Attached files
| file | filename |
|---|---|
| 8-K/A - FORM 8-K/A - OTELCO INC. | t72190_8ka.htm |
| EX-99.1 - EXHIBIT 99.1 - OTELCO INC. | ex99-1.htm |
| EX-23.1 - EXHIBIT 23.1 - OTELCO INC. | ex23-1.htm |
| EX-99.3 - EXHIBIT 99.3 - OTELCO INC. | ex99-3.htm |
Exhibit 99.2
INDEPENDENT ACCOUNTANTS’ REVIEW REPORT
Board of Directors
Shoreham Telephone Company, Inc.
We have reviewed the accompanying balance sheet of Shoreham Telephone Company, Inc. (the Company) as of September 30, 2011 and the related statements of income and retained earnings and cash flows for the nine-month period then ended, and the statement of operations and retained earnings for the three-month period ended September 30, 2011. This interim financial information is the responsibility of the Company’s management.
We conducted our review in accordance with standards of the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with U.S. generally accepted auditing standards, the objective of which is to express an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with U.S. generally accepted accounting principles.
| /s/ Berry Dunn McNeil & Parker, LLC |
Portland, Maine
December 5, 2011
VT Registration No. 92-000278
SHOREHAM TELEPHONE COMPANY, INC.
Balance Sheet
September 30, 2011
ASSETS
|
Current assets
|
||||
|
Cash and cash equivalents, including interest-bearing deposits of $157,000
|
$ | 401,461 | ||
|
Accounts receivable, less allowance for doubtful accounts of $42,700
|
378,832 | |||
|
Prepaid expenses
|
33,656 | |||
|
Materials and supplies
|
134,281 | |||
|
Total current assets
|
948,230 | |||
|
Property, plant and equipment, at cost
|
||||
|
Telecommunications plant in service
|
||||
|
General support assets
|
2,242,628 | |||
|
Central office equipment
|
6,479,512 | |||
|
Cable and wire facilities
|
4,261,380 | |||
|
Nonregulated plant
|
186,271 | |||
|
Telecommunications plant under construction
|
335 | |||
| 13,170,126 | ||||
|
Less accumulated depreciation
|
9,276,119 | |||
|
Net property, plant and equipment
|
3,894,007 | |||
|
Other investments
|
1,000 | |||
| $ | 4,843,237 | |||
| See independent accountants’ review report. The accompanying notes are an integral part of these financial statements. |
- 2 -
SHOREHAM TELEPHONE COMPANY, INC.
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
Current liabilities
|
||||
|
Long-term debt
|
$ | 410,928 | ||
|
Accounts payable
|
163,703 | |||
|
Accrued expenses
|
134,385 | |||
|
Customer deposits
|
8,462 | |||
|
Unearned revenue
|
132,965 | |||
|
Total liabilities
|
850,443 | |||
|
Contingencies (Note 3)
|
||||
|
Stockholders’ equity
|
||||
|
Common stock, $10 par value; authorized 5,000 shares; issued and outstanding 4,361½ shares
|
43,615 | |||
|
Additional paid-in capital
|
37,560 | |||
|
Retained earnings
|
3,911,619 | |||
|
Total stockholders’ equity
|
3,992,794 | |||
| $ | 4,843,237 | |||
| See independent accountants’ review report. The accompanying notes are an integral part of these financial statements. |
- 3 -
SHOREHAM TELEPHONE COMPANY, INC.
Statement of Operations and Retained Earnings
For the Three-Month Period Ended September 30, 2011
|
Operating revenues
|
||||
|
Local network services
|
$ | 154,183 | ||
|
Interstate access services
|
489,504 | |||
|
Intrastate access services
|
8,663 | |||
|
Miscellaneous
|
6,223 | |||
|
Uncollectible revenues, net of recoveries
|
(3,565 | ) | ||
|
Total operating revenues
|
655,008 | |||
|
Operating expenses
|
||||
|
Plant specific operations
|
200,380 | |||
|
Plant nonspecific operations
|
27,930 | |||
|
Depreciation and amortization
|
116,281 | |||
|
Customer operations
|
34,522 | |||
|
Corporate operations
|
55,012 | |||
|
Total operating expenses
|
434,125 | |||
|
Operating income before taxes
|
220,883 | |||
|
Other operating taxes
|
27,885 | |||
|
Net operating income
|
192,998 | |||
|
Fixed charges, interest
|
4,369 | |||
|
Nonoperating and nonregulated (expense) income
|
||||
|
Interest and dividends
|
13,214 | |||
|
Net nonregulated expense
|
(283,566 | ) | ||
|
Net nonoperating and nonregulated expense
|
(270,352 | ) | ||
|
Net loss
|
(81,723 | ) | ||
|
Retained earnings, beginning of period
|
4,444,341 | |||
|
Distributions declared
|
450,999 | |||
|
Retained earnings, end of period
|
$ | 3,911,619 | ||
| See independent accountants’ review report. The accompanying notes are an integral part of these financial statements. |
- 4 -
SHOREHAM TELEPHONE COMPANY, INC.
