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 June 30, 1999
[ ] 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 registrant 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
-------------------------------
(Registrant's telephone number)
Check whether the registrant (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 State 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 9-11
PART II. OTHER INFORMATION 12-13
2
<PAGE>
PART I. FINANCIAL INFORMATION
NEW ULM TELECOM, INC. AND SUBSIDIARIES
ITEM I. FINANCIAL STATEMENTS
UNAUDITED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,115,940 $ 2,551,066
Certificates of Deposit 900,000 900,000
Receivables, Net of Allowance for
Doubtful Accounts of $41,933 and $33,000 1,141,881 1,322,903
Inventories 421,715 354,027
Prepaid Expenses 73,073 95,435
------------ ------------
Total Current Assets 3,652,609 5,223,431
------------ ------------
INVESTMENTS & OTHER ASSETS:
Excess of Cost Over Net Assets Acquired 3,503,345 3,560,233
Notes Receivable, Less Current Portion
of $4,552 and $4,997 780,937 783,448
Cellular Investments 4,924,557 4,507,078
Other 580,700 437,466
------------ ------------
Total Investments and Other Assets 9,789,539 9,288,225
------------ ------------
PROPERTY, PLANT & EQUIPMENT:
Telecommunications Plant 27,464,255 26,261,325
Other Property & Equipment 1,696,387 1,568,153
Cable Television Plant 791,749 787,548
------------ ------------
Total 29,952,391 28,617,026
Less Accumulated Depreciation 18,005,765 17,085,234
------------ ------------
Net Property, Plant & Equipment 11,946,626 11,531,792
------------ ------------
TOTAL ASSETS $ 25,388,774 $ 26,043,448
============ ============
</TABLE>
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 STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Current Portion of Long-Term Debt $ 366,666 $ 366,666
Accounts Payable 232,827 1,686,643
Other Accrued Taxes 59,521 54,514
Other Accrued Liabilities 246,816 224,398
------------ ------------
Total Current Liabilities 905,830 2,332,221
------------ ------------
LONG-TERM DEBT, LESS CURRENT PORTION 3,116,667 3,300,000
------------ ------------
DEFERRED CREDITS:
Income Taxes 1,519,148 1,519,148
Investment Tax Credits 19,486 23,088
------------ ------------
Total Deferred Credits 1,538,634 1,542,236
------------ ------------
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 11,165,368 10,206,716
------------ ------------
Total Stockholders' Equity 19,827,643 18,868,991
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 25,388,774 $ 26,043,448
============ ============
</TABLE>
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Local Network $ 657,768 $ 561,465 $ 1,293,697 $ 1,113,133
Network Access 1,480,506 1,287,604 2,816,946 2,588,016
Billing and Collection 119,800 126,694 241,398 267,772
Miscellaneous 132,478 115,739 225,763 211,571
Nonregulated 593,577 506,901 1,148,305 1,003,012
----------- ----------- ----------- -----------
Total Operating Revenues 2,984,129 2,598,403 5,726,109 5,183,504
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Plant Operations 352,804 326,750 678,433 585,244
Depreciation 476,289 458,268 953,430 916,535
Amortization 28,444 28,444 56,888 56,888
Customer 150,325 130,000 294,891 265,265
General and Administrative 372,867 352,720 721,617 671,529
Other Operating Expenses 282,845 307,502 562,915 625,722
----------- ----------- ----------- -----------
Total Operating Expenses 1,663,574 1,603,684 3,268,174 3,121,183
----------- ----------- ----------- -----------
OPERATING INCOME 1,320,555 994,719 2,457,935 2,062,321
----------- ----------- ----------- -----------
OTHER (EXPENSES) INCOME:
Interest Expense (57,366) (63,382) (116,428) (128,080)
Interest Income 25,344 41,944 57,778 87,275
Cellular Partnership Income 327,120 268,549 654,240 563,644
Other Investment Income (Expense) (33,572) 52 (66,017) 52
----------- ----------- ----------- -----------
Total Other Income, Net 261,526 247,163 529,573 522,891
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,582,081 1,241,882 2,987,508 2,585,212
INCOME TAXES 652,187 513,241 1,231,927 1,067,552
----------- ----------- ----------- -----------
NET INCOME $ 929,894 $ 728,641 $ 1,755,581 $ 1,517,660
=========== =========== =========== ===========
NET INCOME PER SHARE - NOTE 2 $ 0.54 $ 0.42 $ 1.01 $ 0.88
=========== =========== =========== ===========
</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
