the Company, purchased substantially all of the assets and assumed certain of the liabilities (including certain of its contracts, debt owed under specified capital leases and certain accounts payable) of Alteva, LLC, a cloud-based Unified Communications solutions provider and enterprise hosted VoIP provider, in exchange for cash and stock valued at $17,818 pursuant to the terms of the asset purchase agreement between the Company and Alteva, LLC (the "Alteva Agreement"). The issuance of the Company's common stock contemplated under the Alteva Agreement was subject to regulatory approval by the New York State Public Service Commission ("NYPSC") and the New Jersey Board of Public Utilities ("NJBPU"), both of which approved the transaction in October 2011. The assets acquired included Alteva, LLC's VoIP line of business, which provides communication services for commercial customers and unified communication lines of business. This acquisition extends the Company's VoIP services to New Jersey, Pennsylvania and various other states and continues the Company's corporate strategy to expand its business beyond its regulated franchise area.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The results of Alteva, LLC's operations have been included in the Company's consolidated financial statements since August 5, 2011.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company utilized cash, issued stock and incurred certain liabilities to acquire certain assets and assumed certain liabilities of Alteva, LLC as follows:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="84%"> </td> <td width="2%"> </td> <td width="13%"> </td></tr> <tr valign="bottom"><td width="84%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Cash (1)</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td width="13%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">10,250</font></td></tr> <tr valign="bottom"><td width="84%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Issued puttable common stock (2)</font></td> <td width="2%" align="left">&nbsp;</td> <td width="13%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">4,125</font></td></tr> <tr valign="bottom"><td width="84%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Contingent consideration payable (3)</font></td> <td width="2%" align="left">&nbsp;</td> <td width="13%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">1,929</font></td></tr> <tr valign="bottom"><td width="84%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Hold-back payable (4)</font></td> <td width="2%" align="left">&nbsp;</td> <td width="13%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">750</font></td></tr> <tr valign="bottom"><td width="84%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Working capital adjustment payable (5)</font></td> <td width="2%" align="left">&nbsp;</td> <td width="13%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">648</font></td></tr> <tr valign="bottom"><td width="84%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Price protection (6)</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" width="13%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">116</font></td></tr> <tr valign="bottom"><td style="text-indent: 3px;" width="84%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Total consideration</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="13%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">17,818</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <table border="0" cellspacing="0"> <tr><td valign="top" width="2%" nowrap="nowrap"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">1)</font>&nbsp; &nbsp; &nbsp; </td> <td width="98%"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$5,000 of this amount was borrowed from CoBank, ACB (see Note 13).</font> </td></tr> <tr><td valign="top" width="2%" nowrap="nowrap"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2)</font>&nbsp; &nbsp; &nbsp; </td> <td width="98%"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company issued 272,479 shares of the Company's common stock with an embedded put option. The members of Alteva, LLC have the option to put the 272,479 shares back to the Company on October 21, 2012 and December 15, 2012.</font> </td></tr> <tr><td valign="top" width="2%" nowrap="nowrap"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">3)</font>&nbsp; &nbsp; &nbsp; </td> <td width="98%"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Up to a total of $2,000 in cash is payable to Alteva, LLC on August 5, 2012 and 2013 (or prior to January 1, 2013 depending on certain tax law changes), if certain performance-based conditions are satisfied. The contingent consideration was adjusted to reflect its fair value on August 5, 2011.</font> </td></tr> <tr><td valign="top" width="2%" nowrap="nowrap"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">4)</font>&nbsp; &nbsp; &nbsp; </td> <td width="98%"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">This hold-back amount, withheld at closing, is payable to Alteva, LLC on August 5, 2012, less any amounts offset against such amount pursuant to the terms of the Alteva Agreement.</font> </td></tr> <tr><td valign="top" width="2%" nowrap="nowrap"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">5)</font>&nbsp; &nbsp; &nbsp; </td> <td width="98%"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Working capital adjustment is payable to Alteva, LLC pursuant to the terms of the Alteva Agreement. As of December 31, 2011, the Company had repaid $478 to Alteva, LLC leaving a balance due of $170.</font> </td></tr> <tr><td valign="top" width="2%" nowrap="nowrap"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">6)</font>&nbsp; &nbsp; &nbsp; </td> <td width="98%"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The purchase price protection provides that if the price of the Company's common stock for the 30 trading days immediately prior to October 21, 2012 or December 15, 2012 (but excluding the three trading days prior to and after the record date for any cash dividend declared by the Company) (the "Release Date Price") is less than $11.74, then the Company will issue to the Alteva, LLC members the aggregate number of shares of the Company's common stock equal to the difference between $1,600 and the market value of 50% of the aggregate Alteva Shares on October 21, 2012 or December 15, 2012, or 100% of the aggregate Alteva Shares if the Release Date Price is less than $11.74 on both dates. The Company recorded the valuation of the price protection derivative liability using a binomial method based on significant inputs not observed in the market and thus will represent a Level 3 instrument. Level 3 instruments are valued based on unobservable inputs that are supported by little or no market activity and reflect the Company's own assumptions in measuring fair value.</font> </td></tr></table> <div>&nbsp;</div><br /> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The total purchase price has been allocated as follows:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="54%"> </td> <td width="27%"> </td> <td width="13%"> </td> <td width="4%"> </td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Accounts receivable, net</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">788</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Prepaid expenses</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">70</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Property, plant and equipment</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">530</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Seat licenses</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">570</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Trade name</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2,400</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Customer relationships</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,400</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Goodwill</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">9,121</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td></tr> <tr valign="bottom"><td style="text-indent: 2px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Total assets acquired</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">18,879</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td></tr> <tr><td colspan="4">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Accounts payable</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(162</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Accrued expenses</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(132</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Customer deposits</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(67</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Capital leases payable</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(671</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Deferred revenue</font></td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(29</font></td> <td style="border-bottom: #000000 2px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr valign="bottom"><td style="text-indent: 2px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Total liabilities assumed</font></td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(1,061</font></td> <td style="border-bottom: #000000 2px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr><td colspan="4">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Total transaction value</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">17,818</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The purchase price was allocated to the assets acquired and liabilities assumed based on their fair values on the acquisition date. The excess of the purchase consideration over the fair value of the net assets acquired has been allocated to goodwill. The Company engaged a third-party valuation group to assist them in the valuation of the assets acquired, liabilities assumed and the Lock-Up and Put Agreement.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company entered into a Lock-Up and Put Agreement, effective October 21, 2011, with the members of Alteva, LLC pursuant to which each of the members agreed to certain restrictions on their ability to sell shares of the Company's common stock issued in connection with the Alteva Agreement (the "Alteva Shares"). Under the Lock-Up and Put Agreement, each member of Alteva, LLC may transfer to any of the permitted transferees up to 50% of their Alteva Shares between October 21, 2012 and December 14, 2012. The members of Alteva, LLC may sell their remaining Alteva Shares without restriction beginning on December 15, 2012. In addition, the Lock-Up and Put Agreement gives each member of Alteva, LLC the option to sell their Alteva Shares to the Company within a certain prescribed time period at a predetermined price (the "Alteva Put"). The Alteva, LLC members may exercise the Alteva Put with respect to half of their Alteva Shares within a 60-day period commencing on October 21, 2012 and the other half within a 60-day period commencing on December 15, 2012. The purchase price of the Alteva Put will be the greater of (i) the closing price of the Company's common stock on the date of exercise of the Alteva Put or (ii) $11.74. The Lock-Up and Put Agreement also includes a purchase price protection for the Alteva, LLC selling shareholders. The purchase price protection provides that if the price of the Company's common stock for the 30 trading days immediately prior to October 21, 2012 or December 15, 2012 (but excluding the three trading days prior to and after the record date for any cash dividend declared by the Company) (the "Release Date Price") is less than $11.74, then the Company will issue to the Alteva, LLC members the aggregate number of shares of the Company's common stock equal to the difference between $1,600 and the market value of 50% of the aggregate Alteva Shares on October 21, 2012 or December 15, 2012, or 100% of the aggregate Alteva Shares if the Release Date Price is less than $11.74 on both dates.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The customer relationships intangible asset has a weighted-average useful life of eight years and the trade name intangible asset has an estimated useful life of 15 years. In addition, the Company recorded goodwill in the amount of $9,121. For tax purposes goodwill will be amortized over 15 years.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company incurred $835 of acquisition-related costs as general and administrative expenses in the Consolidated Statements of Operations. The revenue from the Alteva business included in the Company's statement of operations for the five months (since August 2011) ended December 31, 2011 was $3,111 and the net loss before income taxes was $712.</font></p> <div><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">On April 24, 2009, Warwick Valley Mobile Telephone Company ("WVMT"), a wholly-owned subsidiary of the Company, purchased certain assets of USA Datanet under the terms of an Asset Purchase Agreement entered into in April 2009. The assets acquired included its VoIP line of business, which provides communication services for commercial customer's conferencing and wholesale lines of business. This asset purchase extended the Company's VoIP services to upstate New York and various other states, and expanded the scope of the Company's product offerings to include conferencing and wholesale. This transaction was a step in the execution of the Company's corporate strategy to expand the Company's business beyond its regulated franchise area.</font></div> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Under the terms of the Asset Purchase Agreement, the Company purchased certain assets from USA Datanet for $1,487 in cash. Additionally, included in selling, general and administrative expenses are $214 of expenses relating to the acquisition in 2009. The seller, USA Datanet, was in bankruptcy under Chapter 11, and its assets were sold under a court approved sale. The acquisition has been accounted as a business combination. The values of the acquired assets have been calculated by independent appraisers as of the acquisition date. These appraisals were completed in the fourth quarter of 2009.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The fair values of the tangible assets acquired were determined using the cost and market approaches. The fair value measurements of the tangible assets were primarily based on significant inputs that are not observable in the market and thus represent a Level 3 measurement as defined in the accounting standard regarding fair value measurements. The cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent economic utility, was used for inventory and, property, plant and equipment. The cost to replace a given asset reflects the estimated reproduction or replacement cost for the property, less an allowance for loss in value due to depreciation. After values were determined using the cost approach, they were tested for reasonableness using the market approach.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The fair values of intangible assets were based on the cost approach and the income approach. Level 3 inputs were used for both approaches.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The following table summarizes the consideration and the fair values of the assets acquired on April 24, 2009:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="73%"> </td> <td width="14%"> </td> <td width="11%"> </td></tr> <tr valign="bottom"><td align="left"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Consideration</font></b></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Cash</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">1,487</font></td></tr> <tr><td colspan="3">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Recognized fair value amounts of identifiable assets acquired</font></b></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Inventory</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">98</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Internet communications equipment and furniture and fixtures</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">3,017</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Intangible assets</font></td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">121</font></td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">3,236</font></td></tr> <tr><td colspan="3">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Bargain purchase gain</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">1,749</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">As of the acquisition date, the Company recorded a deferred tax liability in the amount of $676, relating to the difference in basis between financial statements and income tax of the assets acquired. This resulted in a net of tax bargain purchase gain of $1,073.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The revenue and earnings (loss) before bargain purchase gain from the acquired assets since April 24, 2009 are included in the Company's consolidated income statement for the year ended December 31, 2009 and were $1,964 and ($927), respectively.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The following unaudited pro forma condensed consolidated results of operations for the Company for December 31, 2011, 2010 and 2009, respectively, assume that the purchase of certain assets and the assumption of certain liabilities of Alteva, LLC and USA Datanet occurred on January 1, 2011, 2010 and 2009. They also assume that the asset Purchase of USA Datanet occurred on January 1, 2009. The unaudited pro forma information presents the combined operating results of the acquired Alteva, LLC business and the Company, with the results prior to the date of the acquisitions adjusted for amortization of intangibles and depreciation of fixed assets, based on the purchase price allocation, interest expense on borrowings and the elimination of acquisition related costs.</font></p> <div><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The unaudited pro forma results shown in the table below do not purport to be indicative of the results that would have been obtained had the Alteva, LLC Agreement and the USA Datanet Asset Purchase Agreement been entered into as of January 1, 2011, 2010 and 2009, nor does the unaudited pro forma data intend to be a projection of results that may be obtained in the future.</font></div> <div> <table border="0" cellspacing="0"> <tr><td width="38%"> </td> <td width="2%"> </td> <td width="29%"> </td> <td width="2%"> </td> <td width="5%"> </td> <td width="9%"> </td> <td width="4%"> </td> <td width="7%"> </td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" colspan="7" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(unaudited)</font></b></td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" colspan="7" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">December 31,</font></b></td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2011</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2010</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2009</font></b></td></tr> <tr><td colspan="8">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Operating revenues</font></b></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">29,997</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double; text-indent: 2px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">30,374</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">28,282</font></td></tr> <tr><td colspan="8">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Net Income (loss)</font></b></td> <td style="border-bottom: #000000 3px double;" align="right"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></b></td> <td style="border-bottom: #000000 3px double;" align="right"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(3,697</font></b></td> <td style="border-bottom: #000000 3px double;" align="left"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></b></td> <td style="border-bottom: #000000 3px double; text-indent: 2px;" align="left"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></b></td> <td style="border-bottom: #000000 3px double;" align="right"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">1,960</font></b></td> <td style="border-bottom: #000000 3px double;" align="right"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></b></td> <td style="border-bottom: #000000 3px double;" align="right"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">4,479</font></b></td></tr> <tr><td colspan="8">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Basic earnings (loss) per share</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(0.65</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double; text-indent: 2px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">0.35</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">1.05</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Dilluted earnings (loss) per share</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(0.65</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double; text-indent: 2px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">0.35</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">1.04</font></td></tr></table></div> </div> 7677000 9286000 10899000 4575000 1609000 1613000 -6324000 <div> <p style="text-align: left;"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">NOTE 18: COMMITMENTS AND CONTINGENCIES</font></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">In connection with the Alteva Agreement, the Company has entered into two-year employment agreement with its Executive Vice President and Chief Operating Officer, its Executive Vice President and Chief Sales Officer, and its Executive Vice President and Chief Network Officer. Their annual salaries per the agreements are $285, $180, and $180, respectively. The Company entered into a two-year employment agreement with its Executive Vice President, Chief Financial Officer and Treasurer on May 9, 2011 effective May 5</font><sup><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">th</font></sup><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">, 2011 and a three-year employment agreement with its President and Chief Executive Officer on December 14, 2011 effective April 11, 2012. Their annual salaries per the agreement are $200 and $375, respectively. The Company entered into two-year employment agreements with its Executive Vice President and Chief Administrator Officer on August 11, 2011 and Executive Vice President and Chief Technology Officer on August 8, 2011 and both were effective August 5, 2011. Their annual salaries per the agreement are $180, respectively.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company currently has an operating lease to rent space on a tower to transmit video content from its headend facility. The Company also leases vehicles for operations as well as office space in Vernon, New Jersey, Syracuse, New York and Philadelphia, Pennsylvania. In addition, the Company has entered into certain long-term agreements to access trunk lines from other carriers to transmit voice, video and data. Total expenses associated with these agreements were $2,342, $2,259 and $2,114 in 2011, 2010 and 2009, respectively.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The future aggregate lease commitments as of December 31, 2011 is as follows:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="49%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="47%">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2012</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">573</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2013</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">137</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2014</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">36</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2015 and thereafter</font></td> <td style="border-bottom: #000000 2px solid;" align="right">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Total</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">748</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left; margin-top: 0px; margin-bottom: 0px;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">From time to time the Company is involved in litigation relating to legal claims arising in the normal course of business. These claims are generally covered by insurance. The Company is not currently subject to any litigation which, singularly or in the aggregate, could reasonably be expected to have a material adverse effect on the Company's financial position, results of operations or cash flows.</font></p> </div> 0.88 0.96 1.04 0.88 0.96 1.04 0.01 0.01 10000000 10000000 6054741 6490318 60000 62000 7820000 3354000 -5116000 <div> <p style="text-align: left;"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">NOTE 8: OTHER COMPREHENSIVE INCOME (LOSS)</font></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Other comprehensive income (loss) consisted of the following for the years ended December</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="46%"> </td> <td width="2%"> </td> <td width="16%"> </td> <td width="2%"> </td> <td width="4%"> </td> <td width="9%"> </td> <td width="2%"> </td> <td width="4%"> </td> <td width="8%"> </td> <td width="2%"> </td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2011</font></b></td> <td style="border-bottom: #000000 2px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">20 10</font></b></td> <td style="border-bottom: #000000 2px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2009</font></b></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Pension and postretirement benefits plans</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(3,465</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">868</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">1,561</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Unrealized gain (loss) on investments</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: Calibri,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(48</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: Calibri,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Reclassification of unrealized gain upon realization from sale</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">31</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: Calibri,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: Calibri,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Related deferred income taxes</font></td> <td style="border-bottom: #000000 2px solid;" align="right">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">1,239</font></td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(318</font></td> <td style="border-bottom: #000000 2px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(556</font></td> <td style="border-bottom: #000000 2px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr valign="bottom"><td style="text-indent: 7px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Total other comprehensive income (loss)</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(2,195</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">502</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">1,005</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td></tr></table></div> </div> 10744000 11978000 14701000 56000 51000 <div> <p style="text-align: left;"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">NOTE 13: DEBT OBLIGATIONS</font></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Debt obligations consisted of the following at December 31:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="71%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="12%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="10%">&nbsp;</td></tr> <tr valign="bottom"><td width="71%" align="left">&nbsp;</td> <td width="14%" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2"><u>2011</u></font></b></td> <td width="12%" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2"><u>2010</u></font></b></td></tr> <tr valign="bottom"><td width="71%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Long-term debt:</font></td> <td width="2%" align="left">&nbsp;</td> <td width="12%" align="left">&nbsp;</td> <td width="2%" align="left">&nbsp;</td> <td width="10%" align="left">&nbsp;</td></tr> <tr valign="bottom"><td style="text-indent: 2px;" width="71%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Current maturities CoBank ACB, unsecured term credit facility</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td width="12%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">1,139</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td width="10%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">1,519</font></td></tr> <tr valign="bottom"><td style="text-indent: 2px;" width="71%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Long-term portion CoBank ACB, unsecured term credit facility</font></td> <td style="border-bottom: #000000 1px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="12%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">-</font></td> <td style="border-bottom: #000000 1px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="10%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">1,139</font></td></tr> <tr valign="bottom"><td width="71%" align="left">&nbsp;</td> <td width="2%" align="left">&nbsp;</td> <td width="12%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">1,139</font></td> <td width="2%" align="left">&nbsp;</td> <td width="10%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2,658</font></td></tr> <tr valign="bottom"><td width="71%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Short-term debt:</font></td> <td width="2%" align="left">&nbsp;</td> <td width="12%" align="left">&nbsp;</td> <td width="2%" align="left">&nbsp;</td> <td width="10%" align="left">&nbsp;</td></tr> <tr valign="bottom"><td style="text-indent: 2px;" width="71%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">CoBank ACB revolving loan facility</font></td> <td width="2%" align="left">&nbsp;</td> <td width="12%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">5,000</font></td> <td width="2%" align="left">&nbsp;</td> <td width="10%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">-</font></td></tr> <tr valign="bottom"><td style="text-indent: 2px;" width="71%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Provident Bank credit line</font></td> <td style="border-bottom: #000000 1px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="12%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">600</font></td> <td style="border-bottom: #000000 1px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="10%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">-</font></td></tr> <tr valign="bottom"><td width="71%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="12%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">5,600</font></td> <td style="border-bottom: #000000 1px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="10%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">-</font></td></tr> <tr valign="bottom"><td width="71%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Total debt obligations</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td style="border-bottom: #000000 3px double;" width="12%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">6,739</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td style="border-bottom: #000000 3px double;" width="10%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2,658</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">On February 18, 2003, the Company entered into its master loan agreement with CoBank, ACB with respect to an $18,475 unsecured term credit facility. The CoBank ACB, unsecured term credit facility loan remains outstanding until all indebtedness and obligations of the Company under the facility have been paid or satisfied, but no later than July 2012 (the "Maturity Date"). The unpaid principal balance of $1,139 accrues interest at an interest rate determined or selected by the Company. The Company may select a variable rate option, a long-term fixed rate option or a LIBOR option. The Company selected the variable rate option, and the average interest rate on borrowings for the years ended December 31, 2011, 2010, and 2009 was approximately 2.98%, 2.96%, and 3.04%, respectively. Interest is paid quarterly each January, April, July and October. The outstanding principal is being repaid in 32 consecutive quarterly installments which started in October 2004, with the last such installment due on the Maturity Date. On the Maturity Date, the amount of the unpaid principal plus accrued interest and fees is due in full.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">On August 3, 2011, the Company entered into a supplement to its master loan agreement with CoBank, ACB. The supplement provides for a revolving loan facility in the principal amount of $5,000 (the "CoBank Revolving Loan"). Also on August 3, 2011, the Company drew down the entire $5,000 principal amount of the CoBank Revolving Loan to fund a portion of the purchase price of the Alteva, LLC acquisition. The CoBank Revolving Loan becomes due and payable on August 2, 2012. The CoBank Revolving Loan incurs interest at a variable rate determined by CoBank, ACB or, if selected by the Company, at LIBOR plus 3.50%. Interest is payable quarterly in arrears. The interest rate on the outstanding amount is variable and, as of December 31, 2011, the rate was 3.75%. The Company paid CoBank, ACB a $50 origination fee in connection with the CoBank Revolving Loan.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Under the terms of the CoBank facility, the Company is required to comply with certain loan covenants, which include, but are not limited to, the achievement of certain financial ratios, as set forth in the agreement, as well as certain financial reporting requirements. As of December 31, 2011, the Company was in compliance with all loan covenants.</font></p> <p style="text-align: left; margin-top: 0px; margin-bottom: 0px;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company has an unsecured $4,000 line of credit with Provident Bank. On August 1, 2011, the Company drew down its entire $4,000 line of credit with Provident Bank and placed the proceeds in an escrow account, pursuant to the terms of the agreement with Alteva, LLC. The Company paid $649 for certain capital leases of Alteva, LLC from the escrow account. On October 21, 2011, the NYPSC approved the Company's petition for authority to issue stock as partial consideration for the purchase of the assets of Alteva, LLC and on September 22, 2011, the NJBPU also approved the Company's petition for authority to issue stock. As a result, the balance of $3,351, which was placed in escrow, was returned to the Company. As of December 31, 2011, $600 remains outstanding on the line of credit with Provident Bank. The Company had no outstanding balance on this facility as of December 31, 2010. Interest is at a variable rate and borrowings are on a demand basis without restrictions. At December 31, 2011, the Company was in compliance with all loan covenants under the line of credit.</font></p> </div> 1084000 -1859000 214000 397000 390000 405000 38000 1941000 1358000 5468000 5780000 5266000 <div> <p style="text-align: left;"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">NOTE 16: STOCK BASED COMPENSATION</font></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company adopted and, at the annual meeting held on April 29, 2011, its shareholders approved, the Amended and Restated 2008 Long-Term Incentive Plan (the "Amended and Restated LTIP") to assist the Company and its affiliates in attracting, motivating and retaining selected individuals to serve as employees, directors, consultants and advisors of the Company and its affiliates by providing incentives to such individuals through the ownership and performance of the Company's common stock. The Amended and Restated LTIP increases the total number of shares authorized under the Amended and Restated LTIP from 500,000 shares to 1,100,000 shares of common stock. The increases in the number of shares available under the Amended and Restated LTIP required approval from the NYPSC and NJBPU. As of December 31, 2011, the Company had not received approval from the NYPSC or the NJBPU. Approval has been received subsequent to December 31, 2011 (See Note 20). Shares available for grant under the Amended and Restated LTIP may be either authorized but unissued shares or shares that have been reacquired by the Company and designated as treasury shares. As of December 31, 2011 and 2010, 137,590 and 270,089 shares of the Company's common stock were available for grant under the Amended and Restated LTIP. The Amended and Restated LTIP permits the issuance by the Company of awards in the form of stock options, stock appreciation rights, restricted stock and restricted stock units and performance shares. The exercise price per share of the Company's common stock purchasable under any stock option or stock appreciation right may not be less than 100% of the fair market value of one share of common stock on the date of grant. The term of any stock option or stock appreciation may not exceed ten years. The Amended and Restated LTIP also provides plan participants with a cashless mechanism to exercise their stock options. For the year ended December 31, 2011, the Company purchased treasury stock of $1,171 as a result of plan participants using the cashless mechanism when exercising stock options. Issued restricted stock, stock options and restricted stock units are subject to vesting restrictions.</font></p> <p style="text-align: left;"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Restricted Stock Awards</font></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The following table summarizes the restricted stock granted to certain eligible participants for the years ended December 31, 2011, 2010 and 2009:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="48%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="19%">&nbsp;</td> <td width="4%">&nbsp;</td> <td width="10%">&nbsp;</td> <td width="4%">&nbsp;</td> <td width="9%">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Restricted stock granted</font></td> <td style="border-bottom: #000000 1px solid;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2011</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2010</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2009</font></b></td></tr> <tr valign="bottom"><td style="text-indent: 7px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Shares</font></td> <td style="border-bottom: #000000 3px double;" align="right">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">61,636</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">35,004</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">16,550</font></td></tr> <tr valign="bottom"><td style="text-indent: 7px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Grant date weighted average fair value per share</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">14.62</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">13.22</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">10.99</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Stock-based compensation expense for restricted stock awards of $684, $272 and $86 was recorded for the years ended December 31, 2011, 2010 and 2009, respectively. Restricted stock awards are amortized over their respective vesting periods of two or three years. The Company records stock-based compensation for grants of restricted stock awards on a straight-line basis. The Company has determined expected forfeitures based on recent activity and is recognizing compensation expense only for those restricted common shares expected to vest.</font></p> <div><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The following table summarizes the restricted common stock activity during the years ended December 31, 2011, 2010 and 2009:</font></div> <div> <table border="0" cellspacing="0"> <tr><td width="38%">&nbsp;</td> <td width="27%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="8%">&nbsp;</td> <td width="21%">&nbsp;</td></tr> <tr valign="bottom"><td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Shares</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Grant Date Weighted</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Average per Share</font></b></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Balance - January 1, 2009</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">19,000</font></td> <td align="left">&nbsp;</td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Granted</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">16,550</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">10.99</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Vested</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(6,332</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left">&nbsp;</td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">10.78</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Forfeited</font></td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(7,592</font></td> <td style="border-bottom: #000000 1px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left">&nbsp;</td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">10.53</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Balance - December 31, 2009</font></td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">21,626</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">11.03</font></td></tr> <tr><td colspan="5">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Granted</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">35,004</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">13.22</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Vested</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(8,807</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left">&nbsp;</td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">10.99</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Forfeited</font></td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(450</font></td> <td style="border-bottom: #000000 1px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left">&nbsp;</td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">12.78</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Balance - December 31, 2010</font></td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">47,373</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">12.64</font></td></tr> <tr><td colspan="5">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Granted</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">61,636</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">14.62</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Vested</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(38,447</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left">&nbsp;</td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">13.04</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Forfeited</font></td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(2,003</font></td> <td style="border-bottom: #000000 2px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left">&nbsp;</td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">14.10</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Balance - December 31, 2011</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">68,559</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">14.15</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Stock Options</font></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The following tables summarize stock option activity for the years ended December 31, 2011, 2010 and 2009, along with options exercisable at the end of each period:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="50%">&nbsp;</td> <td width="21%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="5%">&nbsp;</td> <td width="19%">&nbsp;</td></tr> <tr valign="bottom"><td style="border-bottom: #000000 1px solid;" align="left"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Options</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Shares</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Weighted Average</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Exercise Price</font></b></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Outstanding - January 1, 2009</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">90,500</font></td> <td align="left">&nbsp;</td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">10.78</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Stock options granted</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">64,499</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">10.64</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Exercised</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">-</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">-</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Forfeited</font></td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">(31,368</font></td> <td style="border-bottom: #000000 1px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">)</font></td> <td align="left">&nbsp;</td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">10.60</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Outstanding - December 31, 2009</font></td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">123,631</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">10.76</font></td></tr> <tr><td colspan="5">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Stock options granted</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">43,768</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">12.88</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Exercised</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">(6,666</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">)</font></td> <td align="left">&nbsp;</td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">10.78</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Forfeited</font></td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">-</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">-</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Outstanding - December 31, 2010</font></td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">160,733</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">11.33</font></td></tr> <tr><td colspan="5">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Stock options granted</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">149,293</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">14.83</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Exercised</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">(103,319</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">)</font></td> <td align="left">&nbsp;</td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">11.01</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Forfeited</font></td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">(2,843</font></td> <td style="border-bottom: #000000 1px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">)</font></td> <td align="left">&nbsp;</td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">14.02</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Outstanding - December 31, 2011</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">203,864</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">14.02</font></td></tr> <tr><td colspan="5">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Vested and expected to vest at December 31, 2009</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">123,631</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Exercisable at December 31, 2009</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">30,166</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr><td colspan="5">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Vested and expected to vest at December 31, 2010</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">160,733</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Exercisable at December 31, 2010</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">62,486</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr><td colspan="5">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Vested and expected to vest at December 31, 2011</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">203,864</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Exercisable at December 31, 2011</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">73,071</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <div>&nbsp;</div><br /> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The stock options vest over a three-year period. The following table summarizes information about fixed price stock options outstanding at December 31, 2011, 2010 and 2009:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="2%">&nbsp;</td> <td width="30%">&nbsp;</td> <td width="16%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="15%">&nbsp;</td> <td width="18%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="11%">&nbsp;</td></tr> <tr valign="bottom"><td style="border-bottom: #000000 1px solid;" rowspan="4" colspan="2" align="center"><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1"><strong>Exercise Price per Share</strong></font></td> <td style="border-bottom: #000000 1px solid;" rowspan="4" align="center"><strong><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Shares</font><br /><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Outstanding</font></strong></td> <td style="border-bottom: #000000 1px solid;" rowspan="4" colspan="2" align="center"><strong><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Weighted</font><br /><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Average</font><br /><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Exercise Price</font></strong></td> <td style="border-bottom: #000000 1px solid;" rowspan="4" align="center"><strong><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Weighted Average</font><br /><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Remaining</font><br /><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Contractual</font><br /><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Life (Years)</font></strong></td> <td style="border-bottom: #000000 1px solid;" rowspan="4" colspan="2" align="center"><strong><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Aggregate</font><br /><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Intrinsic</font><br /><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Value</font></strong></td></tr> <tr valign="bottom"><td align="right">&nbsp;</td> <td align="left"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">December 31, 2009</font></b></td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">10.78</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">77,166</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">10.78</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">8.69</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">10.02</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">30,948</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">10.02</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">9.22</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">11.20</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">7,517</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">11.20</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">9.32</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">12.97</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">7,000</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">12.97</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">9.90</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">12.76</font></td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">1,000</font></td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">12.76</font></td> <td style="border-bottom: #000000 1px solid;" align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">9.99</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">123,631</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">10.76</font></td> <td style="border-bottom: #000000 3px double;" align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">8.94</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">289</font></td></tr> <tr><td colspan="8">&nbsp;</td></tr> <tr valign="bottom"><td align="right">&nbsp;</td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Exercisable at December 31, 2009</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">30,166</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">10.78</font></td> <td style="border-bottom: #000000 3px double;" align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">8.69</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">70</font></td></tr> <tr><td colspan="8">&nbsp;</td></tr> <tr valign="bottom"><td align="right">&nbsp;</td> <td align="left"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">December 31, 2010</font></b></td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">10.78</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">70,500</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">10.78</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">7.69</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">10.02</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">30,948</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">10.02</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">8.22</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">11.20</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">7,517</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">11.20</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">8.32</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">12.97</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">7,000</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">12.97</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">8.90</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">12.76</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">1,000</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">12.76</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">8.99</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">12.88</font></td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">43,768</font></td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">12.88</font></td> <td style="border-bottom: #000000 1px solid;" align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">9.15</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">160,733</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">11.33</font></td> <td style="border-bottom: #000000 3px double;" align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">8.09</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">421</font></td></tr> <tr><td colspan="8">&nbsp;</td></tr> <tr valign="bottom"><td align="right">&nbsp;</td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Exercisable at December 31, 2010</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">62,486</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">10.76</font></td> <td style="border-bottom: #000000 3px double;" align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">7.73</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">205</font></td></tr> <tr><td colspan="8">&nbsp;</td></tr> <tr><td colspan="8">&nbsp;</td></tr> <tr valign="bottom"><td align="right">&nbsp;</td> <td align="left"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">December 31, 2011</font></b></td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">10.78</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">15,166</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">10.78</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">6.69</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">10.02</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">4,051</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">10.02</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">7.22</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">11.20</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">7,517</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">11.20</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">7.32</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">12.97</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">7,000</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">12.97</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">7.90</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">12.76</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">333</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">12.76</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">7.99</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">12.88</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">22,328</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">12.88</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">8.15</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">14.70</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">18,849</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">14.70</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">9.15</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">14.85</font></td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">128,620</font></td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">14.85</font></td> <td style="border-bottom: #000000 2px solid;" align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">9.19</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">203,864</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">14.02</font></td> <td style="border-bottom: #000000 3px double;" align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">8.73</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">0</font></td></tr> <tr><td colspan="8">&nbsp;</td></tr> <tr valign="bottom"><td align="right">&nbsp;</td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Exercisable at December 31, 2011</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">73,071</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">13.56</font></td> <td style="border-bottom: #000000 3px double;" align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">8.42</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">0</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company's closing stock price on the last trading day, December 31, 2011, 2010 and 2009, respectively, and the exercise price times the number of shares) that would have been received by the option holders had all the option holders exercised in-the-money stock options on December 31, 2011, 2010 and 2009, respectively. This amount will change based on the fair market value of the Company's common stock.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The fair value of the above stock-based awards was estimated using the Black-Scholes model with the following weighted-average assumptions for the years ended December 31, 2011, 2010 and 2009:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="42%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="16%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="15%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="10%">&nbsp;</td> <td width="2%">&nbsp;</td></tr> <tr valign="bottom"><td style="border-bottom: #000000 2px solid;" align="left"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Options</font></b></td> <td style="border-bottom: #000000 2px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2011</font></b></td> <td style="border-bottom: #000000 2px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2010</font></b></td> <td style="border-bottom: #000000 2px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2009</font></b></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Expected life (in years)</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">10</font></td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">10</font></td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">10</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Interest rate</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">3.40</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">%</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">3.78</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">%</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2.75</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">%</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Volatility</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">32.77</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">%</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">31.70</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">%</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">30.74</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">%</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Dividend yield</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">7.00</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">%</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">6.83</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">%</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">8.34</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">%</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Weighted-average fair value per share at grant date</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2.16</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">1.92</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">1.04</font></td> <td align="left">&nbsp;</td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Compensation expense related to stock options granted was $287, $69 and $42 in 2011, 2010 and 2009, respectively.