UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-K

(Mark One)

(X)   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ending December 31, 20162018

(  )    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from______to______

Commission File Number: 0-3024

NEW ULM TELECOM,NUVERA COMMUNICATIONS, INC.

(Exact name of registrant as specified in its charter)

Minnesota	41-0440990
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	(State or other jurisdiction of                                       (I.R.S. Employer incorporation or organization)                                      Identification No.)

27 North Minnesota Street

New Ulm, Minnesota 56073

(Address of principal executive offices)

Registrant's telephone number, including area code:  (507) 354-4111

Securities registered pursuant to Section 12 (g) of the Act: 

Title of each class		Name of each exchange on which registered
Common Stock - $1.66 par value		OTCQB Marketplace

Title of each className of each exchange on which registered

 Common Stock - $1.66 par value                                                                OTCQB Marketplace                       

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  o   No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes  o No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x  No  o

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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  Yes  x  No  o

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitionsdefinition of “large accelerated filer”filer,” “accelerated filer”filer,” “non-accelerated filer” orfiler,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

o  Large accelerated filer  ox  Accelerated filer  o  Non-accelerated filer  x  Smaller reporting company  o Emerging growth company     

If emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o  No  x

The aggregate market value of the registrant’s common stock held by non-affiliates computed by reference to the price at which the common stock was sold, as of the last business day of the registrant’s most recently completed second fiscal quarter was $28,914,066.$77,845,027. This calculation is based upon the closing price of $7.30$18.40 of the stock on June 30, 2016,29, 2018, as quoted on the OTCQB Marketplace. Without asserting that any director or executive officer of the registrant, or person owning 5% or more of the registrant’s common stock, is an affiliate, the shares of which they are the beneficial owners have been deemed to be owned by affiliates solely for this calculation.

As of March 15, 2017,14, 2019, the registrant had 5,139,3755,175,258 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement for the 20172019 Annual Meeting of Stockholders to be held on May 25, 201723, 2019 are incorporated herein by reference in Part III of this Annual Report on Form 10-K to the extent stated herein. Such proxy statement will be filed with the Securities and Exchange Commission (SEC) within 120 days of the registrant’s fiscal year ended December 31, 2016.2018.

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NOTE ABOUT FORWARD LOOKING STATEMENTS

The SECSecurities and Exchange Commission (“SEC”) encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. Certain statements in this Annual Report on Form 10-K, including those relating to the impact on future revenue sources, pending and future regulatory orders, continued expansion of the telecommunicationscommunications network and expected changes in the sources of our revenue and cost structure resulting from our entrance into new communications markets, are forward-looking statements and are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. The Securities Litigation Reform Act of 1995 contains safe harbor provisions regarding forward-looking statements. This 2016 Annual Report on Form 10-K and other documents filed by New Ulm Telecom, Inc. (“NU Telecom” or “the Company”) under the federal securities laws, including Form 10-Q and Form 8-K and amendments to those reports, and future verbal or written statements by NU Telecom and its management, may include forward-looking statements. These statements may include, without limitation, statements with respect to anticipated future operating and financial performance, growth opportunities and growth rates, acquisition and divestiture opportunities, business strategies, business and competitive outlook, and other similar forecasts and statements of expectation. Words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “targets”, “projects”, “will”, “may”, “continues” and “should”, and variations of these words and similar expressions, are intended to identify these forward-looking statements. These forward-looking statements reflect, among other things, our current expectations, plans, strategies and anticipated financial results. There are subject toa number of risks, uncertainties and uncertaintiesconditions that couldmay cause our actual results to differ materially from suchthose expressed or implied by these forward-looking statements.

BecauseMany of these circumstances are beyond our ability to control or predict. Moreover, forward-looking statements necessarily involve assumptions on our part. These forward-looking statements generally are identified by the words “believe,” “expect,” “anticipate,” “estimate,” “project,” “intend,” “plan,” “should,” “may,” “will,” “would,” “will be,” “will continue,” or similar expressions. These forward-looking statements involve known and unknown risks, uncertainties and assumptionsother factors that may cause actual results, performance or achievements of Nuvera Communications, Inc. and its subsidiaries (“Nuvera,” the fact that any“Company,” “we” or “our” or “us”) to be different from those expressed or implied in the forward-looking statements. All forward-looking statements madeattributable to us or persons acting on our behalf are expressly qualified in their entirety by us and our management are based on estimates, projections, beliefs and assumptions of management, they are not guarantees of future performance and you should not place undue reliance on them. In addition,the cautionary statements that appear throughout this report. Furthermore, forward-looking statements speak only as of the date they are made, which is the filing date of this Form 10-K. With the exception of the requirements set forth in themade. Except as required under federal securities laws or the rules and regulations of the SEC, we do not undertakedisclaim any intention or obligation to update or reviewrevise publicly any forward-looking information, whether as a result of new information, future events or otherwise.statements. Undue reliance should not be placed on forward-looking statements. 

Website Access to SEC Reports

Our website at www.nutelecom.netwww.nuvera.net provides information about our products and services, along with general information about NU TelecomNuvera and its management and financial results. Copies of our most recent Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, can be obtained, free of charge, as soon as reasonably practical after these reports are electronically filed or furnished to the SEC. To obtain this information, visit our website noted above and select “About Us – Investors” to view NU TelecomNuvera SEC filings,” or call (844) 354-4111. The SEC also maintains a website at www.sec.govthat contains reports, proxy and information statements, and other information regarding public companies, including NU Telecom.Nuvera Communications, Inc. Any reports filed with the SEC may also be obtained from the SEC’s Reference Room at 100F Street, NE, Washington, DC 20549.

Code of Business Conduct and Ethics

Our Board of Directors (BOD) has adopted a Code of Business Conduct and Ethics that is applicable to all directors, the chief executive officer, chief financial officer and to all other employees of NU Telecom.Nuvera. All employees of NU TelecomNuvera have undergone training on this Code of Business Conduct and Ethics. The information required by Item 406 of Regulation S-K is contained under “Code of Business Conduct” in the 20172019 Proxy Statement and is incorporated by reference. Our Board of DirectorsBOD has also adopted written charters for its committees that comply with the NASDAQ Global Select Market. Copies of the committee charters are available on our website above or by contacting us at (844) 354-4111.  

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PART I

Item 1.   Business

“NU Telecom” or “the Company” refers to New Ulm Telecom, Inc. alone or with its wholly owned subsidiaries as the context requires. When this report uses the words “we,” “our” or “us,” it refers to the Company and its subsidiaries unless the context otherwise requires.

Company Overview and History

NU TelecomNuvera is a diversified communications company headquartered in New Ulm, Minnesota with more than 111113 years of experience in the local telephone exchange and telecommunicationscommunications business. We operate in one principal business segment: the TelecomCommunications Segment.

Our principal line of business is the operation of fivesix local telephone companies or incumbent local exchange carriers (ILEC) and the operation of two competitive local exchange carriers (CLEC) telephone companies. Our original business was founded in 1905 and consisted of the operation of a single ILEC (New Ulm Rural Telephone Company). In 1984, we changed our name to New Ulm Telecom, Inc. In 1986, we acquired our second ILEC, Western Telephone Company (WTC). In 1993, we acquired our third ILEC, Peoples Telephone Company (PTC). In 2008, we acquired our fourth ILEC, Hutchinson Telephone Company (HTC). In 2012, we acquired our fifth ILEC, Sleepy Eye Telephone Company (SETC). In 2018, we acquired our sixth ILEC, Scott-Rice Telephone Co. (Scott-Rice). Our businesses consist of connecting customers to our state-of-the-art, fiber-rich communications network, providing managed services, switched service and dedicated private lines, connecting customers to long distance service providers and providing many other services associated with our businesses. Our businesses also provide Internet protocol television (IPTV), cable television services (CATV), Internet access services, including high-speed broadband access, and long distance service. We also install and maintain communications systems to the areas in and around our service territories in southern Minnesota and northern Iowa. In 2002, we formed a CLEC in the city of Redwood Falls, Minnesota and acquired our second CLEC in 2008 with the acquisition of HTC. This CLEC operates in and around the city of Litchfield, Minnesota. In 2010, we acquired the cable TV system in the city of Glencoe and operate Glencoe under the Litchfield CLEC. Our CLECs offer the same services as our ILECs. In 2000, we changed our marketing name to NU-Telecom and operated under that name in our markets. In 2018, we changed our marketing name to Nuvera and currently operate under that name in our markets.