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
SHARES AMOUNT EARNINGS
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE on December 31, 1997 1,732,455 $ 8,662,275 $ 8,821,223
Net Income 3,239,220
Dividends (1,853,727)
------------ ------------ ------------
BALANCE on December 31, 1998 1,732,455 $ 8,662,275 $ 10,206,716
Net Income 1,755,581
Dividends (796,929)
------------ ------------ ------------
BALANCE on June 30, 1999 1,732,455 $ 8,662,275 $ 11,165,368
============ ============ ============
</TABLE>
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
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,755,581 $ 1,517,660
Adjustments to Reconcile Net Income to Net
Net Cash Provided by Operating Activities:
Depreciation and Amortization 1,010,318 973,423
Cellular Partnerships Income (654,240) (563,644)
Distributions from Cellular Investments 236,761 0
(Increase) Decrease in:
Receivables 180,577 (363,517)
Inventories (67,688) (72,229)
Prepaid Expenses 22,362 18,613
Increase (Decrease) in:
Accounts Payable (1,453,816) (387,665)
Other Accrued Taxes 5,007 4,289
Other Accrued Liabilities 22,418 (36,471)
Deferred Investment Tax Credits (3,602) (6,005)
------------ ------------
Net Cash Provided by Operating Activities 1,053,678 1,084,454
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property, Plant & Equipment, Net (1,368,264) (531,126)
Change in Notes Receivable 2,956 1,585
Change in Temporary Cash Investments 0 (302,486)
Other, Net (143,234) (53)
------------ ------------
Net Cash Used in Investing Activities (1,508,542) (832,080)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Payments of Long-Term Debt (183,333) (183,332)
Dividends Paid (796,929) (692,982)
------------ ------------
Net Cash Used in Financing Activities (980,262) (876,314)
------------ ------------
NET INCREASE (DECREASE) IN CASH (1,435,126) (623,940)
CASH
AT BEGINNING OF PERIOD 2,551,066 906,716
------------ ------------
CASH
AT END OF PERIOD $ 1,115,940 $ 282,776
============ ============
</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 June 30, 1999 and December 31, 1998
and the results of operations and changes in cash flows for the six months ended
June 30, 1999 and 1998.
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, 1998 Annual Report to Shareholders. The results of
operations for the period ending June 30, 1999 are not necessarily indicative of
the operating results of the entire year.
NOTE 2 - NET INCOME PER COMMON SHARE
Net income per common share for 1999 and 1998 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:
1999 1998
---- ----
Interest $117,415 $129,066
Income taxes $1,290,000 $1,194,000
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
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO
THE SIX MONTHS ENDED JUNE 30, 1998
Operating revenues for the six months ended June 30, 1999 were $542,605 or 10.5%
higher than for the same period in 1998. Local network revenue saw an increase
of 16.2%, due to an increase in Centrex service, an increased demand for
telephone lines to provide internet services, and an increase in the monthly
local service rates that took effect October 1, 1998. Network Access revenues
increased $228,930 or 8.9%, which can be attributed to an increase in minutes of
use billed to interexchange carriers, an increase in special access billings and
increased interstate access settlements from NECA. Billing and collection
revenues decreased $26,374 or 9.9% as a result of IXC's taking back the billing
and collection function. Nonregulated revenues continue to show strong growth.
These revenues grew 14.5% over the revenues recorded for the same period in
1998. The increase of $145,293 is the result of our success with cable
television, Internet services, increased pricing of our inside wire maintenance
fees and increased market share of our long distance service, which was
introduced during the third quarter of 1997.
Total operating expenses increased by $146,991 or 4.7%. Plant operations
increased by $93,189 or 15.9% due to increased labor costs and higher
maintenance expenses on telephone plant. Depreciation increased by $36,895 or
4.0%, resulting from an increase in property, plant and equipment. A $29,626 or
11.2% increase in customer operations is the result of an increase in labor
costs due to increasing staff size to better serve a growing customer base.
