UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ending December 31, 2015
( ) 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 Contentsregistrant as specified in its charter)
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(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)
Registrant's telephone number, including area code: (507) 354-4111
Securities registered pursuant to Section 12 (g) of the Act:
Title of Class
Common Stock, $1.66 par value
27 North Minnesota Street
New Ulm, Minnesota 56073
(Address of principal executive offices)
Registrant’s telephone number, including area code: (507) 354-4111
Securities registered pursuant to Section 12 (g) of the Act:
Title of Class
Common Stock, $1.66 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yeso Nox
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yeso Nox
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. Yesx Noo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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). Yesx Noo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’sregistrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yesx Noo
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 definitiondefinitions of “large accelerated filer, accelerated filer, a non-accelerated filerfiler” “accelerated filer” “non-accelerated filer” or a smaller“smaller reporting company” in Rule 12b-2 of the Exchange Act.
oo Large accelerated filer oo Accelerated filer oo Non-accelerated filer xx Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Nox
The aggregate market value of the registrant’s common stock held by non-affiliates computed by reference to the price at which the common stock was sold, as of the last business day of the registrant’s most recently completed second fiscal quarter was $27,570,390.$31,589,168. This calculation is based upon the closing price of $6.00$7.39 of the stock on June 30, 2012,2015, as quoted on the Over the Counter Bulletin Board.OTCQB Marketplace. Without asserting that any director or executive officer of the registrant, or person owning 5% or more of the registrant’s common stock, is an affiliate, the shares of which they are the beneficial owners have been deemed to be owned by affiliates solely for this calculation.
As of March 22, 2013, there were 5,103,91815, 2016, the registrant had 5,116,826 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’sregistrant’s Proxy Statement for the Annual Meeting of Stockholders to be held on May 30, 2013 (Proxy Statement)26, 2016 are incorporated herein by reference in Part III of this Annual Report on Form 10-K.10-K to the extent stated herein.
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FORWARD LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 contains safe harbor provisions regarding forward-looking statements. This Because of these risks, uncertainties and assumptions and the fact that any forward-looking statements made by Website Access to SEC Reports Our website atwww.nutelecom.net provides information about our products and services, along with general information about NU Telecom and its management and financial results. Copies of our most recent Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, can be obtained, free of charge, as soon as reasonably practical after these reports are electronically filed or furnished to the SEC. To obtain this information, visit our website noted above and select “About Us – Code of Our Board of Directors has adopted a Code of Business Conduct and Ethics that is applicable to all directors, the chief executive officer, chief financial officer and to all other employees of NU Telecom. All employees of NU Telecom have undergone training on this Code of Business Conduct and Ethics. The information required by Item 406 of Regulation S−K is contained under “Code of Business Conduct” in the 2016 Proxy Statement and is incorporated by reference. Our Board of Directors has also adopted written charters for its committees that comply with the NASDAQ Global Select Market. Copies of the committee charters are available on our website above or by contacting us at (507) 354-4111. 4 Item 1. Business “NU Telecom” or “the Company” refers to New Ulm Telecom, Inc. alone or with its wholly owned subsidiaries as the context requires. When this report uses the words “we,” “our” or “us,” it refers to the Company and its subsidiaries unless the context otherwise requires. Company Overview and History NU Telecom is a diversified communications company headquartered in New Ulm, Minnesota with more than Our principal line of business is the operation of five local telephone companies or incumbent local exchange carriers (ILEC) and the operation of two competitive local exchange carriers (CLEC) telephone companies. Our original business was founded in 1905 and consisted of the operation of a single ILEC (New Ulm Rural Telephone Company) Our operations are currently conducted through the following subsidiaries: Telecom Segment ● ILECs: ▪ New Ulm Telecom, Inc., 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; ▪ Western Telephone Company, a wholly-owned subsidiary of NU Telecom; ● CLECs: ▪ NU Telecom, located in Redwood Falls, Minnesota; ▪ Hutchinson Telecommunications, Inc., a wholly-owned subsidiary of HTC, located in Litchfield and Glencoe, Minnesota; ● Our investments and interests in the following entities include some management responsibilities: ▪ FiberComm, LC – 20.00% subsidiary equity ownership interest. FiberComm, LC is located in Sioux City, Iowa; ▪ Broadband Visions, LLC (BBV) – 24.30% subsidiary equity ownership interest. BBV provides video headend and Internet services; ▪ Independent Emergency Services, LLC (IES) – 14.29% subsidiary equity ownership interest. IES is a provider of E-911 services to the State of Minnesota as well as a number of counties located in Minnesota; and ▪ SM Broadband, LLC (SMB) – 12.50% subsidiary equity ownership interest. SMB provides network connectivity for regional businesses. 5 We report the business operations of our five ILECs and two CLECs and their associated services as a single segment that we refer to as the Telecom Segment. The Telecom Segment operates five In the third quarter of 2014, NU Telecom completed construction of an expansion in our fiber optic cable network and began providing Little Crow Telemedia Network (Little Crow) and the Minnesota River Valley Education District (MRVED), which are a consortium of school districts in central and southern Minnesota, with high capacity video/audio and data switching services and fiber optic cable transport of information between its members. This agreement allowed us to expand our state-of-the art; fiber-rich communications network outside of our traditional service territories and will allow us access to new markets that we have not originally served. This contract term is for ten years. The Telecom Segment derives its principal revenues from (i) local service charges to its residential and business subscribers, (ii) access charges to Interexchange Carriers (IXCs) for providing the carriers access to our local phone networks and (iii) the provisioning of video and data services. We also receive revenue from long distance carriers for providing the billing and collection of long distance toll calls to our subscribers. Neither our ILECs nor CLECs are dependent upon any single customer or small group of customers. No single customer accounted for 10% or more of our consolidated revenues in any of the last two years. 6INFORMATION REGARDING 20122015 Annual Report on Form 10-K and other documents filed by New Ulm Telecom, Inc. (“NU Telecom” or “the Company”) under the federal securities laws, including Form 10-Q and Form 8-K and amendments to those reports, and future verbal or written statements by NU Telecom and its management, 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,”“expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “targets”, “projects”, “will”, “may”, “continues” and “should,”“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 NU Telecom’sour actual results to differ materially from such statements.NU Telecomus and itsour 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-K. With the exception of the requirements set forth in the federal securities laws or the rules and regulations of the Securities and Exchange Commission (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.Investors,Investors” to view NU Telecom SEC filings,” or call (507) 354-4111. The SEC also maintains a website atwww.sec.gov that contains reports, proxy and information statements, and other information regarding public companies, including NU Telecom. Any reports filed with the SEC may also be obtained from the SEC’s Reference Room at 100F Street, NE, Washington, DC 20549.EthicsBusiness Conduct and Code of ConductEthics108110 years of experience in the local telephone exchange and telecommunications business. We operate in one principal business segment: the Telecom Segment. and began in 1905.. In 1984, we changed our name to New Ulm Telecom, Inc. In 1986, we acquired our second ILEC, Western Telephone Company.Company (WTC). In 1993, we acquired our third ILEC, Peoples Telephone Company.Company (PTC). In 2008, we acquired our fourth ILEC, Hutchinson Telephone Company (HTC). In 2012, we acquired our fifth ILEC, Sleepy Eye Telephone Company (SETC). Our ILEC businesses consist of connecting customers to our telephonestate-of-the-art, fiber-rich communications network, providing managed services, switched service and dedicated private lines, connecting customers to long distance service providers and providing many other services associated with ILECs.our businesses. Our ILECsbusinesses also provide Internet protocol television (IPTV), cable television services (CATV), Internet access services, including both dial-up and high-speed broadband access, and long distance service. We also install and maintain telephonecommunications systems to the areas in and around our ILEC service territories in southern Minnesota and northern Iowa. In 2002, we formed a CLEC in the city of Redwood Falls, Minnesota and acquired our second CLEC in 2008, with the acquisition of HTC. This CLEC operates in and around the city of Litchfield, Minnesota. In 2010, we acquired the cable TV system in the city of Glencoe and operate Glencoe under the Litchfield CLEC. Our CLECs offer the same services as our ILECs. In 2000, we changed our marketing name to NU-Telecom and currently operate under that name in our markets.On December 31, 2012 NU Telecom completed a spin-off agreement with Hector Communications Corporation (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 3 – “Acquisitions and Dispositions” to the Consolidated Financial Statements of this Annual Report on Form 10-K.●ILECs:▪New Ulm Telecom, Inc. (NU Telecom), the parent company;▪Hutchinson Telephone Company (HTC), a wholly-owned subsidiary of NU Telecom;▪Peoples Telephone Company (PTC), a wholly-owned subsidiary of NU Telecom;▪Sleepy Eye Telephone Company (SETC), a wholly-owned subsidiary of NU Telecom;▪Western Telephone Company (WTC), a wholly-owned subsidiary of NU Telecom;●CLECs:▪NU Telecom, located in Redwood Falls, Minnesota;▪Hutchinson Telecommunications, Inc. (HTI), 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.ILECs (NewILECs: New Ulm Telecom, Inc. (New Ulm), HTC, PTC, SETC and WTC)WTC and two CLECs located in the cities of Redwood Falls, Litchfield and Litchfield,Glencoe, Minnesota. New Ulm, HTC, SETC and WTC are independent telephone companies that are regulated by the Minnesota Public Utilities Commission, (MPUC), while PTC is an independent telephone company that is regulated by the Iowa Utilities Board (IUB).Board. Our two CLECs are currently not under the same level of regulatory oversight as our ILECs. As of December 31, 20122015 we serve approximately 30,300served 25,999 access lines in the Minnesota communities of Bellechester, Courtland, Evan, Goodhue, Hanska, Hutchinson, Klossner, Litchfield, Mazeppa, New Ulm, Redwood Falls, Sanborn, Searles, Sleepy Eye, Springfield and White Rock, as well as the adjacent rural areas of Blue Earth, Brown, Goodhue, McLeod, Meeker, Nicollet, Redwood and Wabasha counties in south central Minnesota. In addition, we provide telephone services forWe also serve the community of Aurelia, Iowa as well as the adjacent rural areas surrounding Aurelia. The Telecom Segment also operates multiple IPTV and CATV systems in Minnesota (including the cities of Cologne, Courtland, Glencoe, Goodhue, Hanska, Hutchinson, Jeffers, Litchfield, Mayer, New Germany, New Ulm, Redwood Falls, Sanborn, Sleepy Eye and Springfield) and one CATVIPTV system in Aurelia, Iowa. These CATV systems serve approximately 11,20010,637 customers.
We receive the majority of our revenues through the following revenue sources:
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.
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 (SLC)(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 Federal Communications Commission (FCC). In addition, network access revenue is derived from several federally administered pooling arrangements designed to provide support and distribute funding to the ILECs.
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 the provisioning ofproviding commercial TV programming in competition with local CATV, satellite dish TV and off-air TV service providers. We serve seventeen communities with our digitalIPTV TV services and fivefour communities with our CATV services.
Data– We provide Internet services, including dial-up and high-speedhigh speed Internet to business and residential customers. Our revenue is received inearned based on the offering of 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 services.and design, on-line file back up and on-line file storage.
Long DistanceOther – Our end-user customers are billed for toll or long distancelong-distance services on either a per-callper call or flat-rate basis. This also includes the offering of directory assistance, operator service and long distance private lines.
Other– We also generate revenue from directory publishing, sales and service of customer premise equipment (CPE), bill processing and add/move/changeother customer services. Our directory publishing revenue is monthly recurring revenue from end-user subscribers for Yellow Page advertising in our telephone directories.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 theour wireless productservices, as well as revenue collected for the sale of wireless phones and accessories.
Strategy
Our vision is to position ourselves as a “one-stop” communications solutions provider. We believe our customer base placescustomers place a value on the fact that we are a local company whose goal is to meet our customers’ total communications needs. The success of this vision depends on the following strategies:
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· We believe that we have several advantages over our competition, including a state-of-the-art, fiber-rich communications network, competitive pricing and costs, outstanding service quality and a strong reputation, a high level of commitment to the communities we serve and a direct billing relationship with a large majority of the customers we serve in our service territories. We offer a competitive, multi-service bundle of voice, high-speed Internet and IPTV. We manage the potential decline in Telecom network access and local service revenues by offering value-added services such as higher Internet speeds, high definition (HD) IPTV, digital video recording (DVR) services, managed services, customized communications solutions content, along with outstanding customer service as a competitive differentiator.
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· We have and will continue to upgrade our networks and enhance our products and services to take advantage of the latest technology including advanced high-bandwidth capabilities and services, expansion of our network for wholesale and retail customers, Fiber-to-the-Tower services for wireless carriers and last mile fiber builds to residential and business customers. We intend to continue to introduce new services that draw upon our core competencies and we believe are attractive to our target customers. In considering new services, we look for market opportunities that we believe present growth opportunities.
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· We continue to seek ways to improve our internal processes and gain operational efficiencies. While focusing resources on revenue growth and market share gains, we continually challenge our management team and employees at all levels to seek efficiencies and enhance our customers’ experience. We continue to invest in our networks and train our employees to achieve customer service excellence.
· Our current customer base provides a recurring revenue stream generating stable cash flow. Our focus remains on growing our services and supporting product lines so as to generate sufficient cash flow to fund our current operations, service our debt, fund our capital expenditure needs, pay dividends and expand our business. We have allocated resources to maintain and upgrade our network while focusing on optimizing returns by completing strategic capital outlays that will make our network more efficient and cost effective while providing the products and services that our customers desire in the markets we serve.
· We intend to continue to pursue a disciplined process of evaluating acquisitions of businesses as well as organic growth opportunities of market expansion and/or products which are complementary to our business portfolio.
Competition
We compete in a rapidly evolving and highly competitive industry, and expect competition will continue to intensify as consolidations and mergers occur with communication companies.within the industry. Regulatory developments and technological advances over the past several years have increased opportunities for alternative communications service providers, which in turn have increased competitive pressures on our business. These alternative providers often face fewer regulations and have lower cost structures than we do. In addition, the telecommunications industry has experienced some consolidation and several of our competitors have consolidated with other communication providers. The resulting consolidated companiesproviders and as a result are generally larger, have more financial and business resources and have greater geographical reach to provide services. Our competitive advantages include being more committed to providing servicesinclude: our strong commitment and presence in the communities we serve, knowledge of these markets, our experienced local service and support better knowledge ofteam, and connectionour ability to the local markets andoffer more flexible communications solutions than our larger competitors.
The long-range effect of competition on the delivery of communications services and equipment will depend on technological advances, regulatory actions at both the federal and the state levels, court decisions, and possible additional future federal and state legislation. Past federal and state legislation have tended to expand competition in the telecommunications industry.
Alternatives to our service include customers leasing private line switched voice and data services in or adjacent to our service territories that permit the bypassing of our local telephonecommunications facilities. In addition, microwave transmission services, wireless communications, fiber optic/coaxial cable deployment, Voicevoice over Internet Protocolprotocol (VoIP), satellite and other services also permit the bypassing of our local exchange network. These alternatives to local exchange service represent a potential threat to our long-term ability to provide local exchange services at economical rates.
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In order to meet the competition present in our industry, our ILECsbusinesses have deployed new technology to enable our local exchange networks to increasecapture operating efficiencies and to provide additional new services to our new and existing customer base. These new technologies include the latest release of digital switching technology onfor all of our ILEC switches and the installation of a new Common Channel Signaling System No. 7 (SS7) out-of-band system for all of our access lines. Our ILECsbusinesses have also connected fiber rings (redundant route designs that allow traffic to be re-routed in casethe event of network problems) that protect our local networks and enable them to provide a reliable level of service to our customers. The value of our local network is also enhanced by the ability of our operating companies to offer access to high-speed Internet with broadband access to over 95% of our access lines. Broadband technology allows customer access to high-speed Internet and traditional voice connectivity over the same connection. In addition, our ILECsbusinesses have further enhanced our networks to allow the offering of video services over the same facilities that provide our customers with voice and Internet access. This technology is available to approximately 85%92% of our access lines.
We currently compete as a CLEC in the cities of Redwood Falls, Litchfield and Litchfield,Glencoe, Minnesota. CenturyLink is the existing ILEC in these markets. Competition also currently exists in the other communities and areas served by our ILECsbusinesses for traditional telephone service from wireless communications providers and we also expect competition to increase from service providers offering VoIP. We are also experiencingexperience competition in the Minnesota communities of Glencoe, Hutchinson, Litchfield, New Ulm, Redwood Falls, Sleepy Eye and Springfield in the provisioning of video services. Comcast is the existing incumbent provider of video services in the New Ulm market. Mediacom is the existing incumbent provider of video services in the Hutchinson, Litchfield, Redwood Falls, Sleepy Eye and Springfield markets. Several other communications providers also compete with us in our markets in providing Internet services. Our ILECs and CLECsbusinesses have responded to these competitive pressures by creating active programs to market our products, bundle our services and enhance our infrastructure to create higher customer satisfaction.value.
We are experiencing competition for some of our other services from IXCs, such as customer billing services, dedicated private lines and network switching. The provisioning of these services is contractual in nature and is primarily directed by the IXCs. Other services, such as directory advertising, operator services and cellular communications are open to competition, based primarily on service and customer experience.
Materials and Supplies
The materials and supplies that are necessary for the operation of our businesses are available from a variety of sources. We are not dependent on any particular supplier or group of affiliated suppliers for our equipment needs.
Regulation
The following summary doesprovides a high-level overview, but may not describeinclude all present and proposed federal, state and local legislation and regulations affecting the telecommunications industry. Some legislation and other regulations are currently the subject of judicial proceedings, legislative hearings and administrative proposals that could change the manner in which this industry operates. At this time, we cannot predict the outcome of any of these developments or their potential impact on us. Regulation can change rapidly in the telecommunications industry and these changes maycould have an adverse effect on us in the future.
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Overview
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP), rules and regulations of the SEC and, where applicable, conform to the accounting principles as prescribed by federal and state telephone utility regulatory authorities.
The services we offer are subject to varying levels of regulatory oversight. Federal and state regulatory agencies share responsibility for enforcing statutes and rules relative to the provision of communications services. Our interstate or international telecommunications services are subject to regulation by the FCC. Intrastate services are governed by the relevant state regulatory commission. The Telecommunications Act of 1996 (TA96) and the rules enacted under it also gave oversight of interconnection arrangements and access to network elements to the state commissions. Our digital TV services are governed by FCC rules and also by municipal franchise agreements. Internet access (dial-up or high speed) is unregulated at both the state and federal levels. There are also varying levels of regulatory oversight depending on the nature of the services offered or if the services are offered by an ILEC or CLEC.
Our CLEC businesses provide services with less regulatory oversight than our ILEC companies. A company must file for CLEC or interexchange authority to operate with the appropriate public utility commission in each state it serves. Our CLECs provide a variety of services to both residential and business customers in multiple jurisdictions.
Federal Regulatory Framework
All carriers must comply with the Federal Communications Act of 1934 (FCA34) as amended that requires, among other things, that our interstate services be provided at just and reasonable rates and on non-discriminatory terms and conditions. The TA96 amended the FCA34 and has had a dramatic effect on the competitive environment in the telecommunications industry. In addition to these laws, we are also subject to rules promulgated by the FCC and could be affected by any regulatory decisions or orders they issue.
Access Charges
Access charges refer to the compensation received by local exchange carriers for the use of their networks to originate or terminate interexchange or international calls.by an IXC. We provide two types of access services: special access and switched access. Special access is provided through dedicated circuits that connect other carriers to our network. Special access pricingnetwork and is structured on a flat monthly fee basis. Switched access rates that are billed to other carriers are based on a per-minute of use fee basis. The FCC regulates the prices that our ILECs and CLECsbusinesses charge for interstate access charges. There has been a trend toward lowering the rates charged to carriers accessing local networks and the application of a SLC as a flat rate on end-user bills. The lower per-minute-of-use access rate, combined with changing minutes of use on our network,Regulation, competition, carriers optimizing their network costs and lower demand for dedicated lines have resulted in lower access rates and overall lower minutes of use on our network, which has affected our network access revenues.
