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Table of Contents



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


FORM 10-Q



(Mark One)

 

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2013

 

OR

 

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

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 other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)


 

27 North Minnesota Street

New Ulm, Minnesota 56073

(Address of principal executive offices and zip code)

 

(507) 354-4111

(Registrant’s telephone number, including area code)



Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definition of “large accelerated filer, accelerated filer, and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

o Large accelerated filer o Accelerated filer o Non-accelerated filer x Smaller reporting company

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The total number of shares of the Registrant’s common stock outstanding as of May 15, 2013: 5,103,918.

1




TABLE OF CONTENTS

 

 

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

Item 1

Financial Statements

 

3-8

 

 

 

 

 

Consolidated Statements of Income (unaudited) for the Three Months Ended March 31, 2013 and 2012

 

3

 

 

 

 

 

Consolidated Statements of Comprehensive Income (unaudited) for the Three Months Ended March 31, 2013 and 2012

 

4

 

 

 

 

 

Consolidated Balance Sheets (unaudited) as of March 31, 2013 and December 31, 2012

 

5-6

 

 

 

 

 

Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2013 and 2012

 

7

 

 

 

 

 

Consolidated Statements of Stockholders’ Equity (unaudited) for the Year Ended December 31, 2012 and for the Three Months ended March 31, 2013

 

8

 

 

 

 

 

Condensed Notes to Consolidated Financial Statements (unaudited)

 

9-19

 

 

 

 

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

19-29

 

 

 

 

Item 3

Quantitative and Qualitative Disclosures About Market Risk

 

29

 

 

 

 

Item 4

Controls and Procedures

 

29-30

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 1

Legal Proceedings

 

30

 

 

 

 

Item 1A

Risk Factors

 

30

 

 

 

 

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

 

30

 

 

 

 

Item 3

Defaults Upon Senior Securities

 

30

 

 

 

 

Item 4

Mine Safety Disclosures

 

30

 

 

 

 

Item 5

Other Information

 

30

 

 

 

 

Item 6

Exhibits Listing

 

31

 

 

 

 

 

Signatures

 

32

 

 

 

 

 

Exhibits

 

33-39

2


Table of Contents


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

NEW ULM TELECOM, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

2013

 

2012

 

OPERATING REVENUES:

 

 

 

 

 

 

 

Local Service

 

$

1,685,713

 

$

1,472,008

 

Network Access

 

 

2,971,600

 

 

2,770,012

 

Video

 

 

1,731,457

 

 

1,438,854

 

Data

 

 

1,803,080

 

 

1,358,828

 

Long Distance

 

 

215,440

 

 

155,542

 

Other Non-Regulated

 

 

1,005,155

 

 

970,284

 

Total Operating Revenues

 

 

9,412,445

 

 

8,165,528

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

Plant Operations (Excluding Depreciation and Amortization)

 

 

1,881,383

 

 

1,688,693

 

Cost of Video

 

 

1,596,651

 

 

1,243,405

 

Cost of Data

 

 

249,275

 

 

295,404

 

Cost of Other Nonregulated Services

 

 

488,203

 

 

393,524

 

Depreciation and Amortization

 

 

2,210,500

 

 

2,017,419

 

Selling, General and Administrative

 

 

1,799,326

 

 

1,632,972

 

Total Operating Expenses

 

 

8,225,338

 

 

7,271,417

 

 

 

 

 

 

 

 

 

OPERATING INCOME

 

 

1,187,107

 

 

894,111

 

 

 

 

 

 

 

 

 

OTHER (EXPENSE) INCOME

 

 

 

 

 

 

 

Interest Expense

 

 

(571,150

)

 

(556,282

)

Interest Income

 

 

70,727

 

 

70,047

 

Interest During Construction

 

 

2,888

 

 

3,332

 

Equity in Earnings of Hector Investment

 

 

 

 

243,486

 

CoBank Patronage Dividends

 

 

521,796

 

 

449,878

 

Other Investment Income

 

 

40,625

 

 

42,532

 

Total Other Income (Expense)

 

 

64,886

 

 

252,993

 

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

 

1,251,993

 

 

1,147,104

 

 

 

 

 

 

 

 

 

INCOME TAXES

 

 

524,804

 

 

481,786

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

727,189

 

$

665,318

 

 

 

 

 

 

 

 

 

BASIC AND DILUTED

 

 

 

 

 

 

 

NET INCOME PER SHARE

 

$

0.14

 

$

0.13

 

 

 

 

 

 

 

 

 

DIVIDENDS PER SHARE

 

$

0.0825

 

$

0.0825

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES OUTSTANDING

 

 

5,103,918

 

 

5,115,435

 

The accompanying notes are an integral part of these consolidated financial statements.

3


Table of Contents


NEW ULM TELECOM, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended
March 31,

 

 

 

2013

 

2012

 

 

 

 

 

 

 

 

 

Net Income

 

$

727,189

 

$

665,318

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss):

 

 

 

 

 

 

 

Unrealized Loss of Equity Method Investee

 

 

 

 

(16,775

)

Unrealized Gains on Interest Rate Swaps

 

 

271,950

 

 

168,452

 

Income Tax Expense Related to Unrealized
Gains on Interest Rate Swaps

 

 

(110,058

)

 

(68,173

)

Other Comprehensive Income

 

 

161,892

 

 

83,504

 

 

 

 

 

 

 

 

 

Comprehensive Income

 

$

889,081

 

$

748,822

 

The accompanying notes are an integral part of these consolidated financial statements.

4


Table of Contents


NEW ULM TELECOM, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)

ASSETS

 

 

 

 

 

 

 

 

 

 

March 31,
2013

 

December 31,
2012

 

CURRENT ASSETS:

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

1,033,267

 

$

2,749,850

 

Receivables, Net of Allowance for Doubtful Accounts of $184,902 and $175,705

 

 

1,965,166

 

 

1,996,996

 

Income Taxes Receivable

 

 

 

 

201,270

 

Materials, Supplies, and Inventories

 

 

2,542,403

 

 

2,276,368

 

Deferred Income Taxes

 

 

794,340

 

 

795,375

 

Prepaid Expenses

 

 

660,257

 

 

610,265

 

Total Current Assets

 

 

6,995,433

 

 

8,630,124

 

 

 

 

 

 

 

 

 

INVESTMENTS & OTHER ASSETS:

 

 

 

 

 

 

 

Goodwill

 

 

39,975,906

 

 

39,975,906

 

Intangibles

 

 

27,991,385

 

 

28,609,193

 

Other Investments

 

 

6,721,848

 

 

6,491,513

 

Other Assets

 

 

67,794

 

 

77,478

 

Total Investments and Other Assets

 

 

74,756,933

 

 

75,154,090

 

 

 

 

 

 

 

 

 

PROPERTY, PLANT & EQUIPMENT:

 

 

 

 

 

 

 

Telecommunications Plant

 

 

106,149,677

 

 

105,707,925

 

Other Property & Equipment

 

 

10,370,041

 

 

10,221,493

 

Video Plant

 

 

9,384,504

 

 

9,361,510

 

Total Property, Plant and Equipment

 

 

125,904,222

 

 

125,290,928

 

Less Accumulated Depreciation

 

 

81,816,888

 

 

80,466,903

 

Net Property, Plant & Equipment

 

 

44,087,334

 

 

44,824,025

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

125,839,700

 

$

128,608,239

 

The accompanying notes are an integral part of these consolidated financial statements.

