10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2012
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from  to

Commission file number: 1-32362

OTELCO INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	52-2126395
(State or Other Jurisdiction of Incorporation or	(I.R.S. Employer Identification No.)
Organization)
505 Third Avenue East, Oneonta, Alabama	35121
(Address of Principal Executive Offices)	(Zip Code)

(205) 625-3574

(Registrant’s Telephone Number, Including Area Code)

N/A

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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 x No o

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 x No o

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 o Accelerated filer x Non-accelerated filer o Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at November 7, 2012
Class A Common Stock ($0.01 par value per share)	13,221,404
Class B Common Stock ($0.01 par value per share)	0

OTELCO INC.

FORM 10-Q

For the three month period ended September 30, 2012

TABLE OF CONTENTS

		Page
PART I FINANCIAL INFORMATION		2
Item 1.	Financial Statements	2
	Consolidated Balance Sheets as of December 31, 2011 and September 30, 2012	2
	Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 2011 and 2012	3
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2012	4
	Notes to Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28
Item 4.	Controls and Procedures	28
PART II OTHER INFORMATION		30
Item 6.	Exhibits	30

i

Unless the context otherwise requires, the words “we,” “us,” “our,” “the Company” and “Otelco” refer to Otelco Inc., a Delaware corporation, and its consolidated subsidiaries as of September 30, 2012.

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that are subject to risks and uncertainties. Forward-looking statements give our current expectations relating to our financial condition, results of operations, plans, objectives, future performance, prospects and business. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “forecast,” “intend,” “believe” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. These forward-looking statements are based on assumptions that we have made in light of our experience in the industry in which we operate, as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial condition or results of operations and cause actual results to differ materially from those in the forward-looking statements.

1

PART I  FINANCIAL INFORMATION

Item 1.   Financial Statements

OTELCO INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

	December 31, 2011			September 30, 2012
Assets
Current assets
Cash and cash equivalents	$	12,393,792		$	27,184,689
Accounts receivable:
Due from subscribers, net of allowance for doubtful accounts of $260,568 and $246,683, respectively		4,355,632			4,637,315
Unbilled receivables		2,183,465			2,068,608
Other		5,449,074			5,053,612
Materials and supplies		1,780,820			1,999,700
Prepaid expenses		1,328,475			1,505,162
Deferred income taxes		726,310			816,933
Total current assets		28,217,568			43,266,019
Property and equipment, net		65,881,975			57,925,140
Goodwill		188,954,840			44,956,840
Intangible assets, net		20,545,691			8,278,909
Investments		1,943,805			1,924,672
Deferred financing costs		4,485,324			4,058,049
Deferred income taxes		7,454,443			7,575,073
Other assets		240,667			505,358
Total assets	$	317,724,313		$	168,490,060
Liabilities and Stockholders’ Deficit
Current liabilities
Accounts payable	$	1,490,717		$	1,228,228
Accrued expenses		6,034,104			11,331,331
Advance billings and payments		1,590,689			1,566,957
Deferred income taxes		353,285			387,720
Customer deposits		143,657			119,027
Total current liabilities		9,612,452			14,633,263
Deferred income taxes		48,112,384			23,179,653
Interest rate swaps		241,438			—
Advance billings and payments		615,584			801,921
Other liabilities		403,823			428,932
Long-term notes payable		271,106,387			271,020,389
Total liabilities		330,092,068			310,064,158
Stockholders’ deficit
Class A  Common Stock, $.01 par value-authorized 20,000,000 shares; issued and outstanding 13,221,404 shares		132,214			132,214
Retained deficit		(12,499,969	)		(141,706,312	)
Total stockholders’ deficit		(12,367,755	)		(141,574,098	)
Total liabilities and stockholders’ deficit	$	317,724,313		$	168,490,060

The accompanying notes are an integral part of these consolidated financial statements.

2

OTELCO INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2012			2011			2012
Revenues	$	25,302,747		$	24,427,896		$	76,195,806		$	74,515,910
Operating expenses
Cost of services		10,985,814			10,360,737			32,762,538			32,038,028
Selling, general and administrative expenses		3,248,746			3,310,285			9,485,763			10,140,303
Depreciation and amortization		4,944,033			4,613,756			15,176,030			15,018,751
Long-lived assets impairment - PP&E		—			—			—			2,874,000
Long-lived assets impairment - intangibles		—			—			—			5,748,000
Goodwill impairment		—			(344,256	)		—			143,653,744
Total operating expenses		19,178,593			17,940,522			57,424,331			209,472,826
Income (loss) from operations		6,124,154			6,487,374			18,771,475			(134,956,916	)
Other income (expense)
Interest expense		(6,222,487	)		(5,673,925	)		(18,591,790	)		(17,162,230	)
Change in fair value of derivatives		654,791			—			1,641,032			241,438
Other income		6,189			1,293			388,686			311,505
Total other expenses		(5,561,507	)		(5,672,632	)		(16,562,072	)		(16,609,287	)
Income (loss) before income tax		562,647			814,742			2,209,403			(151,566,203	)
Income tax benefit (expense)		322,815			(498,436	)		(36,013	)		24,690,134
Net income (loss) available to common stockholders	$	885,462		$	316,306		$	2,173,390		$	(126,876,069	)
Common shares outstanding		13,221,404			13,221,404			13,221,404			13,221,404
Net income (loss) per common share	$	0.07		$	0.02		$	0.16		$	(9.60	)
Dividends declared per common share	$	0.18		$	—		$	0.53		$	0.18

The accompanying notes are an integral part of these consolidated financial statements.

3

OTELCO INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Nine Months Ended September 30,
	2011			2012
Cash flows from operating activities:
Net income (loss)	$	2,173,390		$	(126,876,069	)
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation		8,751,166			7,942,242
Amortization		6,424,864			7,076,509
Long lived assets impairment - PP&E		—			2,874,000
Long lived assets impairment - intangibles		—			5,748,000
Goodwill impairment		—			143,653,744
Amortization of debt premium		(76,595	)		(85,998	)
Amortization of loan costs		1,026,072			1,026,072
Change in fair value of derivatives		(1,641,032	)		(241,438	)
Provision for deferred income taxes		—			(24,765,293	)
Provision for uncollectible revenue		545,338			351,854
Changes in operating assets and liabilities; net of operating assets and liabilities acquired:
Accounts receivable		(1,654,102	)		(123,220	)
Material and supplies		(182,086	)		(218,880	)
Prepaid expenses and other assets		111,735			(443,247	)
Accounts payable and accrued liabilities		(17,338	)		4,840,028
Advance billings and payments		(141,154	)		162,605
Other liabilities		39,841			195,186
Net cash from operating activities		15,360,099			21,116,095
Cash flows used in investing activities:
Acquisition and construction of property and equipment		(8,448,004	)		(3,396,129	)
Net cash used in investing activities		(8,448,004	)		(3,396,129	)
Cash flows used in financing activities:
Cash dividends paid		(6,990,817	)		(2,330,272	)
Principal repayment of long-term debt		(385,828	)		—
Loan origination costs		—			(598,797	)
Net cash used in financing activities		(7,376,645	)		(2,929,069	)
Net (decrease) increase in cash and cash equivalents		(464,550	)		14,790,897
Cash and cash equivalents, beginning of period		18,226,374			12,393,792
Cash and cash equivalents, end of period	$	17,761,824		$	27,184,689
Supplemental disclosures of cash flow information:
Interest paid	$	17,642,313		$	13,058,959
Income taxes paid	$	165,061		$	76,749

The accompanying notes are an integral part of these consolidated financial statements.

4

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012
(unaudited)

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 LLC (“HTC”); Brindlee Mountain Telephone LLC (“BMTC”); Blountsville Telephone LLC (“BTC”); Otelco Mid-Missouri LLC (“MMT”) and its wholly owned subsidiary I-Land Internet Services LLC; Mid-Maine Telecom LLC (“MMTI”); Mid-Maine TelPlus LLC (“MMTP”); Granby Telephone LLC (“GTT”); War Telephone LLC (“WT”); Pine Tree Telephone LLC (“PTT”); Saco River Telephone LLC (“SRT”); Shoreham Telephone LLC (“ST”); CRC Communications LLC (“PTN”); and Communications Design Acquisition LLC (“CDAC”).

The accompanying unaudited 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, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012 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, 2011. The interim consolidated financial information herein is unaudited. The information reflects all 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.

Recent Accounting Pronouncements

During 2012, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2012-01 through 2012-07. Except for ASU 2012-02, which is discussed below, these ASUs provide technical corrections to existing guidance and to specialized industries or entities and therefore, have minimal, if any, impact on the Company.

In July 2012, the FASB issued ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment, an amendment to Accounting Standards Codification (“ASC”) 350, Intangibles – Goodwill and Other (“ASC 350”). This ASU provides an option for companies to use a qualitative approach to test indefinite-lived intangible assets for impairment if certain conditions are met. The amendments are effective for annual and interim indefinite-lived intangible asset impairment tests performed for fiscal years beginning after September 15, 2012. The implementation of this ASU is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

2.             Impairments

ASC 350 requires that goodwill be tested for impairment annually, unless potential interim indicators exist that could result in impairment. During the third quarter of 2012, the market price of the Company’s Income Deposit Securities (“IDSs”) dropped materially following the release of the Company’s financial and operational results for the second quarter of 2012. The Company’s management performed a qualitative assessment of the Company’s reporting units (Alabama, Missouri, and New England) as of September 30, 2012 and determined that no adjustment to the carrying value of goodwill was necessary. As is discussed below, the carrying value of goodwill was reduced to fair value during the second quarter of 2012. Impairment charges for the three months ended September 30, 2012 are related to third quarter adjustments to the acquisition of Shoreham Telephone Company, Inc. (“STC”). See note 3, Acquisitions, below.

During the second quarter of 2012, an interim goodwill impairment test was performed in response to indicators revealed in the annual forecasting process. The forecast included the non-renewal of the Time Warner Cable (“TW”) contract beyond its December 31, 2012 expiration date (based on an indication received from TW) and the impact of the recent Federal Communications Commission reform. Forecasted operating profits were reduced below the levels projected during the fourth quarter of 2011 and first quarter of 2012.

The FCC’s Intercarrier Compensation order, issued in November 2011, has and will significantly change the way telecommunication carriers receive compensation for exchanging traffic. Over the next three years, all intrastate rates that exceed the interstate rate will be reduced to the interstate rate. Beginning in 2014, the interstate rate will be reduced over three years to “bill and keep” in which carriers bill their customers for services and keep those charges but neither pay for or receive compensation from traffic sent to or received from other carriers. In addition, subsidies to carriers serving high cost areas will be phased out over an extended period.

5

During the second quarter 2012, the Company performed an impairment test on each reporting unit using the two step approach prescribed in ASC 350.Step one compares the fair value of each reporting unit to its carrying value. Fair value was calculated using a blended analysis of the income approach and the market approach of valuation. The Company believes the blended approach is the best method for determining fair value because this approach compensates for inherent risk associated with either model on a stand-alone basis. The process of evaluating the potential impairment of goodwill is subjective because it requires the use of estimates and assumptions. The impact of the non-renewal of the TW contract impacts the New England reporting unit. The impact of the FCC’s Intercarrier Compensation order impacts all three reporting units with the largest impact being in New England in 2012 and all reporting units in 2013. In addition, the FCC’s Intercarrier Compensation order is likely to have an impact on the market valuation of all wireline telecommunications businesses, including the Company, as future revenue streams are reduced.

The income approach method utilized was the discounted cash flow method. This method requires the use of estimates and judgments about the future cash flows of the reporting units. Although cash flow forecasts are based on assumptions that are consistent with plans and estimates used to manage the underlying reporting units, there is significant judgment in determining the cash flows attributable to these reporting units, including markets and market share, sales volumes, tax rates, capital spending, discount rate and working capital changes. The market approach method employed in the analysis was the public company method. This method is based on a comparison of the Company to comparable publicly traded firms in similar lines of business. The estimates and judgments used to determine comparable companies include such factors as size, growth, profitability, risk and return on investment.

The Company determined that the fair value of the three reporting units was below its carrying value, which necessitated a step two review to determine whether or not to record a charge to goodwill impairment. The step two review involved determining the fair value of the identifiable net assets of each reporting unit, excluding goodwill, and comparing this to the fair value from step one. The Company performed its interim goodwill impairment testing as of April 30, 2012 and recorded impairment charges of $62,404,000, $12,071,000 and $69,523,000 to reduce the carrying value of goodwill to its implied fair value for its three reporting units: Alabama, Missouri and New England, respectively. During the quarter ended September 30, 2012, the New England impairment charges were reduced by $344,256 due to an adjustment related to the STC acquisition. See note 3, Acquisitions, below.

The changes in the carrying amounts of goodwill for the nine months ended September 30, 2012 are as follows:

	Alabama Reporting Unit			Missouri Reporting Unit			New England Reporting Unit			Total
Balance as of December 31, 2011
Goodwill	$	101,602,718		$	17,829,122		$	69,523,000		$	188,954,840
Accumulated impairment losses		—			—			—			—
		101,602,718			17,829,122			69,523,000			188,954,840
Adjustment related to STC acquisition(1)		—			—			(344,256	)		(344,256	)
Impairment losses for the nine months ended September 30, 2012		(62,404,000	)		(12,071,000	)		(69,178,744	)		(143,653,744	)
Balance as of September 30, 2012
Goodwill		101,602,718			17,829,122			69,178,744			188,610,584
Accumulated impairment losses		(62,404,000	)		(12,071,000	)		(69,178,744	)		(143,653,744	)
Goodwill adjusted cost basis	$	39,198,718		$	5,758,122		$	—		$	44,956,840

(1) Third quarter 2012 adjustment to the finalized purchase price allocation of the STC acquisition. See note 3, Acquisitions, below.

During the impairment review performed during the second quarter of 2012, the Company determined that the fair value of the New England reporting unit’s intangible assets was below its carrying value. Fair value of intangible assets was calculated using the income approach of valuation. The Company recorded an impairment charge of $5,748,000 to reduce the carrying value of intangible assets to its implied fair value for its New England reporting unit.

6

The changes in the carrying amount of intangible assets for the nine months ended September 30, 2012, are as follows:

	Alabama Reporting Unit			Missouri Reporting Unit			New England Reporting Unit			Total
Balance as of December 31, 2011
Intangible assets	$	128,441		$	356,384		$	20,060,866		$	20,545,691
Accumulated impairment losses		—			—			—			—
		128,441			356,384			20,060,866			20,545,691
Amortization		(39,006	)		(90,000	)		(6,389,776	)		(6,518,782	)
Impairment losses for the nine months ended September 30, 2012		—			—			(5,748,000	)		(5,748,000	)
Balance as of September 30, 2012
Intangible assets		89,435			266,384			13,671,090			14,026,909
Accumulated impairment losses		—			—			(5,748,000	)		(5,748,000	)
Intangible asset adjusted cost basis	$	89,435		$	266,384		$	7,923,090		$	8,278,909

Intangible assets consist primarily of the value of customer related intangibles, non-competition agreements and long-term customer contracts. The Company’s intangible assets have a range of 1 to 15 years of useful lives and utilize both the sum-of-the-years’ digits and straight-line methods of amortization, as appropriate.

Expected amortization expense for the years ending December 31,

2012 (Remaining)	$	1,608,517
2013		2,596,453
2014		1,203,289
2015		761,030
2016		523,611
Thereafter		1,586,009
Total	$	8,278,909

Prior to completing the ASC 350 testing performed during the second quarter of 2012, the Company determined the fair value of property and equipment in the New England reporting unit was below its carrying value in accordance with ASC 360, Property, Plant and Equipment. Fair value of property and equipment was calculated primarily by using the indirect cost approach. This method requires estimates and judgments about asset replacement cost, including physical deterioration, functional obsolescence and economic obsolescence. The Company recorded an impairment charge of $2,874,000 to reduce the carrying value of property and equipment to its implied fair value for its New England reporting unit.

3.             Acquisitions

On October 14, 2011, ST acquired 100% of the issued and outstanding common stock of STC and, immediately thereafter, merged STC with and into ST. ST provides telecommunications solutions, including voice, data and internet services, to residential and business customers in western Vermont.

The stock purchase agreement related to the acquisition of STC provided for cash consideration of $5,248,134, including the extinguishment of notes payable of $410,904 and accrued interest of $3,081, which were paid at closing. During the quarter ended September 30, 2012, the Company finalized the calculation of deferred income tax liabilities acquired. The Company determined the deferred income tax liability to be $1,889,202, rather than $2,233,458 as previously reported. The excess of the purchase price over the fair value of identifiable assets and liabilities is reflected as goodwill of $420,505. As part of the goodwill impairment testing conducted during second quarter 2012, all goodwill in our New England reporting unit was determined to be impaired, including the goodwill associated with the STC acquisition.

7

The allocation of the net purchase price for the STC acquisition was as follows:

	October 14, 2011
Cash	$	237,850
Other current assets		552,331
Property and equipment		4,529,760
Intangible assets		1,729,600
Goodwill		420,505
Current liabilities		(332,710	)
Deferred income tax liabilities		(1,889,202	)
Purchase price	$	5,248,134

The acquisition was recorded at fair value in accordance with ASC 805, Business Combinations, resulting in a plant acquisition adjustment in 2011. Property and equipment have depreciable lives consistent with those shown in note 7, Property and Equipment, below. The intangible assets at time of acquisition included regulated customer based assets at fair value of $1,672,200 which had remaining lives of 10 years; trade name fair valued at $16,200 which had a remaining life of 5 years; and a non-competition agreement fair valued at $41,200 which had a remaining life of 2 years. The acquisition was accounted for using the acquisition method of accounting and, accordingly, the accompanying consolidated financial statements include the financial position and results of operations from the date of acquisition.

The following unaudited pro forma information presents the combined results of operations of the Company as though the acquisition of STC had occurred at the beginning of 2011. The results include certain adjustments, including increased amortization expense related to intangible assets. The pro forma financial information does not necessarily reflect the results of operations had the acquisition been completed at the beginning of 2011 or those which may be obtained in the future.

	Three Months Ended September 30, 2011		Nine Months Ended September 30, 2011
Revenues	$	25,839,115	$	77,942,997
Income from operations	$	6,242,794	$	18,911,505
Net income	$	797,313	$	2,071,206
Net income per common share	$	0.06	$	0.16

4.             Derivative Activities

The Company utilized two interest rate swaps which matured on February 8, 2012. The first swap had 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 was effective from February 9, 2009 through February 8, 2012. The second swap had 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 was effective from February 9, 2010 through February 8, 2012. From an accounting perspective, the documentation for both swaps did 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 did not qualify for hedge accounting. The change in fair value of the swaps was charged or credited to income as a change in fair value of derivatives. Over the life of the swaps, the cumulative change in fair value was zero.

