2010Annual Report.pdf

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ANNUAL REPORT OF SMALL TELEPHONE COMPANIES TO
THE IDAHO PUBLIC UTILITIES COMMISSION
FOR THE YEAR ENDING
COMPANY INFORMATION
Exact name of utilty: MIDVALE TELEPHONE EXCHANGE, INC.
Address of principal office: 2205 KEITHLEY CREEK RD. PO BOX 7, MIDVALE, 10 83645
Telephone Number (Area Code 208 355-2211
Cities or towns served: MIDVALE, LAKEVIEW, STANLEY, WARREN, WARM LAKE, YELLOW PING
Name and title of officer having custody of the general corporate books of account:
STEVE CHILD, CEO
Address of office where corporate books are kept and phone number: 208355-2211
2205 KEITHLEY CREEK ROAD, MIDVALE, lid 83645
Organized under the laws of the State of: IDAHO
Date of organization: JANUARY 9, 2008
Form of organization (proprietorship, association, corporation): CORPORATION
If a Subchapter S Corporation, please specify:
Name and address of controllng company, if any:
Names of affiliated companies. Give address and description of business:
SYRINGA NETWORKS, 3795 DEVELOPMENT AVE, BOISE 10 83705
DATA AND TELECOMMUNICATION NETWORK SERVICE PROVIDER
OFFICERS
Report below the title, name and office address of each general officer of the utilty at the end of the
year. If there were any changes during the year, show the name, title, and address of the previous
officer and the date of change.
Title
CEO
PRES
VICE PRES
SECITREAS
DIRECTOR
Name
STEPHEN G. CHILD
LANE WILLIAMS
CONLEY WARD
LINDA KLIND
EMMA GROSS
Address
380 HILL RD. WEISER, IDAHO 83671
PO BOX 7, MIDVALE, IDAHO 83645
5208 HOODOO LANE, KUNA IDAHO 83634
PO BOX 783, MCCALL, IDAHO 83638
1866 S LINCOLN ST, SALT LAKE CITY UT 84105
Rev 3/02 Page 1
DIRECTORS
List the name of each person who was a member of the Board of Directors at any given time during the
c year: (Fees related to meetings only.)
Term Expired
or Current Term Meetings Attended Fees Paid
Name Wil Expire This year During Year
and Address
LANE R WILLIAMS 1/1/2011 3 54,271
CONLEY WARD 1/1/2012 3 25,232
EMMA GROSS 1/1/2012 3 25,232
LINDA KLIND 1/1/2011 3 25,232
STEPHEN G CHILD N/A 3 N/A
Name of Chairman of the Board: LANE R WILLIMAS
Name of Secretary (or Clerk) of Board: LINDA KLIND
Number of Meetings of the Board during the year: 3
MANAGERS
List the name of each person who performed management duties for the Company during the year, and
the total wages and bonuses paid to those persons: (Do not include Director fees in these amounts.)
Name
STEPHEN G CHILD
JOHN STUART
DENNIS FARRINGTON
JOE DELATORRE
ANN ESHARP
ROB VOWELL
SAM MCCLARY
FRED BRUCE
DIANA HOLMES
Rev 3/02
Title
CHIEF EXECUTIVE OFFICER
OPERATIONS MANAGER
SW OPERATIONS MANAGER
NW OPERATIONS MANAGER
CONTROLLER
PLANT RECORDS MANAGER
IT MANAGER
SWITCH MANAGER
HUMAN RESOURCES MANAGER
Wages and Bonuses Paid
139,509
90,432
81,397
49,174
78,887
54,869
60,428
74,603
51,032
Page 2
NOTES TO THE FINANCIAL STATEMENTS
Please provide importnt information such as changes in accounting or depreciation practices,
extensions or additions to the system; disposal of any substantial portion of the propert of the utilty;
, reorganization, mergers, or consolidations with other companies; leases executed; other contracts
or agreements entered into; changes made in articles of incorporation or amendments; the
occurrence of contingency losses or gains.
THE SALE OF THE HARPER AND JUNTURA OREGON EXCHANGES WAS EFFECTIVE 1/1/2010. IN
2010, MTE ENTERED INTO AN AGREEMENT TO PURCHASE RURAL NETWORK SERVICES IN WEISER,
IDAHO. RURAL NETWORK SERVICES IS A CLEC COMPETING WITH QWEST IN THE WEISER AREA.
IT ALSO PROVIDES LONG DISTANCE, INTERNET AND BROADBAND SERVICES.
Rev 3/02 Page 3
BALANCE SHEET
Assets and Other Debits
Balance Baiance Increase
Beginning at End or
Title of Account of Year of Year (DeCreaSe)Current Assets
1120 Cash and Equivalents 302,181 262,374 -39,807
1130 Cash
1140 Special Cash Deposits
1150 Working Cash Advances
1160 Temporary Investments
1180 Telecommunications Accts. Receivable 55,385 140,613 85,228
1181 Accts. Rec. Allow. -Telecommunications
1190 Other Accounts Receivable 1,447,902 562,282 -885,620
1191 Accounts Receivable Allow. - Other
1200 Notes Receivable 644,683 356,827 -287,855
1201 Notes Receivable Allowance -258,906 0 258,906
1210 Interest & Dividends Receivable
1220 Material and Supplies 222,489 388,994 166,505
1280 Prepayments 111,487 205,867 94,380
1290 Prepaid Rents
1300 Prepaid Taxes
1310 Prepaid Insurance
1320 Prepaid Directory Expenses
1330 Other Prepayments
1350 Other Current Assets 286,268 178,337 -107,931
Noncurrent Assets
1401 Investment in Affiliated Companies 1,214,974 1,386,920 171,946
1402 Investment in Nonaffliated Companies 120,817 111,323 -9,494
1406 Nonregulated Investments
1407 Unamortized Debt Issuance Expense
1408 Sinking Funds
1410 Other Noncurrent Assets 53,046 107,164 54,118
1438 Deferred Maintenance & Retirements
1439 Deferred Charges
1500 Other Jurisdiction Assets - Net
Propert, Plant and Equipment
2001 Telecommunications Plants in Service 29,518,930 32,988,784 3,469,854
2002 Prop. Held for Future Telecom. Use 0 24,306 24,306
2003 Telecom. Plant under Constr. - Short Term
2004 Telecom. Plant under Constr. - Long Term 2,816,686 1,245,219 -1,571,467
2005 Telecom. Plant Adjustment
2006 Nonoperating Plant 1,044,546 1,117,154 72,608
2007 Goodwil
Depreciation and Amortization Accounts
3100 Accumulated Depreciated -15,750,672 -16,708,669 -957,997
3200 Accum. Depre. - Held for Future Use
3300 Accumulated Depreciation - Nonoperating
3400 Accumulated Amortization - Tangible
3410 Accum. Amort. - Capitalized Leases
3420 Accum. Amort. - Leasehold Improvements
3500 Accumulated Amortization - Intangible
3600 Accumulated Amortization - Other
TOTAL ASSETS 21,829,816 22,367,495 537,680
Rev 3/02 Page 4
BALANCE SHEET
Liabilties & Stockholders' Equity
Balance Balance Increase
Beginning at End or
Title of Account of Year of Year (Decrease)
Current Liabilties
4010 Accounts Payable 1,136,367 468,168 -668,199
4020 Notes Payable 500,471 500,471
4030 Advance Billngs and Payments 69,288 69,288
4040 Customer Deposits
4050 Current Maturities - Long -Term Debt 1,313,973 1,454,037 140,06
4060 Current Maturities - Capital leases 0 25,201 25,201
4070 Income Taxes - Accrued
4080 Other Taxes - Accrued
4100 Net Current Defer. Oper. Income Taxes
4110 Net Current Defer. Nonoper. Income Taxes
4120 Other Accrued Liabilities 450,293 617,768 167,475
4130 Other Current Liabilities 9,744 0 -9,744
Long-Term Debt
4210 Funded Debt 12,785,101 11,745,456 -1,039,645
4220 Premium on Long-Term Debt
4230 Discount on Long-Term Debt
4240 Reacquired Debt
4250 Obligations Under Capital Leases 35,496 35,496
4260 Advances from Affilated Companies
4270 Other Long-Term Debt
Other Liabilties & Deferred Credits
4310 Other Long-Term Liabilities
4320 Unamort. Oper. Invest. Tax Credits - Net
4330 Unamort. Nonoper. Invest. Tax Credits - Net
4340 Net Noncurrent Defer. Oper. Income Taxes 1,669,815 2,326,380 656,565
4350 Net Noncur. Defer. Nonoper. Income Taxes
4360 Other Deferred Credits
4370 Other Juris. Liab. & Def. Credits - Net
Stockholders' Equity
4510 Capital Stock 25,000 25,000 0
4520 Additional Paid-In Capital 7,910 7,910 0
4530 Treasury Stock -64,000 -64,000 0
4540 Other Capital 4,495,613 5,156,321 660,708
4550 Retained Earnings
TOTAL LIAB. & OTHER CREDITS 21,829,816 22,367,496 537,680
Rev 3/02 Page 5
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9
INVESTMENTS
, Report below the investments in Accounts 1401, 1402 and 1406. Identify each investment as to the
accunt in which included. Minor amounts in Account 1406 may be grouped by classes.
