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, 2002
-------------------------
[ ] 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)
27 N. Minnesota Street, 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: 5,115,585.
-----------
NEW ULM TELECOM, INC. AND SUBSIDIARIES
CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Unaudited Consolidated Balance Sheets 3-4
Unaudited Consolidated Statements Income 5
Unaudited Consolidated Statements of Stockholders' Equity 6
Unaudited Consolidated Statements of Cash Flows 7
Notes to Unaudited Consolidated Financial Statements 8-14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 15-26
PART II. OTHER INFORMATION 26-27
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONSOLIDATED BALANCE SHEETS
ASSETS
JUNE 30, DECEMBER 31,
2002 2001
------------ ------------
CURRENT ASSETS:
Cash $ 537,279 $ 4,245,683
Receivables, Net of Allowance for
Doubtful Accounts of $27,495 and $24,500 1,696,186 1,878,444
Materials, Supplies, and Inventories 978,694 966,565
Prepaid Expenses 111,452 112,210
------------ ------------
Total Current Assets 3,323,611 7,202,902
------------ ------------
INVESTMENTS & OTHER ASSETS:
Excess of Cost Over Net Assets Acquired 3,247,468 3,248,495
Notes Receivable from Officer 687,402 687,402
Notes Receivable 252,911 252,854
Cellular Investments 10,971,957 6,310,830
Other Investments 1,322,954 1,154,736
------------ ------------
Total Investments and Other Assets 16,482,692 11,654,317
------------ ------------
PROPERTY, PLANT & EQUIPMENT:
Telecommunications Plant 45,861,264 43,032,672
Other Property & Equipment 2,432,416 2,396,063
Cable Television Plant 1,601,921 1,539,443
------------ ------------
Total 49,895,601 46,968,178
Less Accumulated Depreciation 24,547,372 22,973,617
------------ ------------
Net Property, Plant & Equipment 25,348,229 23,994,561
------------ ------------
TOTAL ASSETS $ 45,154,532 $ 42,851,780
============ ============
The accompanying notes are an integral part of the financial statements.
3
NEW ULM TELECOM, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30, DECEMBER 31,
2002 2001
------------ ------------
CURRENT LIABILITIES:
Current Portion of Long-Term Debt $ 1,500,000 $ 1,866,666
Accounts Payable 457,383 593,571
Accrued Income Taxes 55,387 --
Other Accrued Taxes 74,090 66,235
Other Accrued Liabilities 475,706 484,458
------------ ------------
Total Current Liabilities 2,562,566 3,010,930
------------ ------------
LONG-TERM DEBT, LESS CURRENT PORTION 16,720,000 15,700,000
------------ ------------
DEFERRED CREDITS:
Income Taxes 2,285,843 2,285,843
Investment Tax Credits 8,480 10,251
------------ ------------
Total Deferred Credits 2,294,323 2,296,094
------------ ------------
STOCKHOLDERS' EQUITY:
Common Stock - $1.67 Par Value, 19,200,000 Shares
Authorized, 5,115,585 Shares Issued and Outstanding 8,525,975 8,525,975
Retained Earnings 15,051,668 13,318,781
------------ ------------
Total Stockholders' Equity 23,577,643 21,844,756
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 45,154,532 $ 42,851,780
============ ============
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
2002 2001 2002 2001
------------ ------------ ------------ ------------
OPERATING REVENUES:
Local Network $ 906,066 $ 795,507 $ 1,763,287 $ 1,554,893
Network Access 1,589,390 1,507,473 3,328,218 3,016,411
Billing and Collection 74,169 112,874 145,294 215,778
Miscellaneous 106,613 112,591 214,739 225,873
Nonregulated 1,023,303 802,075 1,914,155 1,542,730
------------ ------------ ------------ ------------
Total Operating Revenues 3,699,541 3,330,520 7,365,693 6,555,685
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Plant Operations 415,518 454,405 855,531 908,029
Depreciation 835,036 681,401 1,671,372 1,362,800
Amortization 1,038 28,456 1,050 56,912
Customer Operations 240,806 153,777 471,952 397,118
General and Administrative 517,009 492,880 992,892 913,291
Other Operating Expenses 636,677 647,839 1,232,259 1,150,992
------------ ------------ ------------ ------------
Total Operating Expenses 2,646,084 2,458,758 5,225,056 4,789,142
------------ ------------ ------------ ------------
OPERATING INCOME 1,053,457 871,762 2,140,637 1,766,543
------------ ------------ ------------ ------------
OTHER (EXPENSES) INCOME:
Interest Expense (153,958) (169,153) (303,592) (342,905)
Interest Income 1,996 9,421 27,443 24,027
Cellular Partnership Income 696,735 576,212 1,450,054 923,121
Gain from Cellular Dissolution -- -- 1,153,889 --
Other Investment Income (Expense) 24,999 6,249 146,137 49,337
------------ ------------ ------------ ------------
Total Other Income, Net 569,772 422,729 2,473,931 653,580
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 1,623,229 1,294,491 4,614,568 2,420,123
INCOME TAXES 656,359 539,588 1,868,004 1,010,853
------------ ------------ ------------ ------------
NET INCOME BEFORE
EXTRAORDINARY ITEM 966,870 754,903 2,746,564 1,409,270
------------ ------------ ------------ ------------
EXTRAORDINARY LOSS ON
EARLY DEBT RETIREMENT NET
OF TAX BENEFIT OF $109,781 -- -- (161,419) --
------------ ------------ ------------ ------------
NET INCOME $ 966,870 $ 754,903 $ 2,585,145 $ 1,409,270
============ ============ ============ ============
BASIC AND DILUTED
NET INCOME PER SHARE - NOTE 2 $ 0.19 $ 0.15 $ 0.51 $ 0.28
============ ============ ============ ============
The accompanying notes are an integral part of the financial statements.
