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 March 31, 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 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 56073-069
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(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 9-11
PART II. OTHER INFORMATION 12
2
<PAGE>
PART I. FINANCIAL INFORMATION
NEW ULM TELECOM, INC. AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,248,350 $ 2,551,066
Certificates of Deposit 1,500,000 900,000
Receivables, Net of Allowance for
Doubtful Accounts of $38,628 and $33,000 1,253,652 1,322,903
Inventories 404,270 354,027
Prepaid Expenses 65,495 95,435
------------ ------------
Total Current Assets 4,471,767 5,223,431
------------ ------------
INVESTMENTS & OTHER ASSETS:
Excess of Cost Over Net Assets Acquired 3,531,789 3,560,233
Notes Receivable, Less Current Portion
of $4,766 and $4,997 782,245 783,448
Cellular Investments 4,707,136 4,507,078
Other 534,663 437,466
------------ ------------
Total Investments and Other Assets 9,555,833 9,288,225
------------ ------------
PROPERTY, PLANT & EQUIPMENT:
Telecommunications Plant 26,646,944 26,261,325
Other Property & Equipment 1,625,715 1,568,153
Cable Television Plant 788,151 787,548
------------ ------------
Total 29,060,810 28,617,026
Less Accumulated Depreciation 17,558,156 17,085,234
------------ ------------
Net Property, Plant & Equipment 11,502,654 11,531,792
------------ ------------
TOTAL ASSETS $ 25,530,254 $ 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>
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Current Portion of Long-Term Debt $ 366,666 $ 366,666
Accounts Payable 476,075 1,686,643
Accrued Income Taxes 297,977 --
Other Accrued Taxes 60,954 54,514
Other Accrued Liabilities 267,103 224,398
------------ ------------
Total Current Liabilities 1,468,775 2,332,221
------------ ------------
LONG-TERM DEBT, LESS CURRENT PORTION 3,208,334 3,300,000
------------ ------------
DEFERRED CREDITS:
Income Taxes 1,519,148 1,519,148
Investment Tax Credits 20,459 23,088
------------ ------------
Total Deferred Credits 1,539,607 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 10,651,263 10,206,716
------------ ------------
Total Stockholders' Equity 19,313,538 18,868,991
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 25,530,254 $ 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
MARCH 31,
1999 1998
------------ ------------
<S> <C> <C>
OPERATING REVENUES:
Local Network $ 635,929 $ 551,668
Network Access 1,336,440 1,300,412
Billing and Collection 121,598 141,077
Miscellaneous 93,285 95,832
Nonregulated 554,728 496,111
------------ ------------
Total Operating Revenues 2,741,980 2,585,100
------------ ------------
OPERATING EXPENSES:
Plant Operations 325,629 258,494
Depreciation 477,141 458,267
Amortization 28,444 28,444
Customer 144,566 135,265
General and Administrative 348,750 318,809
Other Operating Expenses 280,070 318,219
------------ ------------
Total Operating Expenses 1,604,600 1,517,498
------------ ------------
OPERATING INCOME 1,137,380 1,067,602
------------ ------------
OTHER (EXPENSES) INCOME:
Interest Expense (59,062) (64,698)
Interest Income 32,434 45,331
Cellular Partnership Income 327,120 295,095
Other Investment Income (Expense) (32,445) --
------------ ------------
Total Other Income, Net 268,047 275,728
------------ ------------
INCOME BEFORE INCOME TAXES 1,405,427 1,343,330
INCOME TAXES 579,740 554,311
------------ ------------
NET INCOME $ 825,687 $ 789,019
============ ============
NET INCOME PER SHARE - NOTE 2 $ 0.48 $ 0.46
============ ============
</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 825,687
Dividends (381,140)
------------ ------------ ------------
BALANCE on March 31, 1999 1,732,455 $ 8,662,275 $ 10,651,263
============ ============ ============
</TABLE>
6
<PAGE>
NEW ULM TELECOM, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 825,687 $ 789,019
Adjustments to Reconcile Net Income to Net
Net Cash Provided by Operating Activities:
Depreciation and Amortization 505,585 486,711
Cellular Partnerships Income (327,120) (295,095)
(Increase) Decrease in:
Receivables 69,020 (215,416)
Inventories (50,243) 19,053
Prepaid Expenses 29,940 14,351
Increase (Decrease) in:
Accounts Payable (1,210,568) (37,417)
Accrued Income Taxes 297,977 365,313
Other Accrued Taxes 6,440 6,017
Other Accrued Liabilities 42,705 (23,134)
Deferred Investment Tax Credits (2,629) (3,002)
------------ ------------
Net Cash Provided by Operating Activities 186,794 1,106,400
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property, Plant & Equipment, Net (448,003) (259,093)
Change in Notes Receivable 1,434 1,235
Cellular Investments 127,062 171,765
Change in Temporary Cash Investments (600,000) 297,514
Other, Net (97,197) (1)
------------ ------------
Net Cash Used in Investing Activities (1,016,704) 211,420
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Payments of Long-Term Debt (91,666) (91,666)
Dividends Paid (381,140) (346,491)
------------ ------------
Net Cash Used in Financing Activities (472,806) (438,157)
------------ ------------
NET INCREASE (DECREASE) IN CASH (1,302,716) 879,663
CASH
AT BEGINNING OF PERIOD 2,551,066 906,716
------------ ------------
CASH
AT END OF PERIOD $ 1,248,350 $ 1,786,379
============ ============
</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 March 31, 1999 and December 31, 1998
and the results of operations and changes in cash flows for the three months
ended March 31, 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 March 31, 1999 are not necessarily indicative
of the operating results of the entire year.
