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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

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FORM 10-Q

|  |                                                                                                                                          
|- | -----------------------------------------------------------------------------------------------------------------------------------------
|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 2007
|  |                                                                                                                                          
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934                                                 

Commission File Number 0-3024

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NEW ULM TELECOM, INC.(Exact Name of Registrant as Specified in Its Charter)

|                                                                |  |                                      
|--------------------------------------------------------------- |  | -------------------------------------
|Minnesota                                                       |  | 41-0440990                           
|(State or Other Jurisdiction
 of Incorporation or Organization) |  | (I.R.S. Employer
 Identification No.)

27 North Minnesota Street
New Ulm, Minnesota 56073
(Address of Principal Executive Offices, Including 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 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 is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange
Act.

|                          |                     |                        
|------------------------- | ------------------- | -----------------------
|Large Accelerated Filer o | Accelerated Filer x | Non-Accelerated Filer o

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

Indicate the number of shares outstanding of each of the registrants classes of common stock. As of
November 8, 2007, the Company has 5,115,435 shares of common stock outstanding.





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NEW ULM TELECOM, INC. AND SUBSIDIARIESSEPTEMBER 30, 2007





PART I   FINANCIAL INFORMATIONItem 1
                                Financial Statements
                                3-7Consolidated Balance Sheets
                                3-4Consolidated Statements of Income
                                5Consolidated Statements of Stockholders Equity
                                6Consolidated Statements of Cash Flows
                                7Notes to Consolidated Financial Statements
                                8-13Item 2
                                Managements Discussion and Analysis of FinancialCondition and Results of Operations
                                14-24Item 3
                                Quantitative and Qualitative Disclosures About Market Risk
                                25Item 4
                                Controls and Procedures
                                25-26PART II   OTHER INFORMATION
                                27-28Item 1A
                                Risk Factors
                                27Item 5
                                Other Information
                                27-28Item 6
                                Exhibits
                                28SIGNATURES
                                28INDEX TO EXHIBITS
                                29






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Table of Contents

PART I.   FINANCIAL INFORMATION



ITEM 1.   FINANCIAL STATEMENTS



NEW ULM TELECOM, INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS







ASSETS









September 30,2007
        
        December 31,2006(unaudited)CURRENT ASSETSCash and cash equivalents
        
        $
        9,204,312
        
        $
        30,457,707Receivables, net of allowance for doubtful accounts of $376,832 and $322,500
        
        
        1,069,700
        
        
        1,337,367Income taxes receivable
        
        
        1,025,678
        
        
        Inventories
        
        
        454,162
        
        
        239,707Prepaid expenses
        
        
        117,720
        
        
        206,92711,871,572
        
        
        32,241,708INVESTMENTS AND OTHER ASSETSInvestment in Hector Communications Corporation
        
        
        18,892,482
        
        
        20,295,933Goodwill and intangibles, net of amortization
        
        
        3,236,694
        
        
        3,238,233Other
        
        
        2,126,247
        
        
        1,572,90224,255,423
        
        
        25,107,068PROPERTY, PLANT AND EQUIPMENTTelecommunications plant
        
        
        61,978,532
        
        
        59,903,762Other property and equipment
        
        
        3,135,623
        
        
        2,976,784Video plant
        
        
        2,654,851
        
        
        2,489,75267,769,006
        
        
        65,370,298Less Accumulated Depreciation
        
        
        45,687,324
        
        
        42,663,23322,081,682
        
        
        22,707,065TOTAL ASSETS
        
        $
        58,208,677
        
        $
        80,055,841






The accompanying notes are an integral part of the financial statements.





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NEW ULM TELECOM, INC. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS (continued)





LIABILITIES AND STOCKHOLDERS EQUITY







September 30,
2007
        
        December 31,
2006(unaudited)CURRENT LIABILITIESCurrent portion of long-term debt
        
        $
        26,148
        
        $
        26,149Accounts payable
        
        
        555,523
        
        
        294,756Accrued income taxes
        
        
        
        
        
        22,392,040Other accrued taxes
        
        
        91,624
        
        
        76,828Other accrued liabilities
        
        
        683,761
        
        
        715,6241,357,056
        
        
        23,505,397LONG-TERM DEBT, less current portion
        
        
        63,177
        
        
        79,983NON-CURRENT LIABILITIESLoan guarantee
        
        
        332,052
        
        
        2,478,474Deferred income taxes
        
        
        2,541,139
        
        
        3,244,1342,873,191
        
        
        5,722,608STOCKHOLDERS EQUITYPreferred stock  $1.66 par value, 10,000,000 shares authorized, no shares issued and outstanding
        
        
        
        
        
        Common stock  $1.66 par value, 90,000,000 shares authorized, 5,115,435 shares issued and outstanding
        
        
        8,525,725
        
        
        8,525,725Retained earnings
        
        
        45,389,528
        
        
        42,222,12853,915,253
        
        
        50,747,853TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
        
        $
        58,208,677
        
        $
        80,055,841






The accompanying notes are an integral part of the financial statements.



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NEW ULM TELECOM, INC. AND SUBSIDIARIES



UNAUDITED CONSOLIDATED STATEMENTS OF INCOME



THREEMONTHSENDEDSEPTEMBER 30,
        
        NINEMONTHSENDEDSEPTEMBER 30,2007
        
        2006
        
        2007
        
        2006OPERATING REVENUESLocal network
        
        $
        962,769
        
        $
        988,492
        
        $
        2,874,677
        
        $
        2,936,735Network access
        
        
        1,441,330
        
        
        1,670,655
        
        
        4,218,800
        
        
        4,479,286Directory advertising, billing and other services
        
        
        183,494
        
        
        122,442
        
        
        487,065
        
        
        368,860Video services
        
        
        596,207
        
        
        517,212
        
        
        1,730,208
        
        
        1,566,957Internet services
        
        
        425,286
        
        
        397,512
        
        
        1,250,015
        
        
        1,175,410Other nonregulated services
        
        
        802,942
        
        
        613,676
        
        
        2,105,001
        
        
        1,806,6504,412,028
        
        
        4,309,989
        
        
        12,665,766
        
        
        12,333,898OPERATING EXPENSESPlant operations, excluding depreciation and amortization
        
        
        650,526
        
        
        602,933
        
        
        1,880,299
        
        
        1,846,394Cost of video services
        
        
        435,661
        
        
        368,433
        
        
        1,260,209
        
        
        1,110,277Cost of internet services
        
        
        136,520
        
        
        152,934
        
        
        428,548
        
        
        468,616Cost of other nonregulated services
        
        
        385,273
        
        
        299,233
        
        
        1,066,019
        
        
        850,729Depreciation and amortization
        
        
        1,014,454
        
        
        1,070,298
        
        
        3,035,467
        
        
        3,209,904Selling, general and administrative
        
        
        857,661
        
        
        794,278
        
        
        2,947,032
        
        
        2,690,0223,480,095
        
        
        3,288,109
        
        
        10,617,574
        
        
        10,175,942OPERATING INCOME
        
        
        931,933
        
        
        1,021,880
        
        
        2,048,192
        
        
        2,157,956OTHER (EXPENSES) INCOMEAbandoned Acquisition Costs
        
        
        
        
        
        (27,737
        )
        
        
        
        
        (27,737
        )Interest expense
        
        
        (2,061
        )
        
        (223,083
        )
        
        (5,155
        )
        
        (661,343
        )Interest income
        
        
        123,883
        
        
        11,674
        
        
        790,574
        
        
        51,763Cellular investment income
        
        
        
        
        
        2,192,715
        
        
        
        
        
        5,925,389Gain on Sale of MWH
        
        
        
        
        
        
        
        
        3,116,624
        
        
        Hector investment income
        
        
        329,911
        
        
        
