Basis of Presentation and Consolidation

6 Months Ended

Jun. 30, 2022

Accounting Policies [Abstract]

Business Description and Accounting Policies [Text Block]

Note 1 – Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements of Nuvera Communications, Inc. and its subsidiaries (Nuvera) have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information, rules and regulations of the Securities and Exchange Commission (SEC) and, where applicable, conform to the accounting principles as prescribed by federal and state telephone utility regulatory authorities. Certain information and disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted or condensed pursuant to such rules and regulations. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal and recurring accruals) considered necessary for the fair presentation of the financial statements and present fairly the results of operations, financial position and cash flows for the interim periods presented as required by Regulation S-X, Rule 10-01. These unaudited interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2021.

The preparation of our financial statements requires our management to make estimates and judgements that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and liabilities at the date of the financial statements and during the reporting period. Actual results may differ from these estimates. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the fiscal year as a whole or any other interim period.

Our consolidated financial statements report the financial condition and results of operations for Nuvera and its subsidiaries in one business segment: the Communications Segment. Inter-company transactions have been eliminated from the consolidated financial statements.

Revenue Recognition

See Note 2 – “Revenue Recognition” for a discussion of our revenue recognition policies.

Cost of Services (excluding depreciation and amortization)

Cost of services includes all costs related to delivery of communication services and products. These operating costs include all costs of performing services and providing related products including engineering, network monitoring and transportation costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include direct and indirect selling expenses, customer service, billing and collections, advertising and all other general and administrative costs associated our operations.

Depreciation and Amortization Expense

We use the group life method (mass asset accounting) to depreciate the assets of our communications companies. Communications plant acquired in a given year is grouped into similar categories and depreciated over the remaining estimated useful life of the group. When an asset is retired, both the asset and the accumulated depreciation associated with that asset are removed from the books. Due to rapid changes in technology, selecting the estimated economic life of communications plant and equipment requires a significant amount of judgment. We periodically review data on expected utilization of new equipment, asset retirement activity and net salvage values to determine adjustments to our depreciation rates. Depreciation expense was $6,015,185 and $4,533,969 for the six months ended June 30, 2022 and 2021. The increase in depreciation expense in the second quarter of 2022 was primarily due to accelerated depreciation on our old copper cable networks as we transition to a new advanced fiber-to-the-premise (FTTP) network. We amortize our definite-lived intangible assets over their estimated useful lives. Identifiable intangible assets that are subject to amortization are evaluated for impairment.

Income Taxes

The provision for income taxes consists of an amount for taxes currently payable and a provision for tax consequences deferred to future periods. Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases. Significant components of our deferred taxes arise from differences (i) in the basis of property, plant and equipment due to the use of accelerated depreciation methods for tax purposes, as well as (ii) in partnership investments and intangible assets due to the difference between book and tax basis. Our effective income tax rate is normally higher than the United States tax rate due to state income taxes and permanent differences, however, our effective income tax rate was lower than the United States tax rate in the quarter ended June 30, 2021 due to the Small Business Administration’s (SBA) Payroll Protection Program (PPP) loan forgiveness not being taxable at the federal and state level at that time. 

We account for income taxes in accordance with GAAP, which requires an asset and liability approach to financial accounting and reporting for income taxes. As required by GAAP, we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

As of June 30, 2022 and December 31, 2021 we had $38,673 of unrecognized tax benefits that if recognized would affect the tax rate. We do not expect the total amount of unrecognized tax benefits to materially change over the next 12 months.     

We are primarily subject to United States, Minnesota, Iowa, Nebraska, North Dakota and Wisconsin income taxes. Tax years subsequent to 2017 remain open to examination by federal and state tax authorities. We are currently undergoing an income tax examination by the State of Minnesota. We do not expect the results of the examination to have a material effect on our ongoing financial statements. Our policy is to recognize interest and penalties related to income tax matters as income tax expense. As of June 30, 2022 and December 31, 2021 we had $4,102 of accrued interest that related to income tax matters.