NOTE 2 - NET INCOME PER SHARE OF COMMON STOCK
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 $59,556 $65,191
Income taxes $150,000 $175,000
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
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO
THE THREE MONTHS ENDED MARCH 31, 1998
The increase in total operating revenues was $156,880 or 6.1%. Local network saw
revenues rise 15.3%, due to an increase in Centrex service and the number of
access lines, and an increase in the monthly local service rates that took
effect October 1, 1998. An increase in minutes of use billed to interexchange
carriers is responsible for a 2.8% increase in network access revenues. Billing
and collection revenues decreased $19,479 or 13.8% as a result of IXC's taking
back the billing and collection function. Nonregulated revenue continues to show
growth, resulting in an increase of $58,617 or 11.8% over the revenues recorded
for the same period in 1998. The increase is the result of our success with
cable television, Internet services, strong sales of customer premise equipment
and increased market share of our long distance service.
Total operating expenses increased by $87,102 or 5.7%. Plant operations
increased by $67,135 or 26.0% due to increased labor cost and higher maintenance
expenses on telephone plant. Depreciation increased by $18,874 or 4.1%, which is
directly related to an increase in property, plant and equipment. General and
Administrative expenses were responsible for a $29,941 or 9.4% 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. Other operating expenses decreased $38,149 or 12.0%. This decrease
is the result of reduced cost of goods sold compared to the same period in 1998.
Interest expense decreased by $5,636 due to a decrease in long-term debt
outstanding. Interest income decreased by $12,897 reflecting fewer funds
available for investment. Cellular partnership income increased $32,025 or
10.9%, as the investment in Midwest Wireless continues to be a strong performer.
The $32,445 decrease in income from other investment income 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 for the quarter ended March 31, 1999 was 4.7% higher than the same
period in 1998. The primary reason for the increase in profitability was through
the combination of expenses being held at a consistent level with the prior
year, growth in access lines and network usage, as well as the benefit of basic
local rate increases in the third quarter of 1998.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows--The Company had a decrease in cash of $1,302,716 for the quarter
resulting in a balance of $1,248,350 as of March 31, 1999. Cash used in
investing activities was the primary reason for the decrease in cash during the
first quarter. The Company continues to enhance its telecommunications network
to provide its subscribers with reliable state of the art communications
services, as is evident by additions to property, plant, and equipment. The
Company funds capital expenditures through internally generated funds, which
totaled $448,003 for the first quarter ending March 31, 1999. The Company
continues to invest its idle cash in a conservative matter, this can be seen
through the additional purchases of Certificates of Deposits, totaling $600,000,
which brings the balance of short term investments to $1,500,000 compared to
$900,000 at December 31, 1998 Dividend payments, which were the primary use of
cash in financing activities increased for the first quarter from $.20 per share
in 1998 to $.22 per share in 1999.
Working Capital--Current assets exceeded current liabilities by $3,003,000 as of
March 31, 1999, compared to a working capital surplus of $2,891,000 as of
December 31, 1998. The primary source of working capital was internal
operations. The ratio of current assets to current liabilities was 3.0:1.0 as of
March 31, 1999, compared to 2.2:1.0 as of December 31, 1998. Notes Receivable
includes $700,000 from Manager. The note is secured by 51,230 shares of stock in
New Ulm Telecom, Inc., has 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.
10
<PAGE>
Year 2000 Compliance Issue
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
will be completed by June 1, 1999. 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
will not need to accelerate any upgrades to become Year 2000 compliant.
The Company's internal business software consists of billing and customer care,
plant records and trouble report software that is currently Year 2000 compliant.
A conversion of the Company's accounting and financial reporting software will
be completed by July 1, 1999. This conversion is part of the Company's business
plan and was not entered into for the sole purpose of Year 2000 compliance.
However, the new system will be 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 a 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
NEW ULM TELECOM, INC. AND SUBSIDIARIES
ITEMS 1-5. Not applicable.
ITEM 6. Exhibits and Reports on Form 8--K.
There were no reports on Form 8-K for the Quarter ended March 31, 1999.
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: April 30, 1999 By /s/ James P. Jensen
------------------------------------------
James P. Jensen, President
Dated: April 30, 1999 By /s/ Bill Otis
------------------------------------------
Bill Otis, Executive Vice-President
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,248,350
<SECURITIES> 1,500,000
<RECEIVABLES> 1,253,652
<ALLOWANCES> 38,628
<INVENTORY> 404,270
<CURRENT-ASSETS> 4,471,767
<PP&E> 29,060,810
<DEPRECIATION> 17,558,156
<TOTAL-ASSETS> 25,530,254
<CURRENT-LIABILITIES> 1,468,775
<BONDS> 3,208,334
0
0
<COMMON> 8,662,275
<OTHER-SE> 10,651,263
<TOTAL-LIABILITY-AND-EQUITY> 25,530,254
<SALES> 0
<TOTAL-REVENUES> 2,741,980
<CGS> 0
<TOTAL-COSTS> 1,604,600
<OTHER-EXPENSES> (327,109)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,062
<INCOME-PRETAX> 1,405,427
<INCOME-TAX> 579,740
<INCOME-CONTINUING> 825,687
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 825,687
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.48
</TABLE>
