Attached files
| file | filename |
|---|---|
| 8-K/A - FORM 8-K/A - Nuvera Communications, Inc. | newulm131251_8ka.htm |
| EX-23.1 - CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - Nuvera Communications, Inc. | newulm131251_ex23-1.htm |
| EX-99.1 - FINANCIAL STATEMENTS OF SETC - Nuvera Communications, Inc. | newulm131251_ex99-1.htm |
EXHIBIT 99-2
New Ulm Telecom, Inc.
Unaudited Pro Forma Combined Condensed Financial Statements for the year ended December 31, 2012
Introduction to the Pro Forma Financial Statements
As previously disclosed, NU Telecom, Arvig Enterprises, Inc. and Blue Earth Valley Communications, Inc. were equal one-third owners in HCC, a diversified telecommunications company. In keeping with the November 15, 2012 spin-off agreement, HCC and its three owners/shareholders agreed to distribute its independent local exchange company subsidiaries to its three owners/shareholders (“Spin–Off”). HCC and its shareholders determined that by spinning-off these local exchange telephone companies to its constituent shareholders, these individual shareholders would be able to take advantage of their geographical proximity to these local exchange telephone companies to (i) continue to provide continued and uninterrupted service to customers of these local exchange telephone companies; (ii) more fully integrate these local exchange telephone companies into their current operations and existing operating businesses and (iii) allow more efficient branding and delivery of services to these customers.
The Spin-off was completed on December 31, 2012.
Under the Spin-Off, NU Telecom received all of the stock of SETC and certain assets and investments of HCC. SETC currently serves customers in southern Minnesota.
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 our investment in HCC, has been allocated to the fair value of the assets and liabilities received for the HCC Spin-Off. The allocation of the purchase price to SETC’s assets and liabilities has been based on preliminary estimates of fair values as determined by an independent valuation consultant. 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 NU Telecom and SETC after giving effect to the spin-off of SETC by HCC to NU Telecom, 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 NU Telecom’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 NU Telecom.
18
NEW ULM TELECOM, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED
CONDENSED BALANCE SHEET
DECEMBER 31, 2012
|
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|
ASSETS |
|
|
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New
Ulm |
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||||||
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Pro
Forma |
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||||||||
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New Ulm |
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Sleepy Eye |
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|||||||
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CURRENT ASSETS: |
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|
|
|
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|
|
|
|||||
|
Cash and Cash Equivalents |
|
$ |
2,731,700 |
|
$ |
18,150 |
|
$ |
– |
|
$ |
2,749,850 |
|
|
|
Other Current Assets |
|
|
5,338,087 |
|
|
421,296 |
|
|
120,673 |
|
(a) |
|
|
|
|
|
|
|
– |
|
|
– |
|
|
218 |
(a) |
|
5,880,274 |
|
|
|
Total Current Assets |
|
|
8,069,787 |
|
|
439,446 |
|
|
120,891 |
|
|
8,630,124 |
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|
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INVESTMENTS AND OTHER ASSETS: |
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|
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|
|
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|
|
|
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Hector Investment |
|
|
25,463,052 |
|
|
– |
|
|
(25,463,052 |
) |
(a), (b), (c) |
|
– |
|
|
Goodwill and Intangibles |
|
|
47,846,293 |
|
|
40,740 |
|
|
20,698,066 |
(b) |
|
68,585,099 |
|
|
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Other Investments |
|
|
4,327,653 |
|
|
483,916 |
|
|
1,929,022 |
(b) |
|
|
|
|
|
|
|
|
– |
|
|
– |
|
|
(171,600 |
) |
(c) |
|
6,568,991 |
|
|
Total Investments and Other Assets |
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|
77,636,998 |
|
|
524,656 |
|
|
(3,007,564 |
) |
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|
75,154,090 |
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PROPERTY, PLANT AND EQUIPMENT: |
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Telecommunications Plant |
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97,885,468 |
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28,195,968 |
|
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(20,373,511 |
) |
(b) |
|
105,707,925 |
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Other Property |
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8,286,853 |
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|
325,962 |
|
|
1,608,678 |
(b) |
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10,221,493 |
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|
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Video Plant |
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9,270,820 |
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|
102,440 |
|
|
(11,750 |
) |
(b) |
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9,361,510 |
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Total Property, Plant and Equipment |
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|
115,443,141 |
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|
28,624,370 |
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(18,776,583 |
) |
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125,290,928 |
|
|
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Less Accumulated Depreciation |
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|
80,466,903 |
|
|
23,942,872 |
|
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(23,942,872 |
) |
(b) |
|
80,466,903 |
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Net Property, Plant and Equipment |
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|
34,976,238 |
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|
4,681,498 |
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5,166,289 |
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|
44,824,025 |
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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TOTAL ASSETS |
|
$ |
120,683,023 |
|
$ |
5,645,600 |
|
$ |
2,279,616 |
|
$ |
128,608,239 |
|
|
See accompanying notes to unaudited pro forma combined condensed financial statements.