General and Administrative expenses were responsible for a $50,088 or 7.5%
increase in operating expenses. This increase is attributed to an increase in
labor expense and the Company's continued search for acquisition opportunities
and other investments to enhance shareholder value and to strengthen corporate
performance. The increase in G & A expenses were also effected by the hiring of
outside consultants to assist with the development of a new Company Logo. This
new logo reflects our expanding services, such as high speed data delivery and
enhanced entertainment delivery to the home, while continuing to be focused on
customer service and voice delivery. The company's logo uses futuristic art that
will allow for growth and expansion of services. Other operating expenses
decreased $62,807 or 10%. This decrease is the result of reduced cost of goods
sold, through improved inventory purchasing and control, as compared to the same
period in 1998.
Interest expense decreased by $11,652 due to a decrease in long-term debt
outstanding. Interest income decreased by $29,497 reflecting fewer funds
available for investment. The investment in Midwest Wireless continues to be a
strong performer, which is reflected by a 16.1% or $90,956 increase in
partnership income. The $65,965 decrease in income from other investment income
9
<PAGE>
consists of the anticipated loss from an investment in Fibercom, Inc. for 1999.
Fibercom, Inc. is a startup operation, which seeks to provide competitive local
exchange service in Iowa.
Net income increased by $237,921 or 15.7%.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO
THE THREE MONTHS ENDED JUNE 30, 1998
The increase in total operating revenues was $385,726 or 14.8%. Local network
saw an increase of $96,303 or 17.2% due to an increase in Centrex service, an
increased demand for telephone lines to provide internet services, and an
increase in the monthly local service rate that took effect October 1, 1998.
Network Access increased $192,902 or 15%, which can be attributed to an increase
in minutes of use billed to interexchange carriers, increased special access
billing, and increased interstate access settlements from NECA. Nonregulated
revenue showed a 17.1% growth in the second quarter of 1999. This increase of
$86,676 is attributed to our success with cable television, Internet services,
increased pricing of our inside wire maintenance fees, and increased market
share of our long distance service, which was introduced in the third quarter of
1997.
Total operating expenses increased by $59,890 or 3.7%. Plant operations were
accountable for 43.5% of the increase in operating expenses. This increase
reflects the rise in labor cost and higher maintenance expenses on telephone
plant. Customer operations contributed 33.9% of the increase in operating
expenses through increased labor costs due to increasing staff size to better
serve a growing customer base. General and Administrative expenses were
responsible for 33.6% 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 by searching
out acquisition opportunities and developing a new Company Logo. This new logo
reflects our expanding services such as high speed data delivery and enhanced
entertainment delivery to the home, while continuing to be focused on customer
service and voice delivery. The company's logo uses futuristic art that will
allow for growth and expansion of services. Other operating expenses decreased
$62,807 or 10%. This decrease is the result of reduced cost of goods sold,
through improved inventory purchasing and control, as compared to the same
period in 1998.
Interest expense decreased by $6,016 due to a decrease in long-term debt
outstanding. Interest income decreased by $16,600 reflecting fewer funds
available for investment. The investment in Midwest Wireless continues its
strong performance record, which is reflected by a 21.8% or $58,571 increase.
Net income increased by $201,253 or 27.6%.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a decrease in cash of $1,435,126 for the first six months of
1999 resulting in a balance of $1,115,940 as of June 30, 1999. Cash invested in
Certificates of Deposit at June 30,
10
<PAGE>
1999 remained unchanged from December 31, 1998 at $900,000. Cash decreased due
to the reduction in accounts payable as compared to December 31, 1998. Working
Capital decreased $144,431 from December 31, 1998. This decrease results from
the reduction in cash to pay for capital expenditures. 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 December 31, 1998.
Interest payments are to be paid annually on December 31. The note is to be paid
in full on January 1, 2001.
The Company continues to make investments in state-of-the-art technology to
offer subscribers the best possible service. Capital expenditures for 1999 are
expected to be $2,450,000. Management believes the Company will generate
sufficient working capital internally from operations to meet its operating
needs and maintain historical dividend levels.
