UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE
EXCHANGE ACT
For the transition period from to .
Commission File Number 0-3024
New Ulm Telecom, Inc.
---------------------
(Exact name of small business issuer as specified in its charter.)
Minnesota 41-0440990
--------- ----------
(State or jurisdiction of incorporation) (IRS Employer Identification Number)
400 2nd Street North, New Ulm, MN 56073-0697
--------------------------------------------
(Address of Principal executive offices)
(507) 354-4111
--------------
(Issuer's telephone number)
Check whether the issue (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 1,732,455.
<PAGE>
NEW ULM TELECOM, INC.
CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Unaudited Consolidated Balance Sheets 3-4
Unaudited Consolidated Statements of
Income 5
Unaudited Consolidated Statements of
Stockholders' Equity 6
Unaudited Consolidated Statements of
Cash Flows 7
Notes to Unaudited Consolidated
Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION 9-10
PART II. OTHER INFORMATION 10-11
<PAGE>
PART I. FINANCIAL INFORMATION
NEW ULM TELECOM, INC. AND SUBSIDIARIES
ITEM I. FINANCIAL STATEMENTS
UNAUDITED CONSOLIDATED BALANCE SHEETS
ASSETS
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------ -----------
CURRENT ASSETS:
Cash $ 1,106,568 $ 906,716
Certificates of Deposit 1,400,000 2,000,000
Receivables, Net of Allowance for
Doubtful Accounts of $27,302 and $31,000 1,153,950 933,109
Inventories 411,989 488,770
Prepaid Expenses 38,024 82,915
----------- -----------
Total Current Assets 4,110,531 4,411,510
----------- -----------
INVESTMENTS & OTHER ASSETS:
Excess of Cost Over Net Assets Acquired 3,588,677 3,674,010
Notes Receivable, Less Current Portion
of $5,174 and $4,745 776,516 79,965
Cellular Investments 4,265,667 3,547,686
Other 294,020 331,863
----------- -----------
Total Investments and Other Assets 8,924,880 7,633,524
----------- -----------
PROPERTY, PLANT & EQUIPMENT:
Telecommunications Plant 25,903,415 25,039,400
Other Property & Equipment 1,527,591 1,462,575
Cable Television Plant 762,534 762,048
----------- -----------
Total 28,193,540 27,264,023
Less Accumulated Depreciation 16,694,492 15,330,362
----------- -----------
Net Property, Plant & Equipment 11,499,048 11,933,661
----------- -----------
TOTAL ASSETS $24,534,459 $23,978,695
=========== ===========
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
NEW ULM TELECOM, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDER'S EQUITY
SEPTEMBER 30, DECEMBER 31,
1998 1997
----------- -----------
CURRENT LIABILITIES:
Current Portion of Long-Term Debt $ 366,666 $ 366,666
Accounts Payable 217,072 622,110
Other Accrued Taxes 54,889 62,198
Other Accrued Liabilities 287,644 274,975
----------- -----------
Total Current Liabilities 926,271 1,325,949
----------- -----------
LONG-TERM DEBT, LESS CURRENT PORTION 3,391,667 3,666,666
----------- -----------
DEFERRED CREDITS:
Income Taxes 1,467,487 1,467,487
Investment Tax Credits 26,088 35,095
----------- -----------
Total Deferred Credits 1,493,575 1,502,582
----------- -----------
STOCKHOLDERS' EQUITY:
Common Stock - $5 Par Value, 6,400,000 Shares
Authorized, 1,732,455 Shares Issued and
Outstanding 8,662,275 8,662,275
Retained Earnings 10,060,671 8,821,223
----------- -----------
Total Stockholders' Equity 18,722,946 17,483,498
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $24,534,459 $23,978,695
=========== ===========
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
NEW ULM TELECOM, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Local Network $ 559,636 $ 532,580 $ 1,672,769 $ 1,591,490
Network Access 1,348,749 1,292,534 3,936,765 3,804,370
Billing and Collection 124,022 129,580 391,793 410,436
Miscellaneous 94,174 92,062 305,745 287,225
Nonregulated 484,699 425,119 1,487,711 1,251,220
----------- ----------- ----------- -----------
Total Operating Revenue 2,611,280 2,471,875 7,794,783 7,344,741
