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 March 31, 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 (IRS Employer Identification
or organization) 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:
618,957 common shares, no par value, outstanding at March 31, 1996.
PART I - FINANCIAL INFORMATION
ITEM1. FINANCIAL STATEMENTS
WARWICK VALLEY TELEPHONE COMPANY
BALANCE SHEET
March 31, December 31,
1996 1995
(Unaudited) (Audited)
CURRENT ASSETS:
Cash $ 540,112 $ 482,049
Telecommunications accounts receivable, 2,559,652 2,694,390
less accounts receivable allowance
1996-$65,557; 1995 $68,013
Other accounts receivable 170,075 965,600
Materials and supplies 1,629,654 1,516,358
Prepaid expenses 542,514 317,085
TOTAL CURRENT ASSETS 5,442,007 5,975,482
NON-CURRENT ASSETS
Unamortized debt issuance expense 71,708 75,170
Other deferred charges 148,977 140,327
Investment in non-affiliated company 1,225,195 1,286,646
TOTAL NON-CURRENT ASSETS 1,445,880 1,502,143
TELEPHONE PLANT, AT COST:
Land, buildings and equipment
In service 32,780,692 32,131,186
Under construction 985,961 1,032,206
33,766,653 33,163,392
Less: Accumulated depreciation 11,678,939 11,222,994
TOTAL PLANT 22,087,714 21,940,398
TOTAL ASSETS $ 28,975,601 $ 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
March 31, December 31,
STOCKHOLDERS' EQUITY AND LIABILITIES 1996 1995
(Unaudited) (Audited)
CURRENT LIABILITIES:
Current maturities of long-term debt $ 342,500 $ 370,000
Accounts payable 2,030,093 2,359,341
Notes payable 0 950,000
Advance billing and payments 49,591 206,986
Customer deposits 173,289 173,717
Accrued taxes 407,829 108,409
Other accrued liabilities 593,092 551,788
TOTAL CURRENT LIABILITIES 3,596,394 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 290,677 303,427
Unamortized non-operating investment
tax credit - net 9,090 9,090
Net non-current deferred operating income
tax 2,384,104 2,250,073
Other deferred credits 269,432 390,989
TOTAL OTHER LIABILITIES & DEFERRED CREDITS 2,953,303 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: 644,757 shares
at 3/31/96 and 644,757 shares at
12/31/95 2,281,241 2,281,238
Retained earnings 13,419,863 12,738,174
16,201,104 15,519,412
Less: Treasury stock 25,800 shares at cost 775,200 775,200
TOTAL STOCKHOLDERS' EQUITY 15,425,904 14,744,212
TOTAL LIABILITIES $ 28,975,601 $ 29,418,032
The accompanying notes to financial statements are an integral part of these
statements.
- -3-
WARWICK VALLEY TELEPHONE COMPANY
STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended
March 31,
1996 1995
Operating Revenues:
Local network service $ 907,094 $ 801,960
Network access and long distance
network service 2,764,832 2,202,029
Miscellaneous 289,040 277,250
3,960,966 3,281,239
Less: Provisions for uncollectibles 7,800 7,200
Operating revenues 3,953,166 3,274,039
Operating Expenses:
Plant specific 620,274 562,189
Plant non-specific 670,224 657,237
Customer operating expense 693,813 668,447
Corporate operations 391,101 417,260
Operating expenses 2,375,412 2,305,133
Operating Taxes:
Federal income taxes 422,571 164,901
Other operating taxes 228,593 258,735
Operating taxes 651,164 423,636
Income from Operations 926,590 545,270
Non-Operating Income & Expenses, Net (Note 2) 170,796 127,459
Income before fixed charges 1,097,386 672,729
Interest & Related Items:
Interest on funded debt 146,856 149,183
Other interest deductions 11,543 (9,550)
Amortization of debt issuance expense 3,461 2,141
Total interest & related items 161,860 141,774
Net income all sources 935,526 530,955
PREFERRED DIVIDENDS 6,250 6,250
INCOME APPLICABLE TO COMMON STOCK $ 929,276 $ 524,705
NET INCOME PER AVERAGE SHARE OF
OUTSTANDING COMMON STOCK $ 1.50 $ 0.86
CASH DIVIDENDS PAID PER SHARE $ 0.40 $ 0.37
AVERAGE SHARES OF COMMON STOCK OUTSTANDING 618,957 613,463
The accompanying note to financial statements are an integral part of these
statements.
-4-
WARWICK VALLEY TELEPHONE COMPANY
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
1996 1995
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 935,526 $ 530,955
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 531,931 503,674
Deferred income tax and investment tax credit (276) 231,022
Interest charged to construction (6,904) (14,914)
CHANGE IN ASSETS AND LIABILITIES:
(Increase) Decrease in accounts receivable 930,263 280,480
(Increase) Decrease in materials and supplies (113,296) (189,479)
Refundable income tax 0 42,034
(Increase) Decrease in prepaid expenses (225,429) (245,649)
(Increase) Decrease in deferred charges (8,650) (5,774)
Increase (Decrease) in accounts payable (329,248) (119,263)
Increase (Decrease) in customers' deposits (428) 29,189
Increase (Decrease) in accrued expenses 142,026 (53,274)
Increase (Decrease) in other liabilities 41,304 (172,838)
Net Cash provided by operating activities 1,896,819 816,163
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (679,240) (306,698)
Interest charged to construction 6,904 14,914
Change in unamortized debt issuance expense 3,462 0
Change in other investment 61,451 (13,801)
Net Cash used in investing activities (607,423) (305,585)
CASH FLOW FROM FINANCING ACTIVITIES:
Increase (Decrease) in notes payable (950,000) (200,000)
Reduction of long term debt (27,500) (27,500)
Dividends (253,833) (233,231)
Net Cash used by financing activities (1,231,333) (460,731)
Increase (Decrease) in cash and cash
equivalents 58,063 49,847
Cash and cash equivalents at beginning of year 482,049 422,037
Cash and cash equivalents at end of the
period $ 540,112 $ 471,884
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 financial statements contain all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the
Company's financial position as of March 31, 1996 and December 31, 1995,
its income for the three-month periods ended March 31, 1996 and 1995 and
its cash flow for the three-month periods ended March 31, 1996 and 1995.