</font></p> <div><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The following table presents the total stock-based compensation expense resulting from stock options and restricted stock granted to employees that are included in the Company's consolidated statements of operations for the years ended December 31, 2011, 2010 and 2009.</font></div> <div> <table border="0" cellspacing="0"> <tr><td width="54%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="14%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="14%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="9%">&nbsp;</td></tr> <tr valign="bottom"><td style="border-bottom: #000000 2px solid;" width="54%" align="left"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Stock-Based Compensation Expense</font></b></td> <td style="border-bottom: #000000 2px solid;" width="16%" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2011</font></b></td> <td style="border-bottom: #000000 2px solid;" width="16%" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2010</font></b></td> <td style="border-bottom: #000000 2px solid;" width="11%" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2009</font></b></td></tr> <tr><td width="97%" colspan="7">&nbsp;</td></tr> <tr valign="bottom"><td width="54%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Cost of services and products</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td width="14%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">66</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td width="14%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">40</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td width="9%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td></tr> <tr valign="bottom"><td width="54%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Selling, general and administrative expense</font></td> <td style="border-bottom: #000000 2px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" width="14%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">894</font></td> <td style="border-bottom: #000000 2px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" width="14%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">301</font></td> <td style="border-bottom: #000000 2px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" width="9%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">128</font></td></tr> <tr valign="bottom"><td width="54%" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="14%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">960</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="14%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">341</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="9%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">128</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left; margin-top: 0px; margin-bottom: 0px;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">As of December 31, 2011, $795 of total unrecognized compensation expense related to stock options and restricted stock is expected to be recognized over a weighted average period of approximately 1.42 years.</font></p> </div> 4736000 4736000 5200000 5200000 5769000 5769000 25000 25000 25000 25000 25000 25000 1.27 0.53 -0.54 1.26 0.52 -0.54 <div> <p style="text-align: left;"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">NOTE 7: EARNINGS (LOSS) PER SHARE</font></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Basic earnings (loss) per share are computed by dividing net income (loss) applicable to common shares by the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed by dividing net income (loss) applicable to common shares by the weighted average number of common shares adjusted to include the effect of potentially dilutive securities. Potentially dilutive securities include incremental shares issuable upon exercise of outstanding stock options and shares of unvested restricted stock. Diluted earnings per share exclude all dilutive securities if their effect is anti-dilutive.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The weighted average number of shares of common stock used in diluted earnings per share for the years ended December 31:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="46%">&nbsp;</td> <td width="24%">&nbsp;</td> <td width="17%">&nbsp;</td> <td width="12%">&nbsp;</td></tr> <tr valign="bottom"><td width="46%" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" width="24%" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2011</font></b> <b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">(1)</font></b></td> <td style="border-bottom: #000000 2px solid;" width="17%" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2010</font></b></td> <td style="border-bottom: #000000 2px solid;" width="12%" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2009</font></b></td></tr> <tr valign="bottom"><td width="46%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Weighted average shares of common stock</font><br /><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">used in basic earnings per share</font></td> <td width="24%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">5,424,927</font></td> <td width="17%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">5,363,543</font></td> <td width="12%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">5,353,763</font></td></tr> <tr valign="bottom"><td width="46%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Effects of puttable common stock</font></td> <td width="24%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">10,922</font></td> <td width="17%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">-</font></td> <td width="12%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">-</font></td></tr> <tr valign="bottom"><td width="46%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Effects of stock options</font></td> <td width="24%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">-</font></td> <td width="17%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">24,621</font></td> <td width="12%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">8,284</font></td></tr> <tr valign="bottom"><td width="46%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Effects of restricted stock</font></td> <td style="border-bottom: #000000 1px solid;" width="24%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">-</font></td> <td style="border-bottom: #000000 1px solid;" width="17%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">19,830</font></td> <td style="border-bottom: #000000 1px solid;" width="12%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">22,459</font></td></tr> <tr valign="bottom"><td width="46%" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" width="24%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">5,435,849</font></td> <td style="border-bottom: #000000 3px double;" width="17%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">5,407,994</font></td> <td style="border-bottom: #000000 3px double;" width="12%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">5,384,506</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left; margin-top: 0px; margin-bottom: 0px;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">(1) Basic and diluted weighted average shares were the same for the year ended December 31, 2011 because the effects of the potentially diluted securities were anti-dilutive and they were excluded from the calculation.</font></p> </div> 31000 31000 <div> <p style="text-align: left;"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">NOTE 12: ORANGE COUNTY-POUGHKEEPSIE LIMITED PARTNERSHIP</font></b></p> <div><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company is a limited partner in the Orange County-Poughkeepsie Limited Partnership ("O-P") and had 8.108% equity interest as of December 31, 2011 and 2010, which is accounted for under the equity method of accounting. The majority owner and general partner of the O-P is Verizon Wireless of the East LP.</font></div> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">On May 26, 2011, the Company entered into an agreement with Verizon Wireless of the East LP, the general partner and a limited partner, and Cellco Partnership, the other limited partner, in the O-P to make certain changes to the O-P partnership agreement which, among other things, specifies that the O-P will provide 4G cellular services (the "4G Agreement"). The 4G Agreement provides that the O-P's business will be converted from a wholesale business to a retail business. The 4G Agreement provides for guaranteed annual cash distributions to the Company from the O-P through 2013. For 2011, annual cash distributions from the O-P were $13,600 and for 2012 and 2013 the annual cash distributions will be $13,000. Annual cash distributions will be paid in equal quarterly amounts. The 4G Agreement also gives the Company the right (the "Put") to require one of the O-P's limited partners to purchase all the Company's ownership interest in the O-P during April 2013 or April 2014 for an amount equal to the greater of (a) $50,000 or (b) the product of five (5) times 0.081081 times the O-P's EBITDA, as defined in the 4G Agreement for the calendar year preceding the exercise of the Put.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The conversion of the O-P from a wholesale business to a retail business pursuant to the 4G Agreement will increase the cellular service costs and operating expenses incurred by the O-P, which is expected to cause a subsequent reduction in the O-P's net income primarily due to the inclusion of sales and marketing expenses. Although the Company's share of the O-P net income recorded in the Company's income statement is expected to decrease, the annual cash distributions the Company receives from the O-P will remain unchanged pursuant to the terms of the 4G Agreement.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Pursuant to the equity method accounting of the Company's investment income, the Company is required to record the income from the O-P as an increase to the Company's investment account. The Company is required to apply the cash payments made under the 4G Agreement as a return on its investment when received. Under equity method accounting, the Company currently reports as income its proportionate share of the O-P income that is less than the guaranteed cash distributions it receives from the O-P. The cash distributions the Company receives from the O-P that are in excess of the Company's proportionate share of the O-P income is recorded as a reduction of its investment account. As a result of receiving the fixed guaranteed cash distributions from the O-P in excess of the Company's proportionate share of the O-P income, the investment account is expected to be reduced to zero within the first six months of 2012. Thereafter, the Company will record the fixed guaranteed cash distributions that are received from the O-P in excess of the proportionate share of the O-P income directly to the Company's statement of operations as other income.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">As of December 31, the value of the Company's holding in O-P is as follows:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="66%"> </td> <td width="2%"> </td> <td width="13%"> </td> <td width="5%"> </td> <td width="11%"> </td></tr> <tr valign="bottom"><td width="66%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="15%" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2011</font></b></td> <td style="border-bottom: #000000 1px solid;" width="16%" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2010</font></b></td></tr> <tr valign="bottom"><td width="66%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Equity interest in O-P Partnership</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td width="13%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td width="5%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="text-indent: 3px;" width="11%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">3,600</font></td></tr> <tr valign="bottom"><td width="66%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Goodwill</font></td> <td style="border-bottom: #000000 2px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" width="13%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">1,979</font></td> <td style="border-bottom: #000000 2px solid;" width="5%" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid; text-indent: 3px;" width="11%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">4,081</font></td></tr> <tr valign="bottom"><td width="66%" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="13%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">1,979</font></td> <td style="border-bottom: #000000 3px double;" width="5%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double; text-indent: 3px;" width="11%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">7,681</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The following summarizes O-P's audited income statement for the years ended December 31:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="38%"> </td> <td width="2%"> </td> <td width="34%"> </td> <td width="4%"> </td> <td width="10%"> </td> <td width="3%"> </td> <td width="8%"> </td></tr> <tr valign="bottom"><td width="38%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="36%" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2011</font></b> <b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(1)</font></b></td> <td style="border-bottom: #000000 1px solid;" width="14%" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2010</font></b></td> <td style="border-bottom: #000000 1px solid;" width="11%" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2009</font></b></td></tr> <tr valign="bottom"><td width="38%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Net Revenue</font></td> <td width="2%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td width="34%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">273,340</font></td> <td width="4%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td width="10%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">187,985</font></td> <td width="3%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td width="8%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">183,839</font></td></tr> <tr valign="bottom"><td width="38%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Cellular service cost</font></td> <td width="2%" align="right">&nbsp;</td> <td width="34%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">122,142</font></td> <td width="4%" align="left">&nbsp;</td> <td width="10%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">23,859</font></td> <td width="3%" align="left">&nbsp;</td> <td width="8%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">21,735</font></td></tr> <tr valign="bottom"><td width="38%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Operating expenses</font></td> <td style="border-bottom: #000000 1px solid;" width="2%" align="right">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="34%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">53,832</font></td> <td style="border-bottom: #000000 1px solid;" width="4%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="10%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">10,035</font></td> <td style="border-bottom: #000000 1px solid;" width="3%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="8%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">9,830</font></td></tr> <tr valign="bottom"><td width="38%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Operating income</font></td> <td width="2%" align="right">&nbsp;</td> <td width="34%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">97,366</font></td> <td width="4%" align="left">&nbsp;</td> <td width="10%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">154,091</font></td> <td width="3%" align="left">&nbsp;</td> <td width="8%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">152,274</font></td></tr> <tr valign="bottom"><td width="38%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Other income</font></td> <td style="border-bottom: #000000 1px solid;" width="2%" align="right">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="34%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">40</font></td> <td style="border-bottom: #000000 1px solid;" width="4%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="10%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">1,034</font></td> <td style="border-bottom: #000000 1px solid;" width="3%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="8%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">1,522</font></td></tr> <tr valign="bottom"><td width="38%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Net income</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td style="border-bottom: #000000 3px double;" width="34%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">97,406</font></td> <td style="border-bottom: #000000 3px double;" width="4%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td style="border-bottom: #000000 3px double;" width="10%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">155,125</font></td> <td style="border-bottom: #000000 3px double;" width="3%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td style="border-bottom: #000000 3px double;" width="8%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">153,796</font></td></tr> <tr valign="bottom"><td width="38%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Company share</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td style="border-bottom: #000000 3px double;" width="34%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">7,898</font></td> <td style="border-bottom: #000000 3px double;" width="4%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td style="border-bottom: #000000 3px double;" width="10%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">12,578</font></td> <td style="border-bottom: #000000 3px double;" width="3%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td style="border-bottom: #000000 3px double;" width="8%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">12,470</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">(1) The twelve months ended December 31, 2011 income statement represents five months of the O-P operating as a wholesale business and seven months of the O-P operating as a retail business in accordance with Amendment 6 to the O-P Limited Partnership Agreement effective May 1, 2011.</font></p> <div><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The following summarizes the O-P's audited balance sheet that O-P provided to the Company as of December 31:</font></div> <div> <table border="0" cellspacing="0"> <tr><td width="70%"> </td> <td width="2%"> </td> <td width="12%"> </td> <td width="2%"> </td> <td width="11%"> </td></tr> <tr valign="bottom"><td width="70%" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" width="14%" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2011</font></b></td> <td style="border-bottom: #000000 2px solid;" width="13%" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2010</font></b></td></tr> <tr valign="bottom"><td width="70%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Current assets</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td width="12%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">20,525</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td width="11%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">10,916</font></td></tr> <tr valign="bottom"><td width="70%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Property, plant and equipment, net</font></td> <td style="border-bottom: #000000 1px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="12%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">39,596</font></td> <td style="border-bottom: #000000 1px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="11%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">34,294</font></td></tr> <tr valign="bottom"><td width="70%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Total assets</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td style="border-bottom: #000000 3px double;" width="12%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">60,121</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td style="border-bottom: #000000 3px double;" width="11%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">45,210</font></td></tr> <tr><td width="97%" colspan="5">&nbsp;</td></tr> <tr valign="bottom"><td width="70%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Total liabilities</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td width="12%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">42,500</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td width="11%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">818</font></td></tr> <tr valign="bottom"><td width="70%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Partners' capital</font></td> <td style="border-bottom: #000000 1px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="12%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">17,621</font></td> <td style="border-bottom: #000000 1px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="11%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">44,392</font></td></tr> <tr valign="bottom"><td width="70%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Total liabilities and partners' capital</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td style="border-bottom: #000000 3px double;" width="12%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">60,121</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td style="border-bottom: #000000 3px double;" width="11%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">45,210</font></td></tr></table></div> </div> <div> <p style="text-align: left;"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">NOTE 5: FAIR VALUE</font></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Fair value is the estimated price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company is required by accounting standards to provide the disclosure framework for measuring fair value and expands disclosure about fair value measurements. Fair value measurements are classified and disclosed in one of the following categories:</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes those derivative instruments that the Company values using observable market data. Substantially all of these inputs are observable in the marketplace throughout the term of the derivative instruments, can be derived from observable data, or supported by observable levels at which transactions are executed in the marketplace.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Level 3: Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e. supported by little or no market activity). The Company's valuation models are primarily industry standard models. Level 3 instruments include derivative warrant instruments. The Company does not have sufficient corroborating evidence to support classifying these assets and liabilities as Level 1 or Level 2.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The following table represents the Company's fair value hierarchy for its financial assets measured at fair value on a recurring basis as of December 31, 2011:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="26%"> </td> <td width="13%"> </td> <td width="9%"> </td> <td width="11%"> </td> <td width="10%"> </td> <td width="3%"> </td> <td width="6%"> </td> <td width="11%"> </td> <td width="8%"> </td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Level 1</font></b></td> <td style="border-bottom: #000000 2px solid; text-indent: 3px;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Level 2</font></b></td> <td style="border-bottom: #000000 2px solid;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Level 3</font></b></td> <td style="border-bottom: #000000 2px solid;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Total</font></b></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Short-term investments</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">259</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">0</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;<font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">&nbsp;$</font></td> <td style="border-bottom: #000000 3px double; text-indent: 4px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">259</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The following table represents the Company's fair value hierarchy for its financial assets measured at fair value on a recurring basis as of December 31, 2010:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="26%"> </td> <td width="13%"> </td> <td width="9%"> </td> <td width="3%"> </td> <td width="16%"> </td> <td width="12%"> </td> <td width="11%"> </td> <td width="8%"> </td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Level 1</font></b></td> <td style="border-bottom: #000000 2px solid;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Level 2</font></b></td> <td style="border-bottom: #000000 2px solid; text-indent: 3px;" align="left"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Level 3</font></b></td> <td style="border-bottom: #000000 2px solid;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Total</font></b></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Short-term investments</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">257</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2,379</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$<font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">&nbsp;$</font></td> <td style="border-bottom: #000000 3px double; text-indent: 2px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2,636</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><b><i><font style="font-family: Arial-BoldItalicMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Derivative liability</font></i></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">In connection with Asset Purchase Agreement, the members of Alteva, LLC entered into a Lock-Up and Put Agreement with the Company effective October 21, 2011. The purchase price protection provision is considered to be a derivative instrument and must be valued and recognized at the instrument's current fair market value as of the date of issuance and adjusted each period the financial statements are presented. The Company employed a binomial pricing model to calculate the fair value of the price protection and recorded the full value as a current liability on its consolidated balance sheet. Inputs are adjusted each period to reflect changes in the Company's estimate of value of the underlying common stock.</font></p> <div><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The fair value of the price protection was estimated utilizing the binomial pricing model with the following assumptions for the year ended December 31, 2011:</font></div> <div> <table border="0" cellspacing="0"> <tr><td width="76%"> </td> <td width="5%"> </td> <td width="12%"> </td> <td width="4%"> </td></tr> <tr valign="bottom"><td width="76%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Binomial method</font></td> <td width="5%" align="left">&nbsp;</td> <td width="12%" align="left">&nbsp;</td> <td width="4%" align="left">&nbsp;</td></tr> <tr valign="bottom"><td style="text-indent: 2px;" width="76%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Model iterations</font></td> <td width="5%" align="left">&nbsp;</td> <td width="12%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">100.5</font></td> <td width="4%" align="left">&nbsp;</td></tr> <tr valign="bottom"><td style="text-indent: 2px;" width="76%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Simulated median price</font></td> <td width="5%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td width="12%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">13.45</font></td> <td width="4%" align="left">&nbsp;</td></tr> <tr valign="bottom"><td style="text-indent: 2px;" width="76%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Exercise price per share</font></td> <td width="5%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td width="12%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">11.74</font></td> <td width="4%" align="left">&nbsp;</td></tr> <tr valign="bottom"><td style="text-indent: 2px;" width="76%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Expected volatility</font></td> <td width="5%" align="left">&nbsp;</td> <td width="12%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">12.03</font></td> <td width="4%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">%</font></td></tr> <tr valign="bottom"><td style="text-indent: 2px;" width="76%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Risk free interest rate</font></td> <td width="5%" align="left">&nbsp;</td> <td width="12%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">0.15</font></td> <td width="4%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">%</font></td></tr> <tr valign="bottom"><td style="text-indent: 2px;" width="76%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Yield rate</font></td> <td width="5%" align="left">&nbsp;</td> <td width="12%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">7.73</font></td> <td width="4%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">%</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The following table represents the Company's fair value hierarchy for its financial liabilities measured at fair value on a recurring basis as of December 31, 2011:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="47%"> </td> <td width="12%"> </td> <td width="6%"> </td> <td width="3%"> </td> <td width="6%"> </td> <td width="3%"> </td> <td width="10%"> </td> <td width="5%"> </td> <td width="7%"> </td></tr> <tr valign="bottom"><td width="47%" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid; text-indent: 3px;" width="18%" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Level 1</font></b></td> <td style="border-bottom: #000000 2px solid;" width="9%" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Level 2</font></b></td> <td style="border-bottom: #000000 2px solid;" width="13%" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Level 3</font></b></td> <td style="border-bottom: #000000 2px solid;" width="12%" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Total</font></b></td></tr> <tr valign="bottom"><td width="47%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Derivative liability in connection with business acquisition</font></td> <td style="border-bottom: #000000 3px double;" width="12%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="6%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">0</font></td> <td style="border-bottom: #000000 3px double;" width="3%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="6%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">0</font></td> <td style="border-bottom: #000000 3px double;" width="3%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double; text-indent: 6px;" width="10%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">131</font></td> <td style="border-bottom: #000000 3px double;" width="5%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double; text-indent: 4px;" width="7%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">131</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The following table represents a summary of changes in the fair value of the Company's Level 3 liability for the year ended December 31, 2011 and 2010:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="87%"> </td> <td width="2%"> </td> <td width="9%"> </td></tr> <tr valign="bottom"><td width="87%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Derivative liability balance December 2010</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td width="9%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">0</font></td></tr> <tr valign="bottom"><td width="87%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Fair value of price protection instrument</font></td> <td width="2%" align="left">&nbsp;</td> <td width="9%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">116</font></td></tr> <tr valign="bottom"><td width="87%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Decrease in fair value of price protection instrument</font></td> <td width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" width="9%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">15</font></td></tr> <tr valign="bottom"><td width="87%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Derivative liability balance December 2011</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td style="border-bottom: #000000 3px double;" width="9%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">131</font></td></tr></table></div> </div> 1749000 9121000 <div> <p style="text-align: left;"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">NOTE 6: GOODWILL AND INTANGIBLE ASSETS</font></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Impairment testing for goodwill is performed annually in the fourth fiscal quarter or more frequently if indications of potential impairment exist. The impairment test for goodwill uses a two-step approach, which is performed at the reporting unit level. The Company has determined that our operating segments are the applicable reporting units because they are the lowest level at which discrete, reliable financial and cash flow information is regularly reviewed by our chief operating decision maker. Step one compares the fair value of the reporting unit (calculated using a market approach and/or a discounted cash flow method) to its carrying value. If the carrying value exceeds the fair value, there is a potential impairment and step two must be performed. Step two compares the carrying value of the reporting unit's goodwill to its implied fair value (i.e., fair value of reporting unit less the fair value of the unit's assets and liabilities, including identifiable intangible assets). If the implied fair value of goodwill is less than the carrying amount of goodwill, an impairment is recognized.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The following table presents details of the Company's goodwill:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="81%"> </td> <td width="2%"> </td> <td width="16%"> </td></tr> <tr valign="bottom"><td width="81%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="16%" align="right"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Amount</font></b></td></tr> <tr valign="bottom"><td width="81%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Balance as of December 31, 2010</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td width="16%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">0</font></td></tr> <tr valign="bottom"><td width="81%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Goodwill acquired with the Alteva acquisition</font></td> <td style="border-bottom: #000000 2px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" width="16%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">9,121</font></td></tr> <tr valign="bottom"><td width="81%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Balance as of December 31, 2011</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="16%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">9,121</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company performs an annual goodwill impairment test during the fourth quarter of the fiscal year and when triggering events are present.</font></p> <div><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The following table presents details of the Company's total purchased intangible assets:</font></div> <div> <table border="0" cellspacing="0"> <tr><td width="31%"> </td> <td width="22%"> </td> <td width="2%"> </td> <td width="9%"> </td> <td width="3%"> </td> <td width="13%"> </td> <td width="3%"> </td> <td width="4%"> </td> <td width="8%"> </td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Estimated</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Useful Lives</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Gross</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Value</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Accumulated</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Amortization</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Net</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Value</font></b></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">As of December 31, 2011</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Customer relationships</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">8 years</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,400</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(281</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,119</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Trade name</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">15 years</font></td> <td align="left">&nbsp;</td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2,400</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(67</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2,333</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Telephone seat licenses</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5 years</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">1,372</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(219</font></td> <td style="border-bottom: #000000 1px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">1,153</font></td></tr> <tr valign="bottom"><td style="text-indent: 2px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Total</font></td> <td align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">9,172</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(567</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">8,605</font></td></tr> <tr><td colspan="9">&nbsp;</td></tr> <tr><td colspan="9">&nbsp;</td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Estimated</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Useful Lives</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Gross</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Value</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Accumulated</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Amortization</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Net</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Value</font></b></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">As of December 31, 2010</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Telephone seat licenses</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5 years</font></td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 2px solid;" align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">318</font></td> <td style="border-bottom: #000000 2px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(101</font></td> <td style="border-bottom: #000000 2px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 2px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">217</font></td></tr> <tr valign="bottom"><td style="text-indent: 2px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Total</font></td> <td align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">318</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(101</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">217</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The amortization expense is recorded in the Consolidated Statements of Operations under depreciation and amortization in the amounts of $466, $59, and $36 for the years ended December 31, 2011, 2010, and 2009, respectively.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Future amortization expense is expected to be recorded as follows:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="73%"> </td> <td width="2%"> </td> <td width="22%"> </td></tr> <tr valign="bottom"><td style="border-bottom: #000000 1px solid;" width="73%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Year</font></td> <td width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="22%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Amount</font></td></tr> <tr valign="bottom"><td width="73%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2012</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td width="22%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">1,110</font></td></tr> <tr valign="bottom"><td width="73%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2013</font></td> <td width="2%" align="left">&nbsp;</td> <td width="22%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">1,104</font></td></tr> <tr valign="bottom"><td width="73%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2014</font></td> <td width="2%" align="left">&nbsp;</td> <td width="22%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">1,071</font></td></tr> <tr valign="bottom"><td width="73%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2015</font></td> <td width="2%" align="left">&nbsp;</td> <td width="22%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">1,051</font></td></tr> <tr valign="bottom"><td width="73%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2016</font></td> <td width="2%" align="left">&nbsp;</td> <td width="22%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">992</font></td></tr></table></div> </div> 2283000 10051000 4201000 -3806000 12470000 12578000 7898000 -99000 12000 -5702000 <div> <p style="text-align: left;"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">NOTE 14: INCOME TAXES</font></b></p> <div><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The federal and state components of the provision for (benefit from) income taxes are presented in the following table:</font></div> <div> <table border="0" cellspacing="0"> <tr><td width="38%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="26%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="8%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="7%">&nbsp;</td> <td width="2%">&nbsp;</td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" rowspan="2" colspan="9" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">For the Years Ended</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">December 31,</font></b></td></tr> <tr valign="bottom"><td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2011</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2010</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2009</font></b></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Provision (benefit) for income tax</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Current:</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Federal</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(1,150</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">3,208</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2,195</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">State and local</font></td> <td style="border-bottom: #000000 2px solid;" align="right">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">51</font></td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(43</font></td> <td style="border-bottom: #000000 2px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(1,099</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">3,208</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2,152</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Deferred:</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Federal</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(269</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(1,548</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">936</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">State and local</font></td> <td style="border-bottom: #000000 1px solid;" align="right">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">483</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(311</font></td> <td style="border-bottom: #000000 1px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">148</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">214</font></td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(1,859</font></td> <td style="border-bottom: #000000 2px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">1,084</font></td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Provision for income taxes</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(885</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">1,349</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">3,236</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Deferred income tax liabilities are taxes the Company expects to pay in future periods. Similarly, deferred income tax assets are recorded for expected reductions in taxes payable in future periods. Deferred income taxes arise because of differences in the book and tax basis of certain assets and liabilities.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Deferred income tax liabilities and assets consist of the following:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="48%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="31%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="8%">&nbsp;</td> <td width="2%">&nbsp;</td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td colspan="6" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">At December 31,</font></b></td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2011</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2010</font></b></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Deferred income tax assets:</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Employee pensions and other benefits</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">3,823</font></td> <td align="left">&nbsp;</td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2,594</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">State net operating loss carryforward</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">687</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">489</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Accrued liabilities</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">322</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Other</font></td> <td style="border-bottom: #000000 2px solid;" align="right">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">564</font></td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">19</font></td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Total deferred income tax assets</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,396</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">3,102</font></td> <td align="left">&nbsp;</td></tr> <tr><td colspan="7">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Valuation allowance</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(693</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(125</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr><td colspan="7">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Deferred income tax liabilities:</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Property, plant and equipment</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">4,743</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">4,446</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Intangible assets</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">47</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Other</font></td> <td style="border-bottom: #000000 1px solid;" align="right">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">913</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">463</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Total deferred income tax liabilities</font></td> <td style="border-bottom: #000000 1px solid;" align="right">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,656</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">4,956</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Net deferred income tax liability</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(953</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(1,979</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company established a valuation allowance of $693 at December 31, 2011, and $125 at December 31, 2010 against certain state net operating loss (principally New Jersey) carryforwards. The Company was unable to conclude that it was more likely than not that it would realize these losses prior to their expiration. The Company will continue to refine and monitor all available evidence during future periods to evaluate the recoverability of its deferred tax assets.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The difference between tax expense (benefit) and the amount computed by applying the statutory federal income tax rate (34%) to income (loss) before income taxes is as follows:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="49%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="10%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="10%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="4%">&nbsp;</td> <td width="8%">&nbsp;</td> <td width="2%">&nbsp;</td></tr> <tr valign="bottom"><td width="49%" align="left">&nbsp;</td> <td width="43%" colspan="9" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Years Ended December 31,</font></b></td></tr> <tr valign="bottom"><td width="49%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="14%" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2011</font></b></td> <td style="border-bottom: #000000 1px solid;" width="15%" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2010</font></b></td> <td style="border-bottom: #000000 1px solid;" width="14%" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2009</font></b></td></tr> <tr valign="bottom"><td width="49%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Statutory rate applied to pre-tax income (loss)</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td width="10%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(1,294</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td width="3%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td width="10%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">1,428</font></td> <td width="2%" align="left">&nbsp;</td> <td width="4%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td width="8%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">3,417</font></td> <td width="2%" align="left">&nbsp;</td></tr> <tr valign="bottom"><td width="49%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Add (deduct):</font></td> <td width="2%" align="left">&nbsp;</td> <td width="10%" align="left">&nbsp;</td> <td width="2%" align="left">&nbsp;</td> <td width="3%" align="left">&nbsp;</td> <td width="10%" align="left">&nbsp;</td> <td width="2%" align="left">&nbsp;</td> <td width="4%" align="left">&nbsp;</td> <td width="8%" align="left">&nbsp;</td> <td width="2%" align="left">&nbsp;</td></tr> <tr valign="bottom"><td style="text-indent: 15px;" width="49%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">State income taxes, net</font></td> <td width="2%" align="left">&nbsp;</td> <td width="10%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(215</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td width="3%" align="left">&nbsp;</td> <td width="10%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(330</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td width="4%" align="left">&nbsp;</td> <td width="8%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">69</font></td> <td width="2%" align="left">&nbsp;</td></tr> <tr valign="bottom"><td style="text-indent: 15px;" width="49%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Valuation allowance - state</font></td> <td width="2%" align="left">&nbsp;</td> <td width="10%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">568</font></td> <td width="2%" align="left">&nbsp;</td> <td width="3%" align="left">&nbsp;</td> <td width="10%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">125</font></td> <td width="2%" align="left">&nbsp;</td> <td width="4%" align="left">&nbsp;</td> <td width="8%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td width="2%" align="left">&nbsp;</td></tr> <tr valign="bottom"><td style="text-indent: 15px;" width="49%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Other</font></td> <td style="border-bottom: #000000 1px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="10%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">56</font></td> <td style="border-bottom: #000000 1px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="3%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="10%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">126</font></td> <td style="border-bottom: #000000 1px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="4%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="8%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(250</font></td> <td style="border-bottom: #000000 1px solid;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr valign="bottom"><td width="49%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Income taxes (benefit)</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="10%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(885</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" width="3%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="10%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">1,349</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" width="4%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="8%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">3,236</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="left">&nbsp;</td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <div><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Accounting for uncertainty in income taxes requires uncertain tax positions to be classified as non-current income tax liabilities unless they are expected to be paid within one year. The Company has adopted the accounting guidance for uncertain tax positions and has concluded that there are no uncertain tax positions requiring recognition in its consolidated financial statements as of December 31, 2011 and 2010.</font></div> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company recognizes interest accrued related to unrecognized tax benefits in interest expense. For the years ended December 31, 2011, 2010 and 2009, there was no interest expense relating to unrecognized tax benefits.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company has state net operating loss carry-forwards in the amount of approximately $26,000 as of December 31, 2011. These losses expire through 2017.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company and its subsidiaries file a U.S. federal consolidated income tax return. The U.S. federal statute of limitations remains open for the years 2008 and thereafter. In 2010, the IRS completed its examination of the Company's 2006 and 2007 federal income tax returns. As a result of such examination, the Company received a net refund of approximately $459 from the IRS.</font></p> <p style="text-align: left; margin-top: 0px; margin-bottom: 0px;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">State income tax returns are generally subject to examination for a period of 3 to 5 years after filing the respective return. The impact of any federal changes on state returns remains subject to examination by the relevant states for a period of up to one year after formal notification to the states.