Nuvera Communications, Inc. - Quarter Report: 2011 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549




	FORM 10-Q


(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2011

	OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to .


Commission File Number 0-3024


NEW ULM TELECOM, INC.
(Exact name of registrant as specified in its charter)


Minnesota	41-0440990
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

27 North Minnesota Street

New Ulm, Minnesota 56073

(Address of principal executive offices and zip code)

(507) 354-4111

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

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

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

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

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

The total number of shares of the registrant’s common stock outstanding as of August 15, 2011: 5,115,435.

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PART I – FINANCIAL INFORMATION

Item 1	Financial Statements	3-7

	Consolidated Statements of Income (unaudited) for the Three and Six Months Ended June 30, 2011 and 2010	3

	Consolidated Balance Sheets (unaudited) as of June 30, 2011 and December 31, 2010	4-5

	Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2011 and 2010	6

	Consolidated Statements of Stockholders’ Equity (unaudited) for the Year Ended December 31, 2010 and for the Six Months ended June 30, 2011	7

	Condensed Notes to Consolidated Financial Statements (unaudited)	8-19

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20-31

Item 3	Quantitative and Qualitative Disclosures About Market Risk	31-32

Item 4	Controls and Procedures	32-33

PART II – OTHER INFORMATION

Item 1	Legal Proceedings	34

Item 1A	Risk Factors	34

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	34

Item 3	Defaults Upon Senior Securities	34

Item 4	Removed and Reserved	34

Item 5	Other Information	34

Item 6	Exhibits Listing	34

	Signatures	35

	Exhibits	36-39

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
OPERATING REVENUES:
Local Service	$	1,680,255		$	1,682,748		$	3,371,440		$	3,327,219
Network Access		3,494,746			3,266,064			7,188,317			6,834,851
Video		1,277,581			1,126,967			2,520,914			2,205,186
Data		663,927			593,708			1,312,074			1,176,340
Long Distance		168,732			141,106			321,207			340,108
Other Non-Regulated		942,616			866,185			1,933,637			1,778,389
Total Operating Revenues		8,227,857			7,676,778			16,647,589			15,662,093

OPERATING EXPENSES:
Plant Operations (Excluding Depreciation and Amortization)		1,597,786			1,452,214			3,156,828			2,752,508
Cost of Video		1,124,073			996,054			2,262,497			1,987,311
Cost of Data		219,070			257,350			449,119			477,007
Cost of Other Nonregulated Services		378,451			324,186			781,457			643,580
Depreciation and Amortization		2,433,831			2,477,384			4,827,746			4,938,999
Selling, General and Administrative		1,581,568			1,583,418			3,209,423			3,151,179
Total Operating Expenses		7,334,779			7,090,606			14,687,070			13,950,584

OPERATING INCOME		893,078			586,172			1,960,519			1,711,509

OTHER (EXPENSE) INCOME
Interest Expense		(611,399	)		(696,133	)		(1,280,764	)		(1,387,740	)
Interest Income		10,569			12,799			83,344			84,408
Interest During Construction		11,898			9,803			24,839			13,804
Gain on Disposal of Assets		0			0			4,282			0
Equity in Earnings of Hector Investment		148,491			109,089			261,506			284,629
CoBank Patronage Dividends		0			0			485,812			513,436
Other Investment Income		48,857			55,720			98,784			77,505
Total Other Income (Expense)		(391,584	)		(508,722	)		(322,197	)		(413,958	)

INCOME BEFORE INCOME TAXES		501,494			77,450			1,638,322			1,297,551

INCOME TAXES		198,478			(65,684	)		659,137			482,722

NET INCOME	$	303,016		$	143,134		$	979,185		$	814,829

BASIC AND DILUTED NET INCOME PER SHARE	$	0.06		$	0.03		$	0.19		$	0.16

DIVIDENDS PER SHARE	$	0.0825		$	0.0800		$	0.1625		$	0.1600

WEIGHTED AVERAGE SHARES OUTSTANDING		5,115,435			5,115,435			5,115,435			5,115,435

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

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

ASSETS


	June 30, 2011		December 31, 2010
CURRENT ASSETS:
Cash and Cash Equivalents	$	1,160,248	$	2,394,703
Receivables, Net of Allowance for Doubtful Accounts of $580,178 and $794,637		1,519,031		1,662,224
Income Taxes Receivable		561,664		85,218
Materials, Supplies, and Inventories		1,995,261		1,708,042
Deferred Income Taxes		1,176,208		1,246,640
Prepaid Expenses		336,321		345,905
Total Current Assets		6,748,733		7,442,732

INVESTMENTS & OTHER ASSETS:
Goodwill		29,707,100		29,707,100
Intangibles		21,254,338		22,292,714
Hector Investment		20,711,902		20,237,342
Other Investments		4,232,698		4,142,002
Other Assets		188,785		223,997
Total Investments and Other Assets		76,094,823		76,603,155

PROPERTY, PLANT & EQUIPMENT:
Telecommunications Plant		92,704,804		91,384,156
Other Property & Equipment		6,196,445		5,777,342
Video Plant		8,097,477		7,416,075
Total Property, Plant and Equipment		106,998,726		104,577,573
Less Accumulated Depreciation		71,609,069		68,186,857
Net Property, Plant & Equipment		35,389,657		36,390,716

TOTAL ASSETS	$	118,233,213	$	120,436,603

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

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

LIABILITIES AND STOCKHOLDERS’ EQUITY


	June 30, 2011			December 31, 2010
CURRENT LIABILITIES:
Current Portion of Long-Term Debt	$	3,448,883		$	3,458,976
Accounts Payable		1,058,090			1,154,791
Other Accrued Taxes		190,191			187,220
Financial Derivative Instruments		0			92,658
Deferred Compensation		490,898			670,533
Other Accrued Liabilities		1,691,365			1,880,402
Total Current Liabilities		6,879,427			7,444,580

LONG-TERM DEBT, Less Current Portion		41,252,041			43,334,883

NONCURRENT LIABILITIES:
Loan Guarantees		463,140			480,534
Deferred Income Taxes		13,867,748			13,476,518
Other Accrued Liabilities		75,577			86,937
Financial Derivative Instruments		1,793,268			2,038,519
Deferred Compensation		894,107			1,128,863
Total Noncurrent Liabilities		17,093,840			17,211,371

COMMITMENTS AND CONTINGENCIES:		0			0

STOCKHOLDERS’ EQUITY:
Preferred Stock - $1.66 Par Value, 10,000,000 Shares Authorized, 0 Shares Issued and Outstanding		0			0
Common Stock - $1.66 Par Value, 90,000,000 Shares Authorized, 5,115,435 Shares Issued and Outstanding		8,525,725			8,525,725
Accumulated Other Comprehensive Income (Loss)		(1,285,962	)		(1,700,173	)
Retained Earnings		45,768,142			45,620,217
Total Stockholders’ Equity		53,007,905			52,445,769