5
NEW ULM TELECOM, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 2001 AND
SIX MONTHS ENDED JUNE 30, 2002
COMMON STOCK RETAINED
SHARES AMOUNT EARNINGS
------------ ------------ ------------
BALANCE on December 31, 2000 1,731,955 $ 8,659,775 $ 13,106,729
Retired Stock (26,760) (133,800) (846,777)
Net Income 2,768,238
Dividends (1,709,409)
Three-for-One Stock Split 3,410,390
------------ ------------ ------------
BALANCE on December 31, 2001 5,115,585 $ 8,525,975 $ 13,318,781
Net Income 2,585,145
Dividends (852,258)
------------ ------------ ------------
BALANCE on June 30, 2002 5,115,585 $ 8,525,975 $ 15,051,668
============ ============ ============
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 SIX MONTHS ENDED JUNE 30,
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,585,145 $ 1,409,270
Adjustments to Reconcile Net Income to Net
Net Cash Provided by Operating Activities:
Depreciation and Amortization 1,672,422 1,419,712
Cellular Investment Income (1,450,054) (923,121)
Distributions from Cellular Investments 358,327 264,383
Gain from Cellular Dissolution (1,153,889) --
(Increase) Decrease in:
Receivables 179,799 223,236
Inventories (12,129) 490,134
Prepaid Expenses 758 63,079
Increase (Decrease) in:
Accounts Payable (136,188) (407,954)
Accrued Income Taxes 55,387 52,024
Other Accrued Taxes 7,855 (15,791)
Other Accrued Liabilities (8,752) (52,172)
Deferred Investment Tax Credits (1,771) (1,772)
------------ ------------
Net Cash Provided by Operating Activities 2,096,910 2,521,028
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property, Plant & Equipment, Net (3,025,063) (2,866,946)
Change in Notes Receivable 2,402 25,615
Purchase of Cellular Investments (2,415,511) --
Other, Net (168,218) (46,594)
------------ ------------
Net Cash Used in Investing Activities (5,606,390) (2,887,925)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Payments of Long-Term Debt (3,316,666) (183,333)
Issuance of Long-Term Debt 3,970,000 2,326,000
Retired Stock -- (980,577)
Dividends Paid (852,258) (856,811)
------------ ------------
Net Cash Provided by (Used in) Financing Activities (198,924) 305,279
------------ ------------
NET DECREASE IN CASH (3,708,404) (61,618)
CASH
AT BEGINNING OF PERIOD 4,245,683 700,744
------------ ------------
CASH
AT END OF PERIOD $ 537,279 $ 639,126
============ ============
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
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instruction to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information
necessary for a fair presentation of results of operations, financial position,
and cash flows in conformity with accounting principles generally accepted in
the United States of America. In the opinion of management, the accompanying
condensed consolidated financial statements contain all adjustments (consisting
of only normal recurring items) necessary to present fairly the financial
position as of June 30, 2002 and December 31, 2001 and the results of operations
and changes in cash flows for the periods presented. Operating results for
interim periods are not necessarily indicative of results that may be expected
for the fiscal year as a whole. The presentation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, expenses, and related
disclosures at the date of the financial statements and during the reporting
period. Actual results could differ from these estimates. 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, 2001 Annual Report to Shareholders and New Ulm Telecom, Inc.'s
Annual Report on Form 10-K.
NOTE 2 - BASIC AND DILUTED NET INCOME PER COMMON SHARE
Basic and diluted net income per common share is based on the weighted average
number of shares of common stock outstanding of 5,115,585 for the period ended
June 30, 2002, 5,155,725 for the period ended June 30, 2001. All per share data
has been restated to reflect the three-for-one stock split effective January 10,
2002.
NOTE 3 - STATEMENTS OF CASH FLOW
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
2002 2001
---- ----
Interest $543,314 $348,943
Income taxes $1,360,400 $960,600
8
NOTE 4 - SECURED REDUCING REVOLVING CREDIT FACILITY
In fiscal 2001, the Company entered into a $15 million secured ten-year reducing
revolving credit facility maturing in 2011. 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, 2002, there
was $14,250,000 of direct borrowings outstanding under this facility at an
interest rate of 3.17%. In addition, the Company has also secured a $10 million
secured ten-year reducing revolving credit facility maturing in 2011. 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, 2002, there was $3,970,000 of direct borrowings outstanding under
this facility at an interest rate of 3.17%.
NOTE 5 - MATERIALS, SUPPLIES AND INVENTORIES
Materials, supplies and inventories are recorded at the lower of average cost or
market.
NOTE 6 - GOODWILL AND INTANGIBLE ASSETS
Effective January 1, 2002 the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets". Under the provisions of this accounting standard, goodwill
and intangible assets with indefinite useful lives are no longer amortized but
are instead tested for impairment or useful lives on at least an annual basis.
At December 31, 2001 the Company had goodwill of $5,042,587, which was net of
accumulated amortization of $1,489,771. The Company determined that these assets
have indefinite useful lives and ceased amortization effective January 1, 2002.
The Company does not presently believe that these assets have been materially
impaired.
The Company owns 9.92% of Midwest Wireless Holdings, LLC (MWH) at June 30, 2002
(7.58% at December 31, 2001). The Company accounts for its investment in MWH
using the equity method, and earnings from the investment are material to the
Company's net income. At December 31, 2001 MWH had investments in cellular, LMDS
and PCS licenses totaling $187,212,000, net of amortization of $9,922,000. MWH
has determined that these licenses have indefinite useful lives and ceased
amortization on January 1, 2002.
The following table provides, on a pro forma basis, financial information for
the periods ended June 30, 2002 as if the provisions of SFAS 142 had been
effective January 1, 2001.
9
NOTE 6 - GOODWILL AND INTANGIBLE ASSETS (CONTINUED)
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- -----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Operating Revenues $ 3,699,541 $ 3,330,520 $ 7,365,693 $ 6,555,685
Operating Expenses (2,646,084) (2,458,758) (5,225,056) (4,789,142)
Add back Amortization Expense 40,634 81,268
------------ ------------ ------------ ------------
Operating Income 1,053,457 912,396 2,140,637 1,847,811
Other Income, net 569,772 422,729 2,473,931 653,580
Add back pro rata share of Midwest
Wireless Holdings LLC amortization 131,128 262,256
------------ ------------ ------------ ------------
Income Before Income Taxes 1,623,229 1,466,253 4,614,568 2,763,647
Income Tax Expense (656,359) (539,588) (1,868,004) (1,010,853)
Tax Effect of Change in Amortization (52,452) (104,902)
------------ ------------ ------------ ------------
Net Income Before Extraordinary Item 966,870 874,213 2,746,564 1,647,892
Extraordinary Loss, Net of Tax Benefit (161,419)
------------ ------------ ------------ ------------
Adjusted Net Income $ 966,870 $ 874,213 $ 2,585,145 $ 1,647,892
============ ============ ============ ============
Adjusted Basic and Diluted Net Income
Per Share $ 0.19 $ 0.17 $ 0.51 $ 0.32
============ ============ ============ ============
10
NOTE 7 - SEGMENT INFORMATION
The Company is organized into five business segments: New Ulm Telecom, Inc. and
its wholly owned subsidiaries; Western Telephone Company, Peoples Telephone
Company, New Ulm Phonery, Inc., and a cellular investment recorded on the equity
method. No single customer accounted for a material portion of the Company's
revenues in any of the last three years. The Cellular investment is the
Company's investment in Midwest Wireless Holdings LLC and is shown using the
proportionate consolidation method.
