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 June 30, 2013

	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 ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes x

No o

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 August 8, 2013
Class A Common Stock ($0.01 par value per share)		2,870,948
Class B Common Stock ($0.01 par value per share)		232,780

OTELCO INC.

FORM 10-Q

For the three month period ended June 30, 2013

TABLE OF CONTENTS

		Page

PART I FINANCIAL INFORMATION		2

Item 1.	Financial Statements	2
	Consolidated Balance Sheets as of December 31, 2012 and June 30, 2013	2
	Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2012 and 2013	3
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2013	4
	Notes to Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	22

Item 4.	Controls and Procedures	22

PART II OTHER INFORMATION		23

Item 1.	Legal Proceedings	23
Item 6.	Exhibits	23

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 June 30, 2013.

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 and business. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “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 or cause our actual results to differ materially from those in the forward-looking statements.

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

OTELCO INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
	December 31, 2012			June 30, 2013
Assets
Current assets
Cash and cash equivalents	$	32,516,283		$	11,120,506
Accounts receivable:
Due from subscribers, net of allowance for doubtful accounts of $239,274 and $246,860, respectively		4,205,944			4,107,747
Unbilled receivables		2,003,634			1,993,246
Other		5,336,162			2,942,818
Materials and supplies		1,845,246			1,814,131
Prepaid expenses		1,981,631			1,369,458
Deferred income taxes		1,843,160			2,426,335
Total current assets		49,732,060			25,774,241

Property and equipment, net		58,242,903			54,875,880
Goodwill		44,956,840			44,956,840
Intangible assets, net		6,670,392			4,769,800
Investments		1,919,327			1,906,572
Deferred financing costs, net		4,037,311			2,586,818
Deferred income taxes		6,275,997			1,564,378
Other assets		490,131			1,269,638
Total assets	$	172,324,961		$	137,704,167

Liabilities and Stockholders’ Deficit
Current liabilities
Accounts payable	$	2,007,405		$	3,226,384
Accrued expenses		14,900,378			5,892,739
Advance billings and payments		1,560,190			1,472,875
Deferred income taxes		430,896			397,865
Customer deposits		90,837			87,919
Current maturity of long-term notes payable		270,990,023			6,665,000
Total current liabilities		289,979,729			17,742,782

Deferred income taxes		22,670,168			23,365,004
Advance billings and payments		788,638			762,071
Other liabilities		484,019			148,026
Long-term notes payable, less current portion		—			126,635,000
Total liabilities		313,922,554			168,652,883

Stockholders’ deficit
Class A Common Stock, $.01 par value-authorized 20,000,000 shares; issued and outstanding 13,221,404 shares		132,214			—
Class A Common Stock, $.01 par value-authorized 10,000,000 shares; issued and outstanding 2,870,948 shares		—			28,709
Class B Common Stock, $.01 par value-authorized 250,000 shares; issued and outstanding 232,780 shares		—			2,328
Additional paid-in capital		—			2,875,852
Retained deficit		(141,729,807	)		(33,855,605	)
Total stockholders’ deficit		(141,597,593	)		(30,948,716	)
Total liabilities and stockholders’ deficit	$	172,324,961		$	137,704,167

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

OTELCO INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2013			2012			2013
Revenues	$	24,713,773		$	19,666,285		$	50,088,014		$	40,654,193

Operating expenses
Cost of services		10,648,458			8,928,670			21,677,291			18,406,236
Selling, general and administrative expenses		3,623,941			2,320,551			6,830,018			5,376,340
Depreciation and amortization		5,882,402			3,296,382			10,404,995			6,862,277
Long-lived assets impairment – property, plant and equipment		2,874,000			—			2,874,000			—
Long-lived assets impairment – intangibles		5,748,000			—			5,748,000			—
Goodwill impairment		143,998,000			—			143,998,000			—
Total operating expenses		172,774,801			14,545,603			191,532,304			30,644,853

Income (loss) from operations		(148,061,028	)		5,120,682			(141,444,290	)		10,009,340

Other income (expense)
Interest expense		(5,654,655	)		(2,224,588	)		(11,488,305	)		(7,778,758	)
Change in fair value of derivatives		—			—			241,438			—
Other income (expense)		(7,957	)		18,043			310,212			261,530
Total other expenses		(5,662,612	)		(2,206,545	)		(10,936,655	)		(7,517,228	)

Income (loss) before reorganization items and income tax		(153,723,640	)		2,914,137			(152,380,945	)		2,492,112

Reorganization items		—			111,676,270			—			110,252,663

Income (loss) before income tax		(153,723,640	)		114,590,407			(152,380,945	)		112,744,775
Income tax benefit (expense)		25,713,027			(4,942,185	)		25,188,570			(4,870,574	)

Net income (loss)	$	(128,010,613	)	$	109,648,222		$	(127,192,375	)	$	107,874,201

Weighted average number of common shares outstanding (2012 restated)		2,644,281			2,826,040			2,644,281			2,735,663

Net income (loss) per common share	$	(48.41	)	$	38.80		$	(48.10	)	$	39.43

Dividends declared per common share	$	—		$	—		$	0.18		$	—

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

OTELCO INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
	Six Months Ended June 30,
	2012			2013
Cash flows from operating activities:
Net income (loss)	$	(127,192,375	)	$	107,874,201
Adjustments to reconcile net income (loss) to cash flows provided by operating activities:
Depreciation		5,475,268			4,768,811
Amortization		4,929,727			2,093,466
Long lived assets impairment – property, plant and equipment		2,874,000			—
Long lived assets impairment – intangibles		5,748,000			—
Goodwill impairment		143,998,000			—
Amortization of loan costs		684,048			575,157
Amortization of debt premium		(56,499	)		(31,260	)
Change in fair value of derivatives		(241,438	)		—
Provision for deferred income tax expense (benefit)		(25,337,689	)		4,790,249
Provision for uncollectible accounts receivable		201,950			120,483
Changes in operating assets and liabilities:
Accounts receivable		86,329			2,381,447
Materials and supplies		(158,766	)		31,115
Prepaid expenses and other assets		(152,533	)		(167,590	)
Accounts payable and accrued expenses		4,167,246			2,760,049
Advance billings and payments		208,118			(113,882	)
Other liabilities		260,949			(338,911	)
Reorganization adjustments:
Non-cash reorganization income		—			(114,210,236	)
Net cash provided by operating activities		15,494,335			10,533,099

Cash flows used in investing activities:
Acquisition and construction of property and equipment		(2,544,811	)		(1,581,653	)
Net cash used in investing activities		(2,544,811	)		(1,581,653	)

Cash flows provided by (used in) financing activities:
Cash dividends paid		(2,330,272	)		—
Principal repayment of long-term notes payable		—			(28,700,000	)
Loan origination costs		(30,082	)		(1,647,223	)
Net cash used in financing activities		(2,360,354	)		(30,347,223	)
Net increase (decrease) in cash and cash equivalents		10,589,170			(21,395,777	)
Cash and cash equivalents, beginning of period		12,393,792			32,516,283

Cash and cash equivalents, end of period	$	22,982,962		$	11,120,506

Supplemental disclosures of cash flow information:
Interest paid	$	10,860,755		$	3,385,836

Income taxes paid	$	65,749		$	143,500

Loan fees paid via issuance of Class B common stock	$	—		$	2,772,410

Cancellation of Class A common stock	$	—		$	132,214

Issuance of Class A common stock	$	—		$	28,709

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2013

(unaudited)

1.	Organization and Basis of Financial Reporting

Basis of Presentation and Principles of Consolidation

The unaudited 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 six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013 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 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. The interim consolidated financial information herein is unaudited. The information reflects all adjustments and bankruptcy transactions, 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 the three- and six-month periods ended June 30, 2013, there have been no newly issued or newly applicable accounting pronouncements that have, or are expected to have, a material impact on the Company’s financial statements. Further, at June 30, 2013, there were no pronouncements pending adoption that are expected to have a material impact on the Company’s financial statements.

2.	Reorganization

On May 6, 2013, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Plan. On May 24, 2013 (the “Effective Date”), the Company and its direct and indirect subsidiaries substantially consummated their reorganization through a series of transactions contemplated by the Plan, and the Plan became effective pursuant to its terms.