19
NEW ULM TELECOM, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED
CONDENSED BALANCE SHEET
DECEMBER 31, 2012
LIABILITIES AND STOCKHOLDER’S EQUITY
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Historical |
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Pro
Forma |
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New
Ulm |
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|||||||
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|||||
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New Ulm |
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Sleepy Eye |
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|||||||
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CURRENT LIABILITIES: |
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Current Portion of Long-Term Debt |
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$ |
4,113,000 |
|
$ |
– |
|
$ |
– |
|
|
4,113,000 |
|
|
|
Other Accounts Payable & Accrued Liabilities |
|
|
4,221,450 |
|
|
182,411 |
|
|
118,210 |
|
(a) |
|
4,522,071 |
|
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Total Current Liabilities |
|
|
8,334,450 |
|
|
182,411 |
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|
118,210 |
|
|
8,635,071 |
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|
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LONG-TERM DEBT, Less Current Portion |
|
|
42,494,385 |
|
|
– |
|
|
– |
|
|
|
42,494,385 |
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|
|
|
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|
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NONCURRENT LIABILITIES: |
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|
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|
|
|
|
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Loan Guarantees |
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|
303,627 |
|
|
– |
|
|
– |
|
|
|
303,627 |
|
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Income Taxes |
|
|
12,646,310 |
|
|
972,779 |
|
|
6,691,426 |
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(b) |
|
20,310,515 |
|
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Other Accrued Liabilities |
|
|
136,146 |
|
|
– |
|
|
– |
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|
|
136,146 |
|
|
Other Deferred Credits |
|
|
865,879 |
|
|
– |
|
|
131,990 |
(a) |
|
997,869 |
|
|
|
Total Noncurrent Liabilities |
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|
13,951,962 |
|
|
972,779 |
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|
6,823,416 |
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|
21,748,157 |
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STOCKHOLDER’S EQUITY: |
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Common Stock |
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8,554,197 |
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|
1,278,575 |
|
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(1,278,575 |
) |
(b) |
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|
|
|
|
|
|
|
|
|
|
|
|
(47,667 |
) |
(c) |
|
8,506,530 |
|
|
Paid in Capital |
|
|
|
|
|
131,492 |
|
|
(131,492 |
) |
(b) |
|
– |
|
|
Accumulated other Comprehensive Income (Loss) |
|
|
(179,313 |
) |
|
– |
|
|
– |
|
|
(179,313 |
) |
|
|
Retained Earnings |
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|
47,527,342 |
|
|
3,080,343 |
|
|
(3,080,343 |
) |
(b) |
|
|
|
|
|
|
|
– |
|
|
– |
|
|
(123,933 |
) |
(c) |
|
47,403,409 |
|
|
Total Stockholder’s Equity |
|
|
55,902,226 |
|
|
4,490,410 |
|
|
(4,662,010 |
) |
|
|
55,730,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY |
|
$ |
120,683,023 |
|
$ |
5,645,600 |
|
$ |
2,279,616 |
|
$ |
128,608,239 |
|
|
See accompanying notes to unaudited pro forma combined condensed financial statements.
