SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1995 Commission File Number: 0-3024
NEW ULM TELECOM, INC.
(Exact Name of Registrant as Specified in its Charter)
Minnesota 41-0440990
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
400 Second Street North
New Ulm, Minnesota 56073
(Address of principal executive
offices and zip code)
Registrant's telephone number
including area code 507-354-4111
Securities registered pursuant to Section 12 (b) of the Act: None
Securities Registered pursuant to Section 12 (g) of the Act:
Common Stock, $5.00 par value
(Title of class)
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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K 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. |X|
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant.
Not Available
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
577,485 Shares Outstanding at December 31, 1995
Documents Incorporated By Reference
Documents: Form 10-K Reference:
Proxy Statement, Filed Part III, Items 10-13
Within 120 Days
PART I
Item 1. Business
New Ulm Telecom, Inc. was incorporated in 1905 under the laws of the State of
Minnesota, with headquarters in New Ulm, Minnesota. The Company's principal line
of business is the operation of local exchange telephone companies.
New Ulm Telecom, Inc. is the parent company for seven wholly-owned subsidiaries,
which are:
Western Telephone Company
Peoples Telephone Company
New Ulm Phonery, Inc.
New Ulm Cellular #7, Inc.
New Ulm Cellular #8, Inc.
New Ulm Cellular #9, Inc.
New Ulm Cellular #10, Inc.
New Ulm Telecom, Inc., Western Telephone Company and Peoples Telephone Company
are independent telephone companies which are regulated by the state utilities
commissions. None of these companies has experienced a major change in the scope
or direction of their operations during the past year. At December 31, 1995, the
Company served 13,836 access lines.
New Ulm Phonery, Inc. is a non-regulated telecommunications business which sells
and services telephone apparatus on a retail level.
New Ulm Cellular #7, 8, 9 and 10, Inc. own cellular partnership interests in
four RSAs (rural service areas) that provide cellular phone service in southern
Minnesota.
The Registrant's operations consist of only one segment, which is to provide
local exchange telephone service and related access to the long distance
network. The Company does not have any collective bargaining agreements with its
employees.
New Ulm Telecom, Inc. provides telephone service to the cities of New Ulm,
Courtland, Klossner, Searles and the adjacent rural areas. Western Telephone
Company provides telephone service to the cities of Springfield, Sanborn and the
adjacent rural areas. Peoples Telephone Company provides telephone service to
Aurelia, Iowa and the adjacent rural areas. Peoples Telephone Company also
operates a small cable television system in the city of Aurelia, Iowa, serving
approximately 380 customers.
New Ulm Telecom, Inc., Western Telephone Company, and Peoples Telephone Company
derive their principal revenues from local service charges to their subscribers
and access charges to interexchange carriers for providing access to the long
distance network. Revenues are also received from long distance carriers for
providing the billing and collection of long distance toll calls to subscribers.
The three telephone companies are public utilities operating exclusively within
their serving areas pursuant to Indeterminate Permits and Certificates of
Territorial Authority issued by the Minnesota Public Utilities Commission and
the Iowa Utilities Board. The Minnesota Public Utilities Commission and the Iowa
Utilities Board regulate most services provided by the three telephone
companies.
The activities of New Ulm Phonery, Inc. are centered around the sale, lease and
service of telephone equipment primarily in the areas within the telephone
company's operations. New Ulm Phonery, Inc. also provides electronic voice mail.
The four cellular companies derive their revenue from their respective
percentage ownership of the four cellular partnerships. Peoples Telephone
Company also has an equity interest in two rural service areas in Iowa. The
cellular partnerships provide their cellular phone service on the wireline side.
Each rural service area that the partnerships operate in also has a non-wireline
provider that is the competition for that area. In addition, new wireless
technology called Personal Communications Service (PCS), currently being
auctioned by the Federal Communications Commission (FCC), will provide new
competitors in the future.
The Registrant and its subsidiaries are not planning to provide any new products
or services which would require the investment of a material amount of the
assets of the Registrant or its subsidiaries.
The materials and supplies which are necessary to the operation of the
businesses of the Registrant and its subsidiaries are available from a variety
of sources. No supply problems are anticipated during the coming year.
Patents, trademarks, licenses and concessions are not significant in the
businesses of the Registrant or its subsidiaries.
The Registrant's businesses are not highly seasonal. The Registrant and its
subsidiaries are engaged in service businesses. Working capital practices
primarily involve the allocation of funds for the construction and maintenance
of telephone plant, the payroll cost of skilled labor and the inventory to
service its telephone equipment customers.
The Registrant and its subsidiaries are not dependent upon any single customer
or small group of customers. There is no customer that accounts for ten percent
or more of the Registrant's consolidated revenues.
The Registrant and its subsidiaries are in a service business which provides an
ongoing benefit to their customers for a fee. These services are repetitive and
recurring. Backlog orders are not a significant factor in providing these
services.
There is no material portion of the businesses of the Registrant or its
subsidiaries which may be subject to renegotiation of profits or termination of
contracts at the election of the Government.
