Nuvera Communications, Inc. - FORM 8-K/A - EX-99.4 - EXHIBIT 99.4

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file	filename
EX-23.1 - EXHIBIT 23.1 - Nuvera Communications, Inc.	exhibit23_1.htm
EX-99.3 - EXHIBIT 99.3 - Nuvera Communications, Inc.	exhibit99_3.htm
EX-99.2 - EXHIBIT 99.2 - Nuvera Communications, Inc.	exhibit99_2.htm
EX-99.1 - EXHIBIT 99.1 - Nuvera Communications, Inc.	exhibit99_1.htm
8-K/A - FORM 8K/A - Nuvera Communications, Inc.	form8k_a.htm

EXHIBIT 99.4

Nuvera Communications, Inc.

Unaudited Pro Forma Combined Condensed Financial Statements for the three months ended March 31, 2018

Introduction to the Pro Forma Financial Statements

As previously disclosed¸ Nuvera completed the acquisition of Scott-Rice from Allstream Business U.S., LLC, and affiliate of Zayo Group Holdings, Inc. for approximately $42 million pursuant to the terms of the Stock Purchase Agreement dated as of February 22, 2018. This acquisition has resulted in a combined company that provides phone, video and internet services with over 66,000 connections in a number of Minnesota and Iowa communities.

The acquisition has been accounted for using the acquisition method of accounting in accordance with current standards. As a result, the fair value of the consideration paid, which consists of approximately $42 million in cash, has been allocated to the fair value of the assets and liabilities received. This allocation is preliminary and further refinements are likely to be made. Criteria have been established in Accounting Standards Codification (ASC) 805, “Business Combinations” for determining whether intangible assets should be recognized separately from goodwill.

The following unaudited pro forma combined condensed financial statements are based on the historical financial statements of Nuvera and Scott-Rice after giving effect to the acquisition by Nuvera of Scott-Rice, and assumptions and adjustments described in the accompanying notes to the unaudited pro forma combined condensed financial statements. The pro forma statements do not reflect any effect of operating efficiencies, cost savings and other benefits anticipated by Nuvera’s management as a result of the merger. In addition, the amounts reflected as increases for depreciation and amortization on the statement of income are due to the stepped-up basis of assets and other intangibles. While these amounts reduce net income, they do not affect cash flow for Nuvera.

NUVERA COMMUNICATIONS, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET MARCH 31, 2018


	ASSETS
	Historical							Nuvera Communications, Inc. Pro Forma Combined
					Pro Forma Adjustments (Note 3)
	Nuvera		Scott Rice Telephone Co.
	Nuvera		Scott Rice Telephone Co.
CURRENT ASSETS:
Cash and Cash Equivalents	$	3,201,992	$	3,004	$	–		$	3,204,996
Other Current Assets		4,640,900		591,374		–			5,232,274
Total Current Assets		7,842,892		594,378		–			8,437,270

INVESTMENTS AND OTHER ASSETS:

Goodwill and Intangibles		55,473,734		–		33,936,913	(b), (c)		89,410,647
Other Investments		7,745,942		–		–			7,745,942
Deferred Income Taxes		–		2,398,352		(2,398,352)	(b)		–
Total Investments and Other Assets		63,219,676		2,398,352		31,538,561			97,156,589

PROPERTY, PLANT AND EQUIPMENT:
Telecommunications Plant		128,206,890		16,171,990		–			144,378,880
Other Property		18,587,969		–		–			18,587,969
Video Plant		10,477,052		–		–			10,477,052
Total Property, Plant and Equipment		157,271,911		16,171,990		–			173,443,901
Less Accumulated Depreciation		115,484,070		5,255,151		–			120,739,221
Net Property, Plant and Equipment		41,787,841		10,916,839		–			52,704,680

TOTAL ASSETS	$	112,850,409	$	13,909,569	$	31,538,561		$	158,298,539

See accompanying notes to unaudited pro forma combined condensed financial statements.