Segment Information is as follows:
New Ulm Western Peoples New Ulm Cellular
Telecom Telephone Telephone Phonery Investment
------------- ------------- ------------- ------------- -------------
THREE MONTHS ENDED JUNE 30, 2002
Operating Revenues $ 2,108,381 $ 617,097 $ 259,996 $ 532,199 $ 3,832,988
Operating Expenses 1,787,786 257,441 147,284 327,755 2,844,385
------------- ------------- ------------- ------------- -------------
Operating income 320,595 359,656 112,712 204,444 988,604
Interest expense (153,854) (98) (6) (247,025)
Cellular Investment Income 164,351
Other Investment Income 486 541 25,743 225 (44,844)
------------- ------------- ------------- ------------- -------------
Income before income taxes $ 167,227 $ 360,099 $ 302,800 $ 204,669 $ 696,735
============= ============= ============= ============= =============
Depreciation and amortization $ 667,535 $ 94,490 $ 38,205 $ 35,856 $ 477,767
============= ============= ============= ============= =============
Total Assets $ 50,101,639 $ 9,835,983 $ 5,013,057 $ 3,878,825 $ 32,149,807
============= ============= ============= ============= =============
Capital Expenditures $ 1,356,116 $ 32,273 $ 14,397 $ 44,547 $ 911,151
============= ============= ============= ============= =============
Segment
Totals Others Eliminations Consolidated
------------- ------------- ------------- -------------
THREE MONTHS ENDED JUNE 30, 2002
Operating Revenues $ 7,350,661 $ 181,868 $ (3,832,988) $ 3,699,541
Operating Expenses 5,364,651 125,818 (2,844,385) 2,646,084
------------- ------------- ------------- -------------
Operating income 1,986,011 56,050 (988,604) 1,053,457
Interest expense (400,983) 247,025 (153,958)
Cellular Investment Income 164,351 532,384 696,735
Other Investment Income (17,849) 44,844 26,995
------------- ------------- ------------- -------------
Income before income taxes $ 1,731,530 $ 56,050 $ (164,351) $ 1,623,229
============= ============= ============= =============
Depreciation and amortization $ 1,313,853 $ -- $ (477,779) $ 836,074
============= ============= ============= =============
Total Assets $ 100,979,311 $ 6,684,957 $ (62,509,736) $ 45,154,532
============= ============= ============= =============
Capital Expenditures $ 2,358,484 $ -- $ (911,151) $ 1,447,333
============= ============= ============= =============
11
NOTE 7 - SEGMENT INFORMATION (CONTINUED)
New Ulm Western Peoples New Ulm Cellular
Telecom Telephone Telephone Phonery Investment
------------ ------------ ------------ ------------ ------------
THREE MONTHS ENDED JUNE 30, 2001
Operating Revenues $ 1,866,839 $ 569,472 $ 262,527 $ 481,328 $ 2,627,297
Operating Expenses 1,637,142 264,095 127,893 319,258 1,841,402
------------ ------------ ------------ ------------ ------------
Operating income 229,697 305,377 134,634 162,070 785,895
Interest expense (155,898) (9,122) (4,133) (254,619)
Cellular Investment Income
Other Investment Income 1,135 1,459 12,575 501 44,936
------------ ------------ ------------ ------------ ------------
Income before income taxes $ 74,934 $ 297,714 $ 143,076 $ 162,571 $ 576,212
============ ============ ============ ============ ============
Depreciation and amortization $ 538,196 $ 93,561 $ 30,803 $ 47,297 $ 445,999
============ ============ ============ ============ ============
Total Assets $ 43,696,529 $ 9,606,522 $ 3,864,790 $ 3,339,176 $ 22,648,033
============ ============ ============ ============ ============
Capital Expenditures $ 1,426,986 $ 71,208 $ 11,571 $ 27,771 $ 985,158
============ ============ ============ ============ ============
Segment
Totals Others Eliminations Consolidated
------------ ------------ ------------ ------------
THREE MONTHS ENDED JUNE 30, 2001
Operating Revenues $ 5,807,463 $ 150,354 $ (2,627,297) $ 3,330,520
Operating Expenses 4,189,790 110,370 (1,841,402) 2,458,758
------------ ------------ ------------ ------------
Operating income 1,617,673 39,984 (785,895) 871,762
Interest expense (423,772) 254,619 (169,153)
Cellular Investment Income 576,212 576,212
Other Investment Income 60,606 (44,936) 15,670
------------ ------------ ------------ ------------
Income before income taxes $ 1,254,507 $ 39,984 $ -- $ 1,294,491
============ ============ ============ ============
Depreciation and amortization $ 1,155,856 $ -- $ (445,999) $ 709,857
============ ============ ============ ============
Total Assets $ 83,155,050 $ 5,942,072 $(52,849,951) $ 36,247,171
============ ============ ============ ============
Capital Expenditures $ 2,522,694 $ -- $ (985,158) $ 1,537,536
============ ============ ============ ============
12
NOTE 7 - SEGMENT INFORMATION (CONTINUED)
New Ulm Western Peoples New Ulm Cellular
Telecom Telephone Telephone Phonery Investment
------------- ------------- ------------- ------------- -------------
SIX MONTHS ENDED JUNE 30, 2002
Operating Revenues $ 4,326,728 $ 1,205,479 $ 509,456 $ 1,033,985 $ 7,248,809
Operating Expenses 3,570,496 511,107 288,164 623,473 5,414,166
------------- ------------- ------------- ------------- -------------
Operating income 756,232 694,372 221,292 410,512 1,834,643
Interest expense (295,400) (5,669) (2,523) (510,973)
Cellular Investment Income 342,049
Gain on Cellular Dissolution 1,153,889
Other Investment Income 103,131 1,107 68,819 523 126,384
------------- ------------- ------------- ------------- -------------
Income before income taxes $ 563,963 $ 689,810 $ 1,783,526 $ 411,035 $ 1,450,054
============= ============= ============= ============= =============
Depreciation and amortization $ 1,335,069 $ 188,980 $ 76,386 $ 71,987 $ 967,790
============= ============= ============= ============= =============
Total Assets $ 50,101,639 $ 9,835,983 $ 5,013,057 $ 3,878,825 $ 32,149,807
============= ============= ============= ============= =============
Capital Expenditures $ 2,867,843 $ 36,414 $ 18,560 $ 102,246 $ 1,595,426
============= ============= ============= ============= =============
Segment
Totals Others Eliminations Consolidated
------------- ------------- ------------- -------------
SIX MONTHS ENDED JUNE 30, 2002
Operating Revenues $ 14,324,457 $ 290,045 $ (7,248,809) $ 7,365,693
Operating Expenses 10,407,406 231,816 (5,414,166) 5,225,056
------------- ------------- ------------- -------------
Operating income 3,917,051 58,229 (1,834,643) 2,140,637
Interest expense (814,565) 510,973 (303,592)
Cellular Investment Income 342,049 1,108,005 1,450,054
Gain on Cellular Dissolution 1,153,889 1,153,889
Other Investment Income 299,964 (126,384) 173,580
------------- ------------- ------------- -------------