The three telephone companies currently do not have competition in the providing
of basic local telephone service. Competition does exist in some services
provided for interexchange carriers such as customer billing services. The
competition comes from the interexchange carriers themselves. The provision of
these services is by contract and is primarily controlled by the interexchange
carriers. The Company has experienced competition in the providing of access
service whereby the local network is by-passed through private line switched
voice and data services, microwave, or cellular service. Other services such as
directory advertising and local private line transport are open to competition.
Competition is based primarily on cost, service and experience.
There are a number of companies engaged in the sale of telephone equipment at
the retail level competing with New Ulm Phonery, Inc. Competition is based
primarily on price, service, and experience. No company is dominant in this
field.
The Registrant and its subsidiaries do not engage in material research and
development activities.
The Registrant and its subsidiaries anticipate no material effects on their
capital expenditures, earnings or competitive position because of laws relating
to the protection of the environment.
As of December 31, 1995, the total full time employees of the Registrant and its
subsidiaries was 42. New Ulm Telecom, Inc. employed 35 full time employees,
Western Telephone Company had four full time employees and Peoples Telephone
Company had three full time employees. New Ulm Phonery, Inc's. labor is provided
by the employees of New Ulm Telecom, Inc. The four cellular subsidiaries have no
employees.
The Registrant and its subsidiaries operate only in southern Minnesota and
northern Iowa and have no foreign operations.
Item 2. Properties
The three operating telephone companies own central office equipment. The
central office equipment is used to record, switch and transmit the telephone
calls. New Ulm Telecom, Inc's. host central office equipment was purchased in
1991 and consists of a Northern Telecom DMS- 100/200 digital switch. New Ulm
Telecom, Inc. also has remote switching sites in two locations in New Ulm and in
the city of Courtland. The equipment at the three remote switching sites is
housed within specially designed central office equipment buildings.
Western Telephone Company's host central office equipment was purchased in 1990
and consists of a Stromberg Carlson DCO digital switch. Western Telephone
Company also has a remote switching site in the city of Sanborn. The equipment
at Sanborn is housed within a specially designed central office equipment
building.
Peoples Telephone Company's central office equipment was purchased in 1989 and
consists of a Stromberg Carlson DCO digital switch.
The Company owns various buildings and related land as follows:
(1) New Ulm Telecom, Inc. owns a building which is located at 400
Second Street North, New Ulm, Minnesota. It was originally
constructed in 1918 with various additions and remodeling through
the years. This building contains the main business offices and
central office equipment. The building also has warehouse and
garage space. This building contains approximately 23,700 square
feet of floor space.
(2) New Ulm Telecom, Inc. constructed a warehouse in 1992 that is
located at 225 20th South Street, New Ulm, Minnesota. The
warehouse has 10,800 square feet of space and is used primarily
as a storage facility for trucks, generators, trailers, plows,
and inventory used in outside plant construction.
(3) New Ulm Telecom, Inc. has three remote central office buildings
that are located on the north side of New Ulm, the south side of
New Ulm, and in Courtland. These buildings contain central office
equipment that remote off of New Ulm's main central office
equipment.
(4) New Ulm Telecom, Inc. owns buildings in Klossner and Searles,
Minnesota. These buildings were built in 1954 and were formally
used to house central office equipment. These buildings are now
used for storage.
(5) New Ulm Telecom, Inc. owns land located at the corner of 7th
Street South and Valley Street in New Ulm, Minnesota. This lot is
utilized as storage for poles and cable inventory and contains
approximately 5,000 square feet of fenced in storage area.
(6) Western Telephone Company owns a building at 22 South Marshall,
Springfield, Minnesota. This building contains the business
office and central office equipment. This building contains
approximately 2,100 square feet of floor space.
(7) Western Telephone Company has a building in Sanborn, Minnesota,
which contains central office equipment that remotes off of
Western's main central office equipment.
(8) Western owns a warehouse located at 22 South Marshall,
Springfield, Minnesota. This building is used as a storage
facility for vehicles, other work equipment and inventory used in
outside plant construction. This building contains approximately
3,750 square feet of space.
(9) Peoples Telephone Company owns a building in Aurelia, Iowa that
houses the business office, central office equipment and cable
television headend equipment.
(10) Peoples Telephone Company owns a building that is adjacent to its
main office building. This building will be used to expand the
present main office building.
(11) A warehouse building that contains approximately 1,875 sq. ft. is
owned by Peoples Telephone Company.
(12) Peoples Telephone Company also owns a vacant lot that is 25' x
100' in downtown Aurelia, Iowa.
In addition, New Ulm Telecom, Inc., Western Telephone Company and Peoples
Telephone Company own the lines, cables and associated outside physical plant
utilized in providing telephone service in their service areas. Peoples
Telephone Company owns the cables and equipment to provide cable television
services.
New Ulm Phonery, Inc. owns the telephone sets and other similarly used
instruments and equipment which are leased to subscribers.
The Registrant believes that its property is suitable and adequate to provide
the necessary services and believes all properties are adequately insured. Note
5 to the financial statements describes mortgages and collateral relating to the
above properties, while Note 1 describes the composite depreciation rate.
Item 3. Legal Proceedings
There is no material litigation pending or threatened involving the Registrant
at this time in any court.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The Company's common stock is not traded on an exchange or in the
over-the-counter market; as such, it has a limited market. As of December 31,
1995, there were approximately 864 holders of record of the Company's common
stock.
