Nuvera Communications, Inc. - Quarter Report: 2015 September (Form 10-Q)

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Our new 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 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 2.50 to 1.00, and (ii) in any amount if our Total Leverage Ratio is less than 2.50 to 1.00, and (b) in either case, if we are not in default or potential default under the loan agreements. 

Our credit facility requires us to comply with specified financial ratios and tests. These financial ratios and tests include total leverage ratio, debt service coverage ratio, equity to total assets ratio, fixed coverage ratio and maximum annual capital expenditures tests.  

As described in Note 5– “Interest Rate Swap”,we have entered into an interest rate swap that effectively fixes our interest rates and covers $14.0 million at a weighted average rate of 4.47%, as of September 30, 2015. The remaining debt of $28.0 million ($3.8 million available under the revolving credit facilities and $24.2 million currently outstanding) remains subject to variable interest rates at an effective weighted average interest rate of 3.47%, as of September 30, 2015.

Note 5 – Interest Rate Swap

We assess interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely affect expected future cash flows and by evaluating hedging opportunities.

We generally use variable-rate debt to finance our operations, capital expenditures and acquisitions. These variable-rate debt obligations expose us to variability in interest payments due to changes in interest rates. The terms of our credit facility with CoBank require that we enter into interest rate agreements designed to protect us against fluctuations in interest rates, in an aggregate principal amount and for a duration determined under the credit facility.

To meet this objective, on June 18, 2015 we entered into an Interest Rate Swap Agreement with CoBank covering $14.0 million of our aggregate indebtedness to CoBank. This swap effectively locks in the interest rate on $14.0 million of variable-rate debt through June 2018. Under this Interest Rate Swap Agreement, we have changed the variable-rate cash flow exposure on the debt obligations to fixed cash flows. Under the terms of this interest rate swap, 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.

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Each month, we make interest payments to CoBank under its loan agreement based on the current applicable LIBOR Rate plus the contractual LIBOR margin then in effect with respect to the loan, without reflecting our interest rate swap. At the end of each calendar month, CoBank adjusts our aggregate interest payments based on the difference, if any, between the amounts paid by us during the month and the current effective interest rate set forth in the table below. Net interest payments are reported in our consolidated income statement as interest expense.

As of September 30, 2015 we had the following interest rate swap in effect.

(1)     As described in Note 4 – “Long-Term Debt” to the 2014 Consolidated Financial Statements on Form 10-K, the note above initially bears interest at a LIBOR rate determined by the maturity of the note, plus a “LIBOR Margin” rate equal to 3.25% according to the individual secured credit facility. The LIBOR Margin decreases as the borrower’s “Leverage Ratio” decreases. The “Current Effective Interest Rate” in the table reflects the rate we pay giving effect to the swaps.

Our interest rate swap under our credit facilities qualifies as a cash flow hedge for accounting purposes under GAAP. We reflect the effect of this hedging transaction in the financial statements. The unrealized gain/loss is reported in other comprehensive income. If we terminate our interest rate swap agreement, the cumulative change in fair value at the date of termination would be reclassified from accumulated other comprehensive income, which is classified in stockholders’ equity, into earnings on the consolidated statements of income.

The fair value of the Company’s interest rate swap agreement was determined based on valuations received from CoBank and are based on the present value of expected future cash flows using discount rates appropriate with the terms of the swap agreement. The fair value indicates an estimated amount we would be required to pay if the contracts were canceled or transferred to other parties. At September 30, 2015, the fair value liability of the swap was $149,803, which has been recorded net of deferred tax benefit of $60,625, for the $89,178 in accumulated other comprehensive loss.

Note 6 – Other Investments  

We are a co-investor with other rural telephone companies in several partnerships and limited liability companies. These joint ventures make it possible to offer services to customers, including digital video services and fiber optic transport services that we would have difficulty offering on our own. These joint ventures also make it possible to invest in new technologies with a lower level of financial risk. We recognize income and losses from these investments on the equity method of accounting. For a listing of our investments, see Note 9 – “Segment Information”.