Income before income taxes $ 4,898,388 $ 58,229 $ (342,049) $ 4,614,568
============= ============= ============= =============
Depreciation and amortization $ 2,640,212 $ -- (967,790) $ 1,672,422
============= ============= ============= =============
Total Assets $ 100,979,311 $ 6,684,957 (62,509,736) $ 45,154,532
============= ============= ============= =============
Capital Expenditures $ 4,620,489 $ -- $ (1,595,426) $ 3,025,063
============= ============= ============= =============
13
NOTE 7 - SEGMENT INFORMATION (CONTINUED)
New Ulm Western Peoples New Ulm Cellular
Telecom Telephone Telephone Phonery Investment
------------ ------------ ------------ ------------ ------------
SIX MONTHS ENDED JUNE 30, 2001
Operating Revenues $ 3,639,228 $ 1,138,352 $ 527,326 $ 938,590 $ 4,918,657
Operating Expenses 3,186,850 521,408 264,387 616,328 3,621,325
------------ ------------ ------------ ------------ ------------
Operating income 452,378 616,944 262,939 322,262 1,297,332
Interest expense (315,992) (18,521) (8,392) (419,701)
Cellular Investment Income
Other Investment Income 40,425 2,967 28,896 1,076 45,490
------------ ------------ ------------ ------------ ------------
Income before income taxes $ 176,811 $ 601,390 $ 283,443 $ 323,338 $ 923,121
============ ============ ============ ============ ============
Depreciation and amortization $ 1,076,393 $ 187,120 $ 61,605 $ 94,594 $ 768,918
============ ============ ============ ============ ============
Total Assets $ 43,696,529 $ 9,606,522 $ 3,864,790 $ 3,339,176 $ 22,648,033
============ ============ ============ ============ ============
Capital Expenditures $ 2,667,747 $ 101,809 $ 29,126 $ 68,264 $ 1,402,193
============ ============ ============ ============ ============
Segment
Totals Others Eliminations Consolidated
------------ ------------ ------------ ------------
SIX MONTHS ENDED JUNE 30, 2001
Operating Revenues $ 11,162,153 $ 312,189 $ (4,918,657) $ 6,555,685
Operating Expenses 8,210,298 $ 200,169 (3,621,325) 4,789,142
------------ ------------ ------------ ------------
Operating income 2,951,855 112,020 (1,297,332) 1,766,543
Interest expense (762,606) 419,701 (342,905)
Cellular Investment Income 923,121 923,121
Other Investment Income 118,854 (45,490) 73,364
------------ ------------ ------------ ------------
Income before income taxes $ 2,308,103 $ 112,020 $ -- $ 2,420,123
============ ============ ============ ============
Depreciation and amortization $ 2,188,630 $ -- (768,918) $ 1,419,712
============ ============ ============ ============
Total Assets $ 83,155,050 $ 5,942,072 (52,849,951) $ 36,247,171
============ ============ ============ ============
Capital Expenditures $ 4,269,139 $ -- $ (1,402,193) $ 2,866,946
============ ============ ============ ============
14
NEW ULM TELECOM, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
BUSINESS SEGMENTS
The Company operates five business segments: the majority of its operations
consists of four segments that provide telephone and related ancillary services,
and cable television services to numerous communities in Minnesota and Iowa. A
fifth segment has a 9.92% interest in Midwest Wireless Holdings L.L.C. (MWH) and
records this investment on the equity method of accounting. The equity method is
used due to the influence the Company has over the operations and management of
the L.L.C.
CONSOLIDATED OPERATING RESULTS
* Total operating revenues were $3,699,541 for the three months ended
June 30, 2002, for an increase of 11.1% or $369,021. Total operating
revenues were $7,365,693 for the six months ended June 30, 2002, for
an increase of $810,008 or 12.4%. The increase in operating revenues
was primarily due to New Ulm Telecom sectors' new and expanded service
offerings: digital video and digital subscriber line (DSL). New Ulm
Telecom segment has invested heavily in its infrastructure, which
allows it to enhance its local network and offer these new services to
its subscribers. The Western Telephone Company Segment has also
contributed to this increase in operating revenues with their digital
subscriber line service (DSL) and the billing during the three month
period ending June 30, 2002 of wireless reciprocal compensation for
2000 and 2001. The New Ulm Phonery Segment contributed to increased
operating revenues through increased Internet billing and increased
revenue from leased network capacity. All other segments had
relatively no change.
* Operating expenses for the three months ended June 30, 2002 increased
$187,326 or 7.6% compared to the same period in 2001. Operating
expenses for the six months ended June 30, 2002 increased $435,914 or
9.1%. The New Ulm Telecom sector provided $383,646 of the increase,
with $306,729 of the increase attributed to depreciation expense and
$70,514 of the increase reflecting the additional general and
administrative expenses associated with the Company's desire to
compete in all aspects of communications services.
* Other income for the three months ended June 30, 2002 increased
$147,043 over the three months ended June 30, 2001. Other income for
the six months ended June 30, 2002 increased $1,820,351 over the six
months ended June 30, 2002. The dissolution of two Cellular
Corporations in Iowa during the three-month period ended March 31,
2002 allowed the Company to recognize a gain on dissolution of
$1,153,880. This dissolution allowed Peoples Telephone Company to
15
purchase additional units in MWH and recognize a 2.34% interest. 2002
revenue and income growth of MWH realized a gain of $184,884 over the
same period in 2001. Due to the increased ownership in MWH through the
dissolution of the Cellular Corporations in Iowa and the purchase of
additional shares, the Peoples Telephone Company realized additional
investment income of $342,049. The remaining $139,529 increase over
2001 is accounted for by reduced interest rates on debt in comparison
to the prior year and increases in other investment income for
Fibercom, L.L.C. and CoBank.
* Net income was $966,870 for the three months ended June 30, 2002
compared with $754,903 for the same period in 2001. Net income for the
six months ended June 30, 2002 was $2,585,145 compared with $1,409,270
for the same period in 2001. This $1,175,875 or 83.4% increase is
primarily attributed to our gains from dissolution.
* The $161,419 after-tax extraordinary loss is related to the early
extinguishment of debt. On March 1, 2002 the Company repaid the
$2,566,666 of senior unsecured debt with Phoenix Life Mutual Insurance
Company. This loss is reflective of the prepayment penalty on the
debt.