Recent Business Developments

On July 31, 2018, the Company announced that it had completed its acquisition of Scott-Rice from Allstream Business U.S., LLC, an affiliate of Zayo Group Holdings, Inc. (Zayo) for approximately $42 million in cash. Scott-Rice provides voice, video and Internet services with more than 18,000 connections, serving the communities of Prior Lake, Savage, Elko and New Market, Minnesota. The combined Nuvera/Scott-Rice Company has approximately 66,000 connections. Nuvera financed the acquisition with its principal lender CoBank, ACB (CoBank). Further information regarding the CoBank loan terms and amounts can be found on the Company’s 8-K filed with the SEC on August 3, 2018.

Our operations are currently conducted through the following subsidiaries:

Telecom Segment

    ●  ILECs:

       ▪   New Ulm Telecom, Inc., the parent company;

       ▪   Hutchinson Telephone Company, a wholly-owned subsidiary of NU Telecom;

       ▪   Peoples Telephone Company, a wholly-owned subsidiary of NU Telecom;

       ▪   Sleepy Eye Telephone Company, a wholly-owned subsidiary of NU Telecom;

       ▪   Western Telephone Company, a wholly-owned subsidiary of NU Telecom;

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●  CLECs:

   ▪   NU Telecom, located in Redwood Falls, Minnesota; 

   ▪   Hutchinson Telecommunications, Inc., a wholly-owned subsidiary of HTC, located in Litchfield and Glencoe, Minnesota;

●  Our investments and interests in the following entities include some management responsibilities:

   ▪   FiberComm, LC – 20.00% subsidiary equity ownership interest. FiberComm, LC is located in Sioux City, Iowa;

      ▪   Broadband Visions, LLC (BBV) – 24.30% subsidiary equity ownership interest. BBV provides video headend and Internet services;

      ▪   Independent Emergency Services, LLC (IES) – 14.29% subsidiary equity ownership interest. IES is a provider of E-911 services to the State of Minnesota as well as a number of counties located in Minnesota; and

      ▪   SM Broadband, LLC (SMB) – 12.50%

Communications Segment
●	ILECs:
	▪	Nuvera Communications, Inc., the parent company (Nuvera);
	▪	Hutchinson Telephone Company, a wholly-owned subsidiary of Nuvera;
	▪	Peoples Telephone Company, a wholly-owned subsidiary of Nuvera;
	▪	Scott-Rice Telephone Co., a wholly-owned subsidiary of Nuvera;
	▪	Sleepy Eye Telephone Company, a wholly-owned subsidiary of Nuvera;
	▪	Western Telephone Company, a wholly-owned subsidiary of Nuvera;
●	CLECs:
	▪	Nuvera, located in Redwood Falls, Minnesota; and
	▪	Hutchinson Telecommunications, Inc., a wholly-owned subsidiary of HTC, located in Litchfield and Glencoe, Minnesota;
●	Our investments and interests in the following entities include some management responsibilities:
	▪	FiberComm, LC – 20.00% subsidiary equity ownership interest. FiberComm, LC is located in Sioux City, Iowa;
	▪	Broadband Visions, LLC (BBV) – 24.30% subsidiary equity ownership interest. BBV provides video headend and Internet services;
	▪	Independent Emergency Services, LLC (IES) – 14.29% subsidiary equity ownership interest. IES is a provider of E-911 services to the State of Minnesota as well as a number of counties located in Minnesota; and
	▪	SM Broadband, LLC (SMB) – 10.00% subsidiary equity ownership interest. SMB provides network connectivity for regional businesses.

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We report the business operations of our fivesix ILECs and two CLECs and their associated services as a single segment that we refer to as the TelecomCommunications Segment. 

The TelecomCommunications Segment operates fivethe following ILECs: New Ulm Telecom, Inc. (New Ulm),Nuvera, HTC, PTC, Scott-Rice, SETC and WTC and two CLECs located in the cities of Redwood Falls, Litchfield and Glencoe, Minnesota. New Ulm,Nuvera, HTC, Scott-Rice, SETC and WTC are independent telephone companies that are regulated by the Minnesota Public Utilities Commission at the state level, while PTC is an independent telephone company that is regulated by the Iowa Utilities Board at the state level. Our two CLECs are currently not under the same level of regulatory oversight as our ILECs. As of December 31, 20162018 we served 23,55626,940 access lines in the Minnesota communities of Bellechester, Courtland, Elko, Evan, Goodhue, Hanska, Hutchinson, Klossner, Litchfield, Mazeppa, New Market, New Ulm, Prior Lake, Redwood Falls, Sanborn, Savage, Searles, Sleepy Eye, Springfield and White Rock, as well as the adjacent rural areas of Blue Earth, Brown, Goodhue, McLeod, Meeker, Nicollet, Redwood, Rice, Scott and Wabasha counties in south central Minnesota. We also serve the community of Aurelia, Iowa as well as the adjacent rural areas surrounding Aurelia. The TelecomCommunications Segment also operates multiple IPTV and CATV systems in Minnesota (including the cities of Cologne, Courtland, Elko, Glencoe, Goodhue, Hanska, Hutchinson, Litchfield, Mayer, New Market, New Germany, New Ulm, Plato, Prior Lake, Redwood Falls, Sanborn, Savage, Sleepy Eye and Springfield) and one IPTV system in Aurelia, Iowa. These systems serve approximately 10,53212,288 customers. 

The TelecomCommunications Segment derives its principal revenues from (i) local service charges to its residential and business subscribers, (ii) access charges to Interexchange Carriers (IXCs) for providing the carriers access to our local phone networks and (iii) the provisioning of video and data services. We also receive revenue from long distance carriers for providing the billing and collection of long distance toll calls to our subscribers.

Neither our ILECs nor CLECs are dependent upon any single customer or small group of customers. No single customer accounted for 10% or more of our consolidated revenues in any of the last two years.

We receive the majority of our revenues through the following revenue sources:

Data and Transport Services – We provide a variety of business communication services to small, medium and large business customers, including many services over our advanced fiber network. The services we offer include scalable high speed broadband Internet access and voice over Internet protocol (VoIP) phone services, which range from basic service plans to virtual hosted systems. Our hosted VoIP package utilizes our soft switching technology and enables our customers to have the flexibility of employing new telephone advances and features without investing in a new telephone system. This package bundles local service, calling features, IP business telephones and unified messaging, which integrates multiple technologies into a single system and allows the customer to receive and listedlisten to voice messages through e-mail. 

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In addition to Internet and VoIP services, we also offer a variety of commercial data connectivity services in select markets including private line and Ethernet services to provide high bandwidth across point-to-point and multiple site networks.

Broadband Services – Broadband services include revenue from residential customers for subscriptions toWe receive the majority of our VoIP, data and video products. We offer high speed internet access depending onrevenues through the nature of the network facilities that are available, the level of service selected and the location. Our VoIP digital phone service is also available as an alternative to the traditional telephone line. We offer multiple voice services plans with customizable calling features and voicemail. Depending on geographical market availability, our video services range from limited basic service to advanced digital TV, which includes several plans each with hundreds of local, national music channels including premium and pay-per-view channels as well as video-on-demand service. Certain customers may also subscribe to our advanced video services, which consist of high-definition (HD) TV, digital video recorders (DVR) and or home DVR. Our Whole Home DVR allows customers the ability to watch recorded shows on any TV in the house, record multiple shows at one time and utilize an intuitive on-screen guide and user interface. Video subscribers also have access to our TV Everywhere service which allows subscriber access to full episodes of available shows, movies and live screens using a computer or mobile device.  following sources:

Local Service– We receive recurring revenue for basic local services that enable end-user customers to make and receive telephone calls within a defined local calling area for a flat monthly fee. In addition to subscribing to basic local telephone services, our customers may choose from a variety of custom calling features such as call waiting, call forwarding, caller identification and voicemail. Our VoIP digital phone service is also available as an alternative to the traditional telephone line. We offer multiple voice services plans with customizable calling features and voicemail.  