</font></p> </div> 2805000 2025000 2325000 3236000 1349000 -885000 -68000 -66000 80000 258000 141000 379000 283000 -213000 -113000 131000 792000 -520000 2000 -46000 -72000 108000 64000 -7000 -268000 -2000 -154000 -171000 896000 924000 19000 45000 103000 -625000 127000 -13000 -147000 91000 123000 498000 -674000 2715000 217000 8605000 -36000 33000 -64000 184000 110000 64000 <div> <p style="text-align: left;"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">NOTE 10: MATERIAL AND SUPPLIES</font></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Material and supplies are carried at average cost. As of December 31, 2011 and 2010, material and supplies consisted of the following:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="80%"> </td> <td width="2%"> </td> <td width="7%"> </td> <td width="5%"> </td> <td width="6%"> </td></tr> <tr valign="bottom"><td width="80%" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" width="9%" colspan="2" align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2011</font></td> <td style="border-bottom: #000000 3px double;" width="11%" colspan="2" align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2010</font></td></tr> <tr valign="bottom"><td width="80%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Inventory for outside plant</font></td> <td width="2%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td width="7%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">322</font></td> <td width="5%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td width="6%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">368</font></td></tr> <tr valign="bottom"><td width="80%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Inventory for central office</font></td> <td width="2%" align="left">&nbsp;</td> <td width="7%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">266</font></td> <td width="5%" align="left">&nbsp;</td> <td width="6%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">295</font></td></tr> <tr valign="bottom"><td width="80%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Inventory for online equipment</font></td> <td width="2%" align="left">&nbsp;</td> <td width="7%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">77</font></td> <td width="5%" align="left">&nbsp;</td> <td width="6%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">79</font></td></tr> <tr valign="bottom"><td width="80%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Inventory for video equipment</font></td> <td width="2%" align="left">&nbsp;</td> <td width="7%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">68</font></td> <td width="5%" align="left">&nbsp;</td> <td width="6%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">72</font></td></tr> <tr valign="bottom"><td width="80%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Inventory of equipment held for sale or lease</font></td> <td width="2%" align="left">&nbsp;</td> <td width="7%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">16</font></td> <td width="5%" align="left">&nbsp;</td> <td width="6%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">24</font></td></tr> <tr valign="bottom"><td width="80%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Inventory for VoIP telephone equipment</font></td> <td style="border-bottom: #000000 2px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" width="7%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">83</font></td> <td style="border-bottom: #000000 2px solid;" width="5%" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" width="6%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">148</font></td></tr> <tr valign="bottom"><td width="80%" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" width="2%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td style="border-bottom: #000000 3px double;" width="7%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">832</font></td> <td style="border-bottom: #000000 3px double;" width="5%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font>&nbsp;</td> <td style="border-bottom: #000000 3px double;" width="6%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">986</font></td></tr></table></div> </div> 986000 832000 7681000 1979000 <div> <p style="text-align: left;"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">NOTE 4: SHORT-TERM INVESTMENTS</font></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The following is a summary of the Company's short-term investments classified as available for sale at December 31, 2011 and December 31, 2010, respectively:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="30%"> </td> <td width="10%"> </td> <td width="14%"> </td> <td width="7%"> </td> <td width="16%"> </td> <td width="3%"> </td> <td width="7%"> </td> <td width="9%"> </td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td rowspan="3" colspan="2" align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Amortized</font><br /><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Cost</font></td> <td rowspan="3" colspan="3" align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Unrealized</font><br /><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Gains</font><br /><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(Losses)</font></td> <td rowspan="3" colspan="2" align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Fair</font><br /><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Value</font></td></tr> <tr valign="bottom"><td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">December 31, 2011</font></b></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Bank certificate of deposit</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">259</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">259</font></td></tr> <tr><td colspan="8">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">December 31, 2010</font></b></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Bank certificate of deposit</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">257</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td align="left">&nbsp;</td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">257</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Corporate bonds</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2,143</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(44</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2,099</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Foreign bonds</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">284</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(4</font></td> <td style="border-bottom: #000000 1px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">280</font></td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2,684</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(48</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2,636</font></td></tr></table></div> </div> 16650000 27638000 53075000 57916000 7016000 15893000 1519000 1139000 1139000 -6279000 -6694000 -3183000 -3450000 -3866000 -10723000 11338000 12173000 7582000 6815000 6815000 2852000 2852000 -2921000 -2921000 6790000 2827000 -2946000 14380000 12872000 7783000 28251000 33097000 37525000 -4329000 -8671000 -11589000 <div> <p style="text-align: left;"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</font></b></p> <p style="text-align: left;"><b><i><font style="font-family: Arial-BoldItalicMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Nature of Operations</font></i></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Warwick Valley Telephone Company (the "Company") is a cloud-based communications company that provides Unified Communications ("UC") solutions and enterprise hosted Voice over Internet Protocol ("VoIP") and operates as a regional Incumbent Local Exchange Carrier ("ILEC") operating in southern Orange County, New York and northern New Jersey. The Company's ILEC operations consist of providing historic local and toll telephone service to residential and business customers, Internet high speed broadband service, satellite video service and DIRECTV. Through its wholly-owned subsidiaries, the Company delivers cloud-based Unified Communications solutions including Voice over Internet Protocol ("VoIP"), hosted Microsoft Communication Services, fixed mobile convergence and advanced voice applications for a broad customer base including enterprise customers, small and medium-sized businesses and other business customers.</font></p> <p style="text-align: left;"><b><i><font style="font-family: Arial-BoldItalicMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Basis of Presentation</font></i></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The accompanying consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in the consolidated financial statements</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company's interest in the Orange County-Poughkeepsie Limited Partnership ("O-P") is accounted for under the equity method of accounting (Note 12).</font></p> <p style="text-align: left;"><b><i><font style="font-family: Arial-BoldItalicMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Use of Estimates</font></i></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. Significant estimates include, but are not limited to, depreciation expense, allowance for doubtful accounts, long-lived assets, derivative liabilities, pension and postretirement expenses and income taxes. Actual results could differ from those estimates.</font></p> <p style="text-align: left;"><b><i><font style="font-family: Arial-BoldItalicMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Revenue Recognition</font></i></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company recognizes revenue when (i) persuasive evidence of an arrangement between the Company and the customer exists, (ii) the delivery of the product to the customer has occurred or service has been provided to the customer, (iii) the price to the customer is fixed or determinable and, (iv) collectability of the sales or service price is assured. Telephone and network access revenues are primarily derived from usage of the Company's network and facilities. Telephone and network access revenues are recognized as the corresponding services are rendered to customers. Long distance revenue is recognized monthly as services are provided. Directory advertising revenue is recorded ratably over the life of the directory. Revenues from online services, which include broadband Internet, video, UC and VoIP are recorded when the services are rendered. Other service and sales revenue is recognized when services are provided or the sales transactions are completed. It is the Company's policy to classify sales taxes collected from its customers as a reduction of revenue. The Company recognizes federal Universal Service Fund ("USF") revenue monthly when the payment is received from the National Exchange Carrier Association, Inc. ("NECA").</font></p> <p style="text-align: left;"><b><i><font style="font-family: Arial-BoldItalicMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Accounting for Asset Retirement and Environmental Obligations</font></i></b></p> <p style="text-align: left;"><i><font style="font-family: Arial-ItalicMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Accounting for Asset Retirement and Environmental Obligations </font></i><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">("ASC Topic 410") addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This standard applies to legal obligations associated with the retirement of long-lived assets that results from the acquisition, construction, development, or normal use for the assets. ASC Topic 410 requires that a liability for an asset retirement obligation be recognized when incurred and reasonably estimable, recorded at fair value, and classified as a liability in the balance sheet. When the liability is initially recorded, the entity capitalizes the cost and increases the carrying value of the related long-lived asset. The liability is then accreted to its present value each period and the capitalized cost is depreciated over the estimated useful life of the related asset. At the settlement date, the Company will settle the obligation for its recorded amount and recognize a gain or loss upon settlement. The Company has concluded that it does not have an asset retirement and environmental obligation as defined by ASC Topic 410 at December 31, 2011 and 2010.</font></p> <p style="text-align: left;"><b><i><font style="font-family: Arial-BoldItalicMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Allowance for Uncollectible Accounts</font></i></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company maintains an allowance for uncollectible accounts for estimated losses resulting from the inability of customers to make payments. Such an allowance is based upon historical trends of accounts receivable write offs, net of subsequent cash recoveries of previously written-off balances. Uncollectible accounts are charged against the allowance for doubtful accounts and subsequent cash recoveries of previously written-off bad debts are credited to the account.</font></p> <div><b><i><font style="font-family: Arial-BoldItalicMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Advertising and Promotional Costs</font></i></b></div> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Advertising and promotional costs are expensed as incurred. Advertising and promotional expenses were $1,060, $471 and $235 for 2011, 2010 and 2009, respectively.</font></p> <p style="text-align: left;"><b><i><font style="font-family: Arial-BoldItalicMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Income Taxes</font></i></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company records deferred taxes that arise from temporary differences between the financial statement and the tax basis of assets and liabilities. Deferred taxes are classified as current or non-current, depending on the classification of the assets and liabilities to which they relate. Deferred tax assets and deferred tax liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment. The Company's deferred taxes result principally from differences in the timing of depreciation and in the accounting for pensions and other postretirement benefits. The Company has recorded a valuation allowance against its deferred tax assets which are not expected to be realized.</font></p> <p style="text-align: left;"><b><i><font style="font-family: Arial-BoldItalicMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Property, Plant and Equipment</font></i></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company records property, plant and equipment at cost or fair market value for our acquired properties. Construction costs, labor and applicable overhead costs related to installations, and interest during construction are capitalized. Costs of maintenance and repairs of property, plant and equipment are charged to operating expense. The estimated useful life of support equipment (vehicles, computers, etc.) ranges from 3 to 19 years. The estimated useful lives of communication and network equipment range from 10 to 15 years. The estimated useful lives of Internet equipment range from 3 to 5 years. The estimated useful lives of buildings and other support equipment range from 14 to 50 years. Depreciation expense is computed using the straight line method.</font></p> <p style="text-align: left;"><b><i><font style="font-family: Arial-BoldItalicMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Cash and Cash Equivalents</font></i></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company considers all highly liquid instruments with an initial maturity from the date of purchase of three months or less to be cash equivalents. Cash equivalents consist primarily of money market mutual funds. The Company places its cash in a limited number of financial institutions. The balances are insured by the Federal Deposit Insurance Corporation up to $250. At times the deposits in banks may exceed the amount of insurance provided on such deposits. The Company monitors the financial health of those banking institutions. Historically, the Company has not experienced any losses on deposits.</font></p> <p style="text-align: left;"><b><i><font style="font-family: Arial-BoldItalicMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Fair Value of Financial Instruments</font></i></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">As of December 31, 2011 and 2010, the Company's financial instruments consisted of cash, cash equivalents, short-term investments, accounts receivable, accounts payable, short-term debt and derivative liability. The Company believes that the carrying values of cash, cash equivalents, short-term investments, accounts receivable and accounts payable at December 31, 2011 and 2010 approximated fair value due to their short term maturity. Based on the borrowing rates currently available to the Company for loans of similar terms, the Company has determined that the carrying value of its short-term debt (including current maturities) approximates fair value. The Company has determined that the fair value of the derivative liabilities based on binomial models.</font></p> <p style="text-align: left;"><b><i><font style="font-family: Arial-BoldItalicMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Derivative Instrument</font></i></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">In connection with the issuance of 272,479 shares of the Company's common stock to the members of Alteva, LLC, the members of Alteva, LLC entered into a Lock-Up and Put Agreement with the Company effective October 21, 2011. Under the Lock-Up and Put Agreement, each member of Alteva, LLC may transfer to any of the permitted transferees up to 50% of their shares between October 21, 2012 and December 14, 2012. The members of Alteva, LLC may sell their remaining shares without restriction beginning on December 15, 2012. In addition, the Lock-Up and Put Agreement gives each member of Alteva, LLC the option to sell their shares to the Company within a certain prescribed time period at a predetermined price (the "Alteva Put"). The Alteva, LLC members may exercise their Alteva Put with respect to half of their shares within a 60-day period commencing on October 21, 2012 and the other half within a 60-day period commencing on December 15, 2012. The purchase price of the Alteva Put will be the greater of (i) the closing price of the Company's common stock on the date of exercise of the Alteva Put or (ii) $11.74. The Lock-Up and Put Agreement also includes a purchase price protection for the Alteva, LLC selling shareholders. The purchase price protection provides that if the price of the Company's common stock for the 30 trading days immediately prior to October 21, 2012 or December 15, 2012 (but excluding the three trading days prior to and after the record date for any cash dividend declared by the Company) (the "Release Date Price") is less than $11.74, then the Company will issue to the Alteva, LLC members the aggregate number of shares of the Company's common stock equal to the difference between $1,600 and the market value of 50% of the aggregate shares on October 21, 2012 or December 15, 2012, or 100% of the aggregate shares if the Release Date Price is less than $11.74 on both dates. The Alteva Put and purchase price protection provisions are considered a derivative instrument. The Company measures the derivative at fair value and recognizes the price protection derivative value as a current liability and recorded the Alteva Put option derivative value with the puttable common stock liability as the two financial instruments are not required to be accounted for separately under US GAAP. The price protection derivative instrument is valued primarily using models based on readily observable market parameters for all substantial terms of these derivatives and thus are classified as Level 3. Changes in the fair values of the derivative are recognized in earnings in the current period.</font></p> <div><b><i><font style="font-family: Arial-BoldItalicMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Intangible Assets</font></i></b></div> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Intangible assets that have finite useful lives are amortized by the straight-line method over their useful lives ranging from 3 to 15 years. Intangible assets are considered impaired if the fair value of the intangible asset is less than its net book value.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Impairment testing for goodwill is performed annually in the fourth fiscal quarter or more frequently if indications of potential impairment exist. The impairment test for goodwill uses a two-step approach, which is performed at the reporting unit level. We have determined that our operating segments are the applicable reporting units because they are the lowest level at which discrete, reliable financial and cash flow information is regularly reviewed by our chief operating decision maker. Step one compares the fair value of the reporting unit (calculated using a market approach and/or a discounted cash flow method) to its carrying value. If the carrying value exceeds the fair value, there is a potential impairment and step two must be performed. Step two compares the carrying value of the reporting unit's goodwill to its implied fair value (i.e., fair value of reporting unit less the fair value of the unit's assets and liabilities, including identifiable intangible assets). If the implied fair value of goodwill is less than the carrying amount of goodwill, an impairment is recognized.</font></p> <p style="text-align: left;"><b><i><font style="font-family: Arial-BoldItalicMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Impairment of Long-Lived Assets</font></i></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company reviews business conditions to determine the recoverability of the carrying value of its long-lived assets and goodwill related to equity investments on a periodic basis in order to identify business conditions that may indicate a possible impairment. The assessment for potential impairment is based primarily on the Company's ability to recover the carrying value of its long-lived assets from expected future undiscounted cash flows. If total expected future undiscounted cash flows are less than the carrying value of the assets, a loss is recognized for the difference between the fair value (computed based upon the expected market value or future discounted cash flows) and the carrying value of the assets. The Company periodically performs evaluations of the recoverability of the carrying value of its long-lived assets using gross undiscounted cash flow projections. The cash flow projections include long-term forecasts of revenue growth, gross margins and capital expenditures. All of these items require significant judgment and assumptions. The Company believes its estimates are reasonable, based on information available at the time they were made (see Note 11). However, if the estimates of future cash flows are different, the Company may conclude that some of its long-lived assets were not recoverable, which would likely cause the Company to record a material impairment charge. Also, if future cash flows are significantly lower than projections, the Company may determine at some future date that all or a portion of its long-lived assets are not recoverable.</font></p> <p style="text-align: left;"><b><i><font style="font-family: Arial-BoldItalicMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Pension and Postretirement Obligations</font></i></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company follows ASC Topic 715, </font><i><font style="font-family: Arial-ItalicMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans</font></i><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">. This guidance requires the recognition of the funded status of a benefit plan, measured as the difference between plan assets at fair value and the benefit obligation, in its balance sheet. For a pension plan, the benefit obligation is the projected benefit obligation; for any other postretirement benefit plan, such as a retiree health care plan, the benefit obligation is the accumulated postretirement benefit obligation. The Company is also required to recognize as a component of accumulated other comprehensive loss changes to the balances of the unrecognized prior service cost and the unrecognized actuarial loss, net of income taxes that arise during the period. The Company is also required to measure defined benefit plan assets and obligations as of the date of the Company's year-end. ASC 715 requires additional disclosures about investment policies and strategies, categories of plan assets, fair value measurements of plan assets and significant concentrations of risk.</font></p> <p style="text-align: left;"><b><i><font style="font-family: Arial-BoldItalicMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Comprehensive Income (Loss)</font></i></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company reports comprehensive income (loss) on the Consolidated Statements of Shareholders' Equity and accumulated other comprehensive loss on the Consolidated Balance Sheets. Additional information regarding comprehensive income (loss) is contained in Note 8.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Changes to the balances of the unrecognized prior service cost and the unrecognized net actuarial loss, net of income taxes, associated with the Company's pension and postretirement benefit plans and unrealized losses associated with short-term investments are recorded as a component of other comprehensive loss. Additional information regarding accounting policies associated with benefit plans is contained in Note 15.</font></p> <p style="text-align: left;"><b><i><font style="font-family: Arial-BoldItalicMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Stock-Based Compensation</font></i></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company has adopted the fair value recognition provisions of ASC Topic 718 </font><i><font style="font-family: Arial-ItalicMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Stock Compensation Share Based Payments</font></i><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">, which requires that companies measure and recognize compensation expense at an amount equal to the fair value of share-based payments granted under compensation arrangements. The Company provides compensation benefits by issuing restricted stock and stock options. The Company recorded $960, $341 and $128 in 2011, 2010 and 2009, respectively, as stock based compensation.</font></p> <p style="text-align: left;"><b><i><font style="font-family: Arial-BoldItalicMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Reclassifications</font></i></b></p> <p style="text-align: left; margin-top: 0px; margin-bottom: 0px;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Certain items in the 2010 property, plant and equipment footnote (see Note 11) have been reclassified in order to conform to the 2011 presentation.</font></p> </div> 2262000 3347000 294000 333000 1005000 1005000 197000 261000 -51000 4761000 5225000 5794000 1487000 10250000 16000 63000 484000 1693000 1373000 2397000 254000 3432000 <div> <p style="text-align: left;"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Note 15: PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS</font></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company has two defined benefit pension plans covering all management and non-management employees who are at least 21 years of age, have completed one year of service and have been hired before May 1, 2003 for the non-management plan and March 1, 2005 for the management plan. Benefits are based on years of service and the average of the employee's three highest consecutive years' of base compensation. The Company's policy is to fund the minimum required contribution disregarding any credit balance arising from excess amounts contributed in the past.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company sponsors a postretirement medical benefit plan that covers all employees that retire directly from active service on or after age 55 with at least 10 years of service. The projected unit credit actuarial method was used in determining the cost of future benefits. Assets of the plan are principally invested in fixed income securities and a money market fund. The Company uses an annual measurement date of December 31 for all of its benefit plans.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The components of the pension and postretirement expense (credit) for the years ended December 31 are as follows:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="28%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="11%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="7%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="7%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="6%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="6%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="5%">&nbsp;</td> <td width="3%">&nbsp;</td></tr> <tr valign="bottom"><td width="28%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="39%" colspan="9" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Pension Benefits</font></b></td> <td style="border-bottom: #000000 1px solid;" width="33%" colspan="9" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Postretirement Benefits</font></b></td></tr> <tr valign="bottom"><td width="28%" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" width="17%" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2011</font></b></td> <td style="border-bottom: #000000 2px solid;" width="11%" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2010</font></b></td> <td style="border-bottom: #000000 2px solid;" width="11%" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2009</font></b></td> <td style="border-bottom: #000000 2px solid;" width="11%" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2011</font></b></td> <td style="border-bottom: #000000 2px solid;" width="12%" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2010</font></b></td> <td style="border-bottom: #000000 2px solid;" width="10%" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2009</font></b></td></tr> <tr valign="bottom"><td width="28%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Components of Net Periodic Costs:</font></td> <td width="3%" align="right">&nbsp;</td> <td width="11%" align="left">&nbsp;</td> <td width="3%" align="left">&nbsp;</td> <td width="2%" align="left">&nbsp;</td> <td width="7%" align="left">&nbsp;</td> <td width="2%" align="left">&nbsp;</td> <td width="2%" align="left">&nbsp;</td> <td width="7%" align="left">&nbsp;</td> <td width="2%" align="left">&nbsp;</td> <td width="3%" align="left">&nbsp;</td> <td width="6%" align="left">&nbsp;</td> <td width="2%" align="left">&nbsp;</td> <td width="3%" align="left">&nbsp;</td> <td width="6%" align="left">&nbsp;</td> <td width="3%" align="left">&nbsp;</td> <td width="2%" align="left">&nbsp;</td> <td width="5%" align="left">&nbsp;</td> <td width="3%" align="left">&nbsp;</td></tr> <tr valign="bottom"><td width="28%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Service cost</font></td> <td width="3%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td width="11%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td width="3%" align="right">&nbsp;</td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font>&nbsp;</td> <td width="7%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td width="2%" align="left">&nbsp;</td> <td width="2%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td width="7%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td width="2%" align="left">&nbsp;</td> <td width="3%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td width="6%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">14</font></td> <td width="2%" align="left">&nbsp;</td> <td width="3%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td width="6%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">11</font></td> <td width="3%" align="left">&nbsp;</td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td width="5%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">37</font></td> <td width="3%" align="left">&nbsp;</td></tr> <tr valign="bottom"><td width="28%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Interest cost</font></td> <td width="3%" align="right">&nbsp;</td> <td width="11%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">860</font></td> <td width="3%" align="left">&nbsp;</td> <td width="2%" align="left">&nbsp;</td> <td width="7%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">869</font></td> <td width="2%" align="left">&nbsp;</td> <td width="2%" align="left">&nbsp;</td> <td width="7%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">875</font></td> <td width="2%" align="left">&nbsp;</td> <td width="3%" align="left">&nbsp;</td> <td width="6%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">238</font></td> <td width="2%" align="left">&nbsp;</td> <td width="3%" align="left">&nbsp;</td> <td width="6%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">246</font></td> <td width="3%" align="left">&nbsp;</td> <td width="2%" align="left">&nbsp;</td> <td width="5%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">236</font></td> <td width="3%" align="left">&nbsp;</td></tr> <tr valign="bottom"><td width="28%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Expected return on plan assets</font></td> <td width="3%" align="right">&nbsp;</td> <td width="11%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(913</font></td> <td width="3%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td width="2%" align="left">&nbsp;</td> <td width="7%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(820</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td width="2%" align="left">&nbsp;</td> <td width="7%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(668</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td width="3%" align="left">&nbsp;</td> <td width="6%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(168</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td width="3%" align="left">&nbsp;</td> <td width="6%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(161</font></td> <td width="3%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td width="2%" align="left">&nbsp;</td> <td width="5%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(158</font></td> <td width="3%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr valign="bottom"><td width="28%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Amortization of transition asset</font></td> <td width="3%" align="right">&nbsp;</td> <td width="11%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td width="3%" align="left">&nbsp;</td> <td width="2%" align="left">&nbsp;</td> <td width="7%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td width="2%" align="left">&nbsp;</td> <td width="2%" align="left">&nbsp;</td> <td width="7%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td width="2%" align="left">&nbsp;</td> <td width="3%" align="left">&nbsp;</td> <td width="6%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">28</font></td> <td width="2%" align="left">&nbsp;</td> <td width="3%" align="left">&nbsp;</td> <td width="6%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">28</font></td> <td width="3%" align="left">&nbsp;</td> <td width="2%" align="left">&nbsp;</td> <td width="5%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">28</font></td> <td width="3%" align="left">&nbsp;</td></tr> <tr valign="bottom"><td width="28%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Amortization of prior service cost</font></td> <td width="3%" align="right">&nbsp;</td> <td width="11%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">56</font></td> <td width="3%" align="left">&nbsp;</td> <td width="2%" align="left">&nbsp;</td> <td width="7%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">56</font></td> <td width="2%" align="left">&nbsp;</td> <td width="2%" align="left">&nbsp;</td> <td width="7%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">56</font></td> <td width="2%" align="left">&nbsp;</td> <td width="3%" align="left">&nbsp;</td> <td width="6%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(330</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td width="3%" align="left">&nbsp;</td> <td width="6%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(330</font></td> <td width="3%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td width="2%" align="left">&nbsp;</td> <td width="5%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(330</font></td> <td width="3%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr valign="bottom"><td width="28%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Recognized actuarial (gain) loss</font></td> <td style="border-bottom: #000000 1px solid;" width="3%" align="right">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="11%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">755</font></td> <td style="border-bottom: #000000 1px solid;" width="3%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="7%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">873</font></td> <td style="border-bottom: #000000 1px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="7%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">713</font></td> <td style="border-bottom: #000000 1px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="3%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="6%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">94</font></td> <td style="border-bottom: #000000 1px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="3%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="6%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">94</font></td> <td style="border-bottom: #000000 1px solid;" width="3%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="5%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">101</font></td> <td style="border-bottom: #000000 1px solid;" width="3%" align="left">&nbsp;</td></tr> <tr valign="bottom"><td width="28%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Net periodic loss (gain)</font></td> <td style="border-bottom: #000000 3px double;" width="3%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="11%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">758</font></td> <td style="border-bottom: #000000 3px double;" width="3%" align="right">&nbsp;</td> <td style="border-bottom: #000000 3px double;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="7%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">978</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" width="2%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="7%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">976</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" width="3%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="6%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(124</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" width="3%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="6%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(112</font></td> <td style="border-bottom: #000000 3px double;" width="3%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="5%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(86</font></td> <td style="border-bottom: #000000 3px double;" width="3%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Amounts recognized in other comprehensive loss (income) and net periodic cost (income) before tax for pension and other postretirement plan consisted of the following:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="29%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="8%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="6%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="6%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="6%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="6%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="5%">&nbsp;</td> <td width="2%">&nbsp;</td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" colspan="9" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Pension Benefits</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="9" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Postretirement Benefits</font></b></td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2011</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2010</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2009</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2011</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2010</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2009</font></b></td></tr> <tr><td colspan="19">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Actuarial net (gain) loss:</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2,787</font></td> <td align="left">&nbsp;</td> <td style="text-indent: 3px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(1,244</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(1,621</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">432</font></td> <td align="left">&nbsp;</td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">130</font></td> <td align="left">&nbsp;</td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(186</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Transition obligation (asset)</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(28</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(28</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(28</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Prior service (credit) cost</font></td> <td style="border-bottom: #000000 1px solid;" align="right">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(56</font></td> <td style="border-bottom: #000000 1px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(56</font></td> <td style="border-bottom: #000000 1px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(56</font></td> <td style="border-bottom: #000000 1px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">330</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">330</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">330</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Total recognized in other comprehensive</font><br /><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(income) loss</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2,731</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double; text-indent: 3px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(1,300</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(1,677</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">734</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">432</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">116</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td></tr> <tr><td colspan="19">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Total recognized in net periodic benefit cost</font><br /><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(income) and other comprehensive (income)</font><br /><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">loss</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">3,489</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double; text-indent: 3px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(322</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(701</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">610</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">320</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">30</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <div>&nbsp;</div><br /> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The estimated amounts for the defined benefit pension plans and the postretirement benefit plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost (income) over the next fiscal year are as follows:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="48%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="22%">&nbsp;</td> <td width="4%">&nbsp;</td> <td width="18%">&nbsp;</td> <td width="3%">&nbsp;</td></tr> <tr valign="bottom"><td width="48%" align="left">&nbsp;</td> <td width="24%" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Pension Plans</font></b></td> <td width="25%" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Postretirement</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Benefits</font></b></td></tr> <tr valign="bottom"><td width="48%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Amortization of net actuarial loss</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="22%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">926</font></td> <td style="border-bottom: #000000 3px double;" width="4%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="18%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">128</font></td> <td style="border-bottom: #000000 3px double;" width="3%" align="left">&nbsp;</td></tr> <tr valign="bottom"><td width="48%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Amortization of prior service cost (credit)</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="22%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">56</font></td> <td style="border-bottom: #000000 3px double;" width="4%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="18%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(330</font></td> <td style="border-bottom: #000000 3px double;" width="3%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr valign="bottom"><td width="48%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Amortization of transition obligation</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="22%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td style="border-bottom: #000000 3px double;" width="4%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="18%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">28</font></td> <td style="border-bottom: #000000 3px double;" width="3%" align="left">&nbsp;</td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The following table presents a summary of the projected benefit obligation and plan assets of the plans at December 31:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="34%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="17%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="8%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="8%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="7%">&nbsp;</td> <td width="2%">&nbsp;</td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" colspan="6" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Pension Benefits</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="6" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Postretirement</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Benefits</font></b></td></tr> <tr valign="bottom"><td style="border-bottom: #000000 1px solid;" align="left"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Change in Benefit Obligation</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2011</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2010</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2011</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2010</font></b></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Benefit obligation, beginning of year</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">16,020</font></td> <td align="left">&nbsp;</td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">15,708</font></td> <td align="left">&nbsp;</td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">4,580</font></td> <td align="left">&nbsp;</td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">4,301</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Service cost</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">14</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">11</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Interest cost</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">860</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">869</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">238</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">246</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Plan amendments</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Actuarial losses (income)</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2,602</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">326</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">431</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">142</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Benefit payments</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(926</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(883</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(120</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(120</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Impact of curtailment</font></td> <td style="border-bottom: #000000 1px solid;" align="right">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Benefit obligation, end of year</font></td> <td style="border-bottom: #000000 1px solid;" align="right">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">18,556</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">16,020</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,143</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">4,580</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td></tr> <tr><td colspan="13">&nbsp;</td></tr> <tr><td colspan="13">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Changes in fair value of plan assets</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Fair value of plan assets, beginning of year</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">11,690</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">10,469</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2,096</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2,018</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Actual return on plan</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(28</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">1,518</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">72</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">78</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Employer contributions</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">529</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">586</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">120</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">120</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Benefit payments</font></td> <td style="border-bottom: #000000 2px solid;" align="right">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(926</font></td> <td style="border-bottom: #000000 2px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(883</font></td> <td style="border-bottom: #000000 2px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(120</font></td> <td style="border-bottom: #000000 2px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(120</font></td> <td style="border-bottom: #000000 2px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr><td colspan="13">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Fair value of plan assets, end of year</font></td> <td style="border-bottom: #000000 1px solid;" align="right">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">11,265</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">11,690</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2,168</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2,096</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Unfunded status at end of year</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(7,291</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(4,330</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(2,975</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(2,484</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Amounts recognized in the Consolidated Balance Sheets consisted of the following:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="44%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="14%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="7%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="12%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="6%">&nbsp;</td> <td width="3%">&nbsp;</td></tr> <tr valign="bottom"><td width="44%" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" width="29%" colspan="6" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Pension Benefits</font></b></td> <td style="border-bottom: #000000 2px solid;" width="27%" colspan="6" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Postretirement</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Benefits</font></b></td></tr> <tr valign="bottom"><td width="44%" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" width="18%" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2011</font></b></td> <td style="border-bottom: #000000 2px solid;" width="11%" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2010</font></b></td> <td style="border-bottom: #000000 2px solid;" width="16%" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2011</font></b></td> <td style="border-bottom: #000000 2px solid;" width="11%" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2010</font></b></td></tr> <tr><td width="100%" colspan="13">&nbsp;</td></tr> <tr valign="bottom"><td width="44%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Pension and postretirement benefit obligations-current</font></td> <td width="2%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td width="14%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(502</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td width="7%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(569</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td width="12%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(120</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">&nbsp;$</font></td> <td width="6%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(120</font></td> <td width="3%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr valign="bottom"><td width="44%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Pension and postretirement benefit obligations-long term</font></td> <td style="border-bottom: #000000 2px solid;" width="2%" align="right">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" width="14%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(6,789</font></td> <td style="border-bottom: #000000 2px solid;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 2px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" width="7%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(3,761</font></td> <td style="border-bottom: #000000 2px solid;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 2px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" width="12%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(2,855</font></td> <td style="border-bottom: #000000 2px solid;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></font></td> <td style="border-bottom: #000000 2px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" width="6%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(2,364</font></td> <td style="border-bottom: #000000 2px solid;" width="3%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr valign="bottom"><td width="44%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Total</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="14%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(7,291</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="7%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(4,330</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="12%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(2,975</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="6%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(2,484</font></td> <td style="border-bottom: #000000 3px double;" width="3%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Amounts recognized in the accumulated other comprehensive loss, net of tax, consisted of the following:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="34%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="22%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="7%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="7%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="5%">&nbsp;</td> <td width="2%">&nbsp;</td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" colspan="6" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Pension Benefits</font></b></td> <td style="border-bottom: #000000 2px solid;" colspan="6" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Postretirement</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Benefits</font></b></td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2011</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2010</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2011</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2010</font></b></td></tr> <tr><td colspan="13">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Actuarial net (loss) gain</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(3,967</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(2,177</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(1,557</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(1,279</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Transition obligation / (asset)</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(18</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(37</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Net prior service credit</font></td> <td style="border-bottom: #000000 2px solid;" align="right">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(187</font></td> <td style="border-bottom: #000000 2px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(222</font></td> <td style="border-bottom: #000000 2px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">750</font></td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">962</font></td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Total</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(4,154</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(2,399</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(825</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(354</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <div>&nbsp;</div><br /> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Actuarial assumptions used to calculate the projected benefit obligation were as follows for the years ended December 31:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="28%">&nbsp;</td> <td width="19%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="12%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="16%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="12%">&nbsp;</td> <td width="2%">&nbsp;</td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" colspan="4" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Pension Benefits</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="4" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Postretirement Benefits</font></b></td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2011</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2010</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2011</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2010</font></b></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Discount rate</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">4.25</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">%</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5.50</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">%</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">4.25</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">%</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5.50</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">%</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Expected return on plans</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">8.00</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">%</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">8.00</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">%</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">8.00</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">%</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">8.00</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">%</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Healthcare cost trend</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">6.50 - 8.50%</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">7.00 - 9.00%</font></td> <td align="left">&nbsp;</td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Actuarial assumptions used to calculate net periodic benefit cost were as follows for the years ended December 31:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="34%">&nbsp;</td> <td width="26%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="8%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="12%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="6%">&nbsp;</td> <td width="2%">&nbsp;</td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" rowspan="2" colspan="4" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Pension</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Benefits</font></b></td> <td style="border-bottom: #000000 1px solid; text-indent: 2px;" rowspan="2" colspan="4" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Postretirement</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Benefits</font></b></td></tr> <tr valign="bottom"><td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2011</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2010</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2011</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2010</font></b></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Discount rate</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">4.25</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">%</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5.50</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">%</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">4.25</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">%</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5.50</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">%</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Expected return on assets</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">8.00</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">%</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">8.00</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">%</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">8.00</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">%</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">8.00</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">%</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The rate of return assumption, currently 8%, estimates the portion of plan benefits that will be derived from investment return and the portion that will come directly from Company contributions. Accordingly, the Company, utilizing the investment policy described below, strives to maintain an investment portfolio that generates annual returns from funds invested consistent with achieving the projected long-term rate of return required for plan assets. The investment policy followed by the Pension Plan Manager can be described as an "adaptive" approach that is essentially structured towards achieving a compromise between the static long-term approach and the short-term opportunism of the dynamic or tactical approaches. The objective is to modify asset allocations based on changing economic and financial market conditions so as to capture the major position of excess returns and then shift the priority to risk containment after valuations become stretched.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company's pension plans had an unfunded projected benefit obligation of $7,291 as of December 31, 2011. The projected benefit obligation of $18,556 at December 31, 2011 was in excess of plan assets of $11,265. The Company's postretirement plans had an unfunded projected benefit obligation of $2,975 as of December 31, 2011. The projected benefit obligation of $5,143 at December 31, 2011 was in excess of plan assets of $2,168.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company's pension plans had an unfunded projected benefit obligation of $4,330 as of December 31, 2010. The projected benefit obligation of $16,020 at December 31, 2010 was in excess of plan assets of $11,690. The Company's postretirement plans had an unfunded projected benefit obligation of $2,484 as of December 31, 2010. The projected benefit obligation of $4,580 at December 31, 2010 was in excess of plan assets of $2,096.