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, 2000
---------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from ________ to ________.
Commission File Number 0-3024
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New Ulm Telecom, Inc.
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(Exact name of registrant as specified in its charter)
Minnesota 41-0440990
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(State or jurisdiction of incorporation) (IRS Employer Identification Number)
400 2nd Street North, New Ulm, MN 56073-0697
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(Address of Principal executive offices)
(507) 354-4111
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(Registrant's telephone number)
Indicate by checkmark whether the registrant (1) has 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
Indicate the number of shares outstanding of each of the issuer's classes of
Common stock, as of the latest practicable date: 1,732,455.
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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 OPERATIONS 9-12
PART II. OTHER INFORMATION 13-15
<PAGE>
NEW ULM TELECOM, INC. AND SUBSIDIARIES
JUNE 30, 2000
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,050,601 $ 1,533,044
Certificates of Deposit 0 600,000
Receivables, Net of Allowance for
Doubtful Accounts of $270,468 and $33,000 1,174,057 1,457,274
Inventories 2,977,210 557,315
Prepaid Expenses 50,496 88,117
------------ ------------
Total Current Assets 5,252,364 4,235,750
------------ ------------
INVESTMENTS & OTHER ASSETS:
Excess of Cost Over Net Assets Acquired 3,389,569 3,446,456
Notes Receivable, Less Current Portion
of $3,962 and $4,997 974,820 977,166
Cellular Investments 5,623,170 5,282,233
Other 1,407,463 688,593
------------ ------------
Total Investments and Other Assets 11,395,022 10,394,448
------------ ------------
PROPERTY, PLANT & EQUIPMENT:
Telecommunications Plant 30,477,833 28,356,244
Other Property & Equipment 1,862,722 1,779,022
Cable Television Plant 802,899 802,899
------------ ------------
Total 33,143,454 30,938,165
Less Accumulated Depreciation 19,627,050 18,541,294
------------ ------------
Net Property, Plant & Equipment 13,516,404 12,396,871
------------ ------------
TOTAL ASSETS $ 30,163,790 $ 27,027,069
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
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NEW ULM TELECOM, INC. AND SUBSIDIARIES
JUNE 30, 2000
UNAUDITED CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Current Portion of Long-Term Debt $ 366,666 $ 366,666
Accounts Payable 1,242,479 1,256,049
Accrued Income Taxes (281,068) --
Other Accrued Taxes 48,775 58,006
Other Accrued Liabilities 314,336 332,542
------------ ------------
Total Current Liabilities 1,691,188 2,013,263
------------ ------------
LONG-TERM DEBT, LESS CURRENT PORTION 5,790,000 2,933,334
------------ ------------
DEFERRED CREDITS:
Income Taxes 1,510,554 1,510,554
Investment Tax Credits 15,565 17,336
------------ ------------
Total Deferred Credits 1,526,119 1,527,890
------------ ------------
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 12,494,208 11,890,307
------------ ------------
Total Stockholders' Equity 21,156,483 20,552,582
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 30,163,790 $ 27,027,069
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
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NEW ULM TELECOM, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Local Network $ 704,534 $ 657,768 $ 1,400,824 $ 1,293,697
Network Access 1,505,698 1,480,506 2,823,765 2,816,946
Billing and Collection 121,333 119,800 223,047 241,398
Miscellaneous 85,489 132,478 234,027 225,763
Nonregulated 738,819 593,577 1,397,998 1,148,305
------------ ------------ ------------ ------------
Total Operating Revenues 3,155,873 2,984,129 6,079,661 5,726,109
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Plant Operations 426,743 352,804 801,450 678,433
Depreciation 551,822 476,289 1,104,384 953,430
Amortization 28,456 28,444 56,912 56,888
Customer 205,524 150,325 405,275 294,891
General and Administrative 439,898 372,867 855,862 721,617
Other Operating Expenses 452,062 282,845 844,507 562,915
------------ ------------ ------------ ------------
Total Operating Expenses 2,104,505 1,663,574 4,068,390 3,268,174
------------ ------------ ------------ ------------
OPERATING INCOME 1,051,368 1,320,555 2,011,271 2,457,935
------------ ------------ ------------ ------------
OTHER (EXPENSES) INCOME:
Interest Expense (66,900) (57,366) (119,758) (116,428)
Interest Income 11,206 25,344 36,713 57,778
Cellular Partnership Income 188,746 327,120 604,531 654,240
Other Investment Income (Expense) 3,270 (33,572) (10,577) (66,017)
------------ ------------ ------------ ------------
Total Other Income, Net 136,322 261,526 510,909 529,573
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 1,187,690 1,582,081 2,522,180 2,987,508