5


Table of Contents


NEW ULM TELECOM, INC.
CONSOLIDATED BALANCE SHEETS (continued)
(Unaudited)

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

March 31,
2013

 

December 31,
2012

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

Current Portion of Long-Term Debt

 

$

4,588,000

 

$

4,113,000

 

Accounts Payable

 

 

1,602,779

 

 

1,988,390

 

Accrued Income Taxes

 

 

162,644

 

 

 

Other Accrued Taxes

 

 

252,687

 

 

193,746

 

Financial Derivative Instruments

 

 

31,901

 

 

303,851

 

Deferred Compensation

 

 

64,571

 

 

67,614

 

Accrued Compensation

 

 

513,982

 

 

569,028

 

Other Accrued Liabilities

 

 

1,508,462

 

 

1,399,442

 

Total Current Liabilities

 

 

8,725,026

 

 

8,635,071

 

 

 

 

 

 

 

 

 

LONG-TERM DEBT, Less Current Portion

 

 

39,096,017

 

 

42,494,385

 

 

 

 

 

 

 

 

 

NONCURRENT LIABILITIES:

 

 

 

 

 

 

 

Loan Guarantees

 

 

296,468

 

 

303,627

 

Deferred Income Taxes

 

 

20,324,587

 

 

20,215,563

 

Unrecognized Tax Benefit

 

 

94,952

 

 

94,952

 

Other Accrued Liabilities

 

 

123,303

 

 

136,146

 

Deferred Compensation

 

 

980,715

 

 

997,869

 

Total Noncurrent Liabilities

 

 

21,820,025

 

 

21,748,157

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

Preferred Stock - $1.66 Par Value, 10,000,000 Shares Authorized, None Issued

 

 

 

 

 

Common Stock - $1.66 Par Value, 90,000,000 Shares Authorized, 5,103,918 Shares Issued and Outstanding

 

 

8,506,530

 

 

8,506,530

 

Accumulated Other Comprehensive Income (Loss)

 

 

(17,421

)

 

(179,313

)

Retained Earnings

 

 

47,709,523

 

 

47,403,409

 

Total Stockholders’ Equity

 

 

56,198,632

 

 

55,730,626

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

125,839,700

 

$

128,608,239

 

The accompanying notes are an integral part of these consolidated financial statements.

6


Table of Contents


NEW ULM TELECOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,
2013

 

March 31,
2012

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net Income

 

$

727,189

 

$

665,318

 

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

 

 

 

 

 

 

 

Depreciation and Amortization

 

 

2,220,184

 

 

2,027,103

 

Undistributed Earnings of Hector Investment

 

 

 

 

(243,486

)

Undistributed Earnings of Other Equity Investments

 

 

(40,025

)

 

(42,399

)

Noncash Patronage Refund

 

 

(130,449

)

 

(157,457

)

Distributions from Equity Investments

 

 

14,616

 

 

 

Stock Issued in Lieu of Cash Payment

 

 

21,000

 

 

 

Changes in Assets and Liabilities:

 

 

 

 

 

 

 

Receivables

 

 

31,830

 

 

930,904

 

Income Taxes Receivable

 

 

201,270

 

 

167,855

 

Inventories

 

 

(266,035

)

 

99,884

 

Prepaid Expenses

 

 

(70,992

)

 

(18,389

)

Accounts Payable

 

 

(119,253

)

 

(314,678

)

Accrued Income Taxes

 

 

162,644

 

 

74,363

 

Other Accrued Taxes

 

 

58,941

 

 

53,978

 

Other Accrued Liabilities

 

 

41,131

 

 

(219,199

)

Deferred Income Tax

 

 

 

 

109,568

 

Deferred Compensation

 

 

(20,197

)

 

(143,062

)

Net Cash Provided by Operating Activities

 

 

2,831,854

 

 

2,990,303

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Additions to Property, Plant, and Equipment, Net

 

 

(1,122,358

)

 

(1,106,784

)

Other, Net

 

 

(81,636

)

 

(42,000

)

Net Cash Used in Investing Activities

 

 

(1,203,994

)

 

(1,148,784

)

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Principal Payments of Long-Term Debt

 

 

(609,500

)

 

(870,383

)

Changes in Revolving Credit Facility

 

 

(2,313,868

)

 

(440,790

)

Dividends Paid

 

 

(421,075

)

 

(422,025

)

Net Cash Used in Financing Activities

 

 

(3,344,443

)

 

(1,733,198

)

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH

 

 

(1,716,583

)

 

108,321

 

 

 

 

 

 

 

 

 

CASH at Beginning of Period

 

 

2,749,850

 

 

1,221,717

 

 

 

 

 

 

 

 

 

CASH at End of Period

 

$

1,033,267

 

$

1,330,038

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

Cash paid for interest

 

$

553,637

 

$

545,210

 

Net cash paid for income taxes

 

$

160,000

 

$

130,000

 

The accompanying notes are an integral part of these consolidated financial statements.

7


Table of Contents


NEW ULM TELECOM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)

YEAR ENDED DECEMBER 31, 2012, AND
THREE MONTHS ENDED MARCH 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Common Stock

 

Accumulated
Other
Comprehensive
Income (Loss)

 

Retained
Earnings

 

Total
Equity

 

 

 

Shares

 

Amount

 

 

 

 

BALANCE on December 31, 2011

 

 

5,115,435

 

$

8,525,725

 

$

(814,234

)

$

45,972,430

 

$

53,683,921

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Director’s Stock Plan

 

 

17,083

 

 

28,472

 

 

 

 

 

72,328

 

 

100,800

 

Retirement of Stock from HCC Spin-Off

 

 

(28,600

)

 

(47,667

)

 

 

 

 

(123,934

)

 

(171,601

)

Net Income

 

 

 

 

 

 

 

 

 

 

 

3,174,914

 

 

3,174,914

 

Dividends

 

 

 

 

 

 

 

 

 

 

 

(1,692,329

)

 

(1,692,329

)

Other Comprehensive Income

 

 

 

 

 

 

 

 

634,921

 

 

 

 

 

634,921

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE on December 31, 2012

 

 

5,103,918

 

$

8,506,530

 

 

(179,313

)

 

47,403,409

 

 

55,730,626

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

727,189

 

 

727,189

 

Dividends

 

 

 

 

 

 

 

 

 

 

 

(421,075

)

 

(421,075

)

Other Comprehensive Income

 

 

 

 

 

 

 

 

161,892

 

 

 

 

 

161,892

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE on March 31, 2013

 

 

5,103,918

 

$

8,506,530

 

$

(17,421

)

$

47,709,523

 

$

56,198,632

 

The accompanying notes are an integral part of these consolidated financial statements.

8


Table of Contents


NEW ULM TELECOM, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2013 (Unaudited)

Note 1 – Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements of New Ulm Telecom, Inc. and its subsidiaries (NU Telecom) have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted or condensed pursuant to such rules and regulations. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal and recurring accruals) considered necessary for the fair presentation of the financial statements and present fairly the results of operations, financial position and cash flows for the interim periods presented as required by Regulation S-X, Rule 10-01. These unaudited interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2012.

The preparation of financial statements in conformity with GAAP 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. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the fiscal year as a whole or any other interim period.

Our consolidated financial statements report the financial condition and results of operations for NU Telecom and its subsidiaries in one business segment: the Telecom Segment. Inter-company transactions have been eliminated from the consolidated financial statements.

 

 

Revenue Recognition

 

We recognize revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery of the product has occurred or a service has been provided, (iii) the price is fixed or determinable and (iv) collectability is reasonably assured.

Revenues are earned from our customers primarily through the connection to our local network, digital and commercial television programming, and Internet services (both dial-up and high-speed broadband). Revenues for these services are billed based on set rates for monthly service or based on the amount of time the customer is utilizing our facilities. The revenue for these services is recognized when the service is rendered.

Revenues earned from interexchange carriers (IXC) accessing our network are based on the utilization of our network by these carriers as measured by minutes of use on the network by the individual carriers. Revenues are billed at tariffed access rates for both interstate and intrastate calls. Revenues for these services are recognized based on the period the access is provided.

9


Table of Contents


Interstate access rates are established by a nationwide pooling of companies known as the National Exchange Carriers Association (NECA). The Federal Communications Commission (FCC) established NECA in 1983 to develop and administer interstate access service rates, terms and conditions. Revenues are pooled and redistributed on the basis of a company’s actual or average costs. New Ulm Telecom’s and Sleepy Eye Telephone Company’s (SETC) settlements from the pools are based on its actual costs to provide service, while the settlements for NU Telecom subsidiaries – Western Telephone Company, Peoples Telephone Company and Hutchinson Telephone Company (HTC) are based on nationwide average schedules. Access revenues for New Ulm Telecom and SETC include an estimate of a cost study each year that is trued-up subsequent to the end of any given year. Our management believes the estimates included in our preliminary cost study are reasonable. We cannot predict the future impact that industry or regulatory changes will have on interstate access revenues.