20
NEW ULM TELECOM, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 2012
|
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|
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|
|
Historical |
|
Pro
Forma |
|
New
Ulm |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|||||
|
|
New Ulm |
|
Sleepy
Eye |
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|
|||||||
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|||||||||
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OPERATING REVENUES: |
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|
|
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|
|
|
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|
|
|
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Local Network |
|
$ |
5,782,218 |
|
$ |
1,158,468 |
|
|
– |
|
$ |
6,940,686 |
|
|
|
Network Access |
|
|
10,781,356 |
|
|
1,716,584 |
|
|
– |
|
|
|
12,497,940 |
|
|
Video Services |
|
|
5,969,610 |
|
|
728,305 |
|
|
– |
|
|
6,697,915 |
|
|
|
Internet Services |
|
|
5,568,000 |
|
|
1,464,517 |
|
|
– |
|
|
|
7,032,517 |
|
|
Other |
|
|
4,381,804 |
|
|
459,460 |
|
|
(359,438 |
) |
(h) |
|
4,481,826 |
|
|
Total Operating Revenues |
|
|
32,482,988 |
|
|
5,527,334 |
|
|
(359,438 |
) |
|
|
37,650,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant Operations, Excluding Depreciation and Amortization |
|
|
6,633,873 |
|
|
1,177,845 |
|
|
– |
|
|
|
7,811,718 |
|
|
Cost of Video Services |
|
|
5,104,561 |
|
|
563,689 |
|
|
– |
|
|
5,668,250 |
|
|
|
Cost of Internet Services |
|
|
959,058 |
|
|
120,455 |
|
|
– |
|
|
|
1,079,513 |
|
|
Cost of Other Nonregulated Services |
|
|
1,612,538 |
|
|
19,210 |
|
|
– |
|
|
1,631,748 |
|
|
|
Depreciation and Amortization |
|
|
8,219,749 |
|
|
1,186,129 |
|
|
821,143 |
|
(e) |
|
|
|
|
|
|
|
|
|
|
|
|
|
554,825 |
(f) |
|
10,781,846 |
|
|
|
Selling, General and Administrative |
|
|
6,269,618 |
|
|
486,390 |
|
|
(119,813 |
) |
(i) |
|
6,636,195 |
|
|
Total Operating Expenses |
|
|
28,799,397 |
|
|
3,553,718 |
|
|
1,256,155 |
|
|
33,609,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME |
|
|
3,683,591 |
|
|
1,973,616 |
|
|
(1,615,593 |
) |
|
|
4,041,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense |
|
|
(2,227,343 |
) |
|
(109 |
) |
|
(96,278 |
) |
(d) |
|
(2,323,730 |
) |
|
Interest and Dividend Income |
|
|
81,808 |
|
|
13,984 |
|
|
– |
|
|
95,792 |
|
|
|
AFUDC |
|
|
19,067 |
|
|
– |
|
|
– |
|
|
|
19,067 |
|
|
Equity Earnings in Hector Comm. Corp. |
|
|
770,539 |
|
|
– |
|
|
(770,539 |
) |
(g) |
|
– |
|
|
Loss on HCC Spin-Off |
|
|
(111,546 |
) |
|
– |
|
|
– |
|
|
|
(111,546 |
) |
|
CoBank Patronage Dividends |
|
|
449,878 |
|
|
– |
|
|
– |
|
|
449,878 |
|
|
|
Other Investment Income (Loss) |
|
|
143,443 |
|
|
(25,569 |
) |
|
– |
|
|
|
117,874 |
|
|
Total Other Income (Expenses) |
|
|
(874,154 |
) |
|
(11,694 |
) |
|
(866,817 |
) |
|
|
(1,752,665 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES |
|
|
2,809,437 |
|
|
1,961,922 |
|
|
(2,482,410 |
) |
|
|
2,288,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAXES |
|
|
(365,477 |
) |
|
799,444 |
|
|
(1,004,631 |
) |
(j) |
|
(570,664 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
3,174,914 |
|
$ |
1,162,478 |
|
$ |
(1,477,779 |
) |
|
$ |
2,859,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED NET INCOME PER SHARE |
|
$ |
0.62 |
|
$ |
0.23 |
|
$ |
(0.29 |
) |
|
$ |
0.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIVIDENDS PER SHARE |
|
$ |
0.33 |
|
$ |
– |
|
$ |
– |
|
|
$ |
0.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING |
|
|
5,123,017 |
|
|
5,123,017 |
|
|
5,123,017 |
|
|
5,123,017 |
|
|
See accompanying notes to unaudited pro forma combined condensed financial statements.
21
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS
Note 1 – The Acquisition of SETC
As previously disclosed, NU Telecom, Arvig Enterprises, Inc. and Blue Earth Valley Communications, Inc. were equal one-third owners in HCC, a diversified telecommunications company. In keeping with the November 15, 2012 spin-off agreement, HCC and its three owners/shareholders agreed to distribute its independent local exchange company subsidiaries to its three owners/shareholders (“Spin–Off”). HCC and its shareholders determined that by spinning-off these local exchange telephone companies to its constituent shareholders, these individual shareholders would be able to take advantage of their geographical proximity to these local exchange telephone companies to (i) continue to provide continued and uninterrupted service to customers of these local exchange telephone companies; (ii) more fully integrate these local exchange telephone companies into their current operations and existing operating businesses and (iii) allow more efficient branding and delivery of services to these customers.
The Spin-off was completed on December 31, 2012.
Under the Spin-Off, NU Telecom received all of the stock of SETC and certain assets and investments of HCC. SETC currently serves customers in southern Minnesota.
