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, 1996 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. 1,732,455 Shares
Outstanding at December 31, 1996
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, 1996, the
Company served 14,354 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 interests in a limited
liability corporation that provides 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 operates a
cable television system in the city of Aurelia, Iowa, serving approximately 380
customers. Western Telephone Company operates three cable television systems in
Minnesota (cities of Sandborn, Jeffers and Wabasso) serving approximately 410
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,
video conferencing and internet services.
The four cellular companies derive their revenue from their respective
percentage ownership of the cellular limited liability corporation (LLC).
Peoples Telephone Company also has an equity interest in two rural service areas
in Iowa. The cellular LLC provides their cellular phone service on the wireline
side. The service area that the LLC operates in also has a non-wireline provider
that is the competition for that area. In addition, new wireless technology
called Personal Communications Service (PCS) 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, 1996, the total full time employees of the Registrant and its
subsidiaries was 43. New Ulm Telecom, Inc. employed 36 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 these remote switching sites is housed
within specially designed central office equipment buildings.
Western Telephone Company installed Northern Telecom remote central office
equipment in 1996. This remote switching equipment utilizes the host switch in
New Ulm. 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 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. Western
Telephone Company and 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,
1996, there were approximately 909 holders of record of the Company's common
stock.
Dividends
Dividends were $.65 per share in 1996, $.58 per share in 1995, and $.54 per
share in 1994. 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
<TABLE>
<CAPTION>
Selected Income Statement Data:
Year Ended December 31
---------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Operating Revenues $ 9,346,224 $ 8,975,187 $ 8,494,517 $ 7,603,014 $ 6,944,058
Operating Expenses 5,631,181 5,477,162 4,915,602 4,401,869 4,096,954
Operating Income 3,715,043 3,498,025 3,578,915 3,201,145 2,847,104
Other Income (Expenses) 275,016 247,873 (39,317) (28,500) (26,459)
Income Taxes 1,586,544 1,491,105 1,412,631 1,057,879 1,104,452
Net Income 2,403,515 2,254,793 2,126,967 2,114,766 1,716,193
Net Income Per Share 1.39 1.30 1.23 1.22 .99
Dividends Per Share .65 .58 .54 .49 .42
Selected Balance Sheet Data:
As of December 31
-----------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
----------------- ---------------- ---------------- ----------------- -----------------
Current Assets $ 3,938,975 $ 3,478,049 $ 2,748,395 $ 2,931,579 $ 2,288,737
Current Liabilities 937,488 949,532 821,823 1,574,795 1,428,004
Working Capital 3,001,487 2,528,517 1,926,572 1,356,784 860,733
Total Assets 22,849,405 22,021,455 20,976,195 21,309,082 15,236,043
Long-Term Debt 4,400,000 4,766,666 5,133,333 6,505,833 1,347,500
Stockholders' Equity 16,385,373 15,113,728 13,869,534 12,678,093 11,412,230
Book Value Per Share 9.46 8.72 8.01 7.32 6.59
</TABLE>
Selected income statement and balance sheet data include Peoples Telephone
Company subsequent to its acquisition on November 8, 1993. All per share amounts
have been adjusted to reflect a three-for-one stock split effective April 1,
1996.
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 14,300 access lines through its three local
exchange telephone companies. In addition, the Company is an investor in a
cellular limited liability corporation in southern Minnesota and two RSAs (rural
service areas) in northwestern Iowa. The Company also operates four cable
television systems.
Results of Operations
The majority of the Company's revenues are derived from providing its customers
access to the local network and to the long distance network. Customers pay
fixed monthly rates for access to local service. The Company receives access
revenues from long distance carriers for providing connections to the long
distance network. The Company also earns revenues from long distance carriers
for billing and collection services related to long distance services. Cable
television revenues are included in nonregulated and represent less than 2% of
total operating revenues. The following table reflects the percentage of revenue
derived from each category over the past three years:
Year Ended December 31
--------------------------------------------
1996 1995 1994
-------- -------- ---------
Local Network 22.0 % 21.1 % 19.9 %
Network Access 53.0 52.2 54.8
Billing and Collection 5.8 7.0 7.4
Miscellaneous 3.5 4.0 4.7
Nonregulated 15.7 15.7 13.2
======== ======== =========
100.0 % 100.0 % 100.0 %
======== ======== =========
1996 COMPARED TO 1995
The company once again experienced growth in income and operations. Total
operating income for 1996 grew $217,018 or 6.2%, which corresponds favorably to
revenue growth of $371,037 or 4.1%. The company's operations expanded through
the purchase of cable television systems in Sanborn, Jeffers and Wabasso. The
company's ownership of four Minnesota cellular partnerships was changed when
five Southern Minnesota RSAs merged to form Midwest Wireless Communications,
L.L.C. The company is a 7.7% owner of Midwest Wireless Communications, L.L.C.