        
        
        729,882
        
        
        Other investment income (expense)
        
        
        (6,386
        )
        
        (22,734
        )
        
        100,916
        
        
        117,414445,347
        
        
        1,930,835
        
        
        4,732,841
        
        
        5,405,486INCOME BEFORE INCOME TAXES
        
        
        1,377,280
        
        
        2,952,715
        
        
        6,781,033
        
        
        7,563,442INCOME TAXES (BENEFIT)
        
        
        (109,204
        )
        
        1,186,226
        
        
        2,079,003
        
        
        3,053,412NET INCOME
        
        $
        1,486,484
        
        $
        1,766,489
        
        $
        4,702,030
        
        $
        4,510,030BASIC AND DILUTED NET INCOME PER SHARE
        
        $
        0.29
        
        $
        0.35
        
        $
        0.92
        
        $
        0.88DIVIDENDS PER SHARE
        
        $
        0.10
        
        $
        0.09
        
        $
        0.30
        
        $
        0.27WEIGHTED AVERAGE SHARES OUTSTANDING
        
        
        5,115,435
        
        
        5,115,435
        
        
        5,115,435
        
        
        5,115,435






The accompanying notes are an integral part of the financial statements.



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NEW ULM TELECOM, INC. AND SUBSIDIARIES



UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY



YEAR ENDED DECEMBER 31, 2006 AND

NINE MONTHS ENDED SEPTEMBER 30, 2007



Common Stock
        
        RetainedEarningsShares
        
        AmountBALANCE on December 31, 2005
        
        5,115,435
        
        $
        8,525,725
        
        $
        23,019,926Net income
        
        
        
        
        
        
        
        35,111,205Dividends
        
        
        
        
        
        
        
        (15,909,003
        )BALANCE on December 31, 2006
        
        5,115,435
        
        $
        8,525,725
        
        $
        42,222,128Net income
        
        
        
        
        
        
        
        4,702,030Dividends
        
        
        
        
        
        
        
        (1,534,630
        )BALANCE on September 30, 2007 (unaudited)
        
        5,115,435
        
        $
        8,525,725
        
        $
        45,389,528






The accompanying notes are an integral part of the financial statements.



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NEW ULM TELECOM, INC. AND SUBSIDIARIES



UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS



NINE MONTHS ENDEDSEPTEMBER 30, 2007
        
        SEPTEMBER 30, 2006CASH FLOWS FROM OPERATING ACTIVITIESNet income
        
        $
        4,702,030
        
        $
        4,510,030Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
        
        
        3,035,467
        
        
        3,209,904Cellular investment income
        
        
        
        
        
        (5,925,389
        )Gain on Sale of MWH
        
        
        (3,116,624
        )
        
        Distributions from cellular investments
        
        
        
        
        
        2,728,240Hector investment income
        
        
        (729,882
        )
        
        Deferred income tax
        
        
        (702,995
        )
        
        165,407Decrease (Increase) in:Receivables
        
        
        (758,011
        )
        
        (34,971
        )Inventories
        
        
        (214,455
        )
        
        (38,170
        )Prepaid expenses
        
        
        89,207
        
        
        117,379Increase (Decrease) in:Accounts payable
        
        
        358,227
        
        
        28,088Accrued income taxes
        
        
        (22,392,040
        )
        
        (673,994
        )Other accrued taxes
        
        
        14,796
        
        
        5,232Other accrued liabilities
        
        
        (31,863
        )
        
        33,985Net cash provided by (used in) operating activities
        
        
        (19,746,143
        )
        
        4,125,741CASH FLOWS FROM INVESTING ACTIVITIESAdditions to property, plant and equipment, net
        
        
        (2,506,006
        )
        
        (1,545,746
        )Proceeds from Sale of MWH
        
        
        3,116,624
        
        
        Other, net
        
        
        (566,434
        )
        
        (288,327
        )Net cash provided by (used in) investing activities
        
        
        44,184
        
        
        (1,834,073
        )CASH FLOWS FROM FINANCING ACTIVITIESPrincipal payments of long-term debt
        
        
        (16,806
        )
        
        (1,883,295
        )Dividends paid
        
        
        (1,534,630
        )
        
        (1,381,167
        )Net cash used by financing activities
        
        
        (1,551,436
        )
        
        (3,264,462
        )NET DECREASE IN CASH AND CASH EQUIVALENTS
        
        
        (21,253,395
        )
        
        (972,794
        )CASH AND CASH EQUIVALENTSat Beginning of Period
        
        
        30,457,707
        
        
        2,706,764CASH AND CASH EQUIVALENTSat End of Period
        
        $
        9,204,312
        
        $
        1,733,970






The accompanying notes are an integral part of the financial statements.



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NEW ULM TELECOM, INC. AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



NOTE 1  CONSOLIDATED FINANCIAL STATEMENTS



The consolidated financial statements include the accounts of New Ulm Telecom, Inc. and its wholly owned subsidiaries (Company). All material intercompany transactions and accounts have been eliminated.



The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosure of contingent assets and liabilities at the balance sheet date, and the reported amounts of revenues and expenses during the reporting period. The estimates and assumptions used in the accompanying consolidated financial statements are based upon managements evaluation of the relevant facts and circumstances as of the time of the financial statements. Actual results could differ from those estimates.



Revenues are recognized when earned, regardless of the period in which they are billed. Interstate network access revenues are furnished in conjunction with interexchange carriers and are determined by cost separation studies and nationwide average schedules. Revenues include estimates pending finalization of cost studies. Interstate network access revenues are based upon interstate tariffs filed with the Federal Communications Commission (FCC) by the National Exchange Carrier Association and state tariffs filed with state regulatory agencies. Management believes recorded revenues are reasonable based on estimates of cost separation studies, which are typically settled within two years. Local network and intrastate access revenues are based on tariffs filed with the state regulatory commissions. Revenues from system sales and services are derived from the sale, installation, and servicing of communication
systems. In accordance with EITF 00-21, these deliverables are separate units of accounting. Customer contracts of sales and installations are recognized using the completed-contract method, which recognizes income when the contract is substantially complete. Rental revenues are recognized over the rental period.



The balance sheets and statement of stockholders equity as of September 30, 2007, and statements of income and the statements of cash flows for the periods ended September 30, 2007 and 2006 have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and changes in cash flows at September 30, 2007 and for the nine-month periods ended September 30, 2007 and 2006 have been made.



The accompanying unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended December 31, 2006. The results of operations for the period ended September 30, 2007 are not necessarily indicative of the operating results to be expected for the entire year.



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NOTE 2  INCOME TAXES



The provision for income taxes consists of an amount for taxes currently payable and a provision for tax consequences deferred to future periods. Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Significant components of the Companys deferred taxes arise from differences in the basis of property, plant and equipment due to the use of accelerated depreciation methods for tax purposes and partnerships due to the difference between book and tax income. The Companys effective income tax rate is higher than the U.S. rate due to the effect of state income taxes.



Effective January 1, 2007, the Company adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48),Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109.The implementation of FIN 48 had no impact on the companys financial statements as the Company had no unrecognized tax benefits at January 1, 2007.



A change in the estimated amount provided for 2006 corporate income taxes has been recorded as a reduction of approximately $632,000 in the estimated income taxes provided for the three months ended September 30, 2007.



At September 30, 2007, the Company had approximately $70,000 of net unrecognized tax benefits that, if recognized, would favorably affect the income tax provision when recorded. The Company expects that there will be additional unrecognized tax benefits to be recorded within the next year based on the tax treatment of an installment sale.



The Company is primarily subject to U.S., Minnesota, Iowa, Nebraska and Wisconsin income tax. Tax years subsequent to 2002 remain open to examination by U.S. federal and state tax authorities. The Companys policy is to recognize interest and penalties related to income tax matters in income tax expense. As of January 1, 2007, and September 30, 2007, the Company had no accrual for interest or penalties related to income tax matters.