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Note 7 – Guarantees

On September 30, 2011, FiberComm, LC refinanced two existing loans with American State Bank into a ten-year loan, maturing on September 30, 2021. As of September 30, 2015, we have recorded a liability of $274,503 in connection with the guarantee on this new loan. This guarantee may be exercised if FiberComm, LC does not make its required payments on this note.

Note 8 – Deferred Compensation

As of September 30, 2015 and December 31, 2014, we have recorded other deferred compensation relating to executive compensation payable to certain former executives of past acquisitions.  

Note 9 – Segment Information  

We operate in the Telecom Segment and have no other significant business segments. The Telecom Segment consists of voice, data and video communication services delivered to the customer over our local communications network. No single customer accounted for a material portion of our consolidated revenues.

The Telecom Segment operates the following incumbent local exchange carriers (ILECs) and competitive local exchange carriers (CLECs) and has investment ownership interests as follows:

Telecom Segment

Note 10– Commitments and Contingencies

Over the course of 2014, NU Telecom received notice of disputes from several IXCs, and has subsequently been named in litigation regarding traffic exchanged between our companies and specifically the classification of IntraMTA wireless traffic related to access charges. This litigation is an industry-wide dispute affecting numerous telecom companies. NU Telecom is working with other telecom companies towards a resolution of the litigation at both the federal and state levels. We cannot currently predict the outcome of this litigation or its impact to our company. Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 for the discussion relating to commitments and contingencies.

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Note 11 – Subsequent Events

We have evaluated all subsequent events through the filing date of this Quarterly Report on Form 10-Q and determined that are no reportable subsequent events.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

The Private Securities Litigation Reform Act of 1995 contains certain safe harbor provisions regarding forward-looking statements. This Quarterly Report on Form 10-Q 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 are subject to risks and uncertainties that could cause our actual results to differ materially from such statements.

Because of these risks, uncertainties and assumptions and the fact that any forward-looking statements made 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, forward-looking statements speak only as of the date they are made, which is the filing date of this Form 10-Q. With the exception of the requirements set forth in the federal securities laws or the rules and regulations of the SEC, we do not undertake any obligation to update or review any forward-looking information, whether as a result of new information, future events or otherwise.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations stated in this Form 10-Q, are based on NU Telecom’s consolidated unaudited financial statements that have been prepared in accordance with GAAP and, where applicable, conform to the accounting principles as prescribed by federal and state telephone utility regulatory authorities. We presently give accounting recognition to the actions of regulators where appropriate. The preparation of our financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and liabilities. Our senior management has discussed the development and selection of accounting estimates and the related Management Discussion and Analysis disclosure with our Audit Committee. For a summary of our significant accounting policies, see Note 1 – “Summary of Significant Accounting Policies” to the Consolidated Financial Statements contained in our Annual Report on Form 10-K for the year ended December 31, 2014, which is incorporated herein by reference.

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Results of Operations

Overview

NU Telecom has a state-of-the-art; fiber-rich communications network and offers a diverse array of communications products and services. Our ILEC and CLEC businesses provide local telephone service and network access to other telecommunications 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, Internet protocol (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.

Executive Summary

·       In the third quarter of 2014, NU Telecom completed construction of an expansion in our fiber optic cable network and began providing Little Crow and Minnesota River Valley Education District (MRVED), which are a consortium of school districts in central and southern Minnesota, with high capacity video/audio and data switching services and fiber optic cable transport of information between its members. This agreement allowed us to expand our state-of-the art; fiber-rich communications network outside of our traditional service territories and will allow us access to new markets that we have not originally served. This contract term is for ten years. 