NUVERA COMMUNICATIONS, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET MARCH 31, 2018

LIABILITIES AND STOCKHOLDER'S EQUITY
	Historical							Nuvera Communications, Inc. Pro Forma Combined
					Pro Forma Adjustments (Note 3)
			Scott Rice Telephone Co.
	Nuvera		Scott Rice Telephone Co.
CURRENT LIABILITIES:
Current Portion of Long-Term Debt	$	3,315,822	$	–	$	2,388,000	(a)		5,703,822
Other Accounts Payable & Accrued Liabilities		5,235,995		1,200,622		–			6,436,617
Total Current Liabilities		8,551,817		1,200,622		2,388,000			12,140,439

LONG-TERM DEBT, Less Current Portion		23,362,260		–		39,612,000	(a)		62,974,260

NONCURRENT LIABILITIES:
Loan Guarantees		151,434		–		–			151,434
Income Taxes		10,317,092		–		2,165,648	(b)		12,482,740
Other Accrued Liabilities		185,619		81,860		–			267,479
Other Deferred Credits		624,505		–		–			624,505
Total Noncurrent Liabilities		11,278,650		81,860		2,165,648			13,526,158

STOCKHOLDER'S EQUITY:

Common Stock		8,607,123		–		–
						–			8,607,123
Paid in Capital		–		–		–			–
Accumulated other Comprehensive Income (Loss)		16,135		–		–			16,135
Unearned Compensation		21,792							21,792
Retained Earnings		61,012,632		12,627,087		(12,627,087)	(c)		61,012,632
Total Stockholder's Equity		69,657,682		12,627,087		(12,627,087)			69,657,682

TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	112,850,409	$	13,909,569	$	31,538,561		$	158,298,539

See accompanying notes to unaudited pro forma combined condensed financial statements.

NUVERA COMMUNICATIONS, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2018

	Historical							Communications, Inc. Pro Forma Combined
					Pro Forma Adjustments (Note 2)
			Scott Rice Telephone Co.
	Nuvera		Scott Rice Telephone Co.
OPERATING REVENUES:
Operating Revenues	$	11,613,186	$	3,725,396				$	15,338,582
Total Operating Revenues		11,613,186		3,725,396		–			15,338,582

OPERATING EXPENSES:

Plant Operations, Excluding Depreciation and Amortization		5,244,764		624,775					5,869,539
Depreciation and Amortization		2,255,848		823,890		291,072	(e)		3,370,810
Selling, General and Administrative		1,965,016		917,814					2,882,830
Total Operating Expenses		9,465,628		2,366,479		291,072			12,123,179

OPERATING INCOME		2,147,558		1,358,917		(291,072)			3,215,403

OTHER INCOME (EXPENSES):
Interest During Construction		31,845		–		–			31,845
Interest Expense		(286,935)		(66)		(534,450)	(d)		(821,451)
Interest Income		53,861				–			53,861
CoBank Patronage Dividend		290,895				–			290,895
Other Investment Income		54,541		482		–			55,023
Total Other Income (Expenses)		144,207		416		(534,450)			(389,827)

INCOME BEFORE INCOME TAXES		2,291,765		1,359,333		(825,522)			2,825,576

INCOME TAXES		641,692		663,449		(231,146)	(f)		1,073,995

NET INCOME	$	1,650,073	$	695,884	$	(594,376)		$	1,751,581


BASIC AND DILUTED NET INCOME PER SHARE	$	0.32	$	0.13	$	(0.12)		$	0.34

DIVIDENDS PER SHARE	$	0.10	$	–	$	–		$	0.10

WEIGHTED AVERAGE SHARES OUTSTANDING		5,161,468		5,161,468		5,161,468			5,161,468

See accompanying notes to unaudited pro forma combined condensed financial statements.

NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS

Note 1 – The Acquisition of Scott-Rice

The unaudited pro forma combined condensed balance sheet and statements of income are not necessarily indicative of the financial position and operating results that would have been achieved had the acquisition been completed as of January 1, 2018. They should not be construed as being a representation of financial position or future operating results of the combined companies. The unaudited pro forma combined condensed financial information gives effect only to the adjustments set forth in the accompanying notes and does not reflect any integration or acquisition related costs, or any potential cost savings or other synergies that management expects to realize as a result of the merger.

The accompanying unaudited pro forma combined condensed balance sheet of Nuvera and Scott-Rice gives effect to the acquisition of Scott-Rice as if it had occurred on March 31, 2018. The unaudited pro forma combined condensed balance sheets are based on each entity’s respective historical financial statements. The unaudited pro forma combined condensed balance sheets should be read in conjunction with Nuvera’s audited consolidated financial statements and notes, presented in Nuvera’s Annual Report on Form 10-K for the year ended December 31, 2017 that was filed on March 15, 2018 with the Securities and Exchange Commission (SEC), and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 that was files on May 15, 2018 with the SEC.