Interstate access rates are established by athe nationwide pooling of companies known as the National Exchange Carriers Association (NECA). The 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 each company’s actual or average costs. There has been a change in the composition of interstate access charges in recent years, shifting more of the charges to the end user and reducing the amount of access charges paid by IXCs. We believe this trend will continue.
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Each of our ILECs determines interstate access charges under rate of return regulation, under whichwhereby they earn a fixed return over and above operating costs. The specific process of setting interstate access rates is governed by FCC rules, which applies only to service providers with fewer than 50,000 lines. Three of our ILECs (HTC, PTC and WTC) utilize an average schedule process and the concept of pooling with other ILECs in NECA to arrive at rates and fair compensation. Our other two ILECs (New Ulm and SETC) arrive at their interstate rates through a study of their own individual interstate costs. Minnesota and Iowa utility commissions regulate the intrastate access rates for all five of our ILECs in their respective states.
Wireline Interstate
Our ILEC companies participate in the NECA common line pool. End-User Common Linepool where end-user common line funds collected are pooled and somepooled. A portion of our ILEC revenue is based on settlements distributed from thethis pool. Our ILEC companies also participate in the NECA traffic-sensitive pool. These pool settlements are adjusted periodically.
Interstate access rates for CLECs were established according to an order issued by the FCC in 2001. Under that order, the switched access rates charged by a competitive carrier can be no higher than the rates charged by the ILEC with whom the CLEC competes. The rates charged by our facilities-based CLECscompetes, unless the CLEC qualifies for switched access are generally lower than the rates charged by our ILECs.Rural Exemption.
Intercarrier Compensation and Universal Service Fund (USF) Reform
The FCC released the National Broadband Plan in April 2010 recommending significant changes into the Access Chargeaccess 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 nowhich eliminates 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.LEC.
These rules have been clarified in several orders on Reconsideration, and while they are being challenged through appeals in Federal Appellate courts, we arehave already experiencingexperienced 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 nineupcoming years and provide for certain support mechanisms and end userend-user charges as a means of offsetting compensation.
The FCC 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.
Over the course of 2014, NU Telecom received notice of disputes from several IXCs, and was subsequently named in litigation regarding traffic exchanged between our companies and specifically the classification of IntraMTA wireless traffic related to access charges. This litigation was an industry-wide dispute affecting numerous telecom companies. In November, 2015 the United States District Court in Dallas, Texas ruled in favor of the telecom companies, which includes NU Telecom. All access charges owed to the telecom companies including NU Telecom were found to be owed by the IXCs and NU Telecom has subsequently been paid for these access charges.
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,company, has decreased and we project that this decline will continue. For the year ended December 31, 2012,2015, Telecom network access revenue represented approximately 33%28.5% of our operating revenue, down from approximately 36%29.1% for the year ended December 31, 2011.2014.
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The MPUC has considered intrastate access reform and universal service for several years, but has not yet taken action. On August 25, 2010 the IUB 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.
Universal Service
The Federal Universal Service Fund (FUSF) was originally established to overcome geographic differences in costs of providing voice service and to enable all citizens to communicate over networks regardless of geographical location and/or personal income. The FCC established universal service policies at the national level under terms contained in the Telecommunications Act of 1934. The TA96 requires explicit FUSF mechanisms and enlarged the scope of universal service to include four distinct programs:
· High-Cost program that supports local carriers operating in high-cost regions of the country to ensure reasonably based telephone rates; · Lifeline (low-income) Subscribers program that includes the Link Up and Lifeline programs that provide support for service initiation and monthly fees and have eligibility based on subscriber income; · Rural Health Care Providers program that supports telecommunication services used by rural health care providers and provides them with toll free access to an Internet service provider; and · Schools and Libraries program, also called the E-Rate program that provides support funding to schools and libraries for telecommunications services, Internet access and internal connections. In its Transformation Order released November 18, 2011, the FCC adopted rules which dramatically reform the universal service program and intercarrier compensation regime. These rules eliminated the legacy Local Switching support, but also provide for a new Connect America Fund (CAF) support for rate of return carriers to make up some of their access revenue reductions and provide direct support to PriceCap carriers for broadband build outs. The new rules have caused rates for end users to increase as intercarrier compensation is reduced and the legacy mandate for ubiquitous voice service shifts toward broadband availability as a key outcome of the program. | |
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FUSF high-cost payments are distributed by NECA and are only available to carriers that have been designated as an eligible telecommunications carrier (ETC) by a state commission. Each of our ILECs has been designated as an ETC. CLECs are also eligible to be designated as ETCs if they meet the requirements of the program and meet a public interest standard as determined by the appropriate state regulatory agency. Our CLECs are currently not receiving FUSF support. All ETCs must certify annually to USACthe Universal Service Administrative Company or their appropriate state regulatory commission that the funds they receive from the FUSF are being used in the manner intended. The states must then certify to the FCC which carriers have met this standard. That certification is dueThe Transformation Order expands the information that must be reported to the FCCState Commissions to include information on broadband availability, plans for expansion to unserved and underserved areas, in October of each year in order for carriersaddition to receive funding for the upcoming year. Both Minnesota and Iowa have adopted more stringent guidelines for this determination as recommended by the FCC.information about voice services. To some extent, this increasedthese levels of scrutiny make the receipt of a consistent level of scrutiny putsFUSF payments each year more difficult to predict.
For the year ended December 31, 2015, we received an aggregate of $3,386,644 from FUSF, consisting of $26,008 for a combination of high cost loop support and safety net additive, $1,721,424 of Federal common line support and $1,639,212 of CAF support. Our net USF in 2015 comprised 8.1% of our receipts of FUSF at risk eachtotal revenue for the year. We receive no State USF as the states in which we operate have not established state USF mechanisms.
We cannot predict the outcome of any FCC rulemaking or pending legislation. The outcome of any of these proceedings or other legislative or regulatory changes could affect the amount of universal support received by our ILECs.
12
The TA96 and Local Competition
The primary goal of the TA96 and the FCC’s rules promulgated under it was to open local telecommunications markets to competition while enhancing universal service. To some extent, Congress pre-empted the local authority of states to oversee local telecommunications services.
The TA96 imposes a number of requirements on all local telecommunications providers including:
· To interconnect directly or indirectly with other carriers; · To allow others to resell services; · To provide for number portability to allow end-users to retain their telephone number when changing providers; · To ensure dialing parity; · To ensure that competitor customers have non-discriminatory access to telephone numbers, operator services, directory assistance and directory listing services; and · To allow competitors access to telephone poles, ducts, conduits and rights-of-way, and to establish reciprocal compensation arrangements for the transport and termination of telecommunications traffic. Privacy and Data Security Regulation | |
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The FCA34 generally restricts the nonconsensual collection and disclosure to third parties of telecommunication company customers’ personally identifiable information by telecommunication companies, except for rendering service, conducting legitimate business activities related to the service, and responding to legal requests. We are also subject to various state and federal regulations that provide protections for customer proprietary network information (CPNI) related to our voice services. The FCC expects broadband Internet access service providers such as us to take reasonable, good faith steps to comply with existing statutory requirements to protect broadband CPNI and plans to propose new privacy and data security rules for broadband Internet service providers in 2016. The FCC has recently imposed substantial civil penalties and remediation obligations on several companies for alledged privacy and data security violations.
The Federal Trade Commission (FTC) exercises authority over privacy protections, generally, using its existing authority over unfair and deceptive acts or practices to apply greater restrictions on the collection and use of personally identifiable and other information relating to customers. It also has undertaken numerous enforcement actions against parties that do not provide sufficient security protections against the loss of unauthorized disclosure of this type of information. We also are subject to stringent data security and data retention requirements on website operators and online services. Other privacy-oriented laws have been extended by courts to online video providers and are increasingly being used in privacy lawsuits, including class actions, against providers of video materials online.
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We are also subject to state and federal laws and regulations regarding data security that primarily apply to sensitive personal information that could be used to commit identity theft. Most states have security breach notification laws that generally require a business to give notice to consumers and government agencies when certain information has been disclosed, due to a security breach, and the FCC has adopted security breach rules for voice services. Several states have also enacted general data security requirements to safeguard consumer information, including the proper disposal of consumer information.
The National Institute of Standards and Technology, in cooperation with other federal agencies and owners and operators of United States critical infrastructure, have developed a voluntary framework that provides a prioritized, flexible, repeatable, performance-based and cost-effective approach to cybersecurity risk. It is compendiums of existing cross-sector cyber-defense processes, practices and protocols that can help companies identify, assess and manage their cyber risks and vulnerabilities, and several governmental agencies have encouraged compliance with this framework. Additionally, in December 2015, Congress enacted the Cybersecurity Act of 2015, which is intended to encourage and facilitate the sharing of security threat and defensive measure information with government agencies and other companies, in order to strengthen the country’s overall cybersecurity protections. Finally, there are pending legislative proposals that could impose new requirements on owners and operators of critical infrastructure and the FCC is considering expanding its cybersecurity guidelines or adopting new cybersecurity requirements.
Environmental Regulation
We are subject to federal, state and local laws and regulations governing the use, storage, disposal of, and exposure to, hazardous materials, the release of pollutants into the environment and the remediation of contamination. We could be subject to environmental laws that impose liability for the entire cost of cleanup at a contaminated site, regardless of fault or the lawfulness of the activity that resulted in contamination. We believe that our operations are in substantial compliance with applicable environmental laws and regulations.
Employees
As of March 1, 20132016 we had 144132 full-time equivalent employees.employees dedicated to NU Telecom operations. In addition, as of March 1, 2016 we had an additional 14 full-time equivalent employees that are employed by NU Telecom but are dedicated to IES. IES is a minority equity subsidiary of NU Telecom and NU Telecom acts as the managing entity for IES.
Intellectual Property
We have trademarks, trade names and licenses that we believe are necessary for the operation of our business as we currently conduct it. We do not consider our trademarks, trade names or licenses to be material to the operation of our business.
14
Executive Officers of the Registrant
The names and ages of all our executive officers and the positions held by them as of March 1, 2013,2016, are as follows:
Name and Age | Position with the Company | Age | ||||
Bill D. Otis | President and Chief Executive |
| 58 | |||
Barbara A.J. Bornhoft | Vice-President, Chief Operating Officer and Corporate Secretary – NU Telecom |
| 59 | |||
Curtis O. Kawlewski | Chief Financial Officer and | 49 |
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Our executive officers are electedappointed annually and serve at the discretion of our Board of Directors. Mr. Otis, President and Chief Executive Officer; Ms. Bornhoft, Vice-President, Chief Operating Officer and Corporate Secretary; and Mr. Kawlewski, Chief Financial Officer and Treasurer have written employment contracts. There are no familial relationships between any director and executive officers.
Mr. Otis has been President and Chief Executive Officer since 1985. Prior to that time, he was the Office Manager/Controller from 1979 to 1985. Mr. Otis also servedserves as a Director, Chairman of the Board of Directors and President of HCC, and is the Chairman of the Board for both Independent Emergency Services, LLCSMB, IES and Broadband Visions, LLC,BBV, all equity subsidiaries of ours. In addition, Mr. Otis sits on the Board of Governors of FiberComm, LC, also an equity subsidiary of ours.
Ms. Bornhoft has been Vice President, Chief Operating Officer and Corporate Secretary since 1998. Ms. Bornhoft has been employed with us since 1990. Ms. Bornhoft also servedserves as a Board Directorboard member for HCC and is a current board director for Broadband Visions, LLC,BBV, in addition to serving as President for both Independent Emergency Services, LLCIES and Broadband Visions, LLC,BBV, all equity subsidiaries of ours.
Mr. Kawlewski has been Chief Financial Officer and Treasurer since 2009. Mr. Kawlewski also serves as the Treasurer for Independent Emergency Services, LLCIES and Broadband Visions, LLC,BBV, all equity subsidiaries of ours.
Item 1A.Risk Factors. | |
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Not required for a smaller reporting company.
Item 1B. Unresolved Staff Comments
Not required for a smaller reporting company.
Item 2.Properties
Our business is primarily focused on the provision of communication serviceservices and our properties are used primarily for administrative support and to house and safeguard our operating equipment. On December 31, 2012,2015, our gross property, plant and equipment of $125,290,928totaled $143,640,056 (net balance of $44,824,025) consisted primarily$44,114,395).
15
Our corporate headquarters are located at 27 North Minnesota Street, New Ulm, Minnesota. We also own office facilities and related equipment for administrative personnel, central office buildings and operations in Minnesota and Iowa.
In addition to land and structures, our property consists of equipment necessary for the provision of communication services including central office equipment, CPE and connections, pole lines, towers, remote terminals, aerial and underground cable and wire facilities and associated outside plant for use in providing our services, telephone switches, cable, fiber optic networks and communications network equipment, vehicles, furniture and fixtures, computers and other equipment. Our extensive fiber optic network is primarily owned by us, but we also have indefeasible rights to use and long-term leasing commitments to complement our owned network. We also own the telephone property,various communications equipment that we lease to subscribers.
In addition to plant and equipment that we usewholly-own, we utilize poles, towers, cable and conduit systems jointly-owned with other entities and lease space on facilities to operate our telephone systems. Our five ILECs own the central office equipment (COE) that we use to record, switch and transmit telephone calls, as described below:
New Ulm’s host COE was purchasedother entities. These arrangements are in 1991 and consists of a Nortel Networks DMS-100/200 digital switch. New Ulm also has remote switching sites in four locations: three locatedaccordance with written agreements customary in the cityindustry. We also have appropriate easements, rights of New Ulmway and one inother arrangements for the cityaccommodation of Courtland. The equipment at these remote switching sites is housed within specially designed COE buildings. In 2005, we installed a Tekelec T7000 soft switch in the New Ulm central office.our pole lines, underground conduits, aerial and underground cables and wires.
HTC’s COE includes a Lucent 5E system (installed in 1990) and a Meta-E Soft switch that was put into service in 2005. HTC houses the switch location for customers of HTC and HTI. Additionally, the shared headend satellite reception site and equipment for Broadband Visions, LLC is located at HTC.
PTC’s COE was installed in 1999 and consists of a Nortel Networks RSC digital remote switch. PTC leases host switching facilities from FiberComm, LC, in which we own an 18.27% equity interest.
SETC’s host COE was installed in 1984 and consists of Nortel Networks DMS-10 (now Genband). SETC also has remote switching sites in two other locations: Hanska and Evan. The equipment at these remote switching sites is housed within specially designed COE buildings. Goodhue’s host COE was installed in 1981 and consists of Nortel Networks DMS-10 (now Genband). Goodhue also has remote switching sites in five other locations: Bellechester, Mazeppa, Ponderosa, Welch and White Rock. The equipment at these remote switching sites is housed within specially designed COE buildings.
WTC installed Nortel Networks remote COE in 1996. This remote switching equipment uses the host switch located in the city of New Ulm. WTC also has a remote switching site located in the city of Sanborn. The equipment located in Sanborn is housed within a specially designed COE building.
We believe our properties are suitable and adequate to provide modern and effective communications services within our service areas, including local dial-tone, long distance service, broadband, digital TV and dedicated and switched long-haul transport. We also believe our properties and equipment are adequately insured. See Note 54 – “Long-Term Debt” to the Consolidated Financial Statements of this Annual Report on Form 10-K for descriptions of the mortgages and collateral relating to the above and below referenced properties. See Note 1 – “Summary Of Significant Accounting Policies” and Note 2 – “Property, Plant and Equipment” to the Consolidated Financial Statements of this Annual Report on Form 10-K for a description of our depreciation policies and information relating to the above and below referenced properties and equipment and their respective depreciation.
Item 3.Legal Proceedings
TableOver the course of Contents2014, NU Telecom received notice of disputes from several IXCs, and was subsequently named in litigation regarding traffic exchanged between our companies and specifically the classification of IntraMTA wireless traffic related to access charges. This litigation was an industry-wide dispute affecting numerous telecom companies. In November, 2015 the United States District Court in Dallas, Texas ruled in favor of the telecom companies, which includes NU Telecom. All access charges owed to the telecom companies including NU Telecom were found to be owed by the IXCs and NU Telecom has subsequently been paid for these access charges.
Our principal property locations are the following:
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In addition, New Ulm, HTC, PTC, SETC, WTC and HTI own the huts, buildings, lines, cables and associated outside physical plant for use in providing telephone and CATV services. We also own equipment leased to subscribers such as telephone sets and other similarly-used instruments.
Other than the litigation mentioned above and other 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 4.Mine Safety Disclosures
Not Applicable.
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Our common stock is quoted on the Over The Counter (OTC) Bulletin BoardOTCQB Marketplace under the symbol “NULM.”"NULM." As of March 1, 20132016 there were 1,3841,349 registered stockholders and approximately 6411,440 beneficial owners of NU Telecom stock. The following table sets forth the end-of-day high and low prices for our common stock quoted on the OTC Bulletin BoardOTCQB Marketplace during 20122015 and 2011. These over-the-counter market2014. The OTCQB Marketplace quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily reflect actual transactions.
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4th quarter |
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2015 | 2014 | |||||||
High | Low | High | Low | |||||
1st quarter | 7.90 |
| 6.91 |
| 1st quarter | 7.35 |
| 6.50 |
2nd quarter | 7.48 | 7.02 | 2nd quarter | 7.30 | 6.85 | |||
3rd quarter | 8.00 |
| 7.00 |
| 3rd quarter | 7.80 |
| 7.25 |
4th quarter | 7.70 | 6.89 | 4th quarter | 8.01 | 6.98 | |||
The Company’s Articles of Incorporation restrict any one individual or entity from beneficially owning more than seven percent of the outstanding capital stock of the corporation. Specific details of this restriction are contained in Article III of the Company’s Articles of Incorporation.
Dividends and Restrictions
We declared a quarterly dividend of $0.0825$0.0850 per share for each of the four quarters ending December 31, 2012,2015, which totaled $422,025 for the first quarter and $423,435$434,932 per quarter for the second, third and fourth quarters and $433,615 per quarter for the first and second quarters. We declared a quarterly dividend of $.08$0.0850 per share for each of the four quarters ending December 31, 2014, which totaled $433,615 for the fourth quarter, $433,616 for the third quarter and $432,612 per quarter for the first quarter of 2011, which totaled $409,235 and a quarterly dividend of $.0825 per share for the second third and fourth quarters, which totaled $422,025 for each quarter.quarters. A quarterly cash dividend of $0.0825$0.0875 per share waswill be paid on March 15, 201317, 2016 to stockholders of record at the close of business on March 8, 2013.10, 2016.
Our Board of Directors has adopted 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 this cash to our stockholders.
We expect to continue to pay quarterly dividends during 2013,2016, 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.
There are security and loan agreements underlying our current CoBank, ACB (CoBank) credit facility that contain restrictions on our distributions to stockholders and investment in, or loans, to others. See below and Note 54 – “Long-Term Debt” to the Consolidated Financial Statements of this Annual Report on Form 10-K for additional information.
On December 31, 2014, we entered into an Amended and Restated Master Loan Agreement (MLA) with CoBank. The MLA refinances and replaces the existing credit facility between CoBank and NU Telecom and the subsidiaries of NU Telecom. NU Telecom’s subsidiary HTC was a borrower under the prior credit facility, but NU Telecom is now the sole borrower under the new MLA. At December 31, 2015 we were in compliance with all the stipulated financial ratios in our loan agreements.
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Our new 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$2,100,000 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(earnings before interest, taxes, depreciation and amortization – as defined in the loan documents) is equalgreater than 2.50 to or1.00, and (ii) in any amount if our Total Leverage Ratio is less than 3.502.50 to 1.00, and (b) in either case, if we are 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 December 31, 2012 and December 31, 2011 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.