Earnings and Dividends Per Share

Basic and diluted net income per share are calculated as follows:

	Three Months Ended   June 30, 2022				Three Months Ended   June 30, 2021				Six Months Ended   June 30, 2022				Six Months Ended   June 30, 2021
	Basic		Diluted		Basic		Diluted		Basic		Diluted		Basic		Diluted
Net Income	$	1,700,401	$	1,700,401	$	2,442,913	$	2,442,913	$	4,102,007	$	4,102,007	$	7,623,624	$	7,623,624
Weighted-average common shares outstanding		5,077,972		5,097,055		5,210,700		5,219,430		5,094,797		5,110,798		5,206,766		5,214,992
Net income per share	$	0.33	$	0.33	$	0.47	$	0.47	$	0.81	$	0.80	$	1.46	$	1.46

The weighted-average shares outstanding, basic and diluted, are calculate as follows:

	Three Months Ended   June 30, 2022				Three Months Ended   June 30, 2021				Six Months Ended   June 30, 2022				Six Months Ended   June 30, 2021
	Basic		Diluted		Basic		Diluted		Basic		Diluted		Basic		Diluted
Weighted-average common shares outstanding		5,077,972		5,077,972		5,210,700		5,210,700		5,094,797		5,094,797		5,206,766		5,206,766
Unvested RSU's/Options		-		19,083		-		8,730		-		16,001		-		8,226
Weighted-average common shares outstanding		5,077,972		5,097,055		5,210,700		5,219,430		5,094,797		5,110,798		5,206,766		5,214,992

Nuvera’s Board of Directors (BOD) reviews quarterly dividend declarations based on our anticipated earnings, capital requirements and our operating and financial conditions. 

Recent Accounting Developments

Effective January 1, 2021 we adopted Accounting Standards Update (ASU) 2020-06, “Accounting for Convertible Instruments in an Entity’s Own Equity.” ASU 2020-06 simplifies guidance on accounting for convertible instruments and contracts in an entity’s own equity including calculating diluted earnings per share. The adoption of this guidance did not have an impact on our consolidated financial statements and related disclosures.

Effective January 1, 2021, we adopted ASU 2019-12, “Income Taxes,” ASU 2019-12 simplifies the accounting for income taxes by eliminating certain exceptions and adding certain requirements to the general framework in Accounting Standards Codification (ASC) 740, “Income Taxes.” The new guidance will be applied prospectively. The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.

In November 2021, the Financial Accounting Standards Board (FASB) issued ASU 2021-10, “Disclosures by Business Entities about Government Assistance.” ASU 2021-10 requires disclosure by business entities of the types of government assistance received, the method of accounting for such assistance and the effects of the assistance on its financial statements. The new guidance is effective for financial statements issued for annual periods beginning after December 15, 2021, with early adoption permitted. We are currently evaluating the impact this update will have on our related disclosures.

In March 2020, the FASB issued ASU 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In January 2021, the FASB issued ASU No. 2101-01, “Reference Rate Reform (Topic 848): Scope.” ASU 2021-01 clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. ASU 2020-04 and ASU 2021-01 are both elective and are effective upon issuance through December 31, 2022. We are currently evaluating the impact these updates will have on our consolidated financial statements and related disclosures.  

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires entities to use a new forward-looking, expected loss model to estimate credit losses. It also requires additional disclosures relating to the credit quality of trade and other receivables, including information relating to management’s estimate of credit allowances. The Company is required to adopt ASU 2016-13 for fiscal periods beginning after December 15, 2022, including interim periods within that fiscal year. Early adoption as of December 15, 2018 is permitted. We continue to evaluate the impact the adoption of ASU 2016-13 will have on our financial statements, which we expect will not have a significant impact on our consolidated financial statements.

We have reviewed all other significant newly issued accounting pronouncements and determined that they are either not applicable to our business or that no material effect is expected on our financial position and results of operations.