NOTE 3  SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION



Cash paid during the nine months ended September 30:




2007
        
        2006Interest
        
        $
        7,108
        
        $
        655,226Income taxes
        
        $
        26,199,716
        
        $
        3,621,000




Noncash investing activities included $54,999 and $134,866 during the periods ended September 30, 2007 and 2006, respectively, relating to plant and equipment additions placed in service, which are reflected in accounts payable at September 30, 2007 and 2006.



The noncash effect of the changes in loan guarantees and the respective investments in Hector and FiberComm, LC were decreases in the amount of  $2,146,422 and $17,415 during the periods ended September 30, 2007 and 2006, respectively.



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NOTE 4  SECURED REDUCING REVOLVING CREDIT FACILITY



In 2001, the Company entered into a $15 million secured ten-year reducing revolving credit facility with CoBank, ACB, maturing in 2011. The Company also entered into a $10 million secured ten-year reducing revolving credit facility during 2001 with CoBank, ACB, maturing in 2011. In October 2006 and December 2006, the Company made long-term debt repayments that extinguished its debt with CoBank, ACB.



NOTE 5  GOODWILL AND INTANGIBLE ASSETS



At September 30, 2007, the Company had goodwill for wireline acquisitions of $3,218,906. The Company annually tests this as required under SFAS 142 and has determined that the goodwill is not impaired.



Intangible assets with definite lives are amortized over their useful lives. Amortization expense is $2,052 per year.



NOTE 6  SEGMENT INFORMATION



The Company is organized into three business segments: the Telecom Segment, the Cellular Segment, and the Phonery Segment.



Telecom Segment.       The Telecom Segment consists of the operations of its incumbent local exchange carriers (ILECs), its competitive local exchange carrier (CLEC), and its operations that provide Internet and video services. In addition, within this segment, the Company also owns 25.18% interest in FiberComm, LC, a competitive local exchange carrier (CLEC), in Sioux City, Iowa. On November 3, 2006, the Company acquired a 33.33% ownership interest in Hector Communications Corporation (HCC). HCC offers ILEC, CATV and Internet services to a number of communities in Minnesota and Wisconsin. The Company records its share of any income or loss from its ownership in FiberComm, LC and HCC on the equity method, the Company, as one-third owner of HCC, is overseeing a portion of the HCC operations.



Cellular Segment.The Cellular Segment includes the sales and service of cellular phones and accessories, and had a 9.88% cellular investment in Midwest Wireless Holdings, LLC (MWH) that was sold to Alltel on October 2, 2006. The MWH cellular investment was recorded on the equity method on the financial statements and is presented in this note using the proportionate consolidation method. The Company recorded its 9.88% investment in MWH using the proportionate consolidation method so that it could be compared to the cellular industry, as well as the Companys other business segments, and because the Companys Chief Operating Decision Maker (CODM) reviewed the performance of MWH using the proportionate method.



Phonery Segment.The Phonery Segment includes the sales and service of customer premise equipment (CPE), transport operations, and the resale of long distance toll service.



No single customer accounted for a material portion of the Companys revenues in any of the last three years.



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NOTE 6  SEGMENT INFORMATION (continued)





Segment information is as follows:



TelecomSegment
        
        CellularSegment
        
        PhonerySegment
        
        Eliminations
        
        ConsolidatedThree Months Ended September 30, 2007Operating Revenues
        
        $
        3,856,152
        
        $
        203,718
        
        $
        599,224
        
        $
        (247,066
        )
        $
        4,412,028Depreciation and Amortization
        
        
        984,323
        
        
        
        
        
        30,131
        
        
        
        
        
        1,014,454Operating Expenses, ExcludingDepreciation and Amortization
        
        
        2,297,441
        
        
        142,979
        
        
        272,287
        
        
        (247,066
        )
        
        2,465,641Operating Income
        
        
        574,388
        
        
        60,739
        
        
        296,806
        
        
        
        
        
        931,933Interest Expense
        
        
        (2,061
        )
        
        
        
        
        
        
        
        
        
        
        (2,061
        )Gain on Sale of MWH
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        Hector Investment Income
        
        
        329,911
        
        
        
        
        
        
        
        
        
        
        
        329,911Other Investment Income (Expense)
        
        
        117,497
        
        
        
        
        
        
        
        
        
        
        
        117,497Income (Taxes) Benefit
        
        
        (411,378
        )
        
        640,700
        
        
        (120,118
        )
        
        
        
        
        109,204Net Income
        
        $
        608,357
        
        $
        701,439
        
        $
        176,688
        
        $
        
        
        $
        1,486,484Total Assets
        
        $
        75,631,434
        
        $
        71,678
        
        $
        7,122,663
        
        $
        (24,617,098
        )
        $
        58,208,677Capital Expenditures
        
        $
        1,100,928
        
        $
        
        
        $
        
        
        $
        
        
        $
        1,100,928






TelecomSegment
        
        CellularSegment
        
        PhonerySegment
        
        Eliminations
        
        ConsolidatedThree Months Ended September 30, 2006Operating Revenues
        
        $
        3,935,466
        
        $
        6,952,250
        
        $
        461,942
        
        $
        (7,039,669
        )
        $
        4,309,989Depreciation and Amortization
        
        
        1,053,488
        
        
        788,718
        
        
        16,810
        
        
        (788,718
        )
        
        1,070,298Operating Expenses, ExcludingDepreciation and Amortization
        
        
        2,124,896
        
        
        4,212,870
        
        
        230,113
        
        
        (4,350,068
        )
        
        2,217,811Operating Income
        
        
        757,082
        
        
        1,950,662
        
        
        215,019
        
        
        (1,900,883
        )
        
        1,021,880Interest Expense
        
        
        (189,874
        )
        
        (314,447
        )
        
        
        
        
        281,238
        
        
        (223,083
        )Cellular Investment Income
        
        
        
        
        
        
        
        
        
        
        
        2,192,715
        
        
        2,192,715Other Investment Income (Expense)
        
        
        (38,797
        )
        
        573,070
        
        
        
        
        
        (573,070
        )
        
        (38,797
        )Income Taxes
        
        
        (212,625
        )
        
        (886,583
        )
        
        (87,018
        )
        
        
        
        
        (1,186,226
        )Net Income
        
        $
        315,786
        
        $
        1,322,702
        
        $
        128,001
        
        $
        
        
        $
        1,766,489Total Assets
        
        $
        90,383,935
        
        $
        54,263,508
        
        $
        6,503,300
        
        $
        (95,450,769
        )
        $
        55,699,974Capital Expenditures
        
        $
        478,724
        
        $
        721,539
        
        $
        
        
        $
        (721,539
        )
        $
        478,724






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NOTE 6  SEGMENT INFORMATION (continued)





TelecomSegment
        
        CellularSegment
        
        PhonerySegment
        
        Eliminations
        
        ConsolidatedNine Months Ended September 30, 2007Operating Revenues
        
        $
        11,291,726
        
        $
        559,859
        
        $
        1,545,142
        
        $
        (730,961
        )
        $
        12,665,766Depreciation and Amortization
        
        
        2,977,557
        
        
        
        
        
        57,910
        
        
        
        
        
        3,035,467Operating Expenses, ExcludingDepreciation and Amortization
        
        
        7,157,302
        
        
        414,239
        
        
        741,527
        
        
        (730,961
        )
        
        7,582,107Operating Income
        
        
        1,156,867
        
        
        145,620
        
        
        745,705
        
        
        
        
        
        2,048,192Interest Expense
        
        
        (5,155
        )
        
        
        
        
        
        
        
        
        
        
        (5,155
        )Gain on Sale of MWH
        
        
        
