(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
|
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)
|
Yes x
|
No o
|
Yes x
|
No o
|
Large accelerated filer o
|
Accelerated filer x
|
Non-accelerated filer o
|
Smaller reporting company o
|
Yes o
|
No x
|
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
|
Page
|
|||
2
|
|||
2
|
|||
2
|
|||
3
|
|||
4
|
|||
5
|
|||
17
|
|||
28
|
|||
28
|
|||
30
|
|||
30
|
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 |
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 |
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 |
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.
|
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 |
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 |
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 |
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 |
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 | ) |
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
|
|
●
|
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.
|
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 | $ | — |
September 30, 2012
|
||||||||
Carrying Amount
|
Fair Value
|
|||||||
Long-term debt
|
$ | 271,020,389 | $ | 181,384,007 |
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 |
Parent
|
Guarantor
Subsidiaries
|
Non-
Guarantor
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
Revenues
|
$ | 789,508 | $ | 24,680,968 | $ | 2,555,301 | $ | (2,723,030 | ) | $ | 25,302,747 | |||||||||
Operating expenses
|
(789,507 | ) | (19,228,795 | ) | (1,883,323 | ) | 2,723,032 | (19,178,593 | ) | |||||||||||
Income from operations
|
1 | 5,452,173 | 671,978 | 2 | 6,124,154 | |||||||||||||||
Other expense
|
(5,471,374 | ) | (90,130 | ) | (3 | ) | — | (5,561,507 | ) | |||||||||||
Earnings from subsidiaries
|
6,034,020 | - | — | (6,034,020 | ) | — | ||||||||||||||
Income before income tax
|
562,647 | 5,362,043 | 671,975 | (6,034,018 | ) | 562,647 | ||||||||||||||
Income tax benefit
|
322,815 | — | — | — | 322,815 | |||||||||||||||
Net income to common stockholders
|
$ | 885,462 | $ | 5,362,043 | $ | 671,975 | $ | (6,034,018 | ) | $ | 885,462 |
Parent
|
Guarantor
Subsidiaries
|
Non-
Guarantor
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
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 | ) | |||||||||||
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 | ) |
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 |
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 |
●
|
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.
|
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.
|
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 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 | ) |
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 | ) |
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 | ) |
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
|
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
|
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
|
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 | % |
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 |
Date: November 7, 2012
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OTELCO INC.
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By:
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/s/ Curtis L. Garner, Jr.
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Curtis L. Garner, Jr.
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Chief Financial Officer
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Exhibit No.
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Description
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31.1
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Certificate pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934 of the Chief Executive Officer
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31.2
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Certificate pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934 of the Chief Financial Officer
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32.1
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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
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32.2
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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
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101
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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
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1.
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I have reviewed this quarterly report on Form 10-Q of Otelco Inc.;
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2.
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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;
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3.
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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;
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4.
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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:
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a.
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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;
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b.
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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;
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c.
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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
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d.
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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
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5.
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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):
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a.
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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
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b.
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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.
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/s/ Michael D. Weaver
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Michael D. Weaver
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President & Chief Executive Officer
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1.
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I have reviewed this quarterly report on Form 10-Q of Otelco Inc.;
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2.
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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;
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3.
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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;
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4.
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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;
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b.
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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;
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c.
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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
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d.
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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
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5.
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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):
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a.
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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
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b.
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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.
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/s/ Curtis L. Garner, Jr.
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Curtis L. Garner, Jr.
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Chief Financial Officer
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1.
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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2.
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ Michael D. Weaver
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Michael D. Weaver
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Chief Executive Officer
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November 7, 2012
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1.
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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2.
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ Curtis L. Garner, Jr.
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Curtis L. Garner, Jr.
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Chief Financial Officer
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November 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
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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]
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||||
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]
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||||
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]
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||||
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]
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||||
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 |
Note 5 - Insurance (Detail) (USD $)
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3 Months Ended |
---|---|
Sep. 30, 2012
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Operating Insurance and Claims Costs, Production | $ 125,000 |
Note 2 - Impairments (Detail) (USD $)
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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]
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Sep. 30, 2012
New England [Member]
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Sep. 30, 2012
Minimum [Member]
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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 |
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 |
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 |
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.
|