Description
RTFC
NECA SERVICES
SYRINGA NETWORKS
RNS
NET NON .REGULATED
DEF REC LIFE INS
Date Acquired
Book Cost of
Investments
Disposed of
This year
Book Cost of
Investments
Held at
End of Year
108,323
3,000
1,754,967
329,297
510,639
107,167
Totals
2,813,393
RECEIVABLES
Itemize amounts show in Accunts 1180,1190 and 1200. For notes receivable list each note separately and
include the maturity date and interest rate. Minor amounts in Account 1210 may be combined.
Name of Company
SUBSCRIBERS
IDAHO USF
NECA
CARRIERS
RNS BILLINGS
EMPLOYEE LOANS
NON-REG CUSTOMERS
RTFC
LIFELINE
LANE WILLIAMS
INVENTORY
Amount at End of Year Notes Accounts
Receivable Receivable
140614
2923209
287179
54709
51293
2408
59177
11452
946
8%1/18/2011 150000
388994
Totals 150000 3919981
Page 10
Rev 3/02
NOTES PAYABLE
Fòr Notes Payable, list each note separately and include the maturity date and interest rate.
Name of Creditor
WELLS FARGO BANK
Totals
Date of Note
8/1/2010
Interest
Rate
PRIME+2.25
ACCOUNTS PAYABLE
Report below all Accounts Payable amounting to more than $100.00
Name of Creditor
SEE ATTACHED LIST
Due Date
8/1/2011
Totals
Rev 3/02 Page 11
Face Amount
500,000
Amount
632,375
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CAPITAL STOCK
. Report below the particulars called for concerning common and preferred stock at end of year,
designating separate series of any general class. Show totals separately for common and
preferred.
For each class of preferred stock, show the dividend rate and whether dividends are cumulative or
noncumulative.
Show details in a footnote of capital stock sold during the year. Include number of shares,
consideration received, premium or discount, and expenses incurred.
Class & Series of Stock
COMMON
Rev 3/02
Number
of Shares
Authorized
252
Par Value
per Share
100
Page 13
Outstanding per
Balance Sheet
Shares Amount
250 25000
INCOME & RETAINED EARNINGS STATEMENT
Item Total Company Idaho Only
Total Operating Income (from page 16)
Total Operating Expenses (from page 18)
7100 Other Operating Income and Expense
7210 Operating Investment Tax Credits-Net
7220 Operating Federal Income Taxes
7230 Operating State and Local Income Taxes
7240 Operating Other Taxes
7250 Provision for Deferred Operating Income Taxes-Net
7200 Operating Taxes (Total)
7310 Dividend Income
7320 Interest Income
7330 Income from Sinking and Other Funds
7340 Allowance for Funds Used During Construction
7350 Gains/Losses from the Disposition of Certain Propert
7360 Other Nonoperating Income
7370 Special Charges
7300 Nonoperating Income and Expense
7410 Nonoperating Investment Tax Credits-Net
7420 Nonoperating Federal Income Taxes
7430 Nonoperating State and Local Income Taxes
7440 Nonoperating Other Taxes
7450 Provision for Deferred Nonoperating Income Taxes-Net
7400 Nonoperating Taxes
7510 Interest on Funded Debt
7520 Interest Expense-Capital Leases
7530 Amortization of Debt Issuance Expense
7540 Other Interest Deductions
7500 Interest and Related Items
7610 Extraordinary Income Credits
7620 Extraordinary Income Charges
7630 Current Income Tax Effect of Extraordinary Items-Net
7640 Provision for Deferred I ncome Tax Effect of
Extraordinary Items-Net
7600 Extraordinary Items
7910 Income Effect of Jurisdictional Ratemaking
Differences-Net
7990 Nonregulated Net Income
AMOUNT TRANSFERRED TO RETAINED EARNINGS
Rev 3/02
-8,673,680
7,735,861
-3,733,445
3,581,796
656,715
15,145 20
207,740 28,905
879,600 28,925
-19,976 -19,976
-110,579 -24,803
-758,742 -758,742
-393,978 -428,843
5,576 5,037
-1,277,699 -1,227,327
663,171 273,126
12,990
676,161
12,990
286,116
278,062 -912,286
-1,063,935660,708
Page 14
OPERATING REVENUES
Item Total Company Idaho Only
Local Network Services Revenues
5001 Basic Area Revenue
5002 Optional Extended Area Revenue
5003 Cellular Mobile Revenue
5004 Other Mobile Services Revenue
5010 Public Telephone Revenue
5040 Local Private Line Revenue
5050 Customer Premises Revenue
5060 Other Local Exchange Revenue
5069 Other Local Exchange Settlements
Network Access Services Revenues
5081 End User Revenue (SLC)
5082 Switched Access Revenue (Interstate)
5083 Special Access Revenue
5084 State Access Revenue (Intrastate)
Long Distance Network Services Revenues
5100 Long Distance Message Revenue - All
Miscellaneous Revenues
5230 Directory Revenue
5240 Rent Revenue
5250 Corporate Operations Revenue
5261 Special Biling Arrangements Revenue
5262 Customer Operations Revenue
5263 Plant Operations Revenue
5264 Other Incidental Regulated Revenue
5269 Other Revenue Settlements
5270 Carrier Billng & Collection Revenue
Uncollectible Revenues
5301 Uncollectible Revenue - Telecommunications
5302 Uncollectible Revenue - Other
TOTAL OPERATING REVENUES
Please identify the following revenues:
NECA USF $2,306,708
State USF $348,379
Rev 3/02
643,123
2,916
320,197
2,916
13,272 11,988
13,757
53,807
8,267
15,498
177,240
6,684,561
322,719
725,443
82,930
2,647,372
157,092
457,270
7,714 2,352
26,680
3,839
26,680
581
-1,391 302
3,733,4458,673,680
5082.81 - 5082.83
5084.11
Page 15
~
OPERATING REVENUES
Item Total Company Idaho Only
Plant Specific Operations Expense
6110 Network Support Expenses
6112 Motor Vehicle Expense 23,661 22,664
6113 Aircraft Expense
6114 Special Purpose Vehicles Expense
6115 Garage Work Equipment Expense
6116 Other Work Equipment Expense
6120 General Support Expenses 99,308 44,615
6121 Land and Building Expenses
6122 Furniture and Artorks Expense
6123 Office Equipment Expense
6124 General Purpose Computers Expense 100,267 55,490
6210 Central Office Switching Expenses 1,137,615 608,643