In the Segment operations discussions which follow, specific discussion of
year-to-year comparisons are given. (See Note 7 - Segment Information, pg. 11)
An overall review of the year-to-year comparisons of Company operations is
provided in the following table:
Summary of Operations
For Three Months Ended For Six Months Ended
- ------------------------------------------------------------------------------------
6/30/02 6/30/01 6/30/02 6/30/01
- ------------------------------------------------------------------------------------
Operating Income:
New Ulm Telecom $ 320,595 $ 229,697 $ 756,232 $ 452,378
Western Telephone 359,656 305,377 694,372 616,944
Peoples Telephone 112,712 134,634 221,292 262,939
New Ulm Phonery 204,444 162,070 410,512 322,262
Other 56,050 39,984 58,229 112,020
------------ ------------ ------------ ------------
Total 1,053,457 871,762 2,140,637 1,766,543
Other Income 723,730 591,882 2,777,523 996,485
Interest Expense (153,958) (169,153) (303,592) (342,905)
Income Taxes (656,359) (539,588) (1,868,004) (1,010,853)
------------ ------------ ------------ ------------
Net Income Before
Extraordinary Loss 966,870 754,903 2,746,564 1,409,270
------------ ------------ ------------ ------------
Extraordinary Loss -- -- (161,419) --
------------ ------------ ------------ ------------
Net Income $ 966,870 $ 754,903 $ 2,585,145 $ 1,409,270
============ ============ ============ ============
Basic and Diluted
Earnings Per Share .19 .15 .51 .28
16
For Three Months Ended For Six Months Ended
- ------------------------------------------------------------------------------------
6/30/02 6/30/01 6/30/02 6/30/01
- ------------------------------------------------------------------------------------
Weighted Average
Shares Outstanding 5,115,585 5,155,725 5,115,585 5,155,725
All per share data has been restated to reflect the three-for-one stock split
effective January 10, 2002.
RESULTS OF OPERATIONS BY BUSINESS SEGMENT
NEW ULM TELECOM OPERATIONS
New Ulm Telecom revenues represent 57.0% of the consolidated operating revenues
for the three month period ended June 30,2002 and 58.7% of the consolidated
operating revenues for the six month period ended June 30, 2002. Revenues are
primarily earned by providing approximately 13,000 customers access to New Ulm
Telecom's local network, and by providing interexchange access for long distance
network carriers. The New Ulm Telecom segment also earns revenue through billing
and collecting for various long distance companies, directory advertising and
providing video services (a new venture undertaken in 2001) to its subscribers.
Total New Ulm Telecom segment revenues for the three-month period ending June
30, 2002 have grown $241,542 or 12.9% over the same period last year. Total New
Ulm Telecom segment revenues for the six-month period ending June 30, 2002 have
increased $687,500 or 18.9% over the same period in 2001.
Local network revenue increased in the New Ulm Telecom segment by $63,748 or
9.6% for the three months ended June 30, 2002 compared to the same period in
2001. Local network revenue increased in the New Ulm Telecom segment by $145,034
or 11.1% for the six months ended June 30, 2002. The increase is significant
considering the number of access lines at June 30, 2002 has decreased 0.2% from
June 30, 2001. Targeted marketing and promotions and packaging of vertical
services, most notably, the introduction of DSL, to supplement basic line
charges, achieved this revenue increase. DSL, which is used to provide
high-speed access to the Internet, was responsible for approximately $92,500 of
the increase. A local service rate increase beginning in February 2001 provided
approximately $18,000 additional local service revenues for the six month period
ending June 30, 2002 over the same period ending in 2001. This $18,000 in
additional revenues is all from January 2002.
Network access revenue increased $70,476 or 0.7% for the three months ended June
30, 2002 compared with the same period in 2001. Network access revenue increased
$302,211 or 15.8% for the six months ended June 30, 2002. This increase in
network access revenue is significant considering that the company experienced a
6.7% decrease in access minutes for the three months ended June 30, 2002 and a
10.1% decrease in access minutes for the six month period ending June 30, 2002,
a common industry trend. The New Ulm Telecom segment has invested over $15
million in capital expenditures during the past two years. These capital
expenditures have enhanced this segment's infrastructure and have allowed New
Ulm Telecom to receive additional settlements from the National Exchange Carrier
Association (NECA). New Ulm Telecom is now eligible for high-cost loop funding.
17
Other operating revenues increased $107,318 or 45.7% for the three months ended
June 30, 2002 and $240,255 or 57.4% for the six months ended June 30, 2002
compared with the same periods in 2001. Due to the infrastructure enhancements
that have taken place since 2000, the New Ulm Telecom segment has been able to
begin offering video services over the existing infrastructure. The video
product was responsible for the increase in these revenues.
Operating income increased $90,898 or 39.6% for the three months ended June 30,
2002 and $303,854 or 67.2% for the six months ended June 30, 2002 compared with
the same periods in 2001. The increase in operating income was primarily due to
the increase in other revenues associated with our new service offerings of
video and DSL, and the additional settlements from NECA, including high-cost
loop funding.
Cash operating expenses increased $21,305 or 1.9% for the three-month period
ended June 30, 2002 and $124,970 or 5.9% for the six-month period ended June 30,
2002 compared with the same periods ended in 2001. Cash operating expenses have
increased due to the number of services offered. The New Ulm Telecom segment
recognized the need to compete in all aspects of communication services. This
realization has motivated the segment to enhance its awareness of customer
satisfaction, additional services (video and DSL), aggressive marketing (brand
recognition) and solutions for our customers' communications needs. The Company
is striving for cost efficiencies and technological improvement to maintain its
operating margins for the New Ulm Telecom segment.
Noncash operating expenses increased $129,339 or 24.0% for the three months
ended June 30, 2002 and $258,676 or 24.0% for the six months ended June 30, 2002
compared with the same periods in 2001. Depreciation expense is the main cause
of this increase. The $292,606 increase in depreciation expense is reflective of
the new investments of over $15 million in the segment's infrastructure. Also, a
$14,123 increase in amortization of leasehold improvements reflects the
Company's continued growth and expansion, and the need for additional office and
retail space. These increases are offset by a $48,053 decrease in the
amortization of goodwill expense (See note 6 - pg. 9) due to new accounting
standard SFAS No. 142, "GOODWILL AND OTHER INTANGIBLE ASSETS", effective January
1, 2002.
The $114,483 after-tax extraordinary loss results from the early extinguishment
of debt with Phoenix Life Mutual Insurance Company. On March 1, 2002, the New
Ulm Telecom segment repaid its senior unsecured debt with Phoenix Life Mutual
Insurance Company. The loss is the result of prepayment penalties on the debt.
The EBITDA(1) for this segment was $988,130 for the quarter ended June 30, 2002
compared with $767,893 for the same quarter in 2001. For the six months ended
June 30, 2002 the EBITDA was $2,091,301 compared to $1,528,771 for the same
period in 2001. This $562,260 or 36.9% increase was realized primarily through
increased revenues.
- -------------------------
(1) - EBITDA represents operating income plus depreciation and amortization
expense. EBITDA, which is not a measure of financial performance or liquidity
under generally accepted accounting principles, is provided because the Company
18
understands that such information is used by certain investors when analyzing
the financial position and performance of the Company. Because of the variety of
methods used by companies and analysts to calculate EBITDA, and the fact that
EBITDA calculations may not accurately measure a company's ability to meet debt
service requirements, caution should be used in relying on any EBITDA
presentation. The Company sees value in disclosing its calculation of EBITDA for
the financial community and in displaying the change in EBITDA. The Company
believes an increasing EBITDA depicts increased ability to attract financing and
increased valuation of the Company's business.