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	118,233,213		$	120,436,603

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

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


	Six Months Ended
	June 30, 2011			June 30, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	979,185		$	814,829
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Depreciation and Amortization		4,847,284			4,958,537
(Gain) Loss on Disposal of Assets		(4,282	)		—
Undistributed Earnings of Hector Investment		(261,506	)		(284,629	)
Undistributed Earnings of Other Equity Investments		(88,033	)		(74,428	)
Noncash Patronage Refund		(178,057	)		(179,703	)
Distributions from Equity Investments		200,000			200,000
Changes in Assets and Liabilities:
Receivables		143,193			506,124
Income Taxes Receivable		(476,446	)		1,297,869
Inventories		(287,219	)		(163,290	)
Prepaid Expenses		9,584			(241,762	)
Accounts Payable		(20,554	)		(462,984	)
Other Accrued Taxes		2,971			(2,758	)
Other Accrued Liabilities		(200,397	)		41,346
Deferred Income Tax		340,584			3,910
Deferred Compensation		(414,391	)		(462,880	)
Net Cash Provided by Operating Activities		4,591,916			5,950,181

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property, Plant, and Equipment, Net		(2,864,458	)		(2,382,224	)
Proceeds from Disposal of Assets		4,282			—
Acquisition of Glencoe CATV System		—			(1,600,000	)
Other, Net		(42,000	)		(42,000	)
Net Cash Used in Investing Activities		(2,902,176	)		(4,024,224	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal Payments of Long-Term Debt		(2,092,935	)		(1,488,965	)
Dividends Paid		(831,260	)		(818,470	)
Net Cash Used in Financing Activities		(2,924,195	)		(2,307,435	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(1,234,455	)		(381,478	)

CASH AND CASH EQUIVALENTS at Beginning of Period		2,394,703			2,526,490

CASH AND CASH EQUIVALENTS at End of Period	$	1,160,248		$	2,145,012

Supplemental cash flow information:
Cash paid for interest	$	1,286,043		$	1,378,252
Net cash (received) paid for income taxes	$	795,000		$	(842,000	)

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

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

YEAR ENDED DECEMBER 31, 2010, AND
SIX MONTHS ENDED JUNE 30, 2011


	Common Stock				Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total Equity
	Shares		Amount		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total Equity

BALANCE on December 31, 2009		5,115,435	$	8,525,725	$	(1,851,735	)	$	45,206,551		$	51,880,541

Net Income									2,050,605			2,050,605
Dividends									(1,636,939	)		(1,636,939	)
Unrealized Gains of Equity Method Investee						208,007						208,007
Unrealized Losses on Interest Rate Swaps, Net of Deferred Income Taxes						(56,445	)					(56,445	)

BALANCE on December 31, 2010		5,115,435		8,525,725		(1,700,173	)		45,620,217			52,445,769

Net Income									979,185			979,185
Dividends									(831,260	)		(831,260	)
Unrealized Gains of Equity Method Investee						213,053						213,053
Unrealized Gains on Interest Rate Swaps, Net of Deferred Income Taxes						201,158						201,158

BALANCE on June 30, 2011		5,115,435	$	8,525,725	$	(1,285,962	)	$	45,768,142		$	53,007,905

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

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NEW ULM TELECOM, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2011 (Unaudited)

Note 1 – Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements of New Ulm Telecom, Inc. (NU Telecom) and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted or condensed pursuant to such rules and regulations. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal and recurring accruals) considered necessary for the fair presentation of the financial statements and present fairly the results of operations, financial position and cash flows for the interim periods presented as required by Regulation S-X, Rule 10-01. These unaudited interim condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2010.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial statements and during the reporting period. Actual results could differ from these estimates. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the fiscal year as a whole or any other interim period.

Our consolidated financial statements include NU Telecom and its subsidiaries. All inter-company transactions have been eliminated from the consolidated financial statements.

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

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

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

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

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

We derive revenues from system sales and services through the sale, installation and servicing of communication systems. In accordance with Accounting Standards Codification (ASC) Topic 605 – Revenue Recognition, these deliverables are accounted for separately. We recognize revenue from customer contracts for sales and installations using the completed-contract method, which recognizes income when the contract is substantially complete. We recognize rental revenues over the rental period.

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

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

Depreciation and Amortization Expense
We use the group life method (mass asset accounting) to depreciate the assets of our telephone companies. Telephone plant acquired in a given year is grouped into similar categories and depreciated over the remaining estimated useful life of the group. When an asset is retired, both the asset and the accumulated depreciation associated with that asset are removed from the books. Due to rapid changes in technology, selecting the estimated economic life of telecommunications plant and equipment requires a significant amount of judgment. We periodically review data on expected utilization of new equipment, asset retirement activity and net salvage values to determine adjustments to our depreciation rates. 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.

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 bases. Significant components of our deferred taxes arise from differences (i) in the basis of property, plant and equipment due to the use of accelerated depreciation methods for tax purposes, as well as (ii) in partnership investments and intangible assets due to the difference between book and tax basis. Our effective income tax rate is normally higher than the United States tax rate due to state income taxes and permanent differences.

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We account for income taxes in accordance with ASC Topic 740 – Income Taxes. As required by ASC Topic 740, 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.

We did not have any net unrecognized tax benefits at June 30, 2011 that, if recognized, would affect the income tax provision when recorded, in accordance with ASC Topic 740.

We are primarily subject to United States, Minnesota and Iowa income taxes. Tax years subsequent to 2006 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. At June 30, 2011 and December 31, 2010 we had $0 and $8,316 accrued for interest or penalties related to income tax matters.

Recent Accounting Developments

In June, 2011 the Financial Accounting Standards Board issued guidance regarding the presentation of comprehensive income. The new standard requires the presentation of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The new standard also requires presentation of adjustments for items that are reclassified from other comprehensive income to net income in the statement where the components of net income and the components of other comprehensive income are presented. The updated guidance is effective on a retrospective basis for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011. The adoption of this guidance will not have a material impact on our financial statements.

Issued in January, 2010 Accounting Standards Update (ASU) 2010-06 – Fair Value Measures and Disclosures, provides amendments to ASC Topic 820 – Fair Value Measurements and Disclosures, and provides guidance related to disclosures about the transfer in and out of Levels 1 and 2 and the activity in Level 3 fair value measurements. It also clarifies disclosures about the level of disaggregation, inputs and valuation techniques. Our adoption of this guidance, which was effective in the first quarter of 2010 except for the new requirements relating to a Level 3 activity, did not have a material impact on our disclosures. Our adoption of this guidance on Level 3 activity, which was effective in the first quarter of 2011, did not have a material impact on our disclosures.

Issued in October, 2009 ASU 2009-13 – Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements, provides guidance for separating consideration in multiple-deliverable arrangements. Our adoption of this guidance, which was effective on January 1, 2011, did not have a material effect on our consolidated financial statements.

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We 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.

Note 2 – Noncash Investing Activities

Noncash investing activities included $54,375 and $174,249 for the periods ended June 30, 2011 and 2010. These activities related to plant and equipment additions placed in service and are recorded in our accounts payable at June 30, 2011 and 2010.

Note 3 – Fair Value Measurements

We have adopted the rules prescribed under ASC Topic 820 for our financial assets and liabilities. ASC Topic 820 includes a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on inputs to valuation techniques used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources, while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. The fair value hierarchy consists of the following three levels:


	Level 1:	Inputs are quoted prices in active markets for identical assets or liabilities.

