SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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, 1996
OR
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 0-11174
WARWICK VALLEY TELEPHONE COMPANY
(Exact name of registrant as specified in its charter)
New York 14-1160510
(State or other jurisdiction of incorporation or organization) (IRS
Employer
Identification No.)
47-49 Main Street, Warwick, New York 10990
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (914) 986-1101
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check 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
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
621,771 common shares, no par value, outstanding at September 30, 1996.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WARWICK VALLEY TELEPHONE COMPANY
BALANCE SHEET
September 30, December 31,
1996 1995
(Unaudited) (Audited)
CURRENT ASSETS:
Cash $ 598,337 $ 482,049
Telecommunications accounts receivable, 2,597,637 2,694,390
less receivable allowance
1996-$65,569; 1995-$68,013
Other accounts receivable (91,435) 965,600
Materials and supplies 1,793,759 1,516,358
Prepaid expenses 629,347 317,085
TOTAL CURRENT ASSETS 5,527,645 5,975,482
NON-CURRENT ASSETS
Unamortized debt issuance expense 64,785 75,170
Other deferred charges 184,389 140,327
Investment in non-affiliated company 1,564,904 1,286,646
TOTAL NON-CURRENT ASSETS 1,814,078 1,502,143
TELEPHONE PLANT, AT COST:
Land, buildings and equipment
in service 34,020,245 32,131,186
Under construction 1,273,917 1,032,206
35,294,162 33,163,392
Less: Accumulated depreciation 12,681,383 11,222,994
TOTAL PLANT 22,612,779 21,940,398
TOTAL ASSETS $ 29,954,502 $ 29,418,023
The accompanying notes to financial statements are an integral part of these
statements.
-2-
Item 1. Financial Statements (Continued)
WARWICK VALLEY TELEPHONE COMPANY
BALANCE SHEET
September 30, December 31,
STOCKHOLDERS' EQUITY AND LIABILITIES 1996 1995
(Unaudited) (Audited)
CURRENT LIABILITIES:
Current maturities of long-term debt $ 27,500 $ 370,000
Accounts payable 1,301,206 2,359,341
Notes payable 1,300,000 950,000
Advance billing and payments (106,842) 206,986
Customer deposits 164,849 173,717
Accrued taxes 192,812 108,409
Other accrued liabilities 673,346 551,788
TOTAL CURRENT LIABILITIES 3,552,871 4,720,241
LONG TERM DEBT:
Funded debt 7,000,000 7,000,000
TOTAL LONG TERM DEBT 7,000,000 7,000,000
OTHER LIABILITIES & DEFERRED CREDITS:
Unamortized operating investment
tax credit - net 265,177 303,427
Unamortized non-operating investment
tax credit - net 9,090 9,090
Net non-current deferred operating income
tax 2,454,847 2,250,073
Other deferred credits 224,407 390,989
TOTAL OTHER LIABILITIES & DEFERRED CREDITS 2,953,521 2,953,579
STOCKHOLDERS' EQUITY
Preferred stock - 5% cumulative, $100 par value;
7,500 shares authorized
5,000 shares issued and outstanding 500,000 500,000
Common stock, without par value;
720,000 shares authorized;
Issued and outstanding: 648,571 shares
at 9/30/96 and 644,757 shares at
12/31/95 2,439,666 2,281,238
Retained earnings 14,333,644 12,738,174
17,273,310 15,519,412
Less: Treasury stock, at cost,
26,800 and 25,800 shares 825,200 775,200
TOTAL STOCKHOLDERS' EQUITY 16,448,110 14,744,212
TOTAL LIABILITIES $ 29,954,502 $ 29,418,032
The accompanying notes to financial statements are an integral part of these
statements.