Issuer Purchases of Common Stock
As part of the HCC spin-off, NU Telecom received 28,600 shares of NU Telecom stock that had been held by HCC. These shares have been retired for NU Telecom financial statement purposes.
We did not repurchase any shares of common stock in 2012 and 2011. Currently, we do not anticipate the repurchase of any common stock in 2013, and our Board of Directors has not authorized the repurchase of any common stock.
Item 6. Selected Financial Data
Not required for a smaller reporting company.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our historical financial statements and the related notes contained elsewhere in this report.
Overview
NU Telecom has a state-of-the-art; fiber-rich communications network and 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 onconnections to our network.networks. In addition, we provide long distance service, dial-up and broadband Internet access, video services, and videomanaged and hosted solutions 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. In 2010, we acquired the assets of the CATV system located in and around Glencoe, Minnesota. 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, IP and digital TV. We also needrequire 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; pay dividends 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.
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Executive Summary
Highlights
Highlights:
·
In the third quarter of 2014, NU Telecom completed construction of an expansion in 2012:our fiber optic cable network and began providing Little Crow and MRVED, which are a consortium of school districts in central and southern Minnesota, with high capacity video/audio and data switching services and fiber optic cable transport of information between its members. This agreement allowed us to expand our state-of-the art; fiber-rich communications network outside of our traditional service territories and will allow us access to new markets that we have not originally served. This contract term is for ten years.
· On December 31, 2014, NU Telecom entered into an Amended and Restated MLA with CoBank. The new MLA refinances and replaces the existing credit facility between CoBank and NU Telecom and the subsidiaries of NU Telecom. NU Telecom’s subsidiary HTC was a borrower under the prior credit facility, but NU Telecom is now the sole borrower under the new MLA. There are two loans under the new MLA, which include a $35 million term loan and a $9 million revolver loan. The term loan requires payments of $675,000 per quarter, beginning March 2015, with the final installment due December 31, 2021. NU Telecom may borrow from time to time under the revolver loan, which also matures on December 31, 2021. Also, under the new MLA, NU Telecom has the ability to either increase the amount of the commitment under the revolver loan by up to $6 million in a single increase, or add an incremental term loan up to $6 million. See Note 4 – “Long-Term Debt” to the Consolidated Financial Statements of this Annual Report on Form 10-K for additional information. · On June 18, 2015 NU Telecom entered into an Interest Rate Swap Agreement (IRSA) with CoBank covering (i) $14.0 million of our aggregate indebtedness to CoBank effective June 18, 2015. This swap effectively locks in the interest rate on $14.0 million of variable-rate debt through June 2018. Under this IRSA, we have changed the variable-rate cash flow exposure on the debt obligations to fixed cash flows. Under the terms of this interest rate swap, 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. · Net income in 2015 totaled $2,666,155, which was a $78,589, or 2.9% decrease compared to 2014. This decrease was primarily due to an increase in interest expense and operating expenses, partially offset by an increase in revenues, all of which are described below. · Consolidated revenue for 2015 totaled $41,684,068, which was a $1,696,659 or 4.2% increase compared to 2014. This increase was primarily due to increases in data, video and network access revenues. Data revenues increased primarily due to the addition of Little Crow/MRVED on our newly expanded fiber optic cable network, an increase in data customers and increased managed service revenues. Video revenues increased primarily due to increased demand for our HD and DVR services. Also contributing to the increase in video revenues was a combination of rate increases introduced into several of our markets over the course of 2015 and 2014. Network access revenues increased primarily due to an increase in regulatory revenues, partially offset by a decline in minutes of use on our network. 19 | ||
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Business Trends
Included below is a synopsis of trends management believes will continue to affect our business in 2013.2016.
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 CATV providers, 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 line increasesdecreases totaled 3,6591,259 or 13.8%4.6% in 20122015 compared to 20112014 due to the additionreasons mentioned above.
The expansion of SETC.
Growthour state-of-the-art; fiber-rich communications network, 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, and hosted and managed service solutions are expected to continue to offset some of the revenue declines from the unfavorable access line trends discussed above.
To combatbe competitive, pressures, we continue to emphasize the bundling of our products and services. Our customers canhave the option to 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,options, 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.options. We have built a state-of-the-art, fiber-rich 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 (IPTV)IPTV and hosted and managed services.
We continue to evaluate our operating structure to identify opportunities for increased operational efficiencies and effectiveness. Among other things, thisThis involves evaluating opportunities for task automation, network efficiency and the balancing of our workforce based on the current needs of our customers.
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.
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Financial results for the Telecom Segment for the years ended December 31, 20122015 and 20112014 are included below:
Telecom Segment
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| 2012 |
| 2011 |
| Increase (Decrease) |
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Operating Revenues |
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Local Service |
| $ | 5,782,218 |
| $ | 6,000,257 |
| $ | (218,039 | ) |
| -3.63 | % |
Network Access |
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| 10,781,356 |
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| 11,852,688 |
| $ | (1,071,332 | ) |
| -9.04 | % |
Video |
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| 5,969,610 |
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| 5,658,232 |
| $ | 311,378 |
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| 5.50 | % |
Data |
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| 5,568,000 |
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| 5,247,963 |
| $ | 320,037 |
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| 6.10 | % |
Long Distance |
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| 607,902 |
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| 649,404 |
| $ | (41,502 | ) |
| -6.39 | % |
Other |
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| 3,773,902 |
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| 3,862,907 |
| $ | (89,005 | ) |
| -2.30 | % |
Total Operating Revenues |
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| 32,482,988 |
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| 33,271,451 |
| $ | (788,463 | ) |
| -2.37 | % |
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Cost of Services, Excluding Depreciation and Amortization |
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| 14,310,030 |
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| 13,456,756 |
| $ | 853,274 |
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| 6.34 | % |
Selling, General and Administrative |
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| 6,269,618 |
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| 6,400,900 |
| $ | (131,282 | ) |
| -2.05 | % |
Depreciation and Amortization Expenses |
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| 8,219,749 |
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| 9,010,393 |
| $ | (790,644 | ) |
| -8.77 | % |
Total Operating Expenses |
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| 28,799,397 |
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| 28,868,049 |
| $ | (68,652 | ) |
| -0.24 | % |
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Operating Income |
| $ | 3,683,591 |
| $ | 4,403,402 |
| $ | (719,811 | ) |
| -16.35 | % |
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Net Income |
| $ | 3,174,914 |
| $ | 2,027,523 |
| $ | 1,147,391 |
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| 56.59 | % |
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Capital Expenditures |
| $ | 7,014,135 |
| $ | 4,824,204 |
| $ | 2,189,931 |
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| 45.39 | % |
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Key metrics |
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Access Lines |
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| 30,252 |
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| 26,593 |
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| 3,659 |
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| 13.76 | % |
Video Customers |
|
| 11,204 |
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| 10,309 |
|
| 895 |
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| 8.68 | % |
Broadband Customers |
|
| 13,652 |
|
| 10,465 |
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| 3,187 |
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| 30.45 | % |
Dial Up Internet Customers |
|
| 476 |
|
| 638 |
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| (162 | ) |
| -25.39 | % |
Long Distance Customers |
|
| 15,372 |
|
| 13,530 |
|
| 1,842 |
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| 13.61 | % |
Revenue
2015 | 2014 | Increase (Decrease) | |||||||||
Operating Revenues |
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Local Service | $ | 6,361,708 | $ | 6,487,362 | $ | (125,654) | -1.9% | ||||
Network Access |
|
| 11,887,326 |
|
| 11,649,277 |
|
| 238,049 |
| 2.0% |
Video | 9,056,684 | 8,310,923 | 745,761 | 9.0% | |||||||
Data |
|
| 9,942,645 |
|
| 8,644,399 |
|
| 1,298,246 |
| 15.0% |
Other |
| 4,435,705 |
| 4,895,448 |
| (459,743) | -9.4% | ||||
Total Operating Revenues |
|
| 41,684,068 |
|
| 39,987,409 |
|
| 1,696,659 |
| 4.2% |
Cost of Services, Excluding Depreciation and Amortization |
|
| 19,737,392 |
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| 18,541,603 |
|
| 1,195,789 |
| 6.4% |
Selling, General and Administrative | 7,157,376 | 7,096,971 | 60,405 | 0.9% | |||||||
Depreciation and Amortization Expenses |
|
| 9,747,667 |
|
| 9,551,320 |
|
| 196,347 |
| 2.1% |
Total Operating Expenses |
| 36,642,435 |
| 35,189,894 |
| 1,452,541 | 4.1% | ||||
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Operating Income | $ | 5,041,633 | $ | 4,797,515 | $ | 244,118 | 5.1% | ||||
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Net Income | $ | 2,666,155 | $ | 2,744,744 | $ | (78,589) | -2.9% | ||||
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Capital Expenditures | $ | 5,673,113 | $ | 9,419,188 | $ | (3,746,075) | -39.8% | ||||
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Key metrics |
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Access Lines | 25,999 | 27,258 | (1,259) | -4.6% | |||||||
Video Customers |
|
| 10,637 |
|
| 10,750 |
|
| (113) |
| -1.1% |
Broadband Customers | 15,009 | 14,459 | 550 | 3.8% | |||||||
Certain historical numbers have been changed to conform to the current year's presentation. | |||||||||||
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 $5,782,218,$6,361,708, which is $218,039$125,654 or 3.6%1.9% lower in 20122015 than in 2011. Local service revenue2014. This decrease was lower in 2012 compared to 2011 primarily due to a decreasethe decline in access lines of 1,055 or 4.0%, prior to the additionlines.
The number of access lines associatedwe serve as a company have been decreasing, which is consistent with the spin-off of SETC on December 31, 2012. The decrease in revenues was partially offset by increases in local private line and other optional services. Our access lines are decreasinga general industry trend, 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.services. 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 createcreates 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 callstraffic on our network. Additionally, we bill 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 ILECs. Network access revenue was $10,781,356,$11,887,326, which is $1,071,332$238,049 or 9.0% lower2.0% higher in 20122015 than in 20112014. This increase was primarily due to loweran increase in regulatory revenues, partially offset by a decline in minutes of use on our network.
In recent years, IXCs and others have become more aggressive in disputing both interstate carrier access charges and the implementationapplicability of access charges to their network traffic. We believe that long distance and other communication providers will continue to challenge the applicability of access charges either before the FCC Intercarrier Compensationor directly with the LEC. We cannot predict the likelihood of future claims and cannot estimate the USF reform order in regards to state access pricing levels that took effect on July 3, 2012.impact.
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 TVIPTV services and fivefour communities with our CATV services. Video revenue was $5,969,610,$9,056,684, which is $311,378$745,761 or 5.5%9.0% higher in 20122015 than in 2011. A2014. This increase was primarily due to increased demand for our HD and DVR services. Also contributing to the increase in video revenue was a combination of rate increases introduced into several of our markets over the course of 20112015 and 2012; and the launching of IPTV services in Courtland, Hutchinson, Litchfield, New Ulm, Redwood Falls, Sanborn and Springfield, Minnesota and Aurelia, Iowa resulted in the increased revenues. This new enhanced service offering provides our customers with desired features and options, such as digital video recording. We also recognize increased revenues from these additional features and options.2014.
Data – We provide Internet services, including dial-up and high speed Internet to business and residential customers. Our revenue is received inearned based on the offering of 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 $5,568,000,$9,942,645 which is $320,037$1,298,246 or 6.1%15.0% higher in 20122015 than in 2011.2014. This increase was primarily due to the addition of Little Crow/MRVED on our newly expanded fiber optic cable network, an increase in broadband customers of 269 or 2.6%, partially offset by a loss of 243 dial-up customers or 38.1%, prior to the addition of data customers associated with the spin-off of SETC on December 31, 2012. Broadband customers have a higher profit margin than dial-up Internet customers.and increased managed service revenues. We expect futurecontinued 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 service bundles and sellingmarketing managed service bundles.solutions to businesses.
Long DistanceOther Revenue – 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 $607,902, which is $41,502 or 6.4% lower in 2012 than in 2011. Long distance revenue was lower in 2012 compared to 2011 primarily due to a decrease in long distance lines of 552 or 4.1%, prior to the addition of long distance lines associated with the spin-off of SETC on December 31, 2012, as customers continue to use other technologies such as wireless and IP services to satisfy their long distance communication needs.
Other Revenue– We also generate revenue from directory publishing, sales and service of CPE, bill processing and add/move/changeother customer services. Our directory publishing revenue from end-user subscribers 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 theour wireless product,services, as well as revenue collected for the salesales of wireless phones and accessories. Other revenue was $3,773,902,$4,435,705, which is $89,005$459,743 or 2.3%9.4% lower in 20122015 than in 2011.2014. This decrease was primarily due to a decreasedecreases in the sales of CPE and long-distance revenues, partially offset by an increaseincreases in the sales of cellular phone and activation revenues.
Cost of Services (Excluding Depreciation and Amortization)
Cost of services (excluding depreciation and amortization) was $14,310,030,$19,737,392, which is $853,274$1,195,789 or 6.3%6.4% higher in 20122015 than in 2011.2014. This increase was primarily due to higher programming costcosts from video content providers, increased costs associated with providing service and support for Little Crow/MRVED and higher costs associated with increased maintenance and support agreements on our equipment and software, partially offset by lower employee benefit costs.software.
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Selling, General and Administrative Expenses
Selling, general and administrative expenses were $6,269,618,$7,157,376, which is $131,282$60,405 or 2.1% lower0.9% higher in 20122015 than in 2011.2014. This decreaseincrease was primarily due to lower employee benefithigher costs partially offset by increased expenses associated with complying with new SEC financial reporting requirements.professional and consulting services.
Depreciation and Amortization
Depreciation and amortization was $8,219,749,$9,747,667, which is $790,644$196,347 or 8.8% lower2.1% higher in 20122015 than in 2011.2014. This decreaseincrease was primarily due to portionsincreased depreciation due to the expansion of our legacy telephonenew fiber optic cable network becoming fully depreciated during 2012 and 2011 as we migrate to a new broadband network.built in 2014.
Operating Income
Operating income was $3,683,591,$5,041,633, which is $719,811$244,118 or 16.3% lower5.1% higher in 20122015 than in 2011.2014. This decreaseincrease was primarily due to a decrease in revenue combined with an increase in cost of services,revenues, partially offset by a decreaseincrease in depreciation and amortization, and selling, general and administrativeoperating expenses, all of which are described above.
See Consolidated ResultsStatements of Income on Page 34 (for discussion below)
Other Income and Interest Expense
HCC investment income increased $80,741 in 2012 compared to 2011. The increase reflects our equity portion of HCC net income prior to the spin-off of HCC on December 31, 2012. HCC net income increased in 2012 and 2011 primarily due to decreased interest expense associated with reduction of debt combined with lower interest rates on outstanding debt.
Other income in 20122015 and 20112014 included a patronage credit earned with CoBank ACB as a result of our debt agreements with them. The patronage credit allocated and received in 2012 amounted to $449,878,2015 was $409,132, compared to $485,812$435,319 allocated and received in 2011.2014. CoBank ACB determines and pays the patronage credit annually, generally in the first quarter of the calendar year, based on its results from the prior year. We record these patronage credits as income when they are received.
Interest income decreased $5,249increased $104,495 in 20122015 compared to 2011. As a result of servicing our debt, excess cash available to purchase investments was lower.
Interest expense decreased $188,995 in 2012 compared to 2011.2014. This decreaseincrease was primarily due to lower outstanding debt balancesan increase in dividend income earned on our investments, which is included in interest income.
Interest expense increased $563,649 in 2015 compared to 2014. This increase was primarily due to the increased interest rates charged on the Amended and the maturing of several of our swap agreementsRestated MLA with CoBank ACB during 2011 as the variable rate we now payentered into on that debt portion is lower than the fixed rate we were previously paying, and the implementation of a cash management program with CoBank, ACB at the beginning of 2011.December 31, 2014.
Other investment income decreased $95,785$25,722 in 20122015 compared to 2011.2014. Other investment income includesis primarily from our equity ownerships in several partnerships and limited liability corporations. We recorded $158,582 of income from equity investments in 2012 and $228,168 of income in 2011companies.
Income Taxes
Income tax expense decreased by $1,869,394$190,176 in 2015 compared to 2014 as we recorded an income tax benefit of $365,477 in 2012 and income tax expense of $1,503,917$1,729,289 in 2011.2015 and $1,919,465 in 2014. The decrease in income taxes was primarily due to lower pre-tax net income in 2015 compared to 2014. The effective income tax rate was (13.0%)39.3% and 42.6%41.2% for 20122015 and 2011. The effective income tax rate in 2012 was lower than 2011 primarily due to changes in deferred taxes as a result of the HCC spin-off, partially offset by the recognition of approximately $29,000 in net tax benefits in 2011. This amount was originally for the 2006 tax year, which was no longer open for examination by federal and state tax authorities.2014. The difference between the effective tax rate and the federal statutory tax rate are reconciled in Note 76 – “Income Taxes” to the Consolidated Financial Statements of this Annual Report on Form 10-K.
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Inflation
It is the opinion of our management that the effects of inflation on operating revenue and expenses over the past two years have been immaterial. Our management anticipates that this trend will continue in the near future.
Off Balance Sheet Arrangements
The Company has no significant Off Balance Sheet Arrangements (as defined in Item 303 (a)(4) of Regulation S-K).
Liquidity and Capital Resources
Capital Structure
NU Telecom’s total capital structure (long-term and short-term debt obligations, plus stockholders’ equity) was $102,338,011$95,405,417 at December 31, 2012,2015, reflecting 54.5%61.9% equity and 45.5%38.1% debt. This compares to a capital structure of $97,191,975$97,694,469 at December 31, 2011,2014, reflecting 55.2%59.4% equity and 44.8%40.6% 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 3.152.50 times debt to EBITDA (earnings before interest, taxes, depreciation and amortization) as(as defined in our credit agreements,the loan documents), which is 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.receivable and dividends.
Table of ContentsLiquidity Outlook
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 year ended December 31, 20122015 were proceeds from cash generated from operations and cash reserves held at the beginning of the period. At December 31, 20122015 we had a working capital deficit of $4,947.$361,641. However, at December 31, 20122015, we also had approximately $3.8$5.0 million available under our revolving credit facility to fund any short-term working capital needs. The working capital deficit as of December 31, 2015 was primarily due to lower cash balances at the end of 2015 compared to 2014 and a temporary increase in accrued compensation and other accrued liabilities at the end of 2015 compared to 2014.
On December 31, 2014, NU Telecom entered into an Amended and Restated MLA with CoBank. The new MLA refinances and replaces the existing credit facility between CoBank and NU Telecom and the subsidiaries of NU Telecom. NU Telecom’s subsidiary HTC was a borrower under the prior credit facility, but NU Telecom is now the sole borrower under the new MLA. There are two loans under the new MLA, which include a $35 million term loan and a $9 million revolver loan. The term loan requires payments of $675,000 per quarter, beginning March 2015, with the final installment due December 31, 2021. NU Telecom may borrow from time to time under the revolver loan, which also matures on December 31, 2021. Also, under the new MLA, NU Telecom has the ability to either increase the amount of the commitment under the revolver loan by up to $6 million in a single increase, or add an incremental term loan up to $6 million.
We have not conducted a public equity offering. We operate with original equity capital, retained earnings and additions to indebtedness in the form of senior debt and bank lines of credit.
24
Cash Flows
We expect our liquidity needs to originate frominclude 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 December 31, 2012,flows, and anticipate that we will be able to plan for and match future liquidity needs with future internal and available external resources.
