(Mark One)
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended September 30, 2011
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Or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
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OTELCO INC.
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(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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52-2126395
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(State or Other Jurisdiction of Incorporation or
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(I.R.S. Employer Identification No.)
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Organization)
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||
505 Third Avenue East, Oneonta, Alabama
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35121
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(Address of Principal Executive Offices)
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(Zip Code)
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(205) 625-3574
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(Registrant’s Telephone Number, Including Area Code)
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N/A
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(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
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Yes x
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No o
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Yes x
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No o
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Large accelerated filer o
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Accelerated filer x
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Non-accelerated filer o
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Smaller reporting company o
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Yes o
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No x
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Class
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Outstanding at November 4, 2011
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Class A Common Stock ($0.01 par value per share)
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13,221,404
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Class B Common Stock ($0.01 par value per share)
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0
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Page
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2
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2
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2
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3
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4
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13
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22
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24
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24
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OTELCO INC. |
CONSOLIDATED BALANCE SHEETS |
December 31,
2010
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September 30,
2011
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|||||||
(unaudited)
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||||||||
Assets
|
||||||||
Current assets
|
||||||||
Cash and cash equivalents
|
$ | 18,226,374 | $ | 17,761,824 | ||||
Accounts receivable:
|
||||||||
Due from subscribers, net of allowance for doubtful accounts of $230,752 and $273,345, respectively
|
4,406,257 | 4,360,122 | ||||||
Unbilled receivables
|
2,161,277 | 2,197,367 | ||||||
Other
|
4,299,088 | 5,486,213 | ||||||
Materials and supplies
|
1,817,311 | 1,999,397 | ||||||
Prepaid expenses
|
1,305,028 | 1,180,987 | ||||||
Deferred income taxes
|
626,267 | 626,267 | ||||||
Total current assets
|
32,841,602 | 33,612,177 | ||||||
Property and equipment, net
|
63,887,213 | 62,616,216 | ||||||
Goodwill
|
188,190,078 | 188,190,078 | ||||||
Intangible assets, net
|
25,934,042 | 20,501,145 | ||||||
Investments
|
1,967,095 | 1,947,963 | ||||||
Deferred financing costs
|
5,757,825 | 4,731,752 | ||||||
Deferred income taxes
|
4,415,097 | 4,415,097 | ||||||
Other assets
|
183,946 | 122,940 | ||||||
Total assets
|
$ | 323,176,898 | $ | 316,137,368 | ||||
Liabilities and Stockholders’ Deficit
|
||||||||
Current liabilities
|
||||||||
Accounts payable
|
$ | 768,055 | $ | 1,460,497 | ||||
Accrued expenses
|
7,926,954 | 7,217,175 | ||||||
Advance billings and payments
|
1,595,133 | 1,485,017 | ||||||
Deferred income taxes
|
353,285 | 353,285 | ||||||
Customer deposits
|
172,479 | 179,524 | ||||||
Total current liabilities
|
10,815,906 | 10,695,498 | ||||||
Deferred income taxes
|
42,512,576 | 42,512,576 | ||||||
Interest rate swaps
|
2,471,331 | 830,299 | ||||||
Advance billings and payments
|
656,968 | 625,930 | ||||||
Other liabilities
|
368,349 | 401,144 | ||||||
Long-term notes payable
|
271,595,855 | 271,133,432 | ||||||
Total liabilities
|
328,420,985 | 326,198,879 | ||||||
Stockholders’ Deficit
|
||||||||
Class A Common Stock, $.01 par value-authorized 20,000,000 shares; issued and outstanding 13,221,404 shares
|
132,214 | 132,214 | ||||||
Additional paid in capital
|
921,718 | - | ||||||
Retained deficit
|
(6,298,019 | ) | (10,193,725 | ) | ||||
Total stockholders’ deficit
|
(5,244,087 | ) | (10,061,511 | ) | ||||
Total liabilities and stockholders’ deficit
|
$ | 323,176,898 | $ | 316,137,368 |
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2010
|
2011
|
2010
|
2011
|
|||||||||||||
Revenues
|
$ | 26,145,227 | $ | 25,302,747 | $ | 78,450,381 | $ | 76,195,806 | ||||||||
Operating expenses
|
||||||||||||||||
Cost of services and products
|
10,336,220 | 10,985,814 | 31,374,193 | 32,762,538 | ||||||||||||
Selling, general and administrative expenses
|
3,307,743 | 3,248,746 | 9,775,255 | 9,485,763 | ||||||||||||
Depreciation and amortization
|
5,773,298 | 4,944,033 | 17,692,899 | 15,176,030 | ||||||||||||
Total operating expenses
|
19,417,261 | 19,178,593 | 58,842,347 | 57,424,331 | ||||||||||||
Income from operations
|
6,727,966 | 6,124,154 | 19,608,034 | 18,771,475 | ||||||||||||
Other income (expense)
|
||||||||||||||||
Interest expense
|
(6,320,757 | ) | (6,222,487 | ) | (18,488,869 | ) | (18,591,790 | ) | ||||||||