5.             Insurance

The Company adopted a high-deductible insurance program for health care benefits beginning in 2012. In addition, the Company changed from a premium based plan to self-insuring claims up to $125,000 per participant per calendar year. With this change, an accrual for the estimated amount of self-insured healthcare claims incurred but not reported (“IBNR”) is required. The estimated accrual is based on information provided by the Company’s insurance broker, a third party actuary, and insurer, combined with management’s judgments regarding a number of assumptions and factors, including frequency and severity of claims, claims development history, case jurisdiction, related legislation and claims settlement practice. Significant judgment is required to estimate IBNR claims as parties have yet to assert such claims.

6.           Income (Loss) per Common Share

Income (loss) per common share is computed by dividing net income (loss) by the number of shares outstanding for the period. The Company does not have any outstanding stock arrangements that might be potentially dilutive.

8

A reconciliation of the Company’s income (loss) per common share calculation is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2012		2011		2012
Common shares outstanding		13,221,404		13,221,404		13,221,404		13,221,404
Net income (loss) available to common stockholders	$	885,462	$	316,306	$	2,173,390	$	(126,876,069	)
Net income (loss) per common share	$	0.07	$	0.02	$	0.16	$	(9.60	)

7.             Property and Equipment

Other than those assets that have been written down to their fair values due to impairment, property and equipment purchased is reported at cost less accumulated depreciation. Depreciation of regulated property and equipment is computed principally using the straight-line method over useful lives determined by the Alabama Public Service Commission (the “APSC”), the Maine Public Utilities Commission (the “MPUC”), the Massachusetts Department of Telecommunications and Cable (the “MDTC”), the Missouri Public Service Commission (the “MPSC”), the New Hampshire Public Utilities Commission (the “NHPUC”), the Vermont Public Service Board (the “VPSB”) and the West Virginia Public Service Commission (the “WVPSC”). Depreciation of unregulated property and equipment primarily employs the straight-line method over industry standard useful lives.

Property and equipment are composed of the following:

	Estimated Life		December 31, 2011			September 30, 2012
Land			$	1,156,843		$	1,156,843
Building and improvements		20-40		12,246,942			12,268,433
Telephone equipment		6-20		227,825,837			221,449,892
Cable television equipment		7		10,918,212			11,010,734
Furniture and equipment		8-14		2,967,336			2,971,953
Vehicles		7-9		6,089,631			6,081,456
Computer software equipment		5-7		15,590,698			15,607,496
Internet equipment		5		3,923,314			3,904,910
Total property, plant and equipment				280,718,813			274,451,717
Accumulated depreciation				(214,836,838	)		(216,526,577	)
Net property, plant and equipment			$	65,881,975		$	57,925,140

8.             Fair Value Measurement

The Company adopted ASC 820, Fair Value Measurement (“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.

ASC 820 defines fair value as the exit price, which is the price that would be received to sell an asset or paid to transfer a liability in a transaction between market participants at the measurement date. ASC 820 establishes a three-tier fair value hierarchy that prioritizes inputs to valuation techniques used for fair value measurement.

● Level 1 consists of observable market data in an active market for identical assets or liabilities.

● Level 2 consists of observable market data, other than that included in Level 1, that is either directly or indirectly observable.

● 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.

9

In accordance with ASC 820, the following tables represent the Company’s fair value hierarchy for its financial assets and liabilities:

	December 31, 2011
	Fair Value		Level 1		Level 2		Level 3
Liabilities
Interest rate swaps	$	241,438	$	—	$	241,438	$	—
Total liabilities	$	241,438	$	—	$	241,438	$	—

The interest rate swaps were valued at the end of 2011 based on available market information. The Company’s two interest rate swaps matured on February 8, 2012. See note 4, Derivative Activities, above.

Fair Value of Long-Term Debt

The fair value of the Company’s long-term notes payable is determined using various methods, including quoted market prices for notes with similar terms and maturities, which is a Level 2 measurement, and discounted cash flows, which is a Level 3 measurement. The carrying amounts and estimated fair values of long-term debt are as follows:

	September 30, 2012
	Carrying Amount		Fair Value
Long-term debt	$	271,020,389	$	181,384,007

9.           Subsidiary Guarantees

On October 1, 2011, MMT became a guarantor of the Company’s senior subordinated notes and on October 14, 2011, ST became a guarantor of the Company’s senior subordinated notes.

The Company has no independent assets or operations separate from its operating subsidiaries. The guarantees of its senior subordinated notes by 14 of its 15 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 a condensed consolidating balance sheet as of December 31, 2011; an unaudited condensed consolidating balance sheet as of September 30, 2012; unaudited condensed consolidating statements of operations for the three months ended September 30, 2011 and 2012; unaudited condensed consolidating statements of operations for the nine months ended September 30, 2011 and 2012; and unaudited condensed consolidating statements of cash flows for the nine months ended September 30, 2011 and 2012.

10

Otelco Inc.

Condensed Consolidating Balance Sheet

December 31, 2011

	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current assets
Cash and cash equivalents	$	—		$	12,393,441		$	351		$	—		$	12,393,792
Accounts receivable, net		—			11,445,049			543,122			—			11,988,171
Materials and supplies		—			827,194			953,626			—			1,780,820
Prepaid expenses		194,244			1,115,339			18,892			—			1,328,475
Income tax receivables		—			—			—			—			—
Deferred income taxes		726,310			—			—			—			726,310
Investment in subsidiaries		147,614,140			—			—			(147,614,140	)		—
Intercompany receivable		(154,849,721	)		(688,391	)		688,391			154,849,721			—
Total current assets		(6,315,027	)		25,092,632			2,204,382			7,235,581			28,217,568
Property and equipment, net		—			64,524,981			1,356,994			—			65,881,975
Goodwill		239,970,317			(47,435,761	)		(3,579,716	)		—			188,954,840
Intangible assets, net		—			18,186,227			2,359,464			—			20,545,691
Investments		1,203,605			432,186			308,014			—			1,943,805
Deferred income taxes		7,454,443			—			—			—			7,454,443
Other long-term assets		4,485,324			240,667			—			—			4,725,991
Total assets	$	246,798,662		$	61,040,932		$	2,649,138		$	7,235,581		$	317,724,313
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities
Accounts payable and accrued expenses	$	1,306,872		$	4,793,854		$	1,424,095		$	—		$	7,524,821
Intercompany payables		—			(154,849,721	)		—			154,849,721			—
Other current liabilities		353,285			1,668,933			65,413			-			2,087,631
Total current liabilities		1,660,157			(148,386,934	)		1,489,508			154,849,721			9,612,452
Deferred income taxes		26,421,911			20,354,646			1,335,827			—			48,112,384
Other liabilities		241,438			1,019,407			—			—			1,260,845
Long-term notes payable		230,842,911			40,263,476			—			—			271,106,387
Stockholders’ equity (deficit)		(12,367,755	)		147,790,337			(176,197	)		(147,614,140	)		(12,367,755	)
Total liabilities and stockholders’ equity (deficit)	$	246,798,662		$	61,040,932		$	2,649,138		$	7,235,581		$	317,724,313

11

Otelco Inc.

Condensed Consolidating Balance Sheet

September 30, 2012

(unaudited)

	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current assets
Cash and cash equivalents	$	—		$	27,184,339		$	350		$	—		$	27,184,689
Accounts receivable, net		—			11,136,321			623,214			—			11,759,535
Materials and supplies		—			984,276			1,015,424			—			1,999,700
Prepaid expenses		367,498			1,142,761			(5,097	)		—			1,505,162
Income tax receivables		—			—			—			—			—
Deferred income taxes		816,933			—			—			—			816,933
Investment in subsidiaries		35,408,275			—			—			(35,408,275	)		—
Intercompany receivable		(185,695,157	)		(12,222,753	)		12,222,753			185,695,157			—
Total current assets		(149,102,451	)		28,224,944			13,856,644			150,286,882			43,266,019
Property and equipment, net		—			56,591,235			1,333,905			—			57,925,140
Goodwill		239,970,317			(121,910,761	)		(73,102,716	)		—			44,956,840
Intangible assets, net		—			7,156,627			1,122,282			—			8,278,909
Investments		1,203,605			413,053			308,014			—			1,924,672
Deferred income taxes		7,575,073			—			—			—			7,575,073
Other long-term assets		4,058,049			505,358			—			—			4,563,407
Total assets	$	103,704,593		$	(29,019,544	)	$	(56,481,871	)	$	150,286,882		$	168,490,060
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities
Accounts payable and accrued expenses	$	4,849,514		$	6,350,555		$	1,359,490		$	—		$	12,559,559
Intercompany payables		—			(185,695,157	)		—			185,695,157			—
Other current liabilities		387,720			1,608,956			77,028			—			2,073,704
Total current liabilities		5,237,234			(177,735,646	)		1,436,518			185,695,157			14,633,263
Deferred income taxes		9,284,544			13,524,731			370,378			—			23,179,653
Other liabilities		—			1,230,853			—			—			1,230,853
Long-term notes payable		230,756,913			40,263,476			—			—			271,020,389
Stockholders’ equity (deficit)		(141,574,098	)		93,697,042			(58,288,767	)		(35,408,275	)		(141,574,098	)
Total liabilities and stockholders’ equity (deficit)	$	103,704,593		$	(29,019,544	)	$	(56,481,871	)	$	150,286,882		$	168,490,060

12

Otelco Inc.

Condensed Consolidating Statement of Operations

For the Three Months Ended September 30, 2011

(unaudited)

	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

Otelco Inc.

Condensed Consolidating Statement of Operations

For the Three Months Ended September 30, 2012

(unaudited)

	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	841,514		$	22,547,158		$	1,039,224		$	—		$	24,427,896
Operating expenses		(1,431,456	)		(15,763,985	)		(745,081	)		—			(17,940,522	)
Income (loss) from operations		(589,942	)		6,783,173			294,143			—			6,487,374
Other expense		(5,661,522	)		(11,103	)		(7	)		—			(5,672,632	)
Earnings from subsidiaries		5,576,462			—			—			(5,576,462	)		—
Income (loss) before income tax		(675,002	)		6,772,070			294,136			(5,576,462	)		814,742
Income tax benefit (expense)		991,308			(883,860	)		(605,884	)		—			(498,436	)
Net income (loss) to common stockholders	$	316,306		$	5,888,210		$	(311,748	)	$	(5,576,462	)	$	316,306

Otelco Inc.

Condensed Consolidating Statement of Operations

For the Nine Months Ended September 30, 2011

(unaudited)

	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

13

Otelco Inc.

Condensed Consolidating Statement of Operations

For the Nine Months Ended September 30, 2012

(unaudited)

	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations		Consolidated
Revenues	$	2,599,694		$	68,846,718		$	3,069,498		$	—	$	74,515,910
Operating expenses		(3,550,820	)		(132,824,424	)		(73,097,582	)		—		(209,472,826	)
Loss from operations		(951,126	)		(63,977,706	)		(70,028,084	)		—		(134,956,916	)
Other expense		(16,573,909	)		(35,331	)		(47	)		—		(16,609,287	)
Loss from subsidiaries		(112,205,864	)		—			—			112,205,864		—
Loss before income tax		(129,730,899	)		(64,013,037	)		(70,028,131	)		112,205,864		(151,566,203	)
Income tax benefit		2,854,830			9,919,744			11,915,560			—		24,690,134
Net loss to common stockholders	$	(126,876,069	)	$	(54,093,293	)	$	(58,112,571	)	$	112,205,864	$	(126,876,069	)

Otelco Inc.

Condensed Consolidating Statement of Cash Flows

For the Nine Months Ended September 30, 2011

(unaudited)

	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

14

Otelco Inc.

Condensed Consolidating Statement of Cash Flows

For the Nine Months Ended September 30, 2012

(unaudited)

	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net loss	$	(126,876,069	)	$	(88,721,669	)	$	(58,112,566	)	$	146,834,235		$	(126,876,069	)
Adjustment to reconcile net loss to cash flows from operating activities		698,636			72,853,248			70,027,808			—			143,579,692
Changes in assets and liabilities, net of assets and liabilities acquired		34,214,823			(18,065,895	)		(11,736,456	)		—			4,412,472
Net cash provided by (used in) operating activities		(91,962,610	)		(33,934,316	)		178,786			146,834,235			21,116,095
Cash flows used in investing activities		—			(3,217,343	)		(178,786	)		—			(3,396,129	)
Cash flows provided by (used in) financing activities		91,962,610			51,942,556			—			(146,834,235	)		(2,929,069	)
Net increase in cash and cash equivalents		—			14,790,897			—			—			14,790,897
Cash and cash equivalents, beginning of period		—			12,393,442			350			—			12,393,792
Cash and cash equivalents, end of period	$	—		$	27,184,339		$	350		$	—		$	27,184,689

10.      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 9.9% and 9.3% of the Company’s total revenues for the nine months ended September 30, 2011 and 2012, respectively.

 The Company has a contract through 2012 with TW for the provision of wholesale network connections to TW’s customers in Maine and New Hampshire. Revenue received directly from TW represented approximately 11.7% and 12.3% of the Company’s consolidated revenue for the nine months ended September 30, 2011 and 2012, respectively. Additionally, other unrelated telecommunications providers pay the Company access revenue for terminating calls through the Company to TW’s customers, representing approximately 3% to 4% of the Company’s consolidated revenue for the nine months ended September 30, 2011 and 2012.

 On April 20, 2012, the Company announced that TW had indicated that it will not renew its existing contract for wholesale network connections provided by the Company. Formal notification of non-renewal was received in June 2012. Accordingly, this contract will expire on December 31, 2012; we are currently negotiating an expected six month transition period into 2013 during which customers will be moved to TW’s facilities.

11.      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 APSC, the MPUC, the MDTC, the MPSC, the NHPUC, the VPSB and the WVPSC relating primarily to rate making. Currently, none of the legal proceedings are expected to have a material adverse effect on our business.

12.       Subsequent Events

 The Company is engaged in negotiations with the lenders under its senior credit facility with respect to a potential balance sheet restructuring. On October 5, 2012, the Company retained restructuring counsel to aid in these negotiations. Together with its advisors, the Company will evaluate its alternatives.

15

 On November 6, 2012, the Company announced that its board of directors had exercised its contractual right under the indenture governing the Company’s senior subordinated notes to defer interest on the senior subordinated notes for the fourth quarter 2012. Under the indenture, the Company’s board of directors is permitted to defer interest on up to four occasions with respect to up to two quarters per occasion before resuming interest payments, including paying interest on the deferred interest. The Company previously deferred interest on the senior subordinated notes for the third quarter 2012. The deferral of the interest for fourth quarter 2012 will conserve $3.5 million in cash. Before deferring interest for an additional period beyond fourth quarter 2012, the Company would be required to pay the deferred interest of $7.0 million plus interest on the deferred interest.

16

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

 General

 We operate eleven rural local exchange carriers (“RLECs”) serving subscribers in north central Alabama, central Maine, western Massachusetts, central Missouri, western Vermont and southern West Virginia. We are the sole wireline telephone services provider for many of the rural communities we serve. We also operate a competitive local exchange carrier (“CLEC”) serving subscribers throughout the states of Maine and New Hampshire. Our services include local and long distance telephone services, network access, other telephone related services, cable and satellite television (in some markets) and internet access. We view, manage and evaluate the results of operations from the various telecommunications services as one company and therefore have identified one reporting segment as it relates to providing segment information.

 As of September 30, 2012, we operated approximately 100,195 access line equivalents and supplied an additional 162,700 wholesale network connections, primarily to Time Warner Cable (“TW”). On April 20, 2012, we announced that TW had indicated that it will not renew its existing contract for wholesale network connections provided by us. Formal notification of non-renewal was received in June 2012. Accordingly, this contract will expire on December 31, 2012. We are currently negotiating an expected six month transition period into 2013 during which TW’s customers will be moved to TW’s facilities. Revenue received directly from TW represented approximately 11.7% and 12.3% of our consolidated revenue for the nine months ended September 30, 2011 and 2012, respectively. Additionally, other unrelated telecommunications providers pay us access revenue for terminating calls through us to TW’s customers representing another 3% to 4% of our revenue.

 The Federal Communications Commission (the “FCC”) issued its Universal Service Fund and Intercarrier Compensation (“ICC”) order in November 2011. This order makes substantial changes in the way telecommunications carriers are compensated for serving high cost areas and for completing traffic with other carriers. We began seeing the significant impact of the FCC’s ICC order to our business in July 2012. The expected initial consequences to our business will be to reduce access revenue from intrastate calling in Maine and other states where intrastate rates are higher than interstate rates. A portion of this revenue loss is returned to us through the Connect America Fund for our RLEC properties. There is no recovery mechanism for the lost revenue in our CLEC. The impact of this order in conjunction with the non-renewal of the TW contract is expected to reduce our revenue and net income in the coming years.

 On April 20, 2012, we announced the suspension of dividends on our common stock. On August 7, 2012, the Company announced that its board of directors had exercised its contractual right under the indenture governing the Company’s senior subordinated notes to defer interest on the senior subordinated notes for the third quarter 2012. On November 6, 2012, the Company announced that its board of directors had exercised its contractual right under the indenture governing the Company’s senior subordinated notes to defer interest on the senior subordinated notes for the fourth quarter 2012. Under the indenture, the Company’s board of directors is permitted to defer interest on up to four occasions with respect to up to two quarters per occasion before resuming interest payments, including interest on the deferred interest. Before deferring interest for an additional period beyond fourth quarter 2012, the Company would be required to pay the deferred interest of $7.0 million plus interest on the deferred interest. The Company has engaged Evercore Partners, an investment banking firm, to assist us in exploring our strategic alternatives to address our existing levels of debt and to strengthen our balance sheet. Evercore Partners’ areas of expertise include debt and capital market transactions, restructuring of balance sheet obligations and mergers and acquisitions advice. On October 5, 2012, the Company retained restructuring counsel to aid in this process. Together with its advisors, the Company will evaluate its alternatives.

 Our 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 western Vermont, on October 14, 2011, added approximately 5,100 access line equivalents on that date.