        
        
        3,116,624
        
        
        
        
        
        
        
        
        3,116,624Hector Investment Income
        
        
        729,882
        
        
        
        
        
        
        
        
        
        
        
        729,882Other Investment Income (Expense)
        
        
        679,200
        
        
        212,290
        
        
        
        
        
        
        
        
        891,490Income Taxes
        
        
        (1,036,353
        )
        
        (740,863
        )
        
        (301,787
        )
        
        
        
        
        (2,079,003
        )Net Income
        
        $
        1,524,441
        
        $
        2,733,671
        
        $
        443,918
        
        $
        
        
        $
        4,702,030Total Assets
        
        $
        75,631,434
        
        $
        71,678
        
        $
        7,122,663
        
        $
        (24,617,098
        )
        $
        58,208,677Capital Expenditures
        
        $
        2,506,006
        
        $
        
        
        $
        
        
        $
        
        
        $
        2,506,006






TelecomSegment
        
        CellularSegment
        
        PhonerySegment
        
        Eliminations
        
        ConsolidatedNine Months Ended September 30, 2006Operating Revenues
        
        $
        11,237,102
        
        $
        20,785,265
        
        $
        1,416,243
        
        $
        (21,104,712
        )
        $
        12,333,898Depreciation and Amortization
        
        
        3,159,474
        
        
        2,349,590
        
        
        50,430
        
        
        (2,349,590
        )
        
        3,209,904Operating Expenses, ExcludingDepreciation and Amortization
        
        
        6,728,234
        
        
        12,412,760
        
        
        675,338
        
        
        (12,850,294
        )
        
        6,966,038Operating Income
        
        
        1,349,394
        
        
        6,022,915
        
        
        690,475
        
        
        (5,904,828
        )
        
        2,157,956Interest Expense
        
        
        (564,473
        )
        
        (608,925
        )
        
        
        
        
        512,055
        
        
        (661,343
        )Cellular Investment Income
        
        
        
        
        
        
        
        
        
        
        
        5,925,389
        
        
        5,925,389Other Investment Income (Expense)
        
        
        141,440
        
        
        532,616
        
        
        
        
        
        (532,616
        )
        
        141,440Income Taxes
        
        
        (374,900
        )
        
        (2,399,077
        )
        
        (279,435
        )
        
        
        
        
        (3,053,412
        )Net Income
        
        $
        551,461
        
        $
        3,547,529
        
        $
        411,040
        
        $
        
        
        $
        4,510,030Total Assets
        
        $
        90,383,935
        
        $
        54,263,508
        
        $
        6,503,300
        
        $
        (95,450,769
        )
        $
        55,699,974Capital Expenditures
        
        $
        1,545,746
        
        $
        2,290,970
        
        $
        
        
        $
        (2,290,970
        )
        $
        1,545,746






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NOTE 7  PENDING ACQUISITION



Pending Acquisition of Hutchinson Telephone Company



On August 3, 2007, New Ulm Telecom, Inc. entered into an agreement and plan of merger with Hutchinson Telephone Company (HTC) under which New Ulm Telecom, Inc. will acquire HTC for approximately $62 million in cash. After giving effect to closing date adjustments for HTC cash and working capital, and transaction expenses, the overall transaction size will be approximately $77 million. The transaction is being structured as a reverse triangular merger under which a newly-formed subsidiary of New Ulm Telecom, Inc., Hutchinson Acquisition Corp, will merge into HTC at closing with HTC continuing as a subsidiary of New Ulm Telecom, Inc. The acquisition will result in a combined company that provides phone, video and Internet services with over 50,000 connections in a number of Minnesota and Iowa communities.



On August 31, 2007, shareholders of HTC approved the merger. The transaction continues to be subject to customary closing conditions and regulatory approvals. New Ulm Telecom, Inc. and HTC have filed a Joint Petition for approval of the Merger Agreement with the Minnesota Public Utilities Commission and have also made required FCC filings. New Ulm Telecom, Inc. and HTC are also working together to obtain the required other approvals and consents. New Ulm Telecom, Inc. continues to expect the transaction to close in the fourth quarter of 2007. New Ulm Telecom, Inc. is funding the purchase from available cash and borrowings from CoBank, ACB.



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ITEM 2.   MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The Companys future results of operation and any forward-looking statements made in this Form 10-Q are subject to risks and uncertainties, including, but not limited to, the effects of deregulation in the telecommunications industry as a result of the Telecommunications Act of 1996. These forward-looking statements are subject to risks and uncertainties that could cause the Companys actual results to differ materially from these statements and the Company disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future events or the receipt of new information. See Risk Factors in Item 1A of the 2006 Form 10-K.



OVERVIEW



The Company owns and operates incumbent local exchange carriers (ILECs) and a competitive local exchange carrier (CLEC) that provide, own and operate phone, video and Internet services in a number of Minnesota and Iowa communities. The Company also sells and services cellular phones and accessories, customer premise equipment and transport operations. The Company also holds a 25.18% ownership interest in FiberComm, LC, a CLEC based in Sioux City, Iowa and on November 3, 2006, acquired a 33.33% ownership interest in Hector Communications Corporation, which provides phone, video and Internet services to a number of communities in Minnesota and Wisconsin. The Company is organized into three business segments, as described in Note 6 of the Notes to Consolidated Financial Statements.



RESULTS OF OPERATIONS



CONSOLIDATED OPERATING RESULTS



The following is a summarized discussion of consolidated results of operations. More detailed discussion of operating results by segment follows this discussion.



OPERATING REVENUES:



Total operating revenues were $4,412,028 for the three months ended September 30, 2007, for an increase of 2.4% or $102,039 compared to the same period in 2006. Total operating revenues were $12,665,766 for the nine months ended September 30, 2007, for an increase of $331,868 or 2.7% compared to the same period in 2006. All segments experienced increases.



The Telecom segment continues to experience decreases in its local network and network access revenues, both common industry trends. These decreases have been offset by increases in revenues from its expanded service offerings: digital video, digital subscriber line (DSL), Internet service provision, and the operations of a Competitive Local Exchange Carrier (CLEC) in the City of Redwood Falls, Minnesota. The Telecom segment has invested heavily in its infrastructure, which has allowed it to enhance its local network so that it could offer a triple-play of services to its subscribers. In the telecommunications industry, a triple-play of services refers to offering telephone, Internet and video services over the same infrastructure. The Companys continued infrastructure investment has allowed it to offer its customers new technologies, such as high-definition
television (HDTV), which the Company began offering during the second quarter in its New Ulm, Springfield and Redwood Falls, Minnesota locations. The Company expects to continue to invest in its infrastructure so that it can continue to offer its customers new technologies as they emerge. The geographic expansion of its service offerings will provide this segment with future growth.



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The Telecom segments decrease in its network access revenues is the result of downward pricing pressure on access charges and a decrease in the access minutes of use. The decrease in network access revenues was minimized due to the Companys eligibility for high-cost loop funding through the Universal Service Fund for its ILEC operations in Springfield and Sanborn, Minnesota, and Aurelia, Iowa, and the immediately surrounding areas served by the affected ILECs.  The Company continues to monitor the negative effects of network access pricing and the downward trend in access minutes of use that could affect future revenues in the Telecom sector in order to minimize the impact on the Company. Also, the FCC continues to examine inter-carrier compensation (payments from one telecommunications company to another for the use of their interconnecting networks). The FCC currently has an
open docket on intercarrier compensation as well as several dockets on Voice over Internet Protocol (VoIP). The Company cannot predict the outcome of these proceedings, nor can it estimate the impact, if any, on the Company.