6211 Analog Electronic Expense
6212 Digital Electronic Expense
6215 Electro-Mechanical Expense
6220 Operators System Expense
6230 Central Office Transmission Expenses 1,573,240 600,021
6231 Radio Systems Expense
6232 Circuit Equipment Expense
6310 Information OriginationlTermination Expense
6311 Station Apparatus Expense 233 45
6341 Large Private Branch Exchange Expense
6351 Public Telephone Terminal Equipment Expense
6362 Other Terminal Equipment Expense
6410 Cable and Wire Facilties Expenses
6411 Pole Expense
6421 Aerial Cable Expense
6422 Underground Cable Expense
6423 Buried Cable Expense 804,007 370,748
6424 Submarine Cable Expense
6425 Deep Sea Cable Expense
6426 Intrabuilding Network Cable Expense
6427 Syringa Son nett 396,540 396,540
6431 Aerial Wire Expense
6441 Conduit Systems Expense
TOTAL PLANT SPECIFIC OPERATIONS EXPENSE
4,134,871 2,098,766
Rev 3/02 Page 16
,
Item
OPERATING EXPENSE
Total Company Idaho Only
Plant Nonspecific Operations Expense
6510 Other Propert/PlanUEquipment Expenses
6511 Propert Held for Future Telecomm. Use Expenses
6512 Provisioning Expense
6530 Network Operations Expense
6531 Power Expense
6532 Network Administration Expense
6533 Testing Expense
6534 Plant Operations Administration Expense
6535 Engineering Expense
6540 Access Expense
6560 Depreciation and Amortization Expenses
6561 Depreciation Expense-Telecom. Plant in Service
6562 Depreciation Expense-Propert Held for Future Use
6563 Amortization Expense - Tangible
6564 Amortization Expense -Intangible
6565 Amortization Expense - Other
Total Plant Nonspecific Operations Expenses
Customer Operations Expense
6610 Marketing
6611 Product Management
6612 Sales
6613 Product Advertising
6620 Services
6621 Call Completion Services
6622 Number Services
6623 Customer Services
Total Customer Operations Expense
Corporate Operations Expense
6710 Executive and Planning
6711 Executive
6712 Planning
6720 General and Administrative
6721 Accounting and Finance
6722 External Relations
6723 Human Resources
6724 Information Management
6725 Legal
6726 Procurement
6727 Research and Development
6728 Other General and Administrative
6790 Provision for Uncollectible Notes Receivable
Total Corporate Operations Expense
Plant Specific Expense
TOTAL OPERATING EXPENSES
Rev 3/02
137,938
108,815
67,486
1,781,439
2,095,678
7,591
51,056
36,898
34,710
590,419
713,083
2,926
550 550
6,996 5,861
301,395 149,122
316,532 158,459
320,945 155,915
461,857
74,487
331,491
1,188,780
4,134,871
7,735,861
Page 17
228,799
58,725
168,049
611,488
2,098,766
3,581,796
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..
,ANNUAL REPORT FOR SMALL TELEPHONE COMPANIES
YEAR ENDED DECEMBER 31,..
CUSTOMER RELATIONS RULES COMPLIANCE
Rule IDAPA 31.21.01.603
Rule IDAPA 31.41.01.105
Please provide copies of:
Summary of Customer Relations Rules for Telephone Corporations
Idaho Telephone Solicitation Act Notification
Method of Notification:
Mailed separately to customers Yes_X_No_
Included in directory Yes_X_No_
Date of notification 2/1/2010
Alternate method of notification
Rule IDAPA 31.41.01.403.02
Record of Complaints:
Number received by Company 4
Category of complaints (if known):
Deposit Disputes
Charges on Bill
DeniallT ermination
Quality or Availability
of Service
Carrier Selection/Assignment
Miscellaneous Call Termination issues
Rev 3/02
Page 20
.
,..
state of Idaho,)
) ss
)County of
WE, the undersigned Stephen G. Child
and Ann E. Sharp
of the_ Midvale Telephone Exchange, Inc.
CERTIFICATE
on our oath do severally say that the foregoing return has been prepared under our direction, from
the original books, papers, and records of said utilty; that we have carefully examined same, and
declare the same to be a correct statement of the business affairs of said utilty for the period
covered by the return in respect to each and every matter and thing therein set forth, to the best of
l'A ~"I
Subscribed and Sworn to Before Me this /9 -day of JrL
~, 't'¡~Ad4/Notary Public
our knowledge, information and belief.
My Commission expires ~/;'
Rev 3/02
gdklexcel/jnelson/anulrpts/telannualrpt
~
~¿í~~-/(Offcer in C arge of Acco ts)
, (Year) .: ¡J ii
",=~:~""~.:_!':w,__-'
\\
GLENNIS K. BONNER
Notary Puhlic
State of Iòaho
--",",~"~';".',.~
, (Year)
Page 21
~~~
:
j~."',.'~
~.MTE.....
COMMUNICATIONS
2205 Keithley Creek Road
P.O. Box 7
Midvale ID 83645
208.355.2211
Fax [phone]
Anual Notices
2010
General
MTE Communications (MTE) is a regulated local exchange carier that provides telecommunication services in
Idao, Oregon and Arizona, You may reach us at the telephone numbers listed above or at:
www.mtecom.netinfo~mtecom.net
MTE "Do Not Call" Policy
MTE does not call customers for sales or marketing puroses and thus does not maintain an internal "Do Not Call"
listing. Ifwe have new or additional services available, we wil send you that information in the form ofa bil
stuffer and/or post the information on our website, www.mtecom.net. If you receive a call from someone claiming
to be from MTE and they are asking you to buy or subscribe to something, you should be immediately suspicious,
We may stil contact you, however, for non-solicitation puroses, This would include things like sureys, biling
and other service-related matters, For over a centu, customers have counted on MTE to respect and protect the
privacy of information we obtain in the normal course of providing servce. While we are working hard to serve you
in new and exciting ways, our commitment to protecting your privacy remains as strong as ever.