 Our core businesses are local and long distance telecommunications services, wholesale access to the local and long distance network and network access to other wireline, long distance and wireless carriers for calls originated or terminated on our network. Our core businesses generated approximately 75.7% of our total revenues in the third quarter of 2012. The impacts associated with the implementation of the FCC’s ICC order will be reflected in core business revenue. We also provide cable and satellite television service in some markets and digital high-speed data lines and residual dial-up internet access in all of our markets.

 The following discussion and analysis should be read in conjunction with our financial statements and the related notes included in Item 1 of Part I and the other financial information appearing elsewhere in this report. The following discussion and analysis addresses our financial condition and results of operations on a consolidated basis.

17

 Revenue Sources

 We offer a wide range of telecommunications and entertainment services to our subscribers. More than half of our residential customers receive packages of services that are delivered and billed together. Our CLEC subscribers contract with us for selected services that meet their specific telecommunications requirements. Our revenues are derived from five sources:

● Local services. We receive revenues from providing local exchange telecommunications services in our eleven 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, Vermont and West Virginia are generally 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”), the Vermont Public Service Board 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 FCC. The FCC’s ICC order has and will significantly change the way telecommunication carriers receive compensation for exchanging traffic. Over the next three years, all intrastate rates that exceed the interstate rate will be reduced to the interstate rate. Beginning in 2014, the interstate rate will be reduced over three years to “bill and keep” in which carriers bill their customers for services and keep those charges but neither pay for nor receive compensation from traffic sent to or received from other carriers. In addition, subsidies to carriers serving high cost areas will be phased out over an extended period. These changes began to reduce access revenue beginning in July 2012.

● 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 and Dish 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.

 Voice and Data Access Line Trends

 The number of access lines served is a fundamental factor in determining revenue stability for a telecommunications provider. Reflecting the historical trend in the RLEC industry, the number of rural voice access lines we serve has been decreasing when normalized for territory acquisitions. We expect that this trend will continue, and may continue to be impacted by the effect of the economy on our customers as well as the availability of alternative telecommunications products, such as cellular and Internet Protocol-based services. These trends will be partially offset by the growth of data access lines, also called digital high-speed internet access service. Our competitive carrier voice and data access lines have grown as we continue to further penetrate our chosen markets. Our ability to continue this growth and our response to the rural trends will have an important impact on our future revenues. Our primary strategy consists of leveraging our strong incumbent market position, selling additional services to our rural customer base such as alarm services and providing better service and support levels than the incumbent carrier to our competitive customer base.

18

Key Operating Statistics(2)
(Unaudited)											Quarterly
											% Change
	December 31,				March 31,		June 30,		September 30,		from
	2010		2011		2012		2012		2012		June 30, 2012
Otelco access line equivalents(1)		99,639		102,378		101,885		101,184		100,195		(1.0	) %
RLEC and other services:
Voice access lines		45,461		46,202		45,200		44,546		43,816		(1.6	) %
Data access lines		20,852		22,904		23,105		23,156		22,977		(0.8	) %
Access line equivalents(1)		66,313		69,106		68,305		67,702		66,793		(1.3	) %
Cable television customers		4,227		4,201		4,216		4,163		4,181		0.4	%
Satellite television customers		125		226		229		231		232		0.4	%
Additional internet customers		6,975		5,414		5,159		4,896		4,690		(4.2	) %
RLEC dial-up		393		301		273		248		211		(14.9	) %
Other dial-up		4,300		2,797		2,501		2,266		2,083		(8.1	) %
Other data lines		2,282		2,316		2,385		2,382		2,396		0.6	%
CLEC:
Voice access lines		29,944		30,189		30,476		30,355		30,341		(0.0	) %
Data access lines		3,382		3,082		3,104		3,127		3,061		(2.1	) %
Access line equivalents(1)		33,326		33,271		33,580		33,482		33,402		(0.2	) %
Wholesale network connections(3)		149,043		157,144		159,560		161,766		162,700		0.6

	Years Ended				Three Months Ended
	December 31,				March 31,		June 30,		September 30,
	2010		2011		2012		2012		2012
Total revenues (in millions):	$	104.4	$	101.8	$	25.4	$	24.7	$	24.4
RLEC	$	58.4	$	57.4	$	14.2	$	14.1	$	13.6
CLEC	$	46.0	$	44.4	$	11.2	$	10.6	$	10.8

 (1) We define access line equivalents as voice access lines and data access lines (including cable modems, digital subscriber lines and dedicated data access trunks).

 (2) We acquired STC on October 14, 2011. At December 31, 2011, STC’s successor, Shoreham Telephone LLC, had 3,309 voice access lines and 1,672 data access lines, or 4,981 access line equivalents, and 55 dial-up internet customers which are included in the Key Operating Statistics.

 (3) TW is the source for approximately 98% of wholesale network connections.

In our RLEC territories, access line equivalents decreased by 909 during third quarter 2012, or 1.3%, compared to June 30, 2012. Voice access lines declined 1.6% and data access lines declined by 0.8% during the period. The continued impacts of the economy, wireless substitution and cable competition in Maine and Massachusetts accounted for the decline. We offer location specific bundled service packages, many including unlimited domestic calling, tailored to the telecommunications requirements of our customers and priced competitively.

In our Maine and New Hampshire CLEC operations, access line equivalents decreased by 80 during third quarter 2012, or 0.2%, compared to June 30, 2012. Voice access lines were basically flat and data access lines decreased 2.1% during the period. Our hosted private branch exchange (“PBX”) product continues to grow with positive market acceptance, adding approximately 535 seats at 63 locations during third quarter 2012. Virtually all of our competitive customers are businesses, with service bundles tailored to their specific business requirements.

Competitive pricing and bundling of services have led Otelco’s long distance service to be the choice of the majority of the customers in the rural markets we serve. In addition, almost all of our Maine and New Hampshire CLEC customers have selected us as their long distance carrier. Our cable television customers increased 0.4% from June 30, 2012 to 4,181 as of September 30, 2012. The continued expansion of IPTV was partially offset by a decrease in basic cable customers. Our other internet customers decreased 4.2% to 4,690 as of September 30, 2012 compared to June 30, 2012. This also includes the subscribers we service outside of our RLEC telephone service area throughout Missouri and Maine, reflecting the shift to digital high-speed internet services. In Missouri, we are continuing the expansion of our data access lines for digital high-speed internet in selected areas outside of our telephone service territory. Approximately 51% of the other internet customers are served by high-speed data capability from Otelco.

19

Our Rate and Pricing Structure

Our CLEC pricing is based on market requirements. We combine varying services to meet individual customer requirements, including technical support, and provide multi-year contracts which are both market sensitive for the customer and profitable for us. The MPUC and the NHPUC impose certain requirements on all CLECs operating in their markets for reporting and for interactions with the various incumbent local exchange and interexchange carriers. These requirements provide wide latitude in pricing services.

Our RLECs operate in six states and are regulated in varying degrees by the respective state regulatory authorities. The impact on pricing flexibility varies by state. In Maine, two of our wholly owned subsidiaries, Saco River Telephone LLC and Pine Tree Telephone LLC, have obtained authority to implement pricing flexibility while remaining under rate-of-return regulation. Our rates for other services we provide, including cable, long distance, data lines and dial-up and high-speed internet access, are not price regulated. The market for competitive services, such as wireless, also impacts our ability to adjust prices. With the increase of bundled services offerings, including unlimited long distance, pricing for individual services takes on reduced importance to revenue stability. We expect this trend to continue into the immediate future.

Categories of Operating Expenses

Our operating expenses are categorized as cost of services; selling, general and administrative expenses; and depreciation and amortization.

Cost of services. This includes expenses for salaries, wages and benefits relating to plant operation, maintenance, sales and customer service; other plant operations, maintenance and administrative costs; network access costs; and costs of services for long distance, cable television, internet and directory services.

Selling, general and administrative expenses. This includes expenses for salaries, wages and benefits and contract service payments relating to engineering, financial, human resources and corporate operations; information management expenses, including billing; allowance for uncollectible revenue; expenses for travel, lodging and meals; internal and external communications costs; insurance premiums; stock exchange and banking fees; and postage.

Depreciation and amortization. This includes depreciation of our telecommunications, cable and internet networks and equipment, and amortization of intangible assets. Certain of these amortization expenses continue to be deductible for tax purposes.

Impairment. During second quarter 2012, we evaluated goodwill and other long-lived assets for impairment. On April 20, 2012, we announced that TW had indicated that it will not renew its wholesale network contract when it expires at the end of 2012. Formal notification of non-renewal was received in June 2012. We currently expect that the transition of services to TW will take no more than six months from the expiration date of the contract. In addition, the implementation of industry changes required by the FCC’s ICC order began reducing our CLEC revenue in July 2012 and will reduce our RLEC revenue beginning in 2013. Also, during second quarter 2012, the market price of our Income Deposit Securities (“IDSs”) on the NASDAQ Global Market dropped materially and has remained below historical levels. The impact of these changes was considered a triggering event for the Company to review all of its long-lived assets, including goodwill, to determine if any of the assets were impaired. The results of that review are reflected in three separate operating expenses categories included in our consolidated statements of operations in Item 1 of Part I: Long-lived assets impairment – PP&E; Long-lived assets impairment – intangibles; and Goodwill impairment. During third quarter 2012, we finalized the calculation of the deferred income tax liability associated with the acquisition of STC. We determined the deferred income tax liability to be $1,889,202, rather than $2,233,458 as previously reported.  The reduced liability would have reduced goodwill by $344,256, except for the fact that the goodwill impairment testing conducted during second quarter 2012 had determined that all of the goodwill in our New England reporting unit was impaired, including the goodwill associated with the STC acquisition. See Liquidity and Capital Resources below for additional information.

Our Ability to Control Operating Expenses

We strive to control expenses in order to maintain our strong operating margins. As our revenue shifts to non-regulated services and CLEC customers, operating margins decrease reflecting the lower margins associated with these services. The non-renewal of the TW contract is expected to lower margins in 2013. We reduced employee costs at the end of second quarter 2012 and expect to further reduce these costs once the TW conversion is completed during 2013.

20

Results of Operations

The following table sets forth our results of operations as a percentage of total revenues for the periods indicated:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2012			2011			2012
Revenues
Local services		46.3	%		45.0	%		46.8	%		45.7	%
Network access		31.8			30.7			31.5			30.6
Cable television		3.0			3.2			2.9			3.2
Internet		13.6			15.1			13.6			14.9
Transport services		5.3			6.0			5.2			5.6
Total revenues		100.0	%		100.0	%		100.0	%		100.0	%
Operating expenses
Cost of services		43.4	%		42.4	%		43.0	%		43.0	%
Selling, general and administrative expenses		12.8			13.6			12.5			13.6
Depreciation and amortization		19.5			18.9			19.9			20.2
Long-lived assets impairment - PP&E		-			-			-			3.9
Long-lived assets impairment - intangibles		-			-			-			7.7
Goodwill impairment		-			(1.4	)		-			192.8
Total operating expenses		75.8			73.5			75.4			281.1
Income (loss) from operations		24.2			26.5			24.6			(181.1	)
Other income (expense)
Interest expense		(24.6	)		(23.2	)		(24.4	)		(23.0	)
Change in fair value of derivatives		2.6			-			2.2			0.3
Other income		0.0			0.0			0.5			0.4
Total other expenses		(22.0	)		(23.2	)		(21.7	)		(22.3	)
Income (loss) before income taxes		2.2			3.3			2.9			(203.4	)
Income tax benefit (expense)		1.3			(2.0	)		(0.0	)		33.1
Net income (loss) available to common stockholders		3.5	%		1.3	%		2.9	%		(170.3	) %

Three Months and Nine Months Ended September 30, 2012 Compared to Three Months and Nine Months Ended September 30, 2011

Total revenues. Total revenues decreased 3.5% in the three months ended September 30, 2012 to $24.4 million from $25.3 million in the three months ended September 30, 2011. Total revenues decreased 2.2% in the nine months ended September 30, 2012 to $74.5 million from $76.2 million in the nine months ended September 30, 2011. The tables below provide the components of our revenues for the three months and nine months ended September 30, 2012 compared to the same periods of 2011.

21

For the three months ended September 30, 2012 and 2011

	Three Months Ended September 30,				Change
	2011		2012		Amount			Percent
	(dollars in thousands)
Local services	$	11,715	$	11,003	$	(712	)		(6.1	) %
Network access		8,048		7,500		(548	)		(6.8	)
Cable television		770		788		18			2.3
Internet		3,442		3,682		240			7.0
Transport services		1,328		1,455		127			9.6
Total	$	25,303	$	24,428	$	(875	)		(3.5	)

Local services. Local services revenue decreased 6.1% in the three months ended September 30, 2012 to $11.0 million from $11.7 million in the three months ended September 30, 2011. The acquisition of STC added $0.2 million and hosted PBX and wholesale network connection revenue increased $0.2 million. The FCC’s ICC order reduced or eliminated intrastate and local cellular revenue categorized as local services revenue. A portion of the RLEC decrease is recovered through the Connect America Fund, which is categorized as interstate access in network access revenue. The impact in third quarter 2012 was a decrease of $0.9 million in local services revenue. The decline in RLEC voice access lines accounted for a decrease $0.2 million.

Network access. Network access revenue decreased 6.8% in the three months ended September 30, 2012 to $7.5 million from $8.0 million in the three months ended September 30, 2011. The acquisition of STC added $0.3 million and special access added $0.2 million. Interstate and intrastate toll decreases primarily associated with the FCC’s ICC order were partially offset by the new Connect America Fund revenue, but still represented a decline of $1.0 million. The reduction mandated by the FCC’s ICC order in intrastate toll rates had a significant negative impact on CLEC revenue in Maine for which there is no recovery mechanism.

Cable television. Cable television revenue in the three months ended September 30, 2012 increased 2.3% to remain at $0.8 million in the three months ended September 30, 2012 and 2011.  Growth in IPTV subscribers, VOD and the shift to high-definition packages in Alabama was offset by the decline in basic cable subscribers.

Internet. Internet revenue for the three months ended September 30, 2012 increased 7.0% to $3.7 million from $3.4 million in the three months ended September 30, 2011. The growth was attributable to the STC acquisition. Growth in other RLEC data lines was offset the loss of dial-up subscribers outside of our service territory.

Transport services. Transport services revenue increased 9.6% to $1.5 million in the three months ended September 30, 2012 from $1.3 million in the three months ended September 30, 2011 from growth in both wide area network and wholesale transport services.

For the nine months ended September 30, 2012 and 2011

	Nine Months Ended September 30,				Change
	2011		2012		Amount			Percent
	(dollars in thousands)
Local services	$	35,659	$	34,074	$	(1,585	)		(4.4	) %
Network access		23,987		22,813		(1,174	)		(4.9	)
Cable television		2,229		2,387		158			7.1
Internet		10,356		11,095		739			7.1
Transport services		3,965		4,147		182			4.6
Total	$	76,196	$	74,516	$	(1,680	)		(2.2	)

22

Local services. Local services revenue decreased 4.5% to $34.1 million in the nine months ended September 30, 2012 from $35.7 million in the nine months ended September 30, 2011. The acquisition of STC accounted for an increase of $0.6 million, growth in our hosted PBX product accounted for an increase of $0.4 million and growth in wholesale network connections accounted for an increase of $0.4 million. These gains were more than offset by reduced subscribers to our traditional local services, including long distance revenue, accounting for a reduction of $1.4 million in our CLEC and $1.5 million in our RLEC service territories. A portion of the RLEC decrease is recovered through the Connect America Fund, which is categorized as interstate access in network access revenue.

Network access. Network access revenue decreased 4.9% to $22.8 million in the nine months ended September 30, 2012 from $24.0 million in the nine months ended September 30, 2011. The acquisition of STC added $1.1 million. Interstate and intrastate toll decreases primarily associated with the FCC’s ICC order were partially offset by the new Connect America Fund revenue, but still represented a decline of $2.3 million primarily in state access revenue.

Cable television. Cable television revenue increased 7.1% to $2.4 million in the nine months ended September 30, 2012 from $2.2 million in the nine months ended September 30, 2011. Growth in IPTV subscribers, the shift to high-definition packages and growth in pay-per-view increased revenue $0.3 million, which was partially offset by a $0.1 million decline associated with the conversion of our Missouri cable customers to satellite services during first quarter 2011 and fewer basic cable customers.

Internet. Internet revenue increased 7.1% to $11.1 million in the nine months ended September 30, 2012 from $10.4 million in the nine months ended September 30, 2011. The acquisition of STC accounted for growth of $0.8 million and increased  fiber leases accounted for an increase of $0.1 million. The decline of dial-up internet customers associated with the conversion to digital data access lines, including those customers in Maine and Missouri that are outside of our local service areas, accounted for a decrease of $0.2 million.

Transport services. Transport services revenue increased 4.6% to $4.1 million in the nine months ended September 30, 2012 from $4.0 million in the nine months ended September 30, 2011 from growth in wide area network revenue.

Operating expenses. Operating expenses in the three months ended September 30, 2012 decreased 6.5% to $17.9 million from $19.2 million in the three months ended September 30, 2011. Operating expenses in the nine months ended September 30, 2012 increased to $191.5 million from $38.2 million in the nine months ended September 30, 2011. The tables below provide the components of our operating expenses for the three months and nine months ended September 30, 2012 compared to the same periods of 2011.

For the three months ended September 30, 2012 and 2011

	Three Months Ended September 30,					Change
	2011		2012			Amount			Percent
	(dollars in thousands)
Cost of services	$	10,986	$	10,361		$	(625	)		(5.7	) %
Selling, general and administrative expenses		3,249		3,310			61			1.9
Depreciation and amortization		4,944		4,614			(330	)		(6.7	)
Goodwill impairment		-		(344	)		(344	)	NM
Total	$	19,179	$	17,941		$	(1,238	)		(6.5	)

Cost of services. Cost of services decreased 5.7% to $10.4 million for the three months ended September 30, 2012 from $11.0 million in the three months ended September 30, 2011. Costs related to the acquisition of STC added $0.3 million. These increases were offset by lower toll and access costs of $0.5 million and lower operating costs, including the reduction in employees implemented at the end of second quarter 2012.

Selling, general and administrative expenses. Selling, general and administrative expenses increased 1.9% to $3.3 million in the three months ended September 30, 2012 from $3.2 million in the three months ended September 30, 2011. Expenses associated with the acquisition of STC added $0.1 million and restructuring and legal costs added $0.6 million. These increases were mostly offset by lower operating costs, including the reduction in employees implemented at the end of second quarter 2012.