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Network Access – We provide access services to other telecommunicationscommunications carriers for the use of our facilities to terminate or originate long distance calls on our network. Additionally, we bill subscriber line charges (SLCs) to substantially all of our customers for access to the public switched network. These monthly SLCs are regulated and approved by the Federal Communications Commission (FCC). In addition, network access revenue is derived from several federally administered pooling arrangements designed to provide support and distribute funding to the ILECs.   

Video – We provide a variety of enhanced video services on a monthly recurring basis to our customers. Depending on geographical market availability, our video services range from limited basic service to advanced digital TV, which includes several plans each with hundreds of local, national music channels including premium and pay-per-view channels as well as video-on-demand service. Certain customers may also subscribe to our advanced video services, which consist of high-definition (HD) TV, digital video recorders (DVR) and Whole Home DVR. Our Whole Home DVR allows customers the ability to watch recorded shows on any TV in the house, record multiple shows at one time and utilize an intuitive on-screen guide and user interface. Video subscribers also have access to our TV Everywhere service which allows subscriber access to full episodes of available shows, movies and live screens using a computer or mobile device. We also receive monthly recurring revenue from our subscribers for providing commercial TV programming in competition with local CATV, satellite dish TV and off-air TV service providers. We serve seventeentwenty-two communities with our IPTV TV services and five communities with our CATV services.

Data – We provide high speed Internet access to business and residential customers.customers depending on the nature of the network facilities that are available, the level of service selected and the location. Our revenue is earned based on the offering of various flat rate packages based on the level of service, data speeds and features. We also provide e-mail and managed services, such as web hosting and design, on-line file back up and on-line file storage.  

Alternative Connect America Cost Model (A-Cam)/Federal Universal Service Fund (FUSF) – Prior to 2017, we received FUSF funding from the FCC. FUSF funding was established to overcome geographical differences in costs of providing voice service and to enable all citizens to communicate over networks regardless of geographical location and/or personal income. In our Form 10-Q for the quarter ended September 30, 2016, Nuvera disclosed that we had elected the A-CAM for our Minnesota and Iowa operations, replacing our former legacy support. Nuvera will receive A-CAM support for a period of ten years in exchange for meeting defined broadband build-out requirements. On May 7, 2018, the FCC issued Public Notice DA 18-465, which contained revised offers of A-CAM support and associated revised service deployment obligations. See pages 12-15 for a discussion regarding A-CAM and FUSF.

With the acquisition of Scott-Rice on July 31, 2018, see Note 3 – “Acquisitions and Dispositions,” to the Consolidated Financial Statements of this Annual Report on Form 10-K, Nuvera now receives FUSF support for Scott-Rice. The remainder of the Company receives funding from A-CAM. Scott-Rice’s settlements from the National Exchange Carriers Association (NECA) pools are based on nationwide average schedules.

Other – Our customers are billed for toll and long-distance services on either a per call or flat-rate basis. This also includes the offering of directory assistance, operator service and long distance private lines. We also generate revenue from directory publishing, sales and service of customer premise equipment (CPE), bill processing and other customer services. Our directory publishing revenue in our telephone directories recurs monthly. We also provide retail sales and service of cellular phones and accessories through Telespire, a national wireless provider. We resell these wireless services as TechTrendsNuvera Wireless, our branded product. We receive both recurring revenue for our wireless services, as well as revenue collected for the sale of wireless phones and accessories. 

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Strategy

Our vision is to position ourselves as a “one-stop” communications solutions provider. We believe our customers place a value on the fact that we are a local company whose goal is to meet our customers’ total communications needs. The success of this vision depends on the following strategies:

·      We market services to our residential customers either individually or as a bundled package. We offer a competitive, multi-service bundle of voice, high-speed Internet and IPTV. Data connections continue to increase as a result of consumer trends towards increased Internet usage and our enhanced product and service offerings.

·      Our consumer broadband speed allows us to continue to meet the needs of our customers and the demand for higher speed resulting from the growing trend of over-the-top content viewing. The availability of faster speeds also complements our wireless home networking (Wi-Fi) thatand supports our TV everywhere service and allows our subscribers to watch their favorite programs at home or away on a computer, smartphone or tablet.

·      We tailor our services to commercial customers by developing solutions to fit their specific needs. We provide services to a wide range of commercial customers from sole proprietors and other small businesses to multi-location corporations. Our business suite of services includes local and long-distance calling plans, hosted voice services using network servers, the added capacity for multiple phone lines, scalable broadband Internet, online back up and business directory listings.

·      We believe that we have several advantages over our competition, including a state-of-the-art, fiber-rich communications network, competitive pricing and costs, outstanding service quality, and a strong reputation, a high level of commitment to the communities we serve and a direct billing relationship with a vast majority of the customers we serve in our service territories. We manage the potential decline in Telecomcommunications network access and local service revenues by offering value-added services such as higher Internet speeds, HD IPTV, DVR services, managed services, customized communications solutions, content, along with outstanding customer service as a competitive differentiator.

·      We have and will continue to upgrade our networks and enhance our products and services to take advantage of the latest technology including advanced high-bandwidth capabilities and services, expansion of our network for wholesale and retail customers, Fiber-to-the-Tower services for wireless carriers and last mile fiber builds to residential and business customers. We intend to continue to introduce new services that draw upon our core competencies and we believe are attractive to our target customers. In considering new services, we look for market opportunities that we believe present growth opportunities.

·      We continue to seek ways to improve our internal processes and gain operational efficiencies. While focusing resources on revenue growth and market share gains, we continually challenge our management team and employees at all levels to seek efficiencies and enhance our customers’ experience. We continue to invest in our networks and train our employees to achieve customer service excellence.

·      Our current customer base provides a recurring revenue stream generating stable cash flow. Our focus remains on growing our services and supporting product lines so as to generate sufficient cash flow to fund our current operations, service our debt, fund our capital expenditure needs, pay dividends and expand our business. We have allocated resources to maintain and upgrade our network while focusing on optimizing returns by completing strategic capital outlays that will make our network more efficient and cost effective while providing the products and services that our customers desire in the markets we serve.

·      We intend to continue to pursue a disciplined process of evaluating acquisitions of businesses as well as organic growth opportunities of market expansion and/or products which are complementary to our business portfolio.  

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Competition

We compete in a rapidly evolving and highly competitive industry, and expect competition will continue to intensify as consolidations and mergers occur within the industry. Regulatory developments and technological advances over the past several years have increased opportunities for alternative communications service providers, which in turn have increased competitive pressures on our business. These alternative providers often face fewer regulations and have lower cost structures than we do. In addition, several of our competitors have consolidated with other communication providers and as a result are generally larger, have more financial and business resources and have greater geographical reach to provide services. Our competitive advantages include: our strong commitment and presence in the communities we serve, knowledge of these markets, our experienced local service and support team, and our ability to offer more flexible communications solutions than our larger competitors.

The long-range effect of competition on the delivery of communications services and equipment will depend on technological advances, regulatory actions at both the federal and the state levels, court decisions, and possible additional future federal and state legislation. Past federal and state legislation have tended to expand competition in the telecommunicationscommunications industry. 

Alternatives to our service include customers leasing private line switched voice and data services in or adjacent to our service territories that permit the bypassing of our communications facilities. In addition, microwave transmission services, wireless communications, fiber-optic/coaxial cable deployment, VoIP, satellite and other services also permit the bypassing of our local exchange network. These alternatives to local exchange service represent a potential threat to our long-term ability to provide local exchange services at economical rates.