WESTERN TELEPHONE COMPANY OPERATIONS
Western Telephone Company revenues represent 16.7% of the consolidated operating
revenues for the three months ended June 30, 2002 and 16.4% of the consolidated
operating revenues for the six months ended June 30, 2002. Revenues are
primarily earned by providing approximately 2,600 customers access to Western
Telephone Company's local network, and in providing interexchange access for
long distance carriers. The Western Telephone Company segment also earns revenue
through billing and collecting for various long distance companies, directory
advertising, cable television service, and Internet access to it subscribers.
Local network revenues increased in the Western Telephone Company segment by
$41,933 or 45.0% for the three months ended June 30, 2002 compared to the same
period in 2001. Local network revenues increased in the Western Telephone
Company segment by $54,759 or 30.0% for the six months ended June 30, 2002
compared to the same period in 2001. This revenue increase was accomplished with
the promotion and packaging of vertical services, most notably, the introduction
of DSL, to supplement basic line charges. DSL, which is used to provide
high-speed access to the Internet, was responsible for approximately $23,000 of
the 2002 increase. The three months and six months ended June 30, 2002 also
realized an increase of $33,706 in revenue due to the billing of wireless
reciprocal compensation for March 2000 thru March 2002 in April 2002.
Network access revenue increased $17,086 or 4.6% for the three-month period
ended June 30, 2002 compared to the same period ended in 2001. Network access
revenue increased $31,346 or 4.2% for the six-month period ended June 30, 2002.
Access minutes decreased 2.1% for the three months ended June 30, 2002 and 7.7%
for the six months ended June 30, 2002. The negative effects of network access
pricing, a common industry trend, will erode the increases in volume of switched
minutes of use, minimizing future increases in network access revenue. The
continued utilization of the Internet (e-mail, voice-over-IP) will continue to
decrease the volume of switched minutes of use. The Western Telephone segment
has offset these decreases with increased settlements from National Exchange
Carrier Association (NECA) and through increased high-cost loop funding.
Operating income increase $54,279 or 17.8% for the three month ended June 30,
2002 and $77,428 or 12.6% for the six months ended June 30, 2002 compared with
the same periods in 2001. The increase in operating income was primarily due to
the increase in revenues associated with our new service offering of DSL, the
back billing for wireless reciprocal compensation, and increased settlements
from NECA, which includes high-cost funding.
19
Cash operating expenses decreased $7,583 or 4.5% for the three months ended June
30, 2002 compared to the three months ended June 30, 2001. Cash operating
expenses decreased $12,161 or 3.6% for the six months ended June 30, 2002
compared to the six months ended June 30, 2001. Cash operating expenses have
decreased due to the Company's success with striving for cost efficiencies and
controlling expenses.
Noncash operating expenses have increased $929 or 1.0% for the quarter ended
June 30, 2002 compared to the same period ended in 2001. Noncash operating
expenses have increased $1,860 or 1.0% for the six months ended June 30, 2002
compared to the same period ended in 2001. Depreciation is the main cause of
this increase. The slight increase is reflective of the steady amount of capital
investments.
The $32,290 after-tax extraordinary loss results from the early extinguishment
of debt with Phoenix Life Mutual Insurance Company. On March 1, 2002, the
Western Telephone Company segment repaid its senior unsecured debt with Phoenix
Life Mutual Insurance Company. The loss is the result of prepayment penalties on
the debt.
The EBITDA(1) for this segment was $454,146 for the quarter ended June 30, 2002
compared with $398,938 for the same quarter in 2001. For the six months ended
June 30, 2002 the EBITDA was $883,352 compared to $804,064 for the same period
in 2001. This $79,288 or 9.9% increase was realized primarily through increased
revenues.
- -------------------------
(1) - EBITDA represents operating income plus depreciation and amortization
expense. EBITDA, which is not a measure of financial performance or liquidity
under generally accepted accounting principles, is provided because the Company
understands that such information is used by certain investors when analyzing
the financial position and performance of the Company. Because of the variety of
methods used by companies and analysts to calculate EBITDA, and the fact that
EBITDA calculations may not accurately measure a company's ability to meet debt
service requirements, caution should be used in relying on any EBITDA
presentation. The Company sees value in disclosing its calculation of EBITDA for
the financial community and in displaying the change in EBITDA. The Company
believes an increasing EBITDA depicts increased ability to attract financing and
increased valuation of the Company's business.
PEOPLES TELEPHONE COMPANY OPERATIONS
Peoples Telephone Company revenues represent 7.0% of the consolidated operating
revenues for the three month ended June 30, 2002 and 6.9% of the consolidated
operating revenues for the six months ended June 30, 2002. Revenues are
primarily earned by providing approximately 920 customers access to Peoples
Telephone Company's local network, and in providing interexchange access for
long distance carriers. The Peoples Telephone Company segment also earns revenue
through billing and collecting for various long distance companies, directory
advertising, cable television service, and Internet access to it subscribers.
Local network revenue increased in the Peoples Telephone Company segment by
$4,878 or 13.9% for the three-month period ended June 30, 2002 compared to the
same period in 2001. Local network revenues increased in the Peoples Telephone
Company segment by $8,601 or 12.4% for the six month ended June 30, 2002. The
revenue increases were accomplished with promotion and packaging of vertical
services, most notably, the introduction of digital subscriber line (DSL), to
supplement basic line charges. DSL, which is used to provide high-speed access
to the Internet, was responsible for approximately $7,700 of the 2002 increase.
20
Network access revenue decreased $5,645 or 3.2% and access minutes decreased
3.6% for the three months ended June 30, 2002 compared to the same period ended
in 2001. Network access revenue decreased $21,750 or 6.2% and access minutes
decreased 8.4% for the six months ended June 30, 2002 compared to the same
period ended in 2001. The negative effects of network access pricing, a common
industry trend, will erode the increases in volume of switched minutes of use,
minimizing future increases in network access revenue. The continued utilization
of the Internet (e-mail, voice-over-IP) will continue to decease the volume of
switched minutes of use. The construction of a fiber route in 1998 and 1999
allowed the Peoples Telephone Company segment to gain access to a larger fiber
optic network. This network increased access revenue due to an increase in
transport facilities, which minimized the network access revenue decrease caused
by the decrease in access minutes of use.
Operating income decreased $21,923 or 16.3% for the three months ended June 30,
2002 and $41,647 or 15.8% for the six months ended June 30, 2002 compared with
the same periods in 2001. Approximately half of the decrease in operating income
is the result of decreased network access revenues due to decreased volume of
switched minutes of use. The other half of the decrease in operating income is
the result of increases in operating revenues which have occurred due to the
costs associated with new service offerings, such as DSL, and increased
depreciation due to capital investments for this segment.
Cash operating expenses increased $12,001 or 12.4% for the three-month period
ended June 30, 2002 compared to the same period ended 2001. Cash operating
expenses increased $8,996 or 4.4% for the six-month period ended June 30, 2002.
Cash operating expenses have increased due to the number of services offered,
such as DSL.