Summary of the Material Features of the Plan

Pursuant to the Plan, on the Effective Date, among other things:

the $162.0 million of outstanding principal loan obligations under the Company’s senior credit facility were reduced to $133.3 million through a cash payment;

the holders of the outstanding principal term loan obligations under the Company’s senior credit facility, or affiliates thereof, received their pro rata share of the Company’s Class B common stock, which Class B common stock represents 7.5% of the total economic and voting interest in the Company, subject to dilution of up to 10% on account of the issuance of equity interests in the Company pursuant to a management equity plan (the “Management Equity Plan”) that was adopted by the Company’s board of directors on June 18, 2013, that was approved by the holders of Class B common stock on July 12, 2013 and which will be voted on by the holders of Class A common stock at the Company’s annual meeting of stockholders to be held on August 13, 2013 (the “Annual Meeting”);

all the Company’s outstanding 13% Senior Subordinated Notes due 2019 (the “Notes”) were cancelled and the holders received their pro rata share of the Company’s Class A common stock, which Class A common stock represents 92.5% of the total economic and voting interest in the Company, subject to dilution of up to 10% on account of the issuance of equity interests in the Company pursuant to the Management Equity Plan; and

all outstanding shares of the Company’s existing Class A common stock (the “Old Common Stock”) were cancelled.

Income Deposit Securities

Prior to the Effective Date, each share of the Company’s Old Common Stock was held as a component of the Company’s Income Deposit Securities (“IDS”). Each IDS consisted of one share of the Company’s Old Common Stock and $7.50 principal amount of Notes. On the Effective Date, all outstanding Old Common Stock and Notes were cancelled.

Issued and Outstanding Shares

As of the Effective Date, a total of 2,870,948 shares of the Company’s Class A common stock and 232,780 shares of the Company’s Class B common stock were issued and outstanding, and 232,780 shares of Class A common stock were reserved for future issuance upon the conversion of Class B common stock. In addition, 344,859 shares of Class A common stock have been reserved for future issuance under the Management Equity Plan.

Senior Credit Facility

On the Effective Date, the Company amended and restated its senior credit facility. The Company’s senior credit facility, as amended and restated, is comprised of:

term loans of $133.3 million; and

a revolving loan commitment in an amount of up to $5.0 million.

As of the Effective Date, the term loan facility was fully drawn and no amounts were drawn under the revolving credit facility. Amounts drawn under the term loan facility that are subsequently repaid or prepaid may not be re-borrowed. Amounts drawn under the revolving credit facility may be borrowed, repaid and re-borrowed until the earliest of: (1) April 30, 2016; (2) the date of termination of the lenders’ obligations to make advances or permit existing loans to remain outstanding in the case of an event of default; and (3) the date of indefeasible payment in full by the Company of the loans and the permanent reduction of the commitments to zero dollars (the “Maturity Date”).

The term loan facility requires amortized repayments of the principal amount of the term loans at a straight-line rate of 5.0% per annum of the principal amount of term loans outstanding on the Effective Date on the last day of March, June, September and December of each year, commencing on September 30, 2013. Beginning with the fiscal quarter ending September 30, 2013, on each date that is 45 days after the last day of each fiscal quarter, the term loan facility also requires repayments of the principal amount of the term loans in an amount equal to 75% of the Excess Cash (as defined in the senior credit facility) of the Company as of the last day of each such fiscal quarter. However, such repayment will be reduced to an amount equal to 50% of the Excess Cash of the Company if, on the applicable quarterly repayment date, the Company’s ratio of debt to Consolidated EBITDA (as defined in the senior credit facility) is less than or equal to 2.25:1.00. The entire remaining principal balance of the term loans, as well as any outstanding borrowings under the revolving loan facility, will be due and payable in full on the Maturity Date.

Interest rates applicable to the term loans and the revolving loans are set at a margin over an index rate (which is defined as the highest of (1) the prime rate, (2) the federal funds rate plus 50 basis points per annum and (3) 4.25% per annum) or a LIBOR rate (which is defined as the higher of (a) 3.0% per annum and (b) LIBOR). The applicable margin under the index rate option is 3.25% per annum and the applicable margin under the LIBOR rate option is 3.5%. The Company is required to pay certain fees, including fees on undrawn committed amounts, in connection with the senior credit facility.

Financial Reporting of Reorganization

Financial Accounting Standards Board Accounting Standards Codification 852, Reorganization (“ASC 852”), requires that the financial statements for periods subsequent to the filing of the Reorganization Cases distinguish transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Amounts that can be directly associated with the reorganization and restructuring of the business must be reported separately as reorganization items in the statements of operations. In addition, cash provided by and used for reorganization items must be disclosed separately. The Company has applied ASC 852 effective as of the Petition Date, and has segregated those items as outlined above for all reporting periods subsequent to such date. The Company’s emergence from bankruptcy did not qualify for fresh-start accounting in accordance with ASC 852, as more than fifty percent of the Company’s new Class A common stock is held by persons who also held the Company’s old Class A common stock through IDS ownership.

Implementation of the Plan in the Company’s consolidated balance sheet as of May 24, 2013 is as follows:

Cash and cash equivalents	$	(28,700,000	)
Current maturity of long-term notes payable		(6,665,000	)
Long-term notes payable, net of current maturity		(126,635,000	)
Liabilities subject to compromise		278,984,912		(a)
Old Class A common stock		132,214
New Class A common stock		(28,709	)
New Class B common stock		(2,328	)
Additional paid-in capital		(2,875,853	)
Retained deficit		(114,210,236	)	(b)
	$	—

(a)

Liabilities subject to compromise refer to liabilities incurred prior to the Petition Date for which the Company had not received approval from the Bankruptcy Court to pay or otherwise honor. Liabilities not subject to compromise include: (1) liabilities incurred after the Petition Date; (2) pre-Petition Date liabilities that the Company expects to pay in full, such as medical and retirement benefits; and (3) pre-Petition Date liabilities that have been approved for payment by the Bankruptcy Court and that the Company expects to pay (in advance of a plan of reorganization) in the ordinary course of business, including certain employee-related items such as salaries and vacation pay. Liabilities subject to compromise at May 24, 2013, prior to reorganization, consist of the following (unaudited):

	Pre-confirmation
	May 24, 2013
Senior secured credit facility(a)	$	161,537,418
Senior subordinated notes – held in IDS(b)		98,513,017
Senior subordinated notes – held separately(c)		8,385,769

Accrued interest
Senior subordinated notes – held in IDS		9,715,868
Senior subordinated notes – held separately		832,840
Total liabilities subject to compromise	$	278,984,912

(a)	Net of $462,582 loan cost.
(b)	Net of $1,945,745 loan cost and premium of $1,298,231.
(c)	Net of $114,231 loan cost.

(b)

Represents amounts recorded for the implementation of the Plan on the Effective Date. This includes the settlement of liabilities subject to compromise, distributions of cash, authorization and partial distribution of the shares of new Class A common stock, and authorization and distribution of shares of new Class B common stock resulting in a pre-tax gain of approximately $114.2 million on extinguishment of obligations pursuant to the Plan and the related tax effects. The following reflects the calculation of pre-tax gain (unaudited):

Liabilities subject to compromise	$	278,984,912
Less: Cash paydown of debt		(28,700,000	)
Remaining liabilities subject to compromise		250,284,912
Less: Issuance of debt and equity
New long-term notes payable		(133,300,000	)
New Class B common stock (at par value)		(2,328	)
New additional paid-in capital		(2,772,348	)
Pre-tax gain from cancellation and satisfaction of debt	$	114,210,236

At the Effective Date, all liabilities subject to compromise were either settled through cash payments or the issuance of shares of new common stock. As such, as of the Effective Date, no liabilities remain subject to compromise.

Reorganization Items

The Company has incurred significant costs associated with the Reorganization Cases. The amount of these costs, which were expensed as incurred, have significantly affected the Company’s results of operations. Reorganization items represent income or expense amounts that have been recognized as a direct result of the Reorganization Cases and are presented separately in the consolidated statements of operations pursuant to ASC 852. Such items consist of the following:

	Three Months			Six Months
	Ended			Ended
	June 30, 2013			June 30, 2013

Professional fees(a)	$	(2,439,448	)	$	(3,863,055	)
Cancellation of debt income(b)		114,210,236			114,210,236
Other(c)		(94,518	)		(94,518	)
Total reorganization items	$	111,676,270		$	110,252,663

(a)	Professional fees relate to legal and other professional costs directly associated with the reorganization process.
(b)	Net gains and losses associated with the settlement of liabilities subject to compromise.
(c)	Includes expenses directly associated with the reorganization process other than professional fees.

The Company has classified expenses directly related to the Reorganization Cases as reorganization items, including amounts incurred prior to the Petition Date.

3.	Notes Payable

The Company’s senior credit facility has been amended and restated on three occasions, most recently on May 24, 2013, in connection with the effectiveness of the Plan. A summary of the terms of the senior credit facility is included in note 2, Reorganization, above. All of the outstanding Notes were cancelled on the Effective Date, pursuant to the Plan. See note 2, Reorganization, above.