Intrastate access rates are filed with state regulatory commissions in Minnesota and Iowa.

We derive revenues from system sales and services through the sale, installation and servicing of communication systems. In accordance with GAAP, these deliverables are accounted for separately. We recognize revenue from customer contracts for sales and installations using the completed-contract method, which recognizes income when the contract is substantially complete. We recognize rental revenues over the rental period.

 

 

Cost of Services (excluding depreciation and amortization)

 

Cost of services includes all costs related to delivery of communication services and products. These operating costs include all costs of performing services and providing related products including engineering, network monitoring and transport cost.


 

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses include direct and indirect selling expenses, customer service, billing and collections, advertising and all other general and administrative costs associated with the operations of the business.


 

 

Depreciation and Amortization Expense

 

We use the group life method (mass asset accounting) to depreciate the assets of our telephone companies. Telephone plant acquired in a given year is grouped into similar categories and depreciated over the remaining estimated useful life of the group. When an asset is retired, both the asset and the accumulated depreciation associated with that asset are removed from the books. Due to rapid changes in technology, selecting the estimated economic life of telecommunications plant and equipment requires a significant amount of judgment. We periodically review data on expected utilization of new equipment, asset retirement activity and net salvage values to determine adjustments to our depreciation rates. Depreciation expense was $1,592,692 and $1,498,231 for the three months ended March 31, 2013 and 2012. We amortize our definite-lived intangible assets over their estimated useful lives. Identifiable intangible assets that are subject to amortization are evaluated for impairment.


 

 

Income Taxes

 

The provision for income taxes consists of an amount for taxes currently payable and a provision for tax consequences deferred to future periods. Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax basis. Significant components of our deferred taxes arise from differences (i) in the basis of property, plant and equipment due to the use of accelerated depreciation methods for tax purposes, as well as (ii) in partnership investments and intangible assets due to the difference between book and tax basis. Our effective income tax rate is normally higher than the United States tax rate due to state income taxes and permanent differences.

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We account for income taxes in accordance with GAAP. As required by GAAP, we recognize the financial statement benefit of tax positions only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

As of March 31, 2013 we had $143,866 of unrecognized tax benefits net of a federal tax benefit of $48,914, which if recognized would affect the effective tax rate. Currently, the State of Minnesota is examining Hector Communications Corporation’s (HCC) 2006 state tax return. The examination of this return is expected to be completed in 2013. As of March 31, 2012 we had no unrecognized tax benefits that, if recognized, would affect the effective tax rate.

We are primarily subject to United States, Minnesota and Iowa income taxes. Tax years subsequent to 2008 remain open to examination by United States and state tax authorities. Our policy is to recognize interest and penalties related to income tax matters as income tax expense. As of March 31, 2013 and December 31, 2012 we had $19,136 of accrued interest that related to income tax matters.

Recent Accounting Developments

In February 2013, the Financial Accounting Standards Board issued ASU 2013-02 to improve the disclosure of reclassifications out of accumulated other comprehensive income. The Update requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. Also, an entity is required to present significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income (only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period) either on the face of the statement where net income is presented or in the notes. The adoption of this guidance did not have a material impact on our disclosures or consolidated financial statements.

We reviewed all significant recently issued accounting pronouncements and determined they are either not applicable to our business or that no material effect is expected on our financial position and results of operations.

Note 2 – Acquisitions and Dispositions

Hector Communications Corporation Spin-Off Agreement

On December 31, 2012 NU Telecom completed a spin-off agreement with HCC. NU Telecom had originally acquired a one-third interest in HCC on November 3, 2006. HCC was equally owned by NU Telecom, Blue Earth Valley Communications, Inc. and Arvig Enterprises, Inc. Under the spin-off agreement, NU Telecom received all of the stock of SETC and other assets and investments and incurred $3.3 million of additional debt.

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The preliminary allocation of the spin-off value of HCC is shown below:

 

 

 

 

 

Current assets

 

$

439,664

 

Property, plant and equipment

 

 

9,847,787

 

Investments

 

 

2,412,938

 

Customer relationship intangible

 

 

9,900,000

 

Trade name intangible

 

 

570,000

 

Excess costs over net assets acquired (Goodwill)

 

 

10,268,806

 

Current liablities

 

 

(300,621

)

Deferred liabilities

 

 

(7,675,522

)

Total price allocation

 

 

25,463,052

 

Less Cash Acquired

 

 

(18,150

)

 

 

 

 

 

Total Consideration For Acquisition, Net

 

$

25,444,902

 

This spin-off was accounted for using the acquisition method of accounting for business combinations, and accordingly, the acquired assets were recorded at estimated fair values as of the date of acquisition. Based upon our preliminary spin-off value allocation, the excess of the purchase price and acquisition costs over the fair value of the net identifiable tangible assets acquired was $20,738,806, which is not deductible for income tax purposes. The Company recorded an intangible asset related to the acquired company’s customer relationships of $9,900,000 and trade name intangible of $570,000. The estimated useful life of the customer relationship intangible is 14 years and trade name intangible is 5 years.

The preliminary valuation allocation is subject to change based on pending operational true-ups related to accounts receivable and accounts payable.

Pro Forma Financial Information

Under the spin-off agreement, NU Telecom received all of the stock of SETC and other assets and investments. The following pro forma results presented are for the first quarter of 2012 as if the spin-off had been completed on January 1, 2012. The Company provided this pro forma condensed Statement of Income to facilitate analysis of the 2012 first quarter Statement of Income.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED MARCH 31, 2012

 

 

 

Actual
New Ulm
Telecom, Inc.

 

Actual
Sleepy Eye
Telephone Co.

 

Pro Forma
Adjustments

 

New Ulm
Telecom, Inc.
Pro Forma
Combined

 

REVENUES

 

$

8,165,528

 

$

1,394,353

 

$

(89,860

)

$

9,470,021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

665,318

 

$

326,497

 

$

(369,445

) *

$

622,370

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC AND DILUTED NET INCOME PER SHARE

 

$

0.13

 

$

0.06

 

$

(0.07

)

$

0.12

 

* These adjustments include depreciation, amortization, management services, equity income and interest expense, net of the related tax benefit.

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The operating results for SETC are included in the March 31, 2013 operating results of NU Telecom, but are not included in the operating results of NU Telecom as of March 31, 2012.

Note 3 – Fair Value Measurements

We have adopted the rules prescribed under GAAP for our financial assets and liabilities. GAAP includes a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation techniques used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources, while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. The fair value hierarchy consists of the following three levels:

 

 

 

 

Level 1:

Inputs are quoted prices in active markets for identical assets or liabilities.

 

Level 2:

Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable, and market-corroborated inputs that are derived principally from or corroborated by observable market data.

 

Level 3:

Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

We use financial derivative instruments to manage our overall cash flow exposure to fluctuations in interest rates. We account for derivative instruments in accordance with GAAP that requires derivative instruments to be recorded on the balance sheet at fair value. Changes in fair value of derivative instruments must be recognized in earnings unless specific hedge accounting criteria are met, in which case, the gains and losses are included in other comprehensive income rather than in earnings.

We have entered into interest rate swaps with our lender, CoBank, ACB, to manage our cash flow exposure to fluctuations in interest rates. These instruments were designated as cash flow hedges and were effective at mitigating the risk of fluctuations on interest rates in the market place. Any gains or losses related to changes in the fair value of these derivatives are accounted for as a component of accumulated other comprehensive income (loss) for as long as the hedge remains effective.

The fair value of our interest rate swap agreements is discussed in Note 6 – “Interest Rate Swaps”. The fair value of our swap agreements were determined based on Level 2 inputs.

Other Financial Instruments

Other Investments - It is difficult to estimate a fair value for equity investments in companies carried on the equity or cost basis due to a lack of quoted market prices. We conducted an evaluation of our investments in all of our companies in connection with the preparation of our audited financial statements at December 31, 2012. We believe the carrying value of our investments is not impaired.