The Company believes that, despite the regulatory and competitive challenges faced by the Telecom segment, the Company has positioned itself for future revenue growth. The Company believes that future revenue growth will be realized through new and expanded service offerings. The Company also continually evaluates new and emerging technologies to keep the Companys service offerings innovative and competitive. The Company expects that continued infrastructure investment will allow the Company to continue to offer its customers new technologies as they emerge, and that geographic expansion of the Companys service offerings will provide this segment with continued future growth.



The Cellular segment saw an increase in its sales and service revenues of cellular phones and accessories for the three months and the nine months ended September 30, 2007. The Phonery segment experienced an increase in operating revenues for the three months and the nine months ended September 30, 2007 due to increased sales of customer premise equipment (CPE).



OPERATING EXPENSES:



Operating expenses for the three months ended September 30, 2007 increased $191,986, or 5.8%, compared to the same period in 2006. Operating expenses for the nine months ended September 30, 2007 increased $441,632 or 4.3%. The Telecom segment was responsible for $247,151 of the increase in operating expenses for the nine months ended September 30, 2007. Depreciation expense for the Telecom segment saw a decrease of $181,917 for the first nine months of 2007 compared to 2006. Depreciation decreased due to some long-lived assets becoming fully depreciated even as the Company continues to make investments in the Telecom segments infrastructure. The increase in operating expenses, excluding depreciation and amortization, of $429,068 was due to the increased cost of providing services and an increasing customer base for the segments expanded services, such as digital video, DSL and
Internet service. In addition, operating expenses increased due to additional costs incurred in connection with the Companys ongoing compliance with Sarbanes-Oxley Act Section 404. The remainder of the increase in the Telecom segment reflected the additional selling, general and administrative expenses associated with the commitment of the Company to compete in all aspects of communication services and to provide exceptional customer service for the Companys assortment of products and services to the communities that it serves. The Cellular and Phonery segments increased cost of goods sold accounted for the remainder of the increase.



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OPERATING INCOME:



Operating income for the three months ended September 30, 2007 decreased $89,947 or 8.8% over the three months ended September 30, 2006. Operating income for the nine months ended September 30, 2007 decreased $109,764 or 5.1% compared to the nine-month period ended September 30, 2006. The decreases in income for the three and nine month periods ended September 30, 2007 were primarily due to the increase in video and other nonregulated service expenses and the increase in general and administrative expenses, including Sarbanes-Oxley Act Section 404 compliance costs, from the Telecom segments operations and the increased cost of goods sold from the Cellular and Phonery segments.



OTHER INCOME:



Overall, other income for the three months ended September 30, 2007 decreased $1,485,488 compared to the three months ended September 30, 2006. Other income decreased $672,645 for the nine months ended September 30, 2007 compared to the same period in 2006.



The Companys cellular investment income for the nine months ended September 30, 2007 decreased $5,925,389 due to the October 2006 sale of MWH to Alltel. The Company received $3,116,624 in the first nine months of 2007 due to the receipt of a portion of the escrow funds from Alltel in April 2007. The Companys investment income increased $729,882 for the nine months ended September 30, 2007 compared to the same period in 2006 due to the Companys 33.33% ownership interest in Hector Communications Corporation acquired on November 3, 2006.



Other investment income decreased $16,498 for the nine months ended September 30, 2007 as compared to the same period in 2006. This decrease was due to a decrease in the patronage income received from CoBank, a cooperative lender that specializes in agribusiness, communications, energy and water systems, and agricultural export financing, offset by an increase in investment income from Fibercom, L.C., a CLEC in Sioux City, Iowa for the nine months ended in 2007 as compared to the same period in 2006. The Company paid off its CoBank loans in 2006.



There was an increase of $738,811 in interest income for the nine months ended September 30, 2007 compared to the same period in 2006. The increase was due to increased funds available for investment resulting from the proceeds of the MWH sale.



There was a $656,188 decrease in interest expense for the nine months ended September 30, 2007 compared to the same period in 2006. The decrease in interest expense was due to the Companys repayment of its outstanding CoBank, ACB debt in 2006.



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NET INCOME:



Net income was $1,486,484 for the three months ended September 30, 2007 compared with $1,766,489 for the same period in 2006. Net income was $4,702,030 for the nine-month period ending September 30, 2007 compared with $4,510,030 for the same nine-month period in 2006. The $280,005 or 15.9% decrease in net income for the three months ended September 30, 2007 was primarily attributed to the decrease in cellular investment income as a result of the October 2006 sale of the Companys interest in MWH, partially offset by the increase in the Hector investment income. The $192,000 or 4.3% increase in net income for the nine months ended September 30, 2007 was primarily attributed to the decrease in the Companys income taxes, an increase in the gain on sale of MWH from the receipt of the first portion of the escrow funds received in early April 2007 and an increase in Hector investment
income, offset by the decrease in cellular investment income as a result of the October 2006 sale of the Companys interest in MWH.



Summary of Operations



Three Months Ended September 30,
        
        Nine Months Ended September 30,2007
        
        2006
        
        2007
        
        2006Operating Income:Telecom Segment
        
        $
        574,388
        
        $
        757,082
        
        $
        1,156,867
        
        $
        1,349,394Cellular Segment
        
        
        60,739
        
        
        49,779
        
        
        145,620
        
        
        118,087Phonery Segment
        
        
        296,806
        
        
        215,019
        
        
        745,705
        
        
        690,475Total
        
        
        931,933
        
        
        1,021,880
        
        
        2,048,192
        
        
        2,157,956Other Income
        
        
        447,408
        
        
        2,153,918
        
        
        4,737,996
        
        
        6,066,829Interest Expense
        
        
        (2,061
        )
        
        (223,083
        )
        
        (5,155
        )
        
        (661,343
        )Income Taxes
        
        
        109,204
        
        
        (1,186,226
        )
        
        (2,079,003
        )
        
        (3,053,412
        )Net Income
        
        $
        1,486,484
        
        $
        1,766,489
        
        $
        4,702,030
        
        $
        4,510,030Basic and DilutedEarnings Per Share
        
        $
        .29
        
        $
        .35
        
        $
        .92
        
        $
        .88Weighted Average Shares Outstanding
        
        
        5,115,435
        
        
        5,115,435
        
        
        5,115,435
        
        
        5,115,435






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RESULTS OF OPERATIONS BY BUSINESS SEGMENT



Telecom Segment Operations



The Telecom segment revenues represented 82.8% of the Companys consolidated operating revenues for the three-month period ended September 30, 2007 and 84.3% of the Companys consolidated operating revenues for the nine-month period ended September 30, 2007, before intercompany eliminations. Revenues are primarily earned by providing customers access to the local network in ILEC and CLEC operations, and by providing inter-exchange access for long distance network carriers. The Telecom segment also earns revenue by providing Internet services, including high-speed DSL Internet access, and video services to its subscribers, directory advertising, through billing and collecting for various long distance companies, and for management and billing services provided to HCC. This segment has invested in its infrastructure so that it can provide its customers with the latest technological advances, including
being able to offer its triple-play of services. Total Telecom segment revenues for the three-month period ending September 30, 2007 decreased $79,314 or 2.0% compared to the same period in 2006. Total Telecom segment revenues for the nine-month period ending September 30, 2007 increased $54,624 or 0.5% compared to the same period in 2006. All information contained in the following table is before intercompany eliminations.