Notes payable consists of the following:

	December 31,		June 30,
	2012		2013
Second amended and restated term credit facility,
General Electric Capital Corporation;
variable interest rate of 4.46% at December 31, 2012.
The credit facility was secured by the total assets
of the subsidiary guarantors. The unpaid balance was
scheduled to be due October 31, 2013.	$	162,000,000	$	—

Third amended and restated term credit facility,
General Electric Capital Corporation;
variable interest rate of 6.50% at June 30, 2013.
The credit facility is secured by the total assets
of the subsidiary guarantors. The unpaid balance is
due April 30, 2016.		—		133,300,000

13% Senior Subordinated Notes due 2019;
premium amortization for the three and six months ended
June 30, 2012 was $28,659 and $56,499, respectively.
Premium amortization for the three and six months
ended June 30, 2013 was $0 and $31,260, respectively.		100,490,023		—

13% Senior Subordinated Notes, held separately, due 2019.		8,500,000		—

Total notes payable	$	270,990,023	$	133,300,000

Less: current portion		270,990,023		6,665,000

Long-term notes payable	$	—	$	126,635,000

Associated with these notes payable, the Company has capitalized and amortized deferred financing costs using the effective interest method. The Company has capitalized $2.7 million in deferred financing costs associated with the senior credit facility.

The Company had revolving credit facilities on June 30, 2013 and December 31, 2012 of $5,000,000 and $15,000,000, respectively. The filing of the Reorganization Cases terminated our revolving loan commitments under our senior credit facility. Upon the Effective Date, the revolving loan commitments were reinstated at $5.0 million. Those commitments have been extended until April 30, 2016. There was no balance outstanding as of June 30, 2013 or December 31, 2012. The Company pays a commitment fee of 0.50% per annum, payable quarterly in arrears, on the unused portion of the revolver loan. The commitment fee expense was $13,681 and $32,431 for the three and six months ended June 30, 2013, respectively, and $18,959 and $37,917 for the three and six months ended June 30, 2012, respectively.

Maturities of long-term notes payable for the next five years are as follows:

2013 (remaining)	$	3,332,500
2014		6,665,000
2015		6,665,000
2016		116,637,500
2017		—
Thereafter		—
Total	$	133,300,000

The Company’s notes payable agreements are subject to certain financial covenants and restrictions on indebtedness, financial guarantees, business combinations and other related items. As of June 30, 2013, the Company was in compliance with all such covenants and restrictions.

4.	Revenue Concentrations

The Company fulfilled a contract with Time Warner Cable (“TW”) for the provision of wholesale network connections to TW customers in Maine and New Hampshire. Revenue received directly from TW represented approximately 12.1% and 3.9% of the Company’s consolidated revenue for the six months ended June 30, 2012 and 2013, respectively. Additionally, other unrelated telecommunications providers also pay the Company access revenue for terminating calls through the Company to TW customers representing 4.1% and less than 1.0% of the Company’s consolidated revenue for the six months ended June 30, 2012 and 2013, respectively. This contract expired as of December 31, 2012 and all connections were moved to TW’s facilities by January 31, 2013.

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 9.3% and 11.1% of the Company’s total revenues for the six months ended June 30, 2012 and 2013, respectively.

5.	Impairments

During the second quarter of 2012, an interim goodwill impairment test was performed in response to indicators revealed in the annual forecasting process. The Company 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. The Company recorded impairment charges related to its New England reporting unit of $2.9 million and $5.7 million to reduce the carrying value of tangible and intangible assets, respectively. The Company performed its annual goodwill impairment testing as of October 1, 2012. The Company determined no events or circumstances from October 1, 2012 through June 30, 2013 indicated that a further assessment was necessary.

6.	Income Tax

As of June 30, 2013, the Company had U.S. federal and state net operating loss carryforwards of $3.2 million and $17.7 million, respectively. These net operating loss carryforwards expire at various times beginning in 2022 through 2033. The Company also had alternative minimum tax credit carryforwards of $0.7 million. The Company establishes valuation allowances when necessary to reduce deferred tax assets to amounts expected to be realized. During second quarter 2013, the Company determined that it is more likely than not that the benefit from certain federal and state loss carryforwards and the benefit from certain alternative minimum tax credit carryforwards will not be realized prior to expiration due to the attribute reduction required for the Company’s emergence from bankruptcy during the current period. The Company recorded a valuation allowance of $1.4 million related to the deferred tax asset associated with the federal and state loss carryforwards and a valuation allowance of $0.7 million related to the deferred tax asset associated with the alternative minimum tax credit carryforwards which are expected to not be utilized during the current tax year. No valuation allowance was present in periods prior to the three-month period ended June 30, 2013.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of June 30, 2013 and December 31, 2012 are presented below:

	December 31,			June 30,
	2012			2013
Deferred tax liabilities:
Amortization	$	(10,129,938	)	$	(12,900,315	)
Depreciation		(11,685,694	)		(10,450,258	)
Amortized intangibles		(839,560	)		—
Prepaid expense		(430,896	)		(397,865	)
Other		(14,977	)		(14,431	)
Total deferred tax liabilities	$	(23,101,065	)	$	(23,762,869	)

Deferred tax assets:
Federal net operating loss carryforwards	$	4,426,198		$	1,134,998
Amortized intangibles		—			966,773
Alternative minimum credits carryforwards		555,690			720,797
State net operating loss carryforwards		769,262			345,025
Restructuring expense		632,170			1,685,576
Deferred compensation		322,644			304,242
Advance payments		327,718			307,378
Bad debt		704,147			414,742
Other		381,327			218,904
		8,119,156			6,098,435
Less: Valuation allowance		—			(2,107,722	)
Total net deferred tax assets	$	8,119,156		$	3,990,713

The effective income tax rate as of June 30, 2012 and 2013 was 16.5% and 4.3%, respectively. The 2012 rate differs from the 35% federal statutory rate primarily due to certain non-deductible impairment expenses. The cancellation of debt income in 2013 is non-taxable, and is the primary difference between the 35% federal statutory rate and the effective tax rate.

7.	Derivative Activities

The Company utilized two interest rate swaps which matured on February 8, 2012. 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.

8.	Income (Loss) per Common Share

Income (loss) per common share is computed by dividing net income (loss) by the weighted average of common shares outstanding for the period. As discussed in note 2, Reorganization, above, the Management Equity Plan was adopted by the Company’s board of directors on June 18, 2013, was adopted by the holders of Class B common stock on July 12, 2013 and will be voted on by the holders of Class A common stock at the Annual Meeting. The aggregate number of shares of Class A common stock that may be issued under all equity-based awards made under the Management Equity Plan is 344,859. If all of the shares of Class A common stock authorized for issuance under the Management Equity Plan had been issued and outstanding on the date of this Quarterly Report on Form 10-Q, they would have represented 10% of the total number of shares of Class A common stock and Class B common stock outstanding. The Management Equity Plan permits the granting of stock options (including both incentive and non-qualified stock options), restricted stock and stock awards. As of the date of this Quarterly Report on Form 10-Q, the Management Equity Plan has not been adopted by the holders of Class A common stock and no awards have been granted under the Management Equity Plan, and therefore the Management Equity Plan is not considered dilutive in the earnings per share calculations below.

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

	Three Months Ended June 30,					Six Months Ended June 30,
	2012			2013		2012			2013
		(restated)					(restated)
Weighted average of common shares outstanding		2,644,281			2,826,040		2,644,281			2,735,663

Net income (loss)	$	(128,010,613	)	$	109,648,222	$	(127,192,375	)	$	107,874,201

Net income (loss) per common share	$	(48.41	)	$	38.80	$	(48.10	)	$	39.43

9.	Commitments and Contingencies

From time to time, we may be involved in various claims, legal actions and regulatory proceedings incidental to and in the ordinary course of business, including administrative hearings of the Alabama Public Service Commission, the Maine Public Utilities Commission, the Massachusetts Department of Telecommunications and Cable, the Missouri Public Service Commission, the New Hampshire Public Utilities Commission, the Vermont Public Service Board and the West Virginia Public Service Commission, relating primarily to rate making. Except as set forth in note 2, Reorganization, above, none of the legal proceedings are expected to have a material adverse effect on our business.

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 June 30, 2013, we operated 97,496 access line equivalents and 2,709 wholesale network connections.

The Federal Communications Commission (the “FCC”) issued its Universal Service Fund and Intercarrier Compensation order (“FCC Order”) in November 2011, and the FCC Order began to have a significant impact on our business in July 2012. The initial consequence to our business was to reduce access revenue from intrastate calling in Maine and other states where intrastate rates are higher than interstate rates. A second reduction in access revenue began in July 2013, when all intrastate rates were reduced to the interstate rate. While 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 revenues in our CLEC.