Debt – We estimate the fair value of our long-term debt based on the discounted future cash flows we expect to pay using current rates of borrowing for similar types of debt. Fair value of the debt approximates carrying value.

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Other Financial Instruments - Our financial instruments also include cash equivalents, trade accounts receivable and accounts payable where the current carrying amounts approximate fair market value.

Note 4 – Goodwill and Intangibles

We account for goodwill and other intangible assets under GAAP. Under GAAP, goodwill and intangible assets with indefinite useful lives are not amortized, but are instead tested for impairment (i) on at least an annual basis and (ii) when changes in circumstances indicate that the fair value of goodwill may be below its carrying value. Our goodwill totaled $39,975,906 at March 31, 2013 and December 31, 2012.

As required by GAAP, we do not amortize goodwill and other intangible assets with indefinite lives, but test for impairment on an annual basis or earlier if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying amount. These circumstances include, but are not limited to (i) a significant adverse change in the business climate, (ii) unanticipated competition or (iii) an adverse action or assessment by a regulator. Determining impairment involves estimating the fair value of a reporting unit using a combination of (i) the income or discounted cash flows approach and (ii) the market approach that utilizes comparable companies’ data. If the carrying amount of a reporting unit exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss is calculated by comparing the implied fair value of the reporting unit’s goodwill to its carrying amount. In calculating the implied fair value of the reporting unit’s goodwill, the fair value of the reporting unit is allocated to all of the assets and liabilities of the reporting unit. The excess of the fair value of a reporting unit over the amount assigned to its other assets and liabilities is the implied value of goodwill. We recognize impairment loss when the carrying amount of goodwill exceeds its implied fair value.

In 2012 and 2011, we engaged an independent valuation firm to complete our annual impairment testing for goodwill. For 2012 and 2011, the testing resulted in no impairment charge to goodwill as the determined fair value was sufficient to pass the first step of the impairment test.

Our intangible assets subject to amortization consist of acquired customer relationships, regulatory rights and a noncompetition agreement. As of December 31, 2009, our management determined that our trade name intangible was no longer an indefinite-lived intangible asset due to the rebranding of HTC’s products and services. Our management anticipated that this rebranding process would take approximately three years to complete and would result in additional amortization expense of $266,667 per year, over the three years which began in 2010 and ended in 2012, due to this rebranding process.

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We amortize intangible assets with finite lives over their respective estimated useful lives. Identifiable intangible assets that are subject to amortization are evaluated for impairment. In addition, we periodically reassess the carrying value, useful lives and classifications of our identifiable intangible assets. The components of our identified intangible assets are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2013

 

December 31, 2012

 

 

 

Useful
Lives

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Definite-Lived Intangible Assets

 

 

 

 

 

Customers Relationships

14-15 yrs

$

29,278,445

$

7,428,571

$

29,278,445

$

6,905,929

Regulatory Rights

15 yrs

4,000,000

1,399,989

4,000,000

1,333,323

Non-Competition Agreement

5 yrs

800,000

800,000

800,000

800,000

Trade Name

3-5 yrs

1,370,000

828,500

1,370,000

800,000

Indefinitely-Lived Intangible Assets

 

 

 

 

 

Video Franchise

 

3,000,000

3,000,000

Total

 

$

38,448,445

$

10,457,060

$

38,448,445

$

9,839,252

 

 

 

 

 

 

Net Identified Intangible Assets

 

 

$

27,991,385

 

$

28,609,193

Amortization expense related to the definite-lived intangible assets was $617,808 and $519,188 for the three months ended March 31, 2013 and 2012.

Amortization expense for the remaining nine months of 2013 and the five years subsequent to 2013 is estimated to be:

 

 

 

 

(April 1 – December 31) - $1,853,425

 

2014 - $2,471,233

 

2015 - $2,471,233

 

2016 - $2,469,256

 

2017 - $2,469,083

 

2018 - $2,355,083

Note 5 – Secured Credit Facility

We have a credit facility with CoBank, ACB. Under the credit facility, we entered into separate Master Loan Agreements (MLAs) and a series of supplements to the respective MLAs.

NU Telecom and its respective subsidiaries also have entered into security agreements under which substantially all of the assets of NU Telecom and its respective subsidiaries have been pledged to CoBank, ACB as collateral. In addition, NU Telecom and its respective subsidiaries have guaranteed all obligations under the credit facility.

Our loan agreements include restrictions on our ability to pay cash dividends to our stockholders. However, we are allowed to pay dividends (a) (i) in an amount up to $2,050,000 in any year and (ii) in any amount if our “Total Leverage Ratio”, that is, the ratio of our “Indebtedness” to “EBITDA” (in each case as defined in the loan documents) is equal to or less than 3:50 to 1:00, and (b) in either case if we are not in default or potential default under our loan agreements. As of September 30, 2012, our Total Leverage Ratio fell below the 3:50 to 1:00 ratio, thus eliminating any restrictions on our ability to pay cash dividends to our stockholders.

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At March 31, 2013 and 2012, we were in compliance with all the stipulated financial ratios in our loan agreements.

As described in Note 6 – “Interest Rate Swaps”, we have entered into interest rate swaps that effectively fix our interest rates and cover $3.0 million at a weighted average rate of 6.54%, as of March 31, 2013. The additional debt of $46.8 million ($6.1 million available under the revolving credit facilities and $40.7 million currently outstanding) remains subject to variable interest rates at an effective weighted average interest rate of 2.42%, as of March 31, 2013.

Note 6 – Interest Rate Swaps

We assess interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely affect expected future cash flows and by evaluating hedging opportunities.

We generally use variable-rate debt to finance our operations, capital expenditures and acquisitions. These variable-rate debt obligations expose us to variability in interest payments due to changes in interest rates. The terms of our credit facilities with CoBank, ACB require that we enter into interest rate agreements designed to protect us against fluctuations in interest rates, in an aggregate principal amount and for a duration determined under the credit facility.

To meet this objective, we entered into Interest Rate Swap Agreements with CoBank, ACB. Under these Interest Rate Swap Agreements and subsequent swaps that each covers a specified notional dollar amount, we have changed the variable-rate cash flow exposure on the debt obligations to fixed cash flows. Under the terms of these interest rate swaps, we pay a fixed contractual interest rate and (i) make an additional payment if the LIBOR variable rate payment is below a contractual rate or (ii) receive a payment if the LIBOR variable rate payment is above the contractual rate.

Each month, we make interest payments to CoBank, ACB under its loan agreements based on the current applicable LIBOR Rate, plus the contractual LIBOR margin then in effect with respect to each applicable loan, without reflecting any interest rate swaps. At the end of each calendar quarter, CoBank, ACB adjusts our aggregate interest payments based upon the difference, if any, between the amounts paid by us during the quarter and the current effective interest rate set forth in the table below. All net interest payments made by us are reported in our consolidated income statement as interest expense.

Pursuant to these interest rate swap agreements, we entered into interest rate swaps covering (i) $39.0 million of our aggregate indebtedness to CoBank, ACB effective March 19, 2008 and (ii) an additional $6.0 million of our aggregate indebtedness to CoBank, ACB effective June 23, 2008. These swaps effectively locked in the interest rate on (i) $6.0 million of variable-rate debt through March 2011, (ii) $33.0 million of variable-rate debt through March 2013, (iii) $3.0 million of variable-rate debt through June 2011 and (iv) $3.0 million of variable-rate debt through June 2013.

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On March 31, 2013, $33,000,000 of our swaps matured on Loan RX0583-T1 ($11,250,000) and Loan RX0584-T1 ($21,750,000). No gain or loss was recognized on these swaps as they had reached their full maturities.

As of March 31, 2013 we had the following interest rate swaps in effect.