Depreciation and amortization. Depreciation and amortization for the three months ended September 30, 2012 decreased 6.7% to $4.6 million from $4.9 million in the three months ended September 30, 2011. The acquisition of STC accounted for an increase of $0.2 million. Amortization of intangible assets associated with the acquisition of three entities from Country Road Communications LLC increased $0.2 million, reflecting the shorter remaining life of the TW contract. The depreciation of RLEC assets decreased by $0.7 million.

23

Impairment. There was a goodwill impairment decrease of $0.3 million in the three months ended September 30, 2012 compared to no impairment in the three months ended September 30, 2011. During third quarter 2012, we finalized the calculation of deferred income tax liability associated with the STC acquisition, reducing the amount of goodwill associated with the acquisition. In second quarter 2012, the review of goodwill and long-lived assets had already shown all of the New England reporting units’ goodwill to be impaired resulting in the decrease in goodwill impairment. See Liquidity and Capital Resources below for additional information.

For the nine months ended September 30, 2012 and 2011

	Nine Months Ended September 30,				Change
	2011		2012		Amount			Percent
	(dollars in thousands)
Cost of services	$	32,762	$	32,038	$	(724	)		(2.2	) %
Selling, general and administrative expenses		9,486		10,140		654			6.9
Depreciation and amortization		15,176		15,019		(157	)		(1.0	)
Long-lived assets impairment - PP&E		-		2,874		2,874		NM
Long-lived assets impairment - intangibles		-		5,748		5,748		NM
Goodwill impairment		-		143,654		143,654		NM
Total	$	57,424	$	209,473	$	152,049		NM

     Cost of services. Cost of services decreased 2.2% to $32.0 million in the nine months ended September 30, 2012 from $32.8 million in the nine months ended September 30, 2011. Costs related to the acquisition of STC added $1.2 million and our hosted PBX product costs increased $0.1 million, reflecting continued success with the product this year. These increases were more than offset by lower toll and access costs of $0.7 million, lower sales and customer service costs of $0.2 million, Universal Service Fund and federally mandated program costs of $0.3 million and lower operating costs of $0.9 million, including the reduction in employees implemented at the end of second quarter 2012.

Selling, general and administrative expenses. Selling, general and administrative expenses increased 6.9% to $10.1 million in the nine months ended September 30, 2012 from $9.5 million in the nine months ended September 30, 2011. Expenses related to the acquisition of STC added $0.3 million, restructuring expenses added $0.9 million and consultant expense associated with the goodwill impairment study and the FCC’s ICC order interpretation added $0.2 million. These increases were partially offset by reduction in property and operating taxes of $0.2 million and lower operating costs of $0.4 million, including the reduction in employees implemented at the end of second quarter 2012.

Depreciation and amortization. Depreciation and amortization decreased 1.0% to $15.0 million in the nine months ended September 30, 2012 from $15.2 million in the nine months ended September 30, 2011. The acquisition of STC accounted for an increase of $0.6 million, the shortened life associated with the TW contract increased amortization by $1.7 million and internet and CLEC depreciation increased $0.3 million. These increases were more than offset by $0.5 million associated with a telephone plant adjustment that was fully amortized in 2011, lower RLEC depreciation of $1.5 million and lower amortization of intangibles of $0.8 million.

Impairment. During the nine months ended September 30, 2012, impairment charges were recorded totaling $152.3 million to reflect impairment of long-lived assets, including goodwill. There were no similar charges in the same period of 2011. These charges recognize an impairment of property, plant and equipment of $2.9 million, an impairment of intangible assets of $5.7 million and an impairment of goodwill of $143.7 million. Based on a decline in the projected revenue of the Company due to the non-renewal of the TW wholesale network contract and the impacts of the FCC’s ICC order, the fair value of the related assets was below the book value. See Liquidity and Capital Resources below for additional information.

For the three months ended September 30, 2012 and 2011

	Three Months Ended September 30,						Change
	2011			2012			Amount			Percent
	(dollars in thousands)
Interest expense	$	(6,222	)	$	(5,674	)	$	(548	)		(8.8	) %
Change in fair value of derivatives		655			-			(655	)	NM
Other income		6			1			(5	)	NM
Income tax benefit (expense)		323			(498	)		(821	)	NM

Interest expense. Interest expense decreased 8.8% to $5.7 million in the three months ended September 30, 2012 from $6.2 million in the three months ended September 30, 2011. The decrease in interest expense was primarily driven by the lower effective interest rate on the outstanding balance of our senior long-term notes payable upon expiration of our interest rate swaps on February 8, 2012. Interest expense includes interest on our senior subordinated notes. The payment of this interest was deferred for third quarter 2012 by our board of directors.

24

Change in fair value of derivatives. As was required by our senior credit facility, we had two interest rate swap agreements intended to hedge our exposure to changes in interest rate costs associated with that facility. The swap agreements did not qualify for hedge accounting under the technical requirements of Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging (“ASC 815”). Changes in value for the two swaps are reflected in change in fair value of derivatives on the statements of operations and have no impact on cash. The swaps expired on February 8, 2012, effectively lowering our interest rate beginning February 9, 2012 from approximately 2.0% to the current LIBOR rate, plus, in either case, a bank margin, which was 4.00% in third quarter 2011 and 4.25% in third quarter 2012.

Other income. Other income, primarily interest income and gain on the sale of equipment, was less than $0.1 million in the three months ended September 30, 2011 and 2012.

Income tax benefit (expense). Provision for income taxes was an expense of $0.5 million in the three months ended September 30, 2012, compared to a benefit of $0.3 million in the three months ended September 30, 2011. The impact of changes in goodwill impairment and the change in fair value of derivatives on the effective tax rate caused the differences.

For the nine months ended September 30, 2012 and 2011

	Nine Months Ended September 30,						Change
	2011			2012			Amount			Percent
	(dollars in thousands)
Interest expense	$	(18,592	)	$	(17,162	)	$	(1,430	)		(7.7	) %
Change in fair value of derivatives		1,641			241			(1,400	)	NM
Other income		389			312			(77	)		(19.8	)
Income tax benefit (expense)		(36	)		24,690			24,726		NM

Interest expense.Interest expense decreased 7.7% to $17.2 million in the nine months ended September 30, 2012 from $18.6 million in the nine months ended September 30, 2011. The decrease in interest expense was primarily driven by the lower effective interest rate on the outstanding balance of our senior long-term notes payable upon expiration of our interest rate swaps on February 8, 2012. Interest expense includes interest on our senior subordinated notes. The payment of this interest was deferred for third quarter 2012 by our board of directors. Before deferring interest for an additional period beyond fourth quarter 2012, the Company would be required to pay the deferred interest of $3.5 million for each of the two deferred quarters plus interest on the deferred interest.

Change in fair value of derivatives.As was required by our senior credit facility, we had two interest rate swap agreements intended to hedge our exposure to changes in interest rate costs associated with that facility. The swap agreements did not qualify for hedge accounting under the technical requirements of ASC 815. Changes in value for the two swaps are reflected in change in fair value of derivatives on the statements of operations and have no impact on cash. The swaps expired on February 8, 2012, effectively lowering our interest rate beginning February 9, 2012 from approximately 2.0% to the current LIBOR rate, plus, in either case, a bank margin, which was 4.00% in the first nine months of 2011 and 4.25% for the majority of the first nine months of 2012.

Other income. Other income decreased 19.8% to $0.3 million in the nine months ended September 30, 2012 from $0.4 million in the nine months ended September 30, 2011, reflecting the annual CoBank dividends of $0.3 million that we receive in the first quarter of each year. The difference was associated with lower interest income in 2012 and a loss on the sale of equipment in 2012, as opposed to a gain on the sale of equipment in 2011.

Income tax expense. Provision for income taxes was a benefit of $24.7 million in the nine months ended September 30, 2012, reflecting the impact of the long-lived asset and goodwill impairment, compared to an expense of less than $0.1 million in the nine months ended September 30, 2011.

Net income. As a result of the foregoing, there was net income of $0.3 million in the three months ended September 30, 2012 and $0.9 million in the three months ended September 30, 2011. There was a net loss of $127.9 million in the nine months ended September 30, 2012 and net income of $2.2 million in the nine months ended September 30, 2011, which was primarily attributable to the impact of long-lived asset and goodwill impairment recognized in second quarter 2012.

25

Liquidity and Capital Resources

Our liquidity needs arise primarily from: (i) interest payments related to our senior credit facility and our senior subordinated notes; (ii) capital expenditures; and (iii) working capital requirements. We suspended dividends on our common stock on April 20, 2012 in order to free up cash for other purposes. On August 7, 2012, we announced that our board of directors had exercised its right under the indenture governing our senior subordinated notes to defer interest on the senior subordinated notes for the third quarter 2012. In addition, on November 6, 2012, we announced that our board of directors had exercised its right under the indenture governing our senior subordinated notes to defer interest on the senior subordinated notes for the fourth quarter 2012. The deferred interest expense is $3.5 million for each of the third and fourth quarters. Before deferring interest for an additional period beyond fourth quarter 2012, the Company would be required to pay the deferred interest of $7.0 million plus interest on the deferred interest.

Historically, we satisfy our operating cash requirements from the cash generated by our business and utilize borrowings under our senior credit facility to facilitate acquisitions; however, we financed our acquisition of STC using cash on hand. For the nine months ended September 30, 2012, we generated cash from our business to invest in additional property and equipment and pay interest on our senior debt. After meeting all of these needs of our business, cash increased from $12.4 million at December 31, 2011 to $27.2 million at September 30, 2012. The most recent interest payment on our senior subordinated debt of $3.5 million was made on July 2, 2012, as the normal distribution date of June 30, 2012 fell on a non-banking day. The third quarter payment on our senior subordinated debt was deferred by our board of directors.

Cash flows from operating activities for the first nine months of 2012 amounted to $21.1 million compared to $15.4 million for the first nine months of 2011. Net income, when adjusted for its non-cash components, declined by $0.5 million. The changes in operating assets and liabilities of $6.3 million reflects the deferral of $3.5 million of interest on our senior subordinated debt in third quarter 2012, a reduction of one month’s accrued liability for interest on our senior debt associated with electing one month LIBOR contracts in 2012 versus three month LIBOR contracts in 2011, the recognition of prepaid expenses associated with our shelf offering that is now unlikely to occur and an additional month’s receivable on the TW contract in 2011.

Cash flows used in investing activities for the first nine months of 2012 were $3.4 million compared to $8.4 million in the first nine months of 2011, reflecting a lower rate of capital expenditures for property and equipment in the first nine months of 2012.

Cash flows used in financing activities for the first nine months of 2012 were $2.9 million compared to $7.4 million in the first nine months of 2011, reflecting payments of dividends to stockholders in three quarters of 2011 and one quarter of 2012. The dividends paid were at the rate of $0.17625 per common share per quarter. We suspended dividends on our common stock on April 20, 2012. There was a repayment of $0.4 million on our long-term senior debt in 2011. In 2012, we have paid $0.6 million in pursuing an amendment to our senior credit facility.

We do not invest in financial instruments as part of our business strategy. The Company had two interest rate swaps that expired on February 8, 2012. From an accounting perspective, the documentation for the swaps did not meet the technical requirements of ASC 815 to allow the swaps to be considered highly effective as hedging instruments and therefore the swaps did not qualify for hedge accounting.

We also have received patronage shares, primarily from one of our lenders, over a period of years for which there is a limited market to determine value until the shares are redeemed by the issuing institution. Historically, these shares have been redeemed at a value similar to their issued value. Due to the uncertainty of this future value, these shares are carried at $1.5 million, or approximately 55% of their issued value.

ASC 350, Intangibles – Goodwill and Other (“ASC 350”), requires that goodwill be tested for impairment annually, unless potential interim indicators exist that could result in impairment. During the second quarter of 2012, an interim goodwill impairment test was performed in response to indicators revealed in the annual forecasting process. Due to the expected expiration of the TW wholesale network contract, and recent FCC reform, forecasted operating profits were reduced below the levels projected during the fourth quarter of 2011 and first quarter of 2012. Including an adjustment in third quarter 2012 for STC deferred taxes that reduced goodwill associated with the acquisition, long-lived assets have been reduced in 2012 by $8.6 million and goodwill has been reduced by $143.7 million.

The impairment charges reflect our expectation that future cash flows will decline from current levels as a consequence of the FCC’s ICC order and the non-renewal of the TW contract, in addition to the attrition of voice access lines inherent in our business. The impairment of goodwill and other long-lived assets has no cash impact.

26

We anticipate that operating cash flow will be adequate to meet our currently anticipated operating and capital expenditure requirements for at least the next 12 months. The announced non-renewal of the TW contract will reduce future cash flows of the business beginning in 2013 and the impacts of the FCC’s ICC order began reducing cash flows of the business in third quarter 2012. The Company has taken steps to conserve cash, including the suspension of dividends on our common stock beginning second quarter 2012, the exercise of our contractual right to defer interest on our senior subordinated debt for third and fourth quarter 2012, reductions in employees in second quarter 2012, with additional reductions planned for 2013 upon completion of the TW customer transfers, reductions in senior management and board of directors compensation and reduced capital spending. Because of the negative impact of the FCC’s ICC order and the expiration of the TW contract, we are exploring our strategic alternatives to address our existing levels of debt and strengthen our balance sheet. The Company has engaged Evercore Partners, an investment banking firm, to assist us in this process. Evercore Partners’ areas of expertise include debt and capital market transactions, restructuring of balance sheet obligations and mergers and acquisitions advice. In addition, on October 5, 2012, the Company retained restructuring counsel to aid in this process. Together with its advisors, the Company will evaluate its alternatives.

The following table provides a summary of the extent to which cash generated from operations is reinvested in our operations, used to pay interest on our senior debt and senior subordinated notes or distributed as dividends to our stockholders for the periods indicated.

	Nine Months Ended September 30,
	2011			2012
	(dollars in thousands)
Cash generation
Revenues	$	76,196		$	74,516
Other income		389			312
Cash received from operations	$	76,585		$	74,828
Cost of services	$	32,762		$	32,038
Selling, general and administrative expenses		9,486			10,140
Cash consumed by operations	$	42,248		$	42,178
Cash generated from operations	$	34,337		$	32,650
Cash utilization
Capital investment in operations	$	8,448		$	3,396
Senior debt interest and fees		7,190			5,772
Interest on senior subordinated notes		10,497			6,998
Dividends		6,991			2,330
Cash utilized by the Company	$	33,126		$	18,496
Percentage of cash utilized of cash generated		96.5	%		56.6	%

We use adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) as an operational performance measurement. Adjusted EBITDA, as presented in this Form 10-Q, corresponds to the definition of Adjusted EBITDA in the indenture governing our senior subordinated notes and our senior credit facility. Adjusted EBITDA, as presented in this Form 10-Q, is a supplemental measure of our performance that is not required by, or presented in accordance with, accounting principles generally accepted in the United States (“U.S. GAAP”). Our senior credit facility requires that we report performance in this format each quarter and involved lending institutions utilize this measure to determine compliance with credit facility requirements. We report Adjusted EBITDA in our quarterly earnings press release to allow current and potential investors to understand this performance metric and because we believe that it provides current and potential investors with helpful information with respect to our operating performance and cash flows. However, Adjusted EBITDA should not be considered as an alternative to net income or any other performance measures derived in accordance with U.S. GAAP or as an alternative to net cash provided by operating activities as a measure of our liquidity. Our presentation of Adjusted EBITDA may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA for the three months and nine months ended September 30, 2011 and 2012, and its reconciliation to net income (loss), is reflected in the table below:

27

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2012			2011			2012
	(dollars in thousands)
Net income (loss)	$	885		$	316		$	2,173		$	(126,876	)
Add:  Depreciation		2,922			2,467			8,751			7,942
Interest expense - net of premium		5,880			5,332			17,566			16,136
Interest expense - amortize loan cost		342			342			1,026			1,026
Income tax expense (benefit)		(323	)		498			36			(24,690	)
Change in fair value of derivatives		(654	)		-			(1,641	)		(241	)
Loan fees		19			19			57			57
Amortization - intangibles		2,023			2,147			6,425			7,076
Goodwill impairment		-			(344	)		-			143,654
Impairment of long-lived assets		-			-			-			8,622
Restructuring expense		-			592			-			953
Adjusted EBITDA	$	11,094		$	11,369		$	34,393		$	33,659

Recent Accounting Pronouncements

During 2012, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2012-01 through 2012-07. Except for ASU 2012-02, which is discussed below, these ASUs provide technical corrections to existing guidance and to specialized industries or entities and therefore, have minimal, if any, impact on the Company.

 In July 2012, the FASB issued ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment, an amendment to ASC 350 Intangibles – Goodwill and Other. This ASU provides an option for companies to use a qualitative approach to test indefinite-lived intangible assets for impairment if certain conditions are met. The amendments are effective for annual and interim indefinite-lived intangible asset impairment tests performed for fiscal years beginning after September 15, 2012. The implementation of this ASU is not expected to have a material impact on our consolidated financial position or results of operations.

Subsequent Events

The Company is continuing negotiations with the lenders under its senior credit facility with respect to a potential balance sheet restructuring.  On October 5, 2012, the Company retained restructuring counsel to aid in these negotiations. Together with its advisors, the Company will evaluate its alternatives.

On November 6, 2012, the Company announced that its board of directors had exercised its contractual right under the indenture governing the Company’s senior subordinated notes to defer interest on the senior subordinated notes for the fourth quarter 2012. Under the indenture, the Company’s board of directors is permitted to defer interest on up to four occasions with respect to up to two quarters per occasion before resuming interest payments, including paying interest on the deferred interest. The Company previously deferred interest on the senior subordinated notes for the third quarter 2012. The deferral of the interest for fourth quarter 2012 will conserve $3.5 million in cash.

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

Our short-term excess cash balance is invested in short-term commercial paper. We do not invest in any derivative or commodity type instruments. Accordingly, we are subject to minimal market risk on our investments.

We have the ability to borrow up to $15.0 million under a revolving loan facility that expires on October 31, 2013. The interest rate is variable and, accordingly, we are exposed to interest rate risk, primarily from a change in LIBOR or a base rate. Currently, we have no loans drawn under this facility.

Item 4.   Controls and Procedures

With the participation of the Chief Executive Officer and the Chief Financial Officer, management has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2012.

28

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the three months ended September 30, 2012 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

29

PART II  OTHER INFORMATION

Item 6.                 Exhibits

Exhibits

See Exhibit Index.

30

SIGNATURES

Pursuant to the requirements 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.