·       On December 31, 2014, NU Telecom entered into an Amended and Restated MLA with CoBank. The new MLA refinances and replaces the existing credit facility between CoBank and NU Telecom and the subsidiaries of NU Telecom. NU Telecom’s subsidiary HTC was a borrower under the prior credit facility, but NU Telecom is now the sole borrower under the new MLA. There are two loans under the new MLA, which include a $35 million term loan and a $9 million revolver loan. The term loan requires payments of $675,000 per quarter, beginning March 2015, with the final installment due December 31, 2021. NU Telecom may borrow from time to time under the revolver loan, which also matures on December 31, 2021. Also, under the new MLA, NU Telecom has the ability to either increase the amount of the commitment under the revolver loan by up to $6 million in a single increase, or add an incremental term loan up to $6 million. See Note 4 – “Secured Credit Facility” for additional information.

·      On June 18, 2015 NU Telecom entered into an Interest Rate Swap Agreement 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 Interest Rate Swap Agreement, we have changed the variable-rate cash flow exposure on the debt obligations to fixed cash flows. Under the terms of this interest rate swap, 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.

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·   Net income for the third quarter of 2015 totaled $666,606, which was a $96,345 or 16.89% increase compared to the third quarter of 2014. This increase was primarily due to an increase in revenues and interest income, which is described below, partially offset by an increase in interest expense resulting from our new Amended and Restated MLA with CoBank, which is described above.  

·   Consolidated revenue for the third quarter of 2015 totaled $10,368,838, which was a $296,363 or 2.94% increase compared to the third quarter of 2014. This increase was primarily due to increases in video, network access and data revenues. Video revenues increased primarily due to increased demand for our high definition (HD) and digital video recorder (DVR) services. Also contributing to the increase in video revenue was a combination of rate increases introduced into several of our markets. Network access revenues increased primarily due to increases in regulatory revenues. Data revenues increased primarily due to an increase in data customers and increased managed service revenues.  

Business Trends

Included below is a synopsis of business trends management believes will continue to affect our business in 2015. 

Voice and switched access revenues are expected to continue to be adversely impacted by future declines in access lines due to competition in the telecommunications industry from cable television providers (CATV), Voice over Internet Protocol (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 may affect our future voice and switched access revenues. Voice and switched access revenues may also be significantly affected by potential changes in rate regulation at the state and federal levels. We continue to monitor regulatory changes as we believe that rate regulation will continue to be scrutinized and may be subject to change. Access line decreases totaled 1,222 or 4.43% for the twelve months ended September 30, 2015 due to the reasons mentioned above. 

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, private line, VoIP, digital video, IPTV and hosted and managed services.

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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.

Financial results for the Telecom Segment are included below:

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Revenue

Local Service– We receive recurring revenue for basic local services that enable 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. Local service revenue was $1,578,009, which is $20,012 or 1.25% lower in the three months ended September 30, 2015 compared to the three months ended September 30, 2014 and was $4,800,126, which is $73,235 or 1.50% lower in the nine months ended September  30, 2015 compared to the nine months ended September 30, 2014. These decreases were primarily due to the decline in access lines. The number of access lines we serve as an ILEC and CLEC have been decreasing, which is consistent with a general industry trend, as customers are increasingly utilizing other technologies, such as wireless phones and IP services. To help offset declines in local service revenue, we implemented an overall strategy that continues to focus on selling a competitive bundle of services. Our focus on marketing competitive service bundles to our customers creates value for the customer and aids in the retention of our voice lines. 

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Network Access– We provide access services to other telecommunications carriers for the use of our facilities to terminate or originate traffic 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 FCC. In addition, network access revenue is derived from several federally administered pooling arrangements designed to provide network support and distribute funding to the ILECs. Network access revenue was $2,918,571, which is $135,921 or 4.88% higher in the three months ended September 30, 2015 compared to the three months ended September 30, 2014. This increase was primarily due to an increase in regulatory revenues, partially offset by a decline in minutes of use on our network.  Network access revenue was $8,757,033, which is $119,964 or 1.35% lower in the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. This decrease was primarily due to lower minutes of use on our network.  