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The projected benefit obligations exceeded the fair value of plan assets and the Company was required to record an additional pension liability in the Consolidated Balance Sheet as of December 31, 2011. The effect of this adjustment was an increase in the pension liability of $7,751 and an increase in accumulated other comprehensive loss of $4,979, net of tax. The health care cost trend rates (representing the assumed annual percentage increase in claim costs by year) was 6.5% for the pre-65 trend rate and 8.5% for the post-65 trend rate, with each of these grading down to 5.0%, by 0.5% per year. The Company's most recent actuarial calculation anticipates that this trend will continue into 2012. An increase in the assumed health care cost trend rate by 1.0% would increase the accumulated postretirement benefit obligation as of December 31, 2011 by approximately $644 and the aggregate of the service and interest cost components of postretirement expense for the year then ended by approximately $27. A 1.0% decrease in the health care cost trend rate would decrease these components by $540 and $23, respectively.</font></p> <p style="text-align: left;"><b><i><font style="font-family: Arial-BoldItalicMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Plan Assets</font></i></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company diversifies its pension and postretirement plan assets across domestic and international common stock and fixed income asset classes.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">As of December 31, 2011, the current target allocations for pension and postretirement plan assets are 50-60% for equity securities, 40-50% for fixed income securities and 0-5% for cash and certain other investments.</font></p> <div><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The fair values of our pension plan assets at December 31, 2011 by asset category are as follows:</font></div> <div> <table border="0" cellspacing="0"> <tr><td width="34%">&nbsp;</td> <td width="6%">&nbsp;</td> <td width="13%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="12%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="11%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="10%">&nbsp;</td></tr> <tr valign="bottom"><td style="border-bottom: #000000 2px solid;" rowspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Asset</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Category</font></b></td> <td style="border-bottom: #000000 2px solid;" rowspan="3" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Total</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Market</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Value</font></b></td> <td style="border-bottom: #000000 2px solid;" rowspan="3" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Level 1</font></b></td> <td style="border-bottom: #000000 2px solid;" rowspan="3" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Level 2</font></b></td> <td style="border-bottom: #000000 2px solid;" rowspan="3" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Level 3</font></b></td></tr> <tr><td colspan="9">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Equity securities (a)</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,826</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,826</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="text-indent: 9px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="text-indent: 9px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Fixed income securities (b)</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">4,605</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">4,605</font></td> <td align="left">&nbsp;</td> <td style="text-indent: 9px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td align="left">&nbsp;</td> <td style="text-indent: 9px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Cash and cash equivalents (c)</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">834</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">834</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid; text-indent: 9px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid; text-indent: 9px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Total pension assets</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">11,265</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">11,265</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double; text-indent: 9px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double; text-indent: 9px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The fair values of our postretirement plan assets at December 31, 2011 by asset category are as follows:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="37%">&nbsp;</td> <td width="9%">&nbsp;</td> <td width="7%">&nbsp;</td> <td width="4%">&nbsp;</td> <td width="12%">&nbsp;</td> <td width="4%">&nbsp;</td> <td width="12%">&nbsp;</td> <td width="4%">&nbsp;</td> <td width="11%">&nbsp;</td></tr> <tr valign="bottom"><td style="border-bottom: #000000 2px solid;" rowspan="3" width="37%" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Asset</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Category</font></b></td> <td style="border-bottom: #000000 2px solid;" rowspan="3" width="16%" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Total</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Market</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Value</font></b></td> <td style="border-bottom: #000000 2px solid;" rowspan="3" width="16%" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Level 1</font></b></td> <td style="border-bottom: #000000 2px solid;" rowspan="3" width="16%" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Level 2</font></b></td> <td style="border-bottom: #000000 2px solid;" rowspan="3" width="15%" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Level 3</font></b></td></tr> <tr><td width="100%" colspan="9">&nbsp;</td></tr> <tr valign="bottom"><td width="37%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Fixed income securities (b)</font></td> <td width="9%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td width="7%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">1,706</font></td> <td width="4%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td width="12%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">1,706</font></td> <td width="4%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="text-indent: 9px;" width="12%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td width="4%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="text-indent: 9px;" width="11%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td></tr> <tr valign="bottom"><td width="37%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Cash and cash equivalents (c)</font></td> <td style="border-bottom: #000000 1px solid;" width="9%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="7%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">461</font></td> <td style="border-bottom: #000000 1px solid;" width="4%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="12%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">461</font></td> <td style="border-bottom: #000000 1px solid;" width="4%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid; text-indent: 9px;" width="12%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td style="border-bottom: #000000 1px solid;" width="4%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid; text-indent: 9px;" width="11%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td></tr> <tr valign="bottom"><td width="37%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Total pension assets</font></td> <td style="border-bottom: #000000 3px double;" width="9%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="7%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2,167</font></td> <td style="border-bottom: #000000 3px double;" width="4%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="12%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2,167</font></td> <td style="border-bottom: #000000 3px double;" width="4%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double; text-indent: 9px;" width="12%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td style="border-bottom: #000000 3px double;" width="4%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double; text-indent: 9px;" width="11%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">(a) This category includes funds invested in equity securities of large, medium and small-sized companies and equity securities of international markets. The funds are valued using the market value for the underlying investments.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">(b) This category includes funds invested in fixed income instruments. The funds are valued using the market value for the underlying investments.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">(c) This category comprises cash held to pay beneficiaries. The fair value equals its book value.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The fair values of our pension plan assets at December 31, 2010 by asset category are as follows:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="33%">&nbsp;</td> <td width="4%">&nbsp;</td> <td width="15%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="14%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="10%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="9%">&nbsp;</td></tr> <tr valign="bottom"><td style="border-bottom: #000000 1px solid;" rowspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Asset</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Category</font></b></td> <td style="border-bottom: #000000 1px solid;" rowspan="3" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Total</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Market</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Value</font></b></td> <td style="border-bottom: #000000 1px solid;" rowspan="3" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Level 1</font></b></td> <td style="border-bottom: #000000 1px solid;" rowspan="3" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Level 2</font></b></td> <td style="border-bottom: #000000 1px solid;" rowspan="3" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Level 3</font></b></td></tr> <tr><td colspan="9">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Equity securities (a)</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">6,125</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">6,125</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">-</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">-</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Fixed income securities (b)</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">5,073</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">5,073</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">-</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">-</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Cash and cash equivalents (c)</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">492</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">492</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">-</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">-</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Total pension assets</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">11,690</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">11,690</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">-</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">-</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The fair values of our postretirement plan assets at December 31, 2010 by asset category are as follows:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="33%">&nbsp;</td> <td width="6%">&nbsp;</td> <td width="17%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="11%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="11%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="9%">&nbsp;</td></tr> <tr valign="bottom"><td style="border-bottom: #000000 1px solid;" rowspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Asset</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Category</font></b></td> <td style="border-bottom: #000000 1px solid;" rowspan="3" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Total</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Market</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Value</font></b></td> <td style="border-bottom: #000000 1px solid;" rowspan="3" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Level 1</font></b></td> <td style="border-bottom: #000000 1px solid;" rowspan="3" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Level 2</font></b></td> <td style="border-bottom: #000000 1px solid;" rowspan="3" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Level 3</font></b></td></tr> <tr><td colspan="9">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Fixed income securities (b)</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">1,635</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">1,635</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">-</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">-</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Cash and cash equivalents (c)</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">461</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">461</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">-</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">-</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Total pension assets</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2,096</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2,096</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">-</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">-</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">This category includes funds invested in equity securities of large, medium and small-sized companies and equity securities of international markets. The funds are valued using the market value for the underlying investments.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">(a) This category includes funds invested in fixed income instruments. The funds are valued using the market value for the underlying investments.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">(b) This category includes funds invested in fixed income instruments. The funds are valued using the market value for the underlying investments.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">(c) This category comprises cash held to pay beneficiaries. The fair value equals its book value.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">In accordance with its contribution policy, in 2012 the Company expects to contribute $622 to its pension plan.</font></p> <div><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Benefit payments, under the provisions of the plans, are expected to be paid as follows:</font></div> <div> <table border="0" cellspacing="0"> <tr><td width="55%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="15%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="20%">&nbsp;</td></tr> <tr valign="bottom"><td width="55%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" rowspan="2" width="18%" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Pension</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Benefits</font></b></td> <td style="border-bottom: #000000 1px solid;" rowspan="2" width="23%" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Postretirement</font></b><br /><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Benefits</font></b></td></tr> <tr valign="bottom"><td width="55%" align="left">&nbsp;</td></tr> <tr valign="bottom"><td width="55%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2012</font></td> <td width="3%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td width="15%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">986</font></td> <td width="3%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td width="20%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">258</font></td></tr> <tr valign="bottom"><td width="55%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2013</font></td> <td width="3%" align="left">&nbsp;</td> <td width="15%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">979</font></td> <td width="3%" align="left">&nbsp;</td> <td width="20%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">270</font></td></tr> <tr valign="bottom"><td width="55%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2014</font></td> <td width="3%" align="left">&nbsp;</td> <td width="15%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">991</font></td> <td width="3%" align="left">&nbsp;</td> <td width="20%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">287</font></td></tr> <tr valign="bottom"><td width="55%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2015</font></td> <td width="3%" align="left">&nbsp;</td> <td width="15%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">1,010</font></td> <td width="3%" align="left">&nbsp;</td> <td width="20%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">279</font></td></tr> <tr valign="bottom"><td width="55%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2016</font></td> <td width="3%" align="left">&nbsp;</td> <td width="15%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">1,048</font></td> <td width="3%" align="left">&nbsp;</td> <td width="20%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">266</font></td></tr> <tr valign="bottom"><td width="55%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">2017-2021</font></td> <td width="3%" align="left">&nbsp;</td> <td width="15%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">5,970</font></td> <td width="3%" align="left">&nbsp;</td> <td width="20%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">1,528</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company also has a Defined Contribution 401(k) Profit Sharing Plan covering substantially all employees. Under the plan, employees may contribute up to 100% of compensation not to exceed certain legal limitations. The Company matches 100% of the participant's contributions, up to 4.5% of salary. The Company contributed and expensed $289, $586 and $246 for the years ended December 31, 2011, 2010 and 2009, respectively.</font></p> <p style="text-align: left; margin-top: 0px; margin-bottom: 0px;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company has deferred compensation agreements in place with certain former officers that became effective upon retirement. These non-qualified plans are not currently funded and a liability representing the present value of future payments has been established, with balances of $270 and $269 as of December 31, 2011 and 2010, respectively.</font></p> </div> 529000 622000 6554000 9915000 25000 25000 25000 5 5 5 100 0.01 100 0.01 5000 10000000 5000 10000000 5000 5000 10000000 10000000 500000 500000 538000 731000 2715000 -321000 1002000 2408000 9000000 50000 <div> <p style="text-align: left;"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">NOTE 11: PROPERTY, PLANT AND EQUIPMENT</font></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Property, plant and equipment, at cost, consisted of the following as of December 31:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="53%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="33%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="7%">&nbsp;</td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2011</font></b></td> <td style="border-bottom: #000000 2px solid;" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2010</font></b></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Land, buildings and other support equipment</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">10,908</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">9,677</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Network communications equipment</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">36,187</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">35,131</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Telephone plant</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">30,571</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">29,847</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Online plant</font></td> <td style="border-bottom: #000000 2px solid;" align="right">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">6,885</font></td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">7,113</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Plant in service</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">84,551</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">81,768</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Plant under construction</font></td> <td style="border-bottom: #000000 1px solid;" align="right">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">297</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">108</font></td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">84,848</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">81,876</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Less: Accumulated depreciation</font></td> <td style="border-bottom: #000000 2px solid;" align="right">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">59,423</font></td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">54,618</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Property, plant and equipment, net</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">25,425</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">27,258</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Depreciation expense is principally based on the composite group method. Depreciation expense for the years ended December 31, 2011, 2010, and 2009 was $4,760, $5,703 and $5,419, respectively.</font></p> <p style="text-align: left; margin-top: 0px; margin-bottom: 0px;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company reviews the recoverability of our long-lived assets, including buildings, equipment, internal-use software and other intangible assets, when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on the Company's ability to recover the carrying value of the asset from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. The primary measure of fair value is based on discounted cash flows, which are considered to be a Level 3 input. For the year ended December 31, 2010, the Company determined that its landline video assets, consisting of head-end equipment, related network equipment and customer premise equipment, were impaired. The Company recorded an asset impairment charge of $2,283, which represents 100% of the carrying net value of the landline video assets. This impairment charge resulted from customers who migrated to DIRECTV under the Company's reseller agreement with DIRECTV or to a competitor, resulting in lost landline video revenue.</font></p> </div> 27258000 25425000 107000 -5000 409000 <div> <p style="text-align: left;"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">NOTE 19: QUARTERLY INFORMATION (UNAUDITED)</font></b></p> <div> <table border="0" cellspacing="0"> <tr><td width="31%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="10%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="10%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="6%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="3%">&nbsp;</td> <td width="6%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="2%">&nbsp;</td> <td width="7%">&nbsp;</td> <td width="2%">&nbsp;</td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" colspan="15" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Calendar Year Quarters</font></b></td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">First</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Second</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Third</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Fourth</font></b></td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Total</font></b></td></tr> <tr><td colspan="16">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Year ended December 31, 2011</font></b></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Revenue</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">6,178</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,811</font></td> <td align="left">&nbsp;</td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">6,829</font></td> <td align="left">&nbsp;</td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">7,118</font></td> <td align="left">&nbsp;</td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">25,936</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Operating loss</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(1,951</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(2,577</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(3,443</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(3,618</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(11,589</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Net income (loss) (1)</font></td> <td style="border-bottom: #000000 1px solid;" align="right">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">872</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(240</font></td> <td style="border-bottom: #000000 1px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(1,689</font></td> <td style="border-bottom: #000000 1px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(1,864</font></td> <td style="border-bottom: #000000 1px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(2,921</font></td> <td style="border-bottom: #000000 1px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr><td colspan="16">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Basic earnings (loss) per common share</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">0.16</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(0.05</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(0.31</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(0.34</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(0.54</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Diluted earnings (loss) per common share (3)</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">0.16</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(0.05</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(0.31</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(0.34</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(0.54</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr><td colspan="16">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Weighted average shares of common stock</font><br /><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">used to calculate earnings per share:</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr><td colspan="16">&nbsp;</td></tr> <tr valign="bottom"><td style="text-indent: 7px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Basic</font></td> <td style="border-bottom: #000000 3px double;" align="right">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,389,842</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,406,894</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" colspan="2" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,424,927</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" colspan="2" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,435,849</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,413,330</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td></tr> <tr valign="bottom"><td style="text-indent: 7px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Diluted</font></td> <td style="border-bottom: #000000 3px double;" align="right">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,416,020</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,406,894</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" colspan="2" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,424,927</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" colspan="2" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,435,849</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,413,330</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td></tr> <tr><td colspan="16">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Year ended December 31, 2010</font></b></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Revenue</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">6,059</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,888</font></td> <td align="left">&nbsp;</td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">6,250</font></td> <td align="left">&nbsp;</td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">6,229</font></td> <td align="left">&nbsp;</td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">24,426</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Operating loss</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(1,464</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(1,578</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(1,626</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(4,003</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(8,671</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Net income (loss) (2)</font></td> <td style="border-bottom: #000000 1px solid;" align="right">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">945</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">876</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">1,266</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(235</font></td> <td style="border-bottom: #000000 1px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2,852</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td></tr> <tr><td colspan="16">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Basic Basic earnings per share</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">0.18</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">0.16</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">0.24</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(0.05</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">0.53</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Diluted earnings per common share</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">0.17</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">0.16</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">0.23</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(0.05</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">0.52</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td></tr> <tr><td colspan="16">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Weighted average shares of common stock</font><br /><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">used to calculate earnings per share:</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td style="text-indent: 7px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Basic</font></td> <td style="border-bottom: #000000 3px double;" align="right">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,358,366</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,360,611</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" colspan="2" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,362,433</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" colspan="2" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,369,749</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,363,543</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td></tr> <tr valign="bottom"><td style="text-indent: 7px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Diluted</font></td> <td style="border-bottom: #000000 3px double;" align="right">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,378,114</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,398,727</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" colspan="2" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,407,192</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" colspan="2" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,369,749</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,407,994</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left; margin-top: 0px; margin-bottom: 0px;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(1) Included in net loss in the fourth quarter of 2011 is an accrual with respect to a dispute with a another carrier of $900. </font></p> <p style="text-align: left; margin-top: 0px; margin-bottom: 0px;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(2) Included in net loss in the fourth quarter of 2010 is a loss on impairment on fixed assets of $2,283.</font></p> <p style="text-align: left; margin-top: 0px; margin-bottom: 0px;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(3) As a result of the net loss, there is no difference between basic and diluted earnings (loss) per share.</font></p> </div> 1518000 1519000 4919000 671000 39356000 30641000 23922000 24426000 25936000 <div> <div> <table border="0" cellspacing="0"> <tr valign="bottom"><td colspan="6" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">WARWICK VALLEY TELEPHONE COMPANY</font></b></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td colspan="8" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">SCHEDULE II &#8212; VALUATION AND QUALIFYING ACCOUNTS</font></b></td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td colspan="6" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Years Ended December 31, 2011, 2010 and 2009</font></b></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr><td colspan="13">&nbsp;</td></tr> <tr><td colspan="13">&nbsp;</td></tr> <tr valign="bottom"><td style="border-bottom: #000000 1px solid; text-indent: 7px;" align="left"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Column A</font></b></td> <td style="border-bottom: #000000 1px solid;" align="right">&nbsp;</td> <td style="border-bottom: #000000 1px solid; text-indent: 16px;" align="left"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Column B</font></b></td> <td style="border-bottom: #000000 3px double;" align="right">&nbsp;</td> <td style="border-bottom: #000000 3px double;" colspan="4" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Column C</font></b></td> <td style="border-bottom: #000000 3px double;" align="right">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="left"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Column D</font></b></td> <td align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Column E</font></b></td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right">&nbsp;</td> <td style="border-bottom: #000000 3px double;" colspan="4" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Additions</font></b></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr><td colspan="13">&nbsp;</td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Charged</font></b></td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Charged</font></b></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td style="border-bottom: #000000 1px solid; text-indent: 7px;" align="left"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Description</font></b></td> <td align="right">&nbsp;</td> <td align="right"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Balance at</font></b></td> <td align="right">&nbsp;</td> <td style="text-indent: 4px;" align="left"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">to</font></b></td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td style="text-indent: 4px;" align="left"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">to</font></b></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Balance</font></b></td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Beginning</font></b></td> <td align="right">&nbsp;</td> <td align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Costs and</font></b></td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Other</font></b></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">At end of</font></b></td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">of Period</font></b></td> <td style="border-bottom: #000000 3px double;" align="right">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Expenses</font></b></td> <td align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="right">&nbsp;</td> <td style="border-bottom: #000000 3px double;" colspan="3" align="left"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Accounts </font></b><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">(b) </font></b><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Deductions</font></b></td> <td align="left"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">(c)</font></b></td> <td style="border-bottom: #000000 3px double;" align="right">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Period</font></b></td></tr> <tr><td colspan="13">&nbsp;</td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td colspan="3" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">($ in thousands)</font></b></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Allowance for Uncollectible:</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Year 2011</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">350</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">534</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(a)</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">44</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">169</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">759</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Year 2010</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">355</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">341</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(a)</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">24</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">370</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">350</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Year 2009</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">248</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">330</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(a)</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">24</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">247</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">355</font></td></tr> <tr valign="bottom"><td colspan="3" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Valuation allowance on deferred tax assets:</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Year 2011</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">125</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">568</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(d)</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">0</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">0</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">693</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Year 2010</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">0</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">125</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(d)</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">0</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">0</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">125</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Year 2009</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">0</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">0</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(d)</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">0</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">0</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$</font></td> <td align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">0</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <table border="0" cellspacing="0"> <tr><td valign="top" width="2%" nowrap="nowrap"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">(a)</font>&nbsp; &nbsp; &nbsp; </td> <td width="98%"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Provision for uncollectible as included in consolidated statements of operations.</font> </td></tr> <tr><td valign="top" width="2%" nowrap="nowrap"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">(b)</font>&nbsp; &nbsp; &nbsp; </td> <td width="98%"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Amounts previously written off which were credited directly to this account when recovered.</font> </td></tr></table> </div> <div> <p style="text-align: left;"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">NOTE 9: SEGMENT INFORMATION</font></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company's segments are strategic business units that offer different products and services and are managed as Telephone and Online services. The Company evaluates the performance of the segments based upon factors such as revenue growth, expense containment, market share and operating results.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Telephone segment provides telecommunications services including local, network access, wholesale, conferencing, long distance services, wireless and directory services. The Online segment provides high speed and dial-up Internet services, VoIP, UC Services, DIRECTV and video. The Company's Alteva and USA Datanet businesses are part of the Online segment.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The segment results presented below are not necessarily indicative of the results of operations these segments would have achieved had they operated as stand-alone entities during the periods presented.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Segment income statement information for the years ended December 31:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="47%"> </td> <td width="2%"> </td> <td width="19%"> </td> <td width="2%"> </td> <td width="3%"> </td> <td width="8%"> </td> <td width="2%"> </td> <td width="3%"> </td> <td width="7%"> </td> <td width="2%"> </td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2011</font></td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2010</font></td> <td style="border-bottom: #000000 1px solid;" colspan="3" align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2009</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Segment operating revenues</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td style="text-indent: 5px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Telephone</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">16,523</font></td> <td align="left">&nbsp;</td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">17,141</font></td> <td align="left">&nbsp;</td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">17,026</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td style="text-indent: 5px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Online</font></td> <td style="border-bottom: #000000 1px solid;" align="right">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">9,413</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">7,285</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">6,896</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Total segment operating revenues</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">25,936</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">24,426</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">23,922</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td></tr> <tr><td colspan="10">&nbsp;</td></tr> <tr><td colspan="10">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Depreciation and amortization</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td style="text-indent: 5px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Telephone</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">3,810</font></td> <td align="left">&nbsp;</td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">4,086</font></td> <td align="left">&nbsp;</td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">4,119</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td style="text-indent: 5px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Online</font></td> <td style="border-bottom: #000000 1px solid;" align="right">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">1,456</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">1,694</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">1,349</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Total depreciation and amortization</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,266</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,780</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">5,468</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td></tr> <tr><td colspan="10">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Operating loss</font></td> <td align="right">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td style="text-indent: 5px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Telephone</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(11,109</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(6,275</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(4,176</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr valign="bottom"><td style="text-indent: 5px;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Online</font></td> <td style="border-bottom: #000000 1px solid;" align="right">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(480</font></td> <td style="border-bottom: #000000 1px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(113</font></td> <td style="border-bottom: #000000 1px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 1px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(153</font></td> <td style="border-bottom: #000000 1px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Total segment operating loss, exclusive of impairment loss</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(11,589</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(6,388</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(4,329</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">The following table reconciles segment operating loss to income before income taxes for the years ended December 31, 2011, 2010 and 2009;</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="38%"> </td> <td width="2%"> </td> <td width="28%"> </td> <td width="2%"> </td> <td width="3%"> </td> <td width="8%"> </td> <td width="2%"> </td> <td width="3%"> </td> <td width="7%"> </td> <td width="2%"> </td></tr> <tr valign="bottom"><td align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" colspan="3" align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2011</font></td> <td style="border-bottom: #000000 2px solid;" colspan="3" align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2010</font></td> <td style="border-bottom: #000000 2px solid;" colspan="3" align="center"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2009</font></td></tr> <tr><td colspan="10">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Segment operating loss</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(11,589</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(6,388</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(4,329</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Impairment loss on video assets</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(2,283</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Interest income, (expense), net</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(64</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">33</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(36</font></td> <td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Income from equity investments</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">7,898</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">12,578</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">12,470</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Bargain purchase gain</font></td> <td align="right">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">-</font></td> <td align="left">&nbsp;</td> <td align="left">&nbsp;</td> <td align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">1,749</font></td> <td align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Other (expenses) income, net</font></td> <td style="border-bottom: #000000 2px solid;" align="right">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(51</font></td> <td style="border-bottom: #000000 2px solid;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">261</font></td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td> <td style="border-bottom: #000000 2px solid;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">197</font></td> <td style="border-bottom: #000000 2px solid;" align="left">&nbsp;</td></tr> <tr valign="bottom"><td align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Income before income taxes</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">(3,806</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">)</font></td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">4,201</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td> <td style="border-bottom: #000000 3px double;" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">10,051</font></td> <td style="border-bottom: #000000 3px double;" align="left">&nbsp;</td></tr></table></div> <p style="margin: 0px;">&nbsp;</p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Certain regulatory revenue which includes USF and NECA pool settlements, has accounted for $2,812 or 11%, $3,902 or 16% and</font></p> <div><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">$3,352 or 14% of the Company's revenues for the years ended December 31, 2011, 2010 and 2009, respectively. Accounts receivable for certain regulatory revenue represents 7% and 18% of consolidated accounts receivable at December 31, 2011 and 2010, respectively.</font></div> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Segment balance sheet information as of December 31:</font></p> <div> <table border="0" cellspacing="0"> <tr><td width="65%"> </td> <td width="2%"> </td> <td width="16%"> </td> <td width="2%"> </td> <td width="13%"> </td></tr> <tr valign="bottom"><td width="65%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="18%" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2011</font></b></td> <td style="border-bottom: #000000 1px solid;" width="15%" colspan="2" align="center"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">2010</font></b></td></tr> <tr valign="bottom"><td width="65%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Assets</font></td> <td width="2%" align="left">&nbsp;</td> <td width="16%" align="left">&nbsp;</td> <td width="2%" align="left">&nbsp;</td> <td width="13%" align="left">&nbsp;</td></tr> <tr valign="bottom"><td width="65%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Telephone</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="text-indent: 2px;" width="16%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">35,630</font></td> <td width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td width="13%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">49,524</font></td></tr> <tr valign="bottom"><td width="65%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Online</font></td> <td style="border-bottom: #000000 1px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid; text-indent: 2px;" width="16%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">22,286</font></td> <td style="border-bottom: #000000 1px solid;" width="2%" align="left">&nbsp;</td> <td style="border-bottom: #000000 1px solid;" width="13%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">3,551</font></td></tr> <tr valign="bottom"><td width="65%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">Total assets</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double; text-indent: 2px;" width="16%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">57,916</font></td> <td style="border-bottom: #000000 3px double;" width="2%" align="left"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">$</font></td> <td style="border-bottom: #000000 3px double;" width="13%" align="right"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="1">53,075</font></td></tr></table></div> </div> 12039000 13056000 17558000 128000 341000 960000 6004463 5000 633683 6013421 5000 633683 6054741 5000 635189 6217839 5000 735391 5600000 2636000 259000 34718000 -4291000 3522000 60000 500000 39675000 -4748000 37905000 -3286000 3650000 60000 500000 41729000 -4748000 36425000 -2784000 4063000 60000 500000 39356000 -4770000 26153000 -4979000 6191000 62000 500000 30641000 -6262000 <div> <p style="text-align: left;"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">NOTE 17: SHAREHOLDERS' EQUITY AND PUTTABLE COMMON STOCK</font></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company has 10,000,000 authorized shares of common stock at a par value of $0.01; 5,000 authorized Preferred Shares at a par value of $100; and 10,000,000 authorized shares of preferred stock at a par value of $0.01.</font></p> <p style="text-align: left; margin-top: 0px; margin-bottom: 0px;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company issued 272,479 shares of the Company's common stock with a put option pursuant to the Lock-Up and Put Agreement entered into on October 21, 2011 and in connection with the Asset Purchase Agreement. The members of Alteva, LLC have the option to put the 272,479 shares back to the Company on October 21, 2012 and December 15, 2012. The puttable common stock in connection with the Company's purchase of substantially all of the assets and certain liabilities of Alteva, LLC was issued with redemption features that are not solely within the control of the Company and is classified outside of permanent equity (often referred to as classification in "temporary equity"). The Company fair valued the puttable common stock at the date of acquisition in the amount of $4,125.</font></p> </div> 8958 34654 59779 6666 103319 1000 1000 72000 72000 1138000 1137000 1000 <div> <p style="text-align: left;"><b><font style="font-family: Arial-BoldMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">NOTE 20: SUBSEQUENT EVENTS</font></b></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">The Company has evaluated subsequent events occurring after the balance sheet date. Based on this evaluation, the Company has determined that no subsequent events, except for the matters discussed below, have occurred which require disclosure in the consolidated financial statements.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">On January 11, 2012, the Company received notice from the NYPSC approving the Company's petition for the Amended and Restated Warwick Valley Telephone Company 2008 Long-Term Incentive Plan. On January 18, 2012, NJBPU approved the Company's petition for Approval of the Amended and Restated Warwick Valley Telephone Company 2008 Long-Term Incentive Plan.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">On January 24, 2012, the Company filed and completed a name change for two of its subsidiaries. Warwick Valley Mobile Inc. changed its name to USA Datanet Inc. and Warwick Valley Networks Inc. changed its name to Alteva Inc.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">Effective February 1, 2012, the Company revised the Employment Agreement with its executive Vice President and Chief Operating Officer, increasing his annual salary to $315 per year.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">On February 21, 2012, the Company's Board of Directors declared a regular quarterly dividend of $0.27 per share of the Company's common stock and $1.25 per share of the Company's preferred stock. The dividends are payable on March 27, 2012 to the shareholders of record on March 15, 2012.</font></p> <p style="text-align: left;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">In January 2012, the Company awarded 14,608 shares of restricted stock to directors of the Company under the Company's Amended and Restated LTIP. In February 2012, the Company awarded 31,673 shares of restricted stock and 81,504 stock options to its employees under the Company's Amended and Restated LTIP.</font></p> <p style="text-align: left; margin-top: 0px; margin-bottom: 0px;"><font style="font-family: ArialMT,Arial,Helvetica,sans-serif;" class="_mt" size="2">On March 9, 2012, the Company entered into a non-binding term sheet to resolve a dispute with another carrier for $900 and management does not expect the final executed settlement agreement to be materially different than the non-binding term sheet.</font></p> </div> 4125000 0.01 0.01 0 272479 0 272479 635189 735391 1506 100202 4770000 6262000 22000 22000 1492000 1492000 21000 45000 5384506 5407994 5413144 5353763 5363543 5413144 2377000 472000 -15000 502000 502000 -2195000 -2195000 131000 -0.54 -0.54 7568000 478000 1171000 186 186 EX-101.SCH 17 wwvy-20111231.xsd XBRL TAXONOMY EXTENSION SCHEMA 00100 - Statement - Consolidated Statements Of Operations link:presentationLink link:calculationLink link:definitionLink 00200 - Statement - Consoldidated Balance Sheet link:presentationLink link:calculationLink link:definitionLink 00300 - Statement - Consolidated Statements Of Cash Flows link:presentationLink link:calculationLink link:definitionLink 00400 - Statement - Consolidated Statements Of Shareholders' Equity link:presentationLink link:calculationLink link:definitionLink 00090 - Document - Document And Entity Information link:presentationLink link:calculationLink link:definitionLink 00205 - Statement - Consoldidated Balance Sheet (Parenthetical) link:presentationLink link:calculationLink link:definitionLink 00405 - Statement - Consolidated Statements Of Shareholders' Equity (Parenthetical) link:presentationLink link:calculationLink link:definitionLink 10101 - Disclosure - Nature Of Operations And Summary Of Significant Accounting Policies link:presentationLink link:calculationLink link:definitionLink 10201 - Disclosure - Business Acquisition link:presentationLink link:calculationLink link:definitionLink 10301 - Disclosure - New Accounting Pronouncements link:presentationLink link:calculationLink link:definitionLink 10401 - Disclosure - Short-Term Investments link:presentationLink link:calculationLink link:definitionLink 10501 - Disclosure - Fair Value link:presentationLink link:calculationLink link:definitionLink 10601 - Disclosure - Goodwill And Intangible Assets link:presentationLink link:calculationLink link:definitionLink 10701 - Disclosure - Earnings (Loss) Per Share link:presentationLink link:calculationLink link:definitionLink 10801 - Disclosure - Other Comprehensive Income (Loss) link:presentationLink link:calculationLink link:definitionLink 10901 - Disclosure - Segment Information link:presentationLink link:calculationLink link:definitionLink 11001 - Disclosure - Materials And Supplies link:presentationLink link:calculationLink link:definitionLink 11101 - Disclosure - Property, Plant And Equipment link:presentationLink link:calculationLink link:definitionLink 11201 - Disclosure - Orange County-Poughkeepsie Limited Partnership link:presentationLink link:calculationLink link:definitionLink 11301 - Disclosure - Debt Obligations link:presentationLink link:calculationLink link:definitionLink 11401 - Disclosure - Income Taxes link:presentationLink link:calculationLink link:definitionLink 11501 - Disclosure - Pension Plans And Other Postretirement Benefits link:presentationLink link:calculationLink link:definitionLink 11601 - Disclosure - Stock Based Compensation link:presentationLink link:calculationLink link:definitionLink 11701 - Disclosure - Shareholders' Equity And Puttable Common Stock link:presentationLink link:calculationLink link:definitionLink 11801 - Disclosure - Commitments And Contingenices link:presentationLink link:calculationLink link:definitionLink 11901 - Disclosure - Quarterly Information link:presentationLink link:calculationLink link:definitionLink 12001 - Disclosure - Subsequent Events link:presentationLink link:calculationLink link:definitionLink 12101 - Disclosure - Schedule II - Valuation And Qualifying Accounts link:presentationLink link:calculationLink link:definitionLink EX-101.CAL 18 wwvy-20111231_cal.xml XBRL TAXONOMY EXTENSION CALCULATION LINKBASE EX-101.DEF 19 wwvy-20111231_def.xml XBRL TAXONOMY EXTENSION DEFINITION LINKBASE EX-101.LAB 20 wwvy-20111231_lab.xml XBRL TAXONOMY EXTENSION LABEL LINKBASE EX-101.PRE 21 wwvy-20111231_pre.xml XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE XML 22 report.css IDEA: XBRL DOCUMENT /* Updated 2009-11-04 */ /* v2.2.0.24 */ /* DefRef Styles */ ..report table.authRefData{ background-color: #def; 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Commitments And Contingenices
 12 Months Ended
Dec. 31, 2011
Commitments And Contingenices [Abstract]  
Commitments And Contingenices