Limitations of Service
MTE provides dial-tone services to the customer premises, usually marked by a network interface device,
Customers are responsible for all inside wirng and any telecommunication devices they choose to connect to our
network. MTE is not responsible for any damage to same while connected to the network. If customer-owned wire
or equipment is suspected of jeopardizing the integrity of the overall network, MTE wil act to protect the network.
All service orders and trouble reports wil be responded to promptly, in the order they are received, and in accord
with all state applicable rules and regulations, MTE canot be responsible for any loss of business due to a service
outage and canot guarantee service at any specific time, Please see our tariff on file with your state utilty
commission for full disclosures and limitations,
Arona Corporation Commission
1200 W Washington
Phoenix AZ 85007
www.cc.state.az.us
Idao Public Utilty Commission
472 W Washington 83702
PO Box 83720
Boise ID 83720-0074
www.puc.state.id.us
Oregon Public Utilty Commission
550 Capitol StNE #215
PO Box 2148
Salem, OR 97308-2148
www.puc.state.or.us
State Discount Programs
Each state, in which MTE offers service, has a telephone assistance progr that is often paired with the Federal
Lifeline progr, Please contact your customer service representative at MTE, or visit your state's website to see if
you qualify.
Idao
Oregon
Arzona
http://www.puc.state.id.us/consumer/itsap.pdf
htts://apps.puc.state,or.us/rspf/otapapp,asp
Website not available. Contact MTE for more information.
(continued on back)
www.mtecom.net
Family Owned Since 1943
Serving Rural Customers in Idaho, Arizona, & Oregon
Privacy Notice
With the exception of directory information, MTE does not sell or release any personal information about our
customers to anyone. We hold all customer informtion in strctest confidence,
Credit Policy
Although rues var by state, in most cases, new customers can establish credit simply by providing a copy of their
last phone bil showing it was curent. In lieu of that, customers may establish credit by payig a $50 deposit, which
is then credited back to your account six month later, provided your account is in good stading.
Delinquent Payment Policy
All bils are due and payable by the 20th of the month they were issued, We do our best to notify customers (both by
mail and by phone) when their servce is in jeopardy; regardless, it is the customer's responsibilty to ensure
payment in full and on time, Please feel free to contat your customer sece reresentative for help with managing
your account.
National Do Not CaD List
Registration of your telephone number on the National Do Not Call Registr is free-of-chage. Telephone numbers
placed on the registr will remai on it permanently due to the Do-Not-Call Improvement Act of 2007, which
became law in Febru 2008. You may remove your number from the list at any tie, The Do Not Call Registr
does not prevent all unwanted calls, such as the following:
. Calls from organzations with which you have established a business relationship:
. Calls for which you have given prior wrtten permission:
. Calls which are not commercial or do not include unsolicited advertsements; or
. Calls by political organations, charties or telephone sureyors
Subscribers may register their residential telephone number, including wireless numbers. on the nationa Do Not
Call registr by caling [phone] (TT call [phone]) or on the website: ww.donotcall.gov .
Subscribers must call from the number they wish to register. Telemarketers and sellers are required to search the
registr at least once every month and drop from their call-list the phone numbers of subscriber who have
registered,
How to File a Complaint: A complaint can be fied by completig the form provided on the website
(ww,donotcall,gov) or by callig [phone] (TT cal [phone]), Your complaint should include:
. Name, address, and phone number wher you ca be reached durg the business day;
. Phone number involved with the complaint; and
. As much specific information as possible, including the telemarketer or company contacting you, the date
on which you placed your number on the Do-Not-Call registr or made a company-specific do-not-call
request, and the dates of any subsequent telemarketig calls from that telemareter or company.
Please do not hesitate to call if there is anyting we can do or with questions you need anwered.
20
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................................
RcC,.I\I.. '). \,, 'L ii:~:L, ~,
iOJ i APR 22 AM 8= 24
MIVALE TELEPHONE EXCHAGE, INC.
REPORT OF INEPENDENT AUDITORS
AN FINANCIA STATEMENTS
DECEMBER 31,2010 AN 2009
................................
TABLE OF CONTENTS
REPORT OF INEPENDENT AUDITORS 1-2
FINANCIA STATEMENTS
Balance sheet
Statement of income
Statement of stockholders' equity
Statement of cash flows
Notes to financial statements
3-4
5
6
7-8
9-22
~
...........................
/,////'
REPORT OF INEPENDENT AUDITORS
The Board of Directors
Midvale Telephone Exchange, Inc,
Midvale, Idaho
~ /~
WWW.MOSSAOAMS.COM
We have audited the accompanying balance sheet of Midvale Telephone Exchange, Inc, (the Company)
as of December 31, 2010, and the related statements of income, stockholders' equity, and cash flows for
the year then ended, We have also audited the balance sheet of Midvale Telephone Exchange, Inc, and
its Subsidiar as of December 3 1, 2009, and the related statements of income, stockholders' equity, and
cash flows for the year then ended, These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with auditing stadards generally accepted in the United States
of America and the stadards applicable to financial audits contained in Government Auditing Standards
issued by the Comptroller General of the United States. Those stadads require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are fr of
matenal misstatement. An audit includes consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropnate in the circumstaces, but not for the purose of
expressing an opinion on the effectiveness of the Company's internal control over financial reportng.
Accordingly, we express no such opinion. An audit includes exaining, on a test basis, evidence
supporting the amounts and disclosures in the financial sttements, An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion,
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of Midvale Telephone Exchange, Inc. as of December 31, 2010, and the results of its
operations and cash flows for the year then ended in conformity with accountig pnnciples generaly
accepted in the United States of America, Also, in our opinion, the 2009 financial statements present
fairly, in all matenal respects, the financial position of Midvale Telephone Exchange, Inc. and its
Subsidiar as of December 3 1, 2009, and the results of their operations and cash flows for the year then
ended in conformity with accounting principles generally accepted in the United States of Amenca.
Praxiix';MEMBER.'
GLOBAL ALLIANCE OFINOEPENOENT FIRMS
......................(..........
In accordance with Government Auditing Standards, we have also issued our report dated April 11,
2011, on our consideration of Midvale Telephone Exchange, Inc.'s internal control over financial
reporting and our tests of its compliance with certin provisions of laws, regulations, contracts, grant
agreements, and other matters, The purose of the report is to describe the scope of our testing of internal
control over financial reporting and compliance and the results of that testing and not to provide an
opinion on the internal control over financial reporting or on compliance, That report is an integral par
of an audit performed in accordance with Government Auditing Standards and should be considered in
assessing the results of our audits.
~') lt~(U~ ltlJl
Spokane, Washington
April 11, 2011
2
.MIVALE TELEPHONE EXCHAGE, INC..BALCE SHEET .
ASSETS .
December 31,.
2010 2009 .
CURRNT ASSETS .Cash and cash equivalents $262,374 $302,181
Subscriber accounts receivable 140,614 131,536 .
Settlement and access accounts receivable 341,888 895,240 .Accounts receivable, affiliate (net of allowance of
$258,042 in 2010 and 2009)278,756 127,079 .Oter accounts receivable 103,213 478,528
Income út refund receivable 44,292 59,447 .
Material and supplies 388,994 222,489 .Other curent assets 178,337 64,194
Assets held for sale 222,074 .
1,738,468 2,502,768 .
NONCURNT ASSETS .
Related par note receivable 356,827 385,777 .Investent in life insurance policy 107,164 53,046
Investment in afliates 1,386,920 1,214,974 .