The accompanying unaudited pro forma combined condensed statements of income of Nuvera and Scott-Rice gives effect to the acquisition of Scott-Rice as if it had occurred on January 1, 2017. The statements reflect the unaudited pro forma combined condensed results of operations of Scott-Rice for the year ended March 31, 2018 combined with the unaudited pro forma combined condensed results of operations of Nuvera for the quarter ended March 31, 2018 are presented. The unaudited pro forma combined condensed statements of income are based on each entity’s respective historical financial statements. The unaudited pro forma combined condensed statement of income should be read in conjunction with Nuvera’s audited consolidated financial statements and notes, together with management’s discussion and analysis of financial condition and results of operations, presented in Nuvera’s Annual Report on Form 10-K for the year ended December 31, 2017 filed on March 15, 2018 and Nuvera’s Quarterly Report on Form 10-Q for the three month period ended March 31, 2018 filed on May 15, 2018 with the SEC.

The unaudited pro forma combined condensed statements of income are presented for illustrative purposes only and are not necessarily indicative of the financial position or results of operations that would have actually been reported had the acquisition occurred as of January 1, 2018 for statement of income purposes, nor are they necessarily indicative of the future financial position or results of operations of the combined companies.

The unaudited pro forma combined condensed statement of income includes adjustments, which are based upon preliminary estimates, to reflect the allocation of purchase consideration to the acquired assets and liabilities of Scott-Rice. The pro forma adjustments are based upon information and assumptions available at the time of the filing of this report. The unaudited pro forma combined condensed statement of income does not include the realization of cost savings from operating efficiencies or synergies that may result from the acquisition.

Note 2 – Allocation of the Fair Value of Scott-Rice Acquisition

The allocation of the purchase price for the Scott-Rice assets and liabilities has been based on the fair value of the purchased assets and liabilities as if the transaction had taken place on March 31, 2018. GAAP establishes criteria for determining whether intangible assets should be recognized separately from goodwill. GAAP states that goodwill and intangible assets with indefinite lives are not amortized, but rather are tested for impairment on at least an annual basis.

The preliminary allocation of the acquisition value of Scott-Rice is shown below:

Current assets	$	594,378
Property, plant and equipment		10,916,839
Customer relationship intangible		16,300,000
Excess costs over net assets acquired (Goodwill)		17,636,913
Current liabilities		(1,200,622)
Deferred income taxes		(2,165,648)
Deferred liabilities		(81,860)
Purchase price allocation		42,000,000
Less cash acquired		(3,004)

Total Consideration for Acquisition	$	41,996,996

Note 3 – Adjustments to Unaudited Pro Forma Combined Condensed Financial Statements

The adjustments to the unaudited pro forma combined condensed balance sheet as of March 31, 2018 and the pro forma combined condensed statement of income for the quarter ended March 31, 2018, in connection to the acquisition of Scott-Rice are presented below:

Adjustments to Unaudited Pro Forma Combined Condensed Balance Sheet as of March 31, 2018

(a) This adjustment is to reflect the financing from CoBank, ACB to fund the purchase of Scott-Rice.

(b) This adjustment reflects the deferred income tax effect of the fair value adjustment for other intangibles, and the reclassification of the deferred income tax asset.

(c) This adjustment reflects the approximately $42 million paid for Scott-Rice, the recording of Goodwill and Intangibles, and the elimination of historical Scott-Rice equity.

Adjustments to the Unaudited Pro Forma Combined Condensed Statement of Income

(d) This adjustment reflects additional estimated interest expense due to additional Nuvera financing from CoBank, ACB in relation to the Scott-Rice acquisition. Interest expense is calculated as if the additional borrowings had occurred on January 1, 2018 and the interest rate is based on the anticipated variable interest rate we will pay CoBank on our new credit facility.

(e) This adjustment reflects estimated amortization expense of $291,072 for definitely lived intangible assets for the three months ended March 31, 2018.

(f) This adjustment reflects the estimated income tax effect of the above statement of income adjustments.

Note 4 – Items Not Adjusted

The pro forma statements do not reflect any effect of operating efficiencies, cost savings and other benefits anticipated by Nuvera’s management as a result of the merger.

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