Dividends
Dividends were $1.75 per share in 1995, $1.62 per share in 1994, and $1.47 in
1993. Any increase in dividends will be decided by the Board of Directors based
on anticipated earnings, capital requirements and the operating and financial
condition of the Company. See Note 5 to the financial statements for
restrictions on the payment of dividends.
Item 6. Selected Financial Data
Selected Income Statement Data:
<TABLE>
<CAPTION>
Year Ended December 31
1995 1994 1993 1992 1991
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Operating Revenues $ 8,975,187 $ 8,494,517 $ 7,603,014 $ 6,944,058 $ 7,191,503
Operating Expenses 5,477,162 4,915,602 4,401,869 4,096,954 4,542,332
Operating Income 3,498,025 3,578,915 3,201,145 2,847,104 2,649,171
Other Income (Expenses) 247,873 (39,317) (28,500) (26,459) (113,183)
Income Taxes 1,491,105 1,412,631 1,057,879 1,104,452 983,310
Net Income 2,254,793 2,126,967 2,114,766 1,716,193 1,552,678
Net Income Per Share 3.90 3.68 3.66 2.98 2.73
Dividends Per Share 1.75 1.62 1.47 1.25 1.00
Selected Balance Sheet Data:
As of December 31
1995 1994 1993 1992 1991
-------------- -------------- -------------- -------------- --------------
Current Assets $ 3,478,049 $ 2,748,395 $ 2,931,579 $ 2,288,737 $ 2,322,315
Current Liabilities 949,532 821,823 1,574,795 1,428,004 1,514,010
Working Capital 2,528,517 1,926,572 1,356,784 860,733 808,305
Total Assets 22,021,455 20,976,195 21,309,082 15,236,043 14,292,288
Long-Term Debt 4,766,666 5,133,333 6,505,833 1,347,500 1,821,667
Stockholders' Equity 15,113,728 13,869,534 12,678,093 11,412,230 10,255,323
Book Value Per Share 26.17 24.02 21.95 19.76 18.04
</TABLE>
Selected income statement and balance sheet data include Peoples Telephone
Company subsequent to its acquisition on November 8, 1993.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Description of Business
The Company operates in one business segment providing telephone service in six
Minnesota cities and one Iowa city and the adjacent rural areas. The Company
provides telephone service to over 13,800 access lines through its three local
exchange telephone companies. In addition, the Company is an investor in four
cellular RSAs in southern Minnesota and two RSAs in northwestern Iowa.
Results of Operations
1995 COMPARED TO 1994
In 1995, the Company continued its history of record highs for revenues and net
income. Total operating revenues increased by $480,670 or 5.7%. Net income
increased by $127,826 or 6.0%.
The increase in total operating revenues was primarily in the areas of local
service and nonregulated. Local network revenues increased $205,573 or 12.2% due
to a larger customer base with a number of larger customers switching from
business systems to Centrex. In addition, the Company generated additional local
service revenue as a result of price structure changes. Access line growth was
10.1% in 1995. The Company also added CLASS services, which provide advanced
caller identification products, during 1995. Nonregulated revenues increased
$287,784 or 25.7% due to a larger volume of equipment sales and service billings
in the Phonery.
Operating expense increased by $561,560 or 11.4%. The increases were primarily
in the areas of plant operations, general and administrative and other operating
expenses. A change in an accrual policy accounted for approximately $65,000 of
the increase, and conversion to equal access resulted in additional expenses of
$43,000. The increase in other operating expenses reflects the increase in cost
of equipment sold in the Phonery that is associated with the increase in sales.
Interest expense decreased $89,233 due to the refinancing of the Company's debt
in 1994. This allowed the Company to receive a much more favorable rate of
6.45%. Interest income more than doubled, reflecting the larger amounts of cash
and higher interest rates. The RSA #7, 8, 9 and 10 Minnesota cellular
partnerships continue their strong showing with an increase in partnership
income of $121,536 or 39.1% for a total of $432,088 in 1995.
Income tax expense increased $78,474, with the effective rate of 39.8% in 1995
comparable to the 1994 rate of 39.9%.
1994 COMPARED TO 1993
The Company had all-time highs for revenues and net income in 1994. Total
operating revenues increased by $891,503 or 11.7%. The increase in operating
revenues was the result of increased local network revenues and network access
revenues. Local access revenues increased due to a larger customer base. Network
access revenues increased due to higher volumes of usage and increased
interstate settlements. Operating revenues also increased $488,529 due to the
addition of twelve months of revenue of Peoples Telephone Company in 1994
compared to two months in 1993.
Operating expenses increased by $513,733 or 11.7%. Depreciation expenses
increased due to 1994 plant additions of $1,054,758. New Ulm Telecom, Inc.
continued to install fiber optic cable in the city of New Ulm which will allow
its customers access to the latest in telecommunications technology. Operating
expenses also included twelve months of Peoples Telephone Company, which
accounted for $291,574 of the total increase.
Operating income increased by $377,770 or 11.8%. Interest expense increased due
to higher debt connected with the purchase of Peoples Telephone Company.
Cellular partnership income increased by $209,677 or 207.9% as the cellular
partnerships continue to show strong performances.