Date: November 7, 2012	OTELCO INC.
	By:	/s/ Curtis L. Garner, Jr.
		Curtis L. Garner, Jr.
		Chief Financial Officer

EXHIBIT INDEX

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, 2012 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

EX-31.1

Exhibit 31.1

CERTIFICATION BY CHIEF EXECUTIVE OFFICER

I, Michael D. Weaver, certify that:

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.

Date: November 7, 2012

/s/ Michael D. Weaver

Michael D. Weaver

President & Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION BY CHIEF FINANCIAL OFFICER

I, Curtis L. Garner, Jr., certify that:

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.

Date: November 7, 2012

/s/ Curtis L. Garner, Jr.

Curtis L. Garner, Jr.

Chief Financial Officer

EX-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 OF 2002

  In connection with the quarterly report of Otelco Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael D. Weaver, 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 to my knowledge:

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

Chief Executive Officer

November 7, 2012

EX-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 OF 2002

In connection with the quarterly report of Otelco Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Curtis L. Garner, Jr., Chief Financial 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 to my knowledge:

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/ Curtis L. Garner, Jr.

Curtis L. Garner, Jr.

Chief Financial Officer

November 7, 2012

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Note 9 - Subsidiary Guarantees (Detail) - Condensed Consolidating Statement of Operations (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Revenues	$ 24,427,896	$ 25,302,747	$ 74,515,910	$ 76,195,806
Operating expenses	17,940,522	19,178,593	209,472,826	57,424,331
Income loss from operations	6,487,374	6,124,154	(134,956,916)	18,771,475
Other income (expense)	(5,672,632)	(5,561,507)	(16,609,287)	(16,562,072)
Income loss before income tax	814,742	562,647	(151,566,203)	2,209,403
Income tax expense benefit	498,436	(322,815)	(24,690,134)	36,013
Net income loss to common stockholders	316,306	885,462	(126,876,069)	2,173,390
Parent [Member]
Revenues	841,514	789,508	2,599,694	2,356,860
Operating expenses	(1,431,456)	(789,507)	(3,550,820)	(2,356,860)
Income loss from operations	(589,942)	1	(951,126)
Other income (expense)	(5,661,522)	(5,471,374)	(16,573,909)	(16,324,377)
Earnings from subsidiaries	5,576,462	6,034,020	(112,205,864)	18,533,780
Income loss before income tax	(675,002)	562,647	(129,730,899)	2,209,403
Income tax expense benefit	991,308	322,815	2,854,830	(36,013)
Net income loss to common stockholders	316,306	885,462	(126,876,069)	2,173,390
Guarantor Subsidiaries [Member]
Revenues	22,547,158	24,680,968	68,846,718	74,334,212
Operating expenses	(15,763,985)	(19,228,795)	(132,824,424)	(57,121,439)
Income loss from operations	6,783,173	5,452,173	(63,977,706)	17,212,773
Other income (expense)	(11,103)	(90,130)	(35,331)	(240,685)
Income loss before income tax	6,772,070	5,362,043	(64,013,037)	16,972,088
Income tax expense benefit	(883,860)		9,919,744
Net income loss to common stockholders	5,888,210	5,362,043	(54,093,293)	16,972,088
Non-Guarantor Subsidiaries [Member]
Revenues	1,039,224	2,555,301	3,069,498	7,679,207
Operating expenses	(745,081)	(1,883,323)	(73,097,582)	(6,120,507)
Income loss from operations	294,143	671,978	(70,028,084)	1,558,700
Other income (expense)	(7)	(3)	(47)	2,990
Income loss before income tax	294,136	671,975	(70,028,131)	1,561,690
Income tax expense benefit	(605,884)		11,915,560
Net income loss to common stockholders	(311,748)	671,975	(58,112,571)	1,561,690
Eliminations [Member]
Revenues		(2,723,030)		(8,174,473)
Operating expenses		2,723,032		8,174,475
Income loss from operations		2		2
Earnings from subsidiaries	(5,576,462)	(6,034,020)	112,205,864	(18,533,780)
Income loss before income tax	(5,576,462)	(6,034,018)	112,205,864	(18,533,778)
Net income loss to common stockholders	(5,576,462)	(6,034,018)	112,205,864	(18,533,778)
Consolidated [Member]
Revenues	24,427,896	25,302,747	74,515,910	76,195,806
Operating expenses	(17,940,522)	(19,178,593)	(209,472,826)	(57,424,331)
Income loss from operations	6,487,374	6,124,154	(134,956,916)	18,771,475
Other income (expense)	(5,672,632)	(5,561,507)	(16,609,287)	(16,562,072)
Income loss before income tax	814,742	562,647	(151,566,203)	2,209,403
Income tax expense benefit	(498,436)	322,815	24,690,134	(36,013)
Net income loss to common stockholders	$ 316,306	$ 885,462	$ (126,876,069)	$ 2,173,390

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Note 5 - Insurance (Detail) (USD $)	3 Months Ended
	Sep. 30, 2012
Operating Insurance and Claims Costs, Production	$ 125,000

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Note 2 - Impairments (Detail) (USD $)	3 Months Ended	9 Months Ended	1 Months Ended	9 Months Ended	1 Months Ended	9 Months Ended	3 Months Ended	1 Months Ended	3 Months Ended	9 Months Ended	3 Months Ended
	Sep. 30, 2012	Sep. 30, 2012	Apr. 30, 2012 Alabama [Member]	Sep. 30, 2012 Alabama [Member]	Apr. 30, 2012 Missouri [Member]	Sep. 30, 2012 Missouri [Member]	Sep. 30, 2012 New England [Member] STC [Member]	Apr. 30, 2012 New England [Member]	Jun. 30, 2012 New England [Member]	Sep. 30, 2012 New England [Member]	Sep. 30, 2012 Minimum [Member]	Sep. 30, 2012 Maximum [Member]
Goodwill, Impairment Loss	$ (344,256)	$ 143,653,744	$ 62,404,000	$ 62,404,000	$ 12,071,000	$ 12,071,000	$ 344,256	$ 69,523,000		$ 69,178,744
Impairment of Intangible Assets, Finite-lived									5,748,000
Finite-Lived Intangible Asset, Useful Life	10 years										1 year	15 years
Asset Impairment Charges		$ 2,874,000

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Note 12 - Subsequent Events (Detail) (Subsequent Event [Member], USD $) In Millions, unless otherwise specified	Sep. 30, 2012
Interest Payable	$ 7.0
Deferred Interest [Member]
Cash	$ 3.5

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Note 8 - Fair Value Measurements (Detail) - Fair Value Long Term Notes Payable (USD $)	Sep. 30, 2012
Long-term debt	$ 271,020,389
Estimate of Fair Value, Fair Value Disclosure [Member]
Long-term debt	$ 181,384,007

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Note 4 - Derivative Activities

9 Months Ended

Sep. 30, 2012

Derivative Instruments and Hedging Activities Disclosure [Text Block]

4.           Derivative Activities

     The Company utilized two interest rate swaps which matured on February 8, 2012. The first swap had 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 was effective from February 9, 2009 through February 8, 2012. The second swap had 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 was effective from February 9, 2010 through February 8, 2012.  From an accounting perspective, the documentation for both swaps did 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 did not qualify for hedge accounting.The change in fair value of the swaps was charged or credited to income as a change in fair value of derivatives.  Over the life of the swaps, the cumulative change in fair value was zero.

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Note 3 - Acquisitions (Detail) (USD $)	3 Months Ended
	Sep. 30, 2012	Oct. 14, 2011
Business Acquisition, Percentage of Voting Interests Acquired		100.00%
Business Acquisition, Cost of Acquired Entity, Cash Paid		$ 5,248,134
Business Acquisition, Purchase Price Allocation, Deferred Tax Liabilities, Noncurrent	1,889,202	1,889,202
Business Acquisition, Purchase Price Allocation, Goodwill Amount	420,505	420,505
Finite-lived Intangible Assets Acquired	1,672,200
Finite-Lived Intangible Asset, Useful Life	10 years
Finite-Lived Trade Names, Gross	16,200
Finite-Lived Noncompete Agreements, Gross	41,200
Scenario, Previously Reported [Member]
Business Acquisition, Purchase Price Allocation, Deferred Tax Liabilities, Noncurrent	2,233,458
Note Payable [Member]
Business Acquisition, Purchase Price Allocation, Notes Payable and Long-term Debt		410,904
Accrued Interest [Member]
Business Acquisition, Purchase Price Allocation, Notes Payable and Long-term Debt		$ 3,081
Trade Names [Member]
Finite-Lived Intangible Asset, Useful Life	5 years
Noncompete Agreements [Member]
Finite-Lived Intangible Asset, Useful Life	2 years

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Note 2 - Impairments (Detail) - Expected Amortization Expense (USD $)	Sep. 30, 2012
2012 (Remaining)	$ 1,608,517
2013	2,596,453
2014	1,203,289
2015	761,030
2016	523,611
Thereafter	1,586,009
Total	$ 8,278,909

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Note 3 - Acquisitions (Detail) - Allocation of the Net Purchase Price for the STC Acquisition (USD $)	Sep. 30, 2012	Oct. 14, 2011
Cash		$ 237,850
Other current assets		552,331
Property and equipment		4,529,760
Intangible assets		1,729,600
Goodwill	420,505	420,505
Current liabilities		(332,710)
Deferred income tax liabilities	(1,889,202)	(1,889,202)
Purchase price		$ 5,248,134

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Note 3 - Acquisitions (Detail) - Combined Results of Operations (USD $)	3 Months Ended	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2011
Revenues	$ 25,839,115	$ 77,942,997
Income from operations	6,242,794	18,911,505
Net income	$ 797,313	$ 2,071,206
Net income per common share (in Dollars per share)	$ 0.06	$ 0.16

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Note 3 - Acquisitions

9 Months Ended

Sep. 30, 2012

Business Combination Disclosure [Text Block]

3.           Acquisitions

     On October 14, 2011, ST acquired 100% of the issued and outstanding common stock of STC and, immediately thereafter, merged STC with and into ST.  ST provides telecommunications solutions, including voice, data and internet services, to residential and business customers in western Vermont.

     The stock purchase agreement related to the acquisition of STC provided for cash consideration of $5,248,134, including the extinguishment of notes payable of $410,904 and accrued interest of $3,081, which were paid at closing.  During the quarter ended September 30, 2012, the Company finalized the calculation of deferred income tax liability acquired.  The Company determined the deferred income tax liability to be $1,889,202, rather than $2,233,458 as previously reported.  The excess of the purchase price over the fair value of identifiable assets and liabilities is reflected as goodwill of $420,505.  As part of the goodwill impairment testing conducted during second quarter 2012, all goodwill in our New England reporting unit was determined to be impaired, including the goodwill associated with the STC acquisition.

     The allocation of the net purchase price for the STC acquisition was as follows:

	October 14, 2011
Cash	$	237,850
Other current assets		552,331
Property and equipment		4,529,760
Intangible assets		1,729,600
Goodwill		420,505
Current liabilities		(332,710	)
Deferred income tax liabilities		(1,889,202	)
Purchase price	$	5,248,134

    The acquisition was recorded at fair value in accordance with ASC 805, Business Combinations, resulting in a plant acquisition adjustment in 2011.  Property and equipment have depreciable lives consistent with those shown in Note 7 Property and Equipment, below. The intangible assets at time of acquisition included regulated customer based assets at fair value of $1,672,200 which had remaining lives of 10 years; trade name fair valued at $16,200 which had a remaining life of 5 years; and a non-competition agreement fair valued at $41,200 which had a remaining life of 2 years.  The acquisition was accounted for using the acquisition method of accounting and, accordingly, the accompanying consolidated financial statements include the financial position and results of operations from the date of acquisition.

     The following unaudited pro forma information presents the combined results of operations of the Company as though the acquisition of STC had occurred at the beginning of 2011.  The results include certain adjustments, including increased amortization expense related to intangible assets.  The pro forma financial information does not necessarily reflect the results of operations had the acquisition been completed at the beginning of 2011 or those which may be obtained in the future.

	Three Months Ended September, 2011		Nine Months Ended September, 2011
Revenues	$	25,839,115	$	77,942,997
Income from operations	$	6,242,794	$	18,911,505
Net income	$	797,313	$	2,071,206
Net income per common share	$	0.06	$	0.16

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Note 4 - Derivative Activities (Detail) (USD $)	Feb. 08, 2012
Notional Amount of Interest Rate Derivatives	$ 0
Interest Rate Swap [Member]
Derivative, Notional Amount	90,000,000
Derivative, Fixed Interest Rate	1.85%
Interest Rate Swap 2 [Member]
Derivative, Notional Amount	$ 60,000,000
Derivative, Fixed Interest Rate	2.0475%

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Note 9 - Subsidiary Guarantees (Detail) - Condensed Consolidating Statements of Cash Flows (USD $)	3 Months Ended		9 Months Ended			12 Months Ended					9 Months Ended	12 Months Ended					9 Months Ended	12 Months Ended	9 Months Ended	12 Months Ended					9 Months Ended	12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012 Parent [Member]	Dec. 31, 2011 Parent [Member]	Dec. 31, 2011 Guarantor Subsidiaries [Member] Period Beginning [Member]	Dec. 31, 2010 Guarantor Subsidiaries [Member] Period Beginning [Member]	Sep. 30, 2012 Guarantor Subsidiaries [Member] Period End [Member]	Dec. 31, 2011 Guarantor Subsidiaries [Member] Period End [Member]	Sep. 30, 2012 Guarantor Subsidiaries [Member]	Dec. 31, 2011 Guarantor Subsidiaries [Member]	Dec. 31, 2011 Non-Guarantor Subsidiaries [Member] Period Beginning [Member]	Dec. 31, 2010 Non-Guarantor Subsidiaries [Member] Period Beginning [Member]	Sep. 30, 2012 Non-Guarantor Subsidiaries [Member] Period End [Member]	Dec. 31, 2011 Non-Guarantor Subsidiaries [Member] Period End [Member]	Sep. 30, 2012 Non-Guarantor Subsidiaries [Member]	Dec. 31, 2011 Non-Guarantor Subsidiaries [Member]	Sep. 30, 2012 Eliminations [Member]	Dec. 31, 2011 Eliminations [Member]	Dec. 31, 2011 Consolidated [Member] Period Beginning [Member]	Dec. 31, 2010 Consolidated [Member] Period Beginning [Member]	Sep. 30, 2012 Consolidated [Member] Period End [Member]	Dec. 31, 2011 Consolidated [Member] Period End [Member]	Sep. 30, 2012 Consolidated [Member]	Dec. 31, 2011 Consolidated [Member]
Cash flows from operating activities:
Net income loss	$ 316,306	$ 885,462	$ (126,876,069)	$ 2,173,390	$ (126,876,069)	$ 2,173,390					$ (88,721,669)	$ 16,972,088					$ (58,112,566)	$ 1,561,690	$ 146,834,235	$ (18,533,778)					$ (126,876,069)	$ 2,173,390
Adjustment to reconcile net income loss to cash flows from operating activities					698,636	(691,555)					72,853,248	13,777,274					70,027,808	1,944,094							143,579,692	15,029,813
Changes in assets and liabilities, net of assets and liabilities acquired					34,214,823	24,210,292					(18,065,895)	(23,327,940)					(11,736,456)	(2,725,456)							4,412,472	(1,843,104)
Net cash provided by (used in) operating activities			21,116,095	15,360,099	(91,962,610)	25,692,127					(33,934,316)	7,421,422					178,786	780,328	146,834,235	(18,533,778)					21,116,095	15,360,099
Cash flows provided by (used in) investing activities			(3,396,129)	(8,448,004)		218,301					(3,217,343)	(7,734,365)					(178,786)	(931,940)							(3,396,129)	(8,448,004)
Cash flows provided by (used in) financing activities			(2,929,069)	(7,376,645)	91,962,610	(25,910,428)					51,942,556	5							(146,834,235)	18,533,778					(2,929,069)	(7,376,645)
Net increase decrease in cash and cash equivalents			14,790,897	(464,550)							14,790,897	(312,938)						(151,612)							14,790,897	(464,550)
Cash and cash equivalents, beginning of period			12,393,792	18,226,374			12,393,442	18,064,970	27,184,339	17,752,032			350	161,404	350	9,792					12,393,792	18,226,374	27,184,689	17,761,824
Cash and cash equivalents, end of period	$ 27,184,689	$ 17,761,824	$ 27,184,689	$ 17,761,824			$ 12,393,442	$ 18,064,970	$ 27,184,339	$ 17,752,032			$ 350	$ 161,404	$ 350	$ 9,792					$ 12,393,792	$ 18,226,374	$ 27,184,689	$ 17,761,824

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Consolidated Balance Sheets (USD $)	Sep. 30, 2012	Dec. 31, 2011
Current assets
Cash and cash equivalents	$ 27,184,689	$ 12,393,792
Due from subscribers, net of allowance for doubtful accounts of $260,568 and $246,683, respectively	4,637,315	4,355,632
Unbilled receivables	2,068,608	2,183,465
Other	5,053,612	5,449,074
Materials and supplies	1,999,700	1,780,820
Prepaid expenses	1,505,162	1,328,475
Deferred income taxes	816,933	726,310
Total current assets	43,266,019	28,217,568
Property and equipment, net	57,925,140	65,881,975
Goodwill	44,956,840	188,954,840
Intangible assets, net	8,278,909	20,545,691
Investments	1,924,672	1,943,805
Deferred financing costs	4,058,049	4,485,324
Deferred income taxes	7,575,073	7,454,443
Other assets	505,358	240,667
Total assets	168,490,060	317,724,313
Current liabilities
Accounts payable	1,228,228	1,490,717
Accrued expenses	11,331,331	6,034,104
Advance billings and payments	1,566,957	1,590,689
Deferred income taxes	387,720	353,285
Customer deposits	119,027	143,657
Total current liabilities	14,633,263	9,612,452
Deferred income taxes	23,179,653	48,112,384
Interest rate swaps		241,438
Advance billings and payments	801,921	615,584
Other liabilities	428,932	403,823
Long-term notes payable	271,020,389	271,106,387
Total liabilities	310,064,158	330,092,068
Common Class A [Member]
Current liabilities
Class A Common Stock, $.01 par value-authorized 20,000,000 shares; issued and outstanding 13,221,404 shares	132,214	132,214
Retained deficit	(141,706,312)	(12,499,969)
Total stockholders' deficit	(141,574,098)	(12,367,755)
Total liabilities and stockholders' deficit	$ 168,490,060	$ 317,724,313

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Note 1 - Organization and Basis of Financial Reporting

9 Months Ended

Sep. 30, 2012

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

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 LLC (“HTC”); Brindlee Mountain Telephone LLC (“BMTC”); Blountsville Telephone LLC (“BTC”); Otelco Mid-Missouri LLC (“MMT”) and its wholly owned subsidiary I-Land Internet Services LLC; Mid-Maine Telecom LLC (“MMTI”); Mid-Maine TelPlus LLC (“MMTP”); Granby Telephone LLC (“GTT”); War Telephone LLC (“WT”); Pine Tree Telephone LLC (“PTT”); Saco River Telephone LLC (“SRT”); Shoreham Telephone LLC (“ST”); CRC Communications LLC (“PTN”); and Communications Design Acquisition LLC (“CDAC”).

