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Note 2 - Impairments

9 Months Ended

Sep. 30, 2012

Goodwill and Intangible Assets Disclosure [Text Block]

2. Impairments

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

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

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

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

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

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

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

	Alabama Reporting Unit			Missouri Reporting Unit			New England Reporting Unit			Total

Balance as of December 31, 2011
Goodwill	$	101,602,718		$	17,829,122		$	69,523,000			188,954,840
Accumulated impairment losses		-			-			-			-
		101,602,718			17,829,122			69,523,000			188,954,840

Adjustment related to STC acquisition (1)		-			-			(344,256	)		(344,256	)
Impairment losses for the nine months ended September, 30 2012		(62,404,000	)		(12,071,000	)		(69,178,744	)		(143,653,744	)

Balance as of September 30, 2012
Goodwill		101,602,718			17,829,122			69,178,744			188,610,584
Accumulated impairment losses		(62,404,000	)		(12,071,000	)		(69,178,744	)		(143,653,744	)
Goodwill adjusted cost basis	$	39,198,718		$	5,758,122		$	-		$	44,956,840

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

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

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

	Reporting Unit			Reporting Unit			Reporting Unit			Total

Balance as of December 31, 2011
Intangible assets	$	128,441		$	356,384		$	20,060,866			20,545,691
Accumulated impairment losses		-			-			-			-
	$	128,441		$	356,384		$	20,060,866		$	20,545,691

Amortization		(39,006	)		(90,000	)		(6,389,776	)		(6,518,782	)
Impairment losses for the nine months ended, September 30, 2012		-			-			(5,748,000	)		(5,748,000	)

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

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

Expected amortization expense for the years ending December 31,

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

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

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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