Note 9 - Subsidiary Guarantees

9 Months Ended

Sep. 30, 2012

Guarantees [Text Block]

9.           Subsidiary Guarantees

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

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

     The following tables present a condensed consolidating balance sheets as of December 31, 2011; an unaudited condensed consolidating balance sheet as of September 30, 2012; unaudited condensed consolidating statements of operations for the three months ended September 30, 2011 and 2012; unaudited condensed consolidating statements of operations for the nine months ended September 30, 2011 and 2012; and unaudited condensed consolidating statements of cash flows for the nine months ended September 30, 2011 and 2012.

Otelco Inc.

Condensed Consolidating Balance Sheet

December 31, 2011

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

Otelco Inc.

Condensed Consolidating Balance Sheet

September 30, 2012

(unaudited)

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

Otelco Inc.

Condensed Consolidating Statement of Operations

For the Three Months Ended September 30, 2011

(unaudited)

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	789,508		$	24,680,968		$	2,555,301		$	(2,723,030	)	$	25,302,747
Operating expenses		(789,507	)		(19,228,795	)		(1,883,323	)		2,723,032			(19,178,593	)
Income from operations		1			5,452,173			671,978			2			6,124,154
Other expense		(5,471,374	)		(90,130	)		(3	)		-			(5,561,507	)
Earnings from subsidiaries		6,034,020			-			-			(6,034,020	)		-
Income before income tax		562,647			5,362,043			671,975			(6,034,018	)		562,647
Income tax expense		322,815			-			-			-			322,815
Net income to common stockholders	$	885,462		$	5,362,043		$	671,975		$	(6,034,018	)	$	885,462

Otelco Inc.

Condensed Consolidating Statement of Operations

For the Three Months Ended September 30, 2012

(unaudited)

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

Otelco Inc.

Condensed Consolidating Statement of Operations

For the Nine Months Ended September 30, 2011

(unaudited)

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenues	$	2,356,860		$	74,334,212		$	7,679,207		$	(8,174,473	)	$	76,195,806
Operating expenses		(2,356,860	)		(57,121,439	)		(6,120,507	)		8,174,475			(57,424,331	)
Income from operations		-			17,212,773			1,558,700			2			18,771,475
Other income (expense)		(16,324,377	)		(240,685	)		2,990			-			(16,562,072	)
Earnings from subsidiaries		18,533,780			-			-			(18,533,780	)		-
Income before income tax		2,209,403			16,972,088			1,561,690			(18,533,778	)		2,209,403
Income tax expense		(36,013	)		-			-			-			(36,013	)
Net income to common stockholders	$	2,173,390		$	16,972,088		$	1,561,690		$	(18,533,778	)	$	2,173,390

Otelco Inc.

Condensed Consolidating Statement of Operations

For the Nine Months Ended September 30, 2012

(unaudited)

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

Otelco Inc.

Condensed Consolidating Statement of Cash Flows

For the Nine Months Ended September 30, 2011

(unaudited)

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net income	$	2,173,390		$	16,972,088		$	1,561,690		$	(18,533,778	)	$	2,173,390
Adjustment to reconcile net income (loss) to cash flows from operating activities		(691,555	)		13,777,274			1,944,094			-			15,029,813
Changes in assets and liabilities, net of assets and liabilities acquired		24,210,292			(23,327,940	)		(2,725,456	)		-			(1,843,104	)
Net cash provided by operating activities		25,692,127			7,421,422			780,328			(18,533,778	)		15,360,099
Cash flows provided by (used in) investing activities		218,301			(7,734,365	)		(931,940	)		-			(8,448,004	)
Cash flows provided by (used in) financing activities		(25,910,428	)		5			-			18,533,778			(7,376,645	)
Net decrease in cash and cash equivalents		-			(312,938	)		(151,612	)		-			(464,550	)
Cash and cash equivalents, beginning of period		-			18,064,970			161,404			-			18,226,374
Cash and cash equivalents, end of period	$	-		$	17,752,032		$	9,792		$	-		$	17,761,824

Otelco Inc.

Condensed Consolidating Statement of Cash Flows

For the Nine Months Ended September 30, 2012

(unaudited)

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