In recent years, IXCs and others have become more aggressive in disputing both interstate carrier access charges and the applicability of access charges to their network traffic. We believe that long distance and other communication providers will continue to challenge the applicability of access charges either before the FCC or directly with the local exchange carriers. We cannot predict the likelihood of future claims and cannot estimate the impact.

Video– We 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 seventeen communities with our IPTV/digital TV services and four communities with our CATV services. Video revenue was $2,284,803, which is $145,979 or 6.83% higher in the three months ended September 30, 2015 compared to the three months ended September 30, 2014 and was $6,757,375, which is $601,865 or 9.78% higher in the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. These increases were primarily due to increased demand for our HD and DVR services. Also contributing to the increases in video revenue was a combination of rate increases introduced into several of our markets.   

Data– We provide high speed Internet to business and residential customers. 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. Data revenue was $2,477,400, which is $105,096 or 4.43% higher in the three months ended September 30, 2015 compared to the three months ended September 30, 2014 and was $7,405,921, which is $1,111,761 or 17.66% higher in the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014.  These increases were primarily due to the addition of Little Crow/MRVED on our newly expanded fiber optic cable network, an increase in data customers and increased managed services revenues. We expect continued growth in this area will be driven by expansion of service areas, our aggressively packaging service bundles and marketing managed service solutions to businesses.

Other Revenue– Our customers are billed for toll or 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 for Yellow Page advertising 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 TechTrends Wireless, our branded product. We receive both recurring revenue for our wireless services, as well as revenue collected for the sales of wireless phones and accessories. Other revenue was $1,110,055, which is $70,621 or 5.98% lower in the three months ended September 30, 2015 compared to the three months ended September 30, 2014 and was $3,382,185, which is $346,450 or 9.29% lower in the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. These decreases were primarily due to decreases in sales of CPE and long-distance revenues, partially offset by increases in the sales of cellular phone and activation revenues. 

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Cost of Services (excluding Depreciation and Amortization)

Cost of services (excluding depreciation and amortization) was $4,917,522, which is $187,825 or 3.97% higher in the three months ended September 30, 2015 compared to the three months ended September 30, 2014 and was $14,788,106, which is $918,309 or 6.62% higher in the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. These increases were primarily due to higher programming costs from video content providers, increased costs associated with providing service and support for Little Crow/MRVED and higher costs associated with increased maintenance and support agreements on our equipment and software.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $1,702,508, which is $59,599 or 3.38% lower in the three months ended September 30, 2015 compared to the three months ended September 30, 2014. This decrease was primarily due to lower professional and consulting services in the third quarter of 2015 compared to the third quarter of 2014. Selling, general and administrative expenses were $5,450,766, which is $86,311 or 1.61% higher in the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. This increase was primarily due to higher costs associated with professional and consulting services.

Depreciation and Amortization

Depreciation and amortization was $2,436,269, which is $2,351 or 0.10% lower in the three months ended September 30, 2015 compared to the three months ended September 30, 2014. This decrease was primarily due to portions of our legacy telephone network becoming fully depreciated during the third quarter of 2015 as we continue to switch to a new broadband network. Depreciation and amortization was $7,337,330, which is $192,181 or 2.69% higher in the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. This increase was primarily due to increased depreciation due to the expansion of our new fiber optic cable network in 2014.    

Operating Income

Operating income was $1,312,539, which is $170,488 or 14.93% higher in the three months ended September 30, 2015 compared to the three months ended September 30, 2014. This increase was primarily due to an increase in revenues and decreases in selling, general and administrative expenses and depreciation and amortization, partially offset by an increase in cost of services, all of which are described above. Operating income was $3,526,438, which is $22,824 or 0.64% lower in the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. This decrease was primarily due to an increase in operating expenses, partially offset by an increase in revenues, all of which are described above.

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See Consolidated Statements of Income on Page 3 (for discussion below)

Other Income and Interest Expense 

Interest expense was $384,830, which is $150,528 or 64.25% higher in the three months ended September 30, 2015 compared to the three months ended September 30, 2014 and was $1,114,949, which is $410,743 or 58.33% higher in the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. These increases were primarily due to the increased interest rates charged on the Amended and Restated MLA with CoBank entered into on December 31, 2014.     