Three Months Ended September 30,
        
        Nine Months Ended September 30,2007
        
        2006
        
        2007
        
        2006Operating Revenues:Local Network
        
        $
        986,220
        
        $
        1,011,943
        
        $
        2,945,030
        
        $
        3,007,088Network Access
        
        
        1,448,668
        
        
        1,677,855
        
        
        4,240,802
        
        
        4,500,886Other
        
        
        1,421,264
        
        
        1,245,668
        
        
        4,105,894
        
        
        3,729,128Total Operating Revenues
        
        
        3,856,152
        
        
        3,935,466
        
        
        11,291,726
        
        
        11,237,102Operating Expenses, Excluding Depreciationand Amortization
        
        
        2,297,441
        
        
        2,124,896
        
        
        7,157,302
        
        
        6,728,234Depreciation and Amortization Expenses
        
        
        984,323
        
        
        1,053,488
        
        
        2,977,557
        
        
        3,159,474Total Operating Expenses
        
        
        3,281,764
        
        
        3,178,384
        
        
        10,134,859
        
        
        9,887,708Operating Income
        
        
        574,388
        
        
        757,082
        
        
        1,156,867
        
        
        1,349,394Net Income
        
        $
        608,357
        
        $
        315,786
        
        $
        1,524,441
        
        $
        551,461




Local network revenue decreased in the Telecom segment by $25,723 or 2.5% for the three months ended September 30, 2007 compared to the same period in 2006. Local network revenue decreased in the Telecom segment by $62,058 or 2.1% for the nine months ended September 30, 2007 compared to the same period in 2006. Local network revenue decreased as a result of a decrease in access lines of approximately 300 for the first nine months of 2007 compared to the same period in 2006. The decrease in access lines is due to customers increasingly utilizing their wireless phones and customers dropping second phone lines in their homes when they move their Internet service from a dial-up platform to a DSL platform or a cable platform.



18



---





Network access revenue decreased $229,187 or 13.7% for the three months ended September 30, 2007 compared with the same period in 2006. Network access revenue decreased $260,084 or 5.8% for the nine months ended September 30, 2007 compared to the same period in 2006. The decrease in network access revenue reflects the overall decrease in minutes of use and the negative effects of downward pricing pressure on network access pricing, a common industry trend. The Telecom segment experienced a 7.5% decrease in access minutes for the nine months ended September 30, 2007 compared to the same period in 2006. In order to minimize the impact on the Company, the Company continues to monitor the negative effects of network access pricing and the downward trend in access minutes of use. The Telecom segment has maintained and enhanced its infrastructure, and has invested over $9 million in capital expenditures since 2004.
These capital expenditures have enhanced this segments infrastructure and have allowed the Company to receive additional settlements from the National Exchange Carrier Association (NECA). The additional investment in the local loop (access line cost) has made the Company eligible for high-cost loop funding through the Universal Service Fund.



Other operating revenues increased $175,596 or 14.1% for the three months ended September 30, 2007 compared with the same period in 2006. Other operating revenues increased $376,766 or 10.1% for the nine months ended September 30, 2007 compared with the same period in 2006. Due to the infrastructure enhancements that have taken place since 2000, the Telecom segment has been able to offer its customers a triple-play of services over the existing infrastructure and offer its services on a CLEC basis to the city of Redwood Falls, Minnesota. The video product offered in New Ulm, Essig, Searles, Courtland, Springfield, Sanborn and Redwood Falls, Minnesota was responsible for $95,919 of the increase in these revenues for the nine months ended September 30, 2007. The cable television services offered in the Minnesota communities of Cologne, Mayer, New Germany and New Market Township were responsible for
$70,208 of the increase in other operating revenues for the nine months ended September 30, 2007. Approximately $128,000 of the increase in other operating revenues was from the management and billing services that the Company provided to HCC. Internet services were responsible for a $109,147 increase in operating revenues for the nine months ended September 30, 2007. These increases were slightly offset by a decline in the amount of billing and collection revenue from interexchange carriers.



Operating expenses, excluding depreciation and amortization, increased $172,545 or 8.1% for the three-month period ended September 30, 2007 and increased $429,068 or 6.4% for the nine-month period ended September 30, 2007 compared with the same periods in 2006. The increases in operating expenses were the result of increased selling, general and administrative costs, particularly those associated with compliance with Sarbanes-Oxley Act Section 404, and the increasing expenses associated with the expanded array of services offered such as video and DSL that allow the Company to offer the triple-play of services to its customers. The Telecom segment has recognized the value in being able to compete in all aspects of communication services. This realization has motivated the segment to enhance its awareness of customer satisfaction (including 24 hours a day, 7 days a week access to Internet support),
offer additional services (video and DSL), pursue aggressive marketing to develop brand recognition, and provide solutions for customers evolving communication needs. The Company has expanded its services and product offerings in an effort to meet its objective of achieving 100% customer satisfaction by making the customer its top priority, deserving the Companys best service, attitude and consideration.



Depreciation and amortization expenses decreased $69,165 or 6.6% for the three months ended September 30, 2007 compared with the same period in 2006. Depreciation and amortization expenses decreased $181,917 or 5.8% for the nine months ended September 30, 2007 compared with the same period ended September 30, 2006. While continuing to make investments in the Telecom segments infrastructure, there were net decreases due to the fact that certain long-lived assets have become fully depreciated for financial reporting purposes even though these assets are still in service.



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Operating income decreased $182,694 or 24.1% for the three months ended September 30, 2007 compared with the same period in 2006. Operating income decreased $192,527 or 14.3% for the nine months ended September 30, 2007 compared to the same period in 2006. The decrease in operating income for the nine months ended September 30, 2007 was primarily due to decreases in network access revenues and additional general and administrative expenses associated with the commitment of the Telecom segment to effectively compete in all aspects of communication services and to provide superior customer-focused service for the Telecom segments complete array of products and services. These decreases in operating income were partially offset by increased revenue for video and Internet services due to an increase in customers, and the increase in revenues due to the management and billing services that the company provides to HCC.



Cellular Segment



The Cellular segment operations for 2007 and 2006 include the sales and service of cellular phones and accessories, and the Companys 9.88% ownership interest in MWH (sold to Alltel on October 2, 2006). The operating revenue from sales of cellular phones and accessories increased by $51,984 for the three-month period ending September 30, 2007 and $169,452 for the nine-month period ending September 30, 2007 as compared to the same periods in 2006. The cellular partnership income decreased $2,192,715 for the three months ended September 30, 2007 compared to the same period ended in 2006, and decreased $5,925,389 for the nine months ended September 30, 2007 as compared to September 30, 2006 due to the sale of MWH. The Cellular segment had an increase of $3,116,624 from the gain on the sale of MWH due to the receipt of a portion of the escrow funds in April 2007 for the nine months ended September 30, 2007.
The Cellular segment information for its investment in MWH is shown in the following table using the proportionate consolidation method. The Company recorded its 9.88% investment in MWH using the proportionate consolidation method so that it could be compared to the cellular industry, as well as the Companys other business segments, and because the Companys CODM reviewed the performance of MWH using the proportionate method.



Three Months EndedSeptember 30,
        
        Nine Months EndedSeptember 30,2007
        
        2006
        
        2007
        
        2006Proportionate Method:Operating Revenues
        
        $
        
        
        $
        6,800,516
        
        $
        
        
        $
        20,394,858Operating Expenses, Excluding Depreciationand Amortization
        
        
        
        
        
        4,110,915
        
        
        
        
        
        12,140,440Depreciation and Amortization Expenses
        
        
        
        
        
        788,718
        
        
        
        
        
        2,349,589Total Operating Expenses
        
        
        
        
        
        4,899,633
        
        
        
        
        
        14,490,029Operating Income
        
        
        
        
        
        1,900,883
        
        
        
        
        
        5,904,829Net Income
        
        $
        
        
        $
        2,192,715
        
        $
        
        
        $
        5,925,389






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A recap of income for the cellular segment using the equity method to record earnings on its investment in MWH, is contained in the following table.