	Level 2:	Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable, and market-corroborated inputs that are derived principally from or corroborated by observable market data.

	Level 3:	Inputs are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

We use financial derivative instruments to manage our overall cash flow exposure to fluctuations in interest rates. We account for derivative instruments in accordance with ASC Topic 815 – Derivatives and Hedging 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.

In 2008, we entered into interest rate swaps with our lender CoBank, ACB to manage our cash flow exposure to fluctuations in interest rates. These instruments were designated as cash flow hedges and were effective at mitigating the risk of fluctuations on interest rates in the market place. Any gains or losses related to changes in the fair value of these derivatives are accounted for as a component of accumulated other comprehensive income (loss) for as long as the hedge remains effective.

The fair value of our interest rate swap agreements is discussed in Note 6 – “Interest Rate Swaps” to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q. Our swap agreements were determined based on Level 2 inputs.

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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, 2010. 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 for which the current carrying amounts approximate fair market value.

Note 4 – Goodwill and Intangible Assets

We account for goodwill and other intangible assets under ASC Topic 350 – Intangibles – Goodwill and Other. Under the provisions of this accounting standard, 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. At June 30, 2011 and December 31, 2010, our goodwill totaled $29,707,100.

As required by ASC Topic 350, we do not amortize goodwill and other intangible assets with indefinite lives, but test for impairment on an annual basis or earlier if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying amount. These circumstances include, but are not limited to (i) a significant adverse change in the business climate, (ii) unanticipated competition or (iii) an adverse action or assessment by a regulator. Determining impairment involves estimating the fair value of a reporting unit using a combination of (i) the income or discounted cash flows approach and (ii) the market approach that utilizes comparable companies’ data. If the carrying amount of a reporting unit exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss is calculated by comparing the implied fair value of the reporting unit’s goodwill to its carrying amount. In calculating the implied fair value of the reporting unit’s goodwill, the fair value of the reporting unit is allocated to all of the assets and liabilities of the reporting unit. The excess of the fair value of a reporting unit over the amount assigned to its other assets and liabilities is the implied value of goodwill. We recognize impairment loss when the carrying amount of goodwill exceeds its implied fair value. We completed our annual impairment test for acquired goodwill in the fourth quarter of 2010, which resulted in no impairment charges to goodwill.

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 anticipates that this rebranding process would take approximately three years to complete. We anticipate an additional charge to amortization expense of $266,667 per year, over the three years which began in 2010, due to this rebranding process.

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


		June 30, 2011				December 31, 2010
	Useful Lives	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Definite-Lived Intangible Assets
Customers Relationships	14-15 yrs	$	19,378,445	$	4,830,790	$	19,378,445	$	4,139,070
Regulatory Rights	15 yrs		4,000,000		933,327		4,000,000		799,994
Non-Competition Agreement	5 yrs		800,000		559,990		800,000		480,000
Trade Name	3 yrs		800,000		400,000		800,000		266,667
Indefinitely-Lived Intangible Assets
Video Franchise			3,000,000		0		3,000,000		0
Total		$	27,978,445	$	6,724,107	$	27,978,445	$	5,685,731

Net Identified Intangible Assets				$	21,254,338			$	22,292,714

Amortization expense related to the definite-lived intangible assets was $1,038,376 and $1,033,454 for the six months ended June 30, 2011 and 2010.

Amortization expense for the remaining six months of 2011 and the five years subsequent to 2011 is estimated to be:


	•	(July 1 – December 31) - $1,038,376
	•	2012 - $2,076,658
	•	2013 - $1,649,991
	•	2014 - $1,649,991
	•	2015 - $1,649,991
	•	2016 - $1,648,602

Note 5 – Secured Credit Facility

On January 4, 2008, in connection with our acquisition of HTC, we entered into a $59,700,000 credit facility with CoBank, ACB. Under this credit facility, we entered into separate Master Loan Agreements (MLAs) and a series of supplements to those respective MLAs.

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

The loan agreements had also put restrictions on the ability of NU Telecom to pay cash dividends to its stockholders. NU Telecom was allowed to pay dividends (a) (i) in an amount up to $2,050,000 in any year and (ii) in any amount if NU Telecom’s “Total Leverage Ratio,” that is, the ratio of its “Indebtedness” to “EBITDA” (in each case as defined in the loan documents), was equal to or less than 3.50 to 1.00 and (b) in either case, if NU Telecom was not in default or potential default under the loan agreements. As of December 31, 2010, NU Telecom’s Total Leverage Ratio fell below the 3.50 to 1.00 ratio, thus eliminating any restrictions on NU Telecom’s ability to pay cash dividends to its stockholders.

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As of June 30, 2011, we were in compliance with the financial ratios in the loan agreements.

As described in Note 6 – “Interest Rate Swaps” to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q, we entered into interest rate swaps that effectively fix our interest rates and cover $36.0 million of our debt at a weighted average rate of 5.52%, as of June 30, 2011. The additional $15.04 million ($6.35 million available under the credit facilities and $8.69 million currently outstanding) remains subject to variable interest rates, at an effective weighted average interest rate of 2.3%, as of June 30, 2011.

Note 6 – Interest Rate Swaps

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

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

To meet this objective, we entered into Interest Rate Swap Agreements with CoBank, ACB dated February 26, 2008. Under these Interest Rate Swap Agreements and subsequent swaps that each cover a specified notional dollar amount, we have changed the variable-rate cash flow exposure on the debt obligations to fixed cash flows. Under the terms of these interest rate swaps, we pay a fixed contractual interest rate and (i) make an additional payment if the LIBOR variable rate payment is below a contractual rate or (ii) receive a payment if the LIBOR variable rate payment is above the contractual rate.

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

Pursuant to these interest rate swap agreements, we entered into interest rate swaps covering (i) $39.0 million of our aggregate indebtedness to CoBank, ACB effective March 19, 2008 and (ii) an additional $6.0 million of our aggregate indebtedness to CoBank, ACB effective June 23, 2008. These swaps effectively 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.

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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. In connection with this agreement, on December 30, 2010, we broke out $1,000,000 of the interest rate swap agreements on Loan RX0583-T1. We recognized a realized loss of $6,345 for the early termination of this interest rate swap agreement as of December 31, 2010.

On March 31, 2011, an additional $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 June 30, 2011 we had the following interest rate swaps in effect.


Loan #	Maturity Date	Notional Amount		Current Effective Interest Rate (1)

RX0583-T1	03/31/2013	$	11,250,000	5.26% (LIBOR Rate of 3.26% plus 2.00% LIBOR Margin)

RX0583-T2	06/30/2013	$	3,000,000	6.54% (LIBOR Rate of 4.54% plus 2.00% LIBOR Margin)

RX0584-T1	03/31/2013	$	21,750,000	5.51%; (LIBOR Rate of 3.26% plus 2.25% LIBOR Margin)

(1) As described in Note 5 – “Secured Credit Facility” to the Consolidated Financial Statement of this Quarterly Report on Form 10-Q, each note 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% 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 interest rate swaps qualify as cash flow hedges for accounting purposes under ASC Topic 815. We have reflected the effect of these hedging transactions in the financial statements for the periods ended June 30, 2011 and 2010. The unrealized gain and loss were reported in other comprehensive income (loss). If we were to terminate our interest rate swap agreements, the cumulative change in fair value at the date of termination would be reclassified from accumulated other comprehensive income (loss), which is classified in stockholders’ equity, into earnings on the consolidated statements of income.