In order to meet the competition present in our industry, our businesses have deployed new technology to enable our local exchange networks to capture operating efficiencies and to provide additional new services to our new and existing customer base. These new technologies include the latest release of digital switching technology for all of our switches and the installation of a Common Channel Signaling System No. 7 (SS7) out-of-band system for all of our access lines. Our businesses have also connected fiber rings (redundant route designs that allow traffic to be re-routed in the event of network problems) that protect our local networks and enable them to provide a reliable level of service to our customers. The value of our local network is also enhanced by the ability of our operating companies to offer access to high-speed Internet with broadband access to of our access lines. Broadband technology allows customer access to high-speed Internet and traditional voice connectivity over the same connection. In addition, our businesses have further enhanced our networks to allow the offering of video services over the same facilities that provide our customers with voice and Internet access. This technology is available to approximately 93% of our access lines.

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We compete as a CLEC in the cities of Redwood Falls, Litchfield and Glencoe, Minnesota. Our two CLECs are currently not under the same level of regulatory oversight as our ILECs. CenturyLink is the existing ILEC in these markets. Competition also exists in the other communities and areas served by our businesses for traditional telephone service from wireless communications providers and we also expect competition to increase from service providers offering VoIP. We experience competition in the Minnesota communities of Elko, Glencoe, Hutchinson, Litchfield, New Market, New Ulm, Prior Lake, Redwood Falls, Savage, Sleepy Eye and Springfield in the provisioning of video services. Comcast is the existing incumbent provider of video services in the New Ulm market. Mediacom is the existing incumbent provider of video services in the Elko, Hutchinson, Litchfield, New Market, Prior Lake, Redwood Falls, Savage, Sleepy Eye and Springfield markets. Several other communications providers compete with us in our markets in providing Internet services. Our businesses have responded to these competitive pressures by creating active programs to market our products, bundle our services and enhance our infrastructure to create higher customer value.

As of December 31, 2018 we served 26,940 access lines in the Minnesota communities of Bellechester, Courtland, Elko, Evan, Goodhue, Hanska, Hutchinson, Klossner, Litchfield, Mazeppa, New Market, New Ulm, Prior Lake, Redwood Falls, Sanborn, Savage, Searles, Sleepy Eye, Springfield and White Rock, as well as the adjacent rural areas of Blue Earth, Brown, Goodhue, McLeod, Meeker, Nicollet, Redwood, Rice, Scott and Wabasha counties in south central Minnesota. We also serve the community of Aurelia, Iowa as well as the adjacent rural areas surrounding Aurelia. The Communications Segment also operates multiple IPTV and CATV systems in Minnesota (including the cities of Cologne, Courtland, Elko, Glencoe, Goodhue, Hanska, Hutchinson, Litchfield, Mayer, New Market, New Germany, New Ulm, Plato, Prior Lake, Redwood Falls, Sanborn, Savage, Sleepy Eye and Springfield) and one IPTV system in Aurelia, Iowa. These systems serve 12,288 customers. 

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We are experiencing competition for some of our other services from IXCs, such as customer billing services, dedicated private lines and network switching. The provisioning of these services is contractual in nature and is primarily directed by the IXCs. Other services, such as directory advertising, operator services and cellular communications are open to competition, based primarily on service and customer experience.

Materials and Supplies

The materials and supplies that are necessary for the operation of our businesses are available from a variety of sources. We are not dependent on any particular supplier or group of affiliated suppliers for our equipment needs.

Regulation

The following summary provides a high-level overview, but may not include all present and proposed federal, state and local legislation and regulations affecting the telecommunicationscommunications industry. Some legislation and other regulations are currently the subject of judicial proceedings, legislative hearings and administrative proposals that could change the manner in which this industry operates. At this time, we cannot predict the outcome of any of these developments or their potential impact on us. Regulation can change rapidly in the telecommunicationscommunications industry and these changes could have an adverse effect on us in the future.

Overview

Our consolidated financial statements arehave been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP), rules and regulations of the SEC and, where applicable, conform to the accounting principles as prescribed by federal and state telephone utility regulatory authorities.

The services we offer are subject to varying levels of regulatory oversight. Federal and state regulatory agencies share responsibility for enforcing statutes and rules relative to the provision of communications services. Our interstate telecommunicationscommunications services are subject to regulation by the FCC. Intrastate services are governed by the relevant state regulatory commission. The Telecommunications Act of 1996 (TA96) and the rules enacted under it also gave oversight of interconnection arrangements and access to network elements to the state commissions. Our TV services are governed by FCC rules and municipal franchise agreements. There are also varying levels of regulatory oversight depending on the nature of the services offered or if the services are offered by an ILEC or CLEC.

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Our CLEC businesses provide services with less regulatory oversight than our ILEC companies. A company must file for CLEC or interexchange authority to operate with the appropriate public utility commission in each state it serves. Our CLECs provide a variety of services to both residential and business customers in multiple jurisdictions.

Federal Regulatory Framework

All carriers must comply with the Federal Communications Act of 1934 (FCA34) as amended that requires, among other things, that our interstate services be provided at just and reasonable rates and on non-discriminatory terms and conditions. The TA96 amended the FCA34 and has had a dramatic effect on the competitive environment in the telecommunicationscommunications industry. In addition to these laws, we are also subject to rules promulgated by the FCC and could be affected by any regulatory decisions or orders they issue.

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The TA96 and Local Competition

The primary goal of the TA96 and the FCC’s rules promulgated under it was to open local telecommunicationscommunications markets to competition while enhancing universal service. To some extent, Congress pre-empted the local authority of states to oversee local telecommunicationscommunications services.

The TA96 imposes a number of requirements on all local telecommunicationscommunications providers including:

·         To interconnect directly or indirectly with other carriers;

·         To allow others to resell services;

·         To provide for number portability to allow end-users to retain their telephone number when changing providers;

·         To ensure dialing parity;

·         To ensure that competitor customers have non-discriminatory access to telephone numbers, operator services, directory assistance and directory listing services; and

·         To allow competitors access to telephone poles, ducts, conduits and rights-of-way, and to establish reciprocal compensation arrangements for the transport and termination of telecommunicationscommunications traffic.

Access Charges

Access charges refer to the compensation received by local exchange carriers (LECs) for the use of their networks by an IXC. We provide two types of access services: special access and switched access. Special access is provided through dedicated circuits that connect other carriers to our network and is structured on a flat monthly fee basis. Switched access rates that are billed to other carriers are based on a per-minute of use fee basis. The FCC regulates prices that our businesses charge for interstate access charges. There has been a trend toward lowering the rates charged to carriers accessing local networks and the application of a SLC as a flat rate on end-user bills. Regulation, competition, carriers optimizing their network costs and lower demand for dedicated lines have resulted in lower access rates and overall lower minutes of use on our network, which has affected our network access revenues.  

Interstate access rates are established by the nationwide pooling of companies known as the National Exchange Carriers Association (NECA).NECA. The FCC established NECA in 1983 to develop and administer interstate access service rates, terms and conditions. Revenues are pooled and redistributed on the basis of each company’s actual or average costs. There has been a change in the composition of interstate access charges in recent years, shifting more of the charges to the end user and reducing the amount of access charges paid by IXCs. We believe this trend will continue. 

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Each of our ILECs determines interstate access charges under rate of return regulation, whereby they earn a fixed return over and above operating costs. The specific process of setting interstate access rates is governed by FCC rules, which applies only to service providers with fewer than 50,000 lines. Three of our ILECs (HTC, PTC and WTC) utilize an average schedule process and the concept of pooling with other ILECs in NECA to arrive at rates and fair compensation. Our other two ILECs (New Ulm and SETC) arrive at their interstate rates through a study of their own individual interstate costs. Minnesota and Iowa utility commissions regulate the intrastate access rates for all five of our ILECs in their respective states.

Wireline Interstate

Our ILEC companies participateparticipated in the NECA common line pool where end-user common line funds collected arewere pooled. A portion of our ILEC revenue iswas based on settlements distributed from this pool. Our ILEC companies also participateparticipated in the NECA traffic-sensitive pool. These pool settlements arewere adjusted periodically.

Interstate access rates for CLECs were established according to an order issued by the FCC in 2001. Under that order, the switched access rates charged by a competitive carrier can be no higher than the rates charged by the ILEC with whom the CLEC competes, unless the CLEC qualifies for the Rural Exemption.