 

 

 

 

 

 

 

 

Loan #

 

Maturity Date

 

Notional Amount

 

Current Effective Interest Rate (1)

 

 

 

 

 

 

 

 

RX0583-T2

 

06/30/2013

 

$

3,000,000

 

6.54% (LIBOR Rate of 4.54% plus
2.00% LIBOR Margin)

(1) As described in Note 5 – “Secured Credit Facility”, the note initially bears interest at a LIBOR rate determined by the maturity of the note, plus a “LIBOR Margin” rate equal to 2.00% according to the individual secured credit facility. The LIBOR Margin decreases as the borrower’s “Leverage Ratio” decreases. The “Current Effective Interest Rate” in the table reflects the rate we pay giving effect to the swaps.

The interest rate swap qualifies as a cash flow hedge for accounting purposes under GAAP. We have reflected the effect of this hedging transaction in our financial statements. The unrealized gains were reported in other comprehensive income. If we were to terminate our interest rate swap agreement, the cumulative change in fair value at the date of termination would be reclassified from accumulated other comprehensive income, which is classified in stockholders’ equity, into earnings on the consolidated statements of income.

The fair value of the Company’s interest rate swap agreement is determined based on valuations received from CoBank, ACB and are based on the present value of expected future cash flows using discount rates appropriate with the terms of the swap agreements. The fair value indicates an estimated amount we would have to pay if the contracts were canceled or transferred to other parties.

Note 7 – Other Investments

We are a co-investor with other rural telephone companies in several partnerships and limited liability companies. These joint ventures make it possible to offer services to customers, including digital video services and fiber optic transport services that we would have difficulty offering on our own. These joint ventures also make it possible to invest in new technologies with a lower level of financial risk. We recognize income and losses from these investments on the equity method of accounting. For a listing of our investments, see Note 10 – “Segment Information”.

Note 8 – Guarantees

On September 30, 2011, FiberComm, LC refinanced two existing loans with American State Bank with a new ten-year loan, maturing on September 30, 2021. As of March 31, 2013, we have recorded a liability of $296,468 in connection with the guarantee on this new loan. This guarantee may be exercised if FiberComm, LC does not make its required payments on this note.

Note 9 – Deferred Compensation

As of March 31, 2013 and 2012, we have recorded other deferred compensation relating to executive compensation payable to certain former executives of past acquisitions.

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Note 10 – Segment Information

We operate in the Telecom Segment and have no other significant business segments. The Telecom Segment consists of voice, data and video communication services delivered to the customer over our local communications network. No single customer accounted for a material portion of our consolidated revenues.

The Telecom Segment operates the following incumbent local exchange carriers (ILECs) and competitive local exchange carriers (CLECs) and has investment ownership interests as follows:

Telecom Segment

 

 

 

 

 

ILECs:

 

 

NU Telecom, the parent company;

 

 

Hutchinson Telephone Company, a wholly-owned subsidiary of NU Telecom;

 

 

Peoples Telephone Company, a wholly-owned subsidiary of NU Telecom;

 

 

Sleepy Eye Telephone Company, a wholly-owned subsidiary of NU Telecom; and

 

 

Western Telephone Company, a wholly-owned subsidiary of NU Telecom;

 

CLECs:

 

 

NU Telecom, located in Redwood Falls, Minnesota; and

 

 

Hutchinson Telecommunications, Inc., a wholly-owned subsidiary of HTC, located in Litchfield, Minnesota;

 

Our investments and interests in the following entities include some management responsibilities:

 

 

FiberComm, LC – 18.27% subsidiary equity ownership interest. FiberComm, LC is located in Sioux City, Iowa;

 

 

Broadband Visions, LLC – 24.39% subsidiary equity ownership interest. Broadband Visions, LLC provides video headend and Internet services; and

 

 

Independent Emergency Services, LLC – 14.29% subsidiary equity ownership interest. Independent Emergency Services, LLC is a provider of E-911 services to the State of Minnesota as well as a number of counties located in Minnesota.

Note 11 – Commitments and Contingencies

We are involved in certain contractual disputes in the ordinary course of business. We do not believe the ultimate resolution of any of these existing matters will have a material adverse effect on our financial position, results of operations or cash flows. We did not experience any changes to material contractual obligations in the first three months of 2013. Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 for the discussion relating to commitments and contingencies.

Note 12 – Hector Communications Corporation

On November 3, 2006 we acquired a one-third interest in HCC. HCC was equally owned by NU Telecom, Blue Earth Valley Communications, Inc. and Arvig Enterprises, Inc. Each of the owners provided management and other operational services to HCC and its subsidiaries.

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On December 31, 2012 NU Telecom completed a spin-off agreement with HCC. NU Telecom had originally acquired a one-third interest in HCC on November 3, 2006. Under the spin-off agreement, NU Telecom received all of the stock of SETC and other assets and investments and incurred $3.3 million of additional debt.

Our President and Chief Executive Officer, Mr. Bill D. Otis, had been named Chairman of the Board of Directors and President of HCC. Ms. Barbara A.J. Bornhoft, our Vice-President and Chief Operating Officer, also served on the Board of Directors of HCC.

HCC had operating revenues of $6,606,950, operating income of $1,238,067 and net income of $730,459 for the period ended March 31, 2012.

Note 13 – Subsequent Events

On April 30, 2013, NU Telecom’s Board of Directors declared a quarterly dividend on our common stock of $0.0850 per share (which was an increase of $0.0025 per share from prior quarters), payable on June 14, 2013 to stockholders of record at the close of business on May 10, 2013.

We have evaluated and disclosed subsequent events through the filing date of this Quarterly Report on Form 10-Q.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

The Private Securities Litigation Reform Act of 1995 contains certain safe harbor provisions regarding forward-looking statements. This Quarterly Report on Form 10-Q may include forward-looking statements. These statements may include, without limitation, statements with respect to anticipated future operating and financial performance, growth opportunities and growth rates, acquisition and divestiture opportunities, business strategies, business and competitive outlook, and other similar forecasts and statements of expectation. Words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “targets”, “projects”, “will”, “may”, “continues”, and “should”, and variations of these words and similar expressions, are intended to identify these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from such statements.

Because of these risks, uncertainties and assumptions and the fact that any forward-looking statements made by us and our management are based on estimates, projections, beliefs and assumptions of management, they are not guarantees of future performance and you should not place undue reliance on them. In addition, forward-looking statements speak only as of the date they are made, which is the filing date of this Form 10-Q. With the exception of the requirements set forth in the federal securities laws or the rules and regulations of the SEC, we do not undertake any obligation to update or review any forward-looking information, whether as a result of new information, future events or otherwise.

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Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations stated in this Form 10-Q, are based upon NU Telecom’s consolidated unaudited financial statements that have been prepared in accordance with GAAP and, where applicable, conform to the accounting principles as prescribed by federal and state telephone utility regulatory authorities. We presently give accounting recognition to the actions of regulators where appropriate. The preparation of our financial statements requires our management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and liabilities. Our senior management has discussed the development and selection of accounting estimates and the related Management Discussion and Analysis disclosure with our Audit Committee. For a summary of our significant accounting policies, see Note 1 – “Summary of Significant Accounting Policies” to the Consolidated Financial Statements contained in our Annual Report on Form 10-K for the year ended December 31, 2012, which is incorporated herein by reference.

Results of Operations

Overview

NU Telecom offers a diverse array of communications products and services. Our ILEC and CLEC businesses provide local telephone service and network access to other telecommunications carriers for calls originated or terminated on our network. In addition, we provide long distance service, dial-up and broadband Internet access, and video services. On December 31, 2012 NU Telecom completed a spin-off agreement with HCC, continuing the expansion of our service area into the Minnesota communities and surrounding areas of Bellechester, Goodhue, Hanska, Mazzepa, Sleepy Eye and White Rock. We also sell and service other communications products.

Our operations consist primarily of providing services to customers for a monthly charge. Because many of these services are recurring in nature, backlog orders and seasonality are not significant factors. Our working capital requirements include financing the construction of our networks, which consists of switches and cable, data, Internet protocol (IP) and digital TV. We also need capital to maintain our networks and infrastructure; fund the payroll costs of our highly skilled labor force; maintain inventory to service capital projects, our network and our telephone equipment customers; and to provide for the carrying value of trade accounts receivable, some of which may take several months to collect in the normal course of business.