Change in fair value of derivatives
|
(358,833 | ) | 654,791 | (1,421,282 | ) | 1,641,032 | ||||||||||
Other income
|
150,790 | 6,189 | 533,649 | 388,686 | ||||||||||||
Total other expense
|
(6,528,800 | ) | (5,561,507 | ) | (19,376,502 | ) | (16,562,072 | ) | ||||||||
Income before income tax
|
199,166 | 562,647 | 231,532 | 2,209,403 | ||||||||||||
Income tax (expense) benefit
|
(136,091 | ) | 322,815 | (136,835 | ) | (36,013 | ) | |||||||||
Net income available to common stockholders
|
$ | 63,075 | $ | 885,462 | $ | 94,697 | $ | 2,173,390 | ||||||||
Weighted average common shares outstanding:
|
||||||||||||||||
Basic
|
13,221,404 | 13,221,404 | 12,906,173 | 13,221,404 | ||||||||||||
Diluted
|
13,221,404 | 13,221,404 | 13,221,404 | 13,221,404 | ||||||||||||
Basic net income per share
|
$ | 0.00 | $ | 0.07 | $ | 0.01 | $ | 0.16 | ||||||||
Diluted net income per share
|
$ | 0.00 | $ | 0.07 | $ | 0.01 | $ | 0.16 | ||||||||
Dividends declared per share
|
$ | 0.18 | $ | 0.18 | $ | 0.53 | $ | 0.53 | ||||||||
OTELCO INC. CONSOLIDATED STATEMENTS OF CASH FLOWS |
Nine Months Ended
September 30,
|
||||||||
2010
|
2011
|
|||||||
Cash flows from operating activities:
|
||||||||
Net income
|
$ | 94,697 | $ | 2,173,390 | ||||
Adjustments to reconcile net income to cash flows from operating activities:
|
||||||||
Depreciation
|
10,164,224 | 8,751,166 | ||||||
Amortization
|
7,528,676 | 6,424,864 | ||||||
Amortization of debt premium
|
(68,220 | ) | (76,595 | ) | ||||
Amortization of loan costs
|
1,019,326 | 1,026,072 | ||||||
Change in fair value of derivatives
|
1,421,282 | (1,641,032 | ) | |||||
Provision for uncollectible revenue
|
179,634 | 545,338 | ||||||
Changes in operating assets and liabilities; net of operating assets and liabilities acquired:
|
||||||||
Accounts receivables
|
(1,574,850 | ) | (1,654,102 | ) | ||||
Material and supplies
|
205,834 | (182,086 | ) | |||||
Prepaid expenses and other assets
|
206,918 | 111,735 | ||||||
Income tax receivable
|
389,486 | - | ||||||
Accounts payable and accrued liabilities
|
(142,257 | ) | (17,338 | ) | ||||
Advance billings and payments
|
(59,859 | ) | (141,154 | ) | ||||
Other liabilities
|
69,397 | 39,841 | ||||||
Net cash from operating activities
|
19,434,288 | 15,360,099 | ||||||
Cash flows used in investing activities:
|
||||||||
Acquisition and construction of property and equipment
|
(6,443,959 | ) | (8,448,004 | ) | ||||
Deferred charges
|
(1,041 | ) | - | |||||
Net cash used in investing activities
|
(6,445,000 | ) | (8,448,004 | ) | ||||
Cash flows used in financing activities:
|
||||||||
Cash dividends paid
|
(6,894,819 | ) | (6,990,817 | ) | ||||
Direct cost of exchange of Class B shares for Class A common shares
|
(194,053 | ) | - | |||||
Principal repayment of long-term debt
|
- | (385,828 | ) | |||||
Loan origination costs
|
(155,160 | ) | - | |||||
Net cash used in financing activities
|
(7,244,032 | ) | (7,376,645 | ) | ||||
Net increase (decrease) in cash and cash equivalents
|
5,745,256 | (464,550 | ) | |||||
Cash and cash equivalents, beginning of period
|
17,731,044 | 18,226,374 | ||||||
Cash and cash equivalents, end of period
|
$ | 23,476,300 | $ | 17,761,824 | ||||
Supplemental disclosures of cash flow information:
|
||||||||
Interest paid
|
$ | 17,345,346 | $ | 17,642,313 | ||||
Income taxes paid (received)
|
$ | (197,534 | ) | $ | 165,061 | |||
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
2010
|
2011
|
2010
|
2011
|
|||||||||||||
Weighted average of common shares-basic
|
13,221,404 | 13,221,404 | 12,906,173 | 13,221,404 | ||||||||||||
Effect of dilutive securities
|
- | - | 315,231 | - | ||||||||||||
Weighted-average common shares and potential common shares-diluted
|
13,221,404 | 13,221,404 | 13,221,404 | 13,221,404 | ||||||||||||
Net income available to common stockholders
|
$ | 63,075 | $ | 885,462 | $ | 94,697 | $ | 2,173,390 | ||||||||
Net income per basic share
|
$ | 0.00 | $ | 0.07 | $ | 0.01 | $ | 0.16 | ||||||||
Net income available to common stockholders
|
$ | 63,075 | $ | 885,462 | $ | 94,697 | $ | 2,173,390 | ||||||||
Less: Change in fair value of Class B derivative
|
- | - | - | - | ||||||||||||
Net income available for diluted shares
|
$ | 63,075 | $ | 885,462 | $ | 94,697 | $ | 2,173,390 | ||||||||
Net income per diluted share
|
$ | 0.00 | $ | 0.07 | $ | 0.01 | $ | 0.16 | ||||||||
|
●
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Level 1 consists of observable market data in an active market for identical assets or liabilities.
|
|
●
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Level 2 consists of observable market data, other than that included in Level 1, that is either directly or indirectly observable.
|
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●
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Level 3 consists of unobservable market data. The input may reflect the assumptions of the Company, not a market participant, if there is little available market data and the Company’s own assumptions are considered by management to be the best available information.
|
December 31, 2010
|
||||||||||||||||
Fair Value
|
Level 1 (1)
|
Level 2 (2)
|
Level 3 (3)
|
|||||||||||||
Liabilities
|
||||||||||||||||
Interest rate swaps
|
$ | 2,471,331 | $ | - | $ | 2,471,331 | $ | - | ||||||||
Total liabilities
|
$ | 2,471,331 | $ | - | $ | 2,471,331 | $ | - | ||||||||
September 30, 2011
|
||||||||||||||||
Fair Value
|
Level 1 (1)
|
Level 2 (2)
|
Level 3 (3)
|
|||||||||||||
Liabilities
|
||||||||||||||||
Interest rate swaps
|
$ | 830,299 | $ | - | $ | 830,299 | $ | - | ||||||||
Total liabilities
|
$ | 830,299 | $ | - | $ | 830,299 | $ | - |
Parent
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
ASSETS
|
||||||||||||||||||||
Current assets
|
||||||||||||||||||||
Cash and cash equivalents
|
$ | - | $ | 18,064,970 | $ | 161,404 | $ | - | $ | 18,226,374 | ||||||||||
Accounts receivable, net
|
- | 9,741,477 | 1,125,145 | - | 10,866,622 | |||||||||||||||
Materials and supplies
|
- | 893,186 | 924,125 | - | 1,817,311 | |||||||||||||||
Prepaid expenses
|
184,055 | 1,022,697 | 98,276 | - | 1,305,028 | |||||||||||||||
Deferred income taxes
|
626,267 | - | - | - | 626,267 | |||||||||||||||
Investment in subsidiaries
|
131,010,180 | - | - | (131,010,180 | ) | - | ||||||||||||||
Intercompany receivable