Three Months Ended September 30,
        
        Nine Months Ended September 30,2007
        
        2006
        
        2007
        
        2006Operating Revenues:
        
        $
        203,718
        
        $
        151,734
        
        $
        559,859
        
        $
        390,407Operating Expenses, Excluding Depreciationand Amortization
        
        
        142,979
        
        
        101,955
        
        
        414,239
        
        
        272,320Depreciation and Amortization Expenses
        
        
        
        
        
        
        
        
        
        
        
        Total Operating Expenses
        
        
        142,979
        
        
        101,955
        
        
        414,239
        
        
        272,320Operating Income
        
        
        60,739
        
        
        49,779
        
        
        145,620
        
        
        118,087Interest Expense
        
        
        
        
        
        (33,209
        )
        
        
        
        
        (96,870
        )Interest Income
        
        
        
        
        
        
        
        
        212,290
        
        
        Cellular Investment Income
        
        
        
        
        
        2,192,715
        
        
        
        
        
        5,925,389Gain on Sale of MWH
        
        
        
        
        
        
        
        
        3,116,624
        
        
        Income Tax (Expense) Benefit
        
        
        640,700
        
        
        (886,583
        )
        
        (740,863
        )
        
        (2,399,077
        )Net Income
        
        $
        701,439
        
        $
        1,322,702
        
        $
        2,733,671
        
        $
        3,547,529




As previously disclosed, on October 2, 2006, MWH was sold to Alltel.



Phonery Segment



The Phonery segment represented 12.9% of the consolidated operating revenues for the three-month period ended September 30, 2007 and 11.5% of the consolidated operating revenues for the nine-month period ended September 30, 2007 before intercompany eliminations. Revenues are earned primarily by sales, installation and service of business telephone systems and data communications equipment. In addition, the Phonery segment leases network capacity to provide additional network access revenues and resells long distance toll service. This segments expertise is the quality installation and maintenance of CPE, provision of customer long distance needs and transport solutions in communication to end user customers. All information contained in the following table is before intercompany eliminations.



Three Months Ended September 30,
        
        Nine Months Ended September 30,2007
        
        2006
        
        2007
        
        2006Operating Revenues:
        
        $
        599,224
        
        $
        461,942
        
        $
        1,545,142
        
        $
        1,416,243Operating Expenses, Excluding Depreciationand Amortization
        
        
        272,287
        
        
        230,113
        
        
        741,527
        
        
        675,338Depreciation and Amortization Expenses
        
        
        30,131
        
        
        16,810
        
        
        57,910
        
        
        50,430Total Operating Expenses
        
        
        302,418
        
        
        246,923
        
        
        799,437
        
        
        725,768Operating Income
        
        
        296,806
        
        
        215,019
        
        
        745,705
        
        
        690,475Net Income
        
        $
        176,688
        
        $
        128,001
        
        $
        443,918
        
        $
        411,040






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Operating revenue increased $137,282 or 29.7%, for the three months ended September 30, 2007 compared to the same period ended 2006. Operating revenue increased $128,899 or 9.1% for the nine months ended September 30, 2007 compared to the same period in 2006. The Phonery segment experienced increased operating revenues for the nine months ended September 30, 2007 primarily due to increased CPE Sales partially offset by decreased revenues from the resale of long distance toll.



Operating expenses, excluding depreciation and amortization, increased $42,174 or 18.3% for the three months September 30, 2007 and increased $66,189 or 9.8% for the nine months ended September 30, 2007 compared to the same periods in 2006. This nine-month increase in operating expenses is primarily due to increased cost of goods sold. This segment strives for cost efficiencies, while continuing to endeavor to reach the customer service goal of achieving 100% customer satisfaction. This segment continues to seek new technologies to better serve customer needs and to operate efficiently.



Depreciation and amortization expenses increased $13,321 or 79.2% for the three months ended September 30, 2007 compared with the same period in 2006. Depreciation and amortization expenses increased $7,480 or 14.8% for the nine months ended September 30, 2007 compared to the same period in 2006. These increases reflect the continued investment in this segments infrastructure.



Operating income increased by $81,787 or 38.0% for the three months ended September 30, 2007 compared to the three months ended September 30, 2006. Operating income increased $55,230 or 8.0% for the nine months ended September 30, 2007 compared to the same period in 2006. These three-month and nine-month increases in income were primarily the result of the increase in operating revenues.



LIQUIDITY AND CAPITAL RESOURCES



Capital Structure



The total long-term capital structure (long-term debt plus stockholders equity) for the Company was $53,978,430 at September 30, 2007, reflecting 99.9% equity and 0.1% debt. This compares to a capital structure of $50,827,836 at December 31, 2006, reflecting 99.8% equity and 0.2% debt. Management believes adequate internal and external resources are available to finance ongoing operating requirements, including capital expenditures, business development, debt service and the payment of dividends for at least the next 12 months.



Cash Flows



Cash used by operations was $19,746,143 for the nine-month period ended September 30, 2007 compared to cash provided by operations of $4,125,741 for the nine-month period ended September 30, 2006. The cash flows used by operations for the nine months ended September 30, 2007 were primarily due to the payment of income taxes due to the 2006 sale of MWH, partially offset by net income and non-cash expenses for depreciation and amortization. Cash flows from operations for the nine months ended September 30, 2006 were primarily attributable to net income plus non-cash expenses for depreciation and amortization.



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Cash flows provided by investing activities were $44,184 for the nine months ended September 30, 2007 compared to cash flows used in investing activities of $1,834,073 for the same period in 2006. In April 2007, the Company received $3,116,624, a portion of the escrow funds from the MWH sale to Alltel. Capital expenditures relating to on-going business were $2,506,006 during the first nine months of 2007 as compared to $1,545,746 for the same period in 2006. The Company operates in a capital-intensive business. The Company is continuing to upgrade its local networks for changes in technology to provide the most advanced services to its customers. The Company expects total plant additions of approximately $4,000,000 in 2007.



Cash flows used by financing activities were $1,551,436 for the nine-month period ended September 30, 2007 compared to cash flows used by financing activities of $3,264,462 for the nine-month period ended September 30, 2006. Included in cash flows used in financing activities were debt repayments and dividend payments.



Dividends



The Company paid dividends of $1,534,630 during the first nine months of 2007 and $1,381,167 during the first nine months of 2006. This represented a dividend of $.10 per share per quarter for 2007 and $.09 per share per quarter for 2006. The Company continues to reinvest in its infrastructure while maintaining dividends to shareholders. The Board of Directors reviews dividend declarations based on anticipated earnings, capital requirements and the operating and financial condition of the Company. The Company does not expect its payout of dividends at the existing level to negatively affect the liquidity of the Company.



Receipt of Funds From MWH



Prior to the sale of MWH, the Company owned approximately 9.88% of MWH. In November 2005, MWH and Alltel entered into an agreement under which Alltel agreed to purchase MWH. The transaction was closed October 2, 2006 after the satisfaction of conditions and the receipt of regulatory approvals. Under the terms of the agreement, all of the members of MWH sold their membership interests to Alltel.



Upon closing, New Ulm Telecom, Inc. received approximately 90% of the sale proceeds attributable to its interest or approximately $74 million on October 6, 2006. Alltel delivered the other 10% to the escrow agent. The escrow account will be used for any true-up adjustments, indemnifications, and other specified costs. Funds not used for these purposes will be released to the members.



As of December 2006, the Companys prorated share
of the amount in escrow was $8,170,263, plus accrued interest. On April 5, 2007, the Company received payment of approximately $3
million plus accrued interest from the escrow fund. As previously disclosed, New Ulm Telecom, Inc. expects to receive an
additional payment of approximately $5 million plus accrued interest in January 2008, from the remaining amounts in escrow,
subject to certain contingencies and fulfillment of the escrow conditions. Due to the contingencies for release of the escrow
funds, the Company had not recorded a receivable for any part of the funds at December 31, 2006 and September 30, 2007 and has not
recorded a receivable for the remaining escrow funds that the Company expects to receive in January 2008.





