7 CFR § 1740.63 - Financial information.

§ 1740.63 Financial information.

(a) The Applicant must submit financial information acceptable to the Agency that demonstrates that the Applicant has the financial capacity to fulfill the grant, loan, and loan/grant combination requirements in this part and to successfully complete the proposed project.

(1) Applicants must submit unqualified, comparative, audited financial statements for the previous year from the date the application is submitted. If an application is submitted and the most recent year-end audit has not been completed, the applicant can submit the previous unqualified audit that has been completed. If qualified audits containing a disclaimer or adverse opinion are submitted, the application will not be considered.

(i) An applicant can use the consolidated audit of a parent as long as the parent fully guarantees the loan, or in the case of a grant, guarantees that construction will be completed as approved in the application or will repay the grant to RUS.

(ii) If the applicant has more than one parent, then each parent's audits must be submitted, and each parent must fully guarantee the award.

(iii) For governmental entities, financial statements must be accompanied with certifications as to unrestricted cash that may be available on a yearly basis to the applicant.

(2) Applicants must provide detailed information for all outstanding and contingent obligations. Copies of existing notes, loan and security agreements, guarantees, any existing management or service agreements, and any other agreements with parents, subsidiaries and affiliates, including but not limited to debt instruments that use the applicant's assets, revenues or stock as collateral must be included in the application.

(3) Applicants must provide evidence of all funding, other than the RUS award, necessary to support the project, such as bank account statements, firm letters of commitment from equity participants, or outside loans, which must evidence the timely availability of funds. If outside loans are used to cover any matching requirement, they may only be secured by assets other than those used for collateral under this regulation. Equity partners that are not specifically identified by name will not be considered in the financial analysis of the application. If the application states that other funds are required for the broadband project in addition to the Program funding requested, evidence must be included in the application identifying the source of funds and when the funds will be available. If the additional funding is not clearly identified, the application may not be considered for an award. If the applicant is providing non-telecommunication services and is proposing expansion to those services and states that additional funds are required to support sustainability of the overall operation of the applicant, then evidence must be submitted supporting the availability of these funds or the application may not be considered for funding.

(4) Historical financial statements for the last four years consisting of a balance sheet, income statement, and cash flow statement must be provided. If an entity has not been operating for four years, historical statements for the period of time the entity has been operating are acceptable.

(5) Pro Forma financial analysis prepared in conformity with GAAP and the Agency's guidance on grant accounting can be found at https://www.rd.usda.gov/files/AccountingGuidance10.pdf. The Pro Forma should validate the sustainability of the project by including subscriber estimates related to all proposed service offerings; annual financial projections with balance sheets, income statements, and cash flow statements; supporting assumptions for a five-year forecast period and a depreciation schedule for existing facilities, those facilities funded with federal assistance, matching funds, and other funds. This pro forma should indicate the committed sources of capital funding and include a bridge year prior to the start of the forecast period. This bridge year shall be used as a buffer between the historical financial information and the forecast period and is the year in which the application is submitted.

(i) The financial projections must demonstrate that by the end of the forecast period, the project will meet at least two of the requirements described in § 1740.61(a).

(ii) The financial projections must also demonstrate positive cash flow from operations at the end of the forecast period.

(iii) Based on the financial evaluation, additional conditions may be added to the Award documents to ensure financial feasibility and security on the award.

(b) Publicly traded companies that have a bond rating from Moody's, Standard and Poor's, or Fitch of Investment Grade at the time an application is submitted do not have to complete the pro forma financial projections. In addition, applicants with this classification that elect not to submit financial projections do not need to submit NFSAs.

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