|
(129,599,481 | ) | - | - | 129,599,481 | - | ||||||||||||||
Total current assets
|
2,221,021 | 29,722,330 | 2,308,950 | (1,410,699 | ) | 32,841,602 | ||||||||||||||
Property and equipment, net
|
218,301 | 54,043,819 | 9,625,093 | - | 63,887,213 | |||||||||||||||
Goodwill
|
239,970,317 | (49,843,599 | ) | (1,936,640 | ) | - | 188,190,078 | |||||||||||||
Intangible assets, net
|
- | 23,326,214 | 2,607,828 | - | 25,934,042 | |||||||||||||||
Investments
|
1,203,605 | 433,059 | 330,431 | - | 1,967,095 | |||||||||||||||
Deferred income taxes
|
4,415,097 | - | - | - | 4,415,097 | |||||||||||||||
Other long-term assets
|
5,757,825 | 183,946 | - | - | 5,941,771 | |||||||||||||||
Total assets
|
$ | 253,786,166 | $ | 57,865,769 | $ | 12,935,662 | $ | (1,410,699 | ) | $ | 323,176,898 | |||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
||||||||||||||||||||
Current liabilities
|
||||||||||||||||||||
Accounts payable and accrued expenses
|
$ | 2,280,661 | $ | ,659,879 | $ | 1,754,469 | $ | - | $ | 8,695,009 | ||||||||||
Intercompany payables
|
- | (131,769,870 | ) | 2,170,389 | 129,599,481 | - | ||||||||||||||
Other current liabilities
|
353,285 | 1,678,145 | 89,467 | - | 2,120,897 | |||||||||||||||
Total current liabilities
|
2,633,946 | (125,431,846 | ) | 4,014,325 | 129,599,481 | 10,815,906 | ||||||||||||||
Deferred income taxes
|
22,592,597 | 16,666,501 | 3,253,478 | - | 42,512,576 | |||||||||||||||
Other liabilities
|
2,471,331 | 1,025,317 | - | - | 3,496,648 | |||||||||||||||
Long-term notes payable
|
231,332,379 | 40,263,476 | - | - | 271,595,855 | |||||||||||||||
Stockholders’ equity (deficit)
|
(5,244,087 | ) | 125,342,321 | 5,667,859 | (131,010,180 | ) | (5,244,087 | ) | ||||||||||||
Total liabilities and stockholders’ equity (deficit)
|
$ | 253,786,166 | $ | 57,865,769 | $ | 2,935,662 | $ | (1,410,699 | ) | $ | 323,176,898 |
Parent
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
ASSETS
|
||||||||||||||||||||
Current assets
|
||||||||||||||||||||
Cash and cash equivalents
|
$ | - | $ | 17,752,032 | $ | 9,792 | $ | - | $ | 17,761,824 | ||||||||||
Accounts receivable, net
|
- | 10,879,007 | 1,164,695 | - | 12,043,702 | |||||||||||||||
Materials and supplies
|
- | 849,575 | 1,149,822 | - | 1,999,397 | |||||||||||||||
Prepaid expenses
|
160,297 | 952,807 | 67,883 | - | 1,180,987 | |||||||||||||||
Deferred income taxes
|
626,267 | - | - | - | 626,267 | |||||||||||||||
Investment in subsidiaries
|
149,543,965 | - | - | (149,543,965 | ) | - | ||||||||||||||
Intercompany receivable
|
(154,353,456 | ) | (330,279 | ) | 330,279 | 154,353,456 | - | |||||||||||||
Total current assets
|
(4,022,927 | ) | 30,103,142 | 2,722,471 | 4,809,491 | 33,612,177 | ||||||||||||||
Property and equipment, net
|
53,727,539 | 8,888,677 | - | 62,616,216 | ||||||||||||||||
Goodwill
|
239,970,317 | (49,843,599 | ) | (1,936,640 | ) | - | 188,190,078 | |||||||||||||
Intangible assets, net
|
- | 18,079,590 | 2,421,555 | - | 20,501,145 | |||||||||||||||
Investments
|
1,203,605 | 413,927 | 330,431 | - | 1,947,963 | |||||||||||||||
Deferred income taxes
|
4,415,097 | - | - | - | 4,415,097 | |||||||||||||||
Other long-term assets
|
4,731,752 | 122,940 | - | - | 4,854,692 | |||||||||||||||
Total assets
|
$ | 246,297,844 | $ | 52,603,539 | $ | 12,426,494 | $ | 4,809,491 | $ | 316,137,368 | ||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
||||||||||||||||||||
Current liabilities
|
||||||||||||||||||||
Accounts payable and accrued expenses
|
$ | 1,713,218 | $ | 5,140,551 | $ | 1,823,903 | $ | - | $ | 8,677,672 | ||||||||||
Intercompany payables
|
- | (154,353,456 | ) | - | 154,353,456 | - | ||||||||||||||
Other current liabilities
|
353,285 | 1,544,978 | 119,563 | - | 2,017,826 | |||||||||||||||
Total current liabilities
|
2,066,503 | (147,667,927 | ) | 1,943,466 | 154,353,456 | 10,695,498 | ||||||||||||||
Deferred income taxes
|
22,592,597 | 16,666,501 | 3,253,478 | - | 42,512,576 | |||||||||||||||
Other liabilities
|
830,299 | 1,027,074 | - | - | 1,857,373 | |||||||||||||||
Long-term notes payable
|
230,869,956 | 40,263,476 | - | - | 271,133,432 | |||||||||||||||
Stockholders’ equity (deficit)
|
(10,061,511 | ) | 142,314,415 | 7,229,550 | (149,543,965 | ) | (10,061,511 | ) | ||||||||||||
Total liabilities and stockholders’ equity (deficit)
|
$ | 246,297,844 | $ | 52,603,539 | $ | 12,426,494 | $ | 4,809,491 | $ | 316,137,368 |
Parent
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
Revenue
|
$ | 922,701 | $ | 25,557,714 | $ | 2,569,589 | $ | (2,904,777 | ) | $ | 26,145,227 | |||||||||
Operating expenses
|
(922,701 | ) | (19,202,600 | ) | (2,196,737 | ) | 2,904,777 | (19,417,261 | ) | |||||||||||
Income from operations
|
- | 6,355,114 | 372,852 | - | 6,727,966 | |||||||||||||||
Other income (expense)
|
(6,565,182 | ) | (62,197 | ) | 98,579 | - | (6,528,800 | ) | ||||||||||||
Earnings from subsidiaries
|
6,764,348 | - | - | (6,764,348 | ) | - | ||||||||||||||
Income before income tax
|
199,166 | 6,292,917 | 471,431 | (6,764,348 | ) | 199,166 | ||||||||||||||
Income tax expense
|
(136,091 | ) | - | - | - | (136,091 | ) | |||||||||||||
Net income to common stockholders
|
$ | 63,075 | $ | 6,292,917 | $ | 471,431 | $ | (6,764,348 | ) | $ | 63,075 |
Parent
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
Revenues
|
$ | 789,508 | $ | 24,680,968 | $ | 2,555,301 | $ | (2,723,030 | ) | $ | 25,302,747 | |||||||||
Operating expenses
|
(789,507 | ) | (19,228,795 | ) | (1,883,323 | ) | 2,723,032 | (19,178,593 | ) | |||||||||||
Income from operations
|
1 | 5,452,173 | 671,978 | 2 | 6,124,154 | |||||||||||||||
Other expense
|
(5,471,374 | ) | (90,130 | ) | (3 | ) | - | (5,561,507 | ) | |||||||||||
Earnings from subsidiaries
|
6,034,020 | - | - | (6,034,020 | ) | - | ||||||||||||||
Income before income tax
|
562,647 | 5,362,043 | 671,975 | (6,034,018 | ) | 562,647 | ||||||||||||||
Income tax benefit
|
322,815 | - | - | - | 322,815 | |||||||||||||||
Net income to common stockholders
|
$ | 885,462 | $ | 5,362,043 | $ | 671,975 | $ | (6,034,018 | ) | $ | 885,462 |
Parent
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
Revenue
|
$ | 2,543,780 | $ | 76,324,827 | $ | 8,121,091 | $ | (8,539,317 | ) | $ | 78,450,381 | |||||||||
Operating expenses
|
(2,543,780 | ) | (58,125,997 | ) | (6,711,887 | ) | 8,539,317 | (58,842,347 | ) | |||||||||||
Income from operations