Noncash operating expenses increased $7,390 or 24.0% for the three months ended
June 30, 2002 compared to the three months ended June 30, 2001. Noncash
operating expenses increased $14,781 or 24.0% for the six months ended June 30,
2002 compared to the same period in 2001. Depreciation expense is the main cause
for this increase. The increase in depreciation is reflective of the capital
investments in this segment.
Other income increased by $181,646 for the three-month period ended June 30,
2002 compared to the same period ended 2001. Other income increased by
$1,541,730 for the six months ended June 30, 2002 compared to the six months
ended June 30, 2001. The main sources of the increase are the gain recognized
from the dissolution of Three Lakes Cellular, Inc. and Cherokee Cellular, Inc.
in the first quarter of 2002, which is accountable for $1,153,889 of the
increase, and income from the MWH investment due to increased ownership through
the dissolution and the purchase of additional shares accounted for $342,049 of
the increase, which is Peoples Telephone Company's portion of MWH income that is
recorded using the equity method of accounting. The Peoples Telephone Company
segment has a 2.34% interest in MWH and records this investment on the equity
method of accounting because of the influence the Company has over the
operations and management of this L.L.C.
21
The $14,646 after-tax extraordinary loss results from the early extinguishment
of debt with Phoenix Life Mutual Insurance Company. On March 1, 2002, the
Peoples Telephone Company segment repaid its senior unsecured debt with Phoenix
Life Mutual Insurance Company. The loss is the result of prepayment penalties on
the debt.
The EBITDA(1) for this segment was $150,905 for the three months ended June 30,
2002 compared with $165,437 for the same period in 2001. The EBITDA for the six
months ended June 30, 2002 was $297,678 compared with $324,544. This $26,866 or
8.3% decrease was primarily due to decreased access network revenues.
- -------------------------
(1) - EBITDA represents operating income plus depreciation and amortization
expense. EBITDA, which is not a measure of financial performance or liquidity
under generally accepted accounting principles, is provided because the Company
understands that such information is used by certain investors when analyzing
the financial position and performance of the Company. Because of the variety of
methods used by companies and analysts to calculate EBITDA, and the fact that
EBITDA calculations may not accurately measure a company's ability to meet debt
service requirements, caution should be used in relying on any EBITDA
presentation. The Company sees value in disclosing its calculation of EBITDA for
the financial community and in displaying the change in EBITDA. The Company
believes an increasing EBITDA depicts increased ability to attract financing and
increased valuation of the Company's business.
NEW ULM PHONERY OPERATIONS
New Ulm Phonery represents 14.4% of the consolidated operating revenues for the
three-month period ended June 30, 2002 and 14.0% for the six-month period ended
June 30, 2002. Revenues are earned primarily by sales, installation and service
of business telephone systems and data communications equipment and access to
Internet services in the service areas served by New Ulm Telecom, Inc. (New Ulm,
Springfield and Sanborn, Minnesota and Aurelia, Iowa). In addition, the Company
leases network capacity to provide additional network access revenues. This
segment's expertise is the quality installation and maintenance of wide area
networking, local networking and transport solutions in communication to end
user customers.
Operating revenue increased $50,871 or 10.6% for the three months ended June 30,
2002 and $95,395 or 10.2% for the six months ended June 30, 2002 compared to the
same periods ended 2001. This increase was primarily due to increased Internet
revenues.
Cash operating expenses increased $19,938 or 7.3% for the three months ended
June 30, 2002 compared to the three months ended June 30, 2001. Cash operating
expenses increased $29,752 or 5.7% for the six months ended June 30, 2002
compared with the six months ended June 30, 2001. The increase can be attributed
to the need to compete in all aspects of the communication services. This
realization has motivated the segment to enhance its awareness of customer
satisfaction, aggressive marketing (brand recognition) and solutions for our
customers' communications needs. Increased emphasis of Internet access by our
customers has led to increased customer service hours (24x7 access to support),
maintenance of facilities, marketing and advertising, and the additional need
for larger (more bandwidth) access points. The Company is striving for cost
efficiencies and technological improvements to maintain its operating margins in
the New Ulm Phonery segment.
22
Noncash operating expenses decreased $11,441 or 24.2% for the quarter ended June
30, 2002 and 22,607 or 23.9% for the six months ended June 30, 2002 compared
with the same periods in 2001. The decrease is attributable to a drop in
depreciation expense, as some of the Company's capital investment has become
fully depreciated due to the Company's aggressive depreciation schedule that has
made it possible for us to continually offer products and services that allow
our customers the ability to stay on the cutting edge of technology.
The EBITDA(1) for this segment was $240,300 for the quarter ended March 31, 2002
compared with $209,367 for the same period in 2001. The EBITDA(1) for this
segment was $482,499 for the period ended March 31, 2002 compared with $416,856
for the same period in 2001. This $65,643 or 15.7% increase was primarily due to
increased Internet revenues.
- -------------------------
(1) - EBITDA represents operating income plus depreciation and amortization
expense. EBITDA, which is not a measure of financial performance or liquidity
under generally accepted accounting principles, is provided because the Company
understands that such information is used by certain investors when analyzing
the financial position and performance of the Company. Because of the variety of
methods used by companies and analysts to calculate EBITDA, and the fact that
EBITDA calculations may not accurately measure a company's ability to meet debt
service requirements, caution should be used in relying on any EBITDA
presentation. The Company sees value in disclosing its calculation of EBITDA for
the financial community and in displaying the change in EBITDA. The Company
believes an increasing EBITDA depicts increased ability to attract financing and
increased valuation of the Company's business.
CELLULAR INVESTMENT
The Company has a 9.92% ownership in MWH. The segment information is shown using
the proportionate consolidation method. Segment amounts represent 9.92% of MWH
June 30, 2002 financial statement totals. June 30, 2001 segment amounts
represent 7.58% of MWH totals. Cellular investment income increased $120,523 or
20.9% for the three months ended June 30, 2002 compared to the same period ended
in 2001. Cellular investment income increased $526,933 or 57.1% for the six
months ended June 30, 2002 compared to the same period in 2001. This increase is
the result of revenues and income that continues to grow as MWH gains market
share and an additional 2.34% MWH interest acquired by Peoples Telephone Company
through the dissolution of two Cellular Corporations and the purchase of
additional shares in 2002 (See Peoples Telephone Company Segment). Also, the
adoption of SFAS No. 142 by MWH resulted in a decrease in amortization expense
of $131,128 for the cellular investment for the three-month period ended June
30, 2002 and $262,256 for the six-month period ended June 30, 2002.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL STRUCTURE
The total long-term capital structure (long-term debt plus shareholders' equity)
for New Ulm Telecom, Inc. was $40,297,643 at June 30, 2002, reflecting 58.5%
equity and 41.5% debt. This compares to a capital structure of $37,544,756 at
December 31, 2001, reflecting 58.2% equity and 41.8% debt. Management believes
adequate internal and external resources are available to finance ongoing
23
operating requirements, including capital expenditures, business development,
debt service and the payment of dividends for at least the next twelve months.