The unaudited pro forma combined condensed balance sheet and statement of income are not necessarily indicative of the financial position and operating results that would have been achieved had the spin-off been completed as of January 1, 2012. 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 NU Telecom and SETC gives effect to the spin-off of SETC that occurred on December 31, 2012. The unaudited pro forma combined condensed balance sheet is based on each entity’s respective historical financial statements. The unaudited pro forma combined condensed balance sheet should be read in conjunction with NU Telecom’s audited consolidated financial statements and notes, presented in NU Telecom’s Annual Report on Form 10-K for the year ended December 31, 2012 to be filed on or about March 22, 2013 with the Securities and Exchange Commission (SEC).
The accompanying unaudited pro forma combined condensed consolidated statement of income of NU Telecom and SETC gives effect to the spin-off of SETC as if it had occurred on January 1, 2012, and reflects the unaudited pro forma combined condensed results of operations of SETC for the year ended December 31, 2012 combined with the unaudited pro forma combined condensed results of operations of NU Telecom for the year ended December 31, 2012. The unaudited pro forma combined condensed consolidated statement of income are based on each entity’s respective historical financial statements. The unaudited pro forma combined condensed consolidated statement of income should be read in conjunction with NU Telecom’s audited consolidated financial statements and notes, together with management’s discussion and analysis of financial condition and results of operations,
22
presented in NU Telecom’s Annual Report on Form 10-K for the year ended December 31, 2012 to be filed on or about March 22, 2013 with the SEC.
The unaudited pro forma combined condensed consolidated 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 spin-off occurred as of January 1, 2012 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 consolidated 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 SETC, and other assets and investments of HCC. 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 consolidated statement of income does not include the realization of cost savings from operating efficiencies or synergies that may result from the spin-off.
Note 2 – Allocation of the Fair Value of HCC Spin-Off
The allocation of the spin-off value for the HCC assets has been based on the assets’ fair values. 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 spin-off value of SETC is shown below:
|
|
|
|
|
|
|
Current assets |
|
$ |
439,664 |
|
|
Property, plant and equipment |
|
|
9,847,787 |
|
|
Investments |
|
|
2,412,938 |
|
|
Customer relationship intangible |
|
|
9,900,000 |
|
|
Trade name intangible |
|
|
570,000 |
|
|
Excess costs over net assets acquired (Goodwill) |
|
|
10,268,806 |
|
|
Current liablities |
|
|
(300,621 |
) |
|
Deferred liabilities |
|
|
(7,675,522 |
) |
|
Total price allocation |
|
|
25,463,052 |
|
|
Less Cash Acquired |
|
|
(18,150 |
) |
|
|
|
|
|
|
|
Total Consideration for Acquisition |
|
$ |
25,444,902 |
|
23
Note 3 – Adjustments to Unaudited Pro Forma Combined Condensed Financial Statements
The adjustments to the unaudited pro forma combined condensed balance sheet as of December 31, 2012 and the pro forma combined condensed statement of income for the year ended December 31, 2012, in connection to the spin-off of SETC are presented below:
|
|
|
|
|
|
Adjustments to Unaudited Pro Forma Combined Condensed Balance Sheet as of December 31, 2012 |
|
|
|
|
|
|
|
(a) |
This adjustment reflects the investments and other assets and liabilities acquired from HCC at fair value. |
|
|
|
|
|
|
(b) |
This adjustment reflects the step-up of acquired assets to fair value, the elimination of accumulated depreciation, the deferred income tax effect of the fair value adjustment, and the elimination of the historical SETC equity. |
|
|
|
|
|
|
(c) |
This adjustment is to reflect the retirement of the 28,600 NU Telecom stock received in the spin-off. |
|
|
|
|
|
|
Adjustments to the Unaudited Pro Forma Combined Condensed Statement of Income |
|
|
|
|
|
|
|
(d) |
This adjustment reflects additional estimated interest expense due to additional NU Telecom financing from CoBank, ACB in relation to the HCC Spin-Off. Interest expense is calculated as if the additional borrowings had occurred on January 1, 2012 and the interest rate is based on variable interest rate we paid CoBank for the year ended December 31, 2012. |
|
|
|
|
|
|
(e) |
This adjustment reflects estimated amortization expense of $821,143 for definitely lived intangible assets for the year ended December 31, 2012. |
|
|
|
|
|
|
(f) |
This adjustment reflects additional estimated depreciation expense of $554,825 due to additional depreciation on the fair value of the assets over book value. |
|
|
|
|
|
|
(g) |
This adjustment reflects the removal of the Equity Earnings in HCC for 2012. |
|
|
|
|
|
|
(h) |
This adjustment reflects the removal of management services and fees received from HCC for services rendered for management, help desk and billing services. |
|
|
|
|
|
|
(i) |
The adjustment reflects the adjustment of management fees and other billings that were allocated to SETC by HCC. |
|
|
|
|
|
|
(j) |
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 NU Telecom’s management as a result of the merger.
24