On March 24, 2013 (the “Petition Date”), the Company and each of its direct and indirect subsidiaries filed voluntary petitions for reorganization (the “Reorganization Cases”) under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) in order to effectuate their prepackaged Chapter 11 plan of reorganization (the “Plan”). The Reorganization Cases were jointly administered under the caption “In re Otelco Inc., et al.,” Case No. 13-10593. On March 26, 2013, the Bankruptcy Court approved payment of prepetition claims for certain of our critical vendors. On May 6, 2013, the Bankruptcy Court entered an order (the “Confirmation Order”) confirming the Plan. On May 24, 2013, we substantially consummated our reorganization through a series of transactions contemplated by the Plan, and the Plan became effective pursuant to its terms. When the Plan became effective, the following transactions occurred, among other things:

●

the $162 million of outstanding principal term loan obligations under our senior credit facility was reduced to $133.3 million through a cash payment of $28.7 million;

●

the maturity of the outstanding principal term loan obligations and any revolving loan obligations under our senior credit facility was extended to April 30, 2016;

●

the holders of the outstanding principal term loan obligations under our senior credit facility received their pro rata share of our new Class B common stock, which new Class B common stock represented 7.5% of our total economic and voting interests immediately following the effectiveness of the Plan, subject to dilution of up to 10% on account of the issuance of equity interests in the Company pursuant to a management equity plan (the “Management Equity Plan”) that was adopted by our board of directors on June 18, 2013, that was adopted by the holders of new Class B common stock on July 12, 2013 and which will be voted on by the holders of Class A common stock at our annual meeting of stockholders to be held on August 13, 2013;

●

certain revolving loan commitments under our senior credit facility were reinstated, with availability of up to $5 million;

●

our outstanding senior subordinated notes, including the outstanding senior subordinated notes constituting part of our Income Deposit Securities (“IDSs”), were cancelled and the holders of outstanding senior subordinated notes, including senior subordinated notes held through IDSs, received their pro rata share of our new Class A common stock, which new Class A common stock represented 92.5% of our total economic and voting interests immediately following the effectiveness of the Plan, subject to dilution of up to 10% on account of the issuance of equity interests in the Company pursuant to the Management Equity Plan; and

●

the outstanding shares of our old Class A common stock, all of which constituted part of the IDSs, were cancelled.

The Company’s emergence from bankruptcy did not qualify for fresh-start accounting in accordance with Accounting Standards Codification (“ASC”) 852, Reorganization, as more than fifty percent of our new Class A common stock is held by persons who also held our old Class A common stock through IDS ownership.

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.

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, Massachusetts 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. In Alabama, we offer security and medical alert services.

●

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 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.

●

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. 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 a general 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 be potentially 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.

Key Operating Statistics
(Unaudited)									Quarterly
									% Change
	December 31,				March 31,		June 30,		from
	2011		2012		2013		2013		March 31, 2013
Otelco access line equivalents(1)		102,378		99,395		98,839		97,496		(1.4	)%

RLEC and other services:
Voice access lines		46,202		43,021		42,274		41,354		(2.2	)%
Data access lines		22,904		22,742		22,718		22,604		(0.5	)%
Access line equivalents(1)		69,106		65,763		64,992		63,958		(1.6	)%
Cable television customers		4,201		4,155		4,102		4,027		(1.8	)%
Satellite television customers		226		233		235		237		0.9	%
Security		—		63		96		111		15.6	%
Additional internet customers		5,414		4,506		4,312		4,124		(4.4	)%
RLEC dial-up		301		198		169		153		(9.5	)%
Other dial-up		2,797		1,895		1,726		1,590		(7.9	)%
Other data lines		2,316		2,413		2,417		2,381		(1.5	)%

CLEC:
Voice access lines		30,189		30,470		30,589		30,252		(1.1	)%
Data access lines		3,083		3,162		3,258		3,286		0.9	%
Access line equivalents(1)		33,272		33,632		33,847		33,538		(0.9	)%
Wholesale network connections		157,144		162,117		2,608		2,709		3.9	%

	For the Year Ended				For the Three Months Ended
	December 31,				March 31,		June 30,
		2011		2012		2013		2013
Total revenues (in millions):	$	101.8	$	98.4	$	21.0	$	19.7
RLEC(2)	$	57.4	$	62.8	$	14.5	$	13.5
CLEC	$	44.4	$	35.6	$	6.5	$	6.2

(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)	Includes regulated and unregulated RLEC revenues.

In our RLEC territories, access line equivalents decreased by 1,034 during second quarter 2013, or 1.6%, compared to March 31, 2013. Voice access lines declined 2.2% and data access lines decreased by 0.5% during the period. 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 New England CLEC operations, access line equivalents decreased by 309 during second quarter 2013, or 0.9%, compared to March 31, 2013. Voice access lines decreased 1.1% while data access lines increased 0.9% during the period. Our hosted private branch exchange (“PBX”) product continues to grow with positive market acceptance, adding approximately 399 seats during second quarter 2013 and representing more than 21% of our CLEC business voice access lines. 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 our 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 CLEC customers have selected us as their long distance carrier. Our cable television customers decreased 1.8% from March 31, 2013 to 4,027 as of June 30, 2013. The decrease was primarily in basic cable customers. Our other internet customers decreased 4.4% to 4,124 as of June 30, 2013 compared to March 31, 2013. This also includes the subscribers we service outside of our RLEC telephone service area throughout Maine and central Missouri, 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 57% of the other internet customers are served by high-speed data capability from Otelco. We offer security monitoring and medical alert services in Alabama. During second quarter 2013, we installed 15 systems for an increase of 15.6% when compared to March 31, 2013.

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 accounts receivable; 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 Time Warner Cable (“TW”) had indicated that it would not renew its wholesale network contract when it expired at the end of 2012. Formal notification of non-renewal was received in June 2012. All connections were moved to TW’s facilities by January 31, 2013. In addition, the implementation of industry changes required by the FCC Order began reducing our CLEC revenue in July 2012 and our RLEC revenue in July 2013. Also, during second quarter 2012, the market price of our IDSs on the NASDAQ Global Market dropped materially. The impact of these changes was considered as a triggering event for us to review all of our 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 – property, plant and equipment; Long-lived assets impairment – intangibles; and Goodwill impairment.

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. Reductions over time in Universal Service Fund and Intercarrier Compensation payments based on the FCC Order may not be fully offset be expense control.

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 June 30,						Six Months Ended June 30,
	2012			2013			2012			2013
Revenues
Local services		46.2	%		40.9	%		46.1	%		40.7	%
Network access		30.3			29.3			30.6			30.2
Cable television		3.2			3.8			3.2			3.7
Internet		14.9			18.5			14.8			18.1
Transport services		5.3			7.4			5.4			7.2
Total revenues		100.0	%		100.0	%		100.0	%		100.0	%
Operating expenses
Cost of services		43.2	%		45.4	%		43.3	%		45.3	%
Selling, general and administrative expenses		14.7			11.8			13.6			13.2
Depreciation and amortization		23.8			16.8			20.8			16.9
Long-lived assets impairment - property, plant and equipment		11.6			—			5.7			—
Long-lived assets impairment - intangibles		23.3			—			11.5			—
Goodwill impairment		582.7			—			287.5			—
Total operating expenses		699.1			74.0			382.4			75.4
Income (loss) from operations		(599.1	)		26.0			(282.4	)		24.6
Other income (expense)
Interest expense		(22.8	)		(11.3	)		(22.9	)		(19.1	)
Change in fair value of derivatives		—			—			0.5			—
Other income		—			0.1			0.7			0.6
Total other expenses		(22.8	)		(11.2	)		(21.7	)		(18.5	)

Income (loss) before reorganization items and income tax		(622.0	)		14.8			(304.2	)		6.1

Reorganization items		—			567.9			—			271.2

Income (loss) before income tax		(622.0	)		582.7			(304.2	)		277.3
Income tax (expense) benefit		100.0			(25.1	)		50.3			(12.0	)

Net income (loss)		(522.0	)%		557.5	%		(253.9	)%		265.3	%

Three Months and Six Months Ended June 30, 2013 Compared to Three Months and Six Months Ended June 30, 2012

Total revenues. Total revenues decreased 20.4% in the three months ended June 30, 2013 to $19.7 million from $24.7 million in the three months ended June 30, 2012. Total revenues decreased 18.8% in the six months ended June 30, 2013 to $40.7 million from $50.1 million in the six months ended June 30, 2012. The tables below provide the components of our revenues for the three months and six months ended June 30, 2013 compared to the same periods of 2012.