While we
We periodically seek to add growth initiatives by either expanding our network or our markets through organic/organic or internal investments or through strategic acquisitions, weacquisitions. We feel 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:
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| For Year Ended December 31 |
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| 2012 |
| 2011 |
| Increase (Decrease) |
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Net cash provided by (used in): |
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Operating activities |
| $ | 10,450,013 |
| $ | 8,654,333 |
| $ | 1,795,680 |
|
| 20.75 | % |
Investing activities |
|
| (7,020,595 | ) |
| (4,866,204 | ) |
| (2,154,391 | ) |
| 44.27 | % |
Financing activities |
|
| (1,901,285 | ) |
| (4,961,115 | ) |
| 3,059,830 |
|
| -61.68 | % |
Increase (decrease) in cash |
| $ | 1,528,133 |
| $ | (1,172,986 | ) | $ | 2,701,119 |
|
| -230.28 | % |
For Year Ended December 31 | |||||||||||
2015 | 2014 | Increase (Decrease) | |||||||||
Net cash provided by (used in): |
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Operating activities | $ | 10,548,774 | $ | 12,670,142 | $ | (2,121,368) | -16.74% | ||||
Investing activities |
|
| (5,872,691) |
|
| (9,503,135) |
| $ | 3,630,444 |
| 38.20% |
Financing activities |
| (5,069,346) |
| (3,186,324) | $ | (1,883,022) |
| -59.10% | |||
Increase (decrease) in cash |
| $ | (393,263) |
| $ | (19,317) |
| $ | (373,946) |
| -1935.84% |
Cash Flows from Operating Activities Cash generated by operations for the year ended December 31, 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 December 31, 2520122015 was $10,450,013,$10,548,774, compared to cash generated by operations of $8,654,333$12,670,142 in 2011.2014. The increasedecrease in cash flows from operating activities in 20122015 was primarily due to an increasedecreases in netaccounts payable and deferred income the timing of changes in receivables,taxes, partially offset by the changea decrease in deferred income tax.taxes receivable. 20122015 was $2,749,850,$551,824, compared to $1,221,717$945,087 at December 31, 2011.2014.
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 flows used in investing activities were $7,020,595$5,872,691 for the year ended December 31, 2012,2015, compared to $4,866,204$9,503,135 used in investing activities in 2011.2014. Capital expenditures relating to on-going operations were $7,014,135$5,673,113 in 20122015 and $4,824,204$9,419,188 in 2011.2014. Our investing expenditures have beenare 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 upcoming 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 haveAs of December 31, 2015, we had approximately $3.8$5.0 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 year ended December 31, 20122015 was $1,901,285.$5,069,346. This included long-term debt repayments of $3,698,883$2,700,000, payment of loan origination costs of $22,826, payments on our revolving credit facility of $609,426 and the distribution of $1,692,329$1,737,094 of dividends to stockholders, offset by a $1,191,713 increase in debt due to the new loan associated with the HCC spin-off and a $2,298,214 increase in debt due to the use of our revolving credit facility.stockholders. Cash used in financing activities for the year ended December 31, 20112014 was $4,961,115.$3,186,324. This included long-term debt repayments of $3,208,976,$42,552,266, a $76,829 reduction$1,844,536 increase in the use of our revolving credit facility, issuance of long-term debt of $39,644,471, payment of loan origination fees of $390,610 and the distribution of $1,675,310$1,732,455 of dividends to stockholders.
Working Capital
We had a working capital deficit (i.e. current assets minus current liabilities) of $4,947$361,641 as of December 31, 2012,2015, with current assets of approximately $8.6$6.8 million and current liabilities of approximately $8.6$7.2 million, compared to a working capital deficit of $232,247$1,252,359 as of December 31, 2011.2014. The ratio of current assets to current liabilities was 1.000.95 and 0.970.85 as of December 31, 20122015 and 2011.2014. The working capital deficit as of December 31, 2015 was primarily due to lower cash balances at the end of 2015 compared to 2014 and a temporary increase in accrued compensation and other accrued liabilities at the end of 2015 compared to 2014. 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.
Long-Term Debt and Revolving Credit Facilities
Our long-term debt obligations as of December 31, 2012,2015, were $42,494,385,$33,635,045 excluding current debt maturities of $4,113,000. Long-term$2,700,000. Our long-term debt obligations as of December 31, 2011,2014, were $39,809,171,$36,944,471, excluding current debt maturities of $3,698,883.$2,700,000.
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. Under the terms of the two MLAs and the supplements, we initially borrowed $59,700,000 and borrowed an additional $4,500,000 on December 19, 2012 and entered into promissory notes on the following terms:
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On December 31, 2014, NU Telecom entered into an Amended and Restated MLA with CoBank. The new MLA refinances and replaces the existing credit facility between CoBank and NU Telecom and the subsidiaries of NU Telecom. NU Telecom’s subsidiary HTC was a borrower under the prior credit facility, but NU Telecom is now the sole borrower under the new MLA. There are two loans under the new MLA, which include a $35 million term loan and a $9 million revolver loan. Also, under the new MLA, NU Telecom has the ability to either increase the amount of the commitment under the revolver loan by up to $6 million in a single increase, or add an incremental term loan up to $6 million.
MLA RX0583
●
RX0583-T2A - $9,000,000 revolving note with interest payable monthly. Final maturity date of the note is December 31, 2021. We currently have drawn $4,035,045 on this revolving note as of December 31, 2015.
●
RX0583-T3A - $35,000,000 term note with interest payable monthly. Final maturity date of the note is December 31, 2021. Twenty-eight quarterly principal payments of $675,000 are due commencing March 31, 2015 through December 31, 2021. A final balloon payment of $16,100,000 is due at maturity of the note on December 31, 2021.
RX0583-T2A and RX0583-T3A initially bear interest at a “LIBOR Margin” rate equal to 3.25 percent over the applicable LIBOR rate. The LIBOR Margin decreases as our “Leverage Ratio” decreases.
Within 180 days after the closing date of December 31, 2014, NU Telecom needed to enter into interest rate protection agreements in form and substance reasonably satisfactory to CoBank so as to fix or limit interest rates payable by NU Telecom at all times to at least 40% of the outstanding principal balance of Loan RX0583-T3A for an initial average weighted life of at least three years.
As described in Note 5 – “Interest Rate Swaps” to the Consolidated Financial Statements of this Annual Report on Form 10-K, we have entered into interest rate swaps that effectively fix our interest rates and cover $14.0 million at a weighted average rate of 4.47%, as of December 31, 2015. The remaining debt of $27.3 million ($5.0 million available under the revolving credit facilities and $22.3 million currently outstanding) remains subject to variable interest rates at an effective weighted average interest rate of 3.68%, as of December 31, 2015.
NU Telecom and its respective subsidiaries also have entered into security agreements under which substantially all 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 the obligations under the credit facility.
Our credit facility requires us to comply with specified financial ratios and tests. These financial ratios and tests include total leverage ratio, debt service coverage ratio, equity to total assets ratio, fixed coverage ratio and maximum annual capital expenditures tests.
At December 31, 2012 and 2011,2015, we were in compliance with all financial ratios in the loan agreements.
Our new 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$2,100,000 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 equalgreater than 2.50 to or1.00, and (ii) in any amount if our Total Leverage Ratio is less than 3.502.50 to 1.00, and (b) in either case, if we are not in default or potential default under ourthe 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.
Our credit facility contains restrictions that, among other things, limits or restricts our ability to enter into guarantees and contingent liabilities, incur additional debt, issue stock, transact asset sales, transfers or dispositions, and engage in mergers and acquisitions, without CoBank ACB approval.
See Note 54 – “Long-Term Debt” to the Consolidated Financial Statements of this Annual Report on Form 10-K for information pertaining to our long-term debt.debt and current effective interest rates.
27
Guarantees
We have guaranteed the obligations of our New Ulm subsidiary joint venture investment in FiberComm, LC. See Note 1211 – “Guarantees” to the Consolidated Financial Statements of this Annual Report on Form 10-K.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of financial condition and results of operations stated in this 20122015 Annual Report on Form 10-K are based upon NU Telecom’s consolidated 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 of this Annual Report on Form 10-K. There were no significant changes to these accounting policies during the year ended December 31, 2012.
Table of Contents2015.
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,networks, digital and commercial televisionTV programming, and Internet services (both dial-up(high-speed broadband), and high-speed broadband).hosted and managed services. 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 IXCs accessing our network are based on the utilization of our network by these carriers as measured by minutes of use on the network or special access to 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.
Interstate access rates are established by a nationwide pooling of companies known as NECA. The 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’scompany's actual or average costs. New Ulm’s and SETC’s settlements from the pools are based on itstheir actual costs to provide service, while the settlements for NU Telecom subsidiaries – WTC, PTC and HTC are based on nationwide average schedules. Access revenues for New Ulm 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.
28
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.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. In making the determination of the appropriate allowance for doubtful accounts, we consider specific accounts, historical write-offs, changes in customer relationships, credit worthiness and concentrations of credit risk. Specific accounts receivable are written off once a determination is made that the account is uncollectible. Additional allowances may be required if the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments. Our allowance for doubtful accounts was $175,705$160,000 and $300,000$60,500 as of December 31, 20122015 and 2011.
Table of Contents2014.
Financial Derivative Instruments and 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 where one or more significant inputs or value drivers are unobservable. | ||
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We usehave used financial derivative instruments to manage our overall cash flow exposure to fluctuations in interest rates. We accountaccounted 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 an interest rate swapsswap with our lender CoBank ACB to manage our cash flow exposure to fluctuations in interest rates. These instruments wereThis instrument is designated as a cash flow hedgeshedge and wereis 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 arethis derivative is 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 agreementsIRSA is discussed in Note 65 – “Interest Rate Swaps” to the Consolidated Financial Statements of this Annual Report on Form 10-K. The fair value of our swap agreements wereagreement was determined based on Level 2 inputs.
29
Valuation of Goodwill
We have goodwill on our books related to prior acquisitions of telephone properties. As discussed more fully in Note 43 – “Goodwill and Intangibles” to the Consolidated Financial Statements of this Annual Report on Form 10-K, and in accordance with GAAP, goodwill is reviewed for impairment annually or more frequently if an event occurs or circumstances change that would reduce the fair value below its carrying value. We perform our annual fair value evaluation in the fourth quarter of each year.
The impairment test for goodwill involves a two-step process: step one consists of a comparison of the fair value of a reporting unit with its carrying amount, including the goodwill allocated to each reporting unit. If the carrying amount is in excess of the fair value, step two requires the comparison of the implied fair value of the reporting unit goodwill with the carrying amount of the reporting unit goodwill. Any excess of the carrying value of the reporting unit goodwill over the implied fair value of the reporting unit goodwill will be recorded as an impairment loss.
In 20122015 and 2011,2014, we engaged an independent valuation firm to complete an annual impairment test for existing goodwill acquired. For 20122015 and 2011,2014, the testing resulted in no impairment to goodwill as the determined fair value was sufficient to pass the first step of the impairment test. Our independent valuation firm used a combination of Income (Discounted Cash Flow Method or DCF Method) and Market Approaches to estimate the fair value of the goodwill on our books related to prior acquisitions of telephone properties. The assumptions used in the estimates of fair value were based on projections provided by our management and a rate of return based on market information observed in debt and traded equity securities. Their Market Approaches considered market multiples observed in companies comparable to ours, traded on public exchange or over-the-counter, or transacted in a merger or acquisition transaction.
Assumptions used in our 20122015 DCF model include the following:
· A 9.00% weighted average cost of capital based on an industry weighted average cost of capital; and · A 1.00% terminal revenue growth rate. | ||
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The most significant amount of goodwill recorded on our books was due to the acquisition of HTC and the addition of goodwill obtained through the HCC spin-off. The carrying value of thatthe goodwill was $39,975,906$39,805,349 as of December 31, 20122015 and $29,707,1002014.
In 2015, we tested the HTC goodwill. Based on the DCF models, and income and market-based approaches that were used, we determined the estimated enterprise fair value of our reporting unit exceeded the carrying amount of that reporting unit by approximately $6.8 million, which indicated that we had no impairment as of December 31, 2011. The increase of $10,268,8062015. In addition, in goodwill in 2012 compared to 2011 is due to the addition of goodwill obtained through the HCC spin-off on December 31, 2012.
In 2012,2015, we tested the HTCSETC goodwill. Based on the DCF models, and income and market-based approaches we used, we determined the estimated enterprise fair value of our reporting unit exceeded the carrying amount of that reporting unit by approximately $5.9$5.7 million, which indicated that we had no impairment as of December 31, 2012.2015. The market-based approaches used in our evaluations are subject to change as a result of changing economic and competitive conditions. Future negative changes relating to our financial operations could result in a potential impairment of goodwill.
30
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.
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.
In accordance with GAAP, we record net unrecognized tax benefits that, if recognized, would affect the income tax provision when recorded. See Note 76 – “Income Taxes” to the Consolidated Financial Statements of this Annual Report Form 10-K.
As of December 31, 2015 and 2014 we had $0 and $281,363 of unrecognized tax benefits net of a federal tax benefit of $0 and $95,663, which if recognized would affect the effective tax rate. A petition related to HCC’s 2006 Minnesota tax return was previously filed in Minnesota Tax Court. The matter was resolved in April 2015.
We are primarily subject to United States, Minnesota, Nebraska and Iowa income taxes. Tax years subsequent to 20082011 remain open to examination by federal and state tax authorities. Our policy is to recognize interest and penalties related to income tax matters as income tax expense. As of December 31, 2015 and 2014 we had $0 and $89,910 of accrued interest that related to income tax matters.
Property, Plant and Equipment
We record impairment losses on long-lived assets used in operations when events and circumstances indicate the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. In assessing the recoverability of long-lived assets, we compare the carrying value to the undiscounted future cash flows the assets are expected to generate. If the total of the undiscounted future cash flows is less than the carrying amount of the assets, we would write down those assets based on the excess of the carrying amount over the fair value of the assets. Fair value is generally determined by calculating the discounted future cash flows expected from those assets. Changes in these estimates could have a material adverse effect on the assessment of long-lived assets, thereby requiring a write-down of the assets. Write-downs of long-lived assets are recorded as impairment charges and are a component of operating expenses. We have reviewed our long-lived assets and concluded that no impairment charge on these long-lived assets is necessary.
31
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. We have not made any significant changes to the lives of assets in the two-year period ended December 31, 2012.2015.
Equity Method Investment
We are an investor in several partnerships and limited liability corporations. Our percentages of ownership in these joint ventures range from 14.29%12.50% to 24.39%24.30%. We use the equity method of accounting for these investments, which reflects original cost and the recognition of our share of the net income or losses from the respective operations.
Incentive Compensation
We engaged an outside consultant in 2005 to advise us in our development of an Employee Incentive Plan for employees other than executive officers and a Management Incentive Plan for our executive officers. Both plans were implemented in 2006. Both of these plans arewere cash-based incentive plans. Payments on each plan are based on an achievement of objectives of measurable corporate performance, with financial and customer related targets. The financial targets are based on an achievement of specified operating revenues and netoperating income before interest, taxes, depreciation and amortization (OIBITDA), based on our budget, while the customer service targets are based on several factors, including (i) “uptime” (the amount of time that our phone, cable and Internet services are available to customers) and restoration time (our ability to restore service when an interruption occurs), (ii) customer retention and (iii)other customer service (derived from customer service data).key performance indicators.
TableOn May 28, 2015, the stockholders of Contentsthe NU Telecom approved the 2015 Employee Stock Plan. The purpose of the plan was to enable NU Telecom and its subsidiaries to attract and retain employees by aligning the financial interests of these individuals with the other stockholders of the company. The plan provides for eligible employees to elect to have a portion of their incentive compensation paid in company common stock in lieu of cash upon attainment of the objectives under the company’s 2006 employee incentive plans.
We accrue an estimated liability each year for these potential payouts and reverse that accrual if the incentive payout targets are not met and paid out. Incentive payouts, if earned, are typically paid in late March or early April of the year following the target year and after the filing of our Annual Report on Form 10-K.
Recent Accounting Developments
See Note 1 – “Summary of Significant Accounting Policies” to the Consolidated Financial Statements of this Annual Report on Form 10-K, for a discussion of recent accounting developments.
32
Item 7A.Quantitative and Qualitative Disclosures about Market Risk
Not required for a smaller reporting company.
Item 8.Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
New Ulm Telecom, Inc.
We have audited the accompanying consolidated balance sheets of New Ulm Telecom, Inc. (a Minnesota corporation) and subsidiaries as of December 31, 20122015 and 2011,2014, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the years then ended. New Ulm Telecom, Inc.’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present fairly, in all material respects, the consolidated financial position of New Ulm Telecom, Inc. and subsidiaries as of December 31, 20122015 and 2011,2014, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Olsen Thielen & Co., Ltd.
St. Paul, Minnesota
March 22, 201315, 2016
33
NEW ULM TELECOM, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
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| 2012 |
| 2011 |
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OPERATING REVENUES: |
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Local Service |
| $ | 5,782,218 |
| $ | 6,000,257 |
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Network Access |
|
| 10,781,356 |
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| 11,852,688 |
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Video |
|
| 5,969,610 |
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| 5,658,232 |
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Data |
|
| 5,568,000 |
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| 5,247,963 |
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Long Distance |
|
| 607,902 |
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| 649,404 |
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Other |
|
| 3,773,902 |
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| 3,862,907 |
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Total Operating Revenues |
|
| 32,482,988 |
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| 33,271,451 |
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OPERATING EXPENSES: |
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Plant Operations, Excluding Depreciation and Amortization |
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| 6,633,873 |
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| 6,332,282 |
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Cost of Video |
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| 5,104,561 |
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| 4,664,436 |
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Cost of Internet |
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| 959,058 |
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| 884,685 |
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Cost of Other Nonregulated Services |
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| 1,612,538 |
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| 1,575,353 |
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Depreciation and Amortization |
|
| 8,219,749 |
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| 9,010,393 |
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Selling, General, and Administrative |
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| 6,269,618 |
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| 6,400,900 |
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Total Operating Expenses |
|
| 28,799,397 |
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| 28,868,049 |
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OPERATING INCOME |
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| 3,683,591 |
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| 4,403,402 |
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OTHER (EXPENSE) INCOME: |
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Gain (Loss) on Sale of Equity Investments |
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| — |
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| (4,796 | ) |
Interest During Construction |
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| 19,067 |
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| 47,277 |
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Equity in Earnings of Hector Investment |
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| 770,539 |
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| 689,798 |
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CoBank Patronage Dividends |
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| 449,878 |
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| 485,812 |
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Interest Income |
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| 81,808 |
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| 87,057 |
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Loss on Hector Communications Corporation Spin-Off |
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| (111,546 | ) |
| — |
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Interest Expense |
|
| (2,227,343 | ) |
| (2,416,338 | ) |
Other Investment Income (Expense) |
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| 143,443 |
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| 239,228 |
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Total Other Income (Expense) |
|
| (874,154 | ) |
| (871,962 | ) |
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INCOME BEFORE INCOME TAXES |
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| 2,809,437 |
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| 3,531,440 |
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INCOME TAXES |
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| (365,477 | ) |
| 1,503,917 |
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NET INCOME |
| $ | 3,174,914 |
| $ | 2,027,523 |
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BASIC AND DILUTED NET INCOME PER SHARE |
| $ | 0.62 |
| $ | 0.40 |
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DIVIDENDS PER SHARE |
| $ | 0.33 |
| $ | 0.33 |
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WEIGHTED AVERAGE SHARES OUTSTANDING |
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| 5,123,017 |
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| 5,115,435 |
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The accompanying notes are an integral part of these consolidated financial statements.