Intercarrier Compensation and Federal Universal Service Fund (FUSF)FUSF Reform 

The FCC released the National Broadband Plan in April 2010 recommending significant changes to the access charge policy and processes. This was followed on November 18, 2011, by FCC Order 11-161 (the Transformation Order), with comprehensive rules reforming all forms of intercarrier compensation and implementing a new support mechanism for the deployment of broadband. Generally, the intercarrier compensation reform sets forth a path towards a “bill & keep” regime which eliminates compensation for termination of traffic received from another carrier. The timeline for this transition hashad numerous steps depending on the type of traffic exchanged and the regulated status of the affected LEC.    

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These rules have been clarified in several orders on Reconsideration and have had an impact on our companies by reducing our terminating intercarrier compensation, including intrastate and interstate access charges.  

The FCC Transformation Order also confirmed the applicability of access charges on VoIP traffic and eliminated reciprocal compensation charges for termination of local wireless traffic. Despite these changes IXCs and others are still quite aggressive in disputing carrier access charges and/or the applicability of access charges to their traffic.

Due to the combination of rate reforms instituted by the FCC, competitive substitution by wireless and other carriers and decreased use of the switched network, the aggregate amount of interstate network access charges paid by long distance carriers to access providers such as our company, has decreased and we project that this decline will continue. For the year ended December 31, 2016, Telecom2018, communications network access revenue represented 25.9%12.6% of our operating revenue, down from 27.2%14.6% for the year ended December 31, 2015.

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Table of Contents2017. This excludes any funding received from the A-CAM for broadband funding (see pages 14-15 for more information).

Federal Universal Service Fund

The FUSF was originally established to overcome geographic differences in costs of providing voice service and to enable all citizens to communicate over networks regardless of geographical location and/or personal income. The FCC established universal service policies at the national level under terms contained in the Telecommunications Act of 1934. The TA96 requires explicit FUSF mechanisms and enlarged the scope of universal service to include four distinct programs:

·         High-Cost program that supports local carriers operating in high-cost regions of the country to ensure reasonably based telephone rates;  

·         Lifeline (low-income) Subscribers program that includes the Link Up and Lifeline programs that provide support for service initiation and monthly fees and have eligibility based on subscriber income;

·         Rural Health Care Providers program that supports telecommunicationcommunication services used by rural health care providers and provides them with toll free access to an Internet service provider; and

·         Schools and Libraries program, also called the E-Rate program that provides support funding to schools and libraries for telecommunicationscommunications services, Internet access and internal connections.

In its Transformation Order released November 18, 2011, the FCC adopted rules which dramatically reform the universal service program and intercarrier compensation regime. These rules eliminated the legacy Local Switching support, but also provide for a new Connect America Fund (CAF) support for rate of return carriers to make up some of their access revenue reductions and provide direct support to PriceCap carriers (i.e. the larger, national LECs such as Verizon and AT&T) for broadband build outs. The new rules have caused rates for end users to increase as intercarrier compensation is reduced and the legacy mandate for ubiquitous voice service shifts toward broadband availability as a key outcome of the program. 

FUSF high-cost payments are distributed by NECA and are only available to carriers that have been designated as an eligible telecommunications carrier (ETC) by a state commission. Each of our ILECs has been designated as an ETC. CLECs are also eligible to be designated as ETCs if they meet the requirements of the program and meet a public interest standard as determined by the appropriate state regulatory agency. Our CLECs are currently not receiving FUSF support. All ETCs must certify annually to the Universal Service Administrative Company or their appropriate state regulatory commission that the funds they receive from the FUSF are being used in the manner intended. The states must then certify to the FCC which carriers have met this standard. The Transformation Order expands the information that must be reported to the State Commissions to include information on broadband availability, plans for expansion to unserved and underserved areas, in addition to information about voice services. To some extent, these levels of scrutiny make the receipt of a consistent level of FUSF payments each year more difficult to predict.   

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For the year ended December 31, 2016,2018, we received an aggregate of $3,634,555$1,919,884 from FUSF, consisting of $40,244$1,475,748 of CAF support and $411,955 of Broadband Loop Support. In addition, we received $32,181 in true-ups to prior year disbursements from the Federal common line support funding mechanism. Our net FUSF in 2018 comprised 3.4% of our total revenue for the year. For the year ended December 31, 2017, we received an aggregate of $1,434,439 from FUSF, consisting of $1,474,388 of CAF support and consisting of $3,136 for a combination of high cost loop support and safety net additive, $1,925,483 ofadditive. In addition, we were assessed $43,085 in true-ups to prior year disbursements from the Federal common line support and $1,668,828 of CAF support.funding mechanism which reduced our FUSF for 2017. Our net FUSF in 20162017 comprised 8.6%3.1% of our total revenue for the year. We receive no State universal service funding as the states in which we operate have not established state universal service funding mechanisms. 

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TableEffective January 1, 2017 we no longer receive funding from the FUSF based on the pooling and redistribution of Contentsrevenues based on a company’s actual or average costs as described above, but has instead, elected to receive funding based on the A-CAM as described below.

With the acquisition of Scott-Rice on July 31, 2018, see Note 3 – “Acquisitions and Dispositions,” to the Consolidated Financial Statements of this Annual Report on Form 10-K, Nuvera now receives FUSF support for Scott-Rice. The remainder of the Company receives funding from A-CAM as mentioned below. Scott-Rice’s settlements from the NECA pools are based on nationwide average schedules.

Alternative Connect America Cost Model (A-CAM)A-CAM

The FUSF was established as part of the TA96 and provides subsidies to telecommunicationscommunications providers as means of increasing the availability and affordability of advanced telecommunicationscommunications services. In 2011, significant reform was introduced, including the creation of the CAF, to help modernize the FUSF and promote support of these telecomcommunications services in the nation’s high-cost areas. In 2016, the FCC announced additional reform to further transition the CAF from supporting the provision of voice services to the provision of broadband services. On March 30, 2016, the FCC issued a Report and Order (2016 Order) that adopts the following changes to the FUSF for rate-of-return carriers:

·         Establishes a voluntary cost model; 

·         Creates specific broadband deployment obligations; 

·         Provides a mechanism for support of broadband-only deployment; 

·         Gradually reduces the authorized rate-of-return from 11.25 percent to 9.75 percent;

·         Eliminates support in those local areas served by unsubsidized competitors;

·         Establishes “glide-path” transition periods for all the new changes; and

·         Maintains the $2 billion budget established by the 2011 Transformation Order.

While the 2011 FUSF Transformation Order established CAF Phase I and CAF Phase II as high-cost support mechanisms for the price-cap carriers (i.e., the larger, national LECs such as Verizon and AT&T), it was not as specific about how subsidies would change for the rate-of-return carriers (i.e., the smaller LECs, including all rural LECs). In contrast, the 2016 Order focuses on the rate-of-return carriers, announces specific changes to existing funding mechanisms as well as a new funding mechanism, and provides rural telecommunicationscommunications providers with greater certainty about future support.

One of the major changes introduced by the 2016 Order is the creation of the A-CAM, a new CAF support mechanism for rate-of-return carriers. Utilization of the A-CAM is voluntary; and rate-of-return carriers may instead choose to continue relying on the legacy support mechanism known as interstate common line support (ICLS), but now modified and renamed CAF Broadband Loop Support (CAF-BLS). Each carrier must decide which support mechanism to elect, and must choose one or the other, per state.

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In our Form 10-Q for the quarter ended September 30, 2016, NU TelecomNuvera disclosed that we had elected the A-CAM for our Minnesota and Iowa operations, replacing our former ICLS. NU TelecomNuvera will receive A-CAM support for a period of ten years in exchange for meeting defined broadband build-out requirements. At the time of NU Telecom’sNuvera’s election, the FCC had not yet determined the final award numbers. 

Consistent with the stated disclosure in our Form 10-Q, NU TelecomNuvera notified the FCC that we would continue to elect the A-CAM program. Under the report that accompanied the FCC December 20, 2016 Public Notice, NU-TelecomNuvera would annually receive (i) $391,896 for our Iowa operations and (ii) $6,118,567 for our Minnesota operations. The Company will use the annual $6.5 million that we receive through the A-CAM program to meet our defined broadband build-out obligations.obligations, which the Company is currently completing. The A-CAM payments will replace the Company’s former ICLS payments. In 2016 NU Telecom

On May 7, 2018, the FCC issued Public Notice DA 18-465, which contained revised offers of A-CAM support and associated revised service deployment obligations.