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

The activity on the interest rate swap agreements at June 31, 2011 and 2010 was as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Gain (Loss) on Derivative Instruments	$	(19,898	)	$	(311,673	)	$	337,909		$	(646,307	)

Deferred Income Tax		8,052			122,160			(136,751	)		261,561
Gain (Loss) Reported in Accumulated Other Comprehensive Income (Loss)	$	(11,846	)	$	(189,513	)	$	201,158		$	(384,746	)

Note 7 – Other Investments

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

On June 30, 2009 we entered into an Equity Securities Purchase Agreement with Iowa Telecom where we agreed to sell our ownership interests in SHAL Networks, Inc.; SHAL, LLC; Direct Communications, LLC and En-Tel Communications, LLC to Iowa Telecom. On September 24, 2009 we completed the sale of our ownership interests for approximately $1.9 million in cash and fiber facilities valued at $67,500, including specified customary adjustments. The sale of these equity investments resulted in a gain of $1,045,599 in the third quarter of 2009. The sale of these minority-owned investments allowed us to monetize non-core investments. In addition, this transaction released us from approximately $5.7 million in loan guarantees to Rural Telephone Finance Cooperative for loans to SHAL, LLC and En-Tel Communications, LLC.

Note 8 – Guarantees

On January 30, 2004 we guaranteed a portion of the indebtedness of FiberComm, LC in connection with the refinancing of a fifteen-year loan, maturing in January, 2019 made by American State Bank to FiberComm, LC. As of June 30, 2011 we had recorded a liability of $317,030 in connection with this guarantee.

In 2009, we guaranteed additional indebtedness of FiberComm, LC in connection with an additional loan entered into on March 23, 2009 maturing January 1, 2015 made by American State Bank to FiberComm, LC. As of June 30, 2011 we have recorded an additional liability of $146,110 in connection with the guarantee on this loan. As a result of these two guarantees, we have guaranteed a total of $463,140 of indebtedness of FiberComm, LC as of June 30, 2011. Either of these two guarantees may be exercised if FiberComm, LC does not make its required payments on these notes.

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Note 9 – Deferred Compensation

As part of the acquisition of HTC, we have recorded other deferred compensation relating to the estimated present value of executive compensation payable to certain former executives of HTC.

Cash compensation over the next year includes deferred wages totaling $448,500. The difference between the recorded deferred compensation on the balance sheet and compensation to be paid over the next year is due to life-time employee benefits.

Note 10 – Segment Information

We operate in the Telecom Segment and have no other significant business segments. The Telecom Segment consists of voice, data and video communication services delivered to the customer over our local communications network. The Telecom Segment operates the following incumbent local exchange carriers (ILECs) and competitive local exchange carriers (CLECs) and has investment ownership interests as follows:

Telecom Segment Businesses


●	ILECs:
	§	New Ulm Telecom, Inc., the parent company;
	§	Hutchinson Telephone Company, a wholly-owned subsidiary of NU Telecom;
	§	Western Telephone Company, a wholly-owned subsidiary of NU Telecom; and
	§	Peoples Telephone Company, a wholly-owned subsidiary of NU Telecom;
●	CLECs:
	§	New Ulm Telecom, Inc. located in Redwood Falls, Minnesota; and
	§	Hutchinson Telecommunications, Inc., a wholly-owned subsidiary of HTC, located in Litchfield, Minnesota;
●	Our investments and interests in the following entities include some management responsibilities:
	§	Hector Communications Corporation (HCC) – 33.33% ownership interest;
	§	FiberComm, LC – 25.18% ownership interest;
	§	Broadband Visions, LLC (BBV) – 16.26% ownership interest; and
	§	Independent Emergency Services, LLC (IES) – 14.29% ownership interest.

No single customer accounted for a material portion of our consolidated revenues.

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Note 11 – Comprehensive Income

Our comprehensive income includes two items in addition to net income. The first is an unrealized gain resulting from our one-third ownership share of HCC’s accumulated other comprehensive income gain. HCC’s accumulated comprehensive income (loss) differs from the “HCC investment income” reported on our consolidated statements of income. The second item reflects the change in the unrealized gains (losses) of the interest rate swap agreements, net of deferred income taxes that NU Telecom entered into with CoBank, ACB. As of June 30, 2011, these interest rate swap agreements cover $36.0 million of NU Telecom’s indebtedness to CoBank, ACB, and are described in Note 6 – “Interest Rate Swaps” to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

Components of our comprehensive income consist of the following:


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011		2010
Net Income	$	303,016		$	143,134		$	979,185	$	814,829

Other Comprehensive Income (Loss):
Unrealized Gain of Equity Method Investee		118,906			54,305			213,053		56,272

Change in Unrealized Gains (Losses) of Interest Rate Swap Agreements, Net of Deferred Income Taxes		(11,846	)		(189,513	)		201,158		(384,746	)

Total Comprehensive Income	$	410,076		$	7,926		$	1,393,396	$	486,355

Note 12 – Commitments and Contingencies

We are involved in certain contractual disputes in the ordinary course of business. We do not believe the ultimate resolution of any of these existing matters will have a material adverse effect on our financial position, results of operations or cash flows. We did not experience any changes to material contractual obligations in the first six months of 2011. Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 for the discussion relating to commitments and contingencies.

Note 13 – Hector Communications Corporation

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

Our President and Chief Executive Officer, Mr. Bill D. Otis, has 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 serves on the Board of Directors of HCC.

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The following table summarizes financial information of HCC for the periods ended June 30, 2011 and 2010:


	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Operating Revenues	$	6,759,953	$	6,729,580	$	13,304,132	$	13,657,795
Operating Income		1,297,481		1,270,604		2,533,163		2,869,287
Net Income		445,475		327,268		784,519		853,888

Note 14 – Acquisition of Cable Television Assets (CATV)

On June 14, 2010 NU Telecom completed the acquisition of all of the assets of the CATV system located in and around Glencoe, Minnesota from Midcontinent Communications for approximately $1.6 million pursuant to the Asset Purchase Agreement dated March 30, 2010. NU Telecom funded the purchase with current cash reserves. The acquisition resulted in the addition of approximately 1,200 connections to our video and Internet services.

The allocation of the purchase price for the CATV assets has been based on the asset’s fair values. ASC Topic 805 – Business Combinations, establishes criteria for determining whether intangible assets should be recognized separately from goodwill. ASC Topic 350 states that goodwill and intangible assets with indefinite lives are not amortized, but rather are tested for impairment on at least an annual basis.