Statement of Income and Retained Earnings
For the Nine-Month Period Ended September 30, 2011
|
Operating revenues
|
||||
|
Local network services
|
$ | 435,781 | ||
|
Interstate access services
|
1,406,609 | |||
|
Intrastate access services
|
26,559 | |||
|
Miscellaneous
|
22,595 | |||
|
Uncollectible revenues, net of recoveries
|
(4,326 | ) | ||
|
Total operating revenues
|
1,887,218 | |||
|
Operating expenses
|
||||
|
Plant specific operations
|
537,468 | |||
|
Plant nonspecific operations
|
82,099 | |||
|
Depreciation and amortization
|
333,032 | |||
|
Customer operations
|
160,782 | |||
|
Corporate operations
|
327,080 | |||
|
Total operating expenses
|
1,440,461 | |||
|
Operating income before taxes
|
446,757 | |||
|
Other operating taxes
|
83,655 | |||
|
Net operating income
|
363,102 | |||
|
Fixed charges, interest
|
9,061 | |||
|
Nonoperating and nonregulated (expense) income
|
||||
|
Interest and dividends
|
16,083 | |||
|
Net nonregulated expense
|
(348,280 | ) | ||
|
Net nonoperating and nonregulated expense
|
(332,197 | ) | ||
|
Net income
|
21,844 | |||
|
Retained earnings, beginning of period
|
4,390,427 | |||
|
Distributions declared
|
500,652 | |||
|
Retained earnings, end of period
|
$ | 3,911,619 | ||
| See independent accountants’ review report. The accompanying notes are an integral part of these financial statements. |
- 5 -
SHOREHAM TELEPHONE COMPANY, INC.
Statement of Cash Flows
For the Nine-Month Period Ended September 30, 2011
|
Cash flows from operating activities
|
||||
|
Net income
|
$ | 21,844 | ||
|
Adjustments to reconcile net income to net cash provided by operating activities
|
||||
|
Depreciation and amortization
|
341,302 | |||
|
Increase in unearned revenue
|
81,065 | |||
|
Increase in
|
||||
|
Accounts receivable, net
|
(10,138 | ) | ||
|
Prepaid expenses and other current assets
|
(13,309 | ) | ||
|
Materials and supplies
|
(8,882 | ) | ||
|
Increase (decrease) in
|
||||
|
Accounts payable
|
111,731 | |||
|
Accrued profit sharing
|
(62,804 | ) | ||
|
Accrued expenses
|
(113,009 | ) | ||
|
Customer deposits
|
(372 | ) | ||
|
Net cash provided by operating activities
|
347,428 | |||
|
Cash flows from investing activities
|
||||
|
Plant additions
|
(735,948 | ) | ||
|
Proceeds from sale of available for sale securities
|
99,827 | |||
|
Maturities of held to maturity securities
|
97,365 | |||
|
Net cash used by investing activities
|
(538,756 | ) | ||
|
Cash flows from financing activities
|
||||
|
Borrowings from long-term debt
|
300,000 | |||
|
Principal payments on long-term debt
|
(117,149 | ) | ||
|
Stockholder distributions
|
(193,620 | ) | ||
|
Net cash used by financing activities
|
(10,769 | ) | ||
|
Net decrease in cash and cash equivalents
|
(202,097 | ) | ||
|
Cash and cash equivalents, beginning of period
|
603,558 | |||
|
Cash and cash equivalents, end of period
|
$ | 401,461 | ||
|
Cash paid for interest:
|
||||
|
Long-term debt
|
$ | 8,956 | ||
|
Noncash transaction:
Distributions to stockholders of $307,032 in the form of $16,551 of net cash surrender value of life insurance and $290,481 of held to maturity securities.
|
||||
| See independent accountants’ review report. The accompanying notes are an integral part of these financial statements. |
- 6 -
SHOREHAM TELEPHONE COMPANY, INC.
Notes to Financial Statements
September 30, 2011
Nature of Business
Shoreham Telephone Company, Inc. (the Company) derives substantially all of its operating revenues from providing basic local network services, access to intrastate and interstate long-distance telephone services, and other telecommunications services to subscribers in Benson, Cornwall, Hubbardton, Orwell, Shoreham, and Whiting, Vermont. The Company extends credit at standard terms, after appropriate review, to subscribers and domestic interexchange carriers. The Company is subject to regulation by the Federal Communications Commission (FCC) and the Vermont Public Service Board (VPSB) for rates and other matters.