NOTE 18: COMMITMENTS AND CONTINGENCIES

In connection with the Alteva Agreement, the Company has entered into two-year employment agreement with its Executive Vice President and Chief Operating Officer, its Executive Vice President and Chief Sales Officer, and its Executive Vice President and Chief Network Officer. Their annual salaries per the agreements are $285, $180, and $180, respectively. The Company entered into a two-year employment agreement with its Executive Vice President, Chief Financial Officer and Treasurer on May 9, 2011 effective May 5th, 2011 and a three-year employment agreement with its President and Chief Executive Officer on December 14, 2011 effective April 11, 2012. Their annual salaries per the agreement are $200 and $375, respectively. The Company entered into two-year employment agreements with its Executive Vice President and Chief Administrator Officer on August 11, 2011 and Executive Vice President and Chief Technology Officer on August 8, 2011 and both were effective August 5, 2011. Their annual salaries per the agreement are $180, respectively.

The Company currently has an operating lease to rent space on a tower to transmit video content from its headend facility. The Company also leases vehicles for operations as well as office space in Vernon, New Jersey, Syracuse, New York and Philadelphia, Pennsylvania. In addition, the Company has entered into certain long-term agreements to access trunk lines from other carriers to transmit voice, video and data. Total expenses associated with these agreements were $2,342, $2,259 and $2,114 in 2011, 2010 and 2009, respectively.

The future aggregate lease commitments as of December 31, 2011 is as follows:

     
2012 $ 573
2013   137
2014   36
2015 and thereafter   2
Total $ 748

 

From time to time the Company is involved in litigation relating to legal claims arising in the normal course of business. These claims are generally covered by insurance. The Company is not currently subject to any litigation which, singularly or in the aggregate, could reasonably be expected to have a material adverse effect on the Company's financial position, results of operations or cash flows.
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Business Acquisition
 12 Months Ended
Dec. 31, 2011
Business Acquisition [Abstract]  
Business Acquisition

NOTE 2: BUSINESS ACQUISITION

On August 5, 2011, Warwick Valley Networks, Inc. ("WVN"), which has since changed its name to Alteva Inc., a wholly-owned subsidiary of the Company, purchased substantially all of the assets and assumed certain of the liabilities (including certain of its contracts, debt owed under specified capital leases and certain accounts payable) of Alteva, LLC, a cloud-based Unified Communications solutions provider and enterprise hosted VoIP provider, in exchange for cash and stock valued at $17,818 pursuant to the terms of the asset purchase agreement between the Company and Alteva, LLC (the "Alteva Agreement"). The issuance of the Company's common stock contemplated under the Alteva Agreement was subject to regulatory approval by the New York State Public Service Commission ("NYPSC") and the New Jersey Board of Public Utilities ("NJBPU"), both of which approved the transaction in October 2011. The assets acquired included Alteva, LLC's VoIP line of business, which provides communication services for commercial customers and unified communication lines of business. This acquisition extends the Company's VoIP services to New Jersey, Pennsylvania and various other states and continues the Company's corporate strategy to expand its business beyond its regulated franchise area.