For the three months ended June 30, 2013 and 2012

	Three Months Ended June 30,				Change
	2012		2013		Amount			Percent
	(dollars in thousands)
Local services	$	11,419	$	8,045	$	(3,374	)		(29.5	) %
Network access		7,498		5,764		(1,734	)		(23.1	)
Cable television		794		746		(48	)		(6.0	)
Internet		3,687		3,665		(22	)		(0.6	)
Transport services		1,316		1,446		130			9.9
Total	$	24,714	$	19,666	$	(5,048	)		(20.4	)

Local services. Local services revenue decreased 29.5% in the three months ended June 30, 2013 to $8.0 million from $11.4 million in the three months ended June 30, 2012. Revenue from TW decreased $2.8 million. The decline in RLEC voice access lines, including the reduction in intrastate calling revenue associated with the FCC Order, decreased $1.1 million. The decreases were partially offset by $0.5 million in one-time settlements.

Network access. Network access revenue decreased 23.1% in the three months ended June 30, 2013 to $5.8 million from $7.5 million in the three months ended June 30, 2012. TW-related access revenue decreased $0.9 million. End user-related access revenue, net of payments from the new Connect America Fund, decreased $0.8 million, reflecting reduced subscriber usage and lower intrastate calling revenue associated with the FCC Order.

Cable television. Cable television revenue in the three months ended June 30, 2013 decreased 6.0% to just under $0.8 million compared to just over $0.7 million in the same period in 2012. Loss of basic cable subscribers was only partially offset by increased IPTV and security revenue in our Alabama territory.

Internet. Internet revenue decreased 0.6% to remain at $3.7 million for both the three months ended June 30, 2013 and June 30, 2012. The decline of dial-up subscribers and a one-time Missouri fiber revenue in 2012 accounted for the decrease.

Transport services. Transport services revenue increased 9.9% to $1.4 million in the three months ended June 30, 2013 from $1.3 million in the three months ended June 30, 2012. The increase was associated with additional wide-area network and wholesale transport services.

For the six months ended June 30, 2013 and 2012

	Six Months Ended June 30,				Change
	2012		2013		Amount			Percent
	(dollars in thousands)
Local services	$	23,071	$	16,587	$	(6,484	)		(28.1	)%
Network access		15,313		12,260		(3,053	)		(19.9	)
Cable television		1,599		1,522		(77	)		(4.8	)
Internet		7,412		7,341		(71	)		(1.0	)
Transport services		2,693		2,944		251			9.3
Total	$	50,088	$	40,654	$	(9,434	)		(18.8	)

Local services. Local services revenue decreased 28.1% to $16.6 million in the six months ended June 30, 2013 from $23.1 million in the six months ended June 30, 2012. Revenue from TW decreased $4.8 million. The decline in RLEC voice access lines, including the reduction in intrastate calling revenue associated with the FCC Order, decreased $2.0 million. There was a one-time fiber revenue in 2012 of $0.1 million and one-time settlements in 2013 of $0.4 million.

Network access. Network access revenue decreased 19.9% to $12.3 million in the six months ended June 30, 2013 from $15.3 million in the six months ended June 30, 2012. TW-related access revenue decreased $1.6 million. End user-related access revenue, net of payments from the new Connect America Fund, decreased $1.5 million, reflecting reduced subscriber usage and lower intrastate calling revenue associated with the FCC Order.

Cable television. Cable television revenue decreased 4.8% to $1.5 million in the six months ended June 30, 2013 from $1.6 million in the six months ended June 30, 2012 from lower basic and digital cable subscribers.

Internet. Internet revenue decreased 1.0% to $7.3 million in the six months ended June 30, 2013 from $7.4 million in the six months ended June 30, 2012. The decline of dial-up subscribers accounted for the decrease.

Transport services. Transport services revenue increased 9.3% to $2.9 million in the six months ended June 30, 2013 from $2.7 million in the six months ended June 30, 2012. The increase was associated with additional wide-area network and wholesale transport services.

Operating expenses. Operating expenses in the three months ended June 30, 2013 decreased from $172.8 million in the three months ended June 30, 2012 to $14.5 million. Operating expenses in the six months ended June 30, 2013 decreased to $30.6 million from $191.5 million in the six months ended June 30, 2012. The tables below provide the components of our operating expenses for the three months and six months ended June 30, 2013 compared to the same periods of 2012.

For the three months ended June 30, 2013 and 2012

	Three Months Ended June 30,				Change
	2012		2013		Amount			Percent
	(dollars in thousands)
Cost of services	$	10,649	$	8,929	$	(1,720	)		(16.2	) %
Selling, general and administrative expenses		3,624		2,321		(1,303	)		(36.0	)
Depreciation and amortization		5,882		3,296		(2,586	)		(44.0	)
Long-lived assets impairment - property, plant and equipment		2,874		—		(2,874	)	NM
Long-lived assets impairment - intangibles		5,748		—		(5,748	)	NM
Goodwill impairment		143,998		—		(143,998	)	NM
Total	$	172,775	$	14,546	$	(158,229	)	NM

Cost of services. Cost of services decreased 16.2% to $8.9 million for the three months ended June 30, 2013 from $10.6 million in the three months ended June 30, 2012. Costs associated with TW decreased $0.7 million. Lower toll and access costs and network efficiencies, including employee costs, decreased by $1.0 million.

Selling, general and administrative expenses. Selling, general and administrative expenses decreased 36.0% to $2.3 million in the three months ended June 30, 2013 from $3.6 million in the three months ended June 30, 2012. The decrease included $0.5 million in operational efficiencies in several areas from continued cost control, $0.4 million for the settlement of disputed charges and $0.1 million in lower property taxes which were partially offset by an increase of $0.1 million in insurance costs. Reorganization expenses for 2013 are shown separately while 2012 reflected $0.4 million.

Depreciation and amortization. Depreciation and amortization for the three months ended June 30, 2013 decreased 44.0% to $3.3 million from $5.9 million in the three months ended June 30, 2012. The amortization of intangible assets associated with the TW contract decreased $1.7 million, other intangible assets decreased $0.4 million, RLEC and CLEC depreciation decreased $0.4 million and a telephone plant adjustment decreased by $0.1 million.

Impairment. There were no impairment charges in the three months ended June 30, 2013. During the same period in 2012, three separate impairment charges were recorded, totaling $152.6 million, to reflect impairment of long-lived assets, including goodwill. 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 $144.0 million. Based on a decline in the projected revenue of the Company due to the non-renewal of the TW contract and the impacts of the FCC Order, the fair value of the related assets was below the book value.

For the six months ended June 30, 2013 and 2012

	Six Months Ended June 30,				Change
	2012		2013		Amount			Percent
	(dollars in thousands)
Cost of services	$	21,677	$	18,406	$	(3,271	)		(15.1	) %
Selling, general and administrative expenses		6,830		5,377		(1,453	)		(21.3	)
Depreciation and amortization		10,405		6,862		(3,543	)		(34.1	)
Long-lived assets impairment - property, plant and equipment		2,874		—		(2,874	)	NM
Long-lived assets impairment - intangibles		5,748		—		(5,748	)	NM
Goodwill impairment		143,998		—		(143,998	)	NM
Total	$	191,532	$	30,645	$	(160,887	)	NM

Cost of services. Cost of services decreased 15.1% to $18.4 million for the six months ended June 30, 2013 from $21.7 million in the six months ended June 30, 2012. Costs associated with TW decreased $1.1 million. Decreases in toll and access costs of $0.6 million, internet costs of $0.2 million, sales, marketing and advertising expenses of $1.0 million and network efficiencies, including employee costs, of $0.5 million were partially offset by an increase in hosted PBX product costs of $0.2 million, reflecting our success with that product in the last year.

Selling, general and administrative expenses. Selling, general and administrative expenses decreased 21.3% to $5.4 million in the six months ended June 30, 2013 from $6.8 million in the six months ended June 30, 2012. The decrease included $0.8 million in operational efficiencies in several areas from continued cost control, $0.2 million for the settlement of disputed charges and $0.2 million in lower property taxes which were partially offset by an increase of $0.2 million in insurance costs. Reorganization expenses for 2013 are shown separately while 2012 included $0.4 million in expenses.

Depreciation and amortization. Depreciation and amortization for the six months ended June 30, 2013 decreased 34.1% to $6.9 million from $10.4 million in the six months ended June 30, 2012. The amortization of intangible assets associated with the TW contract decreased $1.7 million; other intangible assets decreased $0.8 million, RLEC and CLEC depreciation decreased $0.7 million and a telephone plant adjustment decreased by $0.3 million.