1. Summary of Significant Accounting Policies
Use of Estimates
Management uses estimates and assumptions in preparing the financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Regulatory Accounting
The Company follows the accounting prescribed by the Uniform System of Accounts of the FCC, the VPSB and Financial Accounting Standards Board Accounting Standards Codification (ASC) 980, Regulated Operations. This accounting recognizes the economic effect of rate regulation by recording costs and a return on investment as such amounts are recovered through rates authorized by regulatory authorities. The Company annually reviews the continued applicability of ASC 980 based on the current regulatory and competitive environment.
Operating Revenues
Operating revenues are recognized when services are provided to customers. Interstate network access services revenues are recorded using interstate pooling methods based on average schedule settlement formulas calculated by the National Exchange Carrier Association (NECA), of which the Company is a member. NECA negotiates interstate access charge tariff agreements with the FCC and accumulates and distributes pooled revenues derived from such agreements to its members. The Company records the effect of NECA settlements, including retroactive adjustments, if applicable, upon notification of such settlements from NECA. Local services and intrastate access are billed at tariff rates, under a bill and keep arrangement, approved by the VPSB.
Nonregulated Income
Nonregulated income consists mainly of digital subscriber line revenues and toll resale services. These are recognized when services are provided to customers.
Unearned Revenue
Unearned revenue consists of advance payments received from customers for local basic service, end user revenues, and digital subscriber line charges. The amounts are recognized as earned.
| See independent accountants’ review report. |
- 7 -
SHOREHAM TELEPHONE COMPANY, INC.
Notes to Financial Statements
September 30, 2011
Cash and Cash Equivalents
All liquid investments with an original maturity of three months or less are considered to be cash equivalents.
The Company maintains its cash in bank accounts, which balances may exceed federally insured limits. The Company has not experienced any losses in such accounts, and believes it is not exposed to any significant risk regarding cash and cash equivalents.
Accounts Receivable
Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to earnings and a credit to the allowance for doubtful accounts (allowance) based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance and a credit to accounts receivable.
Materials and Supplies
Materials and supplies are valued at their average cost.
Capitalization Policy
Additions to property, plant and equipment and replacements of retirement units of property are capitalized at original cost, which includes labor, material, and overhead.
Depreciation
Depreciation is computed on average plant investment by primary plant accounts using the straight-line method over the assets’ useful lives.
Other Investments
Other investments consist of nonmarketable stock investments in the Company’s lender stated at cost.
Income Taxes
The Company elected to be an S corporation under the Internal Revenue Code effective January 1, 1991. Income, losses, and other tax attributes are primarily passed through to stockholders and taxed at the individual level. The Company expects to make distributions to stockholders which, at a minimum, will be sufficient to satisfy stockholder income taxes related to the Company’s earnings.
The Company follows the accounting guidance for uncertainty in income taxes which is part of ASC 740, Income Taxes. The guidance prescribes a recognition threshold and measurement attributes for financial statement recognition of a tax position taken or expected to be taken on a tax return.
| See independent accountants’ review report. |
- 8 -
SHOREHAM TELEPHONE COMPANY, INC.
Notes to Financial Statements
September 30, 2011
As of September 30, 2011, the tax years after 2008 remain subject to examination by federal and state authorities.
Taxes Collected from Customers and Remitted to Governmental Authorities
The Company reports certain taxes on the net basis. Accordingly, they are recorded as a liability when billed to customers and excluded from revenue and expenses.
Subsequent Events
For purposes of the preparation of the financial statements in conformity with U.S. generally accepted accounting principles, the Company has considered transactions or events occurring through December 5, 2011, which was the date that the financial statements were available to be issued.
2. Long-Term Debt
The Company has available a $1,500,000 credit facility ($410,928 outstanding at September 30, 2011), from Yankee Farm Credit, ACA, collateralized by all assets of the Company. The credit facility carried a variable interest rate of 3.75% at September 30, 2011, and is due in quarterly installments of $42,035 for principal and interest.
The long-term debt is classified as a current asset as the debt was paid in full on October 14, 2011, the date of acquisition.
3. Contingencies
The Company is, from time to time, involved in legal and environmental claims, actions, or complaints in the normal course of business. Liabilities, if any, for these claims are recorded when it is probable that obligations have been incurred, and the amounts can be reasonably estimated. However, management does not believe that any such proceedings will have a material adverse effect on the Company’s results of operations or financial position.
4. Sale of Company
On October 14, 2011, the stock of Shoreham Telephone Company, Inc. was acquired by Shoreham Telephone LLC, a subsidiary of Otelco Inc.
| See independent accountants’ review report. |
- 9 -