Midwest Wireless owns and operates the five Southern Minnesota RSAs as well as
the Rochester MSA.
The increase in operating revenues can be attributed to the areas of local
service and network access. The company provides customers access to a 14,354
access line local network. Local service revenue increased 8.5% in 1996 and
12.2% in 1995. The growth in local service revenue is significant because it
exceeded the access line growth for those periods, which was 3.7% and 10.1%
respectively. CLASS services, Centrex and voice mail were significant to the
local service revenue growth, with this growth resulting from a commitment to
marketing efforts. Custom calling services were offered for the first time by
Western Telephone Company during 1996. Network access revenues increased
$263,735 or 5.6% in 1996. The continued growth in network access revenues can be
attributed to growth in access minutes of use. Western Telephone Company went to
equal access during 1996, which helped stimulate long distance traffic. Billing
and collection revenue decreased $82,891 or 13.3% as a result of long distance
carriers decisions to perform some of these functions internally.
Operating expenses increased $154,019 or 2.8%. The increase was primarily
depreciation expense. Western Telephone Company had additional depreciation of
$140,000 because their old central office equipment was replaced with a remote
switch. The Company also changed depreciation rates on their central office
switching equipment from 15 years to 12 years. Excluding depreciation expense,
operating expenses decreased $125,463 or 3.2%.
Interest expense declined $23,456 or 7.3% reflecting the reduction in long-term
debt, while interest income and cellular investment income was approximately the
same as 1995. The Company's cellular interests contributed $440,072 or 11% of
pre-tax income.
Income taxes increased $95,439, with the effective rate remaining constant at
39.8% in 1996 and 1995.
Net income for 1996 increased $148,722 or 6.6%, reflecting the continued steady
revenue growth along with slower rates of growth in operating expenses.
1995 COMPARED TO 1994
In 1995, the Company continued its history of record highs for revenues and net
income. Total operating revenues increased $480,670 or 5.7%. Net income
increased $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%.
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 are currently being 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 Telecommunications Act passed by the federal government in February of 1996
will result in significant changes to the telecommunications industry. The
Federal Communications Commission (FCC) is in the process of determining how
competition will be introduced by setting standards for wholesale pricing,
unbundling local network rates, and interconnection rates. State regulators will
also be involved in implementing the transition to a competitive environment,
but the exact roles that the FCC and state regulators will play has yet to be
determined.
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.
Accounting Pronouncements
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. This
standard has had no impact on the Company's financial statements.
Liquidity and Capital Resources
The Company had an increase in cash and cash equivalents of $688,655 in 1996.
Cash provided by operations was $4,067,506, or an increase of $737,247 mainly
due to a decrease in receivables and an increase in net income and depreciation
expense. The receivables balance at December 31, 1995 was high due mainly to a
one month delay in collections of access billings from interexchange carriers.
During 1996, cash of $1,620,255 was used for plant additions. Cash distributions
from the cellular partnerships were $226,747 in 1996, reflecting the strong
performance of the cellular partnerships. The Company made additional cellular
investments of $443,803 in 1996.
The Company continued to increase dividends paid to shareholders in 1996. The
1996 dividend of $1,131,870 represented an increase of 12% over 1995.
The Company does not believe inflation had a material effect on the Company in
1996 or 1995.
In 1997, the Company is budgeting approximately $1,400,000 for plant additions.
The Company purchased the existing cable television systems in Jeffers and
Wabasso for $320,000 with the transfer effective 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, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
St. Paul, Minnesota
February 19, 1997 OLSEN THIELEN & CO., LTD.