CASH FLOWS
Cash provided by operations was $2,096,910 for the six-month period ended June
30, 2002 compared to $2,521,028 for the six-month period ended June 30, 2001.
Cash flows from operations for the six months ended June 30, 2002 and 2001 were
primarily attributable to net income plus non-cash expenses for depreciation and
amortization.
Cash flows used in investing activities were $5,606,390 for the six months ended
June 30, 2002 compared to $2,887,925 for the same period in 2001. Purchase of
cellular investments were $2,415,511 for the six months ended June 30, 2002 due
to the purchase of shares by Peoples Telephone Company in MWH due to the
dissolution of Three Lakes Cellular, Inc. and the Cherokee Cellular, Inc. "C"
Corporations compared to no capital outlay for the purchase of cellular
investments for the same period in 2001. Capital expenditures relating to
on-going businesses were $3,025,063 during the first six months of 2002 as
compared to $2,866,946 for the same period in 2001. Capital expenditures were
incurred primarily to enhance the Company's infrastructure and to construct
additional network facilities to provide CLEC services in Redwood Falls, MN.
Cash flows used in financing activities was $198,924 for the six-month period
ended June 30, 2002 compared to cash flows provided by financing activities of
$305,279 for the six-month period ended June 30, 2001. Included in cash flows
used in financing activities are debt repayments, debt borrowings, repurchased
and retired stock, and dividend payments. During the first six months of 2002,
New Ulm Telecom, Inc. borrowed $3,970,000 under its revolving credit facility to
cover cash requirements, primarily to repay $2,566,666 of senior unsecured debt
with Phoenix Life Mutual Insurance Company. During the first six months of 2001,
New Ulm Telecom, Inc. borrowed $2,326,000 to cover cash requirements, primarily
for capital expenditures.
DIVIDENDS
The Company paid dividends of $852,258 during the first two quarters of 2002
compared to $856,811 for the same time period in 2001. These were dividends of
$.0833 per share per quarter, which was equal to the $.0833 per share per
quarter paid in 2001. The Company's reinvested growth in equity has come about
while maintaining dividends to shareholders. The Company has made no
announcements or plans to increase the dividends above historic levels for the
remainder of 2002. Paying at the existing level of dividends is not expected to
negatively impact the liquidity of the Company.
SHARE REPURCHASE PROGRAM
In 2001 the Company's Board of Directors authorized management to repurchase
shares of Company common stock through private transactions. During 2001, the
Company repurchased 26,760 shares for $981,000. During the first three months of
2001, the Company repurchased 12,990 shares for $476,277. During the quarter
ended June 30, 2001, the Company repurchased 13,770 shares for $504,723. The
Company has no plans to repurchase any shares in 2002.
24
WORKING CAPITAL
Working capital was $761,045 as of June 30, 2002, compared to working capital of
$4,191,972 as of December 31, 2001. However, the 2001 net working capital
includes over $3,000,000 of CoBank loan advances received in December 2001.
These funds were expended in the first quarter 2002. They were used to purchase
additional common stock investments in two Iowa RSA corporations and early
retirement of Phoenix Life Mutual Insurance Company long-term debt. The decrease
in working capital is primarily due to the increase in accrued income taxes and
the reduction of cash and cash equivalents. The ratio of current assets to
current liabilities was 1.3:1.0 as of June 30, 2002 and 2.4:1.0 as of December
31, 2001.
LONG-TERM DEBT
In fiscal 2001, the Company entered into a $15 million secured ten-year reducing
revolving credit facility maturing in 2011. 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. This ten-year loan
requires equal monthly payments of $125,000. At June 30, 2002, there was
$14,250,000 of direct borrowings outstanding under this facility at an interest
rate of 3.17%.
In addition, the Company has also secured a $10 million secured ten-year
reducing revolving credit facility maturing in 2011. 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. Principal
payments of $250,000 per quarter begin once the funds are fully drawn or reduces
to an amount that equals what has been borrowed. At June 30, 2002, there was
$3,970,000 of direct borrowings outstanding under this facility at an interest
rate of 3.17%. Unadvanced loan funds totaled $5,780,000 at June 30, 2002. These
loan funds are designated for future telecommunications plant construction and
for cellular investments.
The Company had three unsecured notes payable to Phoenix Home Life Mutual
Insurance Company. By mutual agreement these notes were paid in full on March 1,
2002 using funds from CoBank.
OTHER
The Company has not conducted a public equity offering. It operates with
original equity capital, retained earnings and recent additions to indebtedness
in the form of senior debt and bank lines of credit. The Company is comfortable
with debt to total capital proportions of 40 to 55 percent.
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ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
New Ulm Telecom, Inc. does not have operations subject to risks of foreign
currency fluctuations, nor does New Ulm Telecom, Inc. use derivative financial
instruments in its operations or investment portfolio. New Ulm Telecom, Inc.'s
earnings are affected by changes in interest rates as its long-term debt is
based on variable rates. Should interest rates rise significantly, management
would likely act to mitigate its exposure to the change by converting a portion
of its variable-rate debt to fixed-rate debt.
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 registrants was held May 2, 2002
in New Ulm, MN. The total number of shares outstanding and entitled to vote at
the meeting was 5,115,585 of which 3,247,964 were present either in person or by
proxy. Two 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
Duane Lambrecht 3,218,580 12,779
Robert Ranweiler 3,258,708 5,861
The Board Members continuing and whose terms expire at subsequent annual
meetings are as follows:
2003 Annual Meeting 2004 Annual Meeting
Mary Ellen Domeier James Jensen
Rosemary Dittrich Perry Meyer
Gary Nelson
Also, Article II of the Articles of Incorporation, were amended to read as
follows:
The principle place of business and registered address of this
corporation is 27 North Minnesota Street, City of New Ulm, Brown
County, Minnesota.
The votes to approve this amendment were as follows:
FOR AGAINST ABSTAIN
Article IV 3,212,024 1,625 34,315
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Also, Section 3 of the By-Laws, were amended to read as follows:
Stock may be transferred by written assignment in person or by power of
attorney.
The votes to approve this amendment were as follows:
FOR AGAINST ABSTAIN
Article IV 3,210,119 5,690 32,155
Also, Section 7 of the By-Laws, were amended to read as follows:
The Board of Directors may adopt, alter or abandon the use of a
corporate seal.
The votes to approve this amendment were as follows:
FOR AGAINST ABSTAIN
Article IV 3,204,360 10,534 33,070
The shareholders also approved the appointment of Olsen, Thielen & Co., Ltd. as
the auditors for 2002, by a vote of 3,223,542 for, 8,325 against, and 16,097
abstained.
Items 5-6. Not Applicable.
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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 6, 2002 By /s/ James P. Jensen
-------------------------------------
James P. Jensen, Chairman
Dated: August 6, 2002 By /s/ Bill Otis
-------------------------------------
Bill Otis, President
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