NEW ULM TELECOM, INC. AND SUBSIDIARIES | ||||||
CONSOLIDATED STATEMENTS OF INCOME | ||||||
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 | ||||||
2015 | 2014 | |||||
OPERATING REVENUES: |
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Local Service | $ | 6,361,708 | $ | 6,487,362 | ||
Network Access |
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| 11,887,326 |
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| 11,649,277 |
Video | 9,056,684 | 8,310,923 | ||||
Data |
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| 9,942,645 |
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| 8,644,399 |
Other | 4,435,705 | 4,895,448 | ||||
Total Operating Revenues |
|
| 41,684,068 |
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| 39,987,409 |
OPERATING EXPENSES: |
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Plant Operations (Excluding Depreciation and Amortization) |
|
| 8,027,308 |
|
| 7,745,069 |
Cost of Video | 7,802,768 | 7,047,980 | ||||
Cost of Data |
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| 2,085,956 |
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| 1,625,716 |
Cost of Other Nonregulated Services | 1,821,360 | 2,122,838 | ||||
Depreciation and Amortization |
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| 9,747,667 |
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| 9,551,320 |
Selling, General, and Administrative | 7,157,376 | 7,096,971 | ||||
Total Operating Expenses |
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| 36,642,435 |
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| 35,189,894 |
OPERATING INCOME |
|
| 5,041,633 |
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| 4,797,515 |
OTHER (EXPENSE) INCOME: |
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Interest During Construction |
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| 17,672 |
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| 19,492 |
CoBank Patronage Dividends | 409,132 | 435,319 | ||||
Interest Income |
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| 224,223 |
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| 119,728 |
Interest Expense | (1,501,638) | (937,989) | ||||
Other Investment Income (Expense) |
|
| 204,422 |
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| 230,144 |
Total Other Income (Expense) | (646,189) | (133,306) | ||||
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INCOME BEFORE INCOME TAXES | 4,395,444 | 4,664,209 | ||||
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INCOME TAXES | 1,729,289 | 1,919,465 | ||||
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NET INCOME | $ | 2,666,155 | $ | 2,744,744 | ||
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BASIC AND DILUTED | ||||||
NET INCOME PER SHARE |
| $ | 0.52 |
| $ | 0.54 |
DIVIDENDS PER SHARE |
| $ | 0.34 |
| $ | 0.34 |
WEIGHTED AVERAGE SHARES OUTSTANDING |
|
| 5,110,371 |
|
| 5,097,401 |
Certain historical numbers have been changed to conform to the current year's presentation. | ||||||
The accompanying notes are an integral part of these consolidated financial statements. | ||||||
34
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| 2012 |
| 2011 |
| ||
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Net Income |
| $ | 3,174,914 |
| $ | 2,027,523 |
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Other Comprehensive Income: |
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|
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Unrealized Gain (Loss) of Equity Method Investee |
|
| (37,379 | ) |
| 357,316 |
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Reclassification for the Realized Loss on HCC Spin-Off |
|
| 111,546 |
|
| — |
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Unrealized Gains on Interest Rate Swaps |
|
| 939,332 |
|
| 887,994 |
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Income Tax Expense Related to Unrealized Gains on Interest Rate Swaps |
|
| (378,578 | ) |
| (359,371 | ) |
Other Comprehensive Income |
|
| 634,921 |
|
| 885,939 |
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|
|
|
|
|
Comprehensive Income |
| $ | 3,809,835 |
| $ | 2,913,462 |
|
The accompanying notes are an integral part of these consolidated financial statements.
NEW ULM TELECOM, INC. AND SUBSIDIARIES | ||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 | ||||||
2015 | 2014 | |||||
NET INCOME |
| $ | 2,666,155 |
| $ | 2,744,744 |
OTHER COMPREHENSIVE LOSS |
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|
Unrealized Losses on Interest Rate Swaps | (31,390) | - | ||||
Income Tax Expense Related to Unrealized Losses on Interest Rate Swaps |
|
| 12,703 |
|
| - |
OTHER COMPREHENSIVE LOSS |
| (18,687) |
| - | ||
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COMPREHENSIVE INCOME | $ | 2,647,468 | $ | 2,744,744 | ||
The accompanying notes are an integral part of these consolidated financial statements. | ||||||
35
NEW ULM TELECOM, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSDECEMBER 31, 2012 AND 2011
ASSETS
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| 2012 |
| 2011 |
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CURRENT ASSETS: |
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Cash |
| $ | 2,749,850 |
| $ | 1,221,717 |
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Receivables, Net of Allowance for Doubtful Accounts of $175,705 and $300,000 |
|
| 1,996,996 |
|
| 2,430,589 |
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Income Taxes Receivable |
|
| 201,270 |
|
| 167,855 |
|
Materials, Supplies, and Inventories |
|
| 2,276,368 |
|
| 1,946,831 |
|
Deferred Income Taxes |
|
| 795,375 |
|
| 907,352 |
|
Prepaid Expenses |
|
| 610,265 |
|
| 454,124 |
|
Total Current Assets |
|
| 8,630,124 |
|
| 7,128,468 |
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|
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INVESTMENTS & OTHER ASSETS: |
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|
|
|
|
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Goodwill |
|
| 39,975,906 |
|
| 29,707,100 |
|
Intangibles |
|
| 28,609,193 |
|
| 20,215,961 |
|
Hector Investment |
|
| — |
|
| 21,284,456 |
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Other Investments |
|
| 6,491,513 |
|
| 4,359,226 |
|
Deferred Charges and Other Assets |
|
| 77,478 |
|
| 116,214 |
|
Total Investments and Other Assets |
|
| 75,154,090 |
|
| 75,682,957 |
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PROPERTY, PLANT & EQUIPMENT: |
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|
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|
Telecommunications Plant |
|
| 105,707,925 |
|
| 93,981,635 |
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Other Property & Equipment |
|
| 10,221,493 |
|
| 6,769,814 |
|
Video Plant |
|
| 9,361,510 |
|
| 8,606,189 |
|
Total Property, Plant and Equipment |
|
| 125,290,928 |
|
| 109,357,638 |
|
Less Accumulated Depreciation |
|
| 80,466,903 |
|
| 74,478,555 |
|
Net Property, Plant & Equipment |
|
| 44,824,025 |
|
| 34,879,083 |
|
| |||||||
TOTAL ASSETS |
| $ | 128,608,239 |
| $ | 117,690,508 |
|
The accompanying notes are an integral part of these consolidated financial statements.
NEW ULM TELECOM, INC. AND SUBSIDIARIES | ||||||
CONSOLIDATED BALANCE SHEETS | ||||||
DECEMBER 31, 2015 AND 2014 | ||||||
ASSETS | ||||||
2015 | 2014 | |||||
CURRENT ASSETS: |
|
|
|
|
|
|
Cash | $ | 551,824 | $ | 945,087 | ||
Receivables, Net of Allowance for Doubtful Accounts of $160,000 and $60,500 |
|
| 1,260,941 |
|
| 1,442,477 |
Income Taxes Receivable | 701,111 | 847,893 | ||||
Materials, Supplies, and Inventories |
|
| 2,511,632 |
|
| 2,227,925 |
Deferred Income Taxes | 841,309 | 785,605 | ||||
Prepaid Expenses |
|
| 973,289 |
|
| 714,372 |
Total Current Assets | 6,840,106 | 6,963,359 | ||||
|
|
|
|
|
|
|
INVESTMENTS & OTHER ASSETS: | ||||||
Goodwill |
|
| 39,805,349 |
|
| 39,805,349 |
Intangibles | 21,195,495 | 23,666,728 | ||||
Other Investments |
|
| 7,294,815 |
|
| 7,079,362 |
Deferred Charges and Other Assets | 386,168 | 475,936 | ||||
Total Investments and Other Assets |
|
| 68,681,827 |
|
| 71,027,375 |
PROPERTY, PLANT & EQUIPMENT: |
|
|
|
|
|
|
Telecommunications Plant | 118,037,080 | 115,100,273 | ||||
Other Property & Equipment |
|
| 15,507,380 |
|
| 13,713,496 |
Video Plant | 10,095,596 | 9,566,806 | ||||
Total Property, Plant and Equipment |
|
| 143,640,056 |
|
| 138,380,575 |
Less Accumulated Depreciation | 99,525,661 | 92,297,652 | ||||
Net Property, Plant & Equipment |
|
| 44,114,395 |
|
| 46,082,923 |
TOTAL ASSETS |
| $ | 119,636,328 |
| $ | 124,073,657 |
The accompanying notes are an integral part of these consolidated financial statements. | ||||||
36
NEW ULM TELECOM, INC. AND SUBSIDIARIES | ||||||
CONSOLIDATED BALANCE SHEETS (continued) | ||||||
DECEMBER 31, 2015 AND 2014 | ||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||
2015 | 2014 | |||||
CURRENT LIABILITIES: |
|
|
|
|
|
|
Current Portion of Long-Term Debt | $ | 2,700,000 | $ | 2,700,000 | ||
Accounts Payable |
|
| 1,627,308 |
|
| 3,049,999 |
Other Accrued Taxes | 175,607 | 180,818 | ||||
Deferred Compensation |
|
| 61,338 |
|
| 63,428 |
Accrued Compensation | 935,031 | 692,974 | ||||
Other Accrued Liabilities |
|
| 1,702,463 |
|
| 1,528,499 |
Total Current Liabilities |
| 7,201,747 |
| 8,215,718 | ||
|
|
|
|
|
|
|
LONG-TERM DEBT, Less Current Portion |
| 33,635,045 |
| 36,944,471 | ||
|
|
|
|
|
|
|
NONCURRENT LIABILITIES: | ||||||
Loan Guarantees |
|
| 232,771 |
|
| 297,475 |
Deferred Income Taxes | 18,391,181 | 19,161,144 | ||||
Unrecognized Tax Benefit |
|
| - |
|
| 281,363 |
Other Accrued Liabilities | 298,839 | 276,857 | ||||
Financial Derivative Instruments |
|
| 31,390 |
|
| - |
Deferred Compensation |
| 774,983 |
| 846,631 | ||
Total Noncurrent Liabilities |
|
| 19,729,164 |
|
| 20,863,470 |
COMMITMENTS AND CONTINGENCIES: |
|
| - |
|
| - |
STOCKHOLDERS' EQUITY: |
|
|
|
|
|
|
Preferred Stock - $1.66 Par Value, 10,000,000 Shares Authorized, No Shares Issued and Outstanding |
|
| - |
|
| - |
Common Stock - $1.66 Par Value, 90,000,000 Shares Authorized, 5,116,826 and 5,101,334 Shares Issued and Outstanding | 8,528,043 | 8,502,223 | ||||
Accumulated Other Comprehensive Income (Loss) |
|
| (18,687) |
|
| - |
Retained Earnings |
| 50,561,016 |
| 49,547,775 | ||
Total Stockholders' Equity |
|
| 59,070,372 |
|
| 58,049,998 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
| $ | 119,636,328 |
| $ | 124,073,657 |
The accompanying notes are an integral part of these consolidated financial statements. | ||||||
NEW ULM TELECOM, INC. AND SUBSIDIARIES37CONSOLIDATED BALANCE SHEETS (continued)DECEMBER 31, 2012 AND 2011
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
| 2012 |
| 2011 |
| ||
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
Current Portion of Long-Term Debt |
| $ | 4,113,000 |
| $ | 3,698,883 |
|
Accounts Payable |
|
| 1,988,390 |
|
| 1,186,665 |
|
Other Accrued Taxes |
|
| 193,746 |
|
| 204,140 |
|
Financial Derivative Instruments |
|
| 303,851 |
|
| — |
|
Deferred Compensation |
|
| 67,614 |
|
| 195,375 |
|
Accrued Compensation |
|
| 569,028 |
|
| 679,158 |
|
Other Accrued Liabilities |
|
| 1,399,442 |
|
| 1,396,494 |
|
Total Current Liabilities |
|
| 8,635,071 |
|
| 7,360,715 |
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT, Less Current Portion |
|
| 42,494,385 |
|
| 39,809,171 |
|
|
|
|
|
|
|
|
|
NONCURRENT LIABILITIES: |
|
|
|
|
|
|
|
Loan Guarantees |
|
| 303,627 |
|
| 453,329 |
|
Deferred Income Taxes |
|
| 20,215,563 |
|
| 14,142,484 |
|
Unrecognized Tax Benefit |
|
| 94,952 |
|
| — |
|
Other Accrued Liabilities |
|
| 136,146 |
|
| 64,217 |
|
Financial Derivative Instruments |
|
| — |
|
| 1,243,183 |
|
Deferred Compensation |
|
| 997,869 |
|
| 933,488 |
|
Total Noncurrent Liabilities |
|
| 21,748,157 |
|
| 16,836,701 |
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES: |
|
| — |
|
| — |
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY: |
|
|
|
|
|
|
|
Preferred Stock - $1.66 Par Value, 10,000,000 Shares Authorized, No Shares Issued and Outstanding |
|
| — |
|
| — |
|
Common Stock - $1.66 Par Value, 90,000,000 Shares Authorized, 5,103,918 and 5,115,435 Shares Issued and Outstanding |
|
| 8,506,530 |
|
| 8,525,725 |
|
Accumulated Other Comprehensive Income (Loss) |
|
| (179,313 | ) |
| (814,234 | ) |
Retained Earnings |
|
| 47,403,409 |
|
| 45,972,430 |
|
Total Stockholders’ Equity |
|
| 55,730,626 |
|
| 53,683,921 |
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
| $ | 128,608,239 |
| $ | 117,690,508 |
|
The accompanying notes are an integral part of these consolidated financial statements.
NEW ULM TELECOM, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
|
|
|
|
|
|
|
|
|
| 2012 |
| 2011 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
Net Income |
| $ | 3,174,914 |
| $ | 2,027,523 |
|
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: |
|
|
|
|
|
|
|
Depreciation and Amortization |
|
| 8,258,486 |
|
| 9,049,414 |
|
Loss on Sale of Equity Investments |
|
| — |
|
| 4,796 |
|
Undistributed Earnings of Hector Investment |
|
| (770,539 | ) |
| (689,798 | ) |
Loss on Hector Communications Corporation Spin-Off |
|
| 111,546 |
|
| — |
|
Undistributed Earnings of Other Equity Investment |
|
| (158,582 | ) |
| (228,168 | ) |
Noncash Patronage Refund |
|
| (157,457 | ) |
| (179,057 | ) |
Stock Issued in Lieu of Cash Payment |
|
| 65,800 |
|
| — |
|
Distributions from Equity Investments |
|
| 300,000 |
|
| 200,000 |
|
Changes in Assets and Liabilities: |
|
|
|
|
|
|
|
Receivables |
|
| 1,017,501 |
|
| (768,365 | ) |
Income Taxes Receivable |
|
| (33,415 | ) |
| (82,637 | ) |
Materials, Supplies, and Inventories |
|
| (224,434 | ) |
| (238,789 | ) |
Prepaid Expenses |
|
| (88,638 | ) |
| (108,219 | ) |
Deferred Charges And Other Assets |
|
| — |
|
| 53,087 |
|
Accounts Payable |
|
| 926,587 |
|
| (565,928 | ) |
Other Accrued Taxes |
|
| (21,691 | ) |
| 16,920 |
|
Other Accrued Liabilities |
|
| (112,592 | ) |
| 172,530 |
|
Deferred Income Taxes |
|
| (1,642,103 | ) |
| 661,557 |
|
Deferred Compensation |
|
| (195,370 | ) |
| (670,533 | ) |
Net Cash Provided by Operating Activities |
|
| 10,450,013 |
|
| 8,654,333 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
Additions to Property, Plant, and Equipment, Net |
|
| (7,014,135 | ) |
| (4,824,204 | ) |
Cash Acquired from Spin-Off of HCC |
|
| 18,150 |
|
| — |
|
Other, Net |
|
| (24,610 | ) |
| (42,000 | ) |
Net Cash Used in Investing Activities |
|
| (7,020,595 | ) |
| (4,866,204 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
Principal Payments of Long-Term Debt |
|
| (3,698,883 | ) |
| (3,208,976 | ) |
Issuance of Long-Term Debt |
|
| 1,191,713 |
|
| — |
|
Changes in Revolving Credit Facility |
|
| 2,298,214 |
|
| (76,829 | ) |
Dividends Paid |
|
| (1,692,329 | ) |
| (1,675,310 | ) |
Net Cash Used in Financing Activities |
|
| (1,901,285 | ) |
| (4,961,115 | ) |
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH |
|
| 1,528,133 |
|
| (1,172,986 | ) |
|
|
|
|
|
|
|
|
CASH at Beginning of Period |
|
| 1,221,717 |
|
| 2,394,703 |
|
|
|
|
|
|
|
|
|
CASH at End of Period |
| $ | 2,749,850 |
| $ | 1,221,717 |
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 2,175,356 |
| $ | 2,354,014 |
|
Net cash paid for income taxes |
| $ | 1,310,000 |
| $ | 925,000 |
|
The accompanying notes are an integral part of these consolidated financial statements.
NEW ULM TELECOM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 | ||||||
2015 | 2014 | |||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
Net Income | $ | 2,666,155 | $ | 2,744,744 | ||
Adjustments to Reconcile Net Income to Net Cash |
|
|
|
|
|
|
| Provided by Operating Activities: | ||||||
Depreciation and Amortization | 9,806,033 | 9,590,061 | ||||
Undistributed Earnings of Other Equity Investment |
|
| (166,445) |
|
| (192,293) |
Noncash Patronage Refund | (114,134) | (148,337) | ||||
Stock Issued in Lieu of Cash Payment |
|
| 97,660 |
|
| 91,000 |
Distributions from Equity Investments | 200,000 | 100,000 | ||||
Changes in Assets and Liabilities: |
|
|
|
|
|
|
Receivables | 200,863 | 40,560 | ||||
Income Taxes Receivable |
|
| 146,782 |
|
| (847,893) |
Materials, Supplies, and Inventories | (283,707) | 307,121 | ||||
Prepaid Expenses |
|
| (246,577) |
|
| 56,663 |
Deferred Charges and Other Assets | 34,901 | - | ||||
Accounts Payable |
|
| (1,057,485) |
|
| 1,072,892 |
Accrued Income Taxes | - | (114,017) | ||||
Other Accrued Taxes |
|
| (5,211) |
|
| (10,136) |
Other Accrued Liabilities | 438,003 | 316,694 | ||||
Deferred Income Tax |
|
| (1,094,326) |
|
| (260,007) |
Deferred Compensation |
| (73,738) |
| (76,910) | ||
Net Cash Provided by Operating Activities |
|
| 10,548,774 |
|
| 12,670,142 |
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
Additions to Property, Plant, and Equipment, Net | (5,673,113) | (9,419,188) | ||||
Other, Net |
|
| (199,578) |
|
| (83,947) |
Net Cash Used in Investing Activities |
| (5,872,691) |
| (9,503,135) | ||
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||
Principal Payments of Long-Term Debt |
|
| (2,700,000) |
|
| (42,552,266) |
Issuance of Long-Term Debt | - | 39,644,471 | ||||
Loan Origination Fees |
|
| (22,826) |
|
| (390,610) |
Changes in Revolving Credit Facility | (609,426) | 1,844,536 | ||||
Dividends Paid |
|
| (1,737,094) |
|
| (1,732,455) |
Net Cash Used in Financing Activities |
| (5,069,346) |
| (3,186,324) | ||
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH |
|
| (393,263) |
|
| (19,317) |
CASH at Beginning of Period |
|
| 945,087 |
|
| 964,404 |
CASH at End of Period |
| $ | 551,824 |
| $ | 945,087 |
Supplemental cash flow information: |
|
|
|
|
|
|
Cash paid for interest | $ | 1,387,157 | $ | 883,079 | ||
Net cash (received) paid for income taxes |
| $ | 2,676,833 |
| $ | 3,142,664 |
The accompanying notes are an integral part of these consolidated financial statements. | ||||||
38
NEW ULM TELECOM, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYFOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
| ||||||||
|
| Common Stock |
|
| Retained |
| Total |
| ||||||||
|
| Shares |
| Amount |
|
|
|
| ||||||||
| ||||||||||||||||
BALANCE on December 31, 2010 |
|
| 5,115,435 |
|
| 8,525,725 |
|
| (1,700,173 | ) |
| 45,620,217 |
|
| 52,445,769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
|
| 2,027,523 |
|
| 2,027,523 |
|
Dividends |
|
|
|
|
|
|
|
|
|
|
| (1,675,310 | ) |
| (1,675,310 | ) |
Other Comprehensive Income |
|
|
|
|
|
|
|
| 885,939 |
|
|
|
|
| 885,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE on December 31, 2011 |
|
| 5,115,435 |
| $ | 8,525,725 |
| $ | (814,234 | ) | $ | 45,972,430 |
| $ | 53,683,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors’ 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 |
|
The accompanying notes are an integral part of these consolidated financial statements.