Investment in nonaffiiates 111,323 120,817 .
1,962,234 1,774,614 .
PROPERTY, PLANT, AND EQUIMENT .Regulated telecommunications plant in service 32,988,784 29,518,930
Nonregulated telecommunications plant in service 1,117,154 1,044,546 .
Regulated telecommunications plant under constrction 1,245,219 2,816,686 .Propert held for futue use 24,306
35,375,463 33,380,162 .
Less accumulated depreciation 16,708,669 15,750,672 .
18,666,794 17,629,490 .
TOTAL ASSETS $22,367,496 $21,906,872 .....
3 ..
................................
MIVALE TELEPHONE EXCHAGE, INC
BALANCE SHEET
LIAILITIES AN STOCKHOLDERS' EQUITY
CURRNT LIAllJTIES
Accounts payable
Advance biling
Other accrued liabilties
Line of credit
Current portion of long-term debt
Current portion of capital lease obligation
LONG-TERM DEBT
Long-term debt
Obligations under capital lease
DEFERRD INCOME TAXS
STOCKHOLDERS' EQUITY
Capital stock, common; $100 par value, 250 shares
authorized, issued and outstading
Additional paid-in capital
Treasur stock, 64 shares at cost
Retained earings
TOTAL LIAILITIES AND STOCKHOLDERS'
EQUI
See accompanying notes.4
December 31,
2010 2009
$ 468,168
69,288
617,768
500,471
1,454,037
25,201
3,134,933
11,745,456
35,496
11,780,952
2,326,380
25,000
7,910
(64,000)
5,156,321
5,125,231
$ 22,367,496
$ 1,136,367
77,868
449,481
9,744
1,313,973
2,987,433
12,785,101
12,785,101
1,669,815
25,000
7,910
(64,000)
4,495,613
4,464,523
$ 21,906,872
.MIVALE TELEPHONE EXCHAGE, INC..STATEMENT OF INCOME .
Year Ended December 31,.
2010 2009 .
OPERATING REVENUES .Wireline $8,636,065 $8,771,616
Internet 68,881 21,154 .
Television 10,998 15,825 .Miscellaneous 268,801 219,665 .
8,984,745 9,028,260 .
OPERATING EXPENSES .Plant specific operations 4,134,871 3,793,759
Plant nonspecific operations 314,239 349,996 .
Depreciation and amortization 1,781,439 1,841,077 .Customer operations 315,532 355,686
Corporate operations 1,187,212 1,345,414 .Other operating taes 207,740 199,004 .Nonregulated 202,709 220,799
8,143,742 8,105,735 ..
Operatig income 841,003 922,525 .
NONOPERATING INCOME (EXPENSE).Interest income 19,976 23,997
Gain (loss) on sale of assets 758,742 (8,729).
Allowance for funds used durng constrction 110,579 37,076 .Interest expense (676,161)(694,019)
Other nonoperating 53,309 20,293 .
Income from afliate 225,120 173,250 .
491,565 (448,132).
Net income before income ta 1,332,568 474,393 .
Income ta expense (671,860)(347,445)..
NET INCOME $660,708 $126,948 ...
5 ..
................................
MIVALE TELEPHONE EXCHAGE, INC.
STATEMENT OF STOCKHOLDERS' EQUI
Additional
Common Paid-in Treasur Retained
Stock Capita Stock Earngs Total
Balance, December 31, 2008 $25,000 $7,910 $ (64,000)$4,368,665 $4,337,575
2009 net income 126,948 126,948
Balance, December 31, 2009 25,000 7,910 (64,000)4,495,613 4,464,523
2010 net income 660,708 660,708
Balance, December 31, 2010 $25,000 $7,910 $ (64,000)$5,156,321 $5,125,231
See accompanying notes.6
...
Year Ended December 31,.
2010 2009 .
$660,708 $126,948 ..
1,781,439 1,841,077 .
73,216 85,515 .656,565 293,779
(225,120)(173,250).
(1,738)(7,754).(758,742)8,729
(54,118).
(110,579)(37,076).
767,912 (606,120).15,155 (14,060)
(166,505)(104,454).
(114,143)(16,239).(668,199)390,874
159,707 (4,191).
2,015,558 1,783,778 ..
(2,665,533)(3,646,361 ).
(72,608)(52,942).
28,950 23,563 .64,406 82,046
1,008,900 400,000 .
(1,635,885)(3,193,694).........
MIVALE TELEPHONE EXCHAGE, INC.
STATEMENT OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTNITIES
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
Nonregulated depreciation
Deferred income taxes
Income from affliate
Noncash patronage dividends
Loss (gain) on sale of assets
Increase in cash surrender value of life insurance
Allowance for funds used durng constrction
Changes in assets and liabilties:
Accounts receivable
Income ta refund receivable
Materials and supplies
Other assets
Accounts payable
Other accrued liabilties
Net cash provided by operating activities
CASH FLOWS FROM INSTING ACTNITIES
Acquisition of propert, plant, and equipment, net
Acquisition of nonregulated propert, plant, and
equipment, net
Payments on note receivable
Dividends from investments
Proceeds from sale of assets
Net cash used by investing activities
7
................................
MIVALE TELEPHONE EXCHAGE, INC.
STATEMENT OF CASH FLOWS
Year Ended December 31,
2010 2009
CASH FLOW FROM FINANCING ACTNITIES
Proceeds (payments) from line of credit, net $490,727 $(228,392)
Proceeds from long-term debt 1,050,000 2,805,210
Principal payments on long-term debt (1,949,581)(1,187,013)
Payments under capital lease obligation (10,626)
Net cash used by financing activities (419,480)1,389,805
NET CHANGE IN CASH AN CASH EQUN ALENTS (39,807)(20,111)
Cash and cash equivalents, beginning of year 302,181 322,292
Cash and cash equivalents, end of year $262,374 $302,181
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INORMTION
Cash paid during the year for:
Interest $632,080 $675,067
Income taes $140 $29,964
SUPPLEMENTAL DISCLOSURS OF NONCASH
FINANCING ACTNITIES
Acquisition of propert, plant, and equipment in exchange for
capital lease obligation $71,323 $
See accompanying notes.8
MIVALE TELEPHONE EXCHAGE, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Description of entit:
Midvale Telephone Exchange, Inc, (the Company), began operations in 1908 as a parership, and
incorporated in Idaho in 1959, The Company provides local telephone exchange, Internet, and cable TV
to its subscribers in Idao and Arizona.
Principles of consolidation:
Midvale Telephone Exchange, Inc. owned 100% of M & L Enterprises, Inc, (dba Skyline Telephone
Company) though December 3 I, 2009, All material intercompany transactions have been eliminated,
The operating results of Skyline through December 3 1,2009, are included in the accompanying financial
statements, Midvale sold its ownership in M & L Enterprises, Inc. effective December 3 I, 2009;
therefore, the 2010 operating results are excluded from the accompanying financial statements,
Accounting policies:
The financial sttements of the Company have been prepared in conformity with accounting principles
generally accepted in the United States of America applicable to rate-regulated public utilties. Such
accounting principles are consistent, in all material respects, with accounting principles prescribed by the
Federal Communications Commission (FCC) under Par 32, Uniform System of Accounts for
Telecommunications Companies.