Impairment. There were no impairment charges in the six months ended June 30, 2013. During the same period in 2012, three separate impairment charges were recorded, totaling $152.6 million, to reflect impairment of long-lived assets, including goodwill. 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 $144.0 million. Based on a decline in the projected revenue of the Company due to the non-renewal of the TW contract and the impacts of the FCC Order, the fair value of the related assets was below the book value.

For the three months ended June 30, 2013 and 2012

	Three Months Ended June 30,						Change
	2012			2013			Amount			Percent
	(dollars in thousands)
Interest expense	$	(5,655	)	$	(2,225	)	$	(3,430	)		(60.7	)%
Other income		(8	)		18			26		NM
Reorganization items		—			111,676			111,676		NM
Income tax (expense) benefit		25,713			(4,942	)		(30,655	)	NM

Interest expense. Interest expense decreased 60.7% to $2.2 million in the three months ended June 30, 2013 from $5.7 million in the three months ended June 30, 2012. The decrease in interest expense is associated with the exchange of our senior subordinated notes for new Class A common stock during second quarter 2013 compared to interest paid on those notes in the same period of 2012.

Other income (expense). Other income, primarily interest income and gain on the sale of equipment, was less than $0.1 million in the three months ended June 30, 2013 as compared to an expense of less than $0.1 million in the three months ended June 30, 2012.

Reorganization items. Separate classification of reorganization items began in first quarter 2013 when we filed the Reorganization Cases. All reorganization expenses prior to that period are reflected in selling, general and administrative expenses. We expensed approximately $2.5 million during the second quarter of 2013 associated with our balance sheet restructuring process with no comparable expense in 2012 reflected as reorganization items. In addition, we recognized $114.2 million in cancellation of debt income associated with the exchange of our senior subordinated notes and the accrued interest on those notes for new Class A common stock during second quarter 2013.

Income tax (expense) benefit. Provision for income taxes was an expense of $4.9 million in the three months ended June 30, 2013, reflecting the impact of the valuation allowance on the net operating loss carryforwards, compared to a benefit of $25.7 million in the three months ended June 30, 2012, reflecting the impact of long-lived asset and goodwill impairment.

For the six months ended June 30, 2013 and 2012

	Six Months Ended June 30,						Change
	2012			2013			Amount			Percent
	(dollars in thousands)
Interest expense	$	(11,488	)	$	(7,779	)	$	(3,709	)		(32.3	)%
Change in fair value of derivatives		241			—			(241	)	NM
Other income		310			262			(48	)		(15.5	)
Reorganization items		—			110,253			110,253		NM
Income tax (expense) benefit		25,189			(4,871	)		(30,060	)	NM

Interest expense. Interest expense decreased 32.3% to $7.8 million in the six months ended June 30, 2013 from $11.5 million in the six months ended June 30, 2012. A decrease of $3.6 million in interest expense is associated with the exchange of our senior subordinated notes for new Class A common stock during second quarter 2013 compared to interest paid on those notes in the same period of 2012. In addition, amortization of loan costs decreased $0.1 million in the six months ended June 30, 2013 when compared to the same period in 2012.

Change in fair value of derivatives. We had two interest rate swap agreements intended to hedge our exposure to changes in interest rate costs associated with our senior credit facility. The swap agreements did not qualify for hedge accounting under the technical requirements of 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 had no impact on cash. The swaps expired on February 8, 2012.

Other income. Other income decreased 15.5% to just under $0.3 million in the six months ended June 30, 2013 from just over $0.3 million in the six months ended June 30, 2012, reflecting a reduction in the annual CoBank dividend that we receive in the first quarter of each year.

Reorganization items. Separate classification of reorganization items began in first quarter 2013 when we filed the Reorganization Cases. All reorganization expenses prior to that period are reflected in selling, general and administrative expenses. We expensed approximately $3.9 million during the first six months of 2013 associated with our balance sheet restructuring process with no comparable expense in 2012 reflected as reorganization items. In addition, we recognized $114.2 million in cancellation of debt income associated with the exchange of our senior subordinated notes and the accrued interest on those notes for new Class A common stock during second quarter 2013.

Income tax (expense) benefit. Provision for income taxes was an expense of $4.9 million in the six months ended June 30, 2013, reflecting the impact of the valuation allowance on the net operating loss carryforwards, compared to a benefit of $25.2 million in the six months ended June 30, 2012, reflecting the impact of long-lived asset and goodwill impairment.

Net income (loss). As a result of the foregoing, there was net income of $109.6 million in the three months ended June 30, 2013 and a net loss of $128.0 million in the three months ended June 30, 2012. There was net income of $107.9 million in the six months ended June 30, 2013 and a net loss of $127.2 million in the six months ended June 30, 2012. The differences are primarily attributable to the impact of long-lived asset and goodwill impairment recognized in second quarter 2012 and cancellation of debt income in second quarter 2013.

Liquidity and Capital Resources

Our liquidity needs arise primarily from: (i) interest and principal payments related to our senior credit facility; (ii) capital expenditures; and (iii) working capital requirements.

For the six months ended June 30, 2013, we generated cash from our business to invest in additional property and equipment, pay interest on our senior debt, pay costs associated with restructuring our balance sheet, and, coupled with cash on our balance sheet at the end of 2012, reduce the principal on our senior debt by $28.7 million. After meeting all of these needs of our business, cash decreased from $32.5 million at December 31, 2012 to $11.1 million at June 30, 2013.

Cash flows from operating activities for the first six months of 2013 amounted to $10.5 million compared to $15.5 million for the first six months of 2012, primarily from lower operating earnings due to the expiration of the TW contract and accrued IDS interest and from higher reorganization expenses associated with the bankruptcy process.

Cash flows used in investing activities for the first six months of 2013 were $1.6 million compared to $2.5 million in the first six months of 2012, reflecting a lower rate of capital expenditures for property and equipment during the reorganization process. We expect to invest approximately $7.0 million in property and equipment in 2013.

Cash flows used in financing activities for the first six months of 2013 were $30.3 million compared to $2.4 million in the first six months of 2012, reflecting the repayment of $28.7 million on our senior debt and $1.7 million in loan origination costs in 2013 and the payment of dividends to stockholders in the first quarter of 2012.

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.

We anticipate that our operating cash flow will be adequate to meet our currently anticipated operating and capital expenditure requirements for at least the next 12 months. With the completion of the balance sheet restructuring process, our exit from bankruptcy and our steps to conserve cash, our current focus is on generating cash to further reduce our debt. Our senior credit facility contains certain financial covenants and restrictions on indebtedness, financial guarantees, business combinations and other related items, which impose operating and financial restrictions on us. In the event we fail to comply with the financial covenants or other similar requirements in our senior credit facility, we would be in default under our senior credit facility and our ability to meet anticipated operating and capital expenditure requirements would be impaired.

The following table provides a summary of the extent to which cash generated from operations was reinvested in our operations, used to pay interest on our senior debt and used to pay expenses associated with restructuring our balance sheet for the periods indicated. The repayment of $28.7 million on our senior debt is not reflected in the table as cash from both periods was used for the repayment.

	Six Months Ended June 30,
	2012		2013
	(Dollars in thousands)
Cash generation
Revenues	$	50,088	$	40,654
Other income		310		261
Cash received from operations	$	50,398	$	40,915

Cost of services	$	21,677		$	18,406
Selling, general and administrative expenses		6,830			5,376
Cash consumed by operations	$	28,507		$	23,782
Cash generated from operations	$	21,891		$	17,133

Cash utilization
Reorganization items	$	—		$	3,958
Loan origination costs		30			1,647
Capital investment in operations		2,545			1,582
Senior debt interest and fees		3,894			3,825
Interest on senior subordinated notes		6,998			—
Dividends		2,330			—
Cash utilized by the Company	$	15,797		$	11,012
Percentage of cash utilized of cash generated		72.2	%		64.3	%

We use adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) as an operational performance measurement. Adjusted EBITDA, as presented in this Quarterly Report on Form 10-Q, corresponds to the definition of Adjusted EBITDA in our senior credit facility. Adjusted EBITDA, as presented in this Quarterly Report on 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 six months ended June 30, 2012 and 2013, and its reconciliation to net income, is reflected in the table below:

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2013			2012			2013
Net income (loss)	$	(128,011	)	$	109,648		$	(127,192	)	$	107,874
Add: Depreciation		2,747			2,389			5,475			4,769
Interest expense - net of premium		5,313			1,991			10,804			7,204
Interest expense - amortize loan cost		342			233			684			575
Income tax expense (benefit)		(25,713	)		4,942			(25,189	)		4,871
Change in fair value of derivatives		—			—			(241	)		—
Loan fees		19			14			38			32
Amortization - intangibles		3,136			908			4,930			2,093
Goodwill impairment		143,998			—			143,998			—
Impairment of long-lived assets		8,622			—			8,622			—
IXC tariff dispute settlement		—			—			—			69
Cancellation of debt		—			(114,210	)		—			(114,210	)
Restructuring expense		361			2,534			361			3,958
Adjusted EBITDA(1)	$	10,814		$	8,449		$	22,290		$	17,235
(1)Adjusted EBITDA represents adjusted earnings before interest, taxes, depreciation and amortization and corresponds to the definition of Adjusted EBITDA in our senior credit facility.