INCOME TAXES 499,922 652,187 1,052,051 1,231,927
------------ ------------ ------------ ------------
NET INCOME $ 687,768 $ 929,894 $ 1,470,129 $ 1,755,581
============ ============ ============ ============
NET INCOME PER SHARE - NOTE 2 $ 0.40 $ 0.54 $ 0.85 $ 1.01
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
NEW ULM TELECOM, INC. AND SUBSIDIARIES
JUNE 30, 2000
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Retained
Shares Amount Earnings
-------------- -------------- --------------
<S> <C> <C> <C>
BALANCE on December 31, 1998 1,732,455 $ 8,662,275 $ 10,206,716
Net Income 3,329,423
Dividends (1,645,832)
-------------- -------------- --------------
BALANCE on December 31, 1999 1,732,455 $ 8,662,275 $ 11,890,307
Net Income 1,470,129
Dividends (866,228)
-------------- -------------- --------------
BALANCE on June 30, 2000 1,732,455 $ 8,662,275 $ 12,494,208
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
NEW ULM TELECOM, INC. AND SUBSIDIARIES
JUNE 30, 2000
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR SIX MONTHS ENDED
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,470,129 $ 1,755,581
Adjustments to Reconcile Net Income to Net
Net Cash Provided by Operating Activities:
Depreciation and Amortization 1,161,296 1,010,318
Cellular Investment Income (604,531) (654,240)
Cellular Investments 263,594
(Increase) Decrease in:
Receivables 283,490 180,577
Inventories 70,310 (67,688)
Prepaid Expenses 37,621 22,362
Increase (Decrease) in:
Accounts Payable (13,570) (1,264,953)
Accrued Income Taxes (281,068) (188,863)
Other Accrued Taxes (9,231) 5,007
Other Accrued Liabilities (18,206) 22,418
Deferred Investment Tax Credits (1,771) (3,602)
------------ ------------
Net Cash Provided by Operating Activities 2,358,063 816,917
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property, Plant & Equipment, Net (2,223,942) (1,368,264)
Increase in M & S (2,490,205)
Change in Notes Receivable 2,073 2,956
Change in Temporary Cash Investments 600,000 0
Other, Net (718,870) (143,234)
------------ ------------
Net Cash Used in Investing Activities (4,830,944) (1,508,542)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Payments of Long-Term Debt (183,334) (183,333)
Issuance of Long-Term Debt 3,040,000
Dividends Paid (866,228) (796,929)
------------ ------------
Net Cash Used in Financing Activities 1,990,438 (980,262)
------------ ------------
NET INCREASE (DECREASE) IN CASH (482,443) (1,671,887)
CASH
AT BEGINNING OF PERIOD 1,533,044 2,551,066
------------ ------------
CASH
AT END OF PERIOD $ 1,050,601 $ 879,179
============ ============
</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, 2000 and December 31, 1999
and the results of operations and changes in cash flows for the six months ended
June 30, 2000 and 1999.
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, 1999 Annual Report to Shareholders. The results of
operations for the period ending June 30, 2000 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 2000 and 1999 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:
2000 1999
---- ----
Interest $110,323 $117,415
Income taxes $1,199,000 $1,290,000
NOTE 4 - UNSECURED TEN-YEAR REDUCING REVOLVING CREDIT FACILITY
In fiscal 2000, the Company entered into a $10 million unsecured ten-year
reducing revolving credit facility maturing in 2010. The borrowings under the
credit facility bear interest, at the Company's option, at either fixed or
variable rates linked to the Company's overall leverage ratio. At June 30, 2000,
there was $3,040,000 of direct borrowings outstanding under this facility at an
interest rate of 7.84%.
8
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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, 2000 COMPARED TO
THE SIX MONTHS ENDED JUNE 30, 1999
Total operating revenues increased by $353,552 or 6.2%. Local network revenues
saw an increase of 8.3%. The revenue increase can be attributed to a larger than
expected increase in access lines, and the success of our marketing promotion of
CLASS calling features as shown below.
6/30/99 6/30/00 % Increase
------- ------- ----------
Total Access Lines 16,276 16,953 4.2%
CLASS Subscribers 1,866 2,408 29.1%
Although the minutes of use billed to Interexchange Carriers (IXC's) rose 3.7%,
a reduction in rates charged to IXC's caused Network access revenues to remain
comparable to the previous year. Billing and collection revenues decreased by
$18,351 or 7.6% as a result of IXC's taking back the billing and collection
function. Nonregulated revenues continue to show strong growth. The $249,693 or
21.7% increase in revenues reflects our success with the sale of nonregulated
services such as voicemail and Internet services, strong sales of customer
premise equipment and increased market share of our long distance service. The
following table illustrates the growth of customers purchasing these types of
services.
6/30/99 6/30/00 % Increase
------- ------- ----------
Voicemail Subscribers 1,847 2,558 38.5%
Internet Subscribers 2,200 3,163 43.8%
The growth in nonregulated revenues is expected to continue as the Company
proactively markets these services.
Total operating expenses increased by $800,216 or 24.5%. Plant operations
increased by $123,017 or 18.1% due to increased labor costs and higher
maintenance expenses on telephone plant associated with the Company's initiative
to bring state of the art very high speed digital subscriber line (VDSL)
technology to the community of New Ulm, MN. This platform will allow the Company
to offer telephony, high bandwidth data connections and a variety of video
services on the same infrastructure. Depreciation increased by $150,954 or
13.8%, resulting from an increase in property, plant and equipment associated
with the Company's 1999 plant additions of $2.8 million. These additions enabled
the Company to bring advanced services to its subscribers.
9
<PAGE>
The $110,384 or 37.4% increase in customer operations reflects the Company's
commitment to provide superior customer service and the ever expanding basket of
services we are providing our subscribers. This commitment can be seen through
one of the Company's primary objectives: Achieve and sustain a customer
satisfaction index of 100%. The Company will strive to meet this objective by
making the customer of primary importance, deserving our best service, attitude,
and consideration. The dedication to this objective is evidenced by the use of
focus groups, customer satisfaction surveys, and specialized training for
customer service personnel. As the marketplace continues to evolve and our
subscribers become more technically savvy, there will continue to be increasing
demands on our customer relations area to provide solutions to the unique
telecommunications needs of our subscribers.
General and Administrative expenses were responsible for a $134,245 or 18.6%
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 Company is pursuing possible acquisition of Local Exchange
Carrier (LEC) operations to provide our vast array of services to a larger
geographic area. In addition, the Company continues to study possible expansion
opportunities through Competitive Local Exchange Carrier (CLEC) ventures.
Other operating expenses increased $281,592 or 50%. This increase reflects
implementation of an aggressive marketing campaign of services such as Internet
through the use of advertising, mass mailings, bill stuffers and free
promotions. This directly ties with the Company's strategic plan of building a
basket of services that will make the Company difficult to compete with in the
future. The increase in operating expenses is also reflective of the Company's
desire to be an active participant in the continual quality-of-life advancements
in our community as demonstrated by its generous charitable contributions.
Interest expense increased by $3,330 due to an increase in outstanding debt
relating to the increase in property, plant and equipment. Interest income
decreased by $21,065 reflecting fewer funds available for investment. Despite
the fact that our cellular investment had a $49,709 or 7.6% decrease in income,
the investment in Midwest Wireless continues to be a strong source of income.
The $55,440 increase in income from other investment income consists of the
expected income from an investment in Fibercom, Inc. for 2000. Fibercom, Inc.
provides competitive local exchange service in Iowa.
Net income decreased by $285,452 or 16.3%.
10
<PAGE>
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO
THE THREE MONTHS ENDED JUNE 30, 1999
The increase in total operating revenues was $171,744 or 5.8%. Local network saw
an increase of $46,766 or 7.1% due to an increase in CLASS services, and
increased demand for 2nd telephone lines to provide Internet services. Network
Access increased $25,192 or 1.7%, 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 24.5% growth in the second quarter of 2000. This increase of
$145,242 is attributed to our success with cable television, Internet services,
and increased market share of our long distance service.
Total operating expenses increased by $440,931 or 26.5%. Plant operations
increased $73,939 or 21%. This increase reflects the rise in labor cost and
higher maintenance expenses on telephone plant. This increase is associated with
the Company's initiative to bring state of the art very high-speed digital
subscriber line (VDSL) technology to the community of New Ulm, MN. Depreciation
increased by $74,533 or 15.7%, resulting from increased property, plant and
equipment. Customer operations increased $55,199 or 36.7%. This increase
reflects the Company's commitment to superior customer service to a customer
base that is increasingly technically savvy and demanding an expanding basket of
services to meet their telecommunications needs. General and Administrative
expenses increased $67,031 or 18%. 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. Other operating expenses increased $169,217 or 59.8% reflecting
an implementation of an aggressive marketing campaign so that the Company can
successfully compete in a changing marketplace.
Interest expense increased by $69,534 due to an increase in long-term debt
outstanding. Interest income decreased by $14,138 reflecting fewer funds
available for investment. The investment in Midwest Wireless showed a decrease
in income of $138,374. The decrease reflects the pursuit of growth opportunities
by Midwest Wireless. Despite this decrease, our cellular investment continues to
be a strong source of income. The $36,842 increase in income from other
investment income consists of the expected income from an investment in
Fibercom, Inc. for 2000. Fibercom, Inc. provides competitive local exchange
service in Iowa.
Net income decreased by $242,126 or 35.2%.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a decrease in cash of $482,443 for the quarter resulting in a
balance of $1,050,601 as of June 30, 2000. The purchase of inventory and the
additions to property, plant and equipment were the primary use of funds. These
purchases were predominantly
11
<PAGE>
associated with inventory and equipment needed to provide VDSL. There was no
cash invested in Certificates of Deposit at June 30, 2000, which was a source of
$600,000 from Investing Activities. Net cash from Financing Activities was
$1,990,438. Included in these financing activities is $3,040,000 of borrowings
from the Company's term loan with CoBank. The Company also made $183,334 of
long-term debt repayments and made dividend payments of $866,228 during the
first six months of 2000 as compared to $796,929 for the same period in 1999.
Working Capital increased $1,338,689 from December 31, 1999. This increase is
the result of a $2,419,895 increase in inventory, which is comprised of the
equipment such as line cards, electronics, etc. needed to provide VDSL. Notes
Receivable includes $700,000 from the Manager. The note is secured by 51,230
shares of stock in New Ulm Telecom, Inc., had a variable interest rate which was
5.20% at December 31, 1999. Interest payments are to be paid annually on
December 31. The note is to be paid in full on January 1, 2001.
The Company operates in a capital-intensive industry. To meet the demands of the
industry the Company continues to make investments in state-of-the-art
technology to offer subscribers state-of-the-art technological solutions to
their communication needs. Capital expenditures for 2000 are expected to be $10
million. As mentioned in Note 4, the Company secured new financing to cover
these expenditures.
12
<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 4, 2000 in
New Ulm, MN. The total number of shares outstanding and entitled to vote at the
meeting was 1,732,455 of which 1,157,193 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
Rosemary Dittrich 1,141,198 10,460
Mary Ellen Domeier 1,142,031 9,627
Gary Nelson 1,164,967 3,305
The Board Members continuing and whose terms expire at subsequent annual
meetings are as follows:
200l Annual Meeting 2002 Annual Meeting
Lavern Biebl Robert Ranweiler
James Jensen Mark Retzlaff
Perry Meyer Duane Lambrecht
Also, Article IV of the Articles of Incorporation were amended to read as
follows:
The government of said corporation for the management of its affairs,
shall be vested in a Board of nine (9), who shall be stockholders. The
number of directors will be reduced to eight (8) at the annual meeting
in 2001 and reduced to seven (7) at the annual meeting in 2002 and
shall thereafter remain at seven, unless and until this Article is
amended.
The directors shall be elected to office at the annual meeting of
stockholders of the corporation to be held in New Ulm, Minnesota, or at
such other place as designated by a Resolution of the Board of
Directors during the month of May in each year.
Each director shall be elected to office for a term of three (3) years
and shall continue to serve until the director's successor has been
duly elected and qualified. Any vacancy that may occur shall be filled
by appointment by the Board until the next annual meeting, at which
time a director will be elected by the stockholders to fill the
unexpired term.
14
<PAGE>
The votes to approve this amendment were as follows:
FOR AGAINST ABSTAIN
Article IV 1,048,867 92,817 15,509
Also, Section 8 paragraphs (b) and (c), were amended in their entirety to read
as follows:
(b) No individual shall be eligible to be
appointed or elected as a director after
attaining the age of 69.
(c) This eligibility restriction shall be
effective as of the date of the approval of
the Resolution amending these By-Laws by
membership at an annual meeting.
The votes to approve this amendment were as follows:
FOR AGAINST ABSTAIN
Section 8 974,890 167,754 14,519
The shareholders also approved the appointment of Olsen, Thielen & Co., Ltd. as
the auditors for 2000, by a vote of 1,146,287 for, 2,460 against, and 8,416
abstained.
Item 5. Not Applicable
Item 6. Exhibits and Reports on Form 8-K
On October 29, 1999 the Registrant filed a Form 8-K. The form reported the
Company's plan to upgrade the communications infrastructure of the urban
district of New Ulm, Minnesota. The project is estimated to cost $10 million.
The company will begin construction in the fourth quarter of 1999 with an
estimated completion of third quarter 2000.
14
<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: August 11, 2000 By /s/ James P. Jensen
----------------------------------------
James P. Jensen, Chairman
Dated: August 11, 2000 By /s/ Bill Otis
----------------------------------------
Bill Otis, President
15