Interest income was $118,241, which is $102,715 or 661.57% higher in the three months ended September 30, 2015 compared to the three months ended September 30, 2014, and was $209,102, which is $89,576 or 74.94% higher in the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. These increases were primarily due to an increase in dividend income earned on our investments.  

Other income for the nine months ended September 30, 2015 and 2014 included a patronage credit earned with CoBank as a result of our debt agreements with them. The patronage credit allocated and received in 2015 was $409,132, compared to $435,519 allocated and received in 2014. CoBank determines and pays the patronage credit annually, generally in the first quarter of the calendar year, based on its results from the prior year. We record these patronage credits as income when they are received.

Other investment income was $98,163, which is $46,830 or 91.23% higher in the three months ended September 30, 2015 compared to the three months ended September 30, 2014 and was $233,315, which is $58,679 or 33.60% higher in the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. Other investment income is primarily from our equity ownership in several partnerships and limited liability companies.

Income Taxes

Income tax expense was $482,715, which is $69,771 or 16.90% higher in the three months ended September 30, 2015 compared to the three months ended September 30, 2014. This increase was due to increased profitability in the third quarter of 2015 compared to the third quarter of 2014. Income tax expense was $1,242,553, which is $265,376 or 17.60% lower in the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014. This decrease was primarily due to the recognition of unrealized tax benefits associated with the HCC Minnesota tax issue, which was resolved in April 2015. The effective income tax rates for the nine months ending September 30, 2015 and 2014 were approximately 37.93% and 42.0% respectively. The effective income tax rate differs from the federal statutory income tax rate primarily due to state income taxes and other permanent differences.

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Liquidity and Capital Resources

Capital Structure

NU Telecom’s total capital structure (long-term and short-term debt obligations, plus stockholders’ equity) was $97,042,487 at September 30, 2015, reflecting 60.6% equity and 39.4% debt. This compares to a capital structure of $97,694,469 at December 31, 2014, reflecting 59.4% equity and 40.6% debt. In the telecommunications industry, debt financing is most often based on operating cash flows. Specifically, our current use of our credit facilities is in a ratio of approximately 2.69 times debt to EBITDA as defined in the loan documents, which is well within acceptable limits for our agreements and our industry. Our management believes adequate operating cash flows and other internal and external resources, such as our cash on hand and revolving credit facility, are available to finance ongoing operating requirements, including capital expenditures, business development, debt service, temporary financing of trade accounts receivable and dividends.

Liquidity Outlook

Our short-term and long-term liquidity needs arise primarily from (i) capital expenditures; (ii) working capital requirements needed to support the growth of our business; (iii) debt service; (iv) dividend payments on our stock and (v) potential acquisitions.

Our primary sources of liquidity for the nine months ended September 30, 2015 were proceeds from cash generated from operations and cash reserves held at the beginning of the period. At September 30, 2015 we had a working capital surplus of $896,769. In addition, at September 30, 2015, we also had approximately $3.8 million available under our revolving credit facility to fund any short-term working capital needs. 

On December 31, 2014, NU Telecom entered into an Amended and Restated MLA with CoBank. The new MLA refinances and replaces the existing credit facility between CoBank and NU Telecom and the subsidiaries of NU Telecom. NU Telecom’s subsidiary HTC was a borrower under the prior credit facility, but NU Telecom is now the sole borrower under the new MLA. There are two loans under the new MLA, which include a $35 million term loan and a $9 million revolver loan. The term loan requires payments of $675,000 per quarter, beginning March 2015, with the final installment due December 31, 2021. NU Telecom may borrow from time to time under the revolver loan, which also matures on December 31, 2021. Also, under the new MLA, NU Telecom has the ability to either increase the amount of the commitment under the revolver loan by up to $6 million in a single increase, or add an incremental term loan up to $6 million.