Obligations and Commitments

The following table discloses aggregate information about our contractual obligations as of June 30, 2013, including scheduled interest and principal payments under the terms of our senior credit facility, for the periods in which payments are due. Our senior credit facility matures on April 30, 2016.

			Less than		1-3		3-5		More than
	Total		1 Year		years		years		5 years
Third amended and restated credit facility
Term (1)	$	133,300,000	$	6,665,000	$	126,635,000	$	—	$	—
Revolver (2)		—		—		—		—		—
Expected interest expense (3)		24,565,963		8,620,877		15,945,087		—		—
Total contractual cash obligations	$	157,865,963	$	15,285,877	$	142,580,087	$	—	$	—


(1)	Does not reflect any potential excess cash flow payments required by our senior credit facility.
(2)	As of June 30, 2013, we had a $5.0 million revolving credit facility available. No amounts were drawn on this facility on June 30, 2013. We pay a commitment fee of 0.50% per annum, payable quarterly in arrears, on the unused portion of the revolver loan.
(3)	Expected interest payments to be made in future periods reflect anticipated interest payments related to our senior credit facility. Interest on our senior credit facility reflects a rate of 6.5% reflecting a margin of 3.5% and a LIBOR floor of 3.0%. We have assumed in the presentation above that we will hold our senior credit facility until April 30, 2016, its scheduled maturity date. No interest payments are included for the revolving credit facility because of the variability and timing of advances and repayments thereunder.

Recent Accounting Pronouncements

During the three- and six-month periods ended June 30, 2013, there have been no newly issued or newly applicable accounting pronouncements that have, or are expected to have, a material impact on our financial statements. Further, at June 30, 2013, there were no pronouncements pending adoption that are expected to have a material impact on our financial statements.

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 $5.0 million under a revolving loan facility that expires on April 30, 2016. 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 June 30, 2013.

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 June 30, 2013 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

Item 1. Legal Proceedings

As previously reported in our Annual Report on Form 10-K for the year ended December 31, 2012, on the Petition Date, the Company and each of its direct and indirect subsidiaries filed the Reorganization Cases in the Bankruptcy Court in order to effectuate the Plan. As previously reported in our Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 6, 2013, on May 6, 2013, the Bankruptcy Court entered the Confirmation Order confirming the Plan. As previously reported in our Current Report on Form 8-K filed with the Securities and Exchange Commission on May 24, 2013, on May 24, 2013, the Company and its direct and indirect subsidiaries substantially consummated their reorganization through a series of transactions contemplated by the Plan, and the Plan became effective pursuant to its terms. The Reorganization Cases were jointly administered under the caption “In re Otelco Inc., et al.,” Case No. 13-10593.

Item 6. Exhibits

Exhibits

See Exhibit Index.

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: August 8, 2013	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 June 30, 2013 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


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.


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.

Note 4 - Revenue Concentrations (Details)	6 Months Ended
Note 4 - Revenue Concentrations (Details)	Jun. 30, 2013	Jun. 30, 2012
TWC [Member]
Note 4 - Revenue Concentrations (Details) [Line Items]
Consolidated Entity Revenue Percentage	3.90%	12.10%
Concentration Risk, Percentage	1.00%	4.10%
National Exchange Carrier Association [Member]
Note 4 - Revenue Concentrations (Details) [Line Items]
Consolidated Entity Revenue Percentage	11.10%	9.30%

Note 7 - Derivative Activities (Details) (USD $)	Feb. 08, 2012
Derivative Instruments and Hedging Activities Disclosure [Abstract]
Derivative Asset, Notional Amount	$ 0

Note 3 - Notes Payable (Details) - Summary of Notes Payable (Parentheticals) (USD $)	6 Months Ended				6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013 GE Capital 2nd [Member]	Dec. 31, 2012 GE Capital 3rd [Member]	Dec. 31, 2012 Senior Subordinated Notes 1 [Member]	Jun. 30, 2013 Senior Subordinated Notes 1 [Member]	Jun. 30, 2013 Senior Subordinated Notes 2 [Member]	Dec. 31, 2012 Senior Subordinated Notes 2 [Member]
Debt Instrument [Line Items]
Interest			4.46%	6.50%	13.00%	13.00%	13.00%	13.00%
Premium amortization (in Dollars)	$ 31,260	$ 56,499			$ 56,499


/s/ Michael D. Weaver
Michael D. Weaver
President & Chief Executive Officer

	1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Michael D. Weaver
Michael D. Weaver
Chief Executive Officer
August 8, 2013

Note 3 - Notes Payable (Details) - Summary of Notes Payable (USD $)	Jun. 30, 2013	Dec. 31, 2012
Debt Instrument [Line Items]
Notes payable	$ 133,300,000	$ 270,990,023
Less: current portion	6,665,000	270,990,023
Long-term notes payable	126,635,000
GE Capital 2nd [Member]
Debt Instrument [Line Items]
Notes payable		162,000,000
GE Capital 3rd [Member]
Debt Instrument [Line Items]
Notes payable	133,300,000
Senior Subordinated Notes 1 [Member]
Debt Instrument [Line Items]
Notes payable		100,490,023
Senior Subordinated Notes 2 [Member]
Debt Instrument [Line Items]
Notes payable		$ 8,500,000

Note 3 - Notes Payable (Details) - Maturities of Long-Term Notes Payable (USD $)	Jun. 30, 2013	Dec. 31, 2012
Maturities of Long-Term Notes Payable [Abstract]
2013 (remaining)	$ 3,332,500
2014	6,665,000
2015	6,665,000
2016	116,637,500
2017	0
Thereafter	0
Total	$ 133,300,000	$ 270,990,023

Note 5 - Impairments (Details) (USD $)	3 Months Ended	6 Months Ended	3 Months Ended
Note 5 - Impairments (Details) (USD $)	Jun. 30, 2012	Jun. 30, 2012	Jun. 30, 2013 Alabama [Member]	Jun. 30, 2013 Missouri [Member]	Jun. 30, 2013 New England [Member] Assets [Member]	Jun. 30, 2013 New England [Member] Indefinite-lived Intangible Assets [Member]	Jun. 30, 2013 New England [Member]
Note 5 - Impairments (Details) [Line Items]
Goodwill, Impairment Loss	$ 143,998,000	$ 143,998,000	$ 62,404,000	$ 12,071,000			$ 69,523,000
Asset Impairment Charges					$ 2,900,000	$ 5,700,000

Note 8 - Income (Loss) Per Common Share (Details) (Stock Compensation Plan [Member])	Jun. 30, 2013
Stock Compensation Plan [Member]
Note 8 - Income (Loss) Per Common Share (Details) [Line Items]
Common Stock, Shares Authorized	344,859

Consolidated Balance Sheets (Unaudited) (Parentheticals) (USD $)	Jun. 30, 2013	Dec. 31, 2012
Allowance for doubtful accounts (in Dollars)	$ 246,860	$ 239,274
Common Class A [Member]
Common stock par value (in Dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in Shares)	10,000,000	20,000,000
Common stock, shares issued (in Shares)	2,870,948	13,221,404
Common stock, shares outstanding (in Shares)	2,870,948	13,221,404
Common Class B [Member]
Common stock par value (in Dollars per share)	$ 0.01
Common stock, shares authorized (in Shares)	250,000
Common stock, shares issued (in Shares)	232,780
Common stock, shares outstanding (in Shares)	232,780