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Plant Operations 366,641 303,971 951,885 833,506
Depreciation 458,266 440,662 1,374,801 1,321,291
Amortization 28,444 28,445 85,332 85,332
Customer 118,947 132,326 384,212 413,885
General and Administrative 325,885 264,428 997,414 847,028
Other Operating Expenses 271,908 256,474 897,577 780,125
----------- ----------- ----------- -----------
Total Operating Expense 1,570,091 1,426,306 4,691,221 4,281,167
----------- ----------- ----------- -----------
OPERATING INCOME 1,041,189 1,045,569 3,103,562 3,063,574
----------- ----------- ----------- -----------
OTHER (EXPENSES) INCOME:
Interest Expense (61,847) (67,913) (189,927) (208,123)
Interest Income 42,240 33,345 129,515 113,015
Cellular Partnership Income 265,094 204,644 828,738 484,521
----------- ----------- ----------- -----------
Total Other Income, Net 245,487 170,076 768,326 389,413
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,286,676 1,215,645 3,871,888 3,452,987
INCOME TAXES 525,415 494,703 1,592,967 1,418,085
----------- ----------- ----------- -----------
NET INCOME $ 761,261 $ 720,942 $ 2,278,921 $ 2,034,902
=========== =========== =========== ===========
NET INCOME PER SHARE - NOTE 2 $ 0.44 $ 0.42 $ 1.32 $ 1.17
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
NEW ULM TELECOM, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK RETAINED
SHARES AMOUNT EARNINGS
------------- ----------- ------------
BALANCE on December 31, 1996 1,732,455 $ 8,662,275 $ 7,723,098
Net Income 2,813,255
Dividends (1,715,130)
----------- ----------- -----------
BALANCE on December 31, 1997 1,732,455 $ 8,662,275 $ 8,821,223
Net Income 2,278,921
Dividends (1,039,473)
----------- ----------- -----------
BALANCE on September 30, 1998 1,732,455 $ 8,662,275 $10,060,671
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
NEW ULM TELECOM, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $2,278,921 $2,034,902
Adjustments to Reconcile Net Income to Net
Net Cash Provided by Operating Activities:
Depreciation and Amortization 1,460,134 1,406,623
Cellular Partnerships Income (828,738) (484,521)
(Increase) Decrease in:
Receivables (220,412) (222,104)
Inventories 76,781 (111,262)
Prepaid Expenses 44,891 58,030
Increase (Decrease) in:
Accounts Payable (405,038) 311,348
Other Accrued Taxes (7,309) (16,883)
Other Accrued Liabilities 12,669 24,503
Deferred Investment Tax Credits (9,007) (14,128)
----------- -----------
Net Cash Provided by Operating Activities 2,402,892 2,986,508
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property, Plant & Equipment, Net (940,188) (1,097,497)
Change in Notes Receivable (696,980) (3,619)
Cellular Investments 110,757 62,510
Change in Temporary Cash Investments 600,000 600,000
Other, Net 37,843 (143,624)
----------- -----------
Net Cash Used in Investing Activities (888,568) (582,230)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Payments of Long-Term Debt (274,999) (275,000)
Dividends Paid (1,039,473) (1,368,639)
----------- -----------
Net Cash Used in Financing Activities (1,314,472) (1,643,639)
----------- -----------
NET INCREASE (DECREASE) IN CASH 199,852 760,639
CASH
AT BEGINNING OF PERIOD 906,716 617,870
----------- -----------
CASH
AT END OF PERIOD $ 1,106,568 $ 1,378,509
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
NEW ULM TELECOM, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (consisting of only normal recurring items) necessary to
present fairly the financial position as of SEPTEMBER 30, 1998 and December 31,
1997 and the results of operations and changes in cash flows for the nine months
ended SEPTEMBER 30, 1998 and 1997.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Company's December 31, 1997 Annual Report to Shareholders. The results of
operations for the period ending September 30, 1998 are not necessarily
indicative of the operating results of the entire year.