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Financing Related to Acquisition of Hutchinson Telephone Company



In connection with its proposed acquisition of Hutchinson Telephone Company, described above in Note 7 of Notes to Consolidated Financial Statements, New Ulm Telecom, Inc. intends to establish a credit facility with CoBank, ACB, to finance a portion of the purchase price and to establish a working capital line of credit. The Company expects to close on the credit facility concurrent with the closing of the acquisition.



Working Capital



The Company had working capital of $10,514,516 as of September 30, 2007, compared to working capital of  $8,736,311 as of December 31, 2006. The ratio of current assets to current liabilities was 8.7:1.0 as of September 30, 2007 and 1.4:1.0 as of December 31, 2006.



Long-Term Debt



See Note 4 on the Notes to Consolidated Financial Statements.



Other



The Company has not conducted a public equity offering. It operates with original equity capital, retained earnings and indebtedness.



By utilizing cash flow from operations and current cash balances, the Company feels it has adequate resources to meet its anticipated operating, capital expenditures, and debt service requirements.



Recent Accounting Developments



In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159). The Statement permits entities to choose to measure at fair value many financial instruments and certain other items that are not currently required to be measured at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 will be effective for the first fiscal year that begins after November 15, 2007. The Company will assess the impact of this Statement on the Companys financial statements.



In July 2006, the Financial Accounting Standards Board (the FASB) issued FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109. FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 applies to all tax positions related to income taxes subject to FASB Statement No. 109, Accounting for Income Taxes (FASB No. 109). FIN 48 is effective for fiscal years beginning after December 15, 2006. Differences between the amounts recognized in the statements of financial position prior to the adoption of FIN 48 and the
amounts reported after adoption should be accounted for as a cumulative-effect adjustment recorded to the beginning balance of retained earnings. For the Companys implementation of FIN48, see Note 2 of Notes to Consolidated Financial Statements.



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ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



The Company does not have operations subject to risks of foreign currency fluctuations, nor does the Company use derivative financial instruments in its operations or investment portfolio.



ITEM 4.   CONTROLS AND PROCEDURES



(a)Evaluation of Disclosure Controls and Procedures

As of December 31, 2006, the management of the Company carried out an assessment under the supervision of and with the participation of the Companys Chief Executive Officer, the Chief Financial Officer and Chief Operating Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(b) and 15d-15(b). In the course of completing managements assessment of the Companys internal control over financial reporting, management has identified a control deficiency that is a material weakness, as reported in the Companys Annual Report on Form 10-K for 2006 which was filed on March 28, 2007 (the 2006 Form 10-K). As of the date of that assessment, the Chief Executive Officer, the Chief Financial Officer and Chief Operating Officer concluded that as a result of the material weakness,
the Companys disclosure controls and procedures were not effective as of December 31, 2006.

A material weakness is a significant deficiency (as defined in Public Company Accounting Oversight Board Auditing Standard No. 2), or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

The Companys management with the participation of the Chief Executive Officer and the 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-(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation they have concluded that the Companys disclosure controls and procedures are not effective in ensuring that all material information required to be filed with the Securities and Exchange Commission is recorded, processed, summarized and reported within the time period specified in the rules and forms of the Commission because of the material weakness in its internal control over financial reporting as discussed and reported in the Companys 2006 Form 10-K.

In light of the material weaknesses described in the 2006 Form 10-K, management continues to monitor its carrier access billings and has determined appropriate remediation steps to ensure all access revenues are accurately billed and expects to have these steps completed by year-end. Management believes that the interim consolidated financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the period presented.



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(b)Changes in Internal Control over Financial Reporting



There have been no changes in the Companys internal control over financial reporting during the quarter ended September 30, 2007 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



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PART II.   OTHER INFORMATION

ITEM 1A.   RISK FACTORS

Other than the additional risk factors described below, there have been no material changes to the risk factors described in our annual report on Form 10-K for the year ended December 31, 2006.



There can be no assurance that New Ulm Telecom, Inc. will be able to successfully complete the acquisition of Hutchinson Telephone Company or to operate it successfully after the acquisition.



As described above in Note 7 of Notes to Financial Statements, on August 3, 2007, New Ulm Telecom, Inc. entered into an agreement and plan of merger with Hutchinson Telephone Company (HTC) under which New Ulm Telecom, Inc. will acquire HTC for approximately $62 million in cash. There can be no assurance that New Ulm Telecom, Inc. will obtain the required federal, state and local regulatory approvals needed for consummation of the merger or be able to operate the combined company in a profitable manner after the merger.



There can be no assurance that New Ulm Telecom, Inc. will receive the escrow proceeds from the sale of our interest in MWH in their entirety.

In connection with the acquisition of MWH by Alltel in October 2006, New Ulm Telecom, Inc. received approximately 90% of the sale proceeds attributable to its interest or approximately $74 million on October 6, 2006. Alltel delivered the other 10% to the escrow agent. The escrow account will be used for any true-up adjustments, indemnifications, and other specified costs. Funds not used for these purposes will be released to the previous members. As of December 2006, the Companys prorated share of the amount in escrow was $8,170,263, plus accrued interest. On April 5, 2007, the Company received a payment from the escrow fund of approximately $3 million plus accrued interest. As previously disclosed, New Ulm Telecom, Inc. expects to receive an additional payment of approximately $5 million plus accrued interest in January 2008 from the remaining amounts in escrow, subject to certain contingencies and
fulfillment of the escrow conditions.   Due to the contingencies for release of the escrow funds, the Company had not recorded a receivable for any part of the funds at December 31, 2006 and September 30, 2007 and has not recorded a receivable for the remaining escrow funds that the Company expects to receive in January 2008.



ITEM 5.   OTHER INFORMATION



Receipt of Remaining Funds from Sale of Midwest Wireless Holding



As previously disclosed, on October 6, 2006, New Ulm Telecom, Inc. received approximately 90% of the sale proceeds attributable to its interest in MWH or approximately $74 million. The purchaser Alltel delivered the other 10% to the escrow agent. The escrow account will be used for any true-up adjustments, indemnifications, and other specified costs. Funds not used for these purposes will be released to the previous members.



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As of December 2006, the Companys prorated share of the amount in escrow was $8,170,263, plus accrued interest. On April 5, 2007, the Company received payment of approximately $3 million plus accrued interest from the escrow fund. New Ulm Telecom, Inc. expects to receive an additional payment of approximately $5 million plus accrued interest in January 2008, from the remaining amounts in escrow, subject to certain contingencies and fulfillment of the escrow conditions. Due to the contingencies for release of the escrow funds, the Company had not recorded a receivable for any part of the funds at December 31, 2006 and September 30, 2007 and has not recorded a receivable for the remaining escrow funds that the Company expects to receive in January 2008.



Pending Acquisition of Hutchinson Telephone Company



As described in Note 7 of Note to Financial Statements, on August 3, 2007, New Ulm Telecom, Inc. entered into an agreement and plan of merger with Hutchinson Telephone Company (HTC) under which New Ulm Telecom, Inc. will acquire HTC. New Ulm Telecom, Inc. expects the transaction to close in the fourth quarter of 2007.



ITEM 6.   EXHIBITS



(a)
        Exhibits




See Index to Exhibits on page 29 of this Form 10-Q.







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:   November 8, 2007
        
        By
        /s/   Bill OtisBill Otis, PresidentDated:   November 8, 2007
        
        By
        /s/   Nancy BlankenhagenNancy Blankenhagen, Chief Financial Officer






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INDEX TO EXHIBITS



ExhibitNumber
        Description31.1
        Chief Executive Officer Certification Pursuant to Exchange Act Rule 13a-14, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
        Chief Financial Officer Certification Pursuant to Exchange Act Rule 13a-14, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
        Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
        Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002






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