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 June 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:
623,419 common shares, no par value, outstanding at June 30, 1996.
<PAGE>
I - FINANCIAL INFORMATION
Item 1. Financial Statements
WARWICK VALLEY TELEPHONE COMPANY
BALANCE SHEET
June 30, December 31,
1996 1995
(Unaudited) (Audited)
CURRENT ASSETS:
Cash $ 347,459 $ 482,049
Telecommunications accounts receivable, 2,702,032 2,694,390
less accounts receivable allowance
1996-$66,689; 1995-$68,013
Other accounts receivable 52,310 965,600
Materials and supplies 2,000,646 1,516,358
Prepaid expenses 536,044 317,085
TOTAL CURRENT ASSETS 5,638,491 5,975,482
NON-CURRENT ASSETS
Unamortized debt issuance expense 68,247 75,170
Other deferred charges 169,579 140,327
Investment in non-affiliated company 1,388,495 1,286,646
TOTAL NON-CURRENT ASSETS 1,626,321 1,502,143
TELEPHONE PLANT, AT COST:
Land, buildings and equipment
In service 33,367,800 32,131,186
Under construction 1,172,425 1,032,206
34,540,225 33,163,392
Less: Accumulated depreciation 12,201,730 11,222,994
TOTAL PLANT 22,338,495 21,940,398
TOTAL ASSETS $ 29,603,307 $ 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
June 30, December 31,
STOCKHOLDERS' EQUITY AND LIABILITIES 1996 1995
(Unaudited) (Audited)
CURRENT LIABILITIES:
Current maturities of long-term debt $ 315,000 $ 370,000
Accounts payable 1,883,389 2,359,341
Notes payable 500,000 950,000
Advance billing and payments (26,710) 206,986
Customer deposits 165,042 173,717
Accrued taxes 226,845 108,409
Other accrued liabilities 519,917 551,788
TOTAL CURRENT LIABILITIES 3,583,483 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 277,927 303,427
Unamortized non-operating investment
tax credit - net 9,090 9,090
Net non-current deferred operating income
tax 2,419,475 2,250,073
Other deferred credits 246,786 390,989
TOTAL OTHER LIABILITIES & DEFERRED CREDITS 2,953,278 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:649,219 shares
At 6/30/96 and 644,757 shares at
12/31/95 2,472,325 2,281,238
Retained earnings 13,869,421 12,738,174
16,841,746 15,519,412
Less: Treasury stock 25,800 shares at cost 775,200 775,200
TOTAL STOCKHOLDERS' EQUITY 16,066,546 14,744,212
TOTAL LIABILITIES $ 29,603,307 $ 29,418,032
The accompanying notes to financial statements are an integral part of these
statements.
-3-<PAGE>
Item 1. Financial Statements (Continued)
WARWICK VALLEY TELEPHONE COMPANY
STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 and 1995
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Operating revenues:
Local network service $ 868,989 $ 763,504 $1,776,083 $1,565,464
Network access and long
distance network service 2,576,566 2,223,147 5,341,398 4,425,176
Miscellaneous 295,744 227,022 584,784 504,272
3,741,299 3,213,673 7,702,265 6,494,912
Less: Provisions for
uncollectibles 7,800 7,200 15,600 14,400
Operating revenues 3,733,499 3,206,473 7,686,665 6,480,512
Operating expenses:
Plant specific 541,623 415,911 1,161,897 978,100
Plant non-specific 675,036 658,262 1,345,260 1,315,499
Customer operations 708,052 703,048 1,401,865 1,371,495
Corporate operations 433,902 439,849 825,003 857,109
Operating expenses 2,358,613 2,217,070 4,734,025 4,522,203
Operating taxes:
Federal income taxes 337,766 158,346 760,337 323,247
Operating other taxes 222,666 261,074 451,259 519,809
Operating taxes 560,432 419,420 1,211,596 843,056
Income from operations 814,454 569,983 1,741,044 1,115,253
Non-operating income &
expense - net (Note 2) 85,103 118,278 255,899 245,737
Income before fixed charges 899,557 688,261 1,996,943 1,360,990
Interest & related items:
Interest on funded debt 146,255 148,898 293,111 298,081
Other interest deductions (4,620) (844) 6,923 1,297
Amortization of debt issuance
expense 21,576 21,977 25,037 12,427
Total interest & related
items 163,211 170,031 325,071 311,805
Net income all sources 736,346 518,230 1,671,872 1,049,185
PREFERRED DIVIDENDS 6,250 6,250 12,500 12,500
INCOME APPLICABLE TO COMMON
STOCK $ 730,096 $ 511,980 $1,659,372 $1,036,685
NET INCOME PER AVERAGE SHARE
OF OUTSTANDING COMMON STOCK 1.18 0.83 2.66 1.69
CASH DIVIDENDS PAID PER SHARE 0.45 0.37 0.85 0.74
AVERAGE SHARES OF COMMON STOCK
OUTSTANDING 621,188 616,240 620,073 614,851
The accompanying notes to financial statements are an integral part of these
statements.