|
- | 18,198,830 | 1,409,204 | - | 19,608,034 | |||||||||||||||
Other income (expense)
|
(19,246,771 | ) | (228,260 | ) | 98,529 | - | (19,376,502 | ) | ||||||||||||
Earnings from subsidiaries
|
19,478,303 | - | - | (19,478,303 | ) | - | ||||||||||||||
Income before income tax
|
231,532 | 17,970,570 | 1,507,733 | (19,478,303 | ) | 231,532 | ||||||||||||||
Income tax expense
|
(136,835 | ) | - | - | - | (136,835 | ) | |||||||||||||
Net income to common stockholders
|
$ | 94,697 | $ | 17,970,570 | $ | 1,507,733 | $ | (19,478,303 | ) | $ | 94,697 |
Parent
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
Revenues
|
$ | 2,356,860 | $ | 74,334,212 | $ | 7,679,207 | $ | (8,174,473 | ) | $ | 76,195,806 | |||||||||
Operating expenses
|
(2,356,860 | ) | (57,121,439 | ) | (6,120,507 | ) | 8,174,475 | (57,424,331 | ) | |||||||||||
Income from operations
|
- | 17,212,773 | 1,558,700 | 2 | 18,771,475 | |||||||||||||||
Other income (expense)
|
(16,324,377 | ) | (240,685 | ) | 2,990 | - | (16,562,072 | ) | ||||||||||||
Earnings from subsidiaries
|
18,533,780 | - | - | (18,533,780 | ) | - | ||||||||||||||
Income before income tax
|
2,209,403 | 16,972,088 | 1,561,690 | (18,533,778 | ) | 2,209,403 | ||||||||||||||
Income tax expense
|
(36,013 | ) | - | - | - | (36,013 | ) | |||||||||||||
Net income to common stockholders
|
$ | 2,173,390 | $ | 16,972,088 | $ | 1,561,690 | $ | (18,533,778 | ) | $ | 2,173,390 |
Parent
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
Cash flows from operating activities:
|
||||||||||||||||||||
Net income
|
$ | 94,697 | $ | 17,970,570 | $ | 1,507,733 | $ | (19,478,303 | ) | $ | 94,697 | |||||||||
Adjustment to reconcile net income to cash flows from operating activities
|
2,372,388 | 15,397,870 | 2,474,664 | - | 20,244,922 | |||||||||||||||
Changes in assets and liabilities, net of assets and liabilities acquired
|
24,255,251 | (21,849,526 | ) | (3,311,056 | ) | - | (905,331 | ) | ||||||||||||
Net cash provided by operating activities
|
26,722,336 | 11,518,914 | 671,341 | (19,478,303 | ) | 19,434,288 | ||||||||||||||
Cash flows used in investing activities
|
- | (5,792,495 | ) | (652,505 | ) | - | (6,445,000 | ) | ||||||||||||
Cash flows used in financing activities
|
(26,722,336 | ) | 1 | - | 19,478,303 | (7,244,032 | ) | |||||||||||||
Net increase in cash and cash equivalents
|
- | 5,726,420 | 18,836 | - | 5,745,256 | |||||||||||||||
Cash and cash equivalents, beginning of period
|
- | 17,617,266 | 113,778 | - | 17,731,044 | |||||||||||||||
Cash and cash equivalents, end of period
|
$ | - | $ | 23,343,686 | $ | 132,614 | $ | - | $ | 23,476,300 |
Parent
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
Cash flows from operating activities:
|
||||||||||||||||||||
Net income
|
$ | 2,173,390 | $ | 16,972,088 | $ | 1,561,690 | $ | (18,533,778 | ) | $ | 2,173,390 | |||||||||
Adjustment to reconcile net income to cash flows from operating activities
|
(691,555 | ) | 13,777,274 | 1,944,094 | - | 15,029,813 | ||||||||||||||
Changes in assets and liabilities, net of assets and liabilities acquired
|
24,210,292 | (23,327,940 | ) | (2,725,456 | ) | - | (1,843,104 | ) | ||||||||||||
Net cash provided by operating activities
|
25,692,127 | 7,421,422 | 780,328 | (18,533,778 | ) | 15,360,099 | ||||||||||||||
Cash flows provided by (used in) investing activities
|
218,301 | (7,734,365 | ) | (931,940 | ) | - | (8,448,004 | ) | ||||||||||||
Cash flows provided by (used in) financing activities
|
(25,910,428 | ) | 5 | - | 18,533,778 | (7,376,645 | ) | |||||||||||||
Net decrease in cash and cash equivalents
|
- | (312,938 | ) | (151,612 | ) | - | (464,550 | ) | ||||||||||||
Cash and cash equivalents, beginning of period
|
- | 18,064,970 | 161,404 | - | 18,226,374 | |||||||||||||||
Cash and cash equivalents, end of period
|
$ | - | $ | 17,752,032 | $ | 9,792 | $ | - | $ | 17,761,824 |
|
●
|
Local services. We receive revenues from providing local exchange telecommunications services in our ten rural territories, from the wholesale network services in New England and on a competitive basis throughout Maine and New Hampshire. These revenues include monthly subscription charges for basic service, calling beyond the local territory on a fixed price and on a per minute basis, local private line services and enhanced calling features, such as voicemail, caller identification, call waiting and call forwarding. We also provide billing and collections services for other carriers under contract and receive revenues from directory advertising. A growing portion of our rural subscribers take bundled service plans which include multiple services, including unlimited domestic calling, for a flat monthly fee.
|
|
●
|
Network access. We receive revenues from charges established to compensate us for the origination, transport and termination of calls of long distance and other interexchange carriers. These include subscriber line charges imposed on end users and switched and special access charges paid by carriers. Switched access charges for long distance services within Alabama, Maine, Massachusetts, Missouri, New Hampshire and West Virginia are based on rates approved by the Alabama Public Service Commission, the Maine Public Utilities Commission (the “MPUC”), the Massachusetts Department of Telecommunications and Cable, the Missouri Public Service Commission, the New Hampshire Public Utilities Commission (the “NHPUC”) and the West Virginia Public Service Commission, respectively, where appropriate. Switched and special access charges for interstate and international services are based on rates approved by the Federal Communications Commission.
|
|
●
|
Cable television. We offer basic, digital, high-definition, digital video recording and pay per view cable television services to the majority of our telephone service territory in Alabama, including Internet Protocol television (“IPTV”) and Video on Demand (“VOD”). We are a reseller of satellite services for DirecTV in Missouri.
|
|
●
|
Internet. We receive revenues from monthly recurring charges for digital high-speed data lines, dial-up internet access and ancillary services such as web hosting and computer virus protection.
|
|
●
|
Transport. We receive monthly recurring revenues for the rental of fiber to transport data and other telecommunications services in New England.