-3-
Item 1. Financial Statements (Continued)
WARWICK VALLEY TELEPHONE COMPANY
STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Operating revenues:
Local network service $ 868,851 $ 816,580 $2,644,934 $2,382,044
Network access and long
distance network service 2,642,329 2,391,255 7,983,728 6,816,431
Miscellaneous 256,707 280,127 841,490 784,399
3,767,887 3,487,962 11,470,152 9,982,874
Less: Provisions for
uncollectibles 7,800 7,200 23,400 21,600
Operating revenues 3,760,087 3,480,762 11,446,752 9,961,274
Operating expenses:
Plant specific 552,073 560,428 1,713,970 1,538,528
Plant non-specific 698,712 644,160 2,043,972 1,959,659
Customer operations 778,697 698,141 2,180,562 2,069,636
Corporate operations 419,085 442,276 1,244,088 1,299,385
Operating expenses 2,448,567 2,345,005 7,182,592 6,867,208
Operating taxes:
Federal income taxes 314,376 225,665 1,074,713 548,912
Operating other taxes 252,207 272,572 703,466 792,381
Operating taxes 566,583 498,237 1,778,179 1,341,293
Income from operations 744,937 637,520 2,485,981 1,752,773
Non-operating income &
expenses - net (Note 2) 200,010 176,526 455,909 422,263
Income before fixed charges 944,947 814,046 2,941,890 2,175,036
Interest & related items:
Interest on funded debt 143,595 148,218 436,705 446,299
Other interest deductions 16,034 13,458 41,071 14,755
Amortization of debt issuance
expense 3,461 3,461 10,385 15,888
Total interest & related
items 163,090 165,137 488,161 476,942
Net income all sources 781,857 648,909 2,453,729 1,698,094
PREFERRED DIVIDENDS 6,250 6,250 18,750 18,750
INCOME APPLICABLE TO COMMON
STOCK $ 775,607 $ 642,659 $2,434,979 $1,679,344
NET INCOME PER AVERAGE SHARE
OF OUTSTANDING COMMON STOCK 1.25 1.04 3.91 2.73
CASH DIVIDENDS PAID PER SHARE 0.50 0.37 1.35 1.11
AVERAGE SHARES OF COMMON STOCK
OUTSTANDING 622,914 619,016 621,020 616,240
The accompanying notes to financial statements are an integral part of these
statements.
- 4 -
WARWICK VALLEY TELEPHONE COMPANY
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
1996 1995
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 2,453,729 $ 1,698,094
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,613,654 1,533,758
Deferred income tax and investment tax credit (58) (15,617)
Interest charged to construction (16,449) (29,897)
CHANGE IN ASSETS AND LIABILITIES:
(Increase) Decrease in accounts receivable 1,153,788 (274,034)
(Increase) Decrease in materials and supplies (277,401) (142,450)
Refundable income tax 0 42,034
(Increase) Decrease in prepaid expenses (312,262) (148,979)
(Increase) Decrease in deferred charges (44,062) 32,222
Increase (Decrease) in accounts payable (1,058,135) (10,978)
Increase (Decrease) in customers' deposits (8,868) (70,530)
Increase (Decrease) in accrued expenses (229,424) 148,078
Increase (Decrease) in other liabilities 121,558 141,744
Net Cash provided by operating activities 3,396,070 2,903,445
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (2,286,029) (1,730,323)
Interest charged to construction 16,449 29,897
Change in unamortized debt issuance expense 10,385 (52,834)
Change in other investment (278,258) (146,194)
Net Cash used in investing activities (2,537,453) (1,899,454)
CASH FLOW FROM FINANCING ACTIVITIES:
Increase (Decrease) in notes payable 350,000 (350,000)
Reduction of long term debt (342,500) (92,500)
Dividends (858,257) (722,374)
Purchase of treasury stock (50,000) 0
Sale of common stock 158,428 194,023
Net Cash used by financing activities (742,329) (970,851)
Increase (Decrease) in cash and cash equivalents 116,288 33,140
Cash and cash equivalents at beginning of year 482,049 422,037
Cash and cash equivalents at end of the period $ 598,337 $ 455,177
The accompanying notes to financial statements are an integral part of these
statements.