Accounting estimates:
The prepartion of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that afect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates. Significant estimates include depreciation expense and
interstate access revenue settlements,
Cash and cash equivalents:
The Company considers its short-term, highly liquid investments purchased with a matuty of thee
months or less to be cash equivalents,
Concentration of credit risk:
At various times throughout the year, cash balances exceed federally insured limits in individual financial
institutions. The insured limit is $250,000 per institution.
Accounts receivable:
Accounts receivable are stated at the amount management expects to collect on outstading balances,
The Company reviews the. collectibility of accounts receivable anualy based upon an analysis of
outstding receivables, historical collection information, and existing economic conditions. Receivables
from subscribers are due 30 days after issuace of the subscriber bil. Receivables from other exchange
cariers are tyically outstding 30 to 60 days before payment is received, Delinquent accounts are
charged to uncollectible expense when it is determined the accounts wil not be collected, Due to the
immaterial natue of the Company's uncollectible accounts, an allowance for uncollectible accounts is not
deemed necessar and the result of this method does not materially differ from accounting principles
generally accepted in the United States of America.
9
....................
.............
................................
MIVALE TELEPHONE EXCHAGE, INC.
NOTES TO FINANCIA STATEMENTS
Note 1 - Summary of Significant Accounting Policies (Continued)
Material and supplies:
Material and supplies inventories are valued at the lower of cost or market. Cost is determined by the
average cost method, and market represents the lower of replacement cost or estimated net realizable
value,
Assets held for sale:
Long-lived assets are classified as held for sale when certin criteria are met, which include: management
commitment to a plan to sell the assets; the availability of the assets for immediate sale in their present
condition; an active program to locate a buyer has been initiated; the sale of the assets is probable and
transfer of the assets is expected to qualify for recognition as a completed sale within one year; the assets
are being marketed for sale at a price that is reasonable in relation to the curent fair value; and it is
unlikely that significant changes wil be made to the plan to sell the assets.
At December 31, 2008, all of the above criteria have been met and the Company's assets related to its
Oregon and Washington operations have been classified as held for sale, The Washington assets were
sold effective December 31,2009, The Oregon assets were sold effective Januar 1,2010,
Investment in affúiates:
The Company accounts for its investments in limited liability companies by the equity method of
accounting under which the Company's share of the net income or loss of the affliates is recognized as
income or loss in the Company's income statement and added to or subtracted from the respective
investment account. Under the equity method of accounting, dividends or returns of capita reduce the
investment balance, These affliated organiztions include Syringa Networks, LLC (Syrnga),
Investment in nonaffiliates:
Investments consist primarly of equity interests in lending cooperatives at cost as the investents do not
have readily determinable fair values.
Propert, plant, and equipment:
Propert, plant, and equipment are stated at cost. The cost of additions and substatial betterments of
propert, plant, and equipment is capitalized, The cost of maintenance and repairs is charged to operating
expenses. The Company records income as an allowance for fuds used during constrction and
capitaizes as a cost of constrction the cost of financing large constrction projects spaning a period
greater than two months. The Company uses a weighted-average interest rate based on total Company
long-term debt.
Propert, plant, and equipment are depreciated using straight-line methods over their estimated useful
lives. In accordance with composite group depreciation methodology, when a porton of the Company's
depreciable propert, plant, and equipment is retired in the ordinar course of business, the original cost is
charged to accumulated depreciation.
10
MIVALE TELEPHONE EXCHAGE, INC.
NOTES TO FINANCIA STATEMENTS
Note 1 - Summary of Significant Accounting Policies (Continued)
Income taxs:
Deferred taes are provided on a liability method whereby deferred ta liabilities are recognized for
deductible temporar differences and deferred ta assets are recognized for taxable temporar differences,
Temporar differences are the differences between the reported amounts of assets and liabilities and their
ta basis, Deferred ta assets relate primarily to net operating losses and state ta credits, Deferred ta
liabilties relate primarly to the use of accelerated depreciation methods for ta puroses. Deferred ta
assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than
not some portion or all of the deferred ta wil not be realized, Deferred ta assets and liabilties are
adjusted for the effects of changes in ta laws and rates on the date of enactment.
The Company records uncertin ta positions if the likelihood the position wil be sustained upon
examination is less than 50%, As of December 31,2010 and 2009, the Company had no accrued amounts
related to uncertin ta positions, The Company is no longer subject to U.S, federal or state and local
income ta examinations by ta authorities for years before 2007.
Revenue recognition:
Monthly service fees derived from local wire line, Internet, and television ar biled one month in advance,
but recognized in the month that service is provided,
Usage sensitive revenues such as access (revenues eared for originating/terminating long distace calls)
are generally biled as a per-minute charge, Although these revenues are biled in arears, an estimate of
unbiled revenues is accrued in the month service is provided,
Interstate access revenues also include settlements based on the Company's paricipation inthe revenue
pools administered by the National Exchange Carer Association (NCA). Settlement revenues are
determined by anually prepared separations and interstate access cost studies, These studies are prepared
subsequent to year end and therefore, the related revenues ar recorded on the books based on an estimate
ofNECA pool earings and on other assumptions related to information utilized in the preparation of the
Company's cost study, The studies are subject to a 24-month pool adjustment period and final review and
a review of the study by NECA. There was an insignificant revenue impact in 2010 and 2009 for
adjustments related to prior year differences between the recorded estimates and actual revenues,
Furtermore, management does not anticipate that 2010 and 2009 recorded revenues wil require
significant adjustments in futue years,
Internet revenues are derived from the provision of customer access to the public Internet, excluding
revenues attbutable to digita subscriber line (DSL) transport (line costs between the customer and the
Company's equipment that routes Internet traffc). Interstate access revenues include settlements from
NECA that compensate the Company for the DSL transport related to the provision of Internet services,
The Company's wireline universal service support revenue is intended to compensate the Company for
the high cost of providing rural telephone service, Universal service support revenue includes fuds
received for high-cost loop support interstate common line support local switching support and other
miscellaneous programs, Wireline support revenues are based on the Company's relative level of
operating expense and plant investment.
i 1
...........
......................
................................
MIVALE TELEPHONE EXCHAGE, INC.
NOTES TO FINANCIA STATEMENTS
Note 1 - Summary of Signifcant Acconnting Policies (Continued)
Regulation:
The Company's services are subject to rate regulation as follows:
· Local telephone and intrastate access revenues are regulated by the State Public Utilities
Commissions,
· Interstate access revenues are regulated by the FCC though its regulation of rates and settlements
procedures as administered by NECA.
· Universal service support revenues are administered by Universal Service Administration Company
(USAC), based on rules established by the FCC. The state program is governed by the Idaho Public
Utility Commission,
Other sources of revenues are not rate regulated, and include Internet, equipment sales, television, rents,
and other incidental services.
Nonregulated expenses and nonregulated plant are directly attbutable to the following nonregulated
services: Internet, television, and miscellaneous revenues.
All other operating expenses and telecommunications plant are related pniarily to wireline revenues.