|
December 31,
|
March 31,
|
June 31,
|
September 30,
|
Quarterly % Change from
|
||||||||||||||||||||
|
2009
|
2010
|
2011
|
2011
|
2011
|
June 30, 2011
|
||||||||||||||||||
Otelco access line equivalents(1)
|
100,356 | 99,639 | 99,271 | 98,304 | 97,958 | (0.4 | )% | |||||||||||||||||
RLEC and other services:
|
||||||||||||||||||||||||
Voice access lines
|
48,215 | 45,461 | 44,770 | 44,113 | 43,444 | (1.5 | )% | |||||||||||||||||
Data access lines
|
20,066 | 20,852 | 21,158 | 21,137 | 21,162 | 0.1 | % | |||||||||||||||||
Access line equivalents(1)
|
68,281 | 66,313 | 65,928 | 65,250 | 64,606 | (1.0 | )% | |||||||||||||||||
Cable television customers
|
4,195 | 4,227 | 4,029 | 4,054 | 4,156 | 2.5 | % | |||||||||||||||||
Satellite television customers
|
100 | 125 | 217 | 222 | 224 | 0.9 | % | |||||||||||||||||
Additional internet customers
|
9,116 | 6,975 | 6,435 | 6,046 | 5,654 | (6.5 | )% | |||||||||||||||||
RLEC dial-up
|
786 | 393 | 341 | 307 | 274 | (10.7 | )% | |||||||||||||||||
Other dial-up
|
6,439 | 4,300 | 3,786 | 3,403 | 3,085 | (9.3 | )% | |||||||||||||||||
Other data lines
|
1,891 | 2,282 | 2,308 | 2,336 | 2,295 | (1.8 | )% | |||||||||||||||||
CLEC:
|
||||||||||||||||||||||||
Voice access lines
|
28,647 | 29,944 | 30,084 | 29,842 | 30,145 | 1.0 | % | |||||||||||||||||
Data access lines
|
3,428 | 3,382 | 3,259 | 3,212 | 3,207 | (0.2 | )% | |||||||||||||||||
Access line equivalents(1)
|
32,075 | 33,326 | 33,343 | 33,054 | 33,352 | 0.9 | % | |||||||||||||||||
Wholesale network connections
|
132,324 | 149,043 | 152,101 | 154,785 | 155,691 | 0.6 | % | |||||||||||||||||
For the Year Ended
|
For the Three Months Ended
|
|||||||||||||||||||||||
December 31,
|
March 31,
|
June 31,
|
September 30,
|
|||||||||||||||||||||
2009 | 2010 | 2011 | 2011 | 2011 | ||||||||||||||||||||
Total revenues (in millions):
|
$ | 103.8 | $ | 104.4 | $ | 25.4 | $ | 25.5 | $ | 25.3 | ||||||||||||||
RLEC
|
$ | 60.8 | $ | 58.4 | $ | 14.2 | $ | 14.3 | $ | 14.1 | ||||||||||||||
CLEC
|
$ | 43.0 | $ | 46.0 | $ | 11.2 | $ | 11.2 | $ | 11.2 |
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
2010
|
2011
|
2010
|
2011
|
|||||||||||||
Revenues
|
||||||||||||||||
Local services
|
47.5 | % | 46.3 | % | 47.1 | % | 46.8 | % | ||||||||
Network access
|
30.9 | 31.8 | 31.4 | 31.5 | ||||||||||||
Cable television
|
2.7 | 3.0 | 2.7 | 2.9 | ||||||||||||
Internet
|
13.5 | 13.6 | 13.5 | 13.6 | ||||||||||||
Transport services
|
5.4 | 5.3 | 5.3 | 5.2 | ||||||||||||
Total revenues
|
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Operating expenses
|
||||||||||||||||
Cost of services and products
|
39.5 | % | 43.5 | % | 40.0 | % | 43.0 | % | ||||||||
Selling, general and administrative expenses
|
12.7 | 12.8 | 12.5 | 12.5 | ||||||||||||
Depreciation and amortization
|
22.1 | 19.5 | 22.5 | 19.9 | ||||||||||||
Total operating expenses
|
74.3 | 75.8 | 75.0 | 75.4 | ||||||||||||
Income from operations
|
25.7 | 24.2 | 25.0 | 24.6 | ||||||||||||
Other income (expense)
|
||||||||||||||||
Interest expense
|
(24.2 | ) | (24.6 | ) | (23.6 | ) | (24.4 | ) | ||||||||
Change in fair value of derivatives
|
(1.4 | ) | 2.6 | (1.8 | ) | 2.2 | ||||||||||
Other income
|
0.6 | 0.0 | 0.7 | 0.5 | ||||||||||||
Total other expenses
|
(25.0 | ) | (22.0 | ) | (24.7 | ) | (21.7 | ) | ||||||||
Income before income tax
|
0.7 | 2.2 | 0.3 | 2.9 | ||||||||||||
Income tax (expense) benefit
|
(0.5 | ) | 1.3 | (0.2 | ) | (0.0 | ) | |||||||||
Net income available to common stockholders
|
0.2 | % | 3.5 | % | 0.1 | % | 2.9 | % | ||||||||
Three Months Ended September 30,
|
Change
|
|||||||||||||||
2010
|
2011
|
Amount
|
Percent
|
|||||||||||||
(dollars in thousands)
|
||||||||||||||||
Local services
|
$ | 12,423 | $ | 11,715 | $ | (708 | ) | (5.7 | )% | |||||||
Network access
|
8,077 | 8,048 | (29 | ) | (0.4 | ) | ||||||||||
Cable television
|
717 | 770 | 53 | 7.4 | ||||||||||||
Internet
|
3,521 | 3,442 | (79 | ) | (2.2 | ) | ||||||||||
Transport services
|
1,407 | 1,328 | (79 | ) | (5.6 | ) | ||||||||||
Total
|
$ | 26,145 | $ | 25,303 | $ | (842 | ) | (3.2 | ) |
Nine Months Ended September 30,
|
Change
|
|||||||||||||||
2010
|
2011
|
Amount
|
Percent
|
|||||||||||||
(dollars in thousands)
|
||||||||||||||||
Local services
|
$ | 36,948 | $ | 35,661 | $ | (1,287 | ) | (3.5 | )% | |||||||
Network access
|
24,666 | 23,984 | (682 | ) | (2.8 | ) | ||||||||||
Cable television
|
2,082 | 2,229 | 147 | 7.1 | ||||||||||||
Internet
|
10,559 | 10,356 | (203 | ) | (1.9 | ) | ||||||||||
Transport services
|
4,195 | 3,966 | (229 | ) | (5.5 | ) | ||||||||||
Total
|
$ | 78,450 | $ | 76,196 | $ | (2,254 | ) | (2.9 | ) |
Three Months Ended September 30,
|
Change
|
|||||||||||||||
2010
|
2011
|
Amount
|
Percent
|
|||||||||||||
(dollars in thousands)
|
||||||||||||||||
Cost of services and products
|
$ | 10,336 | $ | 10,986 | $ | 650 | 6.3 | % | ||||||||
Selling, general and administrative expenses
|
3,308 | 3,249 | (59 | ) | (1.8 | ) | ||||||||||
Depreciation and amortization
|
5,773 | 4,944 | (829 | ) | (14.4 | ) | ||||||||||
Total
|
$ | 19,417 | $ | 19,179 | $ | (238 | ) | (1.2 | ) |
Nine Months Ended September 30,
|