NEW ULM TELECOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING REVENUES:
Local Network $ 2,055,689 $ 1,895,517 $ 1,689,944
Network Access 4,950,007 4,686,272 4,659,077
Billing and Collection 542,360 625,341 627,883
Miscellaneous 330,355 361,627 398,967
Nonregulated 1,467,813 1,406,430 1,118,646
----------- ----------- -----------
Total Operating Revenues 9,346,224 8,975,187 8,494,517
----------- ----------- -----------
OPERATING EXPENSES:
Plant Operations 1,182,166 1,140,259 934,586
Depreciation 1,845,053 1,565,571 1,532,732
Amortization 113,776 113,776 126,804
Customer 523,422 558,607 541,331
General and Administrative 1,105,048 1,131,150 1,016,231
Other Operating Expenses 861,716 967,799 763,918
----------- ----------- -----------
Total Operating Expenses 5,631,181 5,477,162 4,915,602
----------- ----------- -----------
OPERATING INCOME 3,715,043 3,498,025 3,578,915
----------- ----------- -----------
OTHER INCOME (EXPENSES):
Interest Expense (298,319) (321,775) (411,008)
Interest Income 133,263 137,560 61,139
Cellular Investment Income 440,072 432,088 310,552
----------- ----------- -----------
Other Income (Expenses), Net 275,016 247,873 (39,317)
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 3,990,059 3,745,898 3,539,598
INCOME TAXES - Note 6 1,586,544 1,491,105 1,412,631
----------- ----------- -----------
NET INCOME $ 2,403,515 $ 2,254,793 $ 2,126,967
=========== =========== ===========
NET INCOME PER SHARE $ 1.39 $ 1.30 $ 1.23
=========== =========== ===========
DIVIDENDS PER SHARE $ .65 $ .58 $ .54
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
NEW ULM TELECOM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996 AND 1995
ASSETS
1996 1995
----------- -----------
CURRENT ASSETS:
Cash and Cash Equivalents $ 2,517,870 $ 1,829,215
Receivables, Net of Allowance for Doubtful
Accounts of $23,500 and $17,500 981,336 1,186,783
Materials, Supplies and Inventories 357,900 370,462
Prepaid Expenses 81,869 91,589
----------- -----------
Total Current Assets 3,938,975 3,478,049
----------- -----------
INVESTMENTS AND OTHER ASSETS:
Excess of Cost Over Net Assets Acquired 3,787,786 3,901,561
Notes Receivable 78,226 15,734
Cellular Investments 2,746,295 2,089,167
Other 152,291 166,314
----------- -----------
Total Investments and Other Assets 6,764,598 6,172,776
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Telecommunications Plant 23,726,599 23,072,600
Other Property and Equipment 1,356,503 1,276,946
Cable Television Plant 753,054 411,418
----------- -----------
Total 25,836,156 24,760,964
Less Accumulated Depreciation 13,690,324 12,390,334
----------- -----------
Net Property, Plant and Equipment 12,145,832 12,370,630
----------- -----------
TOTAL ASSETS $22,849,405 $22,021,455
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
NEW ULM TELECOM INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996 AND 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
----------- -----------
CURRENT LIABILITIES:
Current Portion of Long-Term Debt $ 366,666 $ 366,666
Accounts Payable 222,970 260,351
Other Accrued Taxes 57,650 57,372
Other Accrued Liabilities 290,202 265,143
----------- -----------
Total Current Liabilities 937,488 949,532
----------- -----------
LONG-TERM DEBT - Note 5 4,033,334 4,400,000
----------- -----------
DEFERRED CREDITS: - Note 6
Income Taxes 1,439,279 1,469,790
Investment Tax Credits 53,931 88,405
----------- -----------
Total Deferred Credits 1,493,210 1,558,195
----------- -----------
STOCKHOLDERS' EQUITY: - Note 7
Common Stock - $5.00 Par Value, 6,400,000
Shares Authorized, 1,732,455 and 577,485
Shares Issued 8,662,275 2,887,425
Retained Earnings 7,723,098 12,226,303
----------- -----------
Total Stockholders' Equity 16,385,373 15,113,728
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $22,849,405 $22,021,455
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
NEW ULM TELECOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
Common Stock
------------------------------ Retained
Shares Amount Earnings
------------ ------------ ------------
<S> <C> <C> <C>
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
Three-for-One Stock Split - Note 7 1,154,970 5,774,850 (5,774,850)