Income tax expense increased $354,752, with an effective tax rate of 39.9% in
1994 compared to 33.3%. The effective rate in 1993 was lower than normal due to
the adoption of Statement of Financial Accounting Standards No. 109 (SFAS No.
109).
Net income increased to a record high of $2,126,967. This is an increase of
$12,201 over 1993. Net income for 1993 included a one time income tax benefit
related to the adoption of SFAS No. 109. This benefit increased 1993 net income
by $176,112. Without this adjustment the 1994 net income would have been
$188,313 above 1993, or 9.7%.
Competition
Currently, the Company is the only provider of local telephone service in the
area it serves. However, recent Federal and State legislation has been passed
which will allow competitors to enter this market under certain conditions. In
addition, under this legislation, the Company may compete for telephone
customers in areas served by other telephone companies. Restrictions on
telephone company entry into providing cable television service were also
lifted, subject to certain conditions. Rules and regulations to implement the
new legislation will be established by the Federal Communications Commission and
state regulators. At this time, it is not possible to determine the impact of
this legislation on the Company. However, management will continue to respond to
the changes in a proactive manner and is prepared to meet competition by
continuing to provide high quality state of the art service to customers.
Regulatory Matters
A bill passed in 1995 by the Minnesota legislature allows telephone companies
serving less than 50,000 access lines to file an election to provide service
under an alternate form of regulation. Under this election, a company would not
be subject to a rate of return review by the State regulators, but in return, a
company must agree not to increase rates, other than in extraordinary
circumstances, for a two year period. New Ulm Telecom, Inc. and its subsidiary,
Western Telephone Company, have both made the alternate rate regulation election
as of January 1, 1996. Under Iowa law, Peoples Telephone Company is not subject
to rate of return review.
The Company follows the accounting practices prescribed by regulatory
authorities in accordance with Statement of Financial Accounting Standards No.
71 "Accounting for the Effects of Certain Types of Regulation" (SFAS No. 71).
Under SFAS No. 71, regulators may require certain treatment of revenues or
expenses that are recoverable through rates in future periods. Changes in
regulation and increased competition could impact the applicability of SFAS No.
71 in the future. At this time, the Company believes SFAS No. 71 is applicable.
In March of 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" (SFAS No. 121).
SFAS No. 121 is effective in 1996 and requires that losses be recognized if the
net book value of property is less than discounted future cash flows. Due to
changes in regulation and increased competition, it is not possible to determine
the impact of this standard at this time.
Liquidity and Capital Resources
The Company had an increase in cash and cash equivalents of $395,443 in 1995.
Cash provided by operations was $3,330,259, or a decrease of $89,030 mainly due
to an increase in receivables. The receivable increase was due mainly to a one
month delay in collections of access billings from interexchange carriers.
Management does not anticipate a collection problem with any of the receivables.
Under investing activities, cash of $1,827,903 was used for plant additions.
Cash distributions from the cellular partnerships were $286,455 in 1995,
reflecting the strong performance of the cellular partnerships.
The cash used in financing activities for principal payments on long-term debt
decreased by $1,005,833. In 1994, the Company refinanced its long-term debt
resulting in larger principal payments. Cash dividends increased by $75,073 in
1995.
The Company does not believe inflation had a material effect on the Company in
1995 or 1994.
In 1996, the Company is budgeting approximately $1,800,000 for plant additions.
The Company purchased the existing cable television system in Sanborn for
$130,000 with the transfer effective on January 1, 1996. It has also signed
purchase agreements for the cable television systems in Jeffers and Wabasso with
a closing date of May 31, 1996. The Company will continue to look for investment
opportunities in this and other areas. Management believes the Company will
internally generate sufficient cash to meet its operating needs and sustain
historical dividend levels.
The Company has a line of credit of $1,640,000 with the Rural Telephone Finance
Corporation with interest at 1 1/2% over the prime rate.
Item 8. Financial Statements and Supplementary Data
INDEPENDENT AUDITORS' REPORT
To the Shareholders and
Board of Directors
New Ulm Telecom, Inc.
New Ulm, Minnesota
We have audited the accompanying consolidated balance sheet of New Ulm Telecom,
Inc. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of New Ulm Telecom,
Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
St. Paul, Minnesota
February 15, 1996 OLSEN THIELEN & CO., LTD.