Executive Summary

 

 

 

 

On December 31, 2012 NU Telecom completed a spin-off agreement with HCC. NU Telecom had originally acquired a one-third interest in HCC on November 3, 2006. HCC was equally owned by NU Telecom, Blue Earth Valley Communications, Inc. and Arvig Enterprises, Inc. Under the spin-off agreement, NU Telecom received all of the stock of SETC and other assets and investments of HCC and incurred $3.3 million of additional debt to finance the spin-off. Additional information pertaining to this acquisition is available in Note 2 – “Acquisitions and Dispositions.”

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Net income in the first quarter of 2013 totaled $727,189, which is a 9.30% increase compared to the first quarter of 2012. This increase was primarily due to the addition of the operating results of SETC, which we acquired through the HCC spin-off.

 

 

 

 

Consolidated revenue for the first quarter of 2013 totaled $9,412,445, which is a 15.27% increase compared to the first quarter of 2012. This increase was primarily due to the addition of the operating results of SETC, which we acquired through the HCC spin-off.

 

 

 

 

The HCC spin-off added approximately 4,700 access lines, 1,100 video customers, 2,900 broadband customers, 100 dial-up internet customers and 2,400 long distance customers to our customer base as of December 31, 2012.

Trends

Included below is a synopsis of trends management believes will continue to affect our business in 2013. 

Voice and switched access revenues are expected to continue to be adversely impacted by future declines in access lines due to competition in the telecommunications industry from cable television providers (CATV), Voice over Internet Protocol (VoIP) providers, wireless, other competitors and emerging technologies. As we experience access line losses, our switched access revenue will continue to decline consistent with industry-wide trends. A combination of changing minutes of use, carriers optimizing their network costs and lower demand for dedicated lines may affect our future voice and switched access revenues. Voice and switched access revenues may also be significantly affected by potential changes in rate regulation at the state and federal levels. We continue to monitor regulatory changes as we believe that rate regulation will continue to be scrutinized and may be subject to change. Access lines increased 3,532 or 13.4% for the twelve months ended March 31, 2013 due to the addition of SETC.

Growth in broadband customer sales along with continued migration to higher connectivity speeds and the sales of Internet value-added services such as on-line data backup are expected to continue to offset some of the revenue declines from the unfavorable access line trends discussed above.

To combat competitive pressures, we continue to emphasize the bundling of our products and services. Our customers can bundle local phone, high-speed Internet, long distance and video services. These bundles provide our customers with one convenient location to obtain all of their communications and entertainment needs, a convenient billing solution and bundle discounts. We believe that product bundles positively impact our customer retention, and the associated discounts provide our customers the best value for their communications and entertainment needs. We have built a state-of-the-art broadband network, which, along with the bundling of our voice, Internet and video services allows us to meet customer demands for products and services. We continue to focus on the research and deployment of advanced technological products that include broadband services, private line, VoIP, digital video, Internet Protocol Television and managed services.

We continue to evaluate our operating structure to identify opportunities for increased operational efficiencies and effectiveness. Among other things, this involves evaluating opportunities for task automation, network efficiency and the balancing of our workforce based on the current needs of our customers.

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In November, 2011 the FCC released proposed rulemaking which comprehensively reforms and begins a new era in universal service and intercarrier compensation. This reform order impacts numerous support mechanisms and network access revenue streams that we have received in the past. While these rules may be altered based on ongoing petitions for reconsideration and are being challenged through appeals, we are evaluating them. We cannot predict the entire impact these regulatory changes will have on our revenue and costs, but do believe it will increase the historical decline in revenue and profitability of our company.

Financial results for the Telecom Segment are included below:

Telecom Segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

 

 

 

 

 

 

2013

 

2012

 

 

Increase (Decrease)

 

Operating Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Local Service

 

$

1,685,713

 

$

1,472,008

 

$

213,705

 

 

14.52

%

Network Access

 

 

2,971,600

 

 

2,770,012

 

 

201,588

 

 

7.28

%

Video

 

 

1,731,457

 

 

1,438,854

 

 

292,603

 

 

20.34

%

Data

 

 

1,803,080

 

 

1,358,828

 

 

444,252

 

 

32.69

%

Long Distance

 

 

215,440

 

 

155,542

 

 

59,898

 

 

38.51

%

Other

 

 

1,005,155

 

 

970,284

 

 

34,871

 

 

3.59

%

Total Operating Revenues

 

 

9,412,445

 

 

8,165,528

 

 

1,246,917

 

 

15.27

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of Services, Excluding Depreciation and Amortization

 

 

4,215,512

 

 

3,621,026

 

 

594,486

 

 

16.42

%

Selling, General and Administrative

 

 

1,799,326

 

 

1,632,972

 

 

166,354

 

 

10.19

%

Depreciation and Amortization Expenses

 

 

2,210,500

 

 

2,017,419

 

 

193,081

 

 

9.57

%

Total Operating Expenses

 

 

8,225,338

 

 

7,271,417

 

 

953,921

 

 

13.12

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Income

 

$

1,187,107

 

$

894,111

 

$

292,996

 

 

32.77

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

727,189

 

$

665,318

 

$

61,871

 

 

9.30

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Expenditures

 

$

1,122,358

 

$

1,106,784

 

$

15,574

 

 

1.41

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Key metrics

 

 

 

 

 

 

 

 

 

 

 

 

 

Access Lines

 

 

29,860

 

 

26,328

 

 

3,532

 

 

13.42

%

Video Customers

 

 

11,098

 

 

10,235

 

 

863

 

 

8.43

%

Broadband Customers

 

 

13,774

 

 

10,620

 

 

3,154

 

 

29.70

%

Dial Up Internet Customers

 

 

423

 

 

539

 

 

(116

)

 

-21.52

%

Long Distance Customers

 

 

15,215

 

 

13,426

 

 

1,789

 

 

13.32

%

Revenue

Local Service – We receive recurring revenue for basic local services that enable end-user customers to make and receive telephone calls within a defined local calling area for a flat monthly fee. In addition to subscribing to basic local telephone services, our customers may choose from a variety of custom calling features such as call waiting, call forwarding, caller identification and voicemail. Local service revenue was $1,685,713, which is $213,705 or 14.52% higher in the three months ended March 31, 2013 compared to the three months ended March 31, 2012. The increase was primarily due to the addition of access lines and revenues associated with the HCC spin-off on December 31, 2012. Our access lines are decreasing as customers are increasingly utilizing other technologies, such as wireless phones and IP services, as well as customers eliminating second phone lines when they move their Internet service from a dial-up platform to a broadband platform. The number of access lines we serve as an ILEC and CLEC have been decreasing, which is consistent with a general industry trend. To help offset declines in local service revenue, we implemented an overall strategy that continues to focus on selling a competitive bundle of services. Our focus on marketing competitive service bundles to our customers helps create value for the customer and aids in the retention of our voice lines. 

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Network Access – We provide access services to other telecommunications carriers for the use of our facilities to terminate or originate long distance calls on our network. Additionally, we bill subscriber line charges (SLCs) to substantially all of our end-user customers for access to the public switched network. These monthly SLCs are regulated and approved by the FCC. In addition, network access revenue is derived from several federally administered pooling arrangements designed to provide network support and distribute funding to the ILECs. Network access revenue was $2,971,600, which is $201,588 or 7.28% higher in the three months ended March 31, 2013 compared to the three months ended March 31, 2012. This increase was primarily due to additional revenues associated with the HCC spin-off on December 31, 2012, offset by lower minutes of use and the implementation of the Intercarrier Compensation and Universal Service Fund reform order as it relates to state access pricing levels that took effect on July 3, 2012.

Video – We provide a variety of enhanced data network services on a monthly recurring basis to our end-user customers. This includes the broadband access portion of traditional Telecom broadband service. We also receive monthly recurring revenue from our end-user subscribers for providing commercial TV programming in competition with local CATV, satellite dish TV and off-air TV service providers. We serve seventeen communities with our digital TV services and five communities with our CATV services. Video revenue was $1,731,457, which is $292,603 or 20.34% higher in the three months ended March 31, 2013 compared to the three months ended March 31, 2012. This increase was primarily due to the addition of video customers and revenues associated with the HCC spin-off on December 31, 2012. A combination of rate increases introduced into several of our markets over the course of 2012 also contributed to the increase in revenues.