Consolidated Statements of Cash Flows (Unaudited) (USD $)	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Cash flows from operating activities:
Net income (loss)	$ 107,874,201	$ (127,192,375)
Adjustments to reconcile net income (loss) to cash flows provided by operating activities:
Depreciation	4,768,811	5,475,268
Amortization	2,093,466	4,929,727
Long-lived assets impairment - property, plant and equipment		2,874,000
Long-lived assets impairment - intangibles		5,748,000
Goodwill impairment		143,998,000
Amortization of loan costs	575,157	684,048
Amortization of debt premium	(31,260)	(56,499)
Change in fair value of derivatives		(241,438)
Provision for deferred income tax expense (benefit)	4,790,249	(25,337,689)
Provision for uncollectible accounts receivable	120,483	201,950
Changes in operating assets and liabilities
Accounts receivable	2,381,447	86,329
Materials and supplies	31,115	(158,766)
Prepaid expenses and other assets	(167,590)	(152,533)
Accounts payable and accrued expenses	2,760,049	4,167,246
Advance billings and payments	(113,882)	208,118
Other liabilities	(338,911)	260,949
Reorganization adjustments:
Non-cash reorganization income	(114,210,236)
Net cash from operating activities	10,533,099	15,494,335
Cash used in investing activities:
Acquisition and construction of property and equipment	(1,581,653)	(2,544,811)
Net cash used in investing activities	(1,581,653)	(2,544,811)
Cash flows used in financing activities:
Cash dividends paid		(2,330,272)
Principal repayment of long-term notes payable	(28,700,000)
Loan origination costs	(1,647,223)	(30,082)
Net cash used in financing activities	(30,347,223)	(2,360,354)
Net increase (decrease) in cash and cash equivalents	(21,395,777)	10,589,170
Cash and cash equivalents, beginning of period	32,516,283	12,393,792
Cash and cash equivalents, end of period	11,120,506	22,982,962
Supplemental disclosures of cash flow information:
Interest paid	3,385,836	10,860,755
Income taxes paid	143,500	65,749
Loan fees paid via issuance of Class B common stock	2,772,410
Cancellation of Class A common stock (in Shares)	132,214
Issuance of Class A common stock	$ 28,709

Consolidated Balance Sheets (Unaudited) (USD $)	Jun. 30, 2013	Dec. 31, 2012
Current assets
Cash and cash equivalents	$ 11,120,506	$ 32,516,283
Accounts receivable:
Due from subscribers, net of allowance for doubtful accounts of $239,274 and $246,860, respectively	4,107,747	4,205,944
Unbilled receivables	1,993,246	2,003,634
Other	2,942,818	5,336,162
Materials and supplies	1,814,131	1,845,246
Prepaid expenses	1,369,458	1,981,631
Deferred income taxes	2,426,335	1,843,160
Total current assets	25,774,241	49,732,060
Property and equipment, net	54,875,880	58,242,903
Goodwill	44,956,840	44,956,840
Intangible assets, net	4,769,800	6,670,392
Investments	1,906,572	1,919,327
Deferred financing costs, net	2,586,818	4,037,311
Deferred income taxes	1,564,378	6,275,997
Other assets	1,269,638	490,131
Total assets	137,704,167	172,324,961
Current liabilities
Accounts payable	3,226,384	2,007,405
Accrued expenses	5,892,739	14,900,378
Advance billings and payments	1,472,875	1,560,190
Deferred income taxes	397,865	430,896
Customer deposits	87,919	90,837
Current maturity of long-term notes payable	6,665,000	270,990,023
Total current liabilities	17,742,782	289,979,729
Deferred income taxes	23,365,004	22,670,168
Advance billings and payments	762,071	788,638
Other liabilities	148,026	484,019
Long-term notes payable, less current maturities	126,635,000
Total liabilities	168,652,883	313,922,554
Stockholders' deficit
Additional paid in capital	2,875,852
Retained deficit	(33,855,605)	(141,729,807)
Total stockholders' deficit	(30,948,716)	(141,597,593)
Total liabilities and stockholders' deficit	137,704,167	172,324,961
Common Class A [Member]
Stockholders' deficit
Common Stock	28,709	132,214
Common Class B [Member]
Stockholders' deficit
Common Stock	$ 2,328

Note 6 - Income Tax (Details) (USD $)	6 Months Ended
Note 6 - Income Tax (Details) (USD $)	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Note 6 - Income Tax (Details) [Line Items]
Deferred Tax Assets, Tax Credit Carryforwards, Alternative Minimum Tax	$ 720,797		$ 555,690
Valuation Allowance, Deferred Tax Asset, Change in Amount	1,400,000
Effective Income Tax Rate Reconciliation, Percent	4.30%	16.50%
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent		35.00%
Domestic Tax Authority [Member]
Note 6 - Income Tax (Details) [Line Items]
Operating Loss Carryforwards	3,200,000
State and Local Jurisdiction [Member]
Note 6 - Income Tax (Details) [Line Items]
Operating Loss Carryforwards	$ 17,700,000

Note 3 - Notes Payable (Details) (USD $)	3 Months Ended		6 Months Ended
Note 3 - Notes Payable (Details) (USD $)	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	May 24, 2013	Dec. 31, 2012
Debt Disclosure [Abstract]
Deferred Finance Costs, Gross	$ 2,700,000		$ 2,700,000
Line of Credit Facility, Maximum Borrowing Capacity	5,000,000		5,000,000			15,000,000
Other Commitment					5,000,000
Line of Credit Facility, Commitment Fee Percentage			0.50%
Line of Credit Facility, Commitment Fee Amount	$ 13,681	$ 18,959	$ 32,431	$ 37,917

Note 6 - Income Tax (Details) - Tax Effects of Temporary Differences (USD $)	Jun. 30, 2013	Dec. 31, 2012
Deferred tax liabilities:
Amortization	$ (12,900,315)	$ (10,129,938)
Depreciation	(10,450,258)	(11,685,694)
Amortized intangibles		(839,560)
Prepaid expense	(397,865)	(430,896)
Other	(14,431)	(14,977)
Total deferred tax liabilities	(23,762,869)	(23,101,065)
Deferred tax assets:
Federal net operating loss carryforwards	1,134,998	4,426,198
Amortized intangibles	966,773
Alternative minimum credits carryforwards	720,797	555,690
State net operating loss carryforwards	345,025	769,262
Restructuring expense	1,685,576	632,170
Deferred compensation	304,242	322,644
Advance payments	307,378	327,718
Bad debt	414,742	704,147
Other	218,904	381,327
	6,098,435	8,119,156
Less: Valuation allowance	(2,107,722)
Total net deferred tax assets	$ 3,990,713	$ 8,119,156

Note 2 - Reorganization (Details) - Implementation of the Plan in the Company’s Consolidated Balance Sheet (USD $)	Jun. 30, 2013	Dec. 31, 2012	Jun. 30, 2012	Dec. 31, 2011
Condensed Balance Sheet Statements, Captions [Line Items]
Cash and cash equivalents	$ (11,120,506)	$ (32,516,283)	$ (22,982,962)	$ (12,393,792)
Current maturity of long-term notes payable	(6,665,000)	(270,990,023)
Additional paid-in capital	(2,875,852)
Retained deficit	(33,855,605)	(141,729,807)
Old [Member] \| Common Class A [Member] \| Reorganization Plan [Member]
Condensed Balance Sheet Statements, Captions [Line Items]
Old Class A common stock	132,214
New Class A common stock	(132,214)
New Class B common stock	(132,214)
New [Member] \| Common Class A [Member] \| Reorganization Plan [Member]
Condensed Balance Sheet Statements, Captions [Line Items]
Old Class A common stock	28,709
New Class A common stock	(28,709)
New Class B common stock	(28,709)
Common Class A [Member]
Condensed Balance Sheet Statements, Captions [Line Items]
Old Class A common stock	28,709	132,214
New Class A common stock	(28,709)	(132,214)
New Class B common stock	(28,709)	(132,214)
Common Class B [Member] \| Reorganization Plan [Member]
Condensed Balance Sheet Statements, Captions [Line Items]
Old Class A common stock	2,328
New Class A common stock	(2,328)
New Class B common stock	(2,328)
Common Class B [Member]
Condensed Balance Sheet Statements, Captions [Line Items]
Old Class A common stock	2,328
New Class A common stock	(2,328)
New Class B common stock	(2,328)
Reorganization Plan [Member]
Condensed Balance Sheet Statements, Captions [Line Items]
Cash and cash equivalents	(28,700,000)
Current maturity of long-term notes payable	(6,665,000)
Long-term notes payable, net of current maturity	(126,635,000)
Liabilities subject to compromise	278,984,912
Additional paid-in capital	(2,875,853)
Retained deficit	$ (114,210,236)

Document And Entity Information	6 Months Ended
Document And Entity Information	Jun. 30, 2013	Aug. 08, 2013 Common Class A [Member]	Aug. 08, 2013 Common Class B [Member]
Document Information [Line Items]
Entity Registrant Name	OTELCO INC.
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		2,870,948	232,780
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	Jun. 30, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q2