On May 23, 2018, the Company’s BOD authorized and directed the Company to accept the FCC’s revised offer of A-CAM support and the revised associated service deployment obligations. Under the revised FCC offer Notice, the Company will be entitled to annually receive (i) $489,870 for its Iowa operations, which is a $97,974 increase per year and (ii) $7,648,208 for its Minnesota operations, which is a $1,529,641 increase per year. The Company will use the additional support that it receives through the A-CAM program to continue to meet its defined broadband build-out obligations, which the Company is currently completing. A letter of acceptance to elect the revised A-CAM support was filed by the Company with the FCC on May 24, 2018. The FCC accepted the Company’s letter on May 30, 2018. On August 31, 2018 the Company received $1,965,727 underapproximately $3.12 million for the former ICLS programrevised A-CAM support. This represented an 18-month true-up for support back to the original election date, and $1,747,432 in 2015.an increased monthly payment representing the new revised A-CAM support offer.

Privacy and Data Security Regulation

The FCA34 generally restricts the nonconsensual collection and disclosure to third parties of telecommunicationcommunication company customers’ personally identifiable information by telecommunicationcommunication companies, except for rendering service, conducting legitimate business activities related to the service, and responding to legal requests. We are also subject to various state and federal regulations that provide protections for customer proprietary network information (CPNI) related to our voice services. The FCC expects broadband Internet access service providers such as us to take reasonable, good faith steps to comply with existing statutory requirements to protect broadband CPNI and plans to propose new privacy and data security rules for broadband Internet service providers. The FCC has recently imposed substantial civil penalties and remediation obligations on several companies for alleged privacy and data security violations.

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The Federal Trade Commission exercises authority over privacy protections, generally, using its existing authority over unfair and deceptive acts or practices to apply greater restrictions on the collection and use of personally identifiable and other information relating to customers. It also has undertaken numerous enforcement actions against parties that do not provide sufficient security protections against the loss of unauthorized disclosure of this type of information. We also are subject to stringent data security and data retention requirements on website operators and online services. Other privacy-oriented laws have been extended by courts to online video providers and are increasingly being used in privacy lawsuits, including class actions, against providers of video materials online.

We are also subject to state and federal laws and regulations regarding data security that primarily apply to sensitive personal information that could be used to commit identity theft. Most states have security breach notification laws that generally require a business to give notice to consumers and government agencies when certain information has been disclosed, due to a security breach, and the FCC has adopted security breach rules for voice services. Several states have also enacted general data security requirements to safeguard consumer information, including the proper disposal of consumer information.

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The National Institute of Standards and Technology, in cooperation with other federal agencies and owners and operators of United States critical infrastructure, have developed a voluntary framework that provides a prioritized, flexible, repeatable, performance-based and cost-effective approach to cybersecurity risk. It is compendiums of existing cross-sector cyber-defense processes, practices and protocols that can help companies identify, assess and manage their cyber risks and vulnerabilities, and several governmental agencies have encouraged compliance with this framework. Additionally, in December 2015, Congress enacted the Cybersecurity Act of 2015, which is intended to encourage and facilitate the sharing of security threat and defensive measure information with government agencies and other companies, in order to strengthen the country’s overall cybersecurity protections. Finally, there are pending legislative proposals that could impose new requirements on owners and operators of critical infrastructure and the FCC is considering expanding its cybersecurity guidelines or adopting new cybersecurity requirements.    

Network Architecture and Technology

We have made significant investments in our technologically advanced telecommunicationscommunications networks and continue to enhance and expand our network by deploying technologies to provide additional capacity to our customers. As a result, we are able to deliver high-quality, reliable data, video and voice services in the markets we serve. Our wide-ranging network and extensive use of fiber provide an easy reach into existing and new areas. By bringing the fiber network closer to the customer premises, we can increase our service offerings, quality and bandwidth services. Our existing network enables us to efficiently respond and adapt to changes in technology and is capable of supporting the rising customer demand for bandwidth in order to support the growing amount of wireless data devices in our customer’s homes and businesses.

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Our networks are supported by advanced switches, with a fiber network connecting our exchanges. We continue to enhance our copper network to increase bandwidth in order to provide additional products and services to our marketable homes. In addition to our copper plant enhancements, we have deployed fiber-optic cable extensively throughout our network, resulting in a 100% fiber backbone network that supports all of the inter-office and host-remote links. In addition, this fiber infrastructure provides the connectivity required to provide video service, Internet and long-distance services to residential and commercial customers. Our fiber network utilizes fiber-to-the-home and fiber-to-the-node networks to offer bundled residential and commercial services.

We operate fiber networks which we own for fiber network access. At December 31, 2016,2018, our fiber-optic network consisted of approximately 1,3051,611 route miles, including 805873 transport route miles and 500738 local route miles.

Through our extensive fiber network, we are also able to support the increased demand on wireless carriers for data bandwidth. In all the markets we serve, we have launched initiatives to support fiber backhaul services to cell sites.

Environmental Regulation

We are subject to federal, state and local laws and regulations governing the use, storage, disposal of, and exposure to, hazardous materials, the release of pollutants into the environment and the remediation of contamination. We could be subject to environmental laws that impose liability for the entire cost of cleanup at a contaminated site, regardless of fault or the lawfulness of the activity that resulted in contamination. We believe that our operations are in compliance with all applicable environmental laws and regulations.

Employees

As of March 1, 20172019 we had 132172 full-time equivalent employees dedicated to NU TelecomNuvera’s operations. In addition, as of March 1, 20172019 we had an additional 1312 full-time equivalent employees that are employed by NU TelecomNuvera but are dedicated to IES. IES is a minority equity subsidiary of NU TelecomNuvera and NU TelecomNuvera acts as the managing entity for IES.

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Intellectual Property

We have trademarks, trade names and licenses that we believe areIntellectual property is necessary for the operation of our business as we currently conduct it. We dobut not consider our trademarks, trade names or licenses to be material to the operation of our business.

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Executive Officers of the Registrant

The names and ages of all our executive officers and the positions held by them as of March 1, 2017,2019, are as follows:

Our executive officers are appointed annually and serve at the discretion of our Board of Directors.BOD. Mr. Otis, President and Chief Executive Officer; Ms. Bornhoft, Vice-President, Chief Operating Officer and Corporate Secretary; and Mr. Kawlewski, Chief Financial Officer and Treasurer have written employment contracts. There are no familial relationships between any director and executive officers.

Mr. Otis has been President and Chief Executive Officer since 1985. Prior to that time, he was the Office Manager/Controller from 1979 to 1985. Mr. Otis serves as Chairman of the Board for SMB, IES and BBV, all equity subsidiaries of ours. In addition, Mr. Otis sits on the Board of Governors of FiberComm, LC, also an equity subsidiary of ours.

Ms. Bornhoft has been Vice President, Chief Operating Officer and Corporate Secretary since 1998. Ms. Bornhoft has been employed with us since 1990. Ms. Bornhoft serves as a board member for BBV, in addition to serving as President for both IES and BBV, all equity subsidiaries of ours.

Mr. Kawlewski has been Chief Financial Officer and Treasurer since 2009. Mr. Kawlewski also serves as the Treasurer for IES and BBV, all equity subsidiaries of ours.

Item 1A.    Risk Factors.Factors.

Not required for a smaller reporting company.

Item 1B.    Unresolved Staff Comments

Not required for a smaller reporting company.

Item 2.       Properties

Our business is primarily focused on the provision of communication services and our properties are used primarily for administrative support and to house and safeguard our operating equipment. On December 31, 2016,2018, our gross property, plant and equipment totaled $149,694,305$185,385,123 (net balance of $42,926,633)$64,507,896).