-5-
Item 1. Financial Statements (Continued)
WARWICK VALLEY TELEPHONE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. In the opinion of the management of the Warwick Valley Telephone Company,
the accompanying finance statements contain all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the
Company's financial position as of September 30, 1996 and December 31,
1995, its income for the three-month and nine-month periods ended
September 30, 1996 and 1995 and its cash flow for the nine-month periods
ended September 30, 1996 and 1995.
These financial statements should be read in conjunction with the
financial statements and the note included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1995.
The results of operations for any interim period are not necessarily
indicative of the results of for a full year.
2. Non-operating income and expenses for the three-month and nine-month
periods ended September 30, 1996 and 1995 were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Interest income $117 $129 $348 $385
Interest during construction 5,361 5,056 16,449 29,897
G/L disposition certain
property (3,825) 4,938 55,217 15,848
Special charges (2,022) (2,524) (24,673)
(24,812)
Other non-operating income 176,400 78,150 483,900 149,250
Equity in earnings of
affiliated companies 23,979 90,777 (75,332) 251,695
$200,010 $176,526 $455,909 $422,263
- 6 -
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations - Nine Months Ended September 30, 1996 - The Company's
net
income from all sources increased $755,635 (or 44.5%) to $2,453,729 for the
nine-month period ended September 30, 1996, as compared to the same period in
1995.
Operating revenues increased by $1,485,478 (or 14.9%) after provision for
uncollectibles, to $11,446,752 for the nine-month period ended September 30,
1996
as compared to $9,961,274 for the corresponding period of 1995. The increase
in
operating revenues was caused mainly by increases in network access and toll
revenues, which increased $1,167,297 (or 17.1%) in the aggregate during the
period, as compared to the same nine months of 1995.
Operating expenses increased by $315,384 (or 4.6%) to $7,182,592 for the
nine-month period ended September 30, 1996 as compared to the same period in
1995. Increased costs included salaries and benefits (approximately $85,000),
depreciation ($85,000), directory expenses ($47,000), computer costs
($26,000),
toll studies ($22,000), legal fees ($21,000) and tariff filings ($19,000).
Non-operating income and expenses increased by $33,646 from $422,263 in
the
nine-month period ended September 30, 1995 to $455,909 in the same period of
1996. An increase of $334,650 in cellular income from the Company's share of
the
Orange-Poughkeepsie Cellular Partnership and a loss of $267,533 in the
Company's
internet access subsidiary were the principal factors in the change. See
Liquidity and Capital Resources below.
Results of Operations - Three Months Ended September 30, 1996 - The Company's
net
income from all sources increased $132,948 (or 20.5%) to $781,857 for the
three-month period ended September 30, 1996, as compared to $648,909 for the
same
period in 1995. Operating revenues increased by $279,325 (or 8.0%) after
provision for uncollectibles, to $3,760,087 for the three-month period ended
September 30, 1996 as compared to $3,489,762 for the corresponding period of
1995. The increase in operating revenues was caused mainly by increases in
access and toll revenues over the 1995 period.
Operating expenses increased by $103,562 (or 4.4%) to $2,448,567 for the
three-month period ended September 30, 1996 as compared to the same period in
1995. Increases in costs of salaries, benefits, depreciation, directory
expenses, computer costs and legal fees were the primary causes.
Non-operating income and expenses increased by $23,484 from $176,526 in
the
three-month period ended September 30, 1996 to $200,010 in the same period of
1996, principally as a result of the factors listed above under Results of
Operations - Nine Months Ended September 30,1996. See Liquidity and Capital
Resources below.
Liquidity and Capital Resources - The Company's working capital increased to
$1,974,774 at September 30, 1996 from $1,586,637 at September 30, 1995.
Increases in materials and supplies and prepaid expenses and reductions in
accounts payable and advance billing and payments were partially offset by an
increase in notes payable and a decrease in receivables.