The allocation of the net purchase price of the CATV assets is shown below:


Current assets	$	23,958
Property, plant and equipment		1,237,607
Customer relationship intangible		147,659
Excess cost over net assets acquired (Goodwill)		190,776
Cash paid for acquisition	$	1,600,000

This acquisition 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 the acquisition. Based upon our final purchase price allocation, the excess of the purchase price and acquisition costs over the fair value of the net identifiable tangible assets acquired was $338,435, which is deductible for income tax purposes. The remaining estimated useful life of the customer relationships intangible asset is 13 years.

Our operations reflect the business activity of Glencoe from the date of its acquisition on June 14, 2010. These operations were not material to our overall business.

Note 15 – Subsequent Events

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

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

Forward Looking Statements

The Private Securities Litigation Reform Act of 1995 contains certain safe harbor provisions regarding forward-looking statements. This Quarterly Report on Form 10-Q may include forward-looking statements. These statements may include, without limitation, statements with respect to anticipated future operating and financial performance, growth opportunities and growth rates, acquisition and divestiture opportunities, business strategies, business and competitive outlook, and other similar forecasts and statements of expectation. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “targets,” “projects,” “will,” “may,” “continues,” and “should,” and variations of these words and similar expressions, are intended to identify these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from such statements. Factors that might cause differences include, but are not limited to, those contained in Item 1A of Part II, “Risk Factors” of this quarterly report on Form 10-Q and Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2010, which is incorporated herein by reference.

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

Critical Accounting Policies

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. A description of the accounting policies that we consider particularly important for the portrayal of our results of operations and financial position, and which may require a higher level of judgment by our management, is contained under the caption, “Critical Accounting Policies and Estimates,” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2010.

Results of Operations

Overview

NU Telecom offers a diverse array of communications products and services. Our ILEC businesses provide local telephone service and network access to other telecommunications carriers for calls originated or terminated on our network. In addition, we provide long distance service, dial-up and broadband Internet access, and video services. In 2002, we expanded our geographic service area by competitively providing service as a CLEC in the city of Redwood Falls, Minnesota. This CLEC provides local telephone service, long distance service, dial-up and broadband Internet access, and video services using our facilities. In 2008, we completed our acquisition of HTC, adding both an ILEC and a CLEC to our portfolio of operations. In 2010, we acquired the assets of the CATV system located in and around Glencoe, Minnesota, continuing the expansion of our service area. We also sell and service other communications products.

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

Trends

In the first two quarters of 2011, we continued to be affected by both increasing competition and the effects of the current United States economic decline, specifically in our HTC markets. Despite these challenging economic times, we have continued to expand our services and product offerings. By offering customers outstanding customer service and the products and services they desire, we believe that we have positioned ourselves to take advantage of an improving economic climate in which consumers enhance their utilization of communication services.

As the quantity and type of competitors within the telecommunications industry continue to grow, competition will remain intense. We have continued to experience competition from CATV providers, voice over IP (VoIP) providers, wireless and other competitors during the past several years. Competition, combined with consumers substituting other methods for traditional voice services, has and will continue to negatively affect our current and future local and network access revenue streams. Access line losses totaled 1,358 or 4.7% for the twelve months ended June 30, 2011.

As we experience access line losses, portions of our network 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 network access revenue. Network access revenue 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.

We have built a state-of-the-art broadband network and continue to increase connectivity speeds to customers, along with the bundling of our voice, Internet and video services, allowing 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 and IP television services.

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Financial results for the Telecom Segment are included below:


Telecom Segment
	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Operating Revenues
Local Service	$	1,680,255	$	1,682,748	$	3,371,440	$	3,327,219
Network Access		3,494,746		3,266,064		7,188,317		6,834,851
Video		1,277,581		1,126,967		2,520,914		2,205,186
Data		663,927		593,708		1,312,074		1,176,340
Long Distance		168,732		141,106		321,207		340,108
Other		942,616		866,185		1,933,637		1,778,389
Total Operating Revenues		8,227,857		7,676,778		16,647,589		15,662,093

Cost of Services, Excluding Depreciation and Amortization		3,319,380		3,029,804		6,649,901		5,860,406
Selling, General and Administrative		1,581,568		1,583,418		3,209,423		3,151,179
Depreciation and Amortization Expenses		2,433,831		2,477,384		4,827,746		4,938,999
Total Operating Expenses		7,334,779		7,090,606		14,687,070		13,950,584

Operating Income	$	893,078	$	586,172	$	1,960,519	$	1,711,509

Net Income	$	303,016	$	143,134	$	979,185	$	814,829

Capital Expenditures	$	1,361,820	$	1,046,756	$	2,864,458	$	2,382,224


Key metrics
	June 30,
	2011		2010
Access Lines		27,297		28,655
Video Customers		10,331		10,293
Broadband Customers¹		10,106		9,967
Dial Up Internet Customers		793		1,231
Long Distance Customers		13,737		14,044

¹ 2010 Broadband Customers are updated to include Wireless Broadband Customers

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. We also receive reciprocal compensation revenue based on interconnection agreements with wireless carriers using our network to terminate calls for their wireless subscribers.

Local service revenue was $1,680,255, which is $2,493, or 0.1% lower in the three months ended June 30, 2011 compared to the three months ended June 30, 2010. Local service revenue was $3,371,440, which is $44,221, or 1.3% higher in the six months ended June 30, 2011 compared to the six months ended June 30, 2010. Despite the decrease in access lines, local service revenue increased in the first six months of 2011 compared to 2010 primarily due to an increase in local private line service and increased reciprocal compensation from wireless carriers. Our access lines are decreasing as customers are increasingly utilizing other technologies, such as wireless phones and IP services, as well as customers eliminating second phone lines when they move their Internet service from a dial-up platform to a broadband platform.

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The number of access lines we serve as an ILEC and CLEC have been decreasing, which is consistent with a general industry trend. To help offset declines in local service revenue, we implemented an overall strategy that continues to focus on selling a competitive bundle of services. Our focus on marketing competitive service bundles to our customers helps create value for the customer and aids in the retention of our voice lines.

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) 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 support and distribute funding to the ILECs.

Network access revenue was $3,494,746, which is $228,682, or 7.0% higher in the three months ended June 30, 2011 compared to the three months ended June 30, 2010 and was $7,188,317, which is $353,466 or 5.2% higher in the six months ended June 30, 2011 compared to the six months ended June 30, 2010. Lower minutes of use were offset by a $120,153 increase in the three months ended June 30, 2011 and a $311,160 increase in the six months ended June 30, 2011 in special access as primarily wireless carriers are buying special access circuits to backhaul their traffic from our service territories to their facilities.

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 ten communities with our digital TV services and five communities with our CATV services.

Video revenue was $1,277,581, which is $150,614, or 13.4% higher in the three months ended June 30, 2011 compared to the three months ended June 30, 2010 and was $2,520,914, which is $315,728 or 14.3% higher in the six months ended June 30, 2011 compared to the six months ended June 30, 2010. The increases in both periods were primarily due to the addition of the Glencoe CATV system we purchased in June 2010. Also contributing to the increase in revenues were rate increases introduced into several of our markets over the course of 2010 and additional rate increases in several other of our markets introduced in 2011, combined with the launching of IPTV services in New Ulm, Courtland, Redwood Falls, Hutchinson and Litchfield, Minnesota and Aurelia, Iowa. This new enhanced service offering provides customers with desired features and options, such as digital video recording.