     The accompanying unaudited 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, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012 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, 2011.  The interim consolidated financial information herein is unaudited.  The information reflects all 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.

Recent Accounting Pronouncements

     During 2012, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2012-01 through 2012-07. Except for ASU 2012-02, which is discussed below, these ASUs provide technical corrections to existing guidance and to specialized industries or entities and therefore, have minimal, if any, impact on the Company.

     In July 2012, the FASB issued ASU 2012-02 Testing Indefinite-Lived Intangible Assets for Impairment – an amendment to Accounting Standards Codification (“ASC”) 350 Intangibles – Goodwill and Other (“ASC 350”). This ASU provides an option for companies to use a qualitative approach to test indefinite-lived intangible assets for impairment if certain conditions are met. The amendments are effective for annual and interim indefinite-lived intangible asset impairment tests performed for fiscal years beginning after September 15, 2012. The implementation of this ASU is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

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Note 7 - Property and Equipment (Detail) - Property and Equipment (USD $)	9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Fair Value	$ 274,451,717	$ 280,718,813
Total property, plant and equipment	274,451,717	280,718,813
Accumulated depreciation	(216,526,577)	(214,836,838)
Net property, plant and equipment	57,925,140	65,881,975
Land [Member]
Fair Value	1,156,843	1,156,843
Total property, plant and equipment	1,156,843	1,156,843
Building and Building Improvements [Member] | Lower Range [Member]
Estimated life	20 years
Building and Building Improvements [Member] | Upper Range [Member]
Estimated life	40 years
Building and Building Improvements [Member]
Fair Value	12,268,433	12,246,942
Total property, plant and equipment	12,268,433	12,246,942
Telephone Equipment [Member] | Lower Range [Member]
Estimated life	6 years
Telephone Equipment [Member] | Upper Range [Member]
Estimated life	20 years
Telephone Equipment [Member]
Fair Value	221,449,892	227,825,837
Total property, plant and equipment	221,449,892	227,825,837
Cable Television Equipment [Member]
Estimated life	7 years
Fair Value	11,010,734	10,918,212
Total property, plant and equipment	11,010,734	10,918,212
Furniture and Fixtures [Member] | Lower Range [Member]
Estimated life	8 years
Furniture and Fixtures [Member] | Upper Range [Member]
Estimated life	14 years
Furniture and Fixtures [Member]
Fair Value	2,971,953	2,967,336
Total property, plant and equipment	2,971,953	2,967,336
Transportation Equipment [Member] | Lower Range [Member]
Estimated life	7 years
Transportation Equipment [Member] | Upper Range [Member]
Estimated life	9 years
Transportation Equipment [Member]
Fair Value	6,081,456	6,089,631
Total property, plant and equipment	6,081,456	6,089,631
Computer Software Equipment [Member] | Lower Range [Member]
Estimated life	5 years
Computer Software Equipment [Member] | Upper Range [Member]
Estimated life	7 years
Computer Software Equipment [Member]
Fair Value	15,607,496	15,590,698
Total property, plant and equipment	15,607,496	15,590,698
Internet Equipment [Member]
Estimated life	5 years
Fair Value	3,904,910	3,923,314
Total property, plant and equipment	$ 3,904,910	$ 3,923,314

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Note 7 - Property and Equipment (Tables)

9 Months Ended

Sep. 30, 2012

Property, Plant and Equipment [Table Text Block]

	Estimated Life				December 31, 2011			September 30, 2012
Land					$	1,156,843		$	1,156,843
Building and improvements		20	-	40		12,246,942			12,268,433
Telephone equipment		6	-	20		227,825,837			221,449,892
Cable television equipment			7			10,918,212			11,010,734
Furniture and equipment		8	-	14		2,967,336			2,971,953
Vehicles		7	-	9		6,089,631			6,081,456
Computer software equipment		5	-	7		15,590,698			15,607,496
Internet equipment			5			3,923,314			3,904,910
Total property, plant and equipment						280,718,813			274,451,717
Accumulated depreciation						(214,836,838	)		(216,526,577	)
Net property, plant and equipment					$	65,881,975		$	57,925,140

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Note 8 - Fair Value Measurements (Detail) - Fair Value Hierarchy for Financial Assets and Liabilities (USD $)	Dec. 31, 2011
Liabilities
Interest rate swaps	$ 241,438
Total liabilities	241,438
Fair Value, Inputs, Level 2 [Member]
Liabilities
Interest rate swaps	241,438
Total liabilities	$ 241,438

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Note 9 - Subsidiary Guarantees (Tables)

9 Months Ended

Sep. 30, 2012

Schedule of Condensed Balance Sheet [Table Text Block]

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current assets
Cash and cash equivalents	$	-		$	12,393,441		$	351		$	-		$	12,393,792
Accounts receivable, net		-			11,445,049			543,122			-			11,988,171
Materials and supplies		-			827,194			953,626			-			1,780,820
Prepaid expenses		194,244			1,115,339			18,892			-			1,328,475
Income tax receivables		-			-			-			-			-
Deferred income taxes		726,310			-			-			-			726,310
Investment in subsidiaries		147,614,140			-			-			(147,614,140	)		-
Intercompany receivable		(154,849,721	)		(688,391	)		688,391			154,849,721			-
Total current assets		(6,315,027	)		25,092,632			2,204,382			7,235,581			28,217,568
Property and equipment, net		-			64,524,981			1,356,994			-			65,881,975
Goodwill		239,970,317			(47,435,761	)		(3,579,716	)		-			188,954,840
Intangible assets, net		-			18,186,227			2,359,464			-			20,545,691
Investments		1,203,605			432,186			308,014			-			1,943,805
Deferred income taxes		7,454,443			-			-			-			7,454,443
Other long-term assets		4,485,324			240,667			-			-			4,725,991
Total assets	$	246,798,662		$	61,040,932		$	2,649,138		$	7,235,581		$	317,724,313
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable and accrued expenses	$	1,306,872		$	4,793,854		$	1,424,095		$	-		$	7,524,821
Intercompany payables		-			(154,849,721	)		-			154,849,721			-
Other current liabilities		353,285			1,668,933			65,413			-			2,087,631
Total current liabilities		1,660,157			(148,386,934	)		1,489,508			154,849,721			9,612,452
Deferred income taxes		26,421,911			20,354,646			1,335,827			-			48,112,384
Other liabilities		241,438			1,019,407			-			-			1,260,845
Long-term notes payable		230,842,911			40,263,476			-			-			271,106,387
Stockholders' equity (deficit)		(12,367,755	)		147,790,337			(176,197	)		(147,614,140	)		(12,367,755	)
Total liabilities and stockholders' equity (deficit)	$	246,798,662		$	61,040,932		$	2,649,138		$	7,235,581		$	317,724,313

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current assets
Cash and cash equivalents	$	-		$	27,184,339		$	350		$	-		$	27,184,689
Accounts receivable, net		-			11,136,321			623,214			-			11,759,535
Materials and supplies		-			984,276			1,015,424			-			1,999,700
Prepaid expenses		367,498			1,142,761			(5,097	)		-			1,505,162
Income tax receivables		-			-			-			-			-
Deferred income taxes		816,933			-			-			-			816,933
Investment in subsidiaries		35,408,275			-			-			(35,408,275	)		-
Intercompany receivable		(185,695,157	)		(12,222,753	)		12,222,753			185,695,157			-
Total current assets		(149,102,451	)		28,224,944			13,856,644			150,286,882			43,266,019
Property and equipment, net					56,591,235			1,333,905			-			57,925,140
Goodwill		239,970,317			(121,910,761	)		(73,102,716	)		-			44,956,840
Intangible assets, net		-			7,156,627			1,122,282			-			8,278,909
Investments		1,203,605			413,053			308,014			-			1,924,672
Deferred income taxes		7,575,073			-			-			-			7,575,073
Other long-term assets		4,058,049			505,358			-			-			4,563,407
Total assets	$	103,704,593		$	(29,019,544	)	$	(56,481,871	)	$	150,286,882		$	168,490,060
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable and accrued expenses	$	4,849,514		$	6,350,555		$	1,359,490		$	-		$	12,559,559
Intercompany payables		-			(185,695,157	)		-			185,695,157			-
Other current liabilities		387,720			1,608,956			77,028			-			2,073,704
Total current liabilities		5,237,234			(177,735,646	)		1,436,518			185,695,157			14,633,263
Deferred income taxes		9,284,544			13,524,731			370,378			-			23,179,653
Other liabilities		-			1,230,853			-			-			1,230,853
Long-term notes payable		230,756,913			40,263,476			-			-			271,020,389
Stockholders' equity (deficit)		(141,574,098	)		93,697,042			(58,288,767	)		(35,408,275	)		(141,574,098	)
Total liabilities and stockholders' equity (deficit)	$	103,704,593		$	(29,019,544	)	$	(56,481,871	)	$	150,286,882		$	168,490,060

Schedule of Condensed Income Statement [Table Text Block]

	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 expense		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
Revenues	$	841,514		$	22,547,158		$	1,039,224		$	-		$	24,427,896
Operating expenses		(1,431,456	)		(15,763,985	)		(745,081	)		-			(17,940,522	)
Income (loss) from operations		(589,942	)		6,783,173			294,143			-			6,487,374
Other expense		(5,661,522	)		(11,103	)		(7	)		-			(5,672,632	)
Earnings from subsidiaries		5,576,462			-			-			(5,576,462	)		-
Income (loss) before income tax		(675,002	)		6,772,070			294,136			(5,576,462	)		814,742
Income tax benefit (expense)		991,308			(883,860	)		(605,884	)		-			(498,436	)
Net income (loss) to common stockholders	$	316,306		$	5,888,210		$	(311,748	)	$	(5,576,462	)	$	316,306

	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
Revenues	$	2,599,694		$	68,846,718		$	3,069,498		$	-	$	74,515,910
Operating expenses		(3,550,820	)		(132,824,424	)		(73,097,582	)		-		(209,472,826	)
Loss from operations		(951,126	)		(63,977,706	)		(70,028,084	)		-		(134,956,916	)
Other expense		(16,573,909	)		(35,331	)		(47	)		-		(16,609,287	)
Earnings from subsidiaries		(112,205,864	)		-			-			112,205,864		-
Loss before income tax		(129,730,899	)		(64,013,037	)		(70,028,131	)		112,205,864		(151,566,203	)
Income tax benefit		2,854,830			9,919,744			11,915,560			-		24,690,134
Net loss to common stockholders	$	(126,876,069	)	$	(54,093,293	)	$	(58,112,571	)	$	112,205,864	$	(126,876,069	)

Cash Flow, Supplemental Disclosures [Text Block]

	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 (loss) 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

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net loss	$	(126,876,069	)	$	(88,721,669	)	$	(58,112,566	)	$	146,834,235		$	(126,876,069	)
Adjustment to reconcile net loss to cash flows from operating activities		698,636			72,853,248			70,027,808			-			143,579,692
Changes in assets and liabilities, net of assets and liabilities acquired		34,214,823			(18,065,895	)		(11,736,456	)		-			4,412,472
Net cash provided by (used in) operating activities		(91,962,610	)		(33,934,316	)		178,786			146,834,235			21,116,095
Cash flows used in investing activities		-			(3,217,343	)		(178,786	)		-			(3,396,129	)
Cash flows provided by (used in) financing activities		91,962,610			51,942,556			-			(146,834,235	)		(2,929,069	)
Net increase in cash and cash equivalents		-			14,790,897			-			-			14,790,897
Cash and cash equivalents, beginning of period		-			12,393,442			350			-			12,393,792
Cash and cash equivalents, end of period	$	-		$	27,184,339		$	350		$	-		$	27,184,689

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Note 2 - Impairments

9 Months Ended

Sep. 30, 2012

Goodwill and Intangible Assets Disclosure [Text Block]

2.           Impairments

     ASC 350 requires that goodwill be tested for impairment annually, unless potential interim indicators exist that could result in impairment.  During the third quarter of 2012, the market price of the Company’s Income Deposit Securities (“IDS”) dropped materially following the release of the Company’s financial and operational results for the second quarter of 2012.  The Company’s management  performed a qualitative assessment of the Company’s reporting units (Alabama, Missouri, and New England) as of September 30, 2012, and determined that no adjustment to the carrying value of goodwill was necessary. As is discussed below, the carrying value of goodwill was reduced to fair value during the second quarter of 2012.  Impairment charges for the three months ended September 30, 2012 are related to third quarter adjustments to the acquisition of Shoreham Telephone Company, Inc. (“STC”).  See note 3, Acquisitions, below.

     During the second quarter of 2012, an interim goodwill impairment test was performed in response to changes in conditions since 2011 as revealed in the annual forecasting process.  The forecast included the non-renewal of the Time Warner Cable (“TW”) contract beyond its December 31, 2012 expiration date (based on  an indication received from TW)  and the impact of the recent Federal Communications Commission reform. Forecasted operating profits were reduced below the levels projected during the fourth quarter of 2011 and first quarter of 2012.

     The FCC’s Intercarrier Compensation order, issued November 2011, has and will significantly change the way telecommunication carriers receive compensation for exchanging traffic. Over the next three years, all intrastate rates that exceed the interstate rate will be reduced to the interstate rate. Beginning in 2014, the interstate rate will be reduced over three years to “bill and keep” in which carriers bill their customers for services and keep those charges but neither pay for or receive compensation from traffic sent to or received from other carriers. In addition, subsidies to carriers serving high cost areas will be phased out over an extended period.

     During the second quarter 2012, the Company performed an impairment test on each reporting unit using the two step approach prescribed in ASC 350. Step one compares the fair value of each reporting unit to its carrying value. Fair value was calculated using a blended analysis of the income approach and the market approach of valuation.  The Company believes the blended approach is the best method for determining fair value because this approach compensates for inherent risk associated with either model on a stand-alone basis. The process of evaluating the potential impairment of goodwill is subjective because it requires the use of estimates and assumptions. The impact of the non-renewal of TW contract impacts the New England reporting unit. The impact of the FCC’s Intercarrier Compensation order impacts all three reporting units with the largest impact being in New England in 2012 and all reporting units in 2013. In addition, the FCC’s Intercarrier Compensation order is likely to have an impact on the market valuation of all wireline telecommunications businesses, including the Company, as future revenue streams are reduced.

     The income approach method utilized was the discounted cash flow method. This method requires the use of estimates and judgments about the future cash flows of the reporting units. Although cash flow forecasts are based on assumptions that are consistent with plans and estimates used to manage the underlying reporting units, there is significant judgment in determining the cash flows attributable to these reporting units, including markets and market share, sales volumes, tax rates, capital spending, discount rate and working capital changes.  The market approach method employed in the analysis was the public company method. This method is based on a comparison of the Company to comparable publicly traded firms in similar lines of business. The estimates and judgments used to determine comparable companies include such factors as size, growth, profitability, risk and return on investment.

     The Company determined that the fair value of the three reporting units was below its carrying value, which necessitated a step two review to determine whether or not to record a charge to goodwill impairment. The step two review involved determining the fair value of the identifiable net assets of each reporting unit, excluding goodwill, and comparing this to the fair value from step one.The Company performed its interim goodwill impairment testing as of April 30, 2012 and recorded impairment charges of $62,404,000, $12,071,000, and $69,523,000 to reduce the carrying value of goodwill to its implied fair value for its three reporting units: Alabama, Missouri, and New England, respectively.  During the quarter ended September 30, 2012, the New England impairment charges were reduced by $344,256 due to an adjustment related to the STC acquisition.  See note 3, Acquisitions, below.

The changes in the carrying amounts of goodwill for the nine months ended September 30, 2012, are as follows:

	Alabama Reporting Unit			Missouri Reporting Unit			New England Reporting Unit			Total
Balance as of December 31, 2011
Goodwill	$	101,602,718		$	17,829,122		$	69,523,000			188,954,840
Accumulated impairment losses		-			-			-			-
		101,602,718			17,829,122			69,523,000			188,954,840
Adjustment related to STC acquisition (1)		-			-			(344,256	)		(344,256	)
Impairment losses for the nine months ended September, 30 2012		(62,404,000	)		(12,071,000	)		(69,178,744	)		(143,653,744	)
Balance as of September 30, 2012
Goodwill		101,602,718			17,829,122			69,178,744			188,610,584
Accumulated impairment losses		(62,404,000	)		(12,071,000	)		(69,178,744	)		(143,653,744	)
Goodwill adjusted cost basis	$	39,198,718		$	5,758,122		$	-		$	44,956,840

(1) Third quarter 2012 adjustment related to the finalized purchase price allociation of the STC acquisition.  See note 3, Acquisitions, below.

     During the impairment review performed during the second quarter of 2012, the Company determined that the fair value of the New England reporting unit’s intangible assets was below its carrying value.  Fair value of intangible assets was calculated using the income approach of valuation.  The company recorded an impairment charge of $5,748,000 to reduce the carrying value of intangible assets to its implied fair value for its New England reporting unit.

     The changes in the carrying amount of intangible assets for the nine months ended September 30, 2012, are as follows:

	Reporting Unit			Reporting Unit			Reporting Unit			Total
Balance as of December 31, 2011
Intangible assets	$	128,441		$	356,384		$	20,060,866			20,545,691
Accumulated impairment losses		-			-			-			-
	$	128,441		$	356,384		$	20,060,866		$	20,545,691
Amortization		(39,006	)		(90,000	)		(6,389,776	)		(6,518,782	)
Impairment losses for the nine months ended, September 30, 2012		-			-			(5,748,000	)		(5,748,000	)

Balance as of September, 30 2012
Intangible assets		89,435		266,384		13,671,090			14,026,909
Accumulated impairment losses		-		-		(5,748,000	)		(5,748,000	)
Intangible asset adjusted cost basis	$	89,435	$	266,384	$	7,923,090		$	8,278,909

     Intangible assets consist primarily of the value of customer related intangibles, non-compete agreements and long-term customer contracts.  The Company’s intangible assets have a range of 1 to 15 years of useful lives and utilize both the sum-of-the-years’ digits and straight-line methods of amortization, as appropriate.