Change
|
|||||||||||||||
2010
|
2011
|
Amount
|
Percent
|
|||||||||||||
(dollars in thousands)
|
||||||||||||||||
Cost of services and products
|
$ | 31,374 | $ | 32,762 | $ | 1,388 | 4.4 | % | ||||||||
Selling, general and administrative expenses
|
9,775 | 9,486 | (289 | ) | (3.0 | ) | ||||||||||
Depreciation and amortization
|
17,693 | 15,176 | (2,517 | ) | (14.2 | ) | ||||||||||
Total
|
$ | 58,842 | $ | 57,424 | $ | (1,418 | ) | (2.4 | ) |
Three Months Ended September 30,
|
Change
|
|||||||||||||||
2010
|
2011
|
Amount
|
Percent
|
|||||||||||||
(dollars in thousands)
|
||||||||||||||||
Interest expense
|
$ | (6,321 | ) | $ | (6,222 | ) | $ | (99 | ) | (1.6 | )% | |||||
Change in fair value of derivatives
|
(359 | ) | 655 | 1,014 |
NM
|
|||||||||||
Other income
|
151 | 6 | (145 | ) |
NM
|
|||||||||||
Income tax (expense) benefit
|
(136 | ) | 323 | 459 |
NM
|
Nine Months Ended September 30,
|
Change
|
|||||||||||||||
2010
|
2011
|
Amount
|
Percent
|
|||||||||||||
(dollars in thousands)
|
||||||||||||||||
Interest expense
|
$ | (18,489 | ) | $ | (18,592 | ) | $ | 103 | 0.6 | % | ||||||
Change in fair value of derivatives
|
(1,421 | ) | 1,641 | 3,062 |
NM
|
|||||||||||
Other income
|
534 | 389 | (145 | ) | (27.2 | ) | ||||||||||
Income tax expense
|
(137 | ) | (36 | ) | 101 |
NM
|
Nine Months Ended September 30,
|
||||||||
2010
|
2011
|
|||||||
(Dollars in Thousands)
|
||||||||
Cash generation
|
||||||||
Revenues
|
$ | 78,450 | $ | 76,196 | ||||
Other income
|
534 | 389 | ||||||
Cash received from operations
|
78,984 | 76,585 | ||||||
Cost of services and products
|
31,374 | 32,763 | ||||||
Selling, general and administrative expenses
|
9,775 | 9,486 | ||||||
Cash consumed by operations
|
41,149 | 42,249 | ||||||
Cash generated from operations
|
$ | 37,835 | $ | 34,336 | ||||
Cash utilization
|
||||||||
Capital investment in operations
|
$ | 6,444 | $ | 8,448 | ||||
Senior debt interest and fees
|
7,319 | 7,190 | ||||||
Interest on senior subordinated notes
|
10,264 | 10,497 | ||||||
Dividends
|
6,895 | 6,991 | ||||||
Cash utilized by the Company
|
$ | 30,922 | $ | 33,126 | ||||
Percentage of cash utilized of cash generated
|
81.7 | % | 96.5 | % |
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
2010
|
2011
|
2010
|
2011
|
|||||||||||||
(dollars in thousands)
|
||||||||||||||||
Net income
|
$ | 63 | $ | 885 | $ | 95 | $ | 2,173 | ||||||||
Add: Depreciation
|
3,264 | 2,922 | 10,164 | 8,751 | ||||||||||||
Interest expense - net of premium
|
5,979 | 5,880 | 17,470 | 17,566 | ||||||||||||
Interest expense - amortize loan cost
|
342 | 342 | 1,019 | 1,026 | ||||||||||||
Income tax expense (benefit)
|
136 | (323 | ) | 137 | 36 | |||||||||||
Change in fair value of derivatives
|
359 | (654 | ) | 1,421 | (1,641 | ) | ||||||||||
Loan fees
|
19 | 19 | 57 | 57 | ||||||||||||
Amortization - intangibles
|
2,509 | 2,023 | 7,528 | 6,425 | ||||||||||||
Adjusted EBITDA
|
$ | 12,671 | $ | 11,094 | $ | 37,891 | $ | 34,393 |
Date: November 4, 2011
|
OTELCO INC.
|
||
|
By:
|
/s/ Curtis L. Garner, Jr.
|
|
Curtis L. Garner, Jr.
|
|||
Chief Financial Officer
|
|||
Exhibit No.
|
Description
|
|
31.1
|
Certificate pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934 of the Chief Executive Officer
|
|
31.2
|
Certificate pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934 of the Chief Financial Officer
|
|
32.1
|
Certificate pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Executive Officer
|
|
32.2
|
Certificate pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Financial Officer
|
|
101
|
The following information from the Company’s quarterly report on Form 10-Q for the quarterly period ended September 30, 2011 formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Cash Flows; and (iv) Notes to Consolidated Financial Statements, tagged as blocks of text
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Otelco Inc.;
|
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 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 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 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.
|
/s/ Michael D. Weaver
|
|
Michael D. Weaver
|
|
President & Chief Executive Officer
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Otelco Inc.;
|
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 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 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 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.
|
/s/ Curtis L. Garner, Jr.
|
|
Curtis L. Garner, Jr.
|
|
Chief Financial Officer
|
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/ Michael D. Weaver
|
|
Michael D. Weaver
|
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Chief Executive Officer
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November 4, 2011
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1.
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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2.
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ Curtis L. Garner, Jr.
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Curtis L. Garner, Jr.