Data – We provide Internet services, including dial-up and high speed Internet to business and residential customers. Our revenue is received in various flat rate packages based on the level of service, data speeds and features. We also provide e-mail and managed services, such as web hosting and design, on-line file back up and on-line file storage.

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Data revenue was $663,927, which is $70,219, or 11.8% higher in the three months ended June 30, 2011 compared to the three months ended June 30, 2010 and was $1,312,074, which is $135,734, or 11.5% higher in the six months ended June 30, 2011 compared to the six months ended June 30, 2010. Despite a 438 or 35.6% decrease in our dial-up Internet customers between June 30, 2011 and 2010, data revenues increased over the same timeframe primarily due to a 139 or 1.4% increase in our broadband customers. Broadband customers have a higher profit margin than dial-up Internet customers. Our acquisition of the CATV system in Glencoe added approximately 300 broadband customers in June 2010. We expect future growth in this area will be driven by customer migration from dial-up Internet to broadband products such as our broadband services, expansion of service areas and our aggressively packaging and selling service bundles.

Long Distance – Our end-user customers are billed for toll or long-distance services on either a per call or flat-rate basis. This also includes the offering of directory assistance, operator service and long distance private lines.

Long distance revenue was $168,732, which is $27,626, or 19.6% higher in the three months ended June 30, 2011 compared to the three months ended June 30, 2010. This increase was primarily due to an increase in customer usage of our long distance services for the three months ended June 30, 2011 compared to June 30, 2010. Long distance revenue was $321,207, which is $18,901 or 5.6% lower in the six months ended June 30, 2011 compared to the six months ended June 30, 2010. This decrease was primarily due to the loss of 307 or 2.2% of our customer base at June 30, 2011 compared to June 30, 2010 as customers are utilizing other technologies such as wireless and IP services to satisfy their long distance communication needs, which was partially offset by increased customer usage of our long distance services in the second quarter of 2011 as mentioned above.

Other Revenue – We generate revenue from directory publishing, sales and service of customer premise equipment (CPE), bill processing and add/move/change services. Our directory publishing revenue 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 the wireless product as well as revenue collected for the sale of wireless phones and accessories.

Other revenue was $942,616, which is $76,431, or 8.8% higher in the three months ended June 30, 2011 compared to the three months ended June 30, 2010 and was $1,933,637, which is $155,248, or 8.7% higher in the six months ended June 30, 2011 compared to the six months ended June 30, 2010. The increases were primarily due to increases in the sales of cellular phones and activation revenues, facilities rent revenues and transport services revenues. These increases were partially offset by a decrease in CPE revenue due to the current United States economic downturn as customers are delaying the replacement and upgrades of their equipment.

Cost of Services (excluding Depreciation and Amortization)

Cost of services (excluding depreciation and amortization) was $3,319,380, which is $289,576, or 9.6% higher in the three months ended June 30, 2011 compared to the three months ended June 30, 2010 and was $6,649,901, which is $789,495, or 13.5% higher in the six months ended June 30, 2011 compared to the six months ended June 30, 2010. The increases were primarily due to increased costs to provide services to a larger customer base, including the addition of the CATV system in Glencoe. Also contributing to the increases in costs were increases in video programming fees and employee benefits, and the addition of costs associated with maintenance agreements on our equipment and software.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses were $1,581,568, which is $1,850, or 0.1% lower in the three months ended June 30, 2011 compared to the three months ended June 30, 2010. This decrease is primarily due to our management’s efforts to contain costs in the current economic climate. Selling, general and administrative expenses were $3,209,423, which is $58,244, or 1.8% higher in the six months ended June 30, 2011 compared to the six months ended June 30, 2010. This increase was primarily due to increased employee benefit costs and expenses associated with complying with new SEC financial reporting requirements.

Depreciation and Amortization

Depreciation and amortization was $2,433,831, which is $43,553, or 1.8% lower in the three months ended June 30, 2011 compared to the three months ended June 30, 2010 and was $4,827,746, which is $111,253, or 2.3% lower in the six months ended June 30, 2011 compared to the six months ended June 30, 2010. The decreases were primarily due to portions of our legacy telephone network becoming fully depreciated during 2010 as we switch to a new broadband network.

Operating Income

Operating income was $893,078, which is $306,906, or 52.4% higher in the three months ended June 30, 2011 compared to the three months ended June 30, 2010. The increase was primarily due to an increase in operating revenues, a decrease in depreciation and amortization expenses and a decrease in selling, general and administrative expenses, partially offset by an increase in cost of services, all of which are described above. Operating income was $1,960,519, which is $249,010, or 14.5% higher in the six months ended June 30, 2011 compared to the six months ended June 30, 2010. The increase was primarily due an increase in operating revenues and a decrease in depreciation and amortization expenses, partially offset by increases in cost of services and selling, general and administrative expenses, all of which are described above.

Other Income and Interest Expense

Interest expense was $611,399, which is $84,734, or 12.2% lower in the three months ended June 30, 2011 compared to the three months ended June 30, 2010 and was $1,280,764, which is $106,976, or 7.7% lower in the six months ended June 30, 2011 compared to the six months ended June 30, 2010. The decreases were primarily due to lower outstanding debt balances in 2011 compared to 2010.

Interest income was $10,569, which is $2,230, or 17.4% lower in the three months ended June 30, 2011 compared to the three months ended June 30, 2010 and was $83,344, which is $1,064, or 1.3% lower in the six months ended June 30, 2011 compared to the six months ended June 30, 2010. The decreases were primarily due to lower interest earned on our cash investments and bank accounts. As a result of servicing our debt, excess cash available to purchase investments was lower, and combined with lower interest rates offered by banks and other investment institutions; our interest income earned on these funds has declined.

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HCC investment income was $148,491, which is $39,402, or 36.1% higher in the three months ended June 30, 2011 compared to the three months ended June 30, 2010. This increase reflects our equity portion of HCC’s net income. HCC net income was $445,475, which is $118,207, or 36.1% higher in the three months ended June 30, 2011 compared to the three months ended June 30, 2010. This increase was the result of increasing revenues and other income during the three month period ended June 30, 2011 compared to the three month period ended June 30, 2010. HCC investment income was $261,506, which is $23,123, or 8.1% lower in the six months ended June 30, 2011 compared to the six months ended June 30, 2010. This decrease reflects our equity portion of HCC’s net income. HCC net income was $784,519, which is $69,369, or 8.1% lower in the six months ended June 30, 2011 compared to the six months ended June 30, 2010. Despite the increase in revenues and profitability in the second quarter of 2011, HCC’s year-to-date operating net income has decreased due to declining revenues and decreased profitability.

Other income for the six months ended June 30, 2011 and 2010, included a patronage credit earned with CoBank, ACB as a result of our debt agreements with them. The patronage credit allocated and received in 2011 amounted to $485,812, compared to $513,436 allocated and received in 2010. 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.