<TABLE>
<CAPTION>
NEW ULM TELECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1995 1994 1993
--------------- -------------- ---------
OPERATING REVENUES:
<S> <C> <C> <C>
Local Network $ 1,895,517 $ 1,689,944 $ 1,526,062
Network Access 4,686,272 4,659,077 3,798,288
Billing and Collection 625,341 627,883 689,798
Miscellaneous 361,627 398,967 404,835
Nonregulated 1,406,430 1,118,646 1,184,031
--------------- -------------- -------------
Total Operating Revenues 8,975,187 8,494,517 7,603,014
--------------- -------------- -------------
OPERATING EXPENSES:
Plant Operations 1,140,259 934,586 977,690
Depreciation 1,565,571 1,532,732 1,306,456
Amortization 113,776 126,804 90,629
Customer 558,607 541,331 548,429
General and Administrative 1,131,150 1,016,231 862,479
Other Operating Expenses 967,799 763,918 616,186
--------------- -------------- -------------
Total Operating Expenses 5,477,162 4,915,602 4,401,869
--------------- -------------- -------------
OPERATING INCOME 3,498,025 3,578,915 3,201,145
--------------- -------------- -------------
OTHER INCOME (EXPENSES):
Interest Expense (321,775) (411,008) (171,257)
Interest Income 137,560 61,139 41,882
Cellular Partnerships Income 432,088 310,552 100,875
--------------- -------------- -------------
Other Income (Expenses), Net 247,873 (39,317) (28,500)
--------------- -------------- -------------
INCOME BEFORE INCOME TAXES 3,745,898 3,539,598 3,172,645
INCOME TAXES - Note 6 1,491,105 1,412,631 1,057,879
--------------- -------------- -------------
NET INCOME $ 2,254,793 $ 2,126,967 $ 2,114,766
=============== ============== =============
NET INCOME PER SHARE $ 3.90 $ 3.68 $ 3.66
=============== ============== =============
DIVIDENDS PER SHARE $ 1.75 $ 1.62 $ 1.47
=============== ============== =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<CAPTION>
NEW ULM TELECOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995 AND 1994
ASSETS
1995 1994
---------------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 1,829,215 $ 1,433,772
Receivables, Net of Allowance for Doubtful
Accounts of $17,500 and $12,000 1,186,783 836,106
Materials, Supplies and Inventories 370,462 402,036
Prepaid Expenses 91,589 76,481
---------------- ---------------
Total Current Assets 3,478,049 2,748,395
---------------- ---------------
INVESTMENTS AND OTHER ASSETS:
Excess of Cost Over Net Assets Acquired 3,901,561 4,015,337
Notes Receivable 15,734 17,831
Cellular Investments 2,089,167 1,943,534
Other 166,314 142,800
---------------- ---------------
Total Investments and Other Assets 6,172,776 6,119,502
---------------- ---------------
PROPERTY, PLANT AND EQUIPMENT:
Telecommunications Plant 23,072,600 22,045,964
Other Property and Equipment 1,276,946 1,260,110
Cable Television Plant 411,418 277,151
---------------- ---------------
Total 24,760,964 23,583,225
Less Accumulated Depreciation 12,390,334 11,474,927
---------------- ---------------
Net Property, Plant and Equipment 12,370,630 12,108,298
---------------- ---------------
TOTAL ASSETS $ 22,021,455 $ 20,976,195
================ ===============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<CAPTION>
NEW ULM TELECOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
DECEMBER 31, 1995 AND 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
1995 1994
---------------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Current Portion of Long-Term Debt $ 366,666 $ 366,666
Accounts Payable 260,351 195,820
Other Accrued Taxes 57,372 54,597
Other Accrued Liabilities 265,143 204,740
---------------- ---------------
Total Current Liabilities 949,532 821,823
---------------- ---------------
LONG-TERM DEBT - Note 5 4,400,000 4,766,667
---------------- ---------------
DEFERRED CREDITS: - Note 6
Income Taxes 1,469,790 1,384,819
Investment Tax Credits 88,405 133,352
---------------- ---------------
Total Deferred Credits and Liabilities 1,558,195 1,518,171
---------------- ---------------
STOCKHOLDERS' EQUITY:
Common Stock - $5 Par Value, 6,400,000
Shares Authorized, 577,485 Shares Issued
and Outstanding 2,887,425 2,887,425
Retained Earnings - Note 5 12,226,303 10,982,109
---------------- ---------------
Total Stockholders' Equity 15,113,728 13,869,534
---------------- ---------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 22,021,455 $ 20,976,195
================ ===============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<CAPTION>
NEW ULM TELECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
Common Stock
------------ Retained
Shares Amount Earnings
--------------- ---------------- ----------------
<S> <C> <C> <C>
BALANCE on December 31, 1992 577,485 $ 2,887,425 $ 8,524,805
Net Income 2,114,766
Dividends (848,903)
BALANCE on December 31, 1993 577,485 2,887,425 9,790,668
Net Income 2,126,967
Dividends (935,526)
BALANCE on December 31, 1994 577,485 2,887,425 10,982,109
Net Income 2,254,793
Dividends (1,010,599)
BALANCE on December 31, 1995 577,485 $ 2,887,425 $ 12,226,303
=============== =============== ================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<CAPTION>
NEW ULM TELECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1995 1994 1993
---------------- -------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,254,793 $ 2,126,967 $ 2,114,766
Adjustments to Reconcile Net Income to Net
Cash Provided By Operating Activities:
Depreciation and Amortization 1,679,347 1,659,536 1,397,085
Cellular Partnerships Income (432,088) (310,552) (100,875)
(Increase) Decrease in:
Receivables (355,992) 146,261 (271,689)
Inventories 31,574 (45,304) 52,131
Prepaid Expenses (15,108) (5,791) 16,771
Increase (Decrease) in:
Accounts Payable 64,531 (280,834) (383,481)
Accrued Income Taxes - (22,088) (11,534)
Other Accrued Taxes 2,775 3,583 8,225
Other Accrued Liabilities 60,403 (10,300) (22,693)
Deferred Income Taxes 84,971 212,126 (16,679)