NOTE 2 - NET INCOME PER COMMON STOCK
Net income per common share for 1998 and 1997 was computed by dividing the
weighted average number of shares of common stock outstanding into the net
income.
NOTE 3 - STATEMENTS OF CASH FLOW
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for: 1998 1997
---------- ---------
Interest $ 191,405 $ 209,599
Income taxes 1,692,500 1,461,500
8
<PAGE>
NEW ULM TELECOM, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1997
The increase in total operating revenues was $450,042 or 6.1%. Local network saw
an increase of 5.1% due to an increase in Centrex service and the number of
access lines. An increase in minutes of use billed to interexchange carriers is
responsible for a 3.5% increase in network access revenues. Nonregulated revenue
continues to show strong growth. These revenues grew 18.9% over the revenues
recorded for the same period in 1997. The increase, of $236,491, is the result
of our success with cable television, Internet services, increased sales of
customer premise equipment and increased market share of our long distance
service, which was introduced during the third quarter of 1997.
Total operating expenses increased by $410,054 or 9.6%. General and
Administrative expenses were responsible for 36.7% of the increase in operating
expenses. This increase is attributed to an increase in labor expense and the
use of outside consultants to enhance shareholder value and to strengthen
corporate performance. Plant operations expenses were accountable for 28.9% of
the increase in operating expenses. This increase is primarily the result of
increased labor and associated expenses caused by a July 20, 1998 storm. Other
operating expenses were responsible for 28.6% of the increase in operating
expenses. This increase is associated with the increased marketing efforts of
our nonregulated services and increase in cost of goods sold for customer
premise equipment.
Interest expense decreased by $18, 196 due to a decrease in long-term debt
outstanding. Interest income increased by $16,500 reflecting larger amounts of
funds available for investment. Cellular partnership income increased $344,217
or 71%, as the investment in Midwest Wireless continues to be a strong
performer.
Net income increased by $244,019 or 12.0%.
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1997
The increase in total operating revenues was $139,405 or 5.6%. Local network saw
an increase of 5.1% due to an increase in Centrex service and the number or
access lines. An increase in minutes of use billed to interexchange carriers is
responsible for a 4.4% increase in network access revenues. Nonregulated revenue
continues to show strong growth. These revenues grew 14% over the revenues
recorded for the same period in 1997. The increase of $59,580 is the result of
our success with cable television, Internet service, increased sales of customer
premise equipment and increased market share of our long distance service, which
was introduced during the third quarter of 1997.
Total operating expenses increased by $143,785 or 10.1%. General and
Administrative expenses were responsible for 42.7% of the increase in operating
expenses. This increase is attributed to an increase in labor expense and the
use of outside consultants to enhance shareholder value and to strengthen
corporate performance. Plant operation expenses were accountable for 43.6% of
the increase in operating expenses. This is primarily the result of increase
labor and associated expenses caused by a July 20, 1998 storm. Other operating
expenses were responsible for 10.7% of the increase in operating expenses. This
increase is associated with the increased marketing efforts of our nonregulated
services and increase in cost of goods sold for customer premise equipment.
Interest expense decreased by $6,066 due to a decrease in long-term debt
outstanding. Interest income increased by $8,895 reflecting larger amounts of
funds available for investment. Celluar partnership income increased $60,450 or
29.5%, as the investment in Midwest Wireless continues to be a strong performer.
Net income increased by $40,319 or 5.6%.