Net Income 2,403,515
Dividends (1,131,870)
------------ ------------ ------------
BALANCE on December 31, 1996 1,732,455 $ 8,662,275 $ 7,723,098
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
NEW ULM TELECOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net Income $ 2,403,515 $ 2,254,793 $ 2,126,967
Adjustments to Reconcile Net Income to Net
Cash Provided By Operating Activities:
Depreciation and Amortization 1,958,829 1,679,347 1,659,536
Cellular Investment Income (440,072) (432,088) (310,552)
(Increase) Decrease in:
Receivables 199,981 (355,992) 146,261
Materials, Supplies and Inventories 12,562 31,574 (45,304)
Prepaid Expenses 9,720 (15,108) (5,791)
Increase (Decrease) in:
Accounts Payable (37,381) 64,531 (280,834)
Accrued Income Taxes -- -- (22,088)
Other Accrued Taxes 278 2,775 3,583
Other Accrued Liabilities 25,059 60,403 (10,300)
Deferred Income Taxes (30,511) 84,971 212,126
Deferred Investment Tax Credits (34,474) (44,947) (54,315)
----------- ----------- -----------
Net Cash Provided By
Operating Activities 4,067,506 3,330,259 3,419,289
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property, Plant
and Equipment, Net (1,620,255) (1,827,903) (1,054,758)
Change in Notes Receivable (57,026) 7,412 14,243
Purchase of Cellular Investments (443,803) -- (270,647)
Distributions from Cellular Investments 226,747 286,455 137,929
Sale of Investment Securities -- -- 391,862
Other, Net 14,023 (23,514) (21,727)
----------- ----------- -----------
Net Cash Used In
Investing Activities (1,880,314) (1,557,550) (803,098)
----------- ----------- -----------
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
NEW ULM TELECOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C> <C>
Principal Payments of Long-Term Debt $ (366,667) $ (366,667) $(1,372,500)
Dividends (1,131,870) (1,010,599) (935,526)
----------- ----------- -----------
Net Cash Used In
Financing Activities (1,498,537) (1,377,266) (2,308,026)
----------- ----------- -----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 688,655 395,443 308,165
CASH AND CASH EQUIVALENTS
at Beginning of Year 1,829,215 1,433,772 1,125,607
----------- ----------- -----------
CASH AND CASH EQUIVALENTS
at End of Year $ 2,517,870 $ 1,829,215 $ 1,433,772
=========== =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
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 four cable television systems.
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
financial statements are affected by depreciation rates prescribed by regulatory
authorities, which may result in different depreciation rates then 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 and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and the reported amount of revenues and expenses
during the operating period. 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 the lower of average cost or market.
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, 1996, 1995,
and 1994 were 7.7%, 6.9%, and 7.0%. Other property is depreciated over estimated
useful lives of three to fifteen years.
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 $763,255 and $649,480 at December 31, 1996 and 1995.
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 consisted of investments in
four rural service areas (RSAs) which were consolidated into one entity (Midwest
Wireless Communications, LLC.) on July 1, 1996. This entity provides cellular
phone service to southern Minnesota. The Company's ownership in Midwest Wireless
Communications, LLC. is 7.7%. At December 31, 1996, the cumulative earnings from
the partnerships included in cellular investments was $1,309,097 less
distributions of $691,132.
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 which
total $462,287. 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 1,732,455 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, 1996.
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 1996, 1995, and 1994,
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 $89,507 in 1996, $88,092 in
1995, and $90,963 in 1994.
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, 1996 under this line of credit.