NEW ULM TELECOM, INC. AND SUBSIDIARIES | |||||||||||||
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY | |||||||||||||
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 | |||||||||||||
Accumulated | |||||||||||||
Other | |||||||||||||
Common Stock | Comprehensive | Retained | Total | ||||||||||
Shares | Amount | Income (Loss) | Earnings | Equity | |||||||||
BALANCE on December 31, 2013 | 5,089,534 |
| $ | 8,482,556 |
| $ | - |
| $ | 48,471,153 |
| $ | 56,953,709 |
Directors' Stock Plan | 11,800 |
|
| 19,667 |
|
|
|
|
| 64,333 |
|
| 84,000 |
Net Income | 2,744,744 | 2,744,744 | |||||||||||
Dividends |
|
|
|
|
|
|
|
|
| (1,732,455) |
|
| (1,732,455) |
|
|
|
|
|
|
|
|
| |||||
BALANCE on December 31, 2014 | 5,101,334 |
|
| 8,502,223 |
|
| - |
|
| 49,547,775 |
|
| 58,049,998 |
Directors' Stock Plan | 15,492 |
|
| 25,820 |
|
|
|
|
| 84,180 |
|
| 110,000 |
Net Income | 2,666,155 | 2,666,155 | |||||||||||
Dividends |
|
|
|
|
|
|
|
|
| (1,737,094) |
|
| (1,737,094) |
Unrealized Gain/(Loss) on Interest Rate Swap | (18,687) | (18,687) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE on December 31, 2015 | 5,116,826 | $ | 8,528,043 | $ | (18,687) | $ | 50,561,016 | $ | 59,070,372 | ||||
The accompanying notes are an integral part of these consolidated financial statements. | |||||||||||||
39
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
Description of Business
NU Telecom is a diversified communications company headquartered in New Ulm, Minnesota with more than 110 years of experience in the local telephone exchange and telecommunications business. Our principal line of business is the operation of five local telephone companies and the operation of two CLEC telephone companies. Our businesses consist of connecting customers to our state-of-the-art, fiber-rich communications network, providing managed services, switched service and dedicated private lines, connecting customers to long distance service providers and providing many other services associated with our company. Our businesses also provide IPTV, CATV, Internet access services, including high-speed broadband access, and long distance service. We also install and maintain communications systems to the areas in and around our service territories in southern Minnesota and northern Iowa.
Basis of Presentation and Principles of Consolidation
Our accounting policies of NU Telecom conform with GAAP and, where applicable, 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 in preparing general purpose financial statements for most public utilities. In general, the type of regulation covered by this statement permits rates (prices) for some services to be set at levels intended to recover the estimated costs of providing regulated services or products, including the cost of capital (interest costs and a provision for earnings on stockholders’ investments).
Principles of Consolidation
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.
Classification of Costs and Expenses
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 transportation costs.
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.
Use of Estimates
Preparing
The preparation of our consolidated financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities. The estimates and assumption used in the accompanying consolidated financial statements are based on our management’s evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results may differ from those estimates and assumptions.
40
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,networks, digital and commercial televisionTV programming, and Internet services (both dial-up(high-speed broadband), and high-speed broadband).hosted and managed services. 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 IXCs accessing our network are based on the utilization of our network by these carriers as measured by minutes of use on the network or special access to 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.
Interstate access rates are established by a nationwide pooling of companies known as NECA. The 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’scompany's actual or average costs. New Ulm’s and SETC’s settlements from the pools are based on its actual costs to provide service, while the settlements for NU Telecom subsidiaries – WTC, PTC and HTC are based on nationwide average schedules. Access revenues for New Ulm 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 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.
Receivables
As of December 31, 20122015 and 2011,2014, our consolidated receivables totaled $1,996,996$1,260,941 and $2,430,589,$1,442,477, net of the allowance for doubtful accounts. We believe our receivables as of December 31, 20122015 and 20112014 are recorded at their fair value. As there may be exposure or risk with receivables, we routinely monitor our receivables and adjust the allowance for doubtful accounts when events occur that may potentially affect the collection of our receivables.
Allowance for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. To estimateIn making the determination of the appropriate allowance for doubtful accounts, we consider specific accounts, historical write-offs, changes in customer financial condition andrelationships, credit worthiness and concentrations of credit risk. Specific receivablesaccounts receivable are written off once we determinea determination is made that the account is uncollectible. Additional allowances may be required if the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments.
41
The activity in our allowance for doubtful accounts includeincludes the following:
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|
| For Year Ended December 31 |
| ||||
|
| 2012 |
| 2011 |
| ||
| |||||||
Balance at beginning of period |
| $ | 300,000 |
| $ | 794,637 |
|
Additions charged to costs and expenses |
|
| 65,603 |
|
| 242,618 |
|
Accounts Written Off |
|
| (189,898 | ) |
| (737,255 | ) |
Balance at end of period |
| $ | 175,705 |
| $ | 300,000 |
|
Year Ended December 31 | |||||
2015 | 2014 | ||||
Balance at beginning of year | $ | 60,500 |
| $ | 120,000 |
Additions charged to costs and expenses | 333,217 | 226,439 | |||
Accounts written off |
| (233,717) |
|
| (285,939) |
Balance at end of year | $ | 160,000 | $ | 60,500 | |
Inventories
Inventory includes parts, materials and supplies stored in our warehouses to support basic levels of service and maintenance as well as scheduled capital projects and equipment awaiting configuration for customers. Inventory also includes (i) parts and equipment shipped directly from vendors to customer locations while in transit and (ii) parts and equipment returned from customers that are being returned to vendors for credit. Our inventory value as of December 31, 20122015 and 20112014 was $2,276,368$2,511,632 and $1,946,831.$2,227,925.
We value inventory using the lower of cost or market method. Similar to our allowance for doubtful accounts, we make estimates related to the valuation of inventory. As of December 31, 20122015 and 2011,2014, we had no inventory reserve. We adjust our inventory carrying value for estimated obsolescence or unmarketable inventory to the estimated market value based upon assumptions about future demand and market conditions. As market and other conditions change, we may establish additional inventory reserves at a time when the facts that give rise to a lower value are warranted. We use the first-in, first-out (FIFO) method of inventory costing for our non-retail inventory. We use the average cost method of inventory costing for our retail inventory.
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 where one or more significant inputs or value drivers are unobservable. | ||
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We usehave used financial derivative instruments to manage our overall cash flow exposure to fluctuations in interest rates. We accountaccounted 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.
42
We have entered into an interest rate swapsswap with our lender CoBank ACB to manage our cash flow exposure to fluctuations in interest rates. These instruments wereThis instrument is designated as a cash flow hedgeshedge and wereis 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 arethis derivative is 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 agreementsIRSA is discussed in Note 65 – “Interest Rate Swaps” to the Consolidated Financial Statements of this Annual Report on Form 10-K. The fair value of our swap agreements wereagreement was determined based on Level 2 inputs.
Property, Plant and Equipment
We record impairment losses on long-lived assets used in operations when events and circumstances indicate the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. In assessing the recoverability of long-lived assets, we compare the carrying value to the undiscounted future cash flows the assets are expected to generate. If the total of the undiscounted future cash flows is less than the carrying amount of the assets, we would write down those assets based on the excess of the carrying amount over the fair value of the assets. Fair value is generally determined by calculating the discounted future cash flows expected from those assets. Changes in these estimates could have a material adverse effect on the assessment of long-lived assets, thereby requiring a write-down of the assets. Write-downs of long-lived assets are recorded as impairment charges and are a component of operating expenses. We have reviewed our long-lived assets and concluded that no impairment charge on our long-lived assets is necessary.
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. We have not made any significant changes to the lives of these assets in the two year period ended December 31, 2012.2015.
Goodwill and Intangible Assets
We amortize our definite-lived intangible assets over their estimated useful lives. Customer listsrelationships are amortized over fourteen to fifteen years, regulatory rights are amortized over fifteen years and non-competition agreementstrade names are amortized over three to five years. In addition, we have determined that our HTC trade name intangible asset no longer has an indefinite life due to our re-branding initiatives. We have determined that the HTC trade name will be amortized over three years, beginning in 2010, as the re-branding initiatives are completed. Intangible assets with finite lives are amortized over their respective estimated useful lives. In accordance with GAAP, goodwill and intangible assets with indefinite useful lives are not amortized, but tested for impairment at least annually. See Note 43 – “Goodwill and Intangibles” to the Consolidated Financial Statements of this Annual Report on Form 10-K for a more detailed discussion of the intangible assets and goodwill. Our goodwill balance was $39,975,906$39,805,349 as of December 31, 20122015 and $29,707,100 as of December 31, 2011. The increase in 2012 compared to 2011 was due to the addition of goodwill obtained in the HCC spin-off.2014. In the fourth quarter of 20122015 and 20112014 we completed our annual impairment tests for existing acquired goodwill. This testing resulted in no impairment charges to goodwill at December 31, 20122015 and 2011.2014.
Investments and Other Assets
We are an investora co-investor with other rural telephone companies in several partnerships and limited liability corporations.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 use the equity method of accounting for these investments that reflects original cost and recognition of our share of the net income or losses from the respective operations.
See Note 13 – “Segment Information” to the Consolidated Financial Statements of this Annual Report on Form 10-K for a listing of our investments. Long-term investments in other companies that are not intended for resale or are not readily marketable are valued at the lower of cost or net realizable value.
43
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, 2012.2015. 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.
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.
Advertising Expense
Advertising is expensed as incurred. Advertising expense charged to operations was $187,009$238,132 and $209,580$191,259 in 20122015 and 2011.2014.
Interest During Construction
We include an average cost of debt for the construction of plant in our communications plant accounts.
Income Taxes
We account for income taxes in accordance with GAAP, which requires an asset and liability approach to financial accounting and reporting for income taxes. Accordingly, deferred tax assets and liabilities arise from the difference between the tax basis of an asset or liability and its reported amount in the financial statements.statements and operating and tax credit carryforwards. Deferred tax amountsassets and liabilities are determined using theenacted tax rates expected to apply to taxable income in the periods in which those temporary differences are expected to be in effect when the taxes will actually be paidrecovered or refunds received, as provided under currently enacted tax law.settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. We recognize interest and penalties related to income tax matters as income tax expense. Income tax expense or benefit is the tax payable or refundable, respectively, for the period plus or minus the change in deferred tax assets and liabilities during the period.
GAAP requires us to recognize the financial statement benefit of a tax position 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. See Note 76 – “Income Taxes” to the Consolidated Financial Statements of this Annual Report on Form 10-K for additional information regarding income taxes.
Collection of Taxes from Customers
Sales, excise and other taxes are imposed on most of our sales to nonexempt customers. We collect these taxes from our customers and remit the entire amounts to governmental authorities. Our accounting policies dictate that we exclude these taxes collected and remitted from our revenues and expenses.
Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash investments and receivables. We deposit some of our cash investments in high credit quality financial institutions accounts which, at times, may exceed federally insured limits. We have not experienced any losses in these accounts and do not believe we are exposed to any significant credit risk. Concentrations of credit risk with respect to trade receivables are limited due to our large number of customers.
44
Earnings And Dividends Per Share
Basic earnings per share (EPS) are computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. Our basic and diluted earnings per shareEPS are based on our weighted average number of shares outstanding of 5,123,0175,110,371 and 5,115,4355,097,401 for the periods ended December 31, 20122015 and 2011.2014.
Dividends per share arehave been declared quarterly by the NU Telecom Board of Directors.
Recent Accounting Developments
In December, 2011November 2015, the Financial Accounting Standards Board (FASB) issued authoritative guidance related toAccounting Standards Update (ASU 2015-17), “Income Taxes,” simplifying the balance sheet offsetting. This guidanceclassification of deferred taxes. ASU 2015-17 requires enhanced disclosures forthat deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial instrumentsposition. ASU 2015-17 removes the requirement to separate deferred income tax liabilities and derivative instruments that are subject to an enforceable master netting arrangement. This guidanceassets into current and noncurrent amounts. ASU 2015-17 is effective for fiscal years beginning on or after January 1, 2013, includingannual and interim periods therein and requires retrospective for application.beginning after December 15, 2016, with early adoption permitted. We are currently evaluating the impactexpect, upon adoption of this guidance, that our current financial statement classification of deferred tax assets and liabilities will haveall be classified as noncurrent on our condensed consolidated financial statements.balance sheet.
In September 2011,April 2015, FASB issued authoritative guidanceASU 2015-03, “Interest-Imputation of Interest,” simplifying the presentation of debt issuance costs. ASU 2015-03 requires debt issuance costs related to a recognized debt liability to be presented in the testingbalance sheet as a direct deduction from the carrying amount of goodwill for impairment. This guidance allows an entity the option to first access qualitative factors before calculating the fair value of a reporting unit. The entity may avoid applying the current two-step impairment test to a reporting unit if it determines, based on its assessment of qualitative factors, it is more likely than not that the fair value of the reporting unit is greater than its carrying amount. This guidance isliability, consistent with debt discounts. Amendments in this update are effective retrospectively for fiscal years and interim periods within those years beginning after December 15, 2011. Our2015, with early adoption permitted. We expect, upon adoption of this guidance, has not had a material impactthat the current financial statement classification of debt issuance costs will change from assets to liabilities on our financial statements.condensed consolidated balance sheet.
In June 2011,May 2014, FASB issued authoritativeASU 2014-09, “Revenue from Contracts with Customers,” and created a new topic in the FASB Accounting Standards Codification, Topic 606. ASU 2014-09 has been delayed by ASU 2015-14 to be effective for annual reporting periods beginning after December 15, 2017. The new standard provides a single comprehensive revenue recognition framework for all entities and supersedes nearly all existing United States GAAP revenue recognition guidance, requiring reclassification adjustments for items that are reclassified from other comprehensive income to net income be presented on the faceincluding industry-specific guidance. The core principle of the revenue model is that an entity should recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard is designed to create greater comparability for financial statements wherestatement users across industries and also requires enhanced disclosures. The amendments are effective for annual reporting periods beginning after December 15, 2017, including interim periods within the components of net income andreporting period. Early application is not permitted. We are currently evaluating the components of other comprehensive income are presented, which was deferred in December 2011. We will continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation requirements in effect before the authoritative guidance issued in June 2011 until further guidance is issued. We do not expectimpact this guidance tomay have a material impact on our consolidated financial statements.
In May 2011, FASB issued authoritative guidancestatements and related to fair value measurements. This guidance expands existing disclosure requirements for fair value measurements and makes other amendments. Key additional disclosures include quantitative disclosures about unobservable inputs in Level 3 measures, qualitative information about sensitivity of Level 3, as described in Note 1 – “Summary Of Significant Accounting Policies” to the Consolidated Financial Statements of this Annual Report on Form 10-K, and classification within the fair value hierarchy for instruments where fair value is only disclosed in the footnotes but carrying amount is on some other basis. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Our adoption of this guidance has not a material impact on our disclosures.
We have reviewed all other significant newly 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.
45
NOTE 2 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 20122015 and 2011,2014, include the following:
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| 2012 |
| 2011 |
| ||
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|
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|
|
Telecommunications Plant: |
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|
|
|
|
|
|
Land |
| $ | 494,082 |
| $ | 446,575 |
|
Buildings |
|
| 8,840,981 |
|
| 6,905,087 |
|
Other Support Assets |
|
| 10,191,528 |
|
| 9,142,961 |
|
Central Office and Circuit Equipment |
|
| 40,992,951 |
|
| 36,641,453 |
|
Cable and Wire Facilities |
|
| 44,584,800 |
|
| 40,339,563 |
|
Other Plant and Equipment |
|
| 404,883 |
|
| 394,323 |
|
Plant Under Construction |
|
| 198,700 |
|
| 111,673 |
|
|
|
| 105,707,925 |
|
| 93,981,635 |
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|
|
|
|
|
|
|
|
Other Property |
|
| 10,221,493 |
|
| 6,769,814 |
|
Video Plant |
|
| 9,361,510 |
|
| 8,606,189 |
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|
|
|
|
|
|
|
|
Total Property, Plant and Equipment |
| $ | 125,290,928 |
| $ | 109,357,638 |
|
2015 | 2014 | ||||
Telecommunications Plant: |
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|
|
|
|
Land | $ | 494,082 | $ | 494,082 | |
Buildings |
| 8,947,763 |
|
| 8,947,763 |
Other Support Assets | 12,260,021 | 11,114,886 | |||
Central Office and Circuit Equipment |
| 45,903,679 |
|
| 44,446,845 |
Cable and Wire Facilities | 49,690,473 | 49,012,778 | |||
Other Plant and Equipment |
| 404,883 |
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| 404,883 |
Plant Under Construction |
| 336,179 |
| 679,036 | |
|
| 118,037,080 |
|
| 115,100,273 |
Other Property |
| 15,507,380 |
|
| 13,713,496 |
Video Plant |
| 10,095,596 |
| 9,566,806 | |
Total Property, Plant and Equipment | $ | 143,640,056 | $ | 138,380,575 | |
Depreciation is computed using the straight-line method based on the estimated service or remaining useful lives of the various classes of depreciable assets. Depreciation expense was $6,142,980$7,276,434 and $6,933,640$7,080,088 in 20122015 and 2011.2014. The composite depreciation rates on communications plant and equipment for the two years ended December 31, 20122015 and 20112014 were 5.4%5.1% and 6.4%5.2%. Other property and video plant is depreciated over estimated useful lives of three to twenty-five years.
NOTE 3 – ACQUISITIONS AND DISPOSITIONS
Hector Communications Corporation Spin-Off Agreement
On December 31, 2012 NU Telecom completed a spin-off agreement with HCC. NU 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.
The preliminary allocation of the spin-off value of SETC is shown below:
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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 | ) |
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|
|
|
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 price 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 2012 as if the spin-off had been completed on January 1, 2012. The Company is providing this pro forma condensed Statement of Income to facilitate analysis of the 2012 Statement of Income.
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| TWELVE MONTHS ENDED DECEMBER 31, 2012 |
| ||||||||||
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| New Ulm |
| ||||||||
|
| Actual |
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| |||||||||
|
| Actual |
| Sleepy Eye |
| Pro Forma |
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| |||||
REVENUES |
| $ | 32,482,988 |
| $ | 5,527,334 |
| $ | (359,438 | ) | $ | 37,650,884 |
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|
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|
|
NET INCOME |
| $ | 3,174,914 |
| $ | 1,162,478 |
| $ | (1,477,779 | )* | $ | 2,859,613 |
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|
BASIC AND DILUTED NET INCOME PER SHARE |
| $ | 0.62 |
| $ | 0.23 |
| $ | (0.29 | ) | $ | 0.56 |
|
* These adjustments include Depreciation, Amortization, management services, equity income and Interest Expense, net of the related tax benefit.
The balance sheet of SETC is included in the December 31, 2012 financial statements of NU Telecom. The operating results for SETC are not included in the December 31, 2012 operating results of NU Telecom, but will be included in future year’s operating results.
NOTE 43 - 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$39,805,349 at December 31, 20122015 and $29,707,100 at December 31, 2011. The increase in the goodwill is due to the addition of goodwill obtained through the HCC spin-off on December 31, 2012.2014.
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 DCF 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 20122015 and 2011,2014, we engaged an independent valuation firm to complete our annual impairment testing for existing goodwill. For 20122015 and 2011,2014, the testing resulted inresults indicated no impairment charge to goodwill as the determined fair value was sufficient to pass the first step of the impairment test.