The Company holds a 7.5% limited partnership interest in the cellular
mobile telephone partnership which is licensed to operate as the wire-line
licensee in both Orange and Dutchess Counties, New York. Since the inception
of
the partnership, the Company has made capital contributions of $249,750. No
further capital contributions are currently scheduled. A wholly-owned
subsidiary
of the Company, Warwick Valley Mobile Telephone Company (WVMT),
resells cellular telephone service to the Company's subscribers as well as to
others. WVMT also sells and installs cellular telephone sets. The Company
has
invested approximately $325,000 in WVMT since its operations began on April 1,
1989. WVMT has been marginally profitable since 1995.
Liquidity and Capital Resources (Cont'd)
A second wholly-owned subsidiary, Warwick Valley Long Distance Company,
Inc. (WVLD), began business in December 1993 in New Jersey and in May 1994 in
New
York. WVLD resells toll service to customers of Warwick Valley Telephone.
WVLD
has been profitable since prior to the end of 1994.
An additional wholly-owned subsidiary, Warwick Valley Networks, Inc.
(WVN),
was established during 1994. WVN is a partner in the New York State
Independent
Network (NYSINET), which was created by the independent telephone companies of
New York to build and operate its own data connections network. NYSINET will
make it unnecessary for its member companies to rely on outside companies for
these services and may also offer services to companies who are not members,
creating a potential source of additional revenue. The NYSINET network began
operations during the third quarter of 1996. A small number of the member
companies have begun using the network while others including the Company will
be
connecting to it in the coming months. The connection to the NYSINET Network
is
not expected to have a material impact on the Company's profitability.
Another wholly-owned subsidiary, Hometown Online, Inc. (ONLINE) was
organized during 1995. ONLINE is the corporate entity through which WVTC
provides personal computer users connectivity to the Internet as well as local
and regional information services. Service is offered within WVTC's service
area
as well as in nearby areas of New York, New Jersey and Pennsylvania. ONLINE
began service in July 1995. WVTC has invested approximately $1,200,000 in
ONLINE
since its inception, of which $730,000 was invested in the first nine months
of
1996. These investments primarily reflect costs of installing network hub
equipment outside the Company's service area and costs of promotion as
expansion
occurs into new areas. Management expects the current level of investments to
be
reduced significantly, resulting in ONLINE reaching a current positive cash
flow
before the end of 1996.
The Telecommunications Act of 1996 (the Act), which recently became law,
created a nationwide structure in which competition is allowed and encouraged
between local exchange carriers and other entities. Because the states are
responsible for implementing many of the Act's provisions, the impact on WVTC
will be dependent primarily on proceedings currently underway in New York and
New
Jersey. These proceedings will be affected by ruling of the Federal
Communications Commission. The markets most likely to be affected first are
the
regional toll markets where competition in both states will be implemented
during
1997. The competition is these areas is expected to have the effect of
reducing
Warwick's revenues. The extent of such reductions cannot yet be determined,
but
is expected to be small in New York, where carrier access is the main revenue
source, but potentially larger in New Jersey where the Company retains toll
revenue. Currently the Company's revenues from toll and access in the
intrastate
New Jersey market approximate $2,300,000. The effects of competition will be
felt both in market share retained by the Company and the level of its toll
rates
required in order to remain competitive. The Company anticipates that local
competition, as permitted by the Act, will occur first in major cities where
concentrations exist in the Company's service area. It is impossible, at this
time, to determine the extent, or the timing, of the advent of competition in
the
Company's service area, which is defined as rural under provisions of the Act.
Items 1. (Legal Proceedings), 2 (Changes in Securities), and 3 (Defaults
Upon Senior Securities) are inapplicable.
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.
Warwick Valley Telephone Company
Registrant
Date
Herbert Gareiss, Jr., Vice President
(Duly Authorized Officer)
Date
Philip S. Demarest, Vice President
Secretary and Treasurer
(Principal Financial and Chief
Accounting Officer)
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