9
<PAGE>
Liquidity and Capital Resources
The Company had an increase in cash of $199,852 for the quarter resulting in a
balance of $1,106,568 as of September 30, 1998. Cash invested in Certificates of
Deposit at September 30, 1998 was $1,400,000, which is a decrease of $600,000
over the balance at December 31, 1997. Cash decreased due to the registrant
loaning the General Manager $700,000 to purchase stock of the company. The
balance can be found in Investments and Other Assets on the Balance Sheet. Notes
Receivable includes $700,000 from Manager. The note is secured by 51,230 shares
of stock in New Ulm Telecom, Inc., has a variable interest rate which was 6% at
September 30, 1998 and is collectible within 60 days from the date of
termination or date of death. Interest payments are to be paid annually on
December 31. Working Capital increased $98,699 from December 31, 1997, which was
$3,085,561. This increase can be attributed to a decrease in accounts payable of
$405,038 and an increase in receivables of $220,841.
The Company is budgeting approximately $1,600,000 for 1998 plant additions. The
Company intends to use internal funds for all of the 1998 expenditures.
Management believes the Company will be able to generate sufficient cash
internally from operations to meet its operating needs and sustain its
historical dividend levels.
PART II. OTHER INFORMATION
NEW ULM TELECOM, INC. AND SUBSIDIARIES
ITEMS 1-3. Not applicable.
ITEM 4. Submission of matters to a vote of Security Holders
The annual meeting of shareholders of the registrant was held May 7, 1998 in New
Ulm, Minnesota. The total number of shares outstanding and entitled to vote at
the meeting was 1,732,455 of which 1,356,275 were present either in person or by
proxy. Three directors were elected to serve three-year terms.
The names of the directors elected at the annual meeting and the applicable
votes were as follows:
Director For Against Abstain
- -------- --- ------- -------
Lavern Biebl 1,349,412 1,463
James Jensen 1,365,612 1,463
Perry Meyer 1,349,772 1,103
10
<PAGE>
PART II. OTHER INFORMATION (CONTINUED)
The Board members continuing and whose terms expire at subsequent annual
meetings are as follows:
1999 Annual Meeting 2000 Annual Meeting
- ------------------- -------------------
Robert Ranweiler Rosemary Dittrich
Mark Retzlaff Linus Grathwohl
Richard Rodenberg Gary Nelson
The shareholders also approved the appointment of Olsen, Thielen & Co., Ltd. as
the auditors for 1999, by a vote of 1,352,882 for, 1,503 against and 1,890
abstained.
ITEM 5. Not applicable
ITEM 6. Exhibits and Reports on Form 8-K
There were no reports on Form 8-K for the Quarter ended September 30, 1998.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized
NEW ULM TELECOM, INC.
-----------------------------------
Registrant)
Dated: October 31, 1998 By /s/ James P. Jensen
-------------------------------------
James P. Jensen, President
Dated: October 31, 1998 By /s/ Bill Otis
-------------------------------------
Bill Otis, Executive Vice-President
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,106,568
<SECURITIES> 1,400,000
<RECEIVABLES> 1,153,950
<ALLOWANCES> 27,302
<INVENTORY> 411,989
<CURRENT-ASSETS> 4,110,531
<PP&E> 28,193,540
<DEPRECIATION> 16,694,492
<TOTAL-ASSETS> 24,534,459
<CURRENT-LIABILITIES> 926,271
<BONDS> 3,391,667
0
0
<COMMON> 8,662,275
<OTHER-SE> 10,060,671
<TOTAL-LIABILITY-AND-EQUITY> 24,534,459
<SALES> 0
<TOTAL-REVENUES> 7,794,783
<CGS> 0
<TOTAL-COSTS> 4,691,221
<OTHER-EXPENSES> (958,253)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 189,927
<INCOME-PRETAX> 3,871,888
<INCOME-TAX> 1,592,967
<INCOME-CONTINUING> 2,278,921
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,278,921
<EPS-PRIMARY> 1.32
<EPS-DILUTED> 1.32
</TABLE>