However, some of these costs jointly relate to regulated and nonregulated services. For interstate access
settlements, universal service support rate case, and other regulatory purposes, the portion of these
common costs related to nonregulated activities are removed from these accounts in accordance with Par
64 of the FCC rules in order to ensure that regulated revenues are based on costs of providing regulated
services,
The FCC issued the National Broadband Plan in March 2010 calling for significant changes in the
intercarier compensation and .Federa Universal Service programs. Based on the recommendations of
that plan, the FCC released on Februar 9, 2011, a Notice of Proposed Rulemaking (NPRM) proposing a
framework for reform and seeking comments from staeholders. The proposals consist of nea-term and
long-term actions meant to achieve the four core pnnciples; (l) modernizing and refocusing USF and ICC
to ensure all Americans have access to robust, afordable broadband; (2) fiscal responsibility; (3)
accountability; and (4) use of market-drven and incentive-based policies, The scope of the NPRM is
significant and the outcome could have a material impact on the Company's future operation and
financial condition. However, it is too early in the process to determine what, if any, changes will be
implemented, nor are the proposals drafted in enough specificity to determine their revenue impact to the
Company,
Concentration of risks:
In 2010 and 2009, the Company received $4.9 milion and $4,7 milion, or 55% or 53%, respectively of
its revenue from the Federal Universal Service Fund and various state funds,
12
MIVALE TELEPHONE EXCHAGE, INC.
NOTES TO FIANCIA STATEMENTS
Note 1 - Summary of Significant Accounting Policies (Continued)
Subsequent events:
Subsequent events are events or transactions that occur after the balance sheet date but before the
financial statements are available to be issued, The Company recognizes in the financial statements the
effects of all subsequent events that provide additional evidence about conditions that existed at the date
of the balance sheet, including the estimates inherent in the process of preparing financial statements.
The Company's financial statements do not recognize subsequent events that provide evidence about
conditions that did not exist at the date of the balance sheet but arose afer the balance sheet date and
before the financial statements are available to. be issued. Note 15 provides disclosure of certain
subsequent events that did not result in recognition in the financial statements.
The Company has evaluated subsequent events though April 11, 2011, which is the date the financial
statements are available to be issued,
Reclassifications:
Certin accounts have been classified differently than as originally reported on the 2009 financial
statements to conform with the 2010 presentation. These reclassifications had no effect on previously
reported net income or equity,
Note 2 - Investment in Affiliates
The Company's investent in afliates consists of its 6.35% ownership interest in Syrnga Networks,
LLC, Syringa Networks, LLC is a consortium of independent Idaho telephone companies that has
constrcted and is operating a fiber optic rig in southern Idaho.
The equity method investment is accounted for as follows:
Cash investment from prior year
Prior year' undistributed net income
2009 net income
2009 dividends
$ 601,498
522,272
173,250
(82,046)
Investment at December 31, 2009 1,214,974
2010 net income
2010 dividends
225,120
(53,174)
Investment at December 31, 2010 $ 1,386,920
13
................................
................................
MIVALE TELEPHONE EXCHAGE, INC.
NOTES TO FINANCIA STATEMENTS
Note 2 - Investment in Affliates (Continued)
The assets, liabilities, and operations of the Company's investments in Syringa Networks, LLC are as
follows:
2010 2009
Assets $36,263,404 $33,826,030
Liabilities $14,651,387 $14,922,392
Equity $21,612,017 $18,903,638
Operating revenues $27,403,706 $19,608,056
Operating expenses 23,858,515 16,879,668
Net income $3,545,191 $2,728,388
Note 3 - Investment in Nonaffliates
Investments in nonafliated organizations. consist primarily of nonmarketable patronage capita or stock
of telephone industr corporations. Investments in nonafliated organizations are cared at cost, as the
investments do not have readily determinable fair values, and consist of the following:
2010 2009
Rural Telephone Finance Cooperative
NECA Services
$ 108,323
3,000
$ 117,817
3,000
$ 111,323 $ 120,817
14
MIVALE TELEPHONE EXCHAGE, INC.
NOTES TO FINANCIA STATEMENTS
Note 4 - Propert, Plant, and Equipment
Telecommunications plant balances together with accumulated depreciation consist of the following at
December 31, 2010 and 2009:
Depreciable Accumulated 2010 Net 2009 Net
Life Plant Account Depreciation Balance Balance
Regulated plant:
General support assets 4 - 40 years $2,468,202 $1,649,072 $819,130 $739,294
Central offce equipment 8 - 10 years 10,533,653 5,492,201 5,041,452 4,744,482
Cable and wire facilties 14 - 20 years 19,986,929 .8,790,203 11,196,726 8,988,456
Propert held for future use n/a 24,306 24,306
Plant under constrction nla 1,245,219 1,245,219 2,816,686
34,258,309 15,931,476 18,326,833 17,288,918
Nonregulated plant:
Voicemail 8 -10 years 115,091 48,758 66,333 80,017
Television and Internet 7 - 14 years 362,347 358,296 4,051 4,051
Fiber trsport 8 -15 years 639,716 370,139 269,577 256,504
1,117,154 777,193 339,961 340,572
$35,375,463 $16,708,669 $18,666,794 $17,629,490
Note 5 - Line of Credit
At December 31, 2010, the Company had a $500,000 operating line of credit, which bears an interest rate
at the greater of ban index plus 2,25% or the floor rate of 5.00% and expires on July 1, 2011. At
December 31, 2010, $500,471 was owed on the line of credit. The interest rate at December 31, 2010,
was 5,50%,
15
................................
................................
MIVALE TELEPHONE EXCHAGE, INC.
NOTES TO FINANCIA STATEMENTS
Note 6 - Long-Term Debt
Long-term debt is as follows as of December 31 :
Interest Rates Maturity Dates 2010 2009
Rural Utilities Service (RUS),
fixed 2.00% - 5,00% 2014-2027 $ 12,960,842 $ 13,584,831
Rural Telephone Finance
Cooperative (RTFC), variable 5.35%2011-2013 225,003 464,256
4.75%2012 13,648 24,832
10.39%2010 25,155
13,199,493 14,099,074
1,454,037 1,313,973
$11,745,456 $12,785,101
Zion's Bank, fixed
Other, fixed
Less curent portion
Substantially all assets are pledged as collateral on this debt. The loan agreements contain provisions and
restrctions pertining to, among other things, the maintenance of defined ratios for debt service coverage,
times interest eared, equity to assets, and working capita and limitations on dividend payments to
stockholders,
Maturities of long-term debt obligations for the five years following December 31, 2010, are as follows:
2011
2012
2013
2014
2015
Thereafter
$ 1,454,037
1,280,127
1,259,043
1,287,714
1,047,002
6,871,570
$ 13,199,493
At December 31,2010, the Company had unadvanced authorized loan fuds with RUS in the amount of
$3,223,492,
16
MIVALE TELEPHONE EXCHAGE, INC.
NOTES TO FIANCIA STATEMENTS
Note 7 - Capital Leases
During 2010, Midvale entered into a capital lease agreement for computer equipment. The assets being
leased are included in plant in service as follows at December 31:
Equipment
Less accumulated amortization
$71,323
9,905
NET CAPITALIZED $61,418
Amortization on assets under capital leases charged to depreciation expense was $9,905 in 2010.