Data – We provide Internet services, including dial-up and high speed Internet to business and residential customers. Our revenue is received in various flat rate packages based on the level of service, data speeds and features. We also provide e-mail and managed services, such as web hosting and design, on-line file back up and on-line file storage. Data revenue was $1,803,080, which is $444,252 or 32.69% higher in the three months ended March 31, 2013 compared to the three months ended March 31, 2012. This increase was primarily due to the addition of data customers and revenues associated with the HCC spin-off on December 31, 2012. We expect future growth in this area will be driven by customer migration from dial-up Internet to broadband products, such as our broadband services, expansion of service areas and our aggressively packaging and selling service bundles.

Long Distance – Our end-user customers are billed for toll or long-distance services on either a per call or flat-rate basis. This also includes the offering of directory assistance, operator service and long distance private lines. Long distance revenue was $215,440, which is $59,898 or 38.51% higher in the three months ended March 31, 2013 compared to the three months ended March 31, 2012. This increase was primarily due to the addition of long distance customers and revenues associated with the HCC spin-off on December 31, 2012.

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Other Revenue – We generate revenue from directory publishing, sales and service of customer premise equipment (CPE), bill processing and add/move/change services. Our directory publishing revenue for Yellow Page advertising in our telephone directories recurs monthly. We also provide the retail sales and service of cellular phones and accessories through Telespire, a national wireless provider. We resell these wireless services as TechTrends Wireless, our branded product. We receive both recurring revenue for the wireless product, as well as revenue collected for the sale of wireless phones and accessories. Other revenue was $1,005,155, which is $34,871 or 3.59% higher in the three months ended March 31, 2013 compared to the three months ended March 31, 2012. This increase was primarily due to additional revenues associated with the HCC spin-off on December 31, 2012 and increases in the sales of cellular phone and activation revenues, partially offset by a decrease in the sales of CPE.

Cost of Services (excluding Depreciation and Amortization)

Cost of services (excluding depreciation and amortization) was $4,215,512, which is $594,486 or 16.42% higher in the three months ended March 31, 2013 compared to the three months ended March 31, 2012. The increase was primarily due to higher expenses associated with the HCC spin-off on December 31, 2012, higher programming cost from video content providers and higher costs associated with increased maintenance and support agreements on our equipment and software.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $1,799,326, which is $166,354 or 10.19% higher in the three months ended March 31, 2013 compared to the three months ended March 31, 2012. The increase was primarily due to higher expenses and one-time costs associated with the HCC spin-off on December 31, 2012.

Depreciation and Amortization

Depreciation and amortization was $2,210,500, which is $193,081 or 9.57% higher in the three months ended March 31, 2013 compared to the three months ended March 31, 2012. This increase was primarily due to tangible and intangible asset additions received in the HCC spin-off and other increases in our plant and broadband network. The spin-off was accounted for using the acquisition method of accounting for business combinations, and accordingly, based upon our preliminary spin-off price allocation, the acquired assets were recorded at estimated fair values as of the date of acquisition. Details of the fair value recorded on the tangible and intangible assets acquired in the HCC spin-off are included in Note 2 – “Acquisitions and Dispositions”.

Operating Income

Operating income was $1,187,107, which is $292,996 or 32.77% higher in the three months ended March 31, 2013 compared to the three months ended March 31, 2012. This increase was primarily due to an increase in revenues, offset by an increase in expenses resulting from the acquisition of one-third of the net assets of HCC on December 31, 2012.

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See Consolidated Statements of Income on Page 3 (for discussion below)

Other Income and Interest Expense

Interest expense was $571,150, which is $14,868 or 2.7% higher in the three months ended March 31, 2013 compared to the three months ended March 31, 2012. This increase was primarily due to higher outstanding debt balances due to the additional debt incurred in connection with the HCC spin-off.

Interest income was $70,727, which is $680 or 1.0% higher in the three months ended March 31, 2013 compared to the three months ended March 31, 2012.

Our equity portion of HCC’s net income was $243,486 for the three months ended March 31, 2012. On December 31, 2012 NU Telecom completed a spin-off agreement with HCC. NU Telecom had originally acquired a one-third interest in HCC on November 3, 2006. Under the spin-off agreement, NU Telecom received all of the stock of SETC and other assets and investments and incurred $3.3 million of additional debt. The operating results of SETC for the first quarter of 2013 are included in the operating results of NU Telecom.

Other income for the three months ended March 31, 2013 and 2012, included a patronage credit earned with CoBank, ACB as a result of our debt agreements with them. The patronage credit allocated and received in 2013 was $521,796, compared to $449,878 allocated and received in 2012. CoBank, ACB determines and pays the patronage credit annually, generally in the first quarter of the year, based on its results from the prior year. We record these patronage credits as income when they are received.

Other investment income was $40,625, which is $1,907 or 4.5% lower in the three months ended March 31, 2013 compared to the three months ended March 31, 2012. Other investment income is primarily from our equity ownership in several partnerships and limited liability companies.

Income Taxes

Income tax expense was $524,804, which is $43,018 or 8.9% higher in the three months ended March 31, 2013 compared to the three months ended March 31, 2012. The effective income tax rates for the three months ending March 31, 2013 and 2012 were approximately 41.9% and 42.0%. The effective income tax rate differs from the federal statutory income tax rate primarily due to state income taxes and other permanent differences.

Liquidity and Capital Resources

Capital Structure

NU Telecom’s total capital structure (long-term and short-term debt obligations, plus stockholders’ equity) was $99,882,649 at March 31, 2013, reflecting 56.3% equity and 43.7% debt. This compares to a capital structure of $102,338,011 at December 31, 2012, reflecting 54.5% equity and 45.5% debt. In the telecommunications industry, debt financing is most often based on operating cash flows. Specifically, our current use of our credit facilities is in a ratio of approximately 2.94 times debt to EBITDA (earnings before interest, taxes, depreciation and amortization) as defined in our credit agreements, well within acceptable limits for our agreements and our industry. Our management believes adequate operating cash flows and other internal and external resources, such as our cash on hand and revolving credit facility, are available to finance ongoing operating requirements, including capital expenditures, business development, debt service and temporary financing of trade accounts receivable.

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Table of Contents


Liquidity Outlook

Our short-term and long-term liquidity needs arise primarily from (i) capital expenditures; (ii) working capital requirements needed to support the growth of our business; (iii) debt service; (iv) dividend payments on our common stock and (v) potential acquisitions.

Our primary sources of liquidity for the three months ended March 31, 2013 were proceeds from cash generated from operations and cash reserves held at the beginning of the period. At March 31, 2013 we had a working capital deficit of $1,729,593. However, at March 31, 2013 we also had approximately $6.1 million available under our revolving credit facility to fund any short-term working capital needs.

Cash Flows

We expect our liquidity needs to include capital expenditures, payment of interest and principal on our indebtedness, income taxes and dividends. We use our cash inflow to manage the temporary increases in cash demand and utilize our revolving credit facility to manage more significant fluctuations in liquidity caused by growth initiatives.

While it is often difficult for us to predict the impact of general economic conditions on our business, we believe that we will be able to meet our current and long-term cash requirements primarily through our operating cash flows. We were in full compliance with our debt covenants as of March 31, 2013, and anticipate that we will be able to plan for and match future liquidity needs with future internal and available external resources.

We periodically seek to add growth initiatives by either expanding our network or our markets through organic or internal investments or through strategic acquisitions. We feel that we can adjust the timing or the number of our initiatives according to any limitations which may be imposed by our capital structure or sources of financing. At this time, we do not anticipate our capital structure will limit our growth initiatives over the next twelve months.