Expected amortization expense for the years ending December 31,

2012 (Remaining)	$	1,608,517
2013		2,596,453
2014		1,203,289
2015		761,030
2016		523,611
Thereafter		1,586,009
Total	$	8,278,909

     Prior to completing the ASC 350 testing performed during the second quarter of 2012, the Company determined the fair value of property and equipment in the New England reporting unit was below its carrying value in accordance with ASC 360, Property, Plant and Equipment.  Fair value of property and equipment was calculated primarily by using the indirect cost approach.  This method requires estimates and judgments about asset replacement cost including physical deterioration, functional obsolescence, and economic obsolescence. The company recorded an impairment charge of $2,874,000 to reduce the carrying value of property and equipment to its implied fair value for its New England reporting unit.

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Consolidated Balance Sheets (Parentheticals) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Allowance for doubtful accounts (in Dollars)	$ 246,683	$ 260,568
Common Class A [Member]
Common stock par value (in Dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	20,000,000	20,000,000
Common stock, shares issued	13,221,404	13,221,404
Common stock, shares outstanding	13,221,404	13,221,404

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Note 12 - Subsequent Events

9 Months Ended

Sep. 30, 2012

Subsequent Events [Text Block]

12.         Subsequent Events

The Company is engaged in negotiations with the lenders under its senior credit facility with respect to a potential balance sheet restructuring.  On October 5, 2012, the Company retained restructuring counsel to aid in these negotiations. Together with its advisors, the Company will evaluate its alternatives.

     On November 6, 2012, the Company announced that its board of directors had exercised its contractual right under the indenture governing the Company’s senior subordinated notes to defer interest on the senior subordinated notes for the fourth quarter 2012. Under this indenture, the Company’s board of directors is permitted to defer interest on up to four occasions with respect to up to two quarters per occasion before resuming interest payments, including paying interest on the deferred interest.  The Company previously deferred interest on the senior subordinated notes for the third quarter 2012. The deferral of the interest for fourth quarter 2012 will conserve $3.5 million in cash.  Before deferring interest for an additional period beyond fourth quarter 2012, the Company would be required to pay the deferred interest of $7.0 million plus interest on the deferred interest.

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Document And Entity Information	9 Months Ended
	Sep. 30, 2012	Nov. 07, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	OTELCO INC.
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		13,221,404
Amendment Flag	false
Entity Central Index Key	0001288359
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Accelerated Filer
Entity Well-known Seasoned Issuer	No
Document Period End Date	Sep. 30, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3

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Accounting Policies, by Policy (Policies)

9 Months Ended

Sep. 30, 2012

Basis of Accounting, Policy [Policy Text Block]

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 LLC (“HTC”); Brindlee Mountain Telephone LLC (“BMTC”); Blountsville Telephone LLC (“BTC”); Otelco Mid-Missouri LLC (“MMT”) and its wholly owned subsidiary I-Land Internet Services LLC; Mid-Maine Telecom LLC (“MMTI”); Mid-Maine TelPlus LLC (“MMTP”); Granby Telephone LLC (“GTT”); War Telephone LLC (“WT”); Pine Tree Telephone LLC (“PTT”); Saco River Telephone LLC (“SRT”); Shoreham Telephone LLC (“ST”); CRC Communications LLC (“PTN”); and Communications Design Acquisition LLC (“CDAC”).

     The accompanying unaudited 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, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012 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, 2011.  The interim consolidated financial information herein is unaudited.  The information reflects all 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.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

     During 2012, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2012-01 through 2012-07. Except for ASU 2012-02, which is discussed below, these ASUs provide technical corrections to existing guidance and to specialized industries or entities and therefore, have minimal, if any, impact on the Company.

     In July 2012, the FASB issued ASU 2012-02 Testing Indefinite-Lived Intangible Assets for Impairment – an amendment to Accounting Standards Codification (“ASC”) 350 Intangibles – Goodwill and Other (“ASC 350”). This ASU provides an option for companies to use a qualitative approach to test indefinite-lived intangible assets for impairment if certain conditions are met. The amendments are effective for annual and interim indefinite-lived intangible asset impairment tests performed for fiscal years beginning after September 15, 2012. The implementation of this ASU is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

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Consolidated Statements of Operations (unaudited) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Revenues	$ 24,427,896	$ 25,302,747	$ 74,515,910	$ 76,195,806
Operating expenses
Cost of services	10,360,737	10,985,814	32,038,028	32,762,538
Selling, general and administrative expenses	3,310,285	3,248,746	10,140,303	9,485,763
Depreciation and amortization	4,613,756	4,944,033	15,018,751	15,176,030
Long-lived assets impairment - PP&E			2,874,000
Long-lived assets impairment - intangibles			5,748,000
Goodwill impairment	(344,256)		143,653,744
Total operating expenses	17,940,522	19,178,593	209,472,826	57,424,331
Income (loss) from operations	6,487,374	6,124,154	(134,956,916)	18,771,475
Other income (expense)
Interest expense	(5,673,925)	(6,222,487)	(17,162,230)	(18,591,790)
Change in fair value of derivatives		654,791	241,438	1,641,032
Other income	1,293	6,189	311,505	388,686
Total other expenses	(5,672,632)	(5,561,507)	(16,609,287)	(16,562,072)
Income (loss) before income tax	814,742	562,647	(151,566,203)	2,209,403
Income tax benefit (expense)	(498,436)	322,815	24,690,134	(36,013)
Net income (loss) available to common stockholders	$ 316,306	$ 885,462	$ (126,876,069)	$ 2,173,390
Common shares outstanding (in Shares)	13,221,404	13,221,404	13,221,404	13,221,404
Net income (loss) per common share (in Dollars per share)	$ 0.02	$ 0.07	$ (9.60)	$ 0.16
Dividends declared per common share (in Dollars per share)		$ 0.18	$ 0.18	$ 0.53

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Note 7 - Property and Equipment

9 Months Ended

Sep. 30, 2012

Property, Plant and Equipment Disclosure [Text Block]

7.           Property and Equipment

     Other than those assets that have been written down to their fair values due to impairment, property and equipment purchased is reported at cost less accumulated depreciation.  Depreciation of regulated property and equipment is computed principally using the straight-line method over useful lives determined by the Alabama Public Service Commission (the “APSC”), the Maine Public Utilities Commission (the “MPUC”), the Massachusetts Department of Telecommunications and Cable (the “MDTC”), the Missouri Public Service Commission (the “MPSC”), the New Hampshire Public Utilities Commission (the “NHPUC”), the Vermont Public Service Board (the “VPSB”) and the West Virginia Public Service Commission (the “WVPSC”).  Depreciation of unregulated property and equipment primarily employs the straight-line method over industry standard useful lives.

     Property and equipment are composed of the following:

	Estimated Life				December 31, 2011			September 30, 2012
Land					$	1,156,843		$	1,156,843
Building and improvements		20	-	40		12,246,942			12,268,433
Telephone equipment		6	-	20		227,825,837			221,449,892
Cable television equipment			7			10,918,212			11,010,734
Furniture and equipment		8	-	14		2,967,336			2,971,953
Vehicles		7	-	9		6,089,631			6,081,456
Computer software equipment		5	-	7		15,590,698			15,607,496
Internet equipment			5			3,923,314			3,904,910
Total property, plant and equipment						280,718,813			274,451,717
Accumulated depreciation						(214,836,838	)		(216,526,577	)
Net property, plant and equipment					$	65,881,975		$	57,925,140

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Note 6 - Income (loss) per Common Share

9 Months Ended

Sep. 30, 2012

Earnings Per Share [Text Block]

6.           Income (loss) per Common Share

     Income (loss) per common share is computed by dividing net income (loss) by the number of shares outstanding for the period.  The Company does not have any outstanding stock arrangements that might be potentially dilutive.

     A reconciliation of the Company’s income (loss) per share calculation is as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2012		2011		2012
Common shares outstanding		13,221,404		13,221,404		13,221,404		13,221,404
Net income (loss) available to common stockholders	$	885,462	$	316,306	$	2,173,390	$	(126,876,069	)
Net income (loss) per common share	$	0.07	$	0.02	$	0.16	$	(9.60	)

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Note 8 - Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2012

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

	December 31, 2011
	Fair Value		Level 1		Level 2		Level 3
Liabilities
Interest rate swaps	$	241,438	$	-	$	241,438	$	-
Total liabilities	$	241,438	$	-	$	241,438	$	-

Fair Value, by Balance Sheet Grouping [Table Text Block]

	September 30, 2012
	Carrying Amount		Fair Value
Long-term debt	$	271,020,389	$	181,384,007

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Note 2 - Impairments (Tables)

9 Months Ended

Sep. 30, 2012

Schedule of Goodwill [Table Text Block]

	Alabama Reporting Unit			Missouri Reporting Unit			New England Reporting Unit			Total
Balance as of December 31, 2011
Goodwill	$	101,602,718		$	17,829,122		$	69,523,000			188,954,840
Accumulated impairment losses		-			-			-			-
		101,602,718			17,829,122			69,523,000			188,954,840
Adjustment related to STC acquisition (1)		-			-			(344,256	)		(344,256	)
Impairment losses for the nine months ended September, 30 2012		(62,404,000	)		(12,071,000	)		(69,178,744	)		(143,653,744	)
Balance as of September 30, 2012
Goodwill		101,602,718			17,829,122			69,178,744			188,610,584
Accumulated impairment losses		(62,404,000	)		(12,071,000	)		(69,178,744	)		(143,653,744	)
Goodwill adjusted cost basis	$	39,198,718		$	5,758,122		$	-		$	44,956,840

Schedule of Finite-Lived Intangible Assets [Table Text Block]

	Reporting Unit			Reporting Unit			Reporting Unit			Total
Balance as of December 31, 2011
Intangible assets	$	128,441		$	356,384		$	20,060,866			20,545,691
Accumulated impairment losses		-			-			-			-
	$	128,441		$	356,384		$	20,060,866		$	20,545,691
Amortization		(39,006	)		(90,000	)		(6,389,776	)		(6,518,782	)
Impairment losses for the nine months ended, September 30, 2012		-			-			(5,748,000	)		(5,748,000	)

Balance as of September, 30 2012
Intangible assets		89,435		266,384		13,671,090			14,026,909
Accumulated impairment losses		-		-		(5,748,000	)		(5,748,000	)
Intangible asset adjusted cost basis	$	89,435	$	266,384	$	7,923,090		$	8,278,909

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

2012 (Remaining)	$	1,608,517
2013		2,596,453
2014		1,203,289
2015		761,030
2016		523,611
Thereafter		1,586,009
Total	$	8,278,909

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Note 10 - Revenue Concentrations

9 Months Ended

Sep. 30, 2012

Concentration Risk Disclosure [Text Block]

10.         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 9.9% and 9.3% of the Company’s total revenues for the nine months ended September 30, 2011 and 2012, respectively.

     The Company has a contract through 2012 with TW for the provision of wholesale network connections to TW’s customers in Maine and New Hampshire. Revenue received directly from TW represented approximately 11.7% and 12.3% of the Company’s consolidated revenue for the nine months ended September, 2011 and 2012, respectively.  Additionally, other unrelated telecommunications providers pay the Company access revenue for terminating calls through us to TW’s customers representing approximately 3% to 4% of our consolidated revenue for the nine months ended September 30, 2011 and 2012.

     On April 20, 2012, the Company announced that TW had indicated that it will not renew its existing contract for wholesale network connections provided by the Company. Formal notification of non-renewal was received in June 2012. Accordingly, this contract will expire on December 31, 2012, we are currently negotiating an expected six month transition period into 2013 during which customers will be moved to TW’s facilities.

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Note 8 - Fair Value Measurements

9 Months Ended

Sep. 30, 2012

Fair Value Disclosures [Text Block]

8.           Fair Value Measurement

     The Company adopted ASC 820, Fair Value Measurement (“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.

     ASC 820 defines fair value as the exit price, which is the price that would be received to sell an asset or paid to transfer a liability in a transaction between market participants at the measurement date.  ASC 820 establishes a three-tier fair value hierarchy that prioritizes inputs to valuation techniques used for fair value measurement.

· Level 1 consists of observable market data in an active market for identical assets or liabilities.

· Level 2 consists of observable market data, other than that included in Level 1, that is either directly or indirectly observable.

· 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.

    In accordance with ASC 820, the following table represents the Company’s fair value hierarchy for its financial assets and liabilities:

	December 31, 2011
	Fair Value		Level 1		Level 2		Level 3
Liabilities
Interest rate swaps	$	241,438	$	-	$	241,438	$	-
Total liabilities	$	241,438	$	-	$	241,438	$	-

     The interest rate swaps were valued at the end of 2011 based on available market information. The Company’s two interest rate swaps matured on February 8, 2012. See note 4, Derivative Activities, above.

Fair Value of Long-Term Debt

The fair value of the Company’s long-term notes payable is determined using various methods, including quoted market prices for notes with similar terms and maturities, which is a Level 2 measurement, and discounted cash flows, which is a Level 3 measurement. The carrying amounts and estimated fair values of long-term debt are as follows:

	September 30, 2012
	Carrying Amount		Fair Value
Long-term debt	$	271,020,389	$	181,384,007

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Note 9 - Subsidiary Guarantees

9 Months Ended

Sep. 30, 2012

Guarantees [Text Block]

9.           Subsidiary Guarantees

     On October 1, 2011, MMT became a guarantor of the Company’s senior subordinated notes and on October 14, 2011, ST became a guarantor of the Company’s senior subordinated notes.

     The Company has no independent assets or operations separate from its operating subsidiaries.  The guarantees of its senior subordinated notes by 14 of its 15 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 a condensed consolidating balance sheets as of December 31, 2011; an unaudited condensed consolidating balance sheet as of September 30, 2012; unaudited condensed consolidating statements of operations for the three months ended September 30, 2011 and 2012; unaudited condensed consolidating statements of operations for the nine months ended September 30, 2011 and 2012; and unaudited condensed consolidating statements of cash flows for the nine months ended September 30, 2011 and 2012.

Otelco Inc.

Condensed Consolidating Balance Sheet

December 31, 2011

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current assets
Cash and cash equivalents	$	-		$	12,393,441		$	351		$	-		$	12,393,792
Accounts receivable, net		-			11,445,049			543,122			-			11,988,171
Materials and supplies		-			827,194			953,626			-			1,780,820
Prepaid expenses		194,244			1,115,339			18,892			-			1,328,475
Income tax receivables		-			-			-			-			-
Deferred income taxes		726,310			-			-			-			726,310
Investment in subsidiaries		147,614,140			-			-			(147,614,140	)		-
Intercompany receivable		(154,849,721	)		(688,391	)		688,391			154,849,721			-
Total current assets		(6,315,027	)		25,092,632			2,204,382			7,235,581			28,217,568
Property and equipment, net		-			64,524,981			1,356,994			-			65,881,975
Goodwill		239,970,317			(47,435,761	)		(3,579,716	)		-			188,954,840
Intangible assets, net		-			18,186,227			2,359,464			-			20,545,691
Investments		1,203,605			432,186			308,014			-			1,943,805
Deferred income taxes		7,454,443			-			-			-			7,454,443
Other long-term assets		4,485,324			240,667			-			-			4,725,991
Total assets	$	246,798,662		$	61,040,932		$	2,649,138		$	7,235,581		$	317,724,313
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable and accrued expenses	$	1,306,872		$	4,793,854		$	1,424,095		$	-		$	7,524,821
Intercompany payables		-			(154,849,721	)		-			154,849,721			-
Other current liabilities		353,285			1,668,933			65,413			-			2,087,631
Total current liabilities		1,660,157			(148,386,934	)		1,489,508			154,849,721			9,612,452
Deferred income taxes		26,421,911			20,354,646			1,335,827			-			48,112,384
Other liabilities		241,438			1,019,407			-			-			1,260,845
Long-term notes payable		230,842,911			40,263,476			-			-			271,106,387
Stockholders' equity (deficit)		(12,367,755	)		147,790,337			(176,197	)		(147,614,140	)		(12,367,755	)
Total liabilities and stockholders' equity (deficit)	$	246,798,662		$	61,040,932		$	2,649,138		$	7,235,581		$	317,724,313

Otelco Inc.

Condensed Consolidating Balance Sheet

September 30, 2012

(unaudited)

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current assets
Cash and cash equivalents	$	-		$	27,184,339		$	350		$	-		$	27,184,689
Accounts receivable, net		-			11,136,321			623,214			-			11,759,535
Materials and supplies		-			984,276			1,015,424			-			1,999,700
Prepaid expenses		367,498			1,142,761			(5,097	)		-			1,505,162
Income tax receivables		-			-			-			-			-
Deferred income taxes		816,933			-			-			-			816,933
Investment in subsidiaries		35,408,275			-			-			(35,408,275	)		-
Intercompany receivable		(185,695,157	)		(12,222,753	)		12,222,753			185,695,157			-
Total current assets		(149,102,451	)		28,224,944			13,856,644			150,286,882			43,266,019
Property and equipment, net					56,591,235			1,333,905			-			57,925,140
Goodwill		239,970,317			(121,910,761	)		(73,102,716	)		-			44,956,840
Intangible assets, net		-			7,156,627			1,122,282			-			8,278,909
Investments		1,203,605			413,053			308,014			-			1,924,672
Deferred income taxes		7,575,073			-			-			-			7,575,073
Other long-term assets		4,058,049			505,358			-			-			4,563,407
Total assets	$	103,704,593		$	(29,019,544	)	$	(56,481,871	)	$	150,286,882		$	168,490,060
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable and accrued expenses	$	4,849,514		$	6,350,555		$	1,359,490		$	-		$	12,559,559
Intercompany payables		-			(185,695,157	)		-			185,695,157			-
Other current liabilities		387,720			1,608,956			77,028			-			2,073,704
Total current liabilities		5,237,234			(177,735,646	)		1,436,518			185,695,157			14,633,263
Deferred income taxes		9,284,544			13,524,731			370,378			-			23,179,653
Other liabilities		-			1,230,853			-			-			1,230,853
Long-term notes payable		230,756,913			40,263,476			-			-			271,020,389
Stockholders' equity (deficit)		(141,574,098	)		93,697,042			(58,288,767	)		(35,408,275	)		(141,574,098	)
Total liabilities and stockholders' equity (deficit)	$	103,704,593		$	(29,019,544	)	$	(56,481,871	)	$	150,286,882		$	168,490,060

Otelco Inc.