Other investment income was $48,857, which is $6,863, or 12.3% lower in the three months ended June 30, 2011 compared to the three months ended June 30, 2010 and was $98,784, which is $21,279, or 27.5% higher in the six months ended June 30, 2011 compared to the six months ended June 30, 2010. Other investment income includes our equity ownerships in several partnerships and limited liability companies.

Income Taxes

Income tax expense was $198,478, which is $264,162, or 402.2% higher in the three months ended June 30, 2011 compared to the three months ended June 30, 2010 and was $659,137, which is $176,415, or 36.5% higher in the six months ended June 30, 2011 compared to the six months ended June 30, 2010. The effective income tax rates for the six months ending June 30, 2011 and 2010 were approximately 40.2% and 37.2%. The increase in the effective tax rate for the six months ended June 30, 2011 compared to the six months ended June 30, 2010 was primarily due to the recognition of approximately $124,000 in net tax benefits in the six months ended June 30, 2010, partially offset by the recognition of approximately $29,000 in net tax benefits in the six months ended June 30, 2011, which were originally reserved for the 2006 tax year, and are no longer open for examination by federal and state tax authorities. Excluding the impact of the recognition of the net tax benefit, the June 30, 2011 effective tax rate would have been approximately 42.0%. The effective income tax rate differs from the federal statutory income tax rate primarily due to state income taxes and other permanent differences.

Hector Communications Corporation Investment

In accordance with GAAP, we currently report our one-third ownership of HCC on the equity method. Under this method, we report net income or net loss each period from HCC’s operations. For the three months ended June 30, 2011 and 2010, we reported net income of $148,491 and $109,089. For the six months ended June 30, 2011 and 2010, we reported net income of $261,506 and $284,629. All reported net income amounts reflect our one-third ownership. As set forth in Note 13 – “Hector Communications Corporation” to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q, in the first six months of 2011 and 2010, HCC had revenues of $13.3 million and $13.7 million that are not reflected in our financial statements.

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The pro forma information for our investment in HCC is shown in the following table using the proportionate consolidation method. We are providing this pro forma information to show the effect that our HCC investment has on our net income and would have on our operating income before interest, taxes, depreciation and amortization (OIBITDA) if we included these earnings in our operating income.


	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Proportionate Method:
Operating Revenues	$	2,253,318	$	2,243,193	$	4,434,711	$	4,552,598

Operating Expenses, Excluding
Depreciation and Amortization		1,086,606		1,028,566		2,113,020		2,004,168
Depreciation and Amortization		734,218		791,092		1,477,303		1,592,001
Total Operating Expenses		1,820,824		1,819,658		3,590,323		3,596,169

Operating Income		432,494		423,535		844,388		956,429

Net Income	$	148,491	$	109,089	$	261,506	$	284,629

If we included our proportionate share of HCC’s OIBITDA in the OIBITDA of NU Telecom, our combined OIBITDA would have increased from $3,326,909 and $3,063,556 for NU Telecom alone, to $4,493,621 and $4,278,183 for the three months ended June 30, 2011 and 2010, and would have increased from $6,788,265 and $6,650,508 for NU Telecom alone, to $9,109,956 and $9,198,938 for the six months ended June 30, 2011 and 2010.


	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010

NU Telecom Operating Income	$	893,078	$	586,172	$	1,960,519	$	1,711,509
NU Telecom Depreciation and Amortization		2,433,831		2,477,384		4,827,746		4,938,999

NU Telecom OIBITDA	$	3,326,909	$	3,063,556	$	6,788,265	$	6,650,508

HCC Proportionate Operating Income	$	432,494	$	423,535	$	844,388	$	956,429
HCC Proportionate Depreciation and Amort		734,218		791,092		1,477,303		1,592,001

HCC Proportionate OIBITDA	$	1,166,712	$	1,214,627	$	2,321,691	$	2,548,430

Combined OIBITDA	$	4,493,621	$	4,278,183	$	9,109,956	$	9,198,938

Adjusted OIBITDA is a common measure of operating performance in the telecommunications industry. The presentation of OIBITDA is not a measure of financial performance under GAAP and should not be considered in isolation or as a substitute for consolidated net income (loss) as a measure of performance and may not be comparable to similarly titled measures used by other companies.

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Liquidity and Capital Resources

Capital Structure

NU Telecom’s total capital structure (long-term and short-term debt obligations, plus stockholders’ equity) was $97,708,829 at June 30, 2011, reflecting 54.3% equity and 45.7% debt. This compares to a capital structure of $99,239,628 at December 31, 2010, reflecting 52.8% equity and 47.2% 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 3.26 times debt to EBITDA (earnings before interest, taxes, depreciation and amortization) as defined in our credit agreements, well within acceptable limits for our agreements and our industry. Our management believes adequate operating cash flows and other internal and external resources, such as our cash on hand and revolving credit facility, are available to finance ongoing operating requirements, including capital expenditures, business development, debt service and temporary financing of trade accounts receivable.

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 six months ended June 30, 2011 were proceeds from cash generated from operations and cash reserves held at the beginning of the period. In addition, we currently have $6.4 million available under our revolving credit facility to fund any short-term working capital needs.

Unfavorable general economic conditions, including the economic conditions in the United States, could negatively affect our business and the related cash flows. 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 commitments through our operating cash flows. We were in full compliance with our debt covenants as of June 30, 2011, and anticipate that we will be able to plan for and match future liquidity needs with future internal and external resources.

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

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Cash Flows

The following table summarizes our cash flow:


	Six Months Ended June 30,						Increase
	2011			2010			(Decrease)			%
Net cash provided by (used in):
Operating activities	$	4,591,916		$	5,950,181		$	(1,358,265	)		-22.83	%
Investing activities		(2,902,176	)		(4,024,224	)		1,122,048			-27.88	%
Financing activities		(2,924,195	)		(2,307,435	)		(616,760	)		26.73	%
Decrease in cash and cash equivalents	$	(1,234,455	)	$	(381,478	)	$	(852,977	)		223.60	%

Cash Flows from Operations

The decrease in cash flows provided by operations for the six months ended June 30, 2011 compared to the six months ended June 30, 2010 was primarily due to changes in the timing of income taxes receivable.

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 and cash equivalents at June 30, 2011 were $1,160,248, compared to $2,394,703 at December 31, 2010.

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 lower in the first six months of 2011 compared to the first six months of 2010 primarily due to the June 2010 acquisition of the Glencoe CATV system for $1,600,000, partially offset by higher capital expenditures in 2011 related to current operations. Capital expenditures related to current operations were $2,864,458 for the six months ended June 30, 2011, compared to $2,382,224 for the six months ended June 30, 2010. We expect total plant additions to be approximately $6,300,000 in 2011. Our investing expenditures have been financed with cash flows from our current operations. We believe that our current operations will provide adequate cash flows to fund our plant additions for the remainder of this year; however, funding from our revolving credit facility is available if the timing of our cash flows from operations does not match our cash flow requirements. We currently have $6.4 million available under our existing credit facility to fund capital expenditures and other operating needs.

Cash Flows used in Financing Activities

Cash used in financing activities for the three months ended June 30, 2011 included long-term debt repayments of $2,092,935 and dividends paid to stockholders of $831,260. Cash used in financing activities for the six months ended June 30, 2010 included long-term debt repayments of $1,488,965 and dividends paid to stockholders of $818,470.