The following table summarizes our cash flow:

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

 

 

 

2013

 

 

2012

 

Net cash provided by (used in):

 

 

 

 

 

 

 

Operating activities

 

$

2,831,854

 

$

2,990,303

 

Investing activities

 

 

(1,203,994

)

 

(1,148,784

)

Financing activities

 

 

(3,344,443

)

 

(1,733,198

)

Increase (Decrease) in cash

 

$

(1,716,583

)

$

108,321

 

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Table of Contents


Cash Flows from Operating Activities

Cash generated by operations for the three months ended March 31, 2013 was $2,831,854, compared to cash generated by operations of $2,990,303 in 2012. The decrease in cash from operating activities in 2013 was primarily due to an increase in inventories and decrease in accounts payable.

Cash generated by operations continues to be our primary source of funding for existing operations, capital expenditures, debt service and dividend payments to stockholders. Cash at March 31, 2013 was $1,033,267, compared to $2,749,850 at December 31, 2012.

Cash Flows Used in Investing Activities

We operate in a capital intensive business. We continue to upgrade our local networks for changes in technology in order to provide advanced services to our customers.

Cash used in investing activities was $1,203,994 in the first three months of 2013 compared to $1,148,784 in the first three months of 2012. Capital expenditures relating to on-going operations were $1,122,358 for the three months ended March 31, 2013, compared to $1,106,784 for the three months ended March 31, 2012. We expect total plant additions to be approximately $6.0 million in 2013. Our investing expenditures have been financed with cash flows from our current operations and advances on our line of credit. We believe that our current operations will provide adequate cash flows to fund our plant additions for the remainder of this year; however, funding from our revolving credit facility is available if the timing of our cash flows from operations does not match our cash flow requirements. We currently have approximately $6.1 million available under our existing credit facility to fund capital expenditures and other operating needs.

Cash Flows Used in Financing Activities

Cash used in financing activities for the three months ended March 31, 2013 was $3,344,443 and included long-term debt repayments of $609,500, payments on our revolving credit facility of $2,313,868 and the distribution of $421,075 of dividends to stockholders.

Working Capital

We had working capital deficit (i.e. current assets minus current liabilities) of $1,729,593 as of March 31, 2013, with current assets of approximately $7.0 million and current liabilities of approximately $8.7 million, compared to a working capital deficit of $4,947 as of December 31, 2012. The ratio of current assets to current liabilities was 0.80 and 1.00 as of March 31, 2013 and December 31, 2012. In addition, if it becomes necessary, we will have sufficient availability under our revolving credit facility to fund any fluctuations in working capital and other cash needs.

Dividends and Restrictions

We declared a quarterly dividend of $.0825 per share for the first quarter of 2013 and 2012, which totaled $421,075 for the first quarter of 2013 and $422,025 for the first quarter of 2012. Our Board of Directors consider dividend payment practices that reflect its judgment that our stockholders would be better served if we retained a higher portion of the cash generated by our business in excess of our expected cash needs to use for other purposes, such as to make investments in our business, rather than distribute cash to our stockholders. We expect to continue to pay quarterly dividends during 2013, but only if and to the extent declared by our Board of Directors on a quarterly basis and subject to various restrictions on our ability to do so (described below). Dividends on our common stock are not cumulative.

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Table of Contents


Our loan agreements include restrictions on our ability to pay cash dividends to our stockholders. However, we are allowed to pay dividends (a) (i) in an amount up to $2,050,000 in any year and (ii) in any amount if our “Total Leverage Ratio”, that is, the ratio of our “Indebtedness” to “EBITDA” (in each case as defined in the loan documents) is equal to or less than 3:50 to 1:00, and (b) in either case, if we were not in default or potential default under the loan agreements. If we fail to comply with these covenants, our ability to pay dividends would be limited. At March 31, 2012 we were in compliance with all the stipulated financial ratios in our loan agreements.

Our Board of Directors reviews quarterly dividend declarations based on our anticipated earnings, capital requirements and our operating and financial conditions. The cash requirements of our current dividend payment practices are in addition to our other expected cash needs. Should our Board of Directors determine a dividend will be declared, we expect we will have sufficient availability from our current cash flows from operations to fund our existing cash needs and the payment of our dividends. In addition, we expect we will have sufficient availability under our revolving credit facility to fund dividend payments in addition to any fluctuations in working capital and other cash needs

Long-Term Debt

See Note 5 – “Secured Credit Facility” for information pertaining to our long-term debt.

Federal Regulation and Legislation

Intercarrier Compensation and Universal Service Fund (USF) Reform

The FCC released the National Broadband Plan in April 2010 recommending significant changes in the Access Charge policy and processes. This was followed on November 18, 2011, by FCC Order 11-161 (the Transformation Order), with comprehensive rules reforming all forms of intercarrier compensation and implementing a new support mechanism for the deployment of broadband. Generally, the intercarrier compensation reform sets forth a path towards a “bill & keep” regime where there is no compensation for termination of traffic received from another carrier. The timeline for this transition has numerous steps depending on the type of traffic exchanged and the regulated status of the affected local exchange carrier.

These rules have been clarified in several orders on Reconsideration, and while they are being challenged through appeals in Federal Appellate courts, we are already experiencing their impact on our companies. If they remain in place, they will force a substantial reduction of our terminating intercarrier compensation, including intrastate and interstate access charges, over the next nine years and provide for certain support mechanisms and end user charges as a means of offsetting compensation.

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Table of Contents


The Transformation Order also confirmed the applicability of access charges on VoIP traffic and eliminated reciprocal compensation charges for termination of local wireless traffic. Despite these changes IXCs and others are still quite aggressive in disputing carrier access charges and/or the applicability of access charges to their traffic.

Due to the combination of rate reforms instituted by the FCC, competitive substitution by wireless and other carriers and decreased use of the switched network, the aggregate amount of interstate network access charges paid by long distance carriers to access providers such as our ILECs and CLECs, has decreased and we project that this decline will continue.

The Minnesota Public Utilities Commission has considered intrastate access reform and universal service for several years, but has not yet taken action. On August 25, 2010 the Iowa Utilities Board closed a docket on exploration of a state USF. We are actively participating in access reform proceedings in the regulatory and legislative arenas on both the state and federal level. We cannot estimate the impact, if any, of future potential state access revenue changes or the availability of state universal service support.

In recent years, IXCs and others have become more aggressive in disputing both interstate carrier access charges and the applicability of access charges to their network traffic. A prime example of this is the claim that companies who provide VoIP technology services are exempt from having to pay access charges. We believe that long distance and other communication providers will continue to challenge the applicability of access charges either before the FCC or directly with the LECs. To date, no long distance or other carriers have made a claim to us contesting the applicability of access charges on VoIP traffic. We cannot predict the likelihood of future claims and cannot estimate the impact.

Recent Accounting Developments

See Note 1 – “Basis of Presentation and Consolidation” for a discussion of recent accounting developments.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not required for a smaller reporting company.

Item 4. Controls and Procedures

Our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e) or Rule 15d-15(e), as of the end of the period subject to this Report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective.

Management’s Report on Internal Control over Financial Reporting

As of the end of the period covered by this Quarterly Report on Form 10-Q (the Evaluation Date), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, regarding the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded, as of the end of the period covered by this Quarterly Report, that our disclosure controls and procedures ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.

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Table of Contents


Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended March 31, 2013 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

Other than routine litigation incidental to our business, there are no pending material legal proceedings to which we are a party or to which any of our property is subject.

Item 1A. Risk Factors.

Not required for a smaller reporting company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information.

None.

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Table of Contents


Item 6. Exhibits.

 

 

 

 

Exhibit
Number

 

Description

 

 

 

 

10.4.1

 

New Ulm Telecom, Inc. Amended Management Incentive Plan

 

 

 

31.1

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

32.1

 

Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

32.2

 

Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

101.INS

 

XBRL Instance Document

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

 

 

NEW ULM TELECOM, INC.

 

 

 

 

Dated: May 15, 2013

 

By

/s/ Bill D. Otis

 

 

 

Bill D. Otis, President and Chief Executive Officer

 

 

 

 

Dated: May 15, 2013

 

By

/s/ Curtis O. Kawlewski

 

 

 

Curtis O. Kawlewski, Chief Financial Officer

32