46
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 an additional charge to amortization expense of $266,667 per year, over the three years which began in 2010. Amortization expense was $2,076,769 and $2,076,753 for 2012 and 2011. Amortization expense for the next five years is estimated to be:
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|
|
2013 |
| $ | 2,471,233 |
|
2014 |
| $ | 2,471,233 |
|
2015 |
| $ | 2,471,233 |
|
2016 |
| $ | 2,469,256 |
|
2017 |
| $ | 2,469,083 |
|
names. 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:
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|
| December 31, 2012 |
| December 31, 2011 |
| ||||||||
|
| Useful |
| Gross |
| Accumulated |
| Gross |
| Accumulated |
| |||||
Definite-Lived Intangible Assets |
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|
|
|
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|
|
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|
|
|
|
|
|
Customers Relationships |
|
| 14-15 yrs |
| $ | 29,278,445 |
| $ | 6,905,929 |
| $ | 19,378,445 |
| $ | 5,522,504 |
|
Regulatory Rights |
|
| 15 yrs |
|
| 4,000,000 |
|
| 1,333,323 |
|
| 4,000,000 |
|
| 1,066,659 |
|
Non-Competition Agreement |
|
| 5 yrs |
|
| 800,000 |
|
| 800,000 |
|
| 800,000 |
|
| 639,988 |
|
Trade Name |
|
| 3-5 yrs |
|
| 1,370,000 |
|
| 800,000 |
|
| 800,000 |
|
| 533,333 |
|
Indefinitely-Lived Intangible Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video Franchise |
|
|
|
|
| 3,000,000 |
|
| — |
|
| 3,000,000 |
|
| — |
|
Total |
|
|
|
| $ | 38,448,445 |
| $ | 9,839,252 |
| $ | 27,978,445 |
| $ | 7,762,484 |
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
Net Identified Intangible Assets |
|
|
|
|
|
|
| $ | 28,609,193 |
|
|
|
| $ | 20,215,961 |
|
December 31, 2015 | December 31, 2014 | ||||||||||||
Gross Carrying Amount | Gross Carrying Amount | ||||||||||||
Useful Lives | Accumulated Amortization | Accumulated Amortization | |||||||||||
Definite-Lived Intangible Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Customers Relationships | 14-15 yrs | $ | 29,278,445 | $ | 13,177,635 | $ | 29,278,445 | $ | 11,087,066 | ||||
Regulatory Rights | 15 yrs |
|
| 4,000,000 |
|
| 2,133,315 |
|
| 4,000,000 |
|
| 1,866,651 |
Trade Name | 3-5 yrs | 570,000 | 342,000 | 570,000 | 228,000 | ||||||||
Indefinitely-Lived Intangible Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Video Franchise |
| 3,000,000 |
| - |
| 3,000,000 |
| - | |||||
Total |
|
| $ | 36,848,445 |
| $ | 15,652,950 |
| $ | 36,848,445 |
| $ | 13,181,717 |
|
|
|
| ||||||||||
Net Identified Intangible Assets |
|
|
|
|
| $ | 21,195,495 |
|
|
|
| $ | 23,666,728 |
Amortization expense related to the definite-lived assets was $2,471,233 for 2015 and $2,471,232 for 2014. Amortization expense for the next five years is estimated to be:
2016 | $ | 2,469,256 |
2017 | $ | 2,469,083 |
2018 | $ | 2,355,083 |
2019 | $ | 2,355,083 |
2020 | $ | 2,355,083 |
NOTE 54 - LONG-TERM DEBT
Substantially all of our assets are pledged as security for our long-term debt under loan agreements with CoBank, ACB. These mortgage notes are required to be paid in quarterly installments covering principal and interest, beginning in the year of issue and maturing on December 31, 2014.
The security and loan agreements underlying the CoBank, ACB notes contain restrictions on distributions to stockholders and investment in or loans to others. In addition, we are required to maintain financial ratios for total leverage, equity to total assets and debt service.
Secured Credit Facility:
We have a credit facility with CoBank, ACB.CoBank. Under the credit facility, we entered into separate MLAs and a series of supplements to the respective MLAs. Under the terms of the two MLAs and the supplements, we initially borrowed $59,700,000 and borrowed an additional $4,500,000, of which $3,300,000 was a non-cash advance as part of the HCC spin-off, on December 19, 2012 and entered into promissory notes on the following terms:
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| |
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Each note above initially bears interest at a “LIBOR Margin” rate equal to 2.75 percent over the applicable LIBOR rate. The LIBOR Margin decreases as our “Leverage Ratio” decreases.
NU Telecom and its respective subsidiaries also have entered into security agreements under which substantially all 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 the obligations under the credit facility. The mortgage notes are required to be paid in quarterly installments covering principal and interest, beginning in the year of issue and maturing on December 31, 2021.
Secured Credit Facility:
On December 31, 2014, NU Telecom entered into an Amended and Restated MLA with CoBank. The new MLA refinances and replaces the existing credit facility between CoBank and NU Telecom and the subsidiaries of NU Telecom. NU Telecom’s subsidiary HTC was a borrower under the prior credit facility, but NU Telecom is now the sole borrower under the new MLA. There are two loans under the new MLA, which include a $35 million term loan and a $9 million revolver loan. Also, under the new MLA, NU Telecom has the ability to either increase the amount of the commitment under the revolver loan by up to $6 million in a single increase, or add an incremental term loan up to $6 million.
47
MLA RX0583
●
RX0583-T2A - $9,000,000 revolving note with interest payable monthly. Final maturity date of the note is December 31, 2021. We currently have drawn $4,035,045 on this revolving note as of December 31, 2015.
●
RX0583-T3A - $35,000,000 term note with interest payable monthly. Final maturity date of the note is December 31, 2021. Twenty-eight quarterly principal payments of $675,000 are due commencing March 31, 2015 through December 31, 2021. A final balloon payment of $16,100,000 is due at maturity of the note on December 31, 2021.
RX0583-T2A and RX0583-T3A initially bear interest at a “LIBOR Margin” rate equal to 3.25 percent over the applicable LIBOR rate. The LIBOR Margin decreases as our “Leverage Ratio” decreases.
Within 180 days after the closing date of December 31, 2014, NU Telecom must enter into interest rate protection agreements in form and substance reasonably satisfactory to CoBank so as to fix or limit interest rates payable by NU Telecom at all times to at least 40% of the outstanding principal balance of Loan RX0583-T3A for an initial average weighted life of at least three years.
Our credit facility requires us to comply with specified financial ratios and tests. These financial ratios and tests include total leverage ratio, debt service coverage ratio, equity to total assets ratio, fixed coverage ratio and maximum annual capital expenditures tests. At December 31, 2015 we were in compliance with all the stipulated financial ratios in our loan agreements.
There are security and loan agreements includeunderlying our current CoBank credit facility that contain restrictions on our abilitydistributions to pay cash dividendsstockholders and investment in, or loans, to others. Also, 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 the 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.
Our credit facility contains restrictions that, among other things, limits or restricts our ability to enter into guarantees and contingent liabilities, incur additional debt, issue stock, transact asset sales, transfers or dispositions, and engage in mergers and acquisitions, without CoBank ACB approval.
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Long-term debt is as follows: |
| 2012 |
| 2011 |
| ||
|
|
|
|
|
|
|
|
Secured seven-year reducing credit facility to CoBank, ACB, in quarterly installments of $250,000, plus a notional variable rate of interest through December 31, 2014. |
| $ | 11,500,000 |
| $ | 12,750,000 |
|
|
|
|
|
|
|
|
|
Secured seven-year revolving credit facility of up to $10,000,000 to CoBank, ACB, plus a notional variable rate of interest through December 31, 2014. |
|
| 8,221,385 |
|
| 5,923,171 |
|
|
|
|
|
|
|
|
|
Secured two-year reducing revolving credit facility to CoBank, ACB in quarterly installments of $225,000 (beginning on June 30, 2013), plus a notional variable rate of interest through December 31, 2014. |
|
| 4,500,000 |
|
| — |
|
|
|
|
|
|
|
|
|
Secured seven-year reducing revolving credit facility to CoBank, ACB in quarterly installments of $609,500 (beginning in 2010), plus a notional variable rate of interest through December 31, 2014. |
|
| 22,386,000 |
|
| 24,824,000 |
|
|
|
|
|
|
|
|
|
Secured seven-year revolving credit facility of up to $2,000,000 to CoBank, ACB, plus a notional variable rate of interest through December 31, 2014. |
|
| — |
|
| — |
|
|
|
|
|
|
|
|
|
Unsecured ten-year note with the City of Redwood Falls payable semi-annually (beginning in 2002), at a fixed 5% interest rate maturing on January 1, 2012. |
|
| — |
|
| 10,883 |
|
|
|
| 46,607,385 |
|
| 43,508,054 |
|
Less: Amount due within one year |
|
| 4,113,000 |
|
| 3,698,883 |
|
Total Long Term Debt |
| $ | 42,494,385 |
| $ | 39,809,171 |
|
Our credit facility requires usnew loan agreements include restrictions on our ability to comply with specified financial ratiospay cash dividends to our stockholders. However, we are allowed to pay dividends (a) (i) in an amount up to $2,100,000 in any year if our “Total Leverage Ratio,” that is, the ratio of our “Indebtedness” to “EBITDA” – as defined in the loan documents, is greater than 2.50 to 1.00, and tests. These financial ratios(ii) in any amount if our Total Leverage Ratio is less than 2.50 to 1.00, and tests include total leverage ratio, debt service coverage ratio, equity to total assets ratio and maximum annual capital expenditures tests. As(b) in either case, if we are not in default or potential default under the loan agreements.
Long-term debt is as follows: 2015 2014 Secured seven-year reducing credit facility to CoBank, ACB, in quarterly installments of $675,000 (beginning on March 31, 2015), plus a notional variable rate of interest through December 31, 2021. $ 32,300,000 $ 35,000,000 Secured seven-year revolving credit facility of up to $9,000,000 to CoBank, ACB, plus a notional variable rate of interest through December 31, 2021. 4,035,045 4,644,471 36,335,045 39,644,471 Less: Amount due within one year 2,700,000 2,700,000 Total Long Term Debt $ 33,635,045 $ 36,944,471
48
Required principal payments are as follows:
2016 | $ | 2,700,000 |
2017 | $ | 2,700,000 |
2018 | $ | 2,700,000 |
2019 | $ | 2,700,000 |
2020 | $ | 2,700,000 |
As described in Note 65 – “Interest Rate Swaps” to the Consolidated Financial Statements of this Annual Report on Form 10-K, we have entered into an interest rate swapsswap that effectively fix our interest rates and cover $36.0$14.0 million at a weighted average rate of 5.52%4.47%, as of December 31, 2012.2015. The additional $14.4remaining debt of $27.3 million of outstanding debt ($3.85.0 million available under the revolving credit facilities and $10.6$22.3 million currently outstanding) remains subject to variable interest rates at an effective weighted average interest rate of 2.63%3.68%, as of December 31, 2012.2015.
Required principal payments are as follows:
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|
|
2013 |
| $ | 4,113,000 |
|
2014 |
| $ | 42,494,385 |
|
2015 |
| $ | 0 |
|
2016 |
| $ | 0 |
|
2017 |
| $ | 0 |
|
NOTE 65 – 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 facility with CoBank ACB requirerequired 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, on June 18, 2015 we entered into Interest Rate Swap Agreementsan IRSA with CoBank ACB.covering $14.0 million of our aggregate indebtedness to CoBank. This swap effectively locks in the interest rate on $14.0 million of variable-rate debt through June 2018. Under these Interest Rate Swap Agreements and subsequent swaps that each covers a specified notional dollar amount,IRSA, 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,the IRSA, we pay a fixed contractual interest rate and (i) makemade 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 applicablethe loan, without reflecting any interest rate swaps.our IRSA. At the end of each calendar quarter,month, CoBank ACB adjusts our aggregate interest payments based uponon the difference, if any, between the amounts paid by us during the quartermonth and the current effective interest rate set forth in the table below. All netNet 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 aggregated indebtedness to CoBank, ACB effective March 19, 2008 and (ii) an additional $6.0 million of our aggregated indebtedness to CoBank, ACB effective June 23, 2008. These swaps effectively lock 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.
On January 1, 2011, we entered into a cash management agreement with CoBank, ACB. This agreement reduces our borrowing expense in the form of lower interest expense by ensuring there are no idle funds in our bank accounts as those excess funds are used to reduce our debt. When we have excess cash in our bank accounts, our surplus cash is automatically applied to our outstanding loan balances in our revolver debt facilities and when we have a cash deficit position in our bank accounts, CoBank, ACB advances funds on our revolver debt facilities to fund the deficit position. Over time, our interest expense is reduced as we are in a cash surplus position more often than a deficit position.
On March 31, 2011, $5,000,000 of our swaps matured on Loan RX0583-T1 ($1,000,000) and Loan RX0584-T1 ($4,000,000). No gain or loss was recognized on these swaps as they had reached their full maturities.
On June 30, 2011, an additional $3,000,000 of our swaps matured on Loan RX0583-T2. No gain or loss was recognized on this swap as it had reached its full maturity.
As of December 31, 20122015 we had the following interest rate swapsswap in effect.
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Loan # |
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| Maturity Date |
| Notional Amount |
| Effective Interest Rate (1) |
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RX0583-T1 |
| 03/31/2013 |
| $ | 11,250,000 |
| 5.26% (LIBOR Rate of 3.26% plus 2.00% LIBOR Margin) |
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RX0583-T2 |
| 06/30/2013 |
| $ | 3,000,000 |
| 6.54% (LIBOR Rate of 4.54% plus 2.00% LIBOR Margin) |
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RX0584-T1 |
| 03/31/2013 |
| $ | 21,750,000 |
| 5.51% (LIBOR Rate of 3.26 %plus 2.25% LIBOR Margin) |
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Loan # | Maturity Date | Notional Amount | Effective Interest Rate (1) |
RX0583-T3A | 06/29/2018 | $14,000,000 | 4.47% (LIBOR Rate of 1.22% plus 3.25% LIBOR Margin) |
(1)
As described in Note 54 – “Long-Term Debt” to the 2015 Consolidated Financial Statements of this Annual Report on FromForm 10-K, eachthe note above initially bears interest at a LIBOR rate determined by the maturity of the note, plus a “LIBOR Margin” rate equal to either 2.00% or 2.25%3.25% 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.
These
49
Our interest rate swaps qualifyswap under our credit facilities qualifies as a cash flow hedgeshedge for accounting purposes under GAAP. We have reflectedreflect the effect of thesethis hedging transactionstransaction in the financial statements. As of December 31, 2012 we recognized an unrealized gain, net of tax, of $560,754. As of December 31, 2011 we recognized an unrealized gain, net of tax, of $528,623. The unrealized gains weregain/loss is reported in other comprehensive income. If we were to terminate our interest rate swap agreements,IRSA, 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 agreements isIRSA was 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.IRSA. The fair value indicates an estimated amount we would havebe required to pay if the contracts were canceled or transferred to other parties. At December 31, 2012,2015, the fair value liability of the swapsswap was $303,851,$31,390, which has been recorded net of deferred tax benefit of $124,538,$12,703, for the $179,313 in accumulated other comprehensive loss. At December 31, 2011, the fair value liability of the swaps was $1,243,183, which has been recorded net of deferred tax benefit of $503,116, for the $740,067$18,687 in accumulated other comprehensive loss.
NOTE 76 - INCOME TAXES
Income taxes recorded in our consolidated statements of income consists of the following:
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| 2012 |
| 2011 |
| ||
Taxes currently payable |
|
|
|
|
|
|
|
Federal |
| $ | 914,980 |
| $ | 402,617 |
|
State |
|
| 361,646 |
|
| 439,743 |
|
Deferred Income Taxes |
|
| (1,642,103 | ) |
| 661,557 |
|
|
|
|
|
|
|
|
|
Total Income Tax Expense (Benefit) |
| $ | (365,477 | ) | $ | 1,503,917 |
|
2015 | 2014 | ||||
Taxes currently payable |
|
|
|
|
|
Federal | $ | 2,085,226 | $ | 1,591,326 | |
State |
| 619,588 |
|
| 588,146 |
Deferred Income Taxes | (975,525) | (260,007) | |||
|
|
|
|
|
|
Total Income Tax Expense (Benefit) | $ | 1,729,289 | $ | 1,919,465 | |
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.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
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|
|
|
|
|
|
| 2012 |
| 2011 |
| ||
Balance Beginning of Year |
| $ | — |
| $ | 36,317 |
|
Net Increases |
|
|
|
|
|
|
|
Prior Period Tax Positions |
|
| 94,952 |
|
| — |
|
Net Decreases |
|
|
|
|
|
|
|
Prior Period Tax Positions |
|
| — |
|
| (36,317 | ) |
Settlements |
|
| — |
|
| — |
|
Balance at End of Year |
| $ | 94,952 |
| $ | — |
|
2015 | 2014 | ||||
Balance Beginning of Year | $ | 281,363 |
| $ | 259,739 |
Net Increases | |||||
Prior Period Tax Positions |
| - |
|
| 21,624 |
Net Decreases | |||||
Prior Period Tax Positions |
| (118,030) |
|
| - |
Settlements |
| (163,333) |
| - | |
Balance at End of Year | $ | - |
| $ | 281,363 |
As of December 31, 2012 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 HCC’s 2006 state tax return. The examination of this return is expected to be completed in 2013. As of December 31, 20112015 we had no unrecognized tax benefits that, if recognized, would affect the effectivebenefits. A petition related to HCC’s 2006 Minnesota tax rate.return was previously filed in Minnesota Tax Court. This matter was resolved in April 2015.
We are primarily subject to United States, Minnesota, Nebraska and Iowa income taxes. Tax years subsequent to 20082011 remain open to examination by United Statesfederal and state tax authorities. Our policy is to recognize interest and penalties related to income tax matters inas income tax expense. As of December 31, 20122015 and 2014, we had $19,136no interest or penalty accrued.