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Our corporate headquarters are located at 27 North Minnesota Street, New Ulm, Minnesota. We also own office facilities and related equipment for administrative personnel, central office buildings and operations in Minnesota and Iowa.

In addition to land and structures, our property consists of equipment necessary for the provision of communication services including central office equipment, CPE and connections, pole lines, towers, remote terminals, aerial and underground cable and wire facilities and associated outside plant for use in providing our services, telephone switches, fiber-optic networks and communications network equipment, vehicles, furniture and fixtures, computers and other equipment. Our extensive fiber-optic network is primarily owned by us, but we also have indefeasible rights to use and long-term leasing commitments to complement our owned network. We also own various communications equipment that we lease to subscribers.

In addition to plant and equipment we wholly-own, we utilize poles, towers, cable and conduit systems jointly-owned with other entities and lease space on facilities to other entities. These arrangements are in accordance with written agreements customary in the industry. We also have appropriate easements, rights of way and other arrangements for the accommodation of our pole lines, underground conduits, aerial and underground cables and wires. 

We believe our properties are suitable and adequate to provide modern and effective communications services within our service areas, including local dial-tone, long distance service, broadband, TV and dedicated and switched long-haul transport. We also believe our properties and equipment are adequately insured. See Note 46 – “Long-Term Debt” to the Consolidated Financial Statements of this Annual Report on Form 10-K for descriptions of the mortgages and collateral relating to the above referenced properties. See Note 1 – “Summary“Business Description and Summary Of Significant Accounting Policies” and Note 24 – “Property, Plant and Equipment” to the Consolidated Financial Statements of this Annual Report on Form 10-K for a description of our depreciation policies and information relating to the above referenced properties and equipment and their respective depreciation.

Item 3.       Legal Proceedings

Over the course of 2014, NU Telecom received notice of disputes from several IXCs, and was subsequently named in litigation regarding traffic exchanged between our companies and specifically the classification of IntraMTA wireless traffic related to access charges. This litigation was an industry-wide dispute affecting numerous telecom companies. In November, 2015 the United States District Court in Dallas, Texas ruled in favor of the telecom companies, which includes NU Telecom. All access charges owed to the telecom companies including NU Telecom were found to be owed by the IXCs and NU Telecom has subsequently been paid for these access charges.

Other than the litigation mentioned above and other routine litigation incidental to our business, there are no pending material legal proceedings to which we are a party or to which any of our property is subject.  

Item 4.       Mine Safety Disclosures

Not Applicable.

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PART II

Item 5.       Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is quoted on the OTCQB Marketplace under the symbol "NULM."NUVR." As of March 1, 20172019 there were 1,3421,298 registered stockholders and approximately 1,360783 beneficial owners of NU TelecomNuvera stock. The following table sets forth the end-of-day high and low prices for our common stock quoted on the OTCQB Marketplace during 2016 and 2015. The OTCQB Marketplace quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily reflect actual transactions.

The Company’s Articles of Incorporation restrict any one individual or entity from beneficially owning more than seven percent of the outstanding capital stock of the corporation. Specific details of this restriction are contained in Article III of the Company’s Articles of Incorporation.  

Dividends and Restrictions

We declared a quarterly dividend of $.09$0.12 per share for the second, third and fourth quarters of 20162018 and $.0875$0.10 per share for the first quarter of 2016,2018, which totaled $462,544$621,032 for the fourth quarter, $621,030 per quarter for the second third and fourththird quarters and $447,724$516,007 for the first quarter. We declared a quarterly dividend of $0.0850$0.10 per share for eachthe second, third and fourth quarters of 2017 and $0.095 per share for the four quarters ending December 31, 2015,first quarter of 2017, which totaled $434,932$516,007 per quarter for the third and fourth quarters, $515,636 for the second quarter and $433,615 per quarter$488,242 for the first and second quarters.quarter. A quarterly cash dividend of $.095$0.12 per share will be paid on March 15, 20172019 to stockholders of record at the close of business on March 6, 2017.9, 2019.

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We expect to continue to pay quarterly dividends during 2017,2019, but only if and to the extent declared by our Board of DirectorsBOD on a quarterly basis and subject to various restrictions on our ability to do so (described below). Dividends on our common stock are not cumulative.

There are security and loan agreements underlying our current CoBank ACB (CoBank) credit facility that contain restrictions on our distributions to stockholders and investment in, or loans, to others. See below and Note 46 – “Long-Term Debt” to the Consolidated Financial Statements of this Annual Report on Form 10-K for additional information.

Our loan agreements include restrictions on our ability to pay cash dividends to our stockholders. However, we are allowed to pay dividends (a) (i) in an amount up to $2,100,000$2,700,000 in any year if our “Total Leverage Ratio,” that is, the ratio of our “Indebtedness” to “EBITDA” (earnings before interest, taxes, depreciation and amortization – as defined in the loan documents), is greater than 2.502.00 to 1.00, and (ii) in any amount if our Total Leverage Ratio is less than 2.502.00 to 1.00, and (b) in either case, if we are not in default or potential default under the loan agreements. On March 31, 2016 our Total Leverage Ratio fell below 2.50, thus eliminating any restrictions on our ability to pay cash dividends to our stockholders. Our current Total Leverage Ratio at December 31, 20162018 is 2.14.  

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Table of Contents2.49.  

Our Board of DirectorsBOD reviews quarterly dividend declarations based on our anticipated earnings, capital requirements and our operating and financial conditions. The cash requirements of our current dividend payment practices are in addition to our other expected cash needs. Should our Board of DirectorsBOD determine a dividend will be declared, we expect we will have sufficient availability from our current cash flows from operations to fund our existing cash needs and the payment of our dividends. In addition, we expect we will have sufficient availability under our revolving credit facility to fund dividend payments in addition to any fluctuations in working capital and other cash needs.

Item 6.       Selected Financial Data

Not required for a smaller reporting company.

Item 7.       Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our historical financial statements and the related notes contained elsewhere in this report.

Overview

NU TelecomNuvera has a state-of-the-art; fiber-rich communications network and offers a diverse array of communications products and services. Our businesses provide local telephone service and network access to other telecommunicationscommunications carriers for connections to our networks. In addition, we provide long distance service, broadband Internet access, video services, and managed and hosted solutions services.

Our operations consist primarily of providing services to customers for a monthly charge. Because many of these services are recurring in nature, backlog orders and seasonality are not significant factors. Our working capital requirements include financing the construction of our networks, which consists of switches and cable, data, IP and digital TV. We also require capital to maintain our networks and infrastructure; fund the payroll costs of our highly skilled labor force; maintain inventory to service capital projects, our network and our telephone equipment customers; pay dividends and provide for the carrying value of trade accounts receivable, some of which may take several months to collect in the normal course of business.

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Executive Summary

Highlights:

·      The FUSF was established as part of the TA96 and provides subsidies to telecommunications providers as means of increasing the availability and affordability of advanced telecommunications services. In 2011, significant reform was introduced, including the creation of the CAF, to help modernize the FUSF and promote support of these telecom services in the nation’s high-cost areas. In 2016, the FCCOn January 12, 2017, DEED announced additional reform to further transition the CAF from supporting the provision of voice services to the provision of broadband services. On March 30, 2016, the FCC issued the 2016 Order that adopts the following changes to the FUSF for rate-of-return carriers:

o   Establishes a voluntary cost model;   

o   Creates specific broadband deployment obligations; 

o   Provides a mechanism for support of broadband-only deployment; 

o   Gradually reduces the authorized rate-of-return from 11.25 percent to 9.75 percent;

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o   Eliminates support in those local areas served by unsubsidized competitors;

o   Establishes “glide-path” transition periods for all the new changes; and

o   Maintains the $2 billion budget established by the 2011 Transformation Order.

While the 2011 FUSF Transformation Order established CAF Phase I and CAF Phase II as high-cost support mechanisms for the price-cap carriers (i.e., the larger, national LECs such as Verizon and AT&T), it was not as specific about how subsidies would change for the rate-of-return carriers (i.e., the smaller LECs, including all rural LECs). In contrast, the 2016 Order focuses on the rate-of-return carriers, announces specific changes to existing funding mechanisms as well as a new funding mechanism, and provides rural telecommunications providers with greater certainty about future support.

