Note 9 - Subsidiary Guarantees

6 Months Ended

Jun. 30, 2012

Guarantees [Text Block]

9.           Subsidiary Guarantees

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

     The Company has no independent assets or operations separate from its operating subsidiaries.  The guarantees of its senior subordinated notes by 14 of its 15 operating subsidiaries are full and unconditional, joint and several.  The operating subsidiaries have no independent long-term notes payable.  There are no significant restrictions on the ability of the Company to obtain funds from its operating subsidiaries by dividend or loan.  The condensed consolidated financial information is provided for the guarantor entities.

     The following tables present condensed consolidating balance sheets as of December 31, 2011 and June 30, 2012; condensed consolidating statements of operations for the three months ended June 30, 2011 and 2012; condensed consolidating statements of operations for the six months ended June 30, 2011 and 2012; and condensed consolidating statements of cash flows for the six months ended June 30, 2011 and 2012.

Otelco Inc.
Condensed Consolidating Balance Sheet

December 31, 2011

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

Otelco Inc.
Condensed Consolidating Balance Sheet

June 30, 2012

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current assets
Cash and cash equivalents	$	-		$	22,982,612		$	350		$	-		$	22,982,962
Accounts receivable, net		-			11,124,179			575,712			-			11,699,891
Materials and supplies		-			976,965			962,621			-			1,939,586
Prepaid expenses		159,215			1,047,955			16,151			-			1,223,321
Income tax receivables		-			-			-			-			-
Deferred income taxes		816,933			-			-			-			816,933
Investment in subsidiaries		29,831,815			-			-			(29,831,815	)		-
Intercompany receivable		(188,162,039	)		(13,673,215	)		13,673,215			188,162,039			-
Total current assets		(157,354,076	)		22,458,496			15,228,049			158,330,224			38,662,693
Property and equipment, net					58,331,683			1,299,045			-			59,630,728
Goodwill		239,970,317			(121,910,761	)		(73,102,716	)		-			44,956,840
Intangible assets, net		-			9,174,518			1,154,347			-			10,328,865
Investments		1,203,605			419,430			308,014			-			1,931,049
Deferred income taxes		7,575,073			-			-			-			7,575,073
Other long-term assets		3,831,358			497,002			-			-			4,328,360
Total assets	$	95,226,277		$	(31,029,632	)	$	(55,113,261	)	$	158,330,224		$	167,413,608
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable and accrued expenses	$	4,681,508		$	5,743,654		$	1,461,615		$	-		$	11,886,777
Intercompany payables		-			(188,162,039	)		-			188,162,039			-
Other current liabilities		387,720			1,670,213			66,315			-			2,124,248
Total current liabilities		5,069,228			(180,748,172	)		1,527,930			188,162,039			14,011,025
Deferred income taxes		1,261,040			20,354,646			1,335,827			-			22,951,513
Other liabilities		-			1,291,585			-			-			1,291,585
Long-term notes payable		230,786,412			40,263,476			-			-			271,049,888
Derivative liability		-			-			-			-			-
Class B common convertible to senior subordinated notes		-			-			-			-			-
Stockholders' equity (deficit)		(141,890,403	)		87,808,833			(57,977,018	)		(29,831,815	)		(141,890,403	)
Total liabilities and stockholders' equity (deficit)	$	95,226,277		$	(31,029,632	)	$	(55,113,261	)	$	158,330,224		$	167,413,608

Condensed Consolidating Statement of Operations

For the Three Months Ended June 30, 2011

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	683,089		$	24,865,811		$	2,548,932		$	(2,596,770	)	$	25,501,062
Operating expenses		(683,090	)		(18,233,881	)		(1,854,250	)		2,596,770			(18,174,451	)
Income from operations		(1	)		6,631,930			694,682			-			7,326,611
Other income (expense)		(5,619,690	)		(69,270	)		3,022			-			(5,685,938	)
Earnings from subsidiaries		7,260,364			(389,568	)		-			(6,870,796	)		-
Income before income tax		1,640,673			6,173,092			697,704			(6,870,796	)		1,640,673
Income tax expense		(357,396	)		-			-			-			(357,396	)
Net income to common stockholders	$	1,283,277		$	6,173,092		$	697,704		$	(6,870,796	)	$	1,283,277

Otelco Inc.
Condensed Consolidating Statement of Operations

For the Three Months Ended June 30, 2012

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated
Revenues	$	877,393		$	22,839,200		$	997,180		$	-	$	24,713,773
Operating expenses		(1,238,577	)		(100,061,115	)		(71,475,109	)		-		(172,774,801	)
Loss from operations		(361,184	)		(77,221,915	)		(70,477,929	)		-		(148,061,028	)
Other expense		(5,645,580	)		(16,999	)		(33	)		-		(5,662,612	)
Earnings from subsidiaries		(123,867,371	)		-			-			123,867,371		-
Loss before income tax		(129,874,135	)		(77,238,914	)		(70,477,962	)		123,867,371		(153,723,640	)
Income tax benefit		1,863,522			11,328,061			12,521,444			-		25,713,027
Net income loss to common stockholders	$	(128,010,613	)	$	(65,910,853	)	$	(57,956,518	)	$	123,867,371	$	(128,010,613	)

Otelco Inc.