The following is a schedule of futue minimum lease payments for the above capital leases, together with
the present value of the net minimum lease payments as of December 31, 2010:
2011
2012
2013
$25,201
25,201
14,616
Total minimum lease payments
Less amount representing interest
65,018
(4,321)
Present value of net minimum lease payments
Less curent portion
60,697
25,201
LONG TERM PORTION $35,496
Note 8 - Income Taxes
The provision for income ta consists of the following at December 31 :
2010 2009
Curent
Federal $$61,430
State (15,295)3,470
Deferred
Federal (531,328)(447,519)
State (125,237)35,174
$(671,860)$(347,445)
17
................................
................................
MIVALE TELEPHONE EXCHAGE, INC.
NOTES TO FINANCIA STATEMENTS
Note 8 - Income Taxes (Continued)
The income ta provision differs from the amount computed by applying federal statutory rates to pretax
income, The primar differences result from certai expenses that are not ta deductible, state income
taes, and the change in the valuation allowance,
The components of the net long-term deferred ta liabilty recorded in the accompanying balance sheet at
December 3 i are:
Valuation allowance
2010 2009
$ (2,484,764)$ (1,837,181)
(43,148)(43,148)
25,280
169,607 194,949
335,012 354,862
78,757
6,645 15,565
(1,991,368)(1,236,196)
(335,012)(433,619)
$ (2,326,380)$ (1,669,815)
Tax depreciation and amortization greater than book
Tax investment greater than book
Accrued employee benefits
Net operating loss carforwards
Idaho ta credits
Capital loss carorwards
Other
Net deferred liabilty
The net change in the valuation allowance in 2010 was a decrease of $98,607,
At December 31,2010, the Company had the following carorwards available to reduce future income
taes:
Year of
ExpirationAmount
Idao investment ta credits
Idaho broadband ta credits
Federal net operating loss carorwar
State net operating loss carorward
AMT credit carorward
$ 311,423
23,589
388,475
174,479
28,981
2011-2020
2015-2019
2029
2023-2024
n/a
18
Access revenues are classified above as follows:
· Customer revenues include end user charges such as the Subscriber Line Charge (SLC), the Federal
Universal Service Charge (FUSC), and special access billed to end users,
· Universal service support includes the High Cost Loop Support Local Switching Support (LSS), and
Interstte Common Line Support (ICLS),
· All access charge and settlement revenue except as described above is classifed as intercarier
revenue.
Note 10 - Operating Leases
The Company has operating leases for equipment and other propert, Payments for these services were
$330,803 and $411,444 for the years ended December 31,2010 and 2009, respectively.
19
................................
................................
MIVALE TELEPHONE EXCHAGE, INC.
NOTES TO FINANCIA STATEMENTS
Note 10 - Operating Leases (Continued)
Future minimum lease payments on all noncancelable operating leases with terms in excess of one year at
December 31,2010, are as follows:
Years ending December 31,
2011
2012
2013
2014
2015
$ 310,501
276,708
211,999
138,736
97,732
Note 11- Retirement Plan
The Company has established a 401(k) deferred compensation plan (the Plan), covering substantially all
employees, For eligible employees the Company matches employee contrbutions up to 3% of qualified
employee compensation, but has the discretion of making additional contrbutions to the Plan, Company
contributions for the years ended December 31,2010 and 2009, were $66,404 and $58,186, respectively.
Note 12 - Employee Stock Ownership Plan
Effective December 31, 2008, the Company adopted the Midvale Telephone Exchange, Inc: Employee
Stock Ownership Plan (the ESOP), which is a stock bonus plan under section 401(a) of the Internal
Revenue Code (the Code) and is also an employee stock ownership plan under section 497(e)(7) of the
Code, The intent of the ESOP is to enable Company employees to acquire a proprieta interest in the
capita stock of the Company and for the Company to recognize and reward employees whose
contributions have made its operations successfuL.
Virlly all employees who have completed one year of service and have attined the age of 21 are
eligible to paricipate in the ESOP. Employer contrbutions are discretionar and must comply with
various sections of the Code,
Each paricipant has a "Company Stock Account" and "Other Investments Account" to which
contrbutions, forfeitues, and Company stock released for allocation wil be allocated anually based on
the paricipant's eligible compensation, Contrbutions are fully vested after six years of service, Oter
accrued liabilties include pledged contributions to the ESOP of $400,000 for both years ended
December 31, 2010 and 2009, respectively,
Note 13 - Related Part Transactions
The Company and its affliates parcipated in various related par transactions that are explained below:
Syringa Networks, LLC:
The Company has made significant capita expenditues to expand its fiber optic network and to allow
connectivity into the Syringa network. Syringa is leasing fiber segments and electronic equipment back
from Midvale Telephone Exchange. The Company received lease payments from Syringa of $220,368 in
2010 and $204,599 in 2009.
20
MIVALE TELEPHONE EXCHAGE, INC.
NOTES TO FINANCIA STATEMENTS
Note 13 - Related Part Transactions (Continued)
Syringa Networks, LLC (continued):
Syrnga leases excess network capacity to various interexchange carriers and the Idaho Optical Trasport
Association (IOTA), a nonprofit corporation. IOTA leases capacity from Syringa to provide switched
access transport for IOTA members, IOTA member companies are also Syringa investors. The Company
paid $396,540 in 2010 and 2009, to IOTA for switched access transport on the Syringa network.
Midvale Telephone Exchange also utilizes the Syringa network access tadem to connect with
interexchange carers. For the years ended December 31, 2010 and 2009, the Company paid $403,678
and $320,524 respectively, to Syringa for tadem switching expense.
Rural Network Services:
. The Company has provided accounts receivable biling services and made other purchases on behalf of
Rural Network Services (RNS), which is owned by a stockholder and related employees. The Company
recorded revenue of $11,278 and $8,238 for administrative services as of December 31,2010 and 2009,
respectively. As of December 31, 2010 and 2009, RNS owed the Company the following amounts:
2010 2009
Note receivable
Accounts receivable, gross
$ 385,777
354,645
$ 356,827
386,798
$ 743,625 $ 740,422
The note receivable matues in 2019 and accrues interest monthly at 5.50%. Management has recorded an
allowance for doubtfl accounts of $258,042 as of December 31, 2010 and 2009, related to the amount
receivable from RNS.
Other:
A significant porton of the operating leases mentioned in Note 10 are with stockholders and other related
paries. Of the total operating lease payments in 2010 and 2009, $213,512 and $355,377, respectively,
were paid to related paries,
The Company pays the premiums on a split-dollar life insurance policy for the owners. When the
premiums are paid, this creates a receivable from the covered employee. Should the employee die, the
proceeds would go toward payment of the receivable with the excess going to the descendants' estte.
The receivable balance at December 31,2010 and 2009, was $ 107,164 and $53,046,
Note 14 - Commitments
The Company has executed contracts for constrction projects, The amount unpaid againt these
commitments at December 31,2010, was $1,024,459,
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MIVALE TELEPHONE EXCHAGE, INC.
NOTES TO FINANCIA STATEMENTS
Note 15 - Subsequent Events
Subsequent to year end, Midvale acquired its afliate RNS for a purchase price of $148,000, RNS
operations wil be merged with Midvale effective Januar 1, 2011. Midvale is in the process of valuing
the assets and liabilities acquired. The valuation was not complete as' of the date of the financial
statements.
Note 16 - Gain on Sale of Assets
During 2010, Midvale sold its operations in Oregon to other local exchange cariers in the amount of
$1,008,900. The assets and liabilities disposed of amounted to $250,158, which resulted in a gain of
$750,742.
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