The results of Alteva, LLC's operations have been included in the Company's consolidated financial statements since August 5, 2011.

The Company utilized cash, issued stock and incurred certain liabilities to acquire certain assets and assumed certain liabilities of Alteva, LLC as follows:

Cash (1) $ 10,250
Issued puttable common stock (2)   4,125
Contingent consideration payable (3)   1,929
Hold-back payable (4)   750
Working capital adjustment payable (5)   648
Price protection (6)   116
Total consideration $ 17,818

 

1)      $5,000 of this amount was borrowed from CoBank, ACB (see Note 13).
2)      The Company issued 272,479 shares of the Company's common stock with an embedded put option. The members of Alteva, LLC have the option to put the 272,479 shares back to the Company on October 21, 2012 and December 15, 2012.
3)      Up to a total of $2,000 in cash is payable to Alteva, LLC on August 5, 2012 and 2013 (or prior to January 1, 2013 depending on certain tax law changes), if certain performance-based conditions are satisfied. The contingent consideration was adjusted to reflect its fair value on August 5, 2011.
4)      This hold-back amount, withheld at closing, is payable to Alteva, LLC on August 5, 2012, less any amounts offset against such amount pursuant to the terms of the Alteva Agreement.
5)      Working capital adjustment is payable to Alteva, LLC pursuant to the terms of the Alteva Agreement. As of December 31, 2011, the Company had repaid $478 to Alteva, LLC leaving a balance due of $170.
6)      The purchase price protection provides that if the price of the Company's common stock for the 30 trading days immediately prior to October 21, 2012 or December 15, 2012 (but excluding the three trading days prior to and after the record date for any cash dividend declared by the Company) (the "Release Date Price") is less than $11.74, then the Company will issue to the Alteva, LLC members the aggregate number of shares of the Company's common stock equal to the difference between $1,600 and the market value of 50% of the aggregate Alteva Shares on October 21, 2012 or December 15, 2012, or 100% of the aggregate Alteva Shares if the Release Date Price is less than $11.74 on both dates. The Company recorded the valuation of the price protection derivative liability using a binomial method based on significant inputs not observed in the market and thus will represent a Level 3 instrument. Level 3 instruments are valued based on unobservable inputs that are supported by little or no market activity and reflect the Company's own assumptions in measuring fair value.
 

The total purchase price has been allocated as follows:

Accounts receivable, net $ 788  
Prepaid expenses   70  
Property, plant and equipment   530  
Seat licenses   570  
Trade name   2,400  
Customer relationships   5,400  
Goodwill   9,121  
Total assets acquired   18,879  
 
Accounts payable   (162 )
Accrued expenses   (132 )
Customer deposits   (67 )
Capital leases payable   (671 )
Deferred revenue   (29 )
Total liabilities assumed   (1,061 )
 
Total transaction value $ 17,818  

 

The purchase price was allocated to the assets acquired and liabilities assumed based on their fair values on the acquisition date. The excess of the purchase consideration over the fair value of the net assets acquired has been allocated to goodwill. The Company engaged a third-party valuation group to assist them in the valuation of the assets acquired, liabilities assumed and the Lock-Up and Put Agreement.

The Company entered into a Lock-Up and Put Agreement, effective October 21, 2011, with the members of Alteva, LLC pursuant to which each of the members agreed to certain restrictions on their ability to sell shares of the Company's common stock issued in connection with the Alteva Agreement (the "Alteva Shares"). Under the Lock-Up and Put Agreement, each member of Alteva, LLC may transfer to any of the permitted transferees up to 50% of their Alteva Shares between October 21, 2012 and December 14, 2012. The members of Alteva, LLC may sell their remaining Alteva Shares without restriction beginning on December 15, 2012. In addition, the Lock-Up and Put Agreement gives each member of Alteva, LLC the option to sell their Alteva Shares to the Company within a certain prescribed time period at a predetermined price (the "Alteva Put"). The Alteva, LLC members may exercise the Alteva Put with respect to half of their Alteva Shares within a 60-day period commencing on October 21, 2012 and the other half within a 60-day period commencing on December 15, 2012. The purchase price of the Alteva Put will be the greater of (i) the closing price of the Company's common stock on the date of exercise of the Alteva Put or (ii) $11.74. The Lock-Up and Put Agreement also includes a purchase price protection for the Alteva, LLC selling shareholders. The purchase price protection provides that if the price of the Company's common stock for the 30 trading days immediately prior to October 21, 2012 or December 15, 2012 (but excluding the three trading days prior to and after the record date for any cash dividend declared by the Company) (the "Release Date Price") is less than $11.74, then the Company will issue to the Alteva, LLC members the aggregate number of shares of the Company's common stock equal to the difference between $1,600 and the market value of 50% of the aggregate Alteva Shares on October 21, 2012 or December 15, 2012, or 100% of the aggregate Alteva Shares if the Release Date Price is less than $11.74 on both dates.

The customer relationships intangible asset has a weighted-average useful life of eight years and the trade name intangible asset has an estimated useful life of 15 years. In addition, the Company recorded goodwill in the amount of $9,121. For tax purposes goodwill will be amortized over 15 years.

The Company incurred $835 of acquisition-related costs as general and administrative expenses in the Consolidated Statements of Operations. The revenue from the Alteva business included in the Company's statement of operations for the five months (since August 2011) ended December 31, 2011 was $3,111 and the net loss before income taxes was $712.

On April 24, 2009, Warwick Valley Mobile Telephone Company ("WVMT"), a wholly-owned subsidiary of the Company, purchased certain assets of USA Datanet under the terms of an Asset Purchase Agreement entered into in April 2009. The assets acquired included its VoIP line of business, which provides communication services for commercial customer's conferencing and wholesale lines of business. This asset purchase extended the Company's VoIP services to upstate New York and various other states, and expanded the scope of the Company's product offerings to include conferencing and wholesale. This transaction was a step in the execution of the Company's corporate strategy to expand the Company's business beyond its regulated franchise area.

Under the terms of the Asset Purchase Agreement, the Company purchased certain assets from USA Datanet for $1,487 in cash. Additionally, included in selling, general and administrative expenses are $214 of expenses relating to the acquisition in 2009. The seller, USA Datanet, was in bankruptcy under Chapter 11, and its assets were sold under a court approved sale. The acquisition has been accounted as a business combination. The values of the acquired assets have been calculated by independent appraisers as of the acquisition date. These appraisals were completed in the fourth quarter of 2009.

The fair values of the tangible assets acquired were determined using the cost and market approaches. The fair value measurements of the tangible assets were primarily based on significant inputs that are not observable in the market and thus represent a Level 3 measurement as defined in the accounting standard regarding fair value measurements. The cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent economic utility, was used for inventory and, property, plant and equipment. The cost to replace a given asset reflects the estimated reproduction or replacement cost for the property, less an allowance for loss in value due to depreciation. After values were determined using the cost approach, they were tested for reasonableness using the market approach.

The fair values of intangible assets were based on the cost approach and the income approach. Level 3 inputs were used for both approaches.

The following table summarizes the consideration and the fair values of the assets acquired on April 24, 2009:

Consideration    
Cash $ 1,487
 
Recognized fair value amounts of identifiable assets acquired    
Inventory $ 98
Internet communications equipment and furniture and fixtures   3,017
Intangible assets   121
  $ 3,236
 
Bargain purchase gain $ 1,749

 

As of the acquisition date, the Company recorded a deferred tax liability in the amount of $676, relating to the difference in basis between financial statements and income tax of the assets acquired. This resulted in a net of tax bargain purchase gain of $1,073.

The revenue and earnings (loss) before bargain purchase gain from the acquired assets since April 24, 2009 are included in the Company's consolidated income statement for the year ended December 31, 2009 and were $1,964 and ($927), respectively.

The following unaudited pro forma condensed consolidated results of operations for the Company for December 31, 2011, 2010 and 2009, respectively, assume that the purchase of certain assets and the assumption of certain liabilities of Alteva, LLC and USA Datanet occurred on January 1, 2011, 2010 and 2009. They also assume that the asset Purchase of USA Datanet occurred on January 1, 2009. The unaudited pro forma information presents the combined operating results of the acquired Alteva, LLC business and the Company, with the results prior to the date of the acquisitions adjusted for amortization of intangibles and depreciation of fixed assets, based on the purchase price allocation, interest expense on borrowings and the elimination of acquisition related costs.

The unaudited pro forma results shown in the table below do not purport to be indicative of the results that would have been obtained had the Alteva, LLC Agreement and the USA Datanet Asset Purchase Agreement been entered into as of January 1, 2011, 2010 and 2009, nor does the unaudited pro forma data intend to be a projection of results that may be obtained in the future.
  (unaudited)
  December 31,
  2011 2010 2009
 
Operating revenues $ 29,997   $ 30,374 $ 28,282
 
Net Income (loss) $ (3,697 ) $ 1,960 $ 4,479
 
Basic earnings (loss) per share $ (0.65 ) $ 0.35 $ 1.05
Dilluted earnings (loss) per share $ (0.65 ) $ 0.35 $ 1.04
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Schedule II - Valuation And Qualifying Accounts
 12 Months Ended
Dec. 31, 2011
Schedule II - Valuation And Qualifying Accounts [Abstract]  
Schedule II - Valuation And Qualifying Accounts
WARWICK VALLEY TELEPHONE COMPANY          
    SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS      
    Years Ended December 31, 2011, 2010 and 2009          
 
 
Column A   Column B   Column C   Column D     Column E
        Additions          
 
        Charged     Charged          
Description   Balance at   to     to         Balance
    Beginning   Costs and     Other         At end of
    of Period   Expenses     Accounts (b) Deductions (c)   Period
 
          ($ in thousands)          
Allowance for Uncollectible:                        
Year 2011 $ 350 $ 534 (a) $ 44 $ 169   $ 759
Year 2010 $ 355 $ 341 (a) $ 24 $ 370   $ 350
Year 2009 $ 248 $ 330 (a) $ 24 $ 247   $ 355
Valuation allowance on deferred tax assets:                    
Year 2011 $ 125 $ 568 (d) $ 0 $ 0   $ 693
Year 2010 $ 0 $ 125 (d) $ 0 $ 0   $ 125
Year 2009 $ 0 $ 0 (d) $ 0 $ 0   $ 0

 

(a)      Provision for uncollectible as included in consolidated statements of operations.
(b)      Amounts previously written off which were credited directly to this account when recovered.

XML 27 R8.htm IDEA: XBRL DOCUMENT v2.4.0.6
Nature Of Operations And Summary Of Significant Accounting Policies
 12 Months Ended
Dec. 31, 2011
Nature Of Operations And Summary Of Significant Accounting Policies [Abstract]  
Nature Of Operations And Summary Of Significant Accounting Policies

NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Warwick Valley Telephone Company (the "Company") is a cloud-based communications company that provides Unified Communications ("UC") solutions and enterprise hosted Voice over Internet Protocol ("VoIP") and operates as a regional Incumbent Local Exchange Carrier ("ILEC") operating in southern Orange County, New York and northern New Jersey. The Company's ILEC operations consist of providing historic local and toll telephone service to residential and business customers, Internet high speed broadband service, satellite video service and DIRECTV. Through its wholly-owned subsidiaries, the Company delivers cloud-based Unified Communications solutions including Voice over Internet Protocol ("VoIP"), hosted Microsoft Communication Services, fixed mobile convergence and advanced voice applications for a broad customer base including enterprise customers, small and medium-sized businesses and other business customers.

Basis of Presentation

The accompanying consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in the consolidated financial statements

The Company's interest in the Orange County-Poughkeepsie Limited Partnership ("O-P") is accounted for under the equity method of accounting (Note 12).

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. Significant estimates include, but are not limited to, depreciation expense, allowance for doubtful accounts, long-lived assets, derivative liabilities, pension and postretirement expenses and income taxes. Actual results could differ from those estimates.

Revenue Recognition

The Company recognizes revenue when (i) persuasive evidence of an arrangement between the Company and the customer exists, (ii) the delivery of the product to the customer has occurred or service has been provided to the customer, (iii) the price to the customer is fixed or determinable and, (iv) collectability of the sales or service price is assured. Telephone and network access revenues are primarily derived from usage of the Company's network and facilities. Telephone and network access revenues are recognized as the corresponding services are rendered to customers. Long distance revenue is recognized monthly as services are provided. Directory advertising revenue is recorded ratably over the life of the directory. Revenues from online services, which include broadband Internet, video, UC and VoIP are recorded when the services are rendered. Other service and sales revenue is recognized when services are provided or the sales transactions are completed. It is the Company's policy to classify sales taxes collected from its customers as a reduction of revenue. The Company recognizes federal Universal Service Fund ("USF") revenue monthly when the payment is received from the National Exchange Carrier Association, Inc. ("NECA").

Accounting for Asset Retirement and Environmental Obligations

Accounting for Asset Retirement and Environmental Obligations ("ASC Topic 410") addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This standard applies to legal obligations associated with the retirement of long-lived assets that results from the acquisition, construction, development, or normal use for the assets. ASC Topic 410 requires that a liability for an asset retirement obligation be recognized when incurred and reasonably estimable, recorded at fair value, and classified as a liability in the balance sheet. When the liability is initially recorded, the entity capitalizes the cost and increases the carrying value of the related long-lived asset. The liability is then accreted to its present value each period and the capitalized cost is depreciated over the estimated useful life of the related asset. At the settlement date, the Company will settle the obligation for its recorded amount and recognize a gain or loss upon settlement. The Company has concluded that it does not have an asset retirement and environmental obligation as defined by ASC Topic 410 at December 31, 2011 and 2010.

Allowance for Uncollectible Accounts

The Company maintains an allowance for uncollectible accounts for estimated losses resulting from the inability of customers to make payments. Such an allowance is based upon historical trends of accounts receivable write offs, net of subsequent cash recoveries of previously written-off balances. Uncollectible accounts are charged against the allowance for doubtful accounts and subsequent cash recoveries of previously written-off bad debts are credited to the account.

Advertising and Promotional Costs

Advertising and promotional costs are expensed as incurred. Advertising and promotional expenses were $1,060, $471 and $235 for 2011, 2010 and 2009, respectively.

Income Taxes

The Company records deferred taxes that arise from temporary differences between the financial statement and the tax basis of assets and liabilities. Deferred taxes are classified as current or non-current, depending on the classification of the assets and liabilities to which they relate. Deferred tax assets and deferred tax liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment. The Company's deferred taxes result principally from differences in the timing of depreciation and in the accounting for pensions and other postretirement benefits. The Company has recorded a valuation allowance against its deferred tax assets which are not expected to be realized.

Property, Plant and Equipment

The Company records property, plant and equipment at cost or fair market value for our acquired properties. Construction costs, labor and applicable overhead costs related to installations, and interest during construction are capitalized. Costs of maintenance and repairs of property, plant and equipment are charged to operating expense. The estimated useful life of support equipment (vehicles, computers, etc.) ranges from 3 to 19 years. The estimated useful lives of communication and network equipment range from 10 to 15 years. The estimated useful lives of Internet equipment range from 3 to 5 years. The estimated useful lives of buildings and other support equipment range from 14 to 50 years. Depreciation expense is computed using the straight line method.

Cash and Cash Equivalents

The Company considers all highly liquid instruments with an initial maturity from the date of purchase of three months or less to be cash equivalents. Cash equivalents consist primarily of money market mutual funds. The Company places its cash in a limited number of financial institutions. The balances are insured by the Federal Deposit Insurance Corporation up to $250. At times the deposits in banks may exceed the amount of insurance provided on such deposits. The Company monitors the financial health of those banking institutions. Historically, the Company has not experienced any losses on deposits.

Fair Value of Financial Instruments

As of December 31, 2011 and 2010, the Company's financial instruments consisted of cash, cash equivalents, short-term investments, accounts receivable, accounts payable, short-term debt and derivative liability. The Company believes that the carrying values of cash, cash equivalents, short-term investments, accounts receivable and accounts payable at December 31, 2011 and 2010 approximated fair value due to their short term maturity. Based on the borrowing rates currently available to the Company for loans of similar terms, the Company has determined that the carrying value of its short-term debt (including current maturities) approximates fair value. The Company has determined that the fair value of the derivative liabilities based on binomial models.

Derivative Instrument

In connection with the issuance of 272,479 shares of the Company's common stock to the members of Alteva, LLC, the members of Alteva, LLC entered into a Lock-Up and Put Agreement with the Company effective October 21, 2011. Under the Lock-Up and Put Agreement, each member of Alteva, LLC may transfer to any of the permitted transferees up to 50% of their shares between October 21, 2012 and December 14, 2012. The members of Alteva, LLC may sell their remaining shares without restriction beginning on December 15, 2012. In addition, the Lock-Up and Put Agreement gives each member of Alteva, LLC the option to sell their shares to the Company within a certain prescribed time period at a predetermined price (the "Alteva Put"). The Alteva, LLC members may exercise their Alteva Put with respect to half of their shares within a 60-day period commencing on October 21, 2012 and the other half within a 60-day period commencing on December 15, 2012. The purchase price of the Alteva Put will be the greater of (i) the closing price of the Company's common stock on the date of exercise of the Alteva Put or (ii) $11.74. The Lock-Up and Put Agreement also includes a purchase price protection for the Alteva, LLC selling shareholders. The purchase price protection provides that if the price of the Company's common stock for the 30 trading days immediately prior to October 21, 2012 or December 15, 2012 (but excluding the three trading days prior to and after the record date for any cash dividend declared by the Company) (the "Release Date Price") is less than $11.74, then the Company will issue to the Alteva, LLC members the aggregate number of shares of the Company's common stock equal to the difference between $1,600 and the market value of 50% of the aggregate shares on October 21, 2012 or December 15, 2012, or 100% of the aggregate shares if the Release Date Price is less than $11.74 on both dates. The Alteva Put and purchase price protection provisions are considered a derivative instrument. The Company measures the derivative at fair value and recognizes the price protection derivative value as a current liability and recorded the Alteva Put option derivative value with the puttable common stock liability as the two financial instruments are not required to be accounted for separately under US GAAP. The price protection derivative instrument is valued primarily using models based on readily observable market parameters for all substantial terms of these derivatives and thus are classified as Level 3. Changes in the fair values of the derivative are recognized in earnings in the current period.

Intangible Assets

Intangible assets that have finite useful lives are amortized by the straight-line method over their useful lives ranging from 3 to 15 years. Intangible assets are considered impaired if the fair value of the intangible asset is less than its net book value.

Impairment testing for goodwill is performed annually in the fourth fiscal quarter or more frequently if indications of potential impairment exist. The impairment test for goodwill uses a two-step approach, which is performed at the reporting unit level. We have determined that our operating segments are the applicable reporting units because they are the lowest level at which discrete, reliable financial and cash flow information is regularly reviewed by our chief operating decision maker. Step one compares the fair value of the reporting unit (calculated using a market approach and/or a discounted cash flow method) to its carrying value. If the carrying value exceeds the fair value, there is a potential impairment and step two must be performed. Step two compares the carrying value of the reporting unit's goodwill to its implied fair value (i.e., fair value of reporting unit less the fair value of the unit's assets and liabilities, including identifiable intangible assets). If the implied fair value of goodwill is less than the carrying amount of goodwill, an impairment is recognized.

Impairment of Long-Lived Assets

The Company reviews business conditions to determine the recoverability of the carrying value of its long-lived assets and goodwill related to equity investments on a periodic basis in order to identify business conditions that may indicate a possible impairment. The assessment for potential impairment is based primarily on the Company's ability to recover the carrying value of its long-lived assets from expected future undiscounted cash flows. If total expected future undiscounted cash flows are less than the carrying value of the assets, a loss is recognized for the difference between the fair value (computed based upon the expected market value or future discounted cash flows) and the carrying value of the assets. The Company periodically performs evaluations of the recoverability of the carrying value of its long-lived assets using gross undiscounted cash flow projections. The cash flow projections include long-term forecasts of revenue growth, gross margins and capital expenditures. All of these items require significant judgment and assumptions. The Company believes its estimates are reasonable, based on information available at the time they were made (see Note 11). However, if the estimates of future cash flows are different, the Company may conclude that some of its long-lived assets were not recoverable, which would likely cause the Company to record a material impairment charge. Also, if future cash flows are significantly lower than projections, the Company may determine at some future date that all or a portion of its long-lived assets are not recoverable.

Pension and Postretirement Obligations

The Company follows ASC Topic 715, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans. This guidance requires the recognition of the funded status of a benefit plan, measured as the difference between plan assets at fair value and the benefit obligation, in its balance sheet. For a pension plan, the benefit obligation is the projected benefit obligation; for any other postretirement benefit plan, such as a retiree health care plan, the benefit obligation is the accumulated postretirement benefit obligation. The Company is also required to recognize as a component of accumulated other comprehensive loss changes to the balances of the unrecognized prior service cost and the unrecognized actuarial loss, net of income taxes that arise during the period. The Company is also required to measure defined benefit plan assets and obligations as of the date of the Company's year-end. ASC 715 requires additional disclosures about investment policies and strategies, categories of plan assets, fair value measurements of plan assets and significant concentrations of risk.

Comprehensive Income (Loss)

The Company reports comprehensive income (loss) on the Consolidated Statements of Shareholders' Equity and accumulated other comprehensive loss on the Consolidated Balance Sheets. Additional information regarding comprehensive income (loss) is contained in Note 8.

Changes to the balances of the unrecognized prior service cost and the unrecognized net actuarial loss, net of income taxes, associated with the Company's pension and postretirement benefit plans and unrealized losses associated with short-term investments are recorded as a component of other comprehensive loss. Additional information regarding accounting policies associated with benefit plans is contained in Note 15.

Stock-Based Compensation

The Company has adopted the fair value recognition provisions of ASC Topic 718 Stock Compensation Share Based Payments, which requires that companies measure and recognize compensation expense at an amount equal to the fair value of share-based payments granted under compensation arrangements. The Company provides compensation benefits by issuing restricted stock and stock options. The Company recorded $960, $341 and $128 in 2011, 2010 and 2009, respectively, as stock based compensation.

Reclassifications

Certain items in the 2010 property, plant and equipment footnote (see Note 11) have been reclassified in order to conform to the 2011 presentation.
XML 28 R2.htm IDEA: XBRL DOCUMENT v2.4.0.6
Consolidated Statements Of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
 12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Consolidated Statements Of Operations [Abstract]      
Operating revenues $ 25,936 $ 24,426 $ 23,922
Operating expenses:      
Cost of services and products (exclusive of depreciation and amortization expense) 14,701 11,978 10,744
Selling, general and administrative expenses 17,558 13,056 12,039
Depreciation and amortization 5,266 5,780 5,468
Loss on impairment of fixed assets   2,283  
Total operating expenses 37,525 33,097 28,251
Operating loss (11,589) (8,671) (4,329)
Other income (expense):      
Interest income (expense), net of capitalized interest (64) 33 (36)
Income from equity method investment 7,898 12,578 12,470
Bargain purchase gain on acquisition     1,749
Other income (expense), net (51) 261 197
Total other income, net 7,783 12,872 14,380
Income (loss) before income taxes (3,806) 4,201 10,051
Income taxes (benefit) (885) 1,349 3,236
Net income (loss) (2,921) 2,852 6,815
Preferred dividends 25 25 25
Net income (loss) applicable to common stock $ (2,946) $ 2,827 $ 6,790
Basic earnings (loss) per common share $ (0.54) $ 0.53 $ 1.27
Basic earnings (loss) per puttable common share $ (0.54)    
Diluted earnings (loss) per common share $ (0.54) $ 0.52 $ 1.26
Diluted earnings (loss) per puttable common share $ (0.54)    
Weighted average shares of common stock used to calculate earnings (loss) per share      
Basic (common) 5,413,144 5,363,543 5,353,763
Basic (puttable common) 186    
Diluted (common) 5,413,144 5,407,994 5,384,506
Diluted (puttable common) 186    
Dividends declared per common share $ 1.04 $ 0.96 $ 0.88
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Consolidated Statements Of Shareholders' Equity (USD $)
In Thousands, except Share data, unless otherwise specified
Treasury Stock [Member]
Preferred Stock [Member]
Common Stock [Member]
Additional Paid In Capital [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive (Loss) [Member]
Total
Balance at Dec. 31, 2008 $ (4,748) $ 500 $ 60 $ 3,522 $ 39,675 $ (4,291) $ 34,718
Balance, shares at Dec. 31, 2008 633,683 5,000 6,004,463        
Net income (loss) for the year         6,815   6,815
Change in Pension and Postretirement Benefit plans, net           1,005 1,005
Total Comprehensive Income (loss)             7,820
Stock options and restricted stock issued to employees as compensation       128     128
Restricted stock issued to employees                     
Restricted stock issued to employees, shares     8,958        
Dividends:              
Common         (4,736)   (4,736)
Preferred         (25)   (25)
Balance at Dec. 31, 2009 (4,748) 500 60 3,650 41,729 (3,286) 37,905
Balance, shares at Dec. 31, 2009 633,683 5,000 6,013,421        
Net income (loss) for the year         2,852   2,852
Change in Pension and Postretirement Benefit plans and unrealized losses on short- term investments, net           502 502
Total Comprehensive Income (loss)             3,354
Stock options and restricted stock issued to employees as compensation       341     341
Restricted stock issued to employees                     
Restricted stock issued to employees, shares     34,654        
Treasury stock purchased (22)           (22)
Treasury stock purchased, shares 1,506            
Stock options exercised       72     72
Stock options exercised, shares     6,666        
Dividends:              
Common         (5,200)   (5,200)
Preferred         (25)   (25)
Balance at Dec. 31, 2010 (4,770) 500 60 4,063 39,356 (2,784) 36,425
Balance, shares at Dec. 31, 2010 635,189 5,000 6,054,741        
Net income (loss) for the year         (2,921)   (2,921)
Change in Pension and Postretirement Benefit plans and unrealized losses on short- term investments, net           (2,195) (2,195)
Total Comprehensive Income (loss)             (5,116)
Stock options and restricted stock issued to employees as compensation       960     960
Restricted stock issued to employees     1       1
Restricted stock issued to employees, shares     59,779        
Tax benefit for the exercise of stock options       31     31
Treasury stock purchased (1,492)           (1,492)
Treasury stock purchased, shares 100,202            
Stock options exercised     1 1,137     1,138
Stock options exercised, shares     103,319        
Dividends:              
Common         (5,769)   (5,769)
Preferred         (25)   (25)
Balance at Dec. 31, 2011 $ (6,262) $ 500 $ 62 $ 6,191 $ 30,641 $ (4,979) $ 26,153
Balance, shares at Dec. 31, 2011 735,391 5,000 6,217,839        
XML 31 R22.htm IDEA: XBRL DOCUMENT v2.4.0.6
Pension Plans And Other Postretirement Benefits
 12 Months Ended
Dec. 31, 2011
Pension Plans And Other Postretirement Benefits [Abstract]  
Pension Plans And Other Postretirement Benefits

Note 15: PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS

The Company has two defined benefit pension plans covering all management and non-management employees who are at least 21 years of age, have completed one year of service and have been hired before May 1, 2003 for the non-management plan and March 1, 2005 for the management plan. Benefits are based on years of service and the average of the employee's three highest consecutive years' of base compensation. The Company's policy is to fund the minimum required contribution disregarding any credit balance arising from excess amounts contributed in the past.

The Company sponsors a postretirement medical benefit plan that covers all employees that retire directly from active service on or after age 55 with at least 10 years of service. The projected unit credit actuarial method was used in determining the cost of future benefits. Assets of the plan are principally invested in fixed income securities and a money market fund. The Company uses an annual measurement date of December 31 for all of its benefit plans.