NOTE 5 - LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt is as follows:
1996 1995
---------- ----------
<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 $3,120,000 $3,380,000
Unsecured note payable by Western Telephone Company, a wholly owned subsidiary,
to Phoenix Home Life Mutual Insurance Company in quarterly installments plus
6.45% interest through December 1, 2008. The payment of this note is
guaranteed by New Ulm Telecom, Inc. $ 880,000 $ 953,333
Unsecured note payable by Peoples Telephone Company, a wholly owned subsidiary,
to Phoenix 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. 400,000 433,333
---------- ----------
Total 4,400,000 4,766,666
Less Amount Due Within One Year 366,666 366,666
---------- ----------
Long-Term Debt $4,033,334 $4,400,000
========== ==========
</TABLE>
Principal payments required during the next five years are $366,666 annually.
Cash payments for interest were $300,290 in 1996, $323,745 in 1995, and $407,175
in 1994.
The debt agreements contain covenants relating to maintenance of working
capital, additional borrowings, leases, and payment of cash dividends. At
December 31, 1996, approximately $1,310,000 of consolidated retained earnings
were available for dividends under these covenants.
NOTE 6 - INCOME TAXES AND INVESTMENT TAX CREDITS
Income tax expense consists of the following:
1996 1995 1994
----------- ----------- -----------
Taxes Currently Payable:
Federal $ 1,239,127 $ 1,095,146 $ 955,388
State 412,402 355,935 299,432
Deferred Income Taxes (30,511) 84,971 212,126
Amortization of Investment Tax Credits (34,474) (44,947) (54,315)
----------- ----------- -----------
Income Tax Expense $ 1,586,544 $ 1,491,105 $ 1,412,631
=========== =========== ===========
The differences between the statutory federal tax rate and the effective tax
rate were as follows:
1996 1995 1994
---- ---- ----
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 (.9) (1.2) (1.5)
Other -- .3 .7
---- ---- ----
Effective Tax Rate 39.8% 39.8% 39.9%
==== ==== ====
The components of deferred income taxes are as follows:
1996 1995
---------- ----------
Deferred Tax Liabilities:
Depreciation $1,408,139 $1,445,543
Other 31,140 24,247
---------- ----------
Total $1,439,279 $1,469,790
========== ==========
Cash payments for income taxes were $1,639,398 in 1996, $1,477,000 in 1995, and
$1,042,040 in 1994.
NOTE 7 - COMMON STOCK
On March 4, 1996, the Company's Board of Directors declared a three-for-one
stock split, effected in the form of a stock dividend, to stockholders of record
on March 4, 1996, payable on April 1, 1996. An amount equal to the par value of
the additional 1,154,970 shares issued has been transferred from retained
earnings to the common stock account. Earnings and dividends per common share
have been restated to reflect the stock split.
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, 1996.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)1. Financial Statements
Included in Part II of this report:
Page Numbers
------------
Independent Auditors' Report 11
Consolidated Statement of Income for the Three
Years Ended December 31, 1996, 1995 and 1994 12
Consolidated Balance Sheet at December 31, 1996
and 1995 13-14
Consolidated Statement of Stockholders' Equity
for the Three Years Ended December 31, 1996,
1995 and 1994 15
Consolidated Statement of Cash Flows for the
Three Years Ended December 31, 1996,
1995 and 1994 16-17
Notes to Consolidated Financial Statements 18-22
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 inclued as an Exhibit to
this report on page 26
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 27, 1997 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 27, 1997 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
--------------------------------------
Chris Hopp, 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 THE NEW ULM
TELECOM, INC.'S FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,517,870
<SECURITIES> 0
<RECEIVABLES> 981,336
<ALLOWANCES> 23,500
<INVENTORY> 357,900
<CURRENT-ASSETS> 2,938,975
<PP&E> 25,836,156
<DEPRECIATION> 13,690,324
<TOTAL-ASSETS> 22,849,405
<CURRENT-LIABILITIES> 937,488
<BONDS> 4,033,334
0
0
<COMMON> 8,662,275
<OTHER-SE> 7,723,098
<TOTAL-LIABILITY-AND-EQUITY> 22,849,405
<SALES> 0
<TOTAL-REVENUES> 9,346,224
<CGS> 0
<TOTAL-COSTS> 5,631,181
<OTHER-EXPENSES> 573,335
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 298,319
<INCOME-PRETAX> 3,990,059
<INCOME-TAX> 1,586,544
<INCOME-CONTINUING> 2,403,515
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,403,515
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 1.39
</TABLE>