Cash Flows

We expect our liquidity needs to include capital expenditures, payment of interest and principal on our indebtedness, income taxes and dividends. We use our cash inflow to manage the temporary increases in cash demand and utilize our revolving credit facility to manage more significant fluctuations in liquidity caused by growth initiatives.

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While it is often difficult to predict the impact of general economic conditions on our business, we believe that we will be able to meet our current and long-term cash requirements primarily through our operating cash flows, and anticipate that we will be able to plan for and match future liquidity needs with future internal and available external resources. 

We periodically seek to add growth initiatives by expanding our network or our markets through organic or internal investments or through strategic acquisitions. We believe we can adjust the timing or the number of our initiatives according to any limitations which may be imposed by our capital structure or sources of financing. At this time, we do not anticipate our capital structure will limit our growth initiatives over the next twelve months.

The following table summarizes our cash flow:

Cash Flows from Operating Activities

Cash generated by operations in the first nine months of 2015 was $6,841,812, compared to cash generated by operations of $7,869,993 in 2014. This decrease was primarily due to a decrease in accounts payable and an increase in inventories, partially offset by a decrease in accounts receivable.

Cash generated by operations continues to be our primary source of funding for existing operations, capital expenditures, debt service and dividend payments to stockholders. Cash at September 30, 2015 was $579,941 compared to $945,087 at December 31, 2014.

Cash Flows Used in Investing Activities

We operate in a capital intensive business. We continue to upgrade our local networks for changes in technology to provide advanced services to our customers.

Cash used in investing activities was $4,477,728 in the first nine months of 2015 compared to $7,915,224 in the first nine months of 2014. Capital expenditures relating to on-going operations were $4,318,878 in the first nine months 2015 compared to $7,867,723 in the first nine months of 2014. We expect total plant additions to be approximately $6.6 million in 2015. Our investing expenditures are financed with cash flows from our current operations and advances on our line of credit. We believe that our current operations will provide adequate cash flows to fund our plant additions for the remainder of this year; however, funding from our revolving credit facility is available if the timing of our cash flows from operations does not match our cash flow requirements. As of September 30, 2015, we had approximately $3.8 million available under our existing credit facility to fund capital expenditures and other operating needs.

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Cash Flows Used in Financing Activities

Cash used in financing activities for the nine months ended September 30, 2015 was $2,729,230 and included long-term debt repayments of $2,025,000, payment of loan origination costs of $22,826, draws on our revolving credit facility of $620,758 and the distribution of $1,302,162 of dividends to our stockholders. Cash used in financing activities for the nine months ended September 30, 2014 was $218,250 and included long-term debt repayments of $3,253,500, draws on our revolving credit facility of $4,334,090 and the distribution of $1,298,840 of dividends to stockholders.

Working Capital

We had a working capital surplus (i.e. current assets minus current liabilities) of $896,769 as of September 30, 2015, with current assets of approximately $7.5 million and current liabilities of approximately $6.6 million, compared to a working capital deficit of $1,252,359 as of December 31, 2014. The ratio of current assets to current liabilities was 1.13 and 0.85 as of September 30, 2015 and December 31, 2014. The working capital surplus at September 30, 2015 was primarily the result of lower capital expenditures in 2015 compared to 2014.

At September 30, 2015 and December 31, 2014 we are in compliance with all stipulated financial ratios in our loan agreements.

Dividends and Restrictions

We declared a quarterly dividend of $.0850 per share in each of the first, second and third quarters of 2015, which totaled $434,932 for the third quarter and $433,615 per quarter for the first and second quarters. We declared a quarterly dividend of $.0850 per share in each of the first, second and third quarters of 2014, which totaled $433,616 for the third quarter and $432,612 per quarter for the first and second quarters.  

We expect to continue to pay quarterly dividends during 2015, but only if and to the extent declared by our Board of Directors 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 credit facility that contain restrictions on our distributions to stockholders and investment in, or loans, to others. See below and Note 4 – “Secured Credit Facility” for additional information.