Deferred Investment Tax Credits (44,947) (54,315) (57,963)
---------------- -------------- ---------------
Net Cash Provided By
Operating Activities 3,330,259 3,419,289 2,724,064
---------------- -------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property, Plant
and Equipment, Net (1,827,903) (1,054,758) (3,025,060)
Acquisition, Net of Cash Acquired - - (3,638,331)
Change in Notes Receivable 7,412 14,243 33,838
Purchase of Cellular Investments - (270,647) (472,978)
Distributions from Cellular Partnerships 286,455 137,929 -
Sale of Investment Securities - 391,862 -
Other, Net (23,514) (21,727) (8,794)
---------------- -------------- ---------------
Net Cash Used In
Investing Activities (1,557,550) (803,098) (7,111,325)
---------------- -------------- ---------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<CAPTION>
NEW ULM TELECOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1995 1994 1993
---------------- -------------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Long-Term Debt $ - $ - $ 5,500,000
Principal Payments of Long-Term Debt (366,667) (1,372,500) (341,667)
Dividends (1,010,599) (935,526) (848,903)
---------------- -------------- ---------------
Net Cash Provided By (Used In)
Financing Activities (1,377,266) (2,308,026) 4,309,430
---------------- -------------- ---------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 395,443 308,165 (77,831)
CASH AND CASH EQUIVALENTS
at Beginning of Year 1,433,772 1,125,607 1,203,438
---------------- -------------- ---------------
CASH AND CASH EQUIVALENTS
at End of Year $ 1,829,215 $ 1,433,772 $ 1,125,607
================ ============== ===============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
NEW ULM TELECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - The Company's principal line of business is providing
local telephone service and access to long-distance telephone service through
its local exchange network. The Company owns and operates three independent
telephone companies serving six communities in southern Minnesota, one community
in Iowa, and the adjacent rural areas. The Company also has investments in
cellular partnerships and operates a cable television system.
CONSOLIDATION - The consolidated financial statements include the accounts of
the Company and its seven wholly owned subsidiaries. All significant
intercompany transactions and accounts have been eliminated.
REGULATORY ACCOUNTING - The consolidated financial statements have been prepared
in conformity with generally accepted accounting principles including certain
accounting practices prescribed by regulatory authorities in accordance with
Statement of Financial Accounting Standards No. 71, "Accounting for the Effects
of Certain Types of Regulation" (SFAS No. 71). For example, the Company's
depreciation rates as prescribed by regulatory authorities may be different than
depreciation rates used in an unregulated enterprise.
ACCOUNTING ESTIMATES - The presentation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses and disclosure of contingent assets and
liabilities as of the date of the financial statements. Actual results could
differ from those estimates.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include cash and highly
liquid short-term investments. Cash equivalents are stated at cost, which
approximates market value.
MATERIALS, SUPPLIES AND INVENTORIES - Materials, supplies and inventories are
recorded at average cost.
PROPERTY AND DEPRECIATION - Property, plant and equipment are recorded at
original cost. Additions, improvements or major renewals are capitalized. When
telecommunications assets are sold, retired or otherwise disposed of, the cost
plus removal costs less salvage is charged to accumulated depreciation. Any
gains or losses on non-telecommunications property and equipment retirements are
reflected in the current year operations.
Depreciation is computed using the straight-line method based on estimated
service or remaining useful lives. The composite depreciation rates on
telecommunications equipment for the three years ended December 31, 1995, 1994,
and 1993 were 6.9%, 7.0%, and 6.9%.
INVESTMENTS AND OTHER ASSETS - The excess of cost over net assets of acquired
companies is being amortized equally over forty years and is shown net of
accumulated amortization of $649,480 and $535,704 at December 31, 1995 and 1994.
In November 1993, the Company acquired all of the shares of Peoples Telephone
Company of Aurelia, Iowa for $3,930,402 cash, which consisted of fair value of
assets acquired of $4,063,370, less liabilities assumed of $132,968. The
acquisition was accounted for by the purchase method of accounting and the
operating results are included in the Company's consolidated results of
operations from the date of acquisition. The excess of the purchase price over
the fair value of the net assets acquired was $2,623,186.
INVESTMENTS AND OTHER ASSETS (CONTINUED) - Investments in cellular telephone
partnerships are recorded on the equity method of accounting, which reflects
original cost and equity in undistributed earnings and losses. The cellular
partnership investments consist of investments in four rural service areas
(RSAs) that are owned by four wholly owned subsidiaries. These RSAs provide
cellular phone service to parts of rural southern Minnesota. The Company's
ownership in these RSAs ranges from 8.3% to 14.8%.
Investments in two Iowa RSAs consist of a common stock equity interest of less
than 20%. The cost method is used to account for these RSA investments.
Long-term investments in other companies that are not intended for resale or are
not readily marketable are valued at the lower of cost or net realizable value.
NETWORK ACCESS REVENUE - Revenues are recognized when earned. Interstate access
revenue is based on settlements with the National Exchange Carrier Association.