The components of the pension and postretirement expense (credit) for the years ended December 31 are as follows:

                                     
  Pension Benefits Postretirement Benefits
  2011 2010 2009 2011 2010 2009
Components of Net Periodic Costs:                                    
Service cost $ -   $  -   $ -   $ 14   $ 11   $ 37  
Interest cost   860     869     875     238     246     236  
Expected return on plan assets   (913 )   (820 )   (668 )   (168 )   (161 )   (158 )
Amortization of transition asset   -     -     -     28     28     28  
Amortization of prior service cost   56     56     56     (330 )   (330 )   (330 )
Recognized actuarial (gain) loss   755     873     713     94     94     101  
Net periodic loss (gain) $ 758   $ 978   $ 976   $ (124 ) $ (112 ) $ (86 )

 

Amounts recognized in other comprehensive loss (income) and net periodic cost (income) before tax for pension and other postretirement plan consisted of the following:

                                     
  Pension Benefits Postretirement Benefits
  2011 2010 2009 2011 2010 2009
 
Actuarial net (gain) loss: $ 2,787   $ (1,244 ) $ (1,621 ) $ 432   $ 130   $ (186 )
Transition obligation (asset)   -     -     -     (28 )   (28 )   (28 )
Prior service (credit) cost   (56 )   (56 )   (56 )   330     330     330  
Total recognized in other comprehensive
(income) loss		 $ 2,731   $ (1,300 ) $ (1,677 ) $ 734   $ 432   $ 116  
 
Total recognized in net periodic benefit cost
(income) and other comprehensive (income)
loss		 $ 3,489   $ (322 ) $ (701 ) $ 610   $ 320   $ 30  

 

 

The estimated amounts for the defined benefit pension plans and the postretirement benefit plans that will be amortized from accumulated other comprehensive loss into net periodic benefit cost (income) over the next fiscal year are as follows:

           
  Pension Plans Postretirement
Benefits
Amortization of net actuarial loss $ 926 $ 128  
Amortization of prior service cost (credit) $ 56 $ (330 )
Amortization of transition obligation $ - $ 28  

 

The following table presents a summary of the projected benefit obligation and plan assets of the plans at December 31:

                         
  Pension Benefits Postretirement
Benefits
Change in Benefit Obligation 2011 2010 2011 2010
Benefit obligation, beginning of year $ 16,020   $ 15,708   $ 4,580   $ 4,301  
Service cost   -     -     14     11  
Interest cost   860     869     238     246  
Plan amendments   -     -     -     -  
Actuarial losses (income)   2,602     326     431     142  
Benefit payments   (926 )   (883 )   (120 )   (120 )
Impact of curtailment   -     -     -     -  
Benefit obligation, end of year   18,556     16,020     5,143     4,580  
 
 
Changes in fair value of plan assets                        
Fair value of plan assets, beginning of year   11,690     10,469     2,096     2,018  
Actual return on plan   (28 )   1,518     72     78  
Employer contributions   529     586     120     120  
Benefit payments   (926 )   (883 )   (120 )   (120 )
 
Fair value of plan assets, end of year   11,265     11,690     2,168     2,096  
Unfunded status at end of year $ (7,291 ) $ (4,330 ) $ (2,975 ) $ (2,484 )

 

Amounts recognized in the Consolidated Balance Sheets consisted of the following:

                         
  Pension Benefits Postretirement
Benefits
  2011 2010 2011 2010
 
Pension and postretirement benefit obligations-current $ (502 ) $ (569 ) $ (120 )  $ (120 )
Pension and postretirement benefit obligations-long term   (6,789 )   (3,761 )   (2,855 )   (2,364 )
Total $ (7,291 ) $ (4,330 ) $ (2,975 ) $ (2,484 )

 

Amounts recognized in the accumulated other comprehensive loss, net of tax, consisted of the following:

                         
  Pension Benefits Postretirement
Benefits
  2011 2010 2011 2010
 
Actuarial net (loss) gain $ (3,967 ) $ (2,177 ) $ (1,557 ) $ (1,279 )
Transition obligation / (asset)   -     -     (18 )   (37 )
Net prior service credit   (187 )   (222 )   750     962  
Total $ (4,154 ) $ (2,399 ) $ (825 ) $ (354 )

 

 

Actuarial assumptions used to calculate the projected benefit obligation were as follows for the years ended December 31:

                 
  Pension Benefits Postretirement Benefits
  2011 2010 2011 2010
Discount rate 4.25 % 5.50 % 4.25 % 5.50 %
Expected return on plans 8.00 % 8.00 % 8.00 % 8.00 %
Healthcare cost trend -   -   6.50 - 8.50%   7.00 - 9.00%  

 

Actuarial assumptions used to calculate net periodic benefit cost were as follows for the years ended December 31:

                 
  Pension
Benefits		 Postretirement
Benefits
 
  2011 2010 2011 2010
Discount rate 4.25 % 5.50 % 4.25 % 5.50 %
Expected return on assets 8.00 % 8.00 % 8.00 % 8.00 %

 

The rate of return assumption, currently 8%, estimates the portion of plan benefits that will be derived from investment return and the portion that will come directly from Company contributions. Accordingly, the Company, utilizing the investment policy described below, strives to maintain an investment portfolio that generates annual returns from funds invested consistent with achieving the projected long-term rate of return required for plan assets. The investment policy followed by the Pension Plan Manager can be described as an "adaptive" approach that is essentially structured towards achieving a compromise between the static long-term approach and the short-term opportunism of the dynamic or tactical approaches. The objective is to modify asset allocations based on changing economic and financial market conditions so as to capture the major position of excess returns and then shift the priority to risk containment after valuations become stretched.

The Company's pension plans had an unfunded projected benefit obligation of $7,291 as of December 31, 2011. The projected benefit obligation of $18,556 at December 31, 2011 was in excess of plan assets of $11,265. The Company's postretirement plans had an unfunded projected benefit obligation of $2,975 as of December 31, 2011. The projected benefit obligation of $5,143 at December 31, 2011 was in excess of plan assets of $2,168.

The Company's pension plans had an unfunded projected benefit obligation of $4,330 as of December 31, 2010. The projected benefit obligation of $16,020 at December 31, 2010 was in excess of plan assets of $11,690. The Company's postretirement plans had an unfunded projected benefit obligation of $2,484 as of December 31, 2010. The projected benefit obligation of $4,580 at December 31, 2010 was in excess of plan assets of $2,096.

The projected benefit obligations exceeded the fair value of plan assets and the Company was required to record an additional pension liability in the Consolidated Balance Sheet as of December 31, 2011. The effect of this adjustment was an increase in the pension liability of $7,751 and an increase in accumulated other comprehensive loss of $4,979, net of tax. The health care cost trend rates (representing the assumed annual percentage increase in claim costs by year) was 6.5% for the pre-65 trend rate and 8.5% for the post-65 trend rate, with each of these grading down to 5.0%, by 0.5% per year. The Company's most recent actuarial calculation anticipates that this trend will continue into 2012. An increase in the assumed health care cost trend rate by 1.0% would increase the accumulated postretirement benefit obligation as of December 31, 2011 by approximately $644 and the aggregate of the service and interest cost components of postretirement expense for the year then ended by approximately $27. A 1.0% decrease in the health care cost trend rate would decrease these components by $540 and $23, respectively.

Plan Assets

The Company diversifies its pension and postretirement plan assets across domestic and international common stock and fixed income asset classes.

As of December 31, 2011, the current target allocations for pension and postretirement plan assets are 50-60% for equity securities, 40-50% for fixed income securities and 0-5% for cash and certain other investments.

The fair values of our pension plan assets at December 31, 2011 by asset category are as follows:
                 
Asset
Category		 Total
Market
Value		 Level 1 Level 2 Level 3
 
Equity securities (a) $ 5,826 $ 5,826 $ - $ -
Fixed income securities (b)   4,605   4,605   -   -
Cash and cash equivalents (c)   834   834   -   -
Total pension assets $ 11,265 $ 11,265 $ - $ -

 

The fair values of our postretirement plan assets at December 31, 2011 by asset category are as follows:

                 
Asset
Category		 Total
Market
Value		 Level 1 Level 2 Level 3
 
Fixed income securities (b) $ 1,706 $ 1,706 $ - $ -
Cash and cash equivalents (c)   461   461   -   -
Total pension assets $ 2,167 $ 2,167 $ - $ -

 

(a) This category includes funds invested in equity securities of large, medium and small-sized companies and equity securities of international markets. The funds are valued using the market value for the underlying investments.

(b) This category includes funds invested in fixed income instruments. The funds are valued using the market value for the underlying investments.

(c) This category comprises cash held to pay beneficiaries. The fair value equals its book value.

The fair values of our pension plan assets at December 31, 2010 by asset category are as follows:

                 
Asset
Category		 Total
Market
Value		 Level 1 Level 2 Level 3
 
Equity securities (a) $ 6,125 $ 6,125 $ - $ -
Fixed income securities (b)   5,073   5,073   -   -
Cash and cash equivalents (c)   492   492   -   -
Total pension assets $ 11,690 $ 11,690 $ - $ -

 

The fair values of our postretirement plan assets at December 31, 2010 by asset category are as follows:

                 
Asset
Category		 Total
Market
Value		 Level 1 Level 2 Level 3
 
Fixed income securities (b) $ 1,635 $ 1,635 $ - $ -
Cash and cash equivalents (c)   461   461   -   -
Total pension assets $ 2,096 $ 2,096 $ - $ -

 

This category includes funds invested in equity securities of large, medium and small-sized companies and equity securities of international markets. The funds are valued using the market value for the underlying investments.

(a) This category includes funds invested in fixed income instruments. The funds are valued using the market value for the underlying investments.

(b) This category includes funds invested in fixed income instruments. The funds are valued using the market value for the underlying investments.

(c) This category comprises cash held to pay beneficiaries. The fair value equals its book value.

In accordance with its contribution policy, in 2012 the Company expects to contribute $622 to its pension plan.

Benefit payments, under the provisions of the plans, are expected to be paid as follows:
         
  Pension
Benefits		 Postretirement
Benefits
 
2012 $ 986 $ 258
2013   979   270
2014   991   287
2015   1,010   279
2016   1,048   266
2017-2021   5,970   1,528

 

The Company also has a Defined Contribution 401(k) Profit Sharing Plan covering substantially all employees. Under the plan, employees may contribute up to 100% of compensation not to exceed certain legal limitations. The Company matches 100% of the participant's contributions, up to 4.5% of salary. The Company contributed and expensed $289, $586 and $246 for the years ended December 31, 2011, 2010 and 2009, respectively.

The Company has deferred compensation agreements in place with certain former officers that became effective upon retirement. These non-qualified plans are not currently funded and a liability representing the present value of future payments has been established, with balances of $270 and $269 as of December 31, 2011 and 2010, respectively.
XML 32 R24.htm IDEA: XBRL DOCUMENT v2.4.0.6
Shareholders' Equity And Puttable Common Stock
 12 Months Ended
Dec. 31, 2011
Shareholders' Equity And Puttable Common Stock [Abstract]  
Shareholders' Equity And Puttable Common Stock

NOTE 17: SHAREHOLDERS' EQUITY AND PUTTABLE COMMON STOCK

The Company has 10,000,000 authorized shares of common stock at a par value of $0.01; 5,000 authorized Preferred Shares at a par value of $100; and 10,000,000 authorized shares of preferred stock at a par value of $0.01.

The Company issued 272,479 shares of the Company's common stock with a put option pursuant to the Lock-Up and Put Agreement entered into on October 21, 2011 and in connection with the Asset Purchase Agreement. The members of Alteva, LLC have the option to put the 272,479 shares back to the Company on October 21, 2012 and December 15, 2012. The puttable common stock in connection with the Company's purchase of substantially all of the assets and certain liabilities of Alteva, LLC was issued with redemption features that are not solely within the control of the Company and is classified outside of permanent equity (often referred to as classification in "temporary equity"). The Company fair valued the puttable common stock at the date of acquisition in the amount of $4,125.
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Consolidated Statements Of Shareholders' Equity (Parenthetical) (USD $)
 12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Consolidated Statements Of Shareholders' Equity [Abstract]      
Common dividend, per share $ 1.04 $ 0.96 $ 0.88
Preferred dividend, per share $ 5 $ 5 $ 5
XML 35 R3.htm IDEA: XBRL DOCUMENT v2.4.0.6
Consoldidated Balance Sheet (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
ASSETS    
Cash and cash equivalents $ 4,575 $ 10,899
Short term investments 259 2,636
Accounts receivable - net of allowance for uncollectibles - $759 and $350 in 2011 and 2010, respectively 2,717 2,451
Other accounts receivable 174 94
Materials and supplies 832 986
Prepaid expenses 731 538
Prepaid income taxes 2,715  
Deferred income taxes 405  
Total current assets 12,408 17,604
Property, plant and equipment, net 25,425 27,258
Unamortized debt issuance costs 45 21
Intangibles, net 8,605 217
Investments 1,979 7,681
Goodwill 9,121  
Other assets 333 294
Total assets 57,916 53,075
LIABILITIES AND SHAREHOLDERS' EQUITY    
Short term borrowings 5,600  
Current maturities of long-term debt 1,139 1,519
Accounts payable 1,715 1,174
Amounts due in connection with business acquisition 2,377  
Derivative liability in connection with business acquisition 131  
Advance billing and payments 390 397
Customer deposits 51 56
Deferred income taxes   38
Accrued taxes 521 1,041
Pension and post retirement benefit obligations 622 529
Other accrued expenses 3,347 2,262
Total current liabilities 15,893 7,016
Long-term debt, net of current maturities   1,139
Amounts due in connection with business acquisition 472  
Deferred income taxes 1,358 1,941
Pension and postretirement benefit obligations 9,915 6,554
Total liabilities 27,638 16,650
Commitments and contingencies      
Puttable common stock, $.01 par value, 272,479 and 0 shares issued and outstanding at at December 31, 2011 and 2010, respectively 4,125  
Shareholders' equity    
Preferred Shares - $100 par value; authorized and issued shares of 5,000; $0.01 par value authorized and unissued shares of 10,000,000 500 500
Common stock - $0.01 par value; authorized shares of 10,000,000; issued 6,490,318 and 6,054,741 shares at December 31, 2011 and 2010, respectively 62 60
Treasury stock - at cost, 735,391 and 635,189 common shares at December 31, 2011 and 2010, respectively (6,262) (4,770)
Additional paid in capital 6,191 4,063
Accumulated other comprehensive loss (4,979) (2,784)
Retained earnings 30,641 39,356
Total shareholders' equity 26,153 36,425
Total liabilities and shareholders' equity $ 57,916 $ 53,075
XML 36 R17.htm IDEA: XBRL DOCUMENT v2.4.0.6
Materials And Supplies
 12 Months Ended
Dec. 31, 2011
Materials And Supplies [Abstract]  
Materials And Supplies

NOTE 10: MATERIAL AND SUPPLIES

Material and supplies are carried at average cost. As of December 31, 2011 and 2010, material and supplies consisted of the following:

  2011 2010
Inventory for outside plant $ 322 $ 368
Inventory for central office   266   295
Inventory for online equipment   77   79
Inventory for video equipment   68   72
Inventory of equipment held for sale or lease   16   24
Inventory for VoIP telephone equipment   83   148
  $ 832 $  986
XML 37 R1.htm IDEA: XBRL DOCUMENT v2.4.0.6
Document And Entity Information (USD $)
 12 Months Ended
Dec. 31, 2011
Jun. 30, 2011
Mar. 09, 2011
Document And Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2011    
Document Fiscal Year Focus 2011    
Document Fiscal Period Focus FY    
Entity Registrant Name WARWICK VALLEY TELEPHONE CO    
Entity Central Index Key 0000104777    
Current Fiscal Year End Date --12-31    
Entity Filer Category Accelerated Filer    
Entity Common Stock, Shares Outstanding     5,801,208
Entity Well-known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Public Float   $ 78,040,085  
XML 38 R18.htm IDEA: XBRL DOCUMENT v2.4.0.6
Property, Plant And Equipment
 12 Months Ended
Dec. 31, 2011
Property, Plant And Equipment [Abstract]  
Property, Plant And Equipment

NOTE 11: PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, at cost, consisted of the following as of December 31:

         
  2011 2010
Land, buildings and other support equipment $ 10,908 $ 9,677
Network communications equipment   36,187   35,131
Telephone plant   30,571   29,847
Online plant   6,885   7,113
Plant in service   84,551   81,768
Plant under construction   297   108
    84,848   81,876
Less: Accumulated depreciation   59,423   54,618
Property, plant and equipment, net $ 25,425 $ 27,258

 

Depreciation expense is principally based on the composite group method. Depreciation expense for the years ended December 31, 2011, 2010, and 2009 was $4,760, $5,703 and $5,419, respectively.

The Company reviews the recoverability of our long-lived assets, including buildings, equipment, internal-use software and other intangible assets, when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on the Company's ability to recover the carrying value of the asset from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. The primary measure of fair value is based on discounted cash flows, which are considered to be a Level 3 input. For the year ended December 31, 2010, the Company determined that its landline video assets, consisting of head-end equipment, related network equipment and customer premise equipment, were impaired. The Company recorded an asset impairment charge of $2,283, which represents 100% of the carrying net value of the landline video assets. This impairment charge resulted from customers who migrated to DIRECTV under the Company's reseller agreement with DIRECTV or to a competitor, resulting in lost landline video revenue.
XML 39 R4.htm IDEA: XBRL DOCUMENT v2.4.0.6
Consoldidated Balance Sheet (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
Accounts receivable, allowance for uncollectibles $ 759 $ 350
Puttable common stock, par value $ 0.01 $ 0.01
Puttable common stock, shares issued 272,479 0
Puttable common stock, shares outstanding 272,479 0
Common stock, par value $ 0.01 $ 0.01
Common stock, authorized shares 10,000,000 10,000,000
Common stock, issued shares 6,490,318 6,054,741
Treasury stock, common shares 735,391 635,189
Preferred Stock 100 Par Value [Member]
    
Preferred shares, par value $ 100 $ 100
Preferred shares, authorized shares 5,000 5,000
Preferred shares, issued shares 5,000 5,000
Preferred Stock 0.01 Par Value [Member]
    
Preferred shares, par value $ 0.01 $ 0.01
Preferred shares, authorized shares 10,000,000 10,000,000
Preferred shares, unissued shares 10,000,000 10,000,000
XML 40 R12.htm IDEA: XBRL DOCUMENT v2.4.0.6
Fair Value
 12 Months Ended
Dec. 31, 2011
Fair Value [Abstract]  
Fair Value

NOTE 5: FAIR VALUE

Fair value is the estimated price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company is required by accounting standards to provide the disclosure framework for measuring fair value and expands disclosure about fair value measurements. Fair value measurements are classified and disclosed in one of the following categories:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes those derivative instruments that the Company values using observable market data. Substantially all of these inputs are observable in the marketplace throughout the term of the derivative instruments, can be derived from observable data, or supported by observable levels at which transactions are executed in the marketplace.

Level 3: Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e. supported by little or no market activity). The Company's valuation models are primarily industry standard models. Level 3 instruments include derivative warrant instruments. The Company does not have sufficient corroborating evidence to support classifying these assets and liabilities as Level 1 or Level 2.

Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

The following table represents the Company's fair value hierarchy for its financial assets measured at fair value on a recurring basis as of December 31, 2011:

  Level 1 Level 2 Level 3 Total
Short-term investments $ 259 $ 0 $  -  $ 259

 

The following table represents the Company's fair value hierarchy for its financial assets measured at fair value on a recurring basis as of December 31, 2010:

  Level 1 Level 2 Level 3 Total
Short-term investments $ 257 $ 2,379 $-  $ 2,636

 

Derivative liability

In connection with Asset Purchase Agreement, the members of Alteva, LLC entered into a Lock-Up and Put Agreement with the Company effective October 21, 2011. The purchase price protection provision is considered to be a derivative instrument and must be valued and recognized at the instrument's current fair market value as of the date of issuance and adjusted each period the financial statements are presented. The Company employed a binomial pricing model to calculate the fair value of the price protection and recorded the full value as a current liability on its consolidated balance sheet. Inputs are adjusted each period to reflect changes in the Company's estimate of value of the underlying common stock.

The fair value of the price protection was estimated utilizing the binomial pricing model with the following assumptions for the year ended December 31, 2011:
Binomial method      
Model iterations   100.5  
Simulated median price $ 13.45  
Exercise price per share $ 11.74  
Expected volatility   12.03 %
Risk free interest rate   0.15 %
Yield rate   7.73 %

 

The following table represents the Company's fair value hierarchy for its financial liabilities measured at fair value on a recurring basis as of December 31, 2011:

  Level 1 Level 2 Level 3 Total
Derivative liability in connection with business acquisition $ 0 $ 0 $ 131 $ 131

 

The following table represents a summary of changes in the fair value of the Company's Level 3 liability for the year ended December 31, 2011 and 2010:

Derivative liability balance December 2010 $ 0
Fair value of price protection instrument   116
Decrease in fair value of price protection instrument   15
Derivative liability balance December 2011 $ 131
XML 41 R11.htm IDEA: XBRL DOCUMENT v2.4.0.6
Short-Term Investments
 12 Months Ended
Dec. 31, 2011
Short-Term Investments [Abstract]  
Short-Term Investments

NOTE 4: SHORT-TERM INVESTMENTS

The following is a summary of the Company's short-term investments classified as available for sale at December 31, 2011 and December 31, 2010, respectively:

  Amortized
Cost		 Unrealized
Gains
(Losses)		 Fair
Value
 
 
December 31, 2011              
Bank certificate of deposit $ 259 $ -   $ 259
 
December 31, 2010              
Bank certificate of deposit $ 257 $ -   $ 257
Corporate bonds   2,143   (44 )   2,099
Foreign bonds   284   (4 )   280
  $ 2,684 $ (48 ) $ 2,636
XML 42 R23.htm IDEA: XBRL DOCUMENT v2.4.0.6
Stock Based Compensation
 12 Months Ended
Dec. 31, 2011
Stock Based Compensation [Abstract]  
Stock Based Compensation

NOTE 16: STOCK BASED COMPENSATION

The Company adopted and, at the annual meeting held on April 29, 2011, its shareholders approved, the Amended and Restated 2008 Long-Term Incentive Plan (the "Amended and Restated LTIP") to assist the Company and its affiliates in attracting, motivating and retaining selected individuals to serve as employees, directors, consultants and advisors of the Company and its affiliates by providing incentives to such individuals through the ownership and performance of the Company's common stock. The Amended and Restated LTIP increases the total number of shares authorized under the Amended and Restated LTIP from 500,000 shares to 1,100,000 shares of common stock. The increases in the number of shares available under the Amended and Restated LTIP required approval from the NYPSC and NJBPU. As of December 31, 2011, the Company had not received approval from the NYPSC or the NJBPU. Approval has been received subsequent to December 31, 2011 (See Note 20). Shares available for grant under the Amended and Restated LTIP may be either authorized but unissued shares or shares that have been reacquired by the Company and designated as treasury shares. As of December 31, 2011 and 2010, 137,590 and 270,089 shares of the Company's common stock were available for grant under the Amended and Restated LTIP. The Amended and Restated LTIP permits the issuance by the Company of awards in the form of stock options, stock appreciation rights, restricted stock and restricted stock units and performance shares. The exercise price per share of the Company's common stock purchasable under any stock option or stock appreciation right may not be less than 100% of the fair market value of one share of common stock on the date of grant. The term of any stock option or stock appreciation may not exceed ten years. The Amended and Restated LTIP also provides plan participants with a cashless mechanism to exercise their stock options. For the year ended December 31, 2011, the Company purchased treasury stock of $1,171 as a result of plan participants using the cashless mechanism when exercising stock options. Issued restricted stock, stock options and restricted stock units are subject to vesting restrictions.

Restricted Stock Awards

The following table summarizes the restricted stock granted to certain eligible participants for the years ended December 31, 2011, 2010 and 2009:

             
Restricted stock granted 2011 2010 2009
Shares   61,636   35,004   16,550
Grant date weighted average fair value per share $ 14.62 $ 13.22 $ 10.99

 

Stock-based compensation expense for restricted stock awards of $684, $272 and $86 was recorded for the years ended December 31, 2011, 2010 and 2009, respectively. Restricted stock awards are amortized over their respective vesting periods of two or three years. The Company records stock-based compensation for grants of restricted stock awards on a straight-line basis. The Company has determined expected forfeitures based on recent activity and is recognizing compensation expense only for those restricted common shares expected to vest.

The following table summarizes the restricted common stock activity during the years ended December 31, 2011, 2010 and 2009:
         
  Shares Grant Date Weighted
Average per Share
Balance - January 1, 2009 19,000   $ -
Granted 16,550     10.99
Vested (6,332 )   10.78
Forfeited (7,592 )   10.53
Balance - December 31, 2009 21,626     11.03
 
Granted 35,004     13.22
Vested (8,807 )   10.99
Forfeited (450 )   12.78
Balance - December 31, 2010 47,373     12.64
 
Granted 61,636     14.62
Vested (38,447 )   13.04
Forfeited (2,003 )   14.10
Balance - December 31, 2011 68,559     14.15

 

Stock Options

The following tables summarize stock option activity for the years ended December 31, 2011, 2010 and 2009, along with options exercisable at the end of each period:

         
Options Shares Weighted Average
Exercise Price
Outstanding - January 1, 2009 90,500   $ 10.78
Stock options granted 64,499     10.64
Exercised -     -
Forfeited (31,368 )   10.60
Outstanding - December 31, 2009 123,631   $ 10.76
 
Stock options granted 43,768     12.88
Exercised (6,666 )   10.78
Forfeited -     -
Outstanding - December 31, 2010 160,733   $ 11.33
 
Stock options granted 149,293     14.83
Exercised (103,319 )   11.01
Forfeited (2,843 )   14.02
Outstanding - December 31, 2011 203,864   $ 14.02
 
Vested and expected to vest at December 31, 2009 123,631      
Exercisable at December 31, 2009 30,166      
 
Vested and expected to vest at December 31, 2010 160,733      
Exercisable at December 31, 2010 62,486      
 
Vested and expected to vest at December 31, 2011 203,864      
Exercisable at December 31, 2011 73,071      

 

 

The stock options vest over a three-year period. The following table summarizes information about fixed price stock options outstanding at December 31, 2011, 2010 and 2009:

               
Exercise Price per Share Shares
Outstanding		 Weighted
Average
Exercise Price		 Weighted Average
Remaining
Contractual
Life (Years)		 Aggregate
Intrinsic
Value
  December 31, 2009            
$ 10.78 77,166 $ 10.78 8.69    
$ 10.02 30,948 $ 10.02 9.22    
$ 11.20 7,517 $ 11.20 9.32    
$ 12.97 7,000 $ 12.97 9.90    
$ 12.76 1,000 $ 12.76 9.99    
    123,631 $ 10.76 8.94 $ 289
 
  Exercisable at December 31, 2009 30,166 $ 10.78 8.69 $ 70
 
  December 31, 2010            
$ 10.78 70,500 $ 10.78 7.69    
$ 10.02 30,948 $ 10.02 8.22    
$ 11.20 7,517 $ 11.20 8.32    
$ 12.97 7,000 $ 12.97 8.90    
$ 12.76 1,000 $ 12.76 8.99    
$ 12.88 43,768 $ 12.88 9.15    
    160,733 $ 11.33 8.09 $ 421
 
  Exercisable at December 31, 2010 62,486 $ 10.76 7.73 $ 205
 
 
  December 31, 2011            
$ 10.78 15,166 $ 10.78 6.69    
$ 10.02 4,051 $ 10.02 7.22    
$ 11.20 7,517 $ 11.20 7.32    
$ 12.97 7,000 $ 12.97 7.90    
$ 12.76 333 $ 12.76 7.99    
$ 12.88 22,328 $ 12.88 8.15    
$ 14.70 18,849 $ 14.70 9.15    
$ 14.85 128,620 $ 14.85 9.19    
    203,864 $ 14.02 8.73 $ 0
 
  Exercisable at December 31, 2011 73,071 $ 13.56 8.42 $ 0

 

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company's closing stock price on the last trading day, December 31, 2011, 2010 and 2009, respectively, and the exercise price times the number of shares) that would have been received by the option holders had all the option holders exercised in-the-money stock options on December 31, 2011, 2010 and 2009, respectively. This amount will change based on the fair market value of the Company's common stock.