YEAR 2000 CONVERSION
The "Year 2000 Issue" results from computer programs that were written using two
digits rather than four to define the applicable year. A problem arises when the
Registrant's date sensitive computer programs recognize a date using "00" as the
Year 1900 rather than 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including the temporary
inability to process transactions, send invoices or engage in normal business
activities.
A team of internal staff is managing the Company's comprehensive Year 2000
initiative. The team's activities are designed to ensure that there is no
adverse effect on the Company's core business operations and that transactions
with customers, suppliers and financial institutions are fully supported.
The Company has identified which software upgrades to its NORTEL switching and
transport network are necessary to become Year 2000 compliant. All upgrades have
been completed. These upgrades are part of an ongoing contract that is entered
into every three years to keep the network up to current standards. The Company
would be entering into this upgrade normally and did not need to accelerate any
upgrades to become Year 2000 compliant.
The Company's internal business software consists of a billing and customer
care, plant records and trouble reporting software that is currently Year 2000
compliant. A conversion of the Company's accounting and financial reporting
software was converted on July 1, 1999. This conversion was part of the
Company's business plan and was not entered into for the sole purpose of Year
2000 compliance. However, the new system is Year 2000 compliant.
While the Company believes its planning efforts are adequate to address its Year
2000 concerns, there can be no guarantee that the systems of other companies on
which the Company's systems and operations rely will be converted on a timely
basis and will not have material effect on the Company. The cost of the Year
2000 initiatives is not expected to be material to the Company's results of
operations or financial position.
11
<PAGE>
PART II. OTHER INFORMATION
Items 1-3. Not Applicable
Item 4. Submission of matters to a vote of Security Holders
The annual meeting of the shareholders of the registrant was held May 6, 1999 in
New Ulm, MN. The total number of shares outstanding and entitled to vote at the
meeting was 1,732,455 of which 1,217,095 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
Robert Ranweiler 1,230,079 3,216
Mark Retzlaff 1,205,392 6,303
Duane Lambrecht 1,202,654 9,041
Also, one director was elected to fill the unexpired term of the deceased Linus
Grathwohl to hold office until the Annual Meeting of Shareholders to be held in
May of the year 2000. The name of the director elected and the applicable votes
were as follows:
DIRECTOR FOR AGAINST ABSTAIN
Mary Ellen Domeier 1,208,260 3,435
The Board Members continuing and whose terms expire at subsequent annual
meetings are as follows:
2000 Annual Meeting 2001 Annual Meeting
Rosemary Dittrich Lavern Biebl
Gary Nelson James Jensen
Mary Ellen Domeier Perry Meyer
The shareholders also approved the appointment of Olsen, Thielen & Co., Ltd. as
the auditors for 1999, by a vote of 1,213,908 for, 855 against, and 2,332
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 June 30, 1999.
12
<PAGE>
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: By /s/ James P. Jensen
----------------------------------
James P. Jensen, Chairman
Dated: By /s/ Bill Otis
----------------------------------
Bill Otis, President
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,115,940
<SECURITIES> 900,000
<RECEIVABLES> 1,141,881
<ALLOWANCES> 41,933
<INVENTORY> 421,715
<CURRENT-ASSETS> 3,652,609
<PP&E> 29,952,391
<DEPRECIATION> 18,005,765
<TOTAL-ASSETS> 25,388,774
<CURRENT-LIABILITIES> 905,830
<BONDS> 3,116,667
0
0
<COMMON> 8,662,275
<OTHER-SE> 11,165,368
<TOTAL-LIABILITY-AND-EQUITY> 25,388,774
<SALES> 0
<TOTAL-REVENUES> 5,726,109
<CGS> 0
<TOTAL-COSTS> 3,266,174
<OTHER-EXPENSES> (646,001)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 116,428
<INCOME-PRETAX> 2,987,508
<INCOME-TAX> 1,231,927
<INCOME-CONTINUING> 1,755,581
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,755,581
<EPS-BASIC> 1.01
<EPS-DILUTED> 1.01
</TABLE>