One of the major changes introduced by the 2016 Order is the creation of the A-CAM, a new CAF support mechanism for rate-of-return carriers. Utilization of the A-CAM is voluntary; and rate-of-return carriers may instead choose to continue relying on the legacy support mechanism known as ICLS, but now modified and renamed CAF-BLS. Each carrier must decide which support mechanism to elect, and must choose one or the other, per state.

In our Form 10-Q for the quarter ended September 30, 2016, NU Telecom disclosed that we had elected the A-CAM for our Minnesota and Iowa operations, replacing our former ICLS. NU Telecom will receive A-CAM support for a period of ten years in exchange for meeting defined broadband build-out requirements. At the time of NU Telecom’s election, the FCC had not yet determined the final award numbers. 

Consistent with the stated disclosure in our Form 10-Q, NU Telecom notified the FCC that we would continue to elect the A-CAM program. Under the report that accompanied the FCC December 20, 2016 Public Notice, NU-Telecom would annually receive (i) $391,896 for our Iowa operations and (ii) $6,118,567 for our Minnesota operations. The Company will use the annual $6.5 million that we receive through the A-CAM program to meet our defined broadband build-out obligations. The A-CAM payments will replace the Company’s former ICLS payments. In 2016 NU Telecom received $1,965,727 under the former ICLS program and $1,747,432 in 2015.

·        On June 18, 2015 NU Telecom entered into an Interest Rate Swap Agreement (IRSA) with CoBank covering (i) $14.0 million of our aggregate indebtedness to CoBank effective June 18, 2015. This swap effectively locks in the interest rate on $14.0 million of variable-rate debt through June 2018. Under this IRSA, we have changed the variable-rate cash flow exposure on the debt obligations to fixed cash flows. Under the terms of this IRSA, we pay a fixed contractual interest rate and (i) make an additional payment if the LIBOR variable rate payment is below a contractual rate or (ii) receive a payment if the LIBOR variable rate payment is above the contractual rate. See Note 5 – “Interest Rate Swaps” to the Consolidated Financial Statements of this Annual Report on Form 10-K for additional information.

·        On December 1, 2015 the Minnesota State Department of Employment and Economic Development (DEED) announced NU TelecomNuvera as one of the companies that will receive state grants for broadband development. The StateNuvera received three of the forty-two grants announced aby Lieutenant Governor Tina Smith. A total of $11$34 million in grants throughwas awarded by the Border-to-Border Broadband Development Grant Program. The winners came outDEED with the aim of a pool of 44 grant applicants requestingproviding reliable, affordable high-speed Internet to more than $29 million. NU Telecom16,000 households, more than 2,000 businesses and more than 70 community institutions throughout the state. Nuvera will receive $115,934$850,486 of the $244,125,$1,889,968, or 47.5%45%, of the total project costs to build fiber connections to 24 homes and businesses in an area northeastthe rural areas of Goodhue. NU Telecom completedHanska and Mazeppa and in and around Bellechester. Construction on one of these projects began in the projectspring of 2017 and the construction on the other two projects began in late 2016.the summer of 2017. Grand funds will be received by Nuvera as work progresses and costs are provided to DEED. At December 31, 20162018, we have received $374,543 from this grant. These projects were completed and final documentation was provided to the Company hasDEED office in October 2018. We received $7,310 and recorded athe final grant receivablefunds of $108,624.$390,922 from the state in the first quarter of 2019. We did not receive the entire amount of project from DEED due to our completing the project under budget.

21·      On November 24, 2017 the Minnesota Department of Employment and Economic Development (DEED) announced Nuvera as one of the companies that will receive state grants for broadband development. Nuvera received two of the thirty-nine grants announced by Lieutenant Governor Tina Smith. A total of $26.4 million was awarded by DEED with the aim of providing reliable, affordable high-speed Internet to nearly 10,000 households, more than 2,000 businesses and more than 60 community institutions throughout the state. Nuvera will receive $736,598 of the $1,727,998, or 42.6%, of the total project costs to build fiber connections to homes and businesses in the rural areas of Hanska and White Rock. Construction on the projects began in the summer of 2018. Grant funds will be received by Nuvera as work progresses and costs are provided to DEED. As of December 31, 2018, we have not yet received any funds on these projects.      

Table·      Effective June 4, 2018, New Ulm Telecom, Inc. changed its name to Nuvera Communications, Inc. The Company had announced the pending name change at its 2018 Annual Meeting of ContentsShareholders held on May 24, 2018. Concurrent with the June 4, 2018 name change, the ticker symbol for the Company’s common stock on the OTCQB Marketplace became NUVR.

·      On July 31, 2018, the Company announced that it had completed its acquisition of Scott-Rice from Zayo for approximately $42 million in cash. Scott-Rice provides voice, video and internet services with more than 18,000 connections, serving the communities of Prior Lake, Savage, Elko and New Market, Minnesota. The combined Nuvera-Scott-Rice company has approximately 66,000 connections. Nuvera financed the acquisition with its principal lender, CoBank. Further information regarding the CoBank loan terms and amounts can be found on the Company’s 8-K filed with the SEC on August 3, 2018.

·      Net income in 20162018 totaled $2,854,487,$7,763,919, which was a $188,332,$2,190,317, or 7.1% increase22.0% decrease compared to 2015.2017. This increasedecrease was primarily due to increasesa reduction in revenuesour corporate taxes in 2017 due to the revaluation of our deferred tax assets and other investment income,liabilities, which was a result of the 2017 Tax Cuts and Jobs Act tax reform legislation. This decrease in interest expense,net income was partially offset by an increase in operating revenues, partially offset by an increase in operating expenses, all of which are described below.

·      Consolidated revenue for 20162018 totaled $42,319,146,$56,682,627, which was a $635,078$9,793,446 or 1.5%20.9% increase compared to 2015.2017. This increase was primarily due to increases in data, videothe acquisition of Scott-Rice and other revenues, offset by decreases in our network access and local service revenues,the receipt of additional A-CAM funding support, all of which are described below.  

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Business Trends

Included below is a synopsis of business trends management believes will continue to affect our business in 2017.2019.

Voice and switched access revenues are expected to continue to be adversely impacted by future declines in access lines due to competition in the telecommunicationscommunications industry from CATV providers, VoIP providers, wireless, other competitors and emerging technologies. As we experience access line losses, our switched access revenue will continue to decline consistent with industry-wide trends. A combination of changing minutes of use, carriers optimizing their network costs, and lower demand for dedicated lines and downward rate pressures may affect our future voice and switched access revenues. AccessWithout the acquisition of Scott-Rice, access line decreaseslosses would have totaled 2,4431,654 or 9.4%7.5% in 20162018 compared to 20152017 due to the reasons mentioned above. With the acquisition of Scott-Rice, access lines increased 4,986 or 22.7% in 2018 compared to 2017.

The expansion of our state-of-the-art; fiber-rich communications network, growth in broadband customer sales along with continued migration to higher connectivity speeds and the sales of Internet value-added services such as on-line data backup, and hosted and managed service solutions are expected to continue to offset the revenue declines from the access line trends discussed above.

To be competitive, we continue to emphasize the bundling of our products and services. Our customers have the option to bundle local phone, high-speed Internet, long distance and video services. These bundles provide our customers with one convenient location to obtain all of their communications and entertainment options, a convenient billing solution and bundle discounts. We believe that product bundles positively impact our customer retention, and the associated discounts provide our customers the best value for their communications and entertainment options. We have a state-of-the-art, fiber-rich broadband network, which, along with the bundling of our voice, Internet and video services allows us to meet customer demands for products and services. We continue to focus on the research and deployment of advanced technological products that include broadband services, wireless services, private line, VoIP, digital video, IPTV and hosted and managed services.

We continue to evaluate our operating structure to identify opportunities for increased operational efficiencies and effectiveness. This involves evaluating opportunities for task automation, network efficiency and the balancing of our workforce based on the current needs of our customers.

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Financial results for the TelecomCommunications Segment for the years ended December 31, 20162018 and 20152017 are included below: