10-Q 1 newulm014608_10q.txt NEW ULM TELECOM, INC. FORM 10-Q 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, 2001 ------------------ [ ] 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) 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: 1,705,195. --------- 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 12 NEW ULM TELECOM, INC. AND SUBSIDIARIES SEPTEMBER 30, 2001 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS UNAUDITED CONSOLIDATED BALANCE SHEETS ASSETS
SEPTEMBER 30, DECEMBER 31, 2001 2000 ------------ ------------ CURRENT ASSETS: Cash $ 538,670 $ 700,744 Receivables, Net of Allowance for Doubtful Accounts of $49,386 and $34,000 1,346,106 1,493,288 Inventories 1,515,277 1,860,969 Prepaid Expenses 49,593 127,560 ------------ ------------ Total Current Assets 3,449,646 4,182,561 ------------ ------------ INVESTMENTS AND OTHER ASSETS: Excess of Cost Over Net Assets Acquired 3,277,451 3,332,681 Notes Receivable, Less Current Portion of $4,808 and $4,453 954,414 981,483 Cellular Investments 6,402,933 5,721,718 Other 1,116,795 982,910 ------------ ------------ Total Investments and Other Assets 11,751,593 11,018,792 ------------ ------------ PROPERTY, PLANT AND EQUIPMENT: Telecommunications Plant 41,334,284 37,355,385 Other Property & Equipment 2,001,516 1,920,514 Cable Television Plant 1,325,140 1,147,862 ------------ ------------ Total 44,660,940 40,423,761 Less Accumulated Depreciation 22,629,041 20,666,826 ------------ ------------ Net Property, Plant & Equipment 22,031,899 19,756,935 ------------ ------------ TOTAL ASSETS $ 37,233,138 $ 34,958,288 ============ ============
The accompanying notes are an integral part of the financial statements. 3 NEW ULM TELECOM, INC. AND SUBSIDIARIES SEPTEMBER 30, 2001 UNAUDITED CONSOLIDATED BALANCE SHEETS(CONTINUED) LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER 30, DECEMBER 31, 2001 2000 ------------ ------------ CURRENT LIABILITIES: Current Portion of Long-Term Debt $ 2,500,666 $ 866,666 Accounts Payable 856,563 1,285,007 Accrued Income Taxes 87,054 40,424 Other Accrued Taxes 51,025 63,589 Other Accrued Liabilities 424,720 452,673 ------------ ------------ Total Current Liabilities 3,920,028 2,708,359 ------------ ------------ LONG-TERM DEBT, LESS CURRENT PORTION 10,291,666 8,990,667 ------------ ------------ DEFERRED CREDITS: Income Taxes 1,478,964 1,478,964 Investment Tax Credits 11,137 13,794 ------------ ------------ Total Deferred Credits 1,490,101 1,492,758 ------------ ------------ STOCKHOLDERS' EQUITY: Common Stock - $5 Par Value, 6,400,000 Shares Authorized, 1,705,195 and 1,731,955 Shares Issued and Outstanding 8,525,975 8,659,775 Retained Earnings 13,005,368 13,106,729 ------------ ------------ Total Stockholders' Equity 21,531,343 21,766,504 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 37,233,138 $ 34,958,288 ============ ============
The accompanying notes are an integral part of the financial statements. 4 NEW ULM TELECOM, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2001 2000 2001 2000 ------------ ------------ ------------ ------------ OPERATING REVENUES: Local Network $ 775,210 $ 712,395 $ 2,330,103 $ 2,113,219 Network Access 1,437,309 1,407,610 4,453,720 4,231,375 Billing and Collection 90,655 117,584 306,433 340,631 Miscellaneous 111,981 104,769 337,854 338,796 Nonregulated 819,586 757,228 2,362,316 2,155,226 ------------ ------------ ------------ ------------ Total Operating Revenues 3,234,741 3,099,586 9,790,426 9,179,247 ------------ ------------ ------------ ------------ OPERATING EXPENSES: Plant Operations 437,212 486,283 1,345,241 1,287,733 Depreciation 682,919 551,821 2,045,719 1,656,205 Amortization 29,139 28,456 86,051 85,368 Customer Operations 182,357 232,136 579,475 637,411 General and Administrative 449,900 383,863 1,363,191 1,239,725 Other Operating Expenses 485,156 465,077 1,636,148 1,309,584 ------------ ------------ ------------ ------------ Total Operating Expenses 2,266,683 2,147,636 7,055,825 6,216,026 ------------ ------------ ------------ ------------ OPERATING INCOME 968,058 951,950 2,734,601 2,963,221 ------------ ------------ ------------ ------------ OTHER (EXPENSES) INCOME: Interest Expense (172,742) (129,306) (515,647) (249,064) Interest Income 8,539 9,102 32,566 45,815 Cellular Partnership Income 200,047 328,910 1,123,168 933,441 Other Investment Income (Expense) 62,982 4,570 112,319 (6,007) ------------ ------------ ------------ ------------ Total Other (Expenses) Income, Net 98,826 213,276 752,406 724,185 ------------ ------------ ------------ ------------ INCOME BEFORE INCOME TAXES 1,066,884 1,165,226 3,487,007 3,687,406 INCOME TAXES 447,627 487,242 1,458,480 1,539,293 ------------ ------------ ------------ ------------ NET INCOME $ 619,257 $ 677,984 $ 2,028,527 $ 2,148,113 ============ ============ ============ ============ BASIC NET INCOME PER SHARE - NOTE 2 $ 0.36 $ 0.39 $ 1.19 $ 1.24 ============ ============ ============ ============
The accompanying notes are an integral part of the financial statements. 5 NEW ULM TELECOM, INC. AND SUBSIDIARIES YEAR ENDED DECEMBER 31, 2000 AND NINE MONTHS ENDED SEPTEMBER 30, 2001 UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK RETAINED SHARES AMOUNT EARNINGS ------------ ------------ ------------ BALANCE on December 31, 1999 1,732,455 $ 8,662,275 $ 11,890,307 Retired Stock (500) (2,500) (14,250) Net Income 2,963,127 Dividends (1,732,455) ------------ ------------ ------------ BALANCE on December 31, 2000 1,731,955 $ 8,659,775 $ 13,106,729 Retired Stock (26,760) (133,800) (846,778) Net Income 2,028,527 Dividends (1,283,110) ------------ ------------ ------------ BALANCE on September 30, 2001 1,705,195 $ 8,525,975 $ 13,005,368 ============ ============ ============
The accompanying notes are an integral part of the financial statements. 6 NEW ULM TELECOM, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED 2001 2000 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 2,028,527 $ 2,148,113 Adjustments to Reconcile Net Income to Net Net Cash Provided by Operating Activities: Depreciation and Amortization 2,131,770 1,741,573 Cellular Investment Income (1,123,168) (933,441) Distributions from Cellular Investments 441,953 444,322 (Increase) Decrease in: Receivables 147,537 199,913 Inventories 345,692 (29,544) Prepaid Expenses 77,967 16,847 Increase (Decrease) in: Accounts Payable (428,444) (315,897) Accrued Income Taxes 46,630 (157,708) Other Accrued Taxes (12,564) (9,542) Other Accrued Liabilities (27,953) 21,957 Deferred Investment Tax Credits (2,657) (2,657) ------------ ------------ Net Cash Provided by Operating Activities 3,625,290 3,123,936 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Additions to Property, Plant & Equipment, Net (4,351,505) (4,711,173) Increase in M & S 0 (2,827,877) Change in Notes Receivable 26,714 2,979 Change in Temporary Cash Investments 0 600,000 Other, Net (133,885) (833,010) ------------ ------------ Net Cash Used in Investing Activities (4,458,676) (7,769,081) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Principal Payments of Long-Term Debt (525,001) (275,000) Issuance of Long-Term Debt 3,460,000 5,124,000 Retired Stock (980,577) 0 Dividends Paid (1,283,110) (1,299,341) ------------ ------------ Net Cash Provided By Financing Activities 671,312 3,549,659 ------------ ------------ NET DECREASE IN CASH (162,074) (1,095,486) CASH AT BEGINNING OF PERIOD 700,744 1,533,044 ------------ ------------ CASH AT END OF PERIOD $ 538,670 $ 437,558 ============ ============
The accompanying notes are an integral part of the financial statements. 7 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, 2001 and December 31, 2000 and the results of operations and changes in cash flows for the nine months ended September 30, 2001 and 2000. 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, 2000 Annual Report to Shareholders. The results of operations for the period ending September 30, 2001 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 2001 and 2000 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: 2001 2000 ---- ---- Interest $525,171 $221,488 Income taxes $1,414,507 $1,563,768 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 September 30, 2001, there was $9,000,000 of direct borrowings outstanding under this facility at an interest rate of 4.16%. 8 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, 2001 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2000 Total operating revenues increased 6.7% or $611,179. Local network revenues increased 10.3% or $216,884. This revenue increase is attributable to a rate increase, which took effect February 1, 2001. Network access revenues increased 5.3% or $222,345. This increase is predominately the result of the investment the Company has made in its broadband infrastructure in New Ulm, MN, which has resulted in higher cost settlements for the Company. Also attributing to this revenue growth is the increased demand for broadband services. Billing and collection revenues decreased $34,198 or 10% as a result of Interexchange Carriers (IXC's) taking back the billing and collection function. Nonregulated revenues continue to show strong growth. The $207,090 or 9.6% increase in revenues is the result of demand for Internet services, video services, call management services, and the continued demand of technical communications solutions for residential and business customers. Our nonregulated revenues are expected to show continued growth as the Company continues to capture the customers' demands through increased marketing efforts, using information from customer surveys and focus groups, and a calling program which focuses on a one-to-one relationship with customers. The Company also expects these revenues to grow as we extend our broadband and video services to the communities surrounding New Ulm, MN. Total operating expenses increased by $839,799 or 13.5%. Plant operations increased by $57,508 or 4.5% due to increased labor costs and higher maintenance expenses on telephone plant associated with the Company's initiative to bring broadband services to the community of New Ulm, MN. Depreciation increased by $389,514 or 23.5%, which is directly related to the increase in property, plant and equipment associated with the Company's efforts that brought state of the art very high speed digital subscriber line (VDSL) technology to the community of New Ulm, MN. These plant upgrades have brought fiber optics to every neighborhood within the city limits of New Ulm, MN. This platform allows the Company to offer telephony, high bandwidth connections and a variety of video services on the same infrastructure. Customer expenses decreased by $57,936 or 9.1%. This decrease is reflective of the use of customer service personnel to perform sales and consulting services for products and services that are nonregulated and accounted for under Other Operating Expenses. The wide-ranging skills of our customer service personnel allow the Company to meet its commitment to provide superior customer service to our customers as they become more technically savvy and as they expect an expanding array of services to meet their telecommunications needs. The Company continues to focus on its commitment to its objective of achieving 100% customer satisfaction by making the customer our top priority, deserving our best service, attitude and consideration. To achieve this 9 objective, the Company has implemented marketing programs, customer surveys and focus groups, a calling program to enhance customer relations, and specialized training for customer service personnel. The commitment to provide quality customer service is also evidenced by the care and consideration the Company used in designing new office space. This space was designed with three primary goals: 1. Provide a customer-focused environment to support our commitment to quality service. 2. Provide retail display areas to maximize our marketing and sales efforts. 3. Provide an efficient workspace to enhance employee productivity. All customer service functions are now located on the main floor and feature an expanded customer service counter, two customer consultation areas, a "Web Room" for Internet use, a digital video demonstration area, and retail display areas. General and Administrative expenses increased $123,466 or 10%. This is due to the Company's continued search for investment opportunities to provide our shareholders with the growth they anticipate in a competitive marketplace. Other operating expenses increased $326,564 or 24.9%. This increase is associated with the Company's sale of video services to the community of New Ulm, MN and surrounding areas. Operating income decreased $228,620 or 7.7%. The Company places considerable emphasis on customer service and its commitment to provide broadband services. The Company is positioning itself to be the communications provider of choice in all of the communities it serves. This commitment is realized through additional staffing in the customer support and technical areas, the addition of broadband infrastructure, and a considerable investment in education. The Company's goals are to create an environment of knowledgeable personnel that are capable of solving all of the customers' communications needs and desires at all levels of the organization. This commitment will be realized in an environment that recognizes and expects the employees to achieve excellence in all facets of their jobs, encouraging innovations and empowering employees to make the right decisions. Interest expense increased by $266,583 or 107.0% as a result of additional borrowings associated with significant capital expenditures in 2000. Interest income decreased by $13,249 or 28.9%reflecting fewer funds available for investment. Cellular partnership income increased $189,727 or 20.3%. The $118,326 increase in income from other investments consists of the expected income from an investment in Fibercom, Inc., a competitive local exchange service in Iowa, for 2001 and the recording of income from K-1's for 2000 for investments held by the Company. Net income decreased by $119,586 or 5.6%. THREE MONTHS ENDED SEPTEMBER 30,2001 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30,2000 The increase in total operating revenues was $135,155 or 4.4%. Local network revenues saw an increase of $62,815 or 8.8% due to a rate increase, which took effect February 1, 2001. Network Access revenues were slightly higher with an increase of $29,699 or 2.1%. Billing and Collection revenues decreased by $26,929 or 22.9% due to the IXC's taking back the billing and 10 collection function. Miscellaneous revenue was $7,212 higher in 2001 than the same period in 2000 due to timing differences. Nonregulated revenue showed a $62,358 or 8.2% growth in the third quarter of 2001. This increase is attributed to the success of the rollout of our video services in New Ulm, MN in 2001, and our continued success with the marketing and selling of our Internet services, our increased market share of our long distance service, and the growth in activations of cellular services initiated through our office. Total operating expenses increased by $119,047 or 5.5%. Plant operations decreased $49,071 or 10.1%. This decrease reflects the increased use of technical staff time to install new telephone plant facilities associated with the Company's initiative in bringing state of the art, very high-speed digital subscriber line (VDSL) technology to the our customers. Depreciation increased by $131,098 or 23.8%, resulting from the increase in property, plant and equipment associated with bringing state of the art technology to the communities served by the Company. Customer operations decreased $49,779 or 21.4%. This decrease is reflective of the use of customer service personnel to perform sales and consulting services for products and services that are nonregulated and accounted for under Other Operating Expenses. The wide-ranging skills of our customer service personnel allow the Company meet its commitment to provide superior customer service to our customers as they become increasingly technically savvy and as they expect an expanding array of services to meet their telecommunications needs. General and Administrative expenses increased $66,037 or 17.2%. 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. Other operating expenses increased $20,079 or 4.3% reflecting the cost of rolling out our video services to the community of New Ulm, MN and surrounding areas, and the use of aggressive marketing so that the Company can successfully compete in a changing marketplace. Interest expense increased by $43,436 due to an increase in long-term debt outstanding. Interest income decreased by $563 reflecting fewer funds available for investment. The investment in Midwest Wireless showed a decrease in income of $128,863. This reflects the emphasis Midwest Wireless placed on growth and the acquisition of new customers. The $58,412 increase in income from other investment income consists of income from an investment in Fibercom, Inc., a competitive local exchange service in Iowa, for 2001. Net income increased by 58,727 or 8.7%. LIQUIDITY AND CAPITAL RESOURCES The Company had a decrease in cash of $162,074 for the nine months ended resulting in a balance of $538,670 as of September 30, 2001. The Company's investing activity is primarily derived from the additions to property, plant and equipment. These additions were associated with the equipment needed to provide VDSL. Net cash from Financing Activities was $671,312. Principal payments and Dividend payments accounted for usage of $1,808,111. The purchase and retirement of stock by the Company accounted for $980,577 of usage. Included in the financing activities is $2,326,000 of borrowing from the Company's Revolving Term loan with CoBank and $1,134,000 from a line of credit with RTFC. 11 Working Capital decreased $1,944,584 from December 31, 2000. This decrease is the result of drawing $1,134,000 from our line of credit with RFTC, a $345,692 decrease in inventory, which largely consisted of equipment installed to provide broadband services, a decrease in receivables of $147,537, and a $77,967 decrease in the Company's prepaid expenses. Notes receivable includes $700,000 due from the General Manager. The note is secured by 51,230 shares of stock in New Ulm Telecom, Inc., had a variable interest rate which was 6.09% at December 31, 2000. The original note, which became due on January 1, 2001, was renewed. The new note is a 5-year note, secured by New Ulm Telecom, Inc. common stock with an annual interest rate of 6.09%. This note requires an annual payment of $55,228, including interest, with payments commencing on January 1, 2002 and a final balloon payment due on January 1, 2006. 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 2001 are expected to be $4 million. PART II. OTHER INFORMATION Items 1-6. Not Applicable 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, 2001 By /s/ James P. Jensen ------------------------------------ James P. Jensen, Chairman Dated: October 31, 2001 By /s/ Bill Otis ------------------------------------ Bill Otis, President 12