The fair value of the above stock-based awards was estimated using the Black-Scholes model with the following weighted-average assumptions for the years ended December 31, 2011, 2010 and 2009:

                   
Options 2011 2010 2009
Expected life (in years)   10     10     10  
Interest rate   3.40 %   3.78 %   2.75 %
Volatility   32.77 %   31.70 %   30.74 %
Dividend yield   7.00 %   6.83 %   8.34 %
Weighted-average fair value per share at grant date $ 2.16   $ 1.92   $ 1.04  

 

Compensation expense related to stock options granted was $287, $69 and $42 in 2011, 2010 and 2009, respectively.

The following table presents the total stock-based compensation expense resulting from stock options and restricted stock granted to employees that are included in the Company's consolidated statements of operations for the years ended December 31, 2011, 2010 and 2009.
             
Stock-Based Compensation Expense 2011 2010 2009
 
Cost of services and products $ 66 $ 40 $ -
Selling, general and administrative expense   894   301   128
  $ 960 $ 341 $ 128

 

As of December 31, 2011, $795 of total unrecognized compensation expense related to stock options and restricted stock is expected to be recognized over a weighted average period of approximately 1.42 years.
XML 43 R19.htm IDEA: XBRL DOCUMENT v2.4.0.6
Orange County-Poughkeepsie Limited Partnership
 12 Months Ended
Dec. 31, 2011
Orange County-Poughkeepsie Limited Partnership [Abstract]  
Orange County-Poughkeepsie Limited Partnership

NOTE 12: ORANGE COUNTY-POUGHKEEPSIE LIMITED PARTNERSHIP

The Company is a limited partner in the Orange County-Poughkeepsie Limited Partnership ("O-P") and had 8.108% equity interest as of December 31, 2011 and 2010, which is accounted for under the equity method of accounting. The majority owner and general partner of the O-P is Verizon Wireless of the East LP.

On May 26, 2011, the Company entered into an agreement with Verizon Wireless of the East LP, the general partner and a limited partner, and Cellco Partnership, the other limited partner, in the O-P to make certain changes to the O-P partnership agreement which, among other things, specifies that the O-P will provide 4G cellular services (the "4G Agreement"). The 4G Agreement provides that the O-P's business will be converted from a wholesale business to a retail business. The 4G Agreement provides for guaranteed annual cash distributions to the Company from the O-P through 2013. For 2011, annual cash distributions from the O-P were $13,600 and for 2012 and 2013 the annual cash distributions will be $13,000. Annual cash distributions will be paid in equal quarterly amounts. The 4G Agreement also gives the Company the right (the "Put") to require one of the O-P's limited partners to purchase all the Company's ownership interest in the O-P during April 2013 or April 2014 for an amount equal to the greater of (a) $50,000 or (b) the product of five (5) times 0.081081 times the O-P's EBITDA, as defined in the 4G Agreement for the calendar year preceding the exercise of the Put.

The conversion of the O-P from a wholesale business to a retail business pursuant to the 4G Agreement will increase the cellular service costs and operating expenses incurred by the O-P, which is expected to cause a subsequent reduction in the O-P's net income primarily due to the inclusion of sales and marketing expenses. Although the Company's share of the O-P net income recorded in the Company's income statement is expected to decrease, the annual cash distributions the Company receives from the O-P will remain unchanged pursuant to the terms of the 4G Agreement.

Pursuant to the equity method accounting of the Company's investment income, the Company is required to record the income from the O-P as an increase to the Company's investment account. The Company is required to apply the cash payments made under the 4G Agreement as a return on its investment when received. Under equity method accounting, the Company currently reports as income its proportionate share of the O-P income that is less than the guaranteed cash distributions it receives from the O-P. The cash distributions the Company receives from the O-P that are in excess of the Company's proportionate share of the O-P income is recorded as a reduction of its investment account. As a result of receiving the fixed guaranteed cash distributions from the O-P in excess of the Company's proportionate share of the O-P income, the investment account is expected to be reduced to zero within the first six months of 2012. Thereafter, the Company will record the fixed guaranteed cash distributions that are received from the O-P in excess of the proportionate share of the O-P income directly to the Company's statement of operations as other income.

As of December 31, the value of the Company's holding in O-P is as follows:

  2011 2010
Equity interest in O-P Partnership $ - $ 3,600
Goodwill   1,979   4,081
  $ 1,979 $ 7,681

 

The following summarizes O-P's audited income statement for the years ended December 31:

  2011 (1) 2010 2009
Net Revenue $ 273,340 $ 187,985 $ 183,839
Cellular service cost   122,142   23,859   21,735
Operating expenses   53,832   10,035   9,830
Operating income   97,366   154,091   152,274
Other income   40   1,034   1,522
Net income $ 97,406 $ 155,125 $ 153,796
Company share $ 7,898 $ 12,578 $ 12,470

 

(1) The twelve months ended December 31, 2011 income statement represents five months of the O-P operating as a wholesale business and seven months of the O-P operating as a retail business in accordance with Amendment 6 to the O-P Limited Partnership Agreement effective May 1, 2011.

The following summarizes the O-P's audited balance sheet that O-P provided to the Company as of December 31:
  2011 2010
Current assets $ 20,525 $ 10,916
Property, plant and equipment, net   39,596   34,294
Total assets $ 60,121 $ 45,210
 
Total liabilities $ 42,500 $ 818
Partners' capital   17,621   44,392
Total liabilities and partners' capital $ 60,121 $ 45,210
XML 44 R15.htm IDEA: XBRL DOCUMENT v2.4.0.6
Other Comprehensive Income (Loss)
 12 Months Ended
Dec. 31, 2011
Other Comprehensive Income (Loss) [Abstract]  
Other Comprehensive Income (Loss)

NOTE 8: OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (loss) consisted of the following for the years ended December

  2011 20 10 2009
Pension and postretirement benefits plans $ (3,465 ) $ 868   $ 1,561  
Unrealized gain (loss) on investments   -     (48 )   -  
Reclassification of unrealized gain upon realization from sale   31     -     -  
Related deferred income taxes   1,239     (318 )   (556 )
Total other comprehensive income (loss) $ (2,195 ) $ 502   $ 1,005  
XML 45 R13.htm IDEA: XBRL DOCUMENT v2.4.0.6
Goodwill And Intangible Assets
 12 Months Ended
Dec. 31, 2011
Goodwill And Intangible Assets [Abstract]  
Goodwill And Intangible Assets

NOTE 6: GOODWILL AND INTANGIBLE ASSETS

Impairment testing for goodwill is performed annually in the fourth fiscal quarter or more frequently if indications of potential impairment exist. The impairment test for goodwill uses a two-step approach, which is performed at the reporting unit level. The Company has determined that our operating segments are the applicable reporting units because they are the lowest level at which discrete, reliable financial and cash flow information is regularly reviewed by our chief operating decision maker. Step one compares the fair value of the reporting unit (calculated using a market approach and/or a discounted cash flow method) to its carrying value. If the carrying value exceeds the fair value, there is a potential impairment and step two must be performed. Step two compares the carrying value of the reporting unit's goodwill to its implied fair value (i.e., fair value of reporting unit less the fair value of the unit's assets and liabilities, including identifiable intangible assets). If the implied fair value of goodwill is less than the carrying amount of goodwill, an impairment is recognized.

The following table presents details of the Company's goodwill:

    Amount
Balance as of December 31, 2010 $ 0
Goodwill acquired with the Alteva acquisition   9,121
Balance as of December 31, 2011 $ 9,121

 

The Company performs an annual goodwill impairment test during the fourth quarter of the fiscal year and when triggering events are present.

The following table presents details of the Company's total purchased intangible assets:
  Estimated
Useful Lives		 Gross
Value		 Accumulated
Amortization		 Net
Value
As of December 31, 2011                
Customer relationships 8 years $ 5,400 $ (281 ) $ 5,119
Trade name 15 years   2,400   (67 )   2,333
Telephone seat licenses 5 years   1,372   (219 )   1,153
Total   $ 9,172 $ (567 ) $ 8,605
 
 
  Estimated
Useful Lives		 Gross
Value		 Accumulated
Amortization		 Net
Value
As of December 31, 2010                
Telephone seat licenses 5 years $ 318 $ (101 ) $ 217
Total   $ 318 $ (101 ) $ 217

 

The amortization expense is recorded in the Consolidated Statements of Operations under depreciation and amortization in the amounts of $466, $59, and $36 for the years ended December 31, 2011, 2010, and 2009, respectively.

Future amortization expense is expected to be recorded as follows:

Year   Amount
2012 $ 1,110
2013   1,104
2014   1,071
2015   1,051
2016   992
XML 46 R14.htm IDEA: XBRL DOCUMENT v2.4.0.6
Earnings (Loss) Per Share
 12 Months Ended
Dec. 31, 2011
Earnings (Loss) Per Share [Abstract]  
Earnings (Loss) Per Share

NOTE 7: EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share are computed by dividing net income (loss) applicable to common shares by the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed by dividing net income (loss) applicable to common shares by the weighted average number of common shares adjusted to include the effect of potentially dilutive securities. Potentially dilutive securities include incremental shares issuable upon exercise of outstanding stock options and shares of unvested restricted stock. Diluted earnings per share exclude all dilutive securities if their effect is anti-dilutive.

The weighted average number of shares of common stock used in diluted earnings per share for the years ended December 31:

       
  2011 (1) 2010 2009
Weighted average shares of common stock
used in basic earnings per share		 5,424,927 5,363,543 5,353,763
Effects of puttable common stock 10,922 - -
Effects of stock options - 24,621 8,284
Effects of restricted stock - 19,830 22,459
  5,435,849 5,407,994 5,384,506

 

(1) Basic and diluted weighted average shares were the same for the year ended December 31, 2011 because the effects of the potentially diluted securities were anti-dilutive and they were excluded from the calculation.
XML 47 R16.htm IDEA: XBRL DOCUMENT v2.4.0.6
Segment Information
 12 Months Ended
Dec. 31, 2011
Segment Information [Abstract]  
Segment Information

NOTE 9: SEGMENT INFORMATION

The Company's segments are strategic business units that offer different products and services and are managed as Telephone and Online services. The Company evaluates the performance of the segments based upon factors such as revenue growth, expense containment, market share and operating results.

The Telephone segment provides telecommunications services including local, network access, wholesale, conferencing, long distance services, wireless and directory services. The Online segment provides high speed and dial-up Internet services, VoIP, UC Services, DIRECTV and video. The Company's Alteva and USA Datanet businesses are part of the Online segment.

The segment results presented below are not necessarily indicative of the results of operations these segments would have achieved had they operated as stand-alone entities during the periods presented.

Segment income statement information for the years ended December 31:

  2011 2010 2009
Segment operating revenues                  
Telephone $ 16,523   $ 17,141   $ 17,026  
Online   9,413     7,285     6,896  
Total segment operating revenues $ 25,936   $ 24,426   $ 23,922  
 
 
Depreciation and amortization                  
Telephone $ 3,810   $ 4,086   $ 4,119  
Online   1,456     1,694     1,349  
Total depreciation and amortization $ 5,266   $ 5,780   $ 5,468  
 
Operating loss                  
Telephone $ (11,109 ) $ (6,275 ) $ (4,176 )
Online   (480 )   (113 )   (153 )
Total segment operating loss, exclusive of impairment loss $ (11,589 ) $ (6,388 ) $ (4,329 )

 

The following table reconciles segment operating loss to income before income taxes for the years ended December 31, 2011, 2010 and 2009;

  2011 2010 2009
 
Segment operating loss $ (11,589 ) $ (6,388 ) $ (4,329 )
Impairment loss on video assets   -     (2,283 )   -  
Interest income, (expense), net   (64 )   33     (36 )
Income from equity investments   7,898     12,578     12,470  
Bargain purchase gain   -     -     1,749  
Other (expenses) income, net   (51 )   261     197  
Income before income taxes $ (3,806 ) $ 4,201   $ 10,051  

 

Certain regulatory revenue which includes USF and NECA pool settlements, has accounted for $2,812 or 11%, $3,902 or 16% and

$3,352 or 14% of the Company's revenues for the years ended December 31, 2011, 2010 and 2009, respectively. Accounts receivable for certain regulatory revenue represents 7% and 18% of consolidated accounts receivable at December 31, 2011 and 2010, respectively.

Segment balance sheet information as of December 31:

  2011 2010
Assets        
Telephone $ 35,630 $ 49,524
Online   22,286   3,551
Total assets $ 57,916 $ 53,075
XML 48 R21.htm IDEA: XBRL DOCUMENT v2.4.0.6
Income Taxes
 12 Months Ended
Dec. 31, 2011
Income Taxes [Abstract]  
Income Taxes

NOTE 14: INCOME TAXES

The federal and state components of the provision for (benefit from) income taxes are presented in the following table:
                   
  For the Years Ended
December 31,
 
  2011 2010 2009
Provision (benefit) for income tax                  
Current:                  
Federal $ (1,150 ) $ 3,208   $ 2,195  
State and local   51     -     (43 )
    (1,099 )   3,208     2,152  
Deferred:                  
Federal   (269 )   (1,548 )   936  
State and local   483     (311 )   148  
    214     (1,859 )   1,084  
Provision for income taxes $ (885 ) $ 1,349   $ 3,236  

 

Deferred income tax liabilities are taxes the Company expects to pay in future periods. Similarly, deferred income tax assets are recorded for expected reductions in taxes payable in future periods. Deferred income taxes arise because of differences in the book and tax basis of certain assets and liabilities.

Deferred income tax liabilities and assets consist of the following:

             
  At December 31,
  2011 2010
Deferred income tax assets:            
Employee pensions and other benefits $ 3,823   $ 2,594  
State net operating loss carryforward   687     489  
Accrued liabilities   322     -  
Other   564     19  
Total deferred income tax assets   5,396     3,102  
 
Valuation allowance   (693 )   (125 )
 
Deferred income tax liabilities:            
Property, plant and equipment   4,743     4,446  
Intangible assets   -     47  
Other   913     463  
Total deferred income tax liabilities   5,656     4,956  
Net deferred income tax liability $ (953 ) $ (1,979 )

 

The Company established a valuation allowance of $693 at December 31, 2011, and $125 at December 31, 2010 against certain state net operating loss (principally New Jersey) carryforwards. The Company was unable to conclude that it was more likely than not that it would realize these losses prior to their expiration. The Company will continue to refine and monitor all available evidence during future periods to evaluate the recoverability of its deferred tax assets.

The difference between tax expense (benefit) and the amount computed by applying the statutory federal income tax rate (34%) to income (loss) before income taxes is as follows:

                   
  Years Ended December 31,
  2011 2010 2009
Statutory rate applied to pre-tax income (loss) $ (1,294 ) $ 1,428   $ 3,417  
Add (deduct):                  
State income taxes, net   (215 )   (330 )   69  
Valuation allowance - state   568     125     -  
Other   56     126     (250 )
Income taxes (benefit) $ (885 ) $ 1,349   $ 3,236  

 

Accounting for uncertainty in income taxes requires uncertain tax positions to be classified as non-current income tax liabilities unless they are expected to be paid within one year. The Company has adopted the accounting guidance for uncertain tax positions and has concluded that there are no uncertain tax positions requiring recognition in its consolidated financial statements as of December 31, 2011 and 2010.

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense. For the years ended December 31, 2011, 2010 and 2009, there was no interest expense relating to unrecognized tax benefits.

The Company has state net operating loss carry-forwards in the amount of approximately $26,000 as of December 31, 2011. These losses expire through 2017.

The Company and its subsidiaries file a U.S. federal consolidated income tax return. The U.S. federal statute of limitations remains open for the years 2008 and thereafter. In 2010, the IRS completed its examination of the Company's 2006 and 2007 federal income tax returns. As a result of such examination, the Company received a net refund of approximately $459 from the IRS.

State income tax returns are generally subject to examination for a period of 3 to 5 years after filing the respective return. The impact of any federal changes on state returns remains subject to examination by the relevant states for a period of up to one year after formal notification to the states.
XML 49 R26.htm IDEA: XBRL DOCUMENT v2.4.0.6
Quarterly Information
 12 Months Ended
Dec. 31, 2011
Quarterly Information [Abstract]  
Quarterly Information

NOTE 19: QUARTERLY INFORMATION (UNAUDITED)

                               
  Calendar Year Quarters
  First Second Third Fourth Total
 
Year ended December 31, 2011                              
Revenue $ 6,178   $ 5,811   $ 6,829   $ 7,118   $ 25,936  
Operating loss   (1,951 )   (2,577 )   (3,443 )   (3,618 )   (11,589 )
Net income (loss) (1)   872     (240 )   (1,689 )   (1,864 )   (2,921 )
 
Basic earnings (loss) per common share $ 0.16   $ (0.05 ) $ (0.31 ) $ (0.34 ) $ (0.54 )
Diluted earnings (loss) per common share (3) $ 0.16   $ (0.05 ) $ (0.31 ) $ (0.34 ) $ (0.54 )
 
Weighted average shares of common stock
used to calculate earnings per share:		                              
 
Basic   5,389,842     5,406,894   5,424,927   5,435,849     5,413,330  
Diluted   5,416,020     5,406,894   5,424,927   5,435,849     5,413,330  
 
Year ended December 31, 2010                              
Revenue $ 6,059   $ 5,888   $ 6,250   $ 6,229   $ 24,426  
Operating loss   (1,464 )   (1,578 )   (1,626 )   (4,003 )   (8,671 )
Net income (loss) (2)   945     876     1,266     (235 )   2,852  
 
Basic Basic earnings per share $ 0.18   $ 0.16   $ 0.24   $ (0.05 ) $ 0.53  
Diluted earnings per common share $ 0.17   $ 0.16   $ 0.23   $ (0.05 ) $ 0.52  
 
Weighted average shares of common stock
used to calculate earnings per share:		                              
Basic   5,358,366     5,360,611   5,362,433   5,369,749     5,363,543  
Diluted   5,378,114     5,398,727   5,407,192   5,369,749     5,407,994  

 

(1) Included in net loss in the fourth quarter of 2011 is an accrual with respect to a dispute with a another carrier of $900.

(2) Included in net loss in the fourth quarter of 2010 is a loss on impairment on fixed assets of $2,283.

(3) As a result of the net loss, there is no difference between basic and diluted earnings (loss) per share.
XML 50 R5.htm IDEA: XBRL DOCUMENT v2.4.0.6
Consolidated Statements Of Cash Flows (USD $)
In Thousands, unless otherwise specified
 12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
CASH FLOW FROM OPERATING ACTIVITIES:      
Net Income (loss) $ (2,921) $ 2,852 $ 6,815
Adjustments to reconcile net income (loss) to net cash provided by operating activities:      
Depreciation and amortization 5,266 5,780 5,468
Allowance for uncollectibles 409 (5) 107
Stock based compensation expense 960 341 128
Deferred income taxes 214 (1,859) 1,084
Impairment loss on video assets   2,283  
Income from equity investments, net of distributions 5,702 (12) 99
Change in fair value of derivative liability 15    
Bargain purchase gain     (1,749)
Changes in assets and liabilities, net of effects of business acquisitions      
Accounts receivable 113 213 (283)
Other accounts receivable (80) 66 68
Materials and supplies 154 2 268
Prepaid income taxes (2,715) 674 (498)
Prepaid expenses (123) (91) 147
Other assets (103) (45) (19)
Accounts payable 379 141 258
Customers' deposits (72) (46) 2
Advance billing and payment (7) 64 108
Accrued taxes (520) 792 131
Pension and postretirement benefit obligations (13) 127 (625)
Other accrued expenses 924 896 (171)
Net cash provided by operating activities 7,582 12,173 11,338
CASH FLOW FROM INVESTING ACTIVITIES:      
Capital expenditures (2,397) (1,373) (1,693)
Purchase of intangible assets (484) (63) (16)
Sales of short-term investments 2,408 1,002  
Purchase of short-term investments   (3,432) (254)
Business acquisition, net of cash acquired (10,250)   (1,487)
Net cash used in investing activities (10,723) (3,866) (3,450)
CASH FLOW FROM FINANCING ACTIVITIES:      
Proceeds from short-term borrowings 9,000    
Repayment of long term debt and short-term borrowings (4,919) (1,519) (1,518)
Repayments of amount due in connection with business acquisition (478)    
Repayment of capital leases (671)    
Dividends (Common and Preferred) (5,794) (5,225) (4,761)
Exercise of stock options   50  
Purchase of treasury stock (321)    
Net cash used in financing activities (3,183) (6,694) (6,279)
Net increase (decrease) in cash and cash equivalents (6,324) 1,613 1,609
Cash and cash equivalents at beginning of year 10,899 9,286 7,677
Cash and cash equivalents at end of year 4,575 10,899 9,286
Supplemental disclosure of cash flow information:      
Interest paid 64 110 184
Income taxes paid 2,325 2,025 2,805
Suplemental disclosure of non-cash investing and financing activities:      
Non-cash consideration used in business acquisition 7,568    
Treasury stock acquired in connection with cashless exercise of stock options $ 1,171    
XML 51 R10.htm IDEA: XBRL DOCUMENT v2.4.0.6
New Accounting Pronouncements
 12 Months Ended
Dec. 31, 2011
New Accounting Pronouncements [Abstract]  
New Accounting Pronouncements

NOTE 3: NEW ACCOUNTING PRONOUNCEMENTS

In May 2011, an accounting standards update regarding fair value measurement was issued. This update was issued to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. This update also changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. This update becomes effective for annual periods beginning after December 15, 2011. The Company does not believe this will have a material impact on its consolidated financial statements.

In June 2011, an accounting standards update regarding the presentation of comprehensive income was issued. This update was issued to increase the prominence of items reported in other comprehensive income and requires that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This update becomes effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company does not believe this will have a material impact on its consolidated financial statements.

In September 2011, an accounting standards update regarding the testing of goodwill for impairment was issued. This update allows a company to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount to determine whether it is necessary to perform the two-step goodwill impairment test. This update becomes effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, and earlier adoption is permitted. The Company does not believe this will have a material impact on its disclosures or consolidated financial statements.
XML 52 R27.htm IDEA: XBRL DOCUMENT v2.4.0.6
Subsequent Events
 12 Months Ended
Dec. 31, 2011
Subsequent Events [Abstract]  
Subsequent Events

NOTE 20: SUBSEQUENT EVENTS

The Company has evaluated subsequent events occurring after the balance sheet date. Based on this evaluation, the Company has determined that no subsequent events, except for the matters discussed below, have occurred which require disclosure in the consolidated financial statements.

On January 11, 2012, the Company received notice from the NYPSC approving the Company's petition for the Amended and Restated Warwick Valley Telephone Company 2008 Long-Term Incentive Plan. On January 18, 2012, NJBPU approved the Company's petition for Approval of the Amended and Restated Warwick Valley Telephone Company 2008 Long-Term Incentive Plan.

On January 24, 2012, the Company filed and completed a name change for two of its subsidiaries. Warwick Valley Mobile Inc. changed its name to USA Datanet Inc. and Warwick Valley Networks Inc. changed its name to Alteva Inc.

Effective February 1, 2012, the Company revised the Employment Agreement with its executive Vice President and Chief Operating Officer, increasing his annual salary to $315 per year.

On February 21, 2012, the Company's Board of Directors declared a regular quarterly dividend of $0.27 per share of the Company's common stock and $1.25 per share of the Company's preferred stock. The dividends are payable on March 27, 2012 to the shareholders of record on March 15, 2012.

In January 2012, the Company awarded 14,608 shares of restricted stock to directors of the Company under the Company's Amended and Restated LTIP. In February 2012, the Company awarded 31,673 shares of restricted stock and 81,504 stock options to its employees under the Company's Amended and Restated LTIP.

On March 9, 2012, the Company entered into a non-binding term sheet to resolve a dispute with another carrier for $900 and management does not expect the final executed settlement agreement to be materially different than the non-binding term sheet.
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Debt Obligations
 12 Months Ended
Dec. 31, 2011
Debt Obligations [Abstract]  
Debt Obligations

NOTE 13: DEBT OBLIGATIONS

Debt obligations consisted of the following at December 31:

         
  2011 2010
Long-term debt:        
Current maturities CoBank ACB, unsecured term credit facility $ 1,139 $ 1,519
Long-term portion CoBank ACB, unsecured term credit facility   -   1,139
    1,139   2,658
Short-term debt:        
CoBank ACB revolving loan facility   5,000   -
Provident Bank credit line   600   -
    5,600   -
Total debt obligations $ 6,739 $ 2,658

 

On February 18, 2003, the Company entered into its master loan agreement with CoBank, ACB with respect to an $18,475 unsecured term credit facility. The CoBank ACB, unsecured term credit facility loan remains outstanding until all indebtedness and obligations of the Company under the facility have been paid or satisfied, but no later than July 2012 (the "Maturity Date"). The unpaid principal balance of $1,139 accrues interest at an interest rate determined or selected by the Company. The Company may select a variable rate option, a long-term fixed rate option or a LIBOR option. The Company selected the variable rate option, and the average interest rate on borrowings for the years ended December 31, 2011, 2010, and 2009 was approximately 2.98%, 2.96%, and 3.04%, respectively. Interest is paid quarterly each January, April, July and October. The outstanding principal is being repaid in 32 consecutive quarterly installments which started in October 2004, with the last such installment due on the Maturity Date. On the Maturity Date, the amount of the unpaid principal plus accrued interest and fees is due in full.

On August 3, 2011, the Company entered into a supplement to its master loan agreement with CoBank, ACB. The supplement provides for a revolving loan facility in the principal amount of $5,000 (the "CoBank Revolving Loan"). Also on August 3, 2011, the Company drew down the entire $5,000 principal amount of the CoBank Revolving Loan to fund a portion of the purchase price of the Alteva, LLC acquisition. The CoBank Revolving Loan becomes due and payable on August 2, 2012. The CoBank Revolving Loan incurs interest at a variable rate determined by CoBank, ACB or, if selected by the Company, at LIBOR plus 3.50%. Interest is payable quarterly in arrears. The interest rate on the outstanding amount is variable and, as of December 31, 2011, the rate was 3.75%. The Company paid CoBank, ACB a $50 origination fee in connection with the CoBank Revolving Loan.

Under the terms of the CoBank facility, the Company is required to comply with certain loan covenants, which include, but are not limited to, the achievement of certain financial ratios, as set forth in the agreement, as well as certain financial reporting requirements. As of December 31, 2011, the Company was in compliance with all loan covenants.

The Company has an unsecured $4,000 line of credit with Provident Bank. On August 1, 2011, the Company drew down its entire $4,000 line of credit with Provident Bank and placed the proceeds in an escrow account, pursuant to the terms of the agreement with Alteva, LLC. The Company paid $649 for certain capital leases of Alteva, LLC from the escrow account. On October 21, 2011, the NYPSC approved the Company's petition for authority to issue stock as partial consideration for the purchase of the assets of Alteva, LLC and on September 22, 2011, the NJBPU also approved the Company's petition for authority to issue stock. As a result, the balance of $3,351, which was placed in escrow, was returned to the Company. As of December 31, 2011, $600 remains outstanding on the line of credit with Provident Bank. The Company had no outstanding balance on this facility as of December 31, 2010. Interest is at a variable rate and borrowings are on a demand basis without restrictions. At December 31, 2011, the Company was in compliance with all loan covenants under the line of credit.