Condensed Consolidating Statement of Operations

For the Six Months Ended June 30, 2011

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	1,567,352		$	49,653,245		$	5,123,906		$	(5,451,443	)	$	50,893,060
Operating expenses		(1,567,353	)		(37,892,644	)		(4,237,184	)		5,451,443			(38,245,738	)
Income from operations		(1	)		11,760,601			886,722			-			12,647,322
Other income (expense)		(10,853,003	)		(150,555	)		2,993			-			(11,000,565	)
Earnings from subsidiaries		12,499,761			-			-			(12,499,761	)		-
Income before income tax		1,646,757			11,610,046			889,715			(12,499,761	)		1,646,757
Income tax expense		(358,828	)		-			-			-			(358,828	)
Net income to common stockholders	$	1,287,929		$	11,610,046		$	889,715		$	(12,499,761	)	$	1,287,929

Otelco Inc.

Condensed Consolidating Statement of Operations

For the Six Months Ended June 30, 2012

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations		Consolidated
Revenues	$	1,758,180		$	46,299,560		$	2,030,274		$	-	$	50,088,014
Operating expenses		(2,119,364	)		(117,060,439	)		(72,352,501	)		-		(191,532,304	)
Loss from operations		(361,184	)		(70,760,879	)		(70,322,227	)		-		(141,444,290	)
Other income (expense)		(10,912,387	)		(24,228	)		(40	)		-		(10,936,655	)
Earnings from subsidiaries		(117,782,326	)		-			-			117,782,326		-
Loss before income tax		(129,055,897	)		(70,785,107	)		(70,322,267	)		117,782,326		(152,380,945	)
Income tax benefit		1,863,522			10,803,604			12,521,444			-		25,188,570
Net loss to common stockholders	$	(127,192,375	)	$	(59,981,503	)	$	(57,800,823	)	$	117,782,326	$	(127,192,375	)

Otelco Inc.
Condensed Consolidating Statement of Cash Flows

For the Six Months Ended June 30, 2011

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income (loss)	$	1,287,929		$	11,610,044		$	889,715		$	(12,499,759	)	$	1,287,929
Adjustment to reconcile net income (loss) to cash flows from operating activities		(352,512	)		9,096,406			1,457,621			-			10,201,515
Changes in assets and liabilities, net of assets and liabilities acquired		16,916,630			(17,252,424	)		(1,549,649	)		-			(1,885,443	)
Net cash provided by operating activities		17,852,047			3,454,026			797,687			(12,499,759	)		9,604,001
Cash flows used in investing activities		(305,914	)		(5,603,519	)		(441,398	)		-			(6,350,831	)
Cash flows used in financing activities		(17,546,133	)		1			-			12,499,759			(5,046,373	)
Net increase (decrease) in cash and cash equivalents		-			(2,149,492	)		356,289			-			(1,793,203	)
Cash and cash equivalents, beginning of period		-			18,064,970			161,404			-			18,226,374
Cash and cash equivalents, end of period	$	-		$	15,915,478		$	517,693		$	-		$	16,433,171

Otelco Inc.

Condensed Consolidating Statement of Cash Flows

For the Six Months Ended June 30, 2012

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net loss	$	(127,192,375	)	$	(110,656,881	)	$	(57,800,824	)	$	168,457,705		$	(127,192,375	)
Adjustment to reconcile net loss to cash flows from operating activities		386,111			66,889,287			70,999,969			-			138,275,367
Changes in assets and liabilities, net of assets and liabilities acquired		36,721,983			(19,302,133	)		(13,008,507	)		-			4,411,343
Net cash provided by (used in) operating activities		(90,084,281	)		(63,069,727	)		190,638			168,457,705			15,494,335
Cash flows used in investing activities		-			(2,354,173	)		(190,638	)		-			(2,544,811	)
Cash flows used in financing activities		90,084,281			76,013,070			-			(168,457,705	)		(2,360,354	)
Net increase in cash and cash equivalents		-			10,589,170			-			-			10,589,170
Cash and cash equivalents, beginning of period		-			12,393,442			350			-			12,393,792
Cash and cash equivalents, end of period	$	-		$	22,982,612		$	350		$	-		$	22,982,962