These financial statements should be read in conjunction with the
financial statements and the notes 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 operations for a full year.
2. Non-operating income and expenses for the three-month periods ended
March 31, 1996 and 1995 were as follows:
Three Months Ended
March 31,
1996 1995
Interest income $117 $121
Interest during construction 6,904 14,914
G/L disposition certain property 49,396 13,508
Special charges (1,445) (709)
Other non-operating income 148,200 16,900
Equity in earnings of affiliated (32,376) 82,725
company
$170,796 $127,459
-6-
WARWICK VALLEY TELEPHONE COMPANY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1996 - The Company's net
income from all sources increased $404,571 (or 76.2%)to $935,526 for the
three-month period ended March 31, 1996, as compared to the same period in
1995. Operating revenues increased by $679,127 (or 20.7%) after provision for
uncollectibles, to $3,953,166 for the three-month period ended March 31, 1996
as compared to $3,274,039 for the corresponding period of 1995. The increase
in operating revenues was primarily the result of network access revenues,
which increased $562,803 (or 25.6%), largely because of increased state and
interstate access volumes during the 1996 period.
Operating expenses increased by $70,279 (or 3.1%) to $2,375,412 for the
three-month period ended March 31, 1996 as compared to the same period in 1995,
due to a number of increases and decreases. Increased depreciation ($26,937)
and a decrease in executive department payroll and benefits ($28,822), due to
the retirement of an officer who was not replaced, were the most significant
changes.
Non-operating income and expenses increased by $43,337 from $127,459 in
the three-month period ended March 31, 1995 to $170,796 in the same period of
1996, largely as a result of the increase in earnings from the Company's share
of Orange-Poughkeepsie Cellular Partnership income from $16,900 in the 1995
period to $148,200 in the 1996 period. This increase was partially offset by
the net loss ($100,653) of Hometown Online during the 1996 period. The net
loss was the result of strong growth in customers since Online's inception in
July, 1995 causing revenues to lag behind costs during the startup period.
(See Liquidity and Capital Resources).
LIQUIDITY AND CAPITAL RESOURCES - The Company's working capital increased to
$1,845,613 at March 31, 1996 from $1,567,029 at March 31, 1995. An increase in
accounts receivable and a reduction in notes payable were partially offset by
increases in current maturities of long term debt and accrued taxes.
The Company issued 4,471 shares of its common stock on April 1, 1996 to
employees participating in its retirement savings plans at a price of $42.84
per share, realizing $191,537.64. The sale price was discounted 15% from the
price at which the stock was valued by an independent appraisal firm just prior
to the transaction. Additional sales to employees are anticipated in 1997 and
subsequent years.
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 $334,000 in WVMT since its operations began on April 1,
1989.
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 achieved positive retained earnings prior to the end of 1994.
-7-
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 is expected to begin operations during the second quarter of 1996.
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 $547,000 in
ONLINE since its inception, of which $68,000 was invested in the first quarter
of 1996.
The Telecommunications Act of 1996 (the Act'), which recently became law,
creates 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. The markets most likely to be affected first are the regional toll
areas in both states. The competition in 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. 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. It is expected that regional toll competition in both states
will be implemented before the end of 1996. The Company anticipates that
local competition, as permitted by the Act, will occur first in major cities.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS - At the
Company's 1996 Annual Meeting of Common Shareholders held on April 26, 1996,
Earl V. Barry, Philip S. Demarest and Corinna S. Lewis were elected as
directors for three-year terms. The terms of Wisner H. Buckbee, Howard
Conklin, Jr., Joseph E. DeLuca, Fred M. Knipp, Victor J. Marotta and Henry L.
Nielsen, Jr. continued after the meeting.
Matters voted on at the meeting and the results of each vote are as
follows:
Broker
For Against Abstain Non-Votes
1. Set the number of directors at 370,610 300 38 96,526
nine until the next annual
meeting
-8-
WARWICK VALLEY TELEPHONE COMPANY
Broker
For Against Withheld Non-Votes
2. Election of directors -
Earl V. Barry 369,293 0 1,655 96,526
Philip S. Demarest 369,293 0 1,655 96,526
Corinna S. Lewis 366,627 2,666 1,655 96,526
Broker
For Against Abstain Non-Votes
3. Ratify the appointment of 369,380 60 1,508 96,526
Bush and Germain as the
independent public accountants
of the Company
ITEM 5. OTHER INFORMATION
At its reorganizational meeting on April 26, 1996, the Board of Directors
elected the following persons to the positions set forth opposite their names:
Howard Conklin, Jr. - Chairman of the Board
Henry L. Nielsen, Jr. - Vice Chairman of the Board
Fred M. Knipp - President
Philip S. Demarest - Vice President, Secretary and Treasurer
Herbert Gareiss, Jr. - Vice President, Assistant Secretary
and Assistant Treasurer
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits - Not applicable
b) Reports on Form 8-K - Not applicable
-9-
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 May 13, 1996
Herbert Gareiss, Jr., Vice President
(Duly Authorized Officer)
Date May 13, 1996
Philip S. Demarest, Vice President
Secretary and Treasurer
(Principal Financial and Chief
Accounting Officer)
-10-
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