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Chief Financial Officer
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November 4, 2011
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Consolidated Balance Sheets (Parentheticals) (USD $) In Thousands, except Share data | Sep. 30, 2011 | Dec. 31, 2010 |
---|---|---|
Accounts receivable: | ||
Allowance for doubtful accounts | $ 273,345 | $ 230,752 |
Stockholders' Deficit | ||
Common stock, shares outstanding | 13,221,404 | 13,221,404 |
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 20,000,000 | 20,000,000 |
Common stock, shares issued | 13,221,404 | 13,221,404 |
Consolidated Statements Of Operations (USD $) In Thousands, except Share data | 3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |
Revenues | $ 25,302,747 | $ 26,145,227 | $ 76,195,806 | $ 78,450,381 |
Operating expenses | ||||
Cost of services and products | 10,985,814 | 10,336,220 | 32,762,538 | 31,374,193 |
Selling, general and administrative expenses | 3,248,746 | 3,307,743 | 9,485,763 | 9,775,255 |
Depreciation and amortization | 4,944,033 | 5,773,298 | 15,176,030 | 17,692,899 |
Total operating expenses | 19,178,593 | 19,417,261 | 57,424,331 | 58,842,347 |
Income from operations | 6,124,154 | 6,727,966 | 18,771,475 | 19,608,034 |
Other income (expense) | ||||
Interest expense | (6,222,487) | (6,320,757) | (18,591,790) | (18,488,869) |
Change in fair value of derivatives | 654,791 | (358,833) | 1,641,032 | (1,421,282) |
Other income | 6,189 | 150,790 | 388,686 | 533,649 |
Total other expenses | (5,561,507) | (6,528,800) | (16,562,072) | (19,376,502) |
Income before income tax | 562,647 | 199,166 | 2,209,403 | 231,532 |
Income tax (expense) benefit | 322,815 | (136,091) | (36,013) | (136,835) |
Net income available to common stockholders | $ 885,462 | $ 63,075 | $ 2,173,390 | $ 94,697 |
Weighted average common shares outstanding: | ||||
Basic | 13,221,404 | 13,221,404 | 13,221,404 | 12,906,173 |
Diluted | 13,221,404 | 13,221,404 | 13,221,404 | 13,221,404 |
Basic net income per common share | $ 0.07 | $ 0.16 | $ 0.01 | |
Diluted net income per common share | $ 0.07 | $ 0.16 | $ 0.01 | |
Dividends declared per common share | $ 0.18 | $ 0.18 | $ 0.53 | $ 0.53 |
Document And Entity Information | 9 Months Ended | |
---|---|---|
Sep. 30, 2011 | Nov. 04, 2011 | |
Entity Information | ||
Entity Registrant Name | OTELCO INC. | |
Entity Central Index Key | 0001288359 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Accelerated Filer | |
Entity Current Reporting Status | Yes | |
Entity Voluntary Filers | No | |
Entity Well-known Seasoned Issuer | No | |
Entity Common Stock, Shares Outstanding | 13,221,404 | |
Document Information | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Sep. 30, 2011 | |
Document Fiscal Year Focus | 2011 | |
Document Fiscal Period Focus | Q3 |
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Note 7 - Subsidiary Guarantees | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note 7 - Subsidiary Guarantees Disclosure | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note 7 - Subsidiary Guarantees |
7.
Subsidiary
Guarantees
The
Company has no independent assets or operations separate from its
operating subsidiaries. The guarantees of its senior
subordinated notes by 12 of its 14 operating subsidiaries are
full and unconditional, joint and several. The
operating subsidiaries have no independent long-term notes
payable. There are no significant restrictions on the
ability of the Company to obtain funds from its operating
subsidiaries by dividend or loan. The condensed
consolidated financial information is provided for the guarantor
entities.
The
following tables present condensed consolidating balance sheets
as of December 31, 2010 and September 30, 2011; condensed
consolidating statements of operations for the three months ended
September 30, 2010 and 2011; condensed consolidating statements
of operations for the nine months ended September 30, 2010 and
2011; and condensed consolidating statements of cash flows for
the nine months ended September 30, 2010 and
2011.
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Note 3 - Derivative Activities | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Note 3 - Derivative Activities Disclosure | |
Note 3 - Derivative Activities |
3.
Derivative
Activities
The
Company has two interest rate swaps with approved
counterparties. The first swap has a notional amount
of $90 million with the Company paying a fixed rate of 1.85% and
the counterparty paying a variable rate based upon the three
month LIBOR interest rate. It is effective from February 9, 2009
through February 8, 2012. The second swap has a notional amount
of $60 million with the Company paying a fixed rate of 2.0475%
and the counterparty paying a variable rate based upon the three
month LIBOR interest rate. It is effective from February 9, 2010
through February 8, 2012. From an accounting perspective, the
documentation for both swaps does not meet the technical
requirements of ASC 815,
Derivatives and
Hedging, to allow the swaps to be considered highly
effective hedging instruments and therefore the swaps do not
qualify for hedge accounting. The change in fair value
of the swaps is charged or credited to income as a change in fair
value of derivatives. Over the life of the swaps, the
cumulative change in value will be zero.
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Note 8 - Revenue Concentrations | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Note 8 - Revenue Concentrations Disclosure | |
Note 8 - Revenue Concentrations |
8.
Revenue
Concentrations
Revenues
for interstate access services are based on reimbursement of
costs and an allowed rate of return. Revenues of this
nature are received from the National Exchange Carrier
Association in the form of monthly settlements. Such
revenues amounted to 9.8% and 9.9% of the Company’s total
revenues for the nine months ended September 30, 2010 and 2011,
respectively.
The
Company has a contract through 2012 with Time Warner Cable
(“TW”) for the provision of wholesale network
connections to TW’s customers in Maine and New Hampshire.
TW represented approximately 10.5% and 11.7% of the
Company’s consolidated revenue for the nine months ended
September 30, 2010 and 2011, respectively. Other
unrelated telecommunications providers also pay the Company
access revenue for terminating calls through us to TW’s
customers.
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Note 1 - Organization and Basis of Financial Reporting | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Note 1 - Organization And Basis Of Financial Reporting Disclosure | |
Note 1 - Organization and Basis of Financial Reporting | 1.
Organization
and Basis of Financial Reporting
Basis
of Presentation and Principles of Consolidation
The
consolidated financial statements include the accounts of Otelco
Inc. (the “Company”) and its subsidiaries, all of
which are either directly or indirectly wholly owned. These
include: Otelco Telecommunications LLC
(“OTC”); Otelco Telephone LLC (“OTP”);
Hopper Telecommunications Company, Inc. (“HTC”);
Brindlee Mountain Telephone Company, Inc. (“BMTC”);
Blountsville Telephone Company, Inc. (“BTC”);
Mid-Missouri Holding Corporation (“MMH”) and its
wholly owned subsidiary Mid-Missouri Telephone Company
(“MMT”) and its wholly owned subsidiary Imagination,
Inc.; Mid-Maine Telecom, Inc. (“MMTI”); Mid-Maine
TelPlus (“MMTP”); The Granby Telephone &
Telegraph Co. of Massachusetts (“GTT”); War
Acquisition Corporation (“WT”); The Pine Tree
Telephone and Telegraph Company (“PTT”), Saco River
Telegraph and Telephone Company (“SRT”), CRC
Communications of Maine, Inc. (“PTN”), and
Communications Design Acquisition Corporation
(“CDAC”).
The
accompanying consolidated financial statements include the
accounts of the Company and all of the aforesaid subsidiaries
after elimination of all material intercompany balances and
transactions. The unaudited operating results for the
three months and nine months ended September 30, 2011 are not
necessarily indicative of the results that may be expected for
the year ending December 31, 2011 or any other period.
The
consolidated financial statements and notes included in this Form
10-Q should be read in conjunction with the consolidated
financial statements and notes thereto included in the
Company’s annual report on Form 10-K for the year ended
December 31, 2010. The interim consolidated financial
information herein is unaudited. The information
reflects all adjustments (which include only normal recurring
adjustments), which are, in the opinion of management, necessary
for a fair presentation of the financial position and results of
operations for the periods included in the report.