Interstate access settlements are based on cost studies for New Ulm Telecom,
Inc. and by nationwide average cost schedules for its subsidiaries, Western
Telephone Company and Peoples Telephone Company. Access revenues for New Ulm
Telecom, Inc. include estimates which management believes are reasonable,
pending finalization of cost studies. Local and intrastate access revenues are
based on tariffs filed with the state regulatory commissions.
INCOME TAXES AND INVESTMENT TAX CREDITS - The provision for income taxes
consists of an amount for taxes currently payable and a provision for tax
consequences deferred to future periods. Deferred income taxes are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred income tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The major temporary difference that gave rise to the net deferred tax
liability is depreciation, which for tax purposes is determined based on
accelerated methods and shorter lives. For financial statement purposes,
deferred investment tax credits and excess deferred income taxes relating to
depreciation of regulated assets are being amortized as a reduction of the
provision for income taxes over the estimated useful or remaining lives of the
related property, plant and equipment.
NET INCOME PER COMMON SHARE - Net income per common share is based on the
weighted average number of shares outstanding of 577,485 shares during each of
the three years presented.
NOTE 2 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and cash equivalents: The carrying amount approximates fair value because
of the short maturity of those instruments.
Long-term investments: It was not practicable to estimate a fair value for
common stock investments in companies carried on the cost basis due to a lack of
quoted market price. The Company believes the original cost is not impaired at
December 31, 1995.
Long-term debt: The fair value of the Company's long term debt is estimated
based on the discounted value of the future cash flows expected to be paid using
current rates of borrowing for similar types of debt. Fair value of the debt
approximates carrying value.
NOTE 3 - SAVINGS PLAN
The Company has a 401(k) Employee Savings Plan in effect for employees who meet
certain age and service requirements. The Company makes contributions of 50% of
the employee's contribution up to 6% of compensation. In 1995, 1994, and 1993,
the Company also made an additional discretionary contribution of 4% of the
covered employees' compensation in addition to the matching amount. The
Company's total contribution to the 401(k) plan was $88,092 in 1995, $90,963 in
1994, and $88,749 in 1993.
NOTE 4 - LINE OF CREDIT
The Company has a revolving short-term line of credit of $1,640,000 at 1 1/2%
over the bank prime rate with the Rural Telephone Finance Cooperative. No
amounts are outstanding at December 31, 1995 under the line of credit.
NOTE 5 - LONG-TERM DEBT
Long-term debt is as follows:
<TABLE>
<CAPTION>
1995 1994
--------------- ---------
<S> <C> <C>
Unsecured note payable by New Ulm Telecom, Inc. to
Phoenix Home Life Mutual Insurance Company in quarterly
installments of $65,000 plus 6.45% interest through
December 1, 2008. $ 3,380,000 $ 3,640,000
Unsecured note payable by Western Telephone Company, a wholly owned subsidiary,
to Phoenix Home Life Mutual Insurance Company in quarterly installments of
$18,333 plus 6.45% interest through December 1, 2008. The payment
of this note is guaranteed by New Ulm Telecom, Inc. 953,333 1,026,666
Unsecured note payable by Peoples Telephone Company, a wholly owned subsidiary,
to Phoenix Home Life Mutual Insurance Company in quarterly installments of
$8,333 plus 6.45% interest through December 1, 2008. The payment of
this note is guaranteed by New Ulm Telecom, Inc. 433,333 466,667
--------------- -------------
Total 4,766,666 5,133,333
Less Amount Due Within One Year 366,666 366,666
--------------- -------------
Long-Term Debt $ 4,400,000 $ 4,766,667
=============== =============
</TABLE>
Principal payments required during the next five years are $366,666 annually.
Cash payments for interest were $323,745 in 1995, $407,175 in 1994, and $170,108
in 1993.
The debt agreements contain covenants relating to maintenance of working
capital, additional borrowings, leases, and payment of cash dividends (effective
in 1993, dividends are limited to $1,000,000 plus 50% of cumulative net income).
At December 31, 1995, approximately $1,245,000 of consolidated retained earnings
were available for dividends under these covenants.
NEW ULM TELECOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - INCOME TAXES AND INVESTMENT TAX CREDITS
Income tax expense consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
-------------- ------------- ---------
<S> <C> <C> <C>
Taxes Currently Payable:
Federal $ 1,095,146 $ 955,388 $ 859,784
State 355,935 299,432 272,737
Deferred Income Taxes 84,971 212,126 (16,679)
Amortization of Investment Tax Credits (44,947) (54,315) (57,963)
-------------- ------------- --------------
Income Tax Expense $ 1,491,105 $ 1,412,631 $ 1,057,879
============== ============= ==============
The differences between the statutory federal tax rate and the effective tax
rate were as follows:
1995 1994 1993
---------- ------------ --------
Statutory Tax Rate 35.0% 35.0% 35.0%
Effect of:
Surtax Exemption (1.0) (1.0) (1.0)
State Income Taxes, Net of
Federal Tax Benefit 6.7 6.7 6.7
Amortization of Investment Tax Credits (1.2) (1.5) (1.8)
Normalization of Deferred Income Taxes - - (6.1)
Other .3 .7 .5
------ ----- ------
Effective Tax Rate 39.8% 39.9% 33.3%
====== ===== ======
The components of deferred income taxes are as follows:
1995 1994
-------------- --------
Deferred Tax Liabilities:
Depreciation $ 1,445,543 $ 1,378,240
Other 24,247 6,579
-------------- -------------
Total $ 1,469,790 $ 1,384,819
============== =============
</TABLE>
Cash payments for income taxes were $1,477,000 in 1995, $1,042,040 in 1994, and
$1,389,056 in 1993. Included in the caption "receivables" on the balance sheet
as of December 31, 1995 and 1994 is $36,052 and $10,133 of prepaid income taxes.