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Working Capital

We had a working capital deficit (i.e. current assets minus current liabilities) of $130,694 as of June 30, 2011, with current assets of approximately $6.7 million and current liabilities of approximately $6.9 million, compared to a working capital deficit of $1,848 as of December 31, 2010. The ratio of current assets to current liabilities was 1.0 and 1.0 as of June 30, 2011 and December 31, 2010. In addition, if it becomes necessary, we will have sufficient availability under our revolving credit facility to fund any fluctuations in working capital and other cash needs.

Dividends

We declared a quarterly dividend of $.08 per share for the first quarter of 2011, which totaled $409,235 and a quarterly dividend of $.0825 per share for the second quarter of 2011, which totaled $422,025. We declared a quarterly dividend of $.08 per share for both the first and second quarters of 2010, which totaled $409,235 for each quarter. Our Board of Directors reviews quarterly dividend declarations based on anticipated earnings, capital requirements and our operating and financial condition. The cash requirements of our current dividend payment review 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 expected fluctuations in working capital and other cash needs, although we do not intend to borrow under this facility to pay dividends.

Our loan agreements have put restrictions on our ability to pay cash dividends to our stockholders. We were 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) was equal to or less than 3:50 to 1:00 and (b) in either case, if we were not in default or potential default under the loan agreements. As of December 31, 2010, 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. At June 30, 2011, we were in compliance with the financial ratios in our loan agreements.

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Obligations and Commitments

In connection with our acquisition of HTC in 2008, NU Telecom entered into a credit facility with CoBank, ACB. Information about our contractual obligations, including obligations under the credit facility, and along with the cash principal payments due each period on our unsecured note payable and long-term debt is set forth in the following table. For additional information about our contractual obligations as of June 30, 2011 see Note 5 – “Secured Credit Facility” to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q.


Description	Total		July 1 - December 31 2011		2012-2013		2014-2015		Thereafter
Deferred Compensation	$	1,385,005	$	256,142	$	262,989	$	128,951	$	736,923
Long-term Debt		44,700,924		1,719,000		6,886,883		36,095,041		0
Interest on Long-term Debt (A)		5,301,974		1,204,469		3,221,572		875,933		0
Loan Guarantees		463,140		18,761		274,360		142,922		27,097
Operating Lease		14,670		14,670		0		0		0
Purchase Obligations (B)		327,713		327,713		0		0		0
Total Contractual Cash Obligations	$	52,193,426	$	3,540,755	$	10,645,804	$	37,242,847	$	764,020


	A.	Interest on long-term debt is estimated using rates in effect as of June 30, 2011. We use interest rate swap agreements to manage our cash flow exposure to interest rate movements on a portion of our variable rate debt obligations (see Note 6 – “Interest Rate Swaps” to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q).

	B.	Purchase obligations consist primarily of commitments incurred for capital improvements. We have a contract for plant upgrades in Cologne, Mayer and New Germany, Minnesota. Other than this contract, there were no purchase obligations outstanding as of June 30, 2011.

Long-Term Debt

See Note 5 – “Secured Credit Facility” to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q for information pertaining to our long-term debt.

Regulation

In March 2010, the FCC released the National Broadband Plan which contemplates significant changes to overall telecommunications policy in relation to access charges and underlying support. At this time, we cannot predict the outcome, timing or potential impact of these recommended changes.

Recent Accounting Developments

See Note 1 – “Basis of Presentation and Consolidation” to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q for a discussion of recent accounting developments.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We do not have operations subject to risks of foreign currency fluctuations. We do, however, use derivative financial instruments that qualify as cash-flow hedges to manage our exposure to interest rate fluctuations on a portion of our variable-interest rate debt. Our objectives for holding derivatives are to minimize interest rate risks using the most effective methods to eliminate or reduce the impact of these exposures. Variable rate debt instruments are subject to interest rate risk. On March 19, 2008, we executed interest-rate swap agreements, effectively locking in the interest rate on $6.0 million of our variable-rate debt through March 2011, and $33.0 million of our variable-rate debt through March 2013. On June 23, 2008, we executed interest-rate swap agreements, effectively locking in the interest rate on $3.0 million of our variable-rate debt through June 2011, and $3.0 million of variable-rate debt through June 2013. A summary of these agreements is contained in Note 6 – “Interest Rate Swaps” to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

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We report the cumulative gain or loss on current derivative instruments as a component of accumulated other comprehensive income (loss) in stockholders’ equity. If the protection agreement is concluded prior to reaching full maturity, the cumulative gain or loss is recognized in earnings. At the conclusion of the full term maturity of the protection agreement, no gain or loss is recognized. Our earnings are affected by changes in interest rates as a portion of our long-term debt has variable interest rates based on LIBOR. If interest rates for the portion of our long-term debt based on variable rates had averaged 10% more for the six months ended June 30, 2011, our interest expense would have increased approximately $2,750.

Item 4. Controls and Procedures

Material Weakness

In conjunction with the filing of our Annual Report on Form 10-K, our management carried out an evaluation under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on that evaluation and the identification of the material weakness in our internal control structure over financial reporting described below, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2010, our disclosure controls and procedures were not effective.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis by our internal controls. In connection with our assessment of our internal control over financial reporting as required under Section 404 of the Sarbanes-Oxley Act of 2002, we identified the following material weakness in our internal control structure over financial reporting as of December 31, 2010:


	There was an improper review of several financial account reconciliations at December 31, 2010 that resulted in several significant audit adjustments. It should be noted that the net effect of these audit adjustments did not materially affect our financial position or results of operations for the year ended December 31, 2010.

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Remediation Activities and Changes in Internal Control over Financial Reporting

Our management has continued its remediation efforts to reduce the risk presented by the existing material weakness. Since year-end, we have implemented a more robust review of our financial account reconciliations to ensure they are completed properly and reviewed for any discrepancies to avoid any misstatements of our financial position or results of operations.

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered in this report. In light of the material weakness associated with the controls over financial account reconciliations, which has not been completely remediated as of the end of the period covered by this Quarterly Report, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act was recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms and did not ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

We anticipate the actions we have taken to remediate this material weakness and the resulting improvement in controls will generally strengthen our disclosure controls and procedures, as well as our internal control over financial reporting, and will, over time, address the material weakness that we identified in our internal control over financial reporting as of December 31, 2010.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time we are involved in legal proceedings arising in the ordinary course of our business. There is no litigation pending that could have a material adverse effect on our results of operations and financial condition.

Item 1A. Risk Factors.

There have not been any material changes to the risk factors previously disclosed in Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Removed and Reserved.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.


Exhibit Number		Description

31.1		Certification pursuant to Rule 13a-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification pursuant to Rule 13a-14(a) under the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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

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

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		NEW ULM TELECOM, INC.

Dated:	August 15, 2011		By /s/ Bill D. Otis
			Bill D. Otis, President and Chief Executive Officer

Dated:	August 15, 2011		By /s/ Curtis O. Kawlewski
			Curtis O. Kawlewski, Chief Financial Officer