Certain
prior year amounts have been reclassified to conform with the
current year’s presentation.
Recent
Accounting Pronouncements
During
2011, the Financial Accounting Standards Board (the
“FASB”) issued Accounting Standards Update
(“ASU”) 2011-01 through ASU
2011-09. Except for ASU 2011-04, ASU 2011-05, ASU
2011-08, and ASU 2011-09, which are discussed below, these ASUs
provide technical corrections to existing guidance related to
specialized industries or entities and therefore, have minimal,
if any, impact on the Company.
In
May 2011, the FASB issued ASU 2011-04,
Amendments to
Achieve Common Fair Value Measurements and Disclosure
Requirements in U.S. GAAP and IFRSs (“ASU
2011-04”), an update to Accounting Standards Codification
(“ASC”) 820,
Fair Value
Measurements and Disclosures (“ASC
820”). ASU 2011-04 provides guidance to change
the wording used to describe many of the requirements in U.S.
generally accepted accounting principles for measuring fair value
and for disclosing information about fair value
measurements. For public entities, ASU 2011-04 is
effective for interim and annual periods beginning after December
15, 2011 and is to be applied prospectively. Early
application by public entities is not permitted. As
ASU 2011-04 impacts presentation only, the adoption of this
update will not impact our consolidated financial
statements.
In
June 2011, the FASB issued ASU 2011-05,
Presentation of
Comprehensive Income (“ASU 2011-05”), an
update to ASC 220,
Comprehensive
Income. This ASU requires the components of net
income and the components of other comprehensive income to be
presented either in a single continuous statement of
comprehensive income or in two separate but continuous
statements. ASU 2011-05 eliminates the option to
present components of other comprehensive income as part of the
statement of changes in stockholders’
equity. This guidance does not change the items that
must be reported in other comprehensive income, when an item of
other comprehensive income must be reclassified to net income or
how earnings per share is calculated or presented. ASU
2011-05 is effective for public entities for interim and annual
periods beginning after December 15, 2011. Early
adoption is permitted. As ASU 2011-05 impacts presentation only,
the adoption of this update will not impact our consolidated
financial statements.
In
September 2011, the FASB issued ASU 2011-08,
Testing
Goodwill for Impairment (“ASU 2011-08”), an
update to ASC 350,
Intangibles -
Goodwill and Other (“ASC
350”). This ASU will provide an entity with the
option to first perform a qualitative assessment to determine
whether it is more likely than not that the fair value of a
reporting unit is less than its carrying amount. If,
after assessing the totality of events or circumstances, 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. However, if an entity concludes
otherwise, then it is required to perform the first step of the
two-step impairment test in accordance with ASC
350. ASU 2011-08 is effective for annual and interim
goodwill impairment tests for fiscal years beginning after
December 15, 2011. Early adoption is permitted.
As
ASU 2011-08 impacts testing procedures only, the adoption of this
update will not impact our consolidated financial
statements.
In
September 2011, the FASB issued ASU 2011-09,
Disclosures
about an Employer’s Participation in a Multiemployer
Plan (“ASU 2011-09”), an update to ASC 715,
Compensation
– Retirement Benefits, subtopic 80,
Multiemployer
Plans. ASU 2011-09 requires additional
disclosures for multiemployer pension plans and multiemployer
other postretirement benefit plans. ASU 2011-09 is
intended to create greater transparency in financial reporting by
disclosing the commitments an employer has made to a
multiemployer pension plan and the potential future cash flow
implications of an employer’s participation in the
plan. ASU 2011-09 is effective for public entities for
annual periods with fiscal years ending after December 15,
2011. Early adoption is permitted. As ASU
2011-09 impacts disclosure only, the adoption of this update will
not impact our consolidated financial statements.
|
Note 4 - Income per Common Share and Potential Common Share | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Note 4 - Income Per Common Share And Potential Common Share Disclosure | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note 4 - Income per Common Share and Potential Common Share |
4.
Income
per Common Share and Potential Common Share
Basic
income per common share is computed by dividing net income by the
weighted-average number of shares outstanding for the
period. Diluted income per common share reflects the
potential dilution that would occur had all of the issued and
outstanding shares of Class B common stock been exchanged for
Income Deposit Securities (“IDSs”) at the beginning
of the period. On June 8, 2010, all of the
Company’s issued and outstanding shares of Class B common
stock were exchanged for IDSs on a one-for-one
basis. Each of the IDSs issued in the exchange
includes a common share. Diluted amounts are not
included in the computation of diluted loss per common share when
the inclusion of such amounts would be
anti-dilutive. The Company does not have any
outstanding stock arrangements that might be potentially
dilutive.
A
reconciliation of the common shares for the Company’s basic
and diluted income per common share calculation is as
follows:
|
Note 5 - Acquisition | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Note 5 - Acquisition Disclosure | |
Note 5 - Acquisition |
5.
Acquisition
On
October 14, 2011, Shoreham Telephone LLC
(“Shoreham”), a direct wholly owned subsidiary of
the Company completed its acquisition of all of the issued and
outstanding capital stock of Shoreham Telephone Company, Inc.
(“STC”), a privately-held integrated
telecommunications services provider serving customers in
middle Vermont (“the “Stock
Purchase”). The aggregate consideration paid
for the issued and outstanding capital stock of STC was
approximately $4.5 million in cash, subject to adjustment as
provided in the Stock Purchase Agreement, dated as of April 1,
2011, by and among Shoreham, Donald S. Arnold, III, James C.
Arnold, Susan E. Arnold and STC, as amended on October 14,
2011. The Stock Purchase was financed from the
Company’s cash on hand. Immediately following
the closing of the Stock Purchase, STC merged with and into
Shoreham, with Shoreham continuing as the surviving entity in
the merger.
|
Note 6 - Fair Value Measurement | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note 6 - Fair Value Measurement Disclosure | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note 6 - Fair Value Measurement |
6.
Fair
Value Measurement
The
Company adopted ASC 820, which defines fair value, establishes a
framework for measuring fair value and requires additional
disclosures about fair value measurements. The
framework that is set forth in this standard is applicable to the
fair value measurements where it is permitted or required under
other accounting pronouncements.
In
accordance with ASC 820, the following tables represent the
Company’s fair value hierarchy for its financial assets and
liabilities as of December 31, 2010 and September 30,
2011:
The
interest rate swaps are valued at the end of the quarter based on
available market information.
|
Note 2 - Commitments and Contingencies | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Note 2 - Commitments And Contingencies Disclosure | |
Note 2 - Commitments and Contingencies |
2.
Commitments
and Contingencies
From
time to time, we may be involved in various claims, legal actions
and regulatory proceedings incidental to and in the ordinary
course of business, including administrative hearings of the
Alabama, Maine, Massachusetts, Missouri, New Hampshire, and West
Virginia Public Service Commissions relating primarily to rate
making. Currently, none of the legal proceedings are
expected to have a material adverse effect on our
business.
|
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