PART II
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
The information for Part III, Items 10, 11, 12, and 13, are hereby incorporated
by reference to the Company's Proxy Statement, which will be filed with the
Commission within 120 days after the close of the fiscal year ending December
31, 1995.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
<TABLE>
<CAPTION>
<S> <C> <C>
(a)1. Financial Statements
Included in Part II of this report:
Page Numbers
Independent Auditors' Report 10
Consolidated Statement of Income for the Three
Years Ended December 31, 1995, 1994 and 1993 11
Consolidated Balance Sheet at December 31, 1995
and 1994 12-13
Consolidated Statement of Stockholders' Equity
for the Three Years Ended December 31, 1995,
1994 and 1993 14
Consolidated Statement of Cash Flows for the
Three Years Ended December 31, 1995,
1994 and 1993 15-16
Notes to Consolidated Financial Statements 17-21
</TABLE>
Schedules are omitted because they are not required or are not applicable, or
the required information is shown in the financial statements or notes thereto.
(a)3. Exhibits
Exhibits required to be filed by Item 601 of Regulation S-K are
included as Exhibits to this report as follows:
3(i) Restated Articles of Incorporation (incorporated by
reference to the New Ulm Telecom, Inc. Form 10-K dated
December 31, 1986).
3(ii) Restated By-Laws (incorporated by reference to the New
Ulm Telecom, Inc. Form 10-K dated December 31, 1986).
4 The registrant, by signing this Report, agrees to
furnish the Securities and Exchange Commission, upon
its request, a copy of any instrument which defines the
rights of holders of long-term debt of the registrant
and all of its subsidiaries for which consolidated
financial statements are required to be filed, and
which authorizes a total amount of securities not in
excess of 10% of the total assets of the registrant and
its subsidiaries on a consolidated basis.
21 Subsidiaries of the Registrant are included as an
Exhibit to this report on page 25.
27 Financial data schedule
(b) Reports on Form 8-K
None
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NEW ULM TELECOM, INC.
(Registrant)
Date March 26, 1996 By: --------------------------------------
----------------------
James Jensen, President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
Date March 26, 1996 By: --------------------------------------
----------------------
R. T. Rodenberg, Chairman of the Board
and Director
--------------------------------------
Bill Otis, Executive Vice-President/
Chief Operating Officer
--------------------------------------
Mark Retzlaff, Vice-President
and Director
--------------------------------------
Gary Nelson, Secretary and Director
--------------------------------------
Lavern Biebl, Treasurer and Director
--------------------------------------
Steve Bartlett, Controller
--------------------------------------
Linus Grathwohl, Director
--------------------------------------
Joe Landsteiner, Director
--------------------------------------
Perry Meyer, Director
--------------------------------------
Robert Ranweiler, Director
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
(1) Western Telephone Company
100% - Owned Subsidiary
Incorporated in the State of Minnesota
(2) Peoples Telephone Company
100% - Owned Subsidiary
Incorporated in the State of Iowa
(3) New Ulm Phonery, Inc.
100% - Owned Subsidiary
Incorporated in the State of Minnesota
(4) New Ulm Cellular #7, Inc.
100% - Owned Subsidiary
Incorporated in the State of Minnesota
(5) New Ulm Cellular #8, Inc.
100% - Owned Subsidiary
Incorporated in the State of Minnesota
(6) New Ulm Cellular #9, Inc.
100% - Owned Subsidiary
Incorporated in the State of Minnesota
(7) New Ulm Cellular #10, Inc.
100% - Owned Subsidiary
Incorporated in the State of Minnesota
The financial statements of all such subsidiaries are included on the
consolidated financial statements of New Ulm Telecom, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from New Ulm
Telecom, Inc.'s financial statements for the year ended December 31, 1995, and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,829,215
<SECURITIES> 0
<RECEIVABLES> 1,186,783
<ALLOWANCES> 17,500
<INVENTORY> 370,462
<CURRENT-ASSETS> 3,478,049
<PP&E> 24,760,964
<DEPRECIATION> 12,390,334
<TOTAL-ASSETS> 22,021,455
<CURRENT-LIABILITIES> 949,532
<BONDS> 4,400,000
0
0
<COMMON> 2,887,425
<OTHER-SE> 12,226,303
<TOTAL-LIABILITY-AND-EQUITY> 22,021,455
<SALES> 0
<TOTAL-REVENUES> 8,975,187
<CGS> 0
<TOTAL-COSTS> 5,477,162
<OTHER-EXPENSES> (569,648)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 321,775
<INCOME-PRETAX> 3,745,898
<INCOME-TAX> 1,491,105
<INCOME-CONTINUING> 2,254,793
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,254,793
<EPS-PRIMARY> 3.90
<EPS-DILUTED> 3.90
</TABLE>