50
Table of accrued interest that related to income tax matters.Contents
The differences between the statutory federal tax rate and the effective tax rate were as follows:
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|
|
|
|
| 2012 |
| 2011 |
| ||
|
|
|
|
|
|
|
|
Statutory Tax Rate |
|
| 35.00 | % |
| 35.00 | % |
Effect of: |
|
|
|
|
|
|
|
Surtax Exemption |
|
| (1.00 | ) |
| (1.00 | ) |
State Income Taxes Net of Federal Tax Benefit |
|
| (1.52 | ) |
| 7.18 |
|
Uncertain Tax Positions |
|
| — |
|
| (0.82 | ) |
Deferred Tax Adjustment for Hector Spin-Off |
|
| (49.97 | ) |
| — |
|
Permanent Differences and Other, Net |
|
| 4.48 |
|
| 2.23 |
|
Effective tax rate |
|
| (13.01 | )% |
| 42.59 | % |
2015 | 2014 | ||||
Statutory Tax Rate | 35.00 | % |
| 35.00 | % |
Effect of: | |||||
Surtax Exemption | (1.00) |
|
| (1.00) |
|
State Income Taxes Net of Federal Tax Benefit | 7.14 | 6.97 | |||
Uncertain Tax Positions | (1.58) |
|
| 0.30 |
|
Permanent Differences and Other, Net | (0.22) | (0.12) | |||
Effective tax rate | 39.34 | % |
| 41.15 | % |
Deferred income taxes and unrecognized tax benefits reflected in our consolidated balance sheets are summarized as follows:
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|
|
| 2012 |
| 2011 |
| ||
Current Deferred Tax (Assets) / Liabilities |
|
|
|
|
|
|
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Accrued Expenses |
| $ | (588,991 | ) | $ | (586,849 | ) |
Deferred Compensation |
|
| (80,567 | ) |
| (78,742 | ) |
Other |
|
| (125,817 | ) |
| (241,761 | ) |
Total Current Deferred Tax (Asset) / Liabilities |
|
| (795,375 | ) |
| (907,352 | ) |
|
|
|
|
|
|
|
|
Non-Current Deferred Tax (Asset) / Liabilities |
|
|
|
|
|
|
|
Fixed Assets |
|
| 9,594,274 |
|
| 6,346,089 |
|
Intangible Assets |
|
| 10,243,221 |
|
| 6,770,867 |
|
Unrealized Losses on Interest Rate Swaps |
|
| (122,461 | ) |
| (501,040 | ) |
Deferred Compensation |
|
| (348,975 | ) |
| (376,224 | ) |
Partnership Basis |
|
| 849,504 |
|
| 1,902,792 |
|
Subtotal Deferred Tax (Assets) / Liabilities Long-Term |
|
| 20,215,563 |
|
| 14,142,484 |
|
Unrecognized Tax Benefit |
|
| 94,952 |
|
| — |
|
Accrued interest on Unrecognized Tax Benefit |
|
| — |
|
| — |
|
Total Deferred Tax (Assets) / Liabilities Long-Term |
|
| 20,310,515 |
|
| 14,142,484 |
|
|
|
|
|
|
|
|
|
Net Deferred Tax Liability |
| $ | 19,515,140 |
| $ | 13,235,132 |
|
2015 | 2014 | ||||
Current Deferred Tax (Assets) / Liabilities |
|
|
|
|
|
Accrued Expenses | $ | (634,958) | $ | (687,725) | |
Deferred Compensation |
| (24,721) |
|
| (25,563) |
Other | (181,630) | (72,317) | |||
Total Current Deferred Tax (Asset) / Liabilities |
| (841,309) |
|
| (785,605) |
Non-Current Deferred Tax (Asset) / Liabilities |
|
|
|
|
|
Fixed Assets | 10,489,965 | 10,338,127 | |||
Intangible Assets |
| 7,316,252 |
|
| 8,297,427 |
Deferred Compensation | (312,381) | (341,223) | |||
Partnership Basis |
| 897,345 |
|
| 866,813 |
Subtotal Deferred Tax (Assets) / Liabilities Long-Term | 18,391,181 | 19,161,144 | |||
Unrecognized Tax Benefit |
| 0 |
|
| 281,363 |
Total Deferred Tax Liabilities: |
| 18,391,181 |
| 19,442,507 | |
|
|
|
|
|
|
Total Net Deferred Tax (Asset) / Liability | $ | 17,549,872 | $ | 18,656,902 | |
NOTE 87 - RETIREMENT PLAN
We have a 401(k) employee savings plan in effect for employees who meet age and service requirements. Our contributions to our 401(k) employee savings plan were $423,184$484,636 and $405,688$469,306 in 20122015 and 2011.2014.
NOTE 98 – COMMITMENTS AND CONTINGENCIES
We are involved in certain contractual disputes in
Over the ordinary course of business. We do not believe2014, NU Telecom received notice of disputes from several IXCs, and was subsequently named in litigation regarding traffic exchanged between our companies and specifically the ultimate resolutionclassification of anyIntraMTA wireless traffic related to access charges. This litigation was an industry-wide dispute affecting numerous telecom companies. In November, 2015 the United States District Court in Dallas, Texas ruled in favor of these existing matters will have a material adverse effect on our financial position, results of operations or cash flows. the telecom companies, which includes NU Telecom. All access charges owed to the telecom companies including NU Telecom were found to be owed by the IXCs and NU Telecom was subsequently paid for the access charges.
We did not experience any changes to material contractual obligations in the year ended December 31, 2012.
2015. Our capital budget for 20132016 is approximately $6,000,000$6.5 million and will be financed through internally generated funds.
51
NOTE 109 - NONCASH INVESTING ACTIVITIES
Noncash investing activities included $306,717$73,538 and $(467,280)$438,744 during the years ended December 31, 20122015 and 2011.2014. These activities related to plant and equipment additions placed in service and are recorded in our accounts payable at year-end.
NOTE 1110 – 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 Page 5Note 13 – “Telecom Segment”“Segment Information” to the Consolidated Financial Statements of this Annual Report on Form 10-K.
NOTE 1211 - GUARANTEES
On September 30, 2011, Fibercomm, LC refinanced two existing loans with American State Bank withinto a new ten-year loan, maturing on September 30, 2021. As of December 31, 2012,2015, we have recorded a liability of $303,627$232,771 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 1312 – DEFERRED COMPENSATION
As of December 31, 20122015 and 2011,2014, we have recorded other deferred compensation relating to executive compensation payable to certain former executives of past acquisitions.
NOTE 14 – INVESTMENT IN HECTOR COMMUNICATION 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.
On December 31, 2012 NU Telecom completed a spin-off agreement with HCC. NU 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.
Our HCC investment consists of the following:
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| 2012 |
| 2011 |
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Equity Investment |
| $ | 18,000,000 |
| $ | 18,000,000 |
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Cumulative Income |
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| 4,129,162 |
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| 3,358,623 |
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Cumulative Other Comprehensive Loss |
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| — |
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| (74,167 | ) |
Realized Loss on HCC Spin-Off |
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| (111,546 | ) |
| — |
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Spin-off Transaction |
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| (22,017,616 | ) |
| — |
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Total |
| $ | — |
| $ | 21,284,456 |
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The cumulative undistributed earnings from HCC were as follows for the years ended December 31, 2012 and 2011:
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| 2012 |
| 2011 |
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Balance Beginning of Year |
| $ | 3,358,623 |
| $ | 2,668,825 |
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Current Income |
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| 770,539 |
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| 689,798 |
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Spin-Off Transaction |
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| (4,129,162 | ) |
| — |
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Cumulative Undistributed Earnings |
| $ | — |
| $ | 3,358,623 |
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The following table summarizes financial information of HCC as of the years ended December 31, 2012 (prior to the spin-off transaction) and December 31, 2011:
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| 2012 |
| 2011 |
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Current Assets |
| $ | 3,065,977 |
| $ | 2,909,247 |
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Noncurrent Assets |
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| 120,762,774 |
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| 124,470,505 |
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Current Liabilities |
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| 44,210,503 |
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| 7,901,230 |
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Noncurrent Liabilities |
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| 13,565,175 |
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| 55,624,937 |
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Stockholders’ Equity |
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| 66,053,073 |
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| 63,853,585 |
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Revenues |
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| 26,682,461 |
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| 26,994,244 |
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Operating Income |
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| 4,101,617 |
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| 5,388,604 |
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Net Income |
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| 2,311,618 |
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| 2,069,395 |
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NOTE 1513 – 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 in any of the last threetwo years.
The Telecom Segment operates the following ILECs and CLECs and has investment ownership interests as follows:
Telecom Segment
●ILECs:
▪New Ulm Telecom, Inc., 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; ▪Western Telephone Company, a wholly-owned subsidiary of NU Telecom; ●CLECs: ▪NU Telecom, located in Redwood Falls, Minnesota; ▪Hutchinson Telecommunications, Inc., a wholly-owned subsidiary of Hutchinson Telephone Company, located in Litchfield and Glencoe, Minnesota; ●Our investments and interests in the following entities include some management responsibilities: ▪FiberComm, LC – 20.00% subsidiary equity ownership interest. FiberComm, LC is located in Sioux City, Iowa; ▪Broadband Visions, LLC – 24.30% subsidiary equity ownership interest. BBV provides video headend and Internet services; ▪Independent Emergency Services, LLC – 14.29% subsidiary equity ownership interest. IES is a provider of E-911 services to the State of Minnesota as well as a number of counties located in Minnesota; and ▪SM Broadband, LLC – 12.50% subsidiary equity ownership interest. SMB provides network connectivity for regional businesses.
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NOTE 16 14 – TRANSACTIONS WITH EQUITY METHOD INVESTMENTS
We receive and provide services to various partnerships and limited liability companies where we are an investor. Services received include digital video, special access and communications circuits. Services provided include Board of Director meeting attendance, labor, Internet help desk services and management services and labor.services. Cost of services we receive from affiliated parties may not be the same as the costs of such services had they been obtained from different parties.
Total revenues from transactions with affiliates were $1,156,879$1,002,348 and $1,078,354$1,003,181 for 20122015 and 2011.2014. Total expenses from transactions with affiliates were $458,509$374,667 and $544,406$460,047 for 20122015 and 2011.
Table of Contents2014.
NOTE 1715 -- SUBSEQUENT EVENTS
NU Telecom’s Board of Directors has declared a regular quarterly dividend on our common stock of $0.0825$0.0875 per share, payable on March 15, 201317, 2016 to stockholders of record at the close of business on March 8, 2013.10, 2016.
We have evaluated and disclosed subsequent events through the filing date of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. 9A Controls and Procedures
Evaluation of Disclosure 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
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP, and includes those policies and procedures that:
(1) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and (3) Provide reasonable assurance regarding prevention or timely detection or unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. | ||
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Because of its inherent limitations, internal control over financial reporting cannot provide absolute assurance of preventing and detecting misstatements on a timely basis. It is possible to design into the process safeguards to reduce, though not eliminate, the risk that misstatements are not prevented or detected on a timely basis. Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.
53
Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework set forth in the report entitled Internal Control-Integrated Framework publishedissued by the Committee of Sponsoring Organizations of the Treadway Commission.Commission (2013 framework). Based on this assessment, management has concluded that, as of December 31, 2012,2015, our internal control over financial reporting was effective.
This annual report does not include an attestation report of Olsen Thielen & Co., Ltd., our independent registered public accounting firm, regarding internal control over financial reporting. Our management’s report was not subject to attestation by our independent registered public accounting firm pursuant to Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which exempts smaller reporting companies from the independent registered public accounting firm attestation requirement.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that occurred during the fiscal year ended December 31, 20122015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information
None.
Information Incorporated by Reference
In response to Part III, Items 10, 11, 12, 13 and 14, portions of the Company’s definitive proxy statement for its Annual Meeting to be held on May 30, 2013 (“Proxy Statement”),26, 2016 are incorporated by reference into this Form 10−10−K. The Proxy Statement will be filed pursuant to Regulation 14A within 120 days of December 31, 2012,2015, the last day of the Company fiscal year.
Item 10. Directors, Executive Officers and Corporate Governance
The information required by Item 401 of Regulation S-K relating to directors and nominees of the Company is contained under “Proposal“Proposal 1 – Election of Directors”Directors” in the 20132016 Proxy Statement and is incorporated by reference. Information required under Item 401 about executive officers is included in Part I, Item 1 of this Annual Report on Form 10−10−K under “Executive“Executive Officers of the Registrant.” The information required by ItemsItem 405 (d)(4) and (d)(5) of Regulation S−S−K is contained under “Section“Section 16(a) Beneficial Ownership Reporting Compliance” and “The Board of Directors and Committees – Audit Committee” in the 20132016 Proxy Statement and is incorporated by reference. There is no disclosure required under Item 407(c)(3).
We have adopted a code of conduct that applies to all officers, directors and employees of the company. This code of conduct is available on our Website at www.nutelecom.net and in print upon written request to New Ulm Telecom, Inc., 27 North Minnesota Street, New Ulm, Minnesota 56073, Attention: Chief Financial Officer. Any amendment to, or waiver from, a provision of our code of conduct will be posted to the above-referenced Website.
The information required by Item 407(d)(4) and (d)(5), under “Audit Committee,” is contained under “The Board of Directors and Committees – Audit Committee” in the 2016 Proxy Statement and is incorporated by reference. There is no disclosure required under Item 407(c)(3) regarding material changes in shareholder director nominating procedures.
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Item 11. Executive Compensation
The information required by Item 402 of Regulation S−S−K is contained under “Executive Compensation”“Executive Compensation” in the 20132016 Proxy Statement and is incorporated by reference.
The information required by ItemsRegulation S−K Item 407(e)(4), “Compensation Committee Interlocks and (e)Insider Participation,” and Item 407(e)(5) of Regulation S−K, “Compensation Committee Report,” is not required because the Company is a smaller reporting company.
Item 12.Security Ownership of Beneficial Owners and Management, and Related Stockholder Matters
The information required by Item 201(d) of Regulation S-K, “Securities Authorized for Issuance under Equity Compensation Plans” is contained under “Non-Employee Director Compensation” in the 2016 Proxy Statement and is incorporated by reference.
The information required by Item 403 of Regulation S-K relating to security ownership of certain beneficial owners and management is contained under “Security Ownership of Certain Beneficial Owners and Management”Management" in our 20132016 Proxy Statement and is incorporated by reference.
At December 31, 2012, we did maintain any equity compensation plans as described in Item 201(d) of Regulation S-K.
Item 13. Certain Relationships and Related Transactions, and Director Independence
There are no matters that require disclosure with respect to certain transactions with related persons as set forth in Item 404 of Regulation S−S−K.
The information required by Item 404(b) and Item 407(a) of Regulation S−S−K is contained under “Certain“Certain Relationship and Related Transactions” and “Corporate Governance,” respectively in the 20132016 Proxy Statement and is incorporated by reference.
Item 14. Principal Accountant Fees and Services
The information relating to principal accounting fees and services required by Item 9(e) of Regulation 14A is set forth under “Proposal 2- Ratification of Independent Registered Public Accounting Firm” – “Fees Billed and Paid to Independent Registered Public Accounting Firm, – “Audit Fees,” – “Audit-Related Fees,” – “Tax Fees,” – “All Other Fees,” and – “Audit Committee Pre-Approval Policy for Services of Independent Registered Public Accounting Firm,” in the Proxy Statement and incorporated by reference.
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Item 15. Exhibits and Financial Statement Schedules
(a) | 1. | |||||
| Consolidated Financial Statements | |||||
Included in Part II, Item 8, of this report: | ||||||
Pages | ||||||
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Consolidated Statements of Income for the Years Ended December 31, |
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Consolidated Statements of Comprehensive Income for the Years Ended December 31, |
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Consolidated Balance Sheets as of December 31, |
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December 31, |
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40-53 | ||||||
(a) | 2. |
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| Consolidated Financial Statement Schedules: | |||||
Other schedules are omitted because they are not required or are not applicable, or the required | ||||||
information is shown in the financial statements or notes thereto. | ||||||
(a) |
| Exhibits Required | ||||
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56
SIGNATURESSIGNATURES
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.
Dated: March | NEW ULM TELECOM, INC. | |||||
(Registrant) | ||||||
By | /s/ Bill D. Otis | |||||
Bill D. Otis, Chief Executive | ||||||
(Principal Executive Officer) | ||||||
By | /s/ Curtis O. Kawlewski | |||||
Curtis O. Kawlewski, Chief | ||||||
(Principal Financial Officer) | ||||||
Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of the registrant and in the capacities and on the dates indicated have signed this report.
/s/ Perry L. Meyer | March 15, 2016 | |||
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/s/ Bill D. Otis |
| March | ||
Bill D. Otis, President and Chief Executive Officer | ||||
(Principal Executive Officer) | ||||
/s/ Curtis O. Kawlewski |
| March | ||
Curtis O. Kawlewski, Chief Financial Officer | ||||
(Principal Financial Officer and Principal Accounting Officer) | ||||
/s/ James P. Jensen |
| March 15, 2016 | ||
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/s/ Duane D. Lambrecht | March | |||
Duane Lambrecht, Director | ||||
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/s/ Dennis E. Miller |
| March | ||
Dennis Miller, Director | ||||
/s/ Wesley E. Schultz | March | |||
Wesley E. Schultz, Director | ||||
/s/ Colleen R. Skillings | March 15, 2016 | |||
Colleen R. Skillings, Director | ||||
/s/ Suzanne M. Spellacy | March | |||
Suzanne M. Spellacy, Director | ||||
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EXHIBIT INDEX
3.1 | Restated Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 contained in the Company’s Form | |
August 14, 2013) | ||
3.2 | Restated By-Laws, as amended (incorporated by reference to Exhibit 3.2 contained in the | |
10-Q (File No. 0-3024) filed on November 12, 2013) | ||
10.1+ | Employment Agreement dated as of July 1, 2006, by and between New Ulm Telecom, Inc. and Mr. Bill D. Otis (incorporated by reference to Exhibit 10.1 contained in the Company’s Form 8-K filed on July 18, 2006) | |
10.1.1+ | Amendment dated March 21, 2012, to Employment Agreement dated as of July 1, 2006, by and between New Ulm Telecom, Inc. and Mr. Bill D. Otis (incorporated by reference to Exhibit 10.1.1 contained in the Company’s Form 10-K for the year ended December 31, 2011) (“2011 Form 10-K”) | |
10.2+ | Employment Agreement dated as of July 1, 2006, by and between New Ulm Telecom, Inc. and Ms. Barbara A.J. Bornhoft (incorporated by reference to Exhibit 10.1 contained in the Company’s Form 10-Q for the quarter ended March 31, 2007) | |
10.2.1+ | Amendment dated March 21, 2012, to Employment Agreement dated as of July 1, 2006, by and between New Ulm Telecom, Inc. and Ms. Barbara A.J. Bornhoft (incorporated by reference to Exhibit 10.2.1 contained in the Company’s 2011 Form | |
10-K) | ||
10.3+ | Employment Agreement dated as of March 11, 2012, by and between New Ulm Telecom, Inc. and Mr. Curtis O. Kawlewski (incorporated by reference to Exhibit 10.2.1 contained in the Company’s 2011 Form | |
10.4+ | ||
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(File No. 0-3024) filed on May 15, 2013) | ||
10.5+ | New Ulm Telecom, Inc. Director Stock Plan (incorporated by reference to Appendix A to the definitive Proxy Statement for the 2012 Annual Meeting of Shareholders, as filed with the SEC on April 4, 2012) | |
10.6 | Amended Director Separation Compensation Policy dated May 26, 2009 (incorporated by reference to Exhibit 10.1 contained in the Company’s Form 10-Q for the quarter ended June 30, 2009) | |
10.7 | Amended and Restated Master Loan Agreement (MLA No. RX0583), dated as of December 31, 2014 between CoBank, ACB and New Ulm Telecom, Inc. (incorporated by reference to Exhibit 10.1 contained in the Company’s Form 8-K filed on January 6, 2015) | |
| Amended and Restated Second Supplement to the Amended and Restated Master Loan Agreement | |
10.9 | ||
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6, 2015) | ||
10.10 |
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10.11 | Second Amended and Restated Promissory Note (Term) in the principal amount of $35.0 Million. (incorporated by reference to Exhibit 10.5 contained in the Company’s Form 8-K filed on January 6, 2015) |
10.12 | Amended and Restated Pledge and Security Agreement dated as of December 31, 2014 from (a) New Ulm Telecom, Inc. and (b) the New Ulm Telecom, Inc. Subsidiaries in favor of CoBank, ACB. (incorporated by reference to Exhibit 10.6 contained in the Company’s Form 8-K filed on January 6, 2015) |
10.13 | Amended and Restated Continuing Guaranty dated of December 31, 2014 by (a) New Ulm Telecom, Inc. Subsidiaries in favor of CoBank, ACB. (incorporated by reference to Exhibit 10.7 contained in the Company’s Form 8-K filed on January 6, 2015) |
10.14* | Waiver and Consent dated as of November 30, 2015 between CoBank, ACB and New Ulm Telecom, Inc. |
21* | Subsidiaries of the New Ulm Telecom, Inc. |
23.1 | Consent of Independent Registered Public Accounting Firm |
31.1* | Certification of Chief Executive Officer Under Rule 13a-14(a) Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2* | Certification of Chief Financial Officer Under Rule 13a-14(a) Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1* | Certification of Chief Executive Officer Under 18 U.S.C. Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
32.2* | Certification of Chief Financial Officer Under 18 U.S.C. Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
101.INS | XBRL Instance File |
101.SCH | XBRL Taxonomy Extension Schema File |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase File |
101.DEF | XBRL Taxonomy Extension Definition Linkbase File |
101.LAB | XBRL Taxonomy Extension Label Linkbase File |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase File |
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* Exhibit filed herewith
+Management compensation plan or arrangement required to be filed as an exhibit
58