Condensed Consolidating Statement of Operations

For the Three Months Ended September 30, 2011

(unaudited)

	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 expense		322,815			-			-			-			322,815
Net income to common stockholders	$	885,462		$	5,362,043		$	671,975		$	(6,034,018	)	$	885,462

Otelco Inc.

Condensed Consolidating Statement of Operations

For the Three Months Ended September 30, 2012

(unaudited)

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	841,514		$	22,547,158		$	1,039,224		$	-		$	24,427,896
Operating expenses		(1,431,456	)		(15,763,985	)		(745,081	)		-			(17,940,522	)
Income (loss) from operations		(589,942	)		6,783,173			294,143			-			6,487,374
Other expense		(5,661,522	)		(11,103	)		(7	)		-			(5,672,632	)
Earnings from subsidiaries		5,576,462			-			-			(5,576,462	)		-
Income (loss) before income tax		(675,002	)		6,772,070			294,136			(5,576,462	)		814,742
Income tax benefit (expense)		991,308			(883,860	)		(605,884	)		-			(498,436	)
Net income (loss) to common stockholders	$	316,306		$	5,888,210		$	(311,748	)	$	(5,576,462	)	$	316,306

Otelco Inc.

Condensed Consolidating Statement of Operations

For the Nine Months Ended September 30, 2011

(unaudited)

	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

Otelco Inc.

Condensed Consolidating Statement of Operations

For the Nine Months Ended September 30, 2012

(unaudited)

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated
Revenues	$	2,599,694		$	68,846,718		$	3,069,498		$	-	$	74,515,910
Operating expenses		(3,550,820	)		(132,824,424	)		(73,097,582	)		-		(209,472,826	)
Loss from operations		(951,126	)		(63,977,706	)		(70,028,084	)		-		(134,956,916	)
Other expense		(16,573,909	)		(35,331	)		(47	)		-		(16,609,287	)
Earnings from subsidiaries		(112,205,864	)		-			-			112,205,864		-
Loss before income tax		(129,730,899	)		(64,013,037	)		(70,028,131	)		112,205,864		(151,566,203	)
Income tax benefit		2,854,830			9,919,744			11,915,560			-		24,690,134
Net loss to common stockholders	$	(126,876,069	)	$	(54,093,293	)	$	(58,112,571	)	$	112,205,864	$	(126,876,069	)

Otelco Inc.

Condensed Consolidating Statement of Cash Flows

For the Nine Months Ended September 30, 2011

(unaudited)

	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 (loss) 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

Otelco Inc.

Condensed Consolidating Statement of Cash Flows

For the Nine Months Ended September 30, 2012

(unaudited)

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net loss	$	(126,876,069	)	$	(88,721,669	)	$	(58,112,566	)	$	146,834,235		$	(126,876,069	)
Adjustment to reconcile net loss to cash flows from operating activities		698,636			72,853,248			70,027,808			-			143,579,692
Changes in assets and liabilities, net of assets and liabilities acquired		34,214,823			(18,065,895	)		(11,736,456	)		-			4,412,472
Net cash provided by (used in) operating activities		(91,962,610	)		(33,934,316	)		178,786			146,834,235			21,116,095
Cash flows used in investing activities		-			(3,217,343	)		(178,786	)		-			(3,396,129	)
Cash flows provided by (used in) financing activities		91,962,610			51,942,556			-			(146,834,235	)		(2,929,069	)
Net increase in cash and cash equivalents		-			14,790,897			-			-			14,790,897
Cash and cash equivalents, beginning of period		-			12,393,442			350			-			12,393,792
Cash and cash equivalents, end of period	$	-		$	27,184,339		$	350		$	-		$	27,184,689

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Note 11 - Commitments and Contingencies

9 Months Ended

Sep. 30, 2012

Commitments and Contingencies Disclosure [Text Block]

11.         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 APSC, MDTC, MPSC, MPUC, NHPUC, VPSB and WVPSC 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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Note 6 - Income (loss) per Common Share (Detail) - Reconciliation of the Company’s Income Per Share Calculation (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Common shares outstanding	13,221,404	13,221,404	13,221,404	13,221,404
Net income (loss) available to common stockholders (in Dollars)	$ 316,306	$ 885,462	$ (126,876,069)	$ 2,173,390
Net income (loss) per common share (in Dollars per share)	$ 0.02	$ 0.07	$ (9.60)	$ 0.16
Net Income Common Stockholders [Member]
Net income (loss) available to common stockholders (in Dollars)	$ 316,306	$ 885,462	$ (126,876,069)	$ 2,173,390
Income Per Share [Member]
Net income (loss) per common share (in Dollars per share)	$ 0.02	$ 0.07	$ (9.60)	$ 0.16

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Note 6 - Income (loss) per Common Share (Tables)

9 Months Ended

Sep. 30, 2012

Schedule of Earnings Per Share Reconciliation [Table Text Block]

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2012		2011		2012
Common shares outstanding		13,221,404		13,221,404		13,221,404		13,221,404
Net income (loss) available to common stockholders	$	885,462	$	316,306	$	2,173,390	$	(126,876,069	)
Net income (loss) per common share	$	0.07	$	0.02	$	0.16	$	(9.60	)

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Note 2 - Impairments (Detail) - Carrying Amount of Goodwill (USD $)	3 Months Ended	9 Months Ended			1 Months Ended	9 Months Ended			1 Months Ended	9 Months Ended			1 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012		Dec. 31, 2010	Apr. 30, 2012 Alabama [Member]	Sep. 30, 2012 Alabama [Member]		Dec. 31, 2010 Alabama [Member]	Apr. 30, 2012 Missouri [Member]	Sep. 30, 2012 Missouri [Member]		Dec. 31, 2010 Missouri [Member]	Apr. 30, 2012 New England [Member]	Sep. 30, 2012 New England [Member]		Dec. 31, 2010 New England [Member]
Goodwill Gross		$ 188,954,840				$ 101,602,718				$ 17,829,122				$ 69,523,000
Accumulated impairment losses				0				0				0				0
Goodwill		188,954,840				101,602,718				17,829,122				69,523,000
Adjustment related to STC acquisition (1)		(344,256)	[1]				[1]				[1]			(344,256)	[1]
Impairment losses for the nine months ended September, 30 2012	344,256	(143,653,744)			(62,404,000)	(62,404,000)			(12,071,000)	(12,071,000)			(69,523,000)	(69,178,744)
Goodwill Gross	188,610,584	188,610,584				101,602,718				17,829,122				69,178,744
Accumulated impairment losses	(143,653,744)	(143,653,744)		0		(62,404,000)		0		(12,071,000)		0		(69,178,744)		0
Goodwill	$ 44,956,840	$ 44,956,840				$ 39,198,718				$ 5,758,122

[1] Third quarter 2012 adjustment related to the finalized purchase price allocation of the STC acquisition. See note 3, Acquisitions, below.

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Note 10 - Revenue Concentrations (Detail)	Sep. 30, 2012	Sep. 30, 2011
Consolidated Entity Revenue Percentage	4.00%	3.00%
National Exchange Carrier Association [Member]
Consolidated Entity Revenue Percentage	9.30%	9.90%
TW [Member]
Consolidated Entity Revenue Percentage	12.30%	11.70%

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Consolidated Statements of Cash Flows (unaudited) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Cash flows from operating activities:
Net income (loss)	$ (126,876,069)	$ 2,173,390
Adjustments to reconcile net income (loss) to cash flows from operating activities:
Depreciation	7,942,242	8,751,166
Amortization	7,076,509	6,424,864
Long-lived assets impairment - PP&E	2,874,000
Long-lived assets impairment - intangibles	5,748,000
Goodwill impairment	143,653,744
Amortization of debt premium	(85,998)	(76,595)
Amortization of loan costs	1,026,072	1,026,072
Change in fair value of derivatives	(241,438)	(1,641,032)
Provision for deferred income taxes	(24,765,293)
Provision for uncollectible revenue	351,854	545,338
Changes in operating assets and liabilities; net of operating assets and liabilities acquired:
Accounts receivable	(123,220)	(1,654,102)
Material and supplies	(218,880)	(182,086)
Prepaid expenses and other assets	(443,247)	111,735
Accounts payable and accrued liabilities	4,840,028	(17,338)
Advance billings and payments	162,605	(141,154)
Other liabilities	195,186	39,841
Net cash from operating activities	21,116,095	15,360,099
Cash flows used in investing activities:
Acquisition and construction of property and equipment	(3,396,129)	(8,448,004)
Net cash used in investing activities	(3,396,129)	(8,448,004)
Cash flows used in financing activities:
Cash dividends paid	(2,330,272)	(6,990,817)
Principal repayment of long-term debt		(385,828)
Loan origination costs	(598,797)
Net cash used in financing activities	(2,929,069)	(7,376,645)
Net (decrease) increase in cash and cash equivalents	14,790,897	(464,550)
Cash and cash equivalents, beginning of period	12,393,792	18,226,374
Cash and cash equivalents, end of period	27,184,689	17,761,824
Supplemental disclosures of cash flow information:
Interest paid	13,058,959	17,642,313
Income taxes paid	$ 76,749	$ 165,061

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Note 5 - Insurance

9 Months Ended

Sep. 30, 2012

Insurance Disclosure [Text Block]

5.           Insurance

     The Company adopted a high-deductible insurance program for health care benefits beginning in 2012.  In addition, the Company changed from a premium based plan to self-insuring claims up to $125,000 per participant per calendar year.  With this change, an accrual for the estimated amount of self-insured healthcare claims incurred but not reported (IBNR) is required.  The estimated accrual is based on information provided by the Company’s insurance broker, a third party actuary, and insurer, combined with management’s judgments regarding a number of assumptions and factors, including frequency and severity of claims, claims development history, case jurisdiction, related legislation, and claims settlement practice.  Significant judgment is required to estimate IBNR claims as parties have yet to assert such claims.

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Note 2 - Impairments (Detail) - Carrying Amount of Intangible Assets (USD $)	9 Months Ended	21 Months Ended
	Sep. 30, 2012	Sep. 30, 2012
Intangible assets		$ 20,545,691
Accumulated impairment losses		0
	20,545,691	20,545,691
Amortization		(6,518,782)
Impairment losses for the nine months ended, September 30, 2012	5,748,000	(5,748,000)
Intangible assets	14,026,909	14,026,909
Accumulated impairment losses	(143,653,744)	(143,653,744)
Intangible asset adjusted cost basis	8,278,909	8,278,909
Alabama [Member]
Intangible assets		128,441
Accumulated impairment losses		0
		128,441
Amortization		(39,006)
Intangible assets	89,435	89,435
Accumulated impairment losses	(62,404,000)	(62,404,000)
Intangible asset adjusted cost basis	89,435	89,435
Missouri [Member]
Intangible assets		356,384
Accumulated impairment losses		0
		356,384
Amortization		(90,000)
Intangible assets	266,384	266,384
Accumulated impairment losses	(12,071,000)	(12,071,000)
Intangible asset adjusted cost basis	266,384	266,384
New England [Member] | Impairment of Intangible Assets [Member]
Accumulated impairment losses	(5,748,000)	(5,748,000)
New England [Member]
Intangible assets		20,060,866
Accumulated impairment losses		0
		20,060,866
Amortization		(6,389,776)
Impairment losses for the nine months ended, September 30, 2012		(5,748,000)
Intangible assets	13,671,090	13,671,090
Accumulated impairment losses	(69,178,744)	(69,178,744)
Intangible asset adjusted cost basis	7,923,090	7,923,090
Impairment of Intangible Assets [Member]
Accumulated impairment losses	$ (5,748,000)	$ (5,748,000)

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Note 9 - Subsidiary Guarantees (Detail) - Condensed Consolidating Balance Sheets (USD $)	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011	Dec. 31, 2010
Current assets
Cash and cash equivalents	$ 27,184,689	$ 12,393,792	$ 17,761,824	$ 18,226,374
Accounts receivable, net	4,637,315	4,355,632
Materials and supplies	1,999,700	1,780,820
Prepaid expenses	1,505,162	1,328,475
Deferred income tax asset current	816,933	726,310
Total current assets	43,266,019	28,217,568
Property and equipment, net	57,925,140	65,881,975
Goodwill	44,956,840	188,954,840
Intangible assets, net	8,278,909	20,545,691		20,545,691
Investments	1,924,672	1,943,805
Deferred income tax asset noncurrent	7,575,073	7,454,443
Other long-term assets	505,358	240,667
Total assets	168,490,060	317,724,313
Current liabilities
Accounts payable and accrued expenses	1,228,228	1,490,717
Total current liabilities	14,633,263	9,612,452
Deferred income tax liabilities noncurrent	23,179,653	48,112,384
Other liabilities	428,932	403,823
Long-term notes payable	271,020,389	271,106,387
Parent [Member]
Current assets
Prepaid expenses	367,498	194,244
Income tax receivables	0	0
Deferred income tax asset current	816,933	726,310
Investment in subsidiaries	35,408,275	147,614,140
Intercompany receivable	(185,695,157)	(154,849,721)
Total current assets	(149,102,451)	(6,315,027)
Goodwill	239,970,317	239,970,317
Investments	1,203,605	1,203,605
Deferred income tax asset noncurrent	7,575,073	7,454,443
Other long-term assets	4,058,049	4,485,324
Total assets	103,704,593	246,798,662
Current liabilities
Accounts payable and accrued expenses	4,849,514	1,306,872
Other current liabilities	387,720	353,285
Total current liabilities	5,237,234	1,660,157
Deferred income tax liabilities noncurrent	9,284,544	26,421,911
Other liabilities		241,438
Long-term notes payable	230,756,913	230,842,911
Stockholders' equity (deficit)	(141,574,098)	(12,367,755)
Total liabilities and stockholders' equity (deficit)	103,704,593	246,798,662
Guarantor Subsidiaries [Member]
Current assets
Cash and cash equivalents	27,184,339	12,393,441
Accounts receivable, net	11,136,321	11,445,049
Materials and supplies	984,276	827,194
Prepaid expenses	1,142,761	1,115,339
Income tax receivables	0	0
Intercompany receivable	(12,222,753)	(688,391)
Total current assets	28,224,944	25,092,632
Property and equipment, net	56,591,235	64,524,981
Goodwill	(121,910,761)	(47,435,761)
Intangible assets, net	7,156,627	18,186,227
Investments	413,053	432,186
Other long-term assets	505,358	240,667
Total assets	(29,019,544)	61,040,932
Current liabilities
Accounts payable and accrued expenses	6,350,555	4,793,854
Intercompany payables	(185,695,157)	(154,849,721)
Other current liabilities	1,608,956	1,668,933
Total current liabilities	(177,735,646)	(148,386,934)
Deferred income tax liabilities noncurrent	13,524,731	20,354,646
Other liabilities	1,230,853	1,019,407
Long-term notes payable	40,263,476	40,263,476
Stockholders' equity (deficit)	93,697,042	147,790,337
Total liabilities and stockholders' equity (deficit)	(29,019,544)	61,040,932
Non-Guarantor Subsidiaries [Member]
Current assets
Cash and cash equivalents	350	351
Accounts receivable, net	623,214	543,122
Materials and supplies	1,015,424	953,626
Prepaid expenses	(5,097)	18,892
Income tax receivables	0	0
Intercompany receivable	12,222,753	688,391
Total current assets	13,856,644	2,204,382
Property and equipment, net	1,333,905	1,356,994
Goodwill	(73,102,716)	(3,579,716)
Intangible assets, net	1,122,282	2,359,464
Investments	308,014	308,014
Total assets	(56,481,871)	2,649,138
Current liabilities
Accounts payable and accrued expenses	1,359,490	1,424,095
Other current liabilities	77,028	65,413
Total current liabilities	1,436,518	1,489,508
Deferred income tax liabilities noncurrent	370,378	1,335,827
Stockholders' equity (deficit)	(58,288,767)	(176,197)
Total liabilities and stockholders' equity (deficit)	(56,481,871)	2,649,138
Eliminations [Member]
Current assets
Income tax receivables	0	0
Investment in subsidiaries	(35,408,275)	(147,614,140)
Intercompany receivable	185,695,157	154,849,721
Total current assets	150,286,882	7,235,581
Total assets	150,286,882	7,235,581
Current liabilities
Intercompany payables	185,695,157	154,849,721
Total current liabilities	185,695,157	154,849,721
Stockholders' equity (deficit)	(35,408,275)	(147,614,140)
Total liabilities and stockholders' equity (deficit)	150,286,882	7,235,581
Consolidated [Member]
Current assets
Cash and cash equivalents	27,184,689	12,393,792
Accounts receivable, net	11,759,535	11,988,171
Materials and supplies	1,999,700	1,780,820
Prepaid expenses	1,505,162	1,328,475
Income tax receivables	0	0
Deferred income tax asset current	816,933	726,310
Total current assets	43,266,019	28,217,568
Property and equipment, net	57,925,140	65,881,975
Goodwill	44,956,840	188,954,840
Intangible assets, net	8,278,909	20,545,691
Investments	1,924,672	1,943,805
Deferred income tax asset noncurrent	7,575,073	7,454,443
Other long-term assets	4,563,407	4,725,991
Total assets	168,490,060	317,724,313
Current liabilities
Accounts payable and accrued expenses	12,559,559	7,524,821
Other current liabilities	2,073,704	2,087,631
Total current liabilities	14,633,263	9,612,452
Deferred income tax liabilities noncurrent	23,179,653	48,112,384
Other liabilities	1,230,853	1,260,845
Long-term notes payable	271,020,389	271,106,387
Stockholders' equity (deficit)	(141,574,098)	(12,367,755)
Total liabilities and stockholders' equity (deficit)	$ 168,490,060	$ 317,724,313

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Note 3 - Acquisitions (Tables)

9 Months Ended

Sep. 30, 2012

Schedule of Purchase Price Allocation [Table Text Block]

	October 14, 2011
Cash	$	237,850
Other current assets		552,331
Property and equipment		4,529,760
Intangible assets		1,729,600
Goodwill		420,505
Current liabilities		(332,710	)
Deferred income tax liabilities		(1,889,202	)
Purchase price	$	5,248,134

Business Acquisition, Pro Forma Information [Table Text Block]

	Three Months Ended September, 2011		Nine Months Ended September, 2011
Revenues	$	25,839,115	$	77,942,997
Income from operations	$	6,242,794	$	18,911,505
Net income	$	797,313	$	2,071,206
Net income per common share	$	0.06	$	0.16