- 4 -
WARWICK VALLEY TELEPHONE COMPANY
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
1996 1995
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 1,671,872 $ 1,049,185
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,087,150 1,023,334
Deferred income tax and investment tax credit (301) 257,956
Interest charged to construction (11,088) (24,841)
CHANGE IN ASSETS AND LIABILITIES:
(Increase) Decrease in accounts receivable 905,648 52,986
(Increase) Decrease in materials and supplies (484,288) (118,538)
Refundable income tax 0 42,034
(Increase) Decrease in prepaid expenses (218,959) (268,356)
(Increase) Decrease in deferred charges (29,252) 41,057
Increase (Decrease) in accounts payable (475,952) (191,896)
Increase (Decrease) in customers' deposits (8,675) (77,906)
Increase (Decrease) in accrued expenses (115,259) 111,891
Increase (Decrease) in other liabilities (31,871) (286,193)
Net Cash provided by operating activities 2,289,025 1,610,713
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,485,243) (1,123,224)
Interest charged to construction 11,088 24,841
Change in unamortized debt issuance expense 6,923 (52,835)
Change in other investment (101,849) (68,045)
Net Cash used in investing activities (1,569,081) (1,219,263)
CASH FLOW FROM FINANCING ACTIVITIES:
Increase (Decrease) in notes payable (450,000) 50,000
Reduction of long term debt (55,000) (55,000)
Dividends (540,621) (468,517)
Sale of common stock 191,087 194,023
Net Cash used by financing activities (854,534) (279,494)
Increase (Decrease) in cash and cash equivalents (134,590) 111,956
Cash and cash equivalents at beginning of year 482,049 422,037
Cash and cash equivalents at end of the $ 347,459 $ 533,993
period
The accompanying notes to financial statements are an integral part of these
statements.
-5-
<PAGE>
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 June 30, 1996 and December 31, 1995,
Its income for the three-month and six-month periods ended June 30, 1996
and 1995 and its cash flow for the six-month periods ended June 30, 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 and six-month
periods ended June 30, 1996 and 1995 were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Interest income $ 115 $ 135 $ 232 $ 256
Interest during construction 4,184 9,927 11,088 24,841
G/L disposition certain
property 9,646 (2,598) 59,042 10,910
Special charges (21,207) (21,579) (22,652) (22,288)
Other non-operating income 159,300 54,200 307,500 71,100
Equity in earnings of
affiliated company (66,935) 78,193 (99,311) 160,918
$ 85,103 $118,278 $255,899 $245,737
- 6 -
WARWICK VALLEY TELEPHONE COMPANY
ITEM 2. MANAGEMENTS'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1996 - The Company's net
income from all sources increased $622,687 (or 59.3%) to $1,671,872 for the
six-month period ended June 30, 1996, as compared to the same period in 1995.
Operating revenues increased by $1,206,153 (or 18.6%) after provision for
uncollectibles, to $7,686,665 for the six-month period ended June 30, 1996 as
compared to $6,480,512 for the corresponding period of 1995. The increase on
operating revenues was caused mainly by increases in network access and toll
revenues, which increased $916,222 (or 20.7%) in the aggregate during the
period, as compared to the same six months of 1995.
Operating expenses increased by $211,822 (or 4.7%) to $4,734,025 for the
six-month period ended June 30, 1996 as compared to the same period in 1995.
Increased costs of salaries and benefits (approximately $309,000) and
depreciation ($51,000) were offset by decreases in costs for education
($14,000), pole rentals ($14,000), insurance ($29,000), stationery and printing
($9,000) and directory assistance ($8,000).
Non-operating income and expenses increased by $10,162 from $245,737 in
the six-month period ended June 30, 1995 to $255,899 in the same period of
1996. An increase of $236,400 in cellular income from the Company's share of
the Orange-Poughkeepsie Cellular Partnership and a loss of $214,651 of the
Company's recently started internet access subsidiary were the principal
factors in the change. See Liquidity and Capital Resources below.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1996 - The Company's net
income from all sources increased $218,116 (or 42.1%) to $736,346 for the
three-month period ended June 30, 1996, as compared to $518,230 for the same
period in 1995. Operating revenues increased by $527,026 (or 16.4%) after
provision for uncollectibles, to $3,733,499 for the three-month period ended
June 30, 1996 as compared to $3,206,473 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 $141,543 (or 6.4%) to $2,358,613 for the
three-month period ended June 30, 1996 as compared to the same period in 1995.
Increased costs of salaries, benefits and depreciation were offset as noted in
Results of Operations - Six Months Ended June 30, 1996.
Non-operating income and expenses decreased by $33,175 from $118,278 in
the three-month period ended June 30, 1995 to $85,103 in the same period of
1996, principally as a result of the factors listed agove under Results of
Operations - Six Months Ended June 30, 1996. See Liquidity and Capital
Resources below.
LIQUIDITY AND CAPITAL RESOURCES - The Company's working capital increased to
$2,055,008 at June 30, 1996 from $1,686,316 at June 30, 1995. Increases in
materials and supplies and accounts receivable and a reduction in notes payable
were partially offset by an increase in accounts payable.
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 $337,000 in WVMT since its operations began on April 1,
1989.
-7-
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.
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 third 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 $929,000 in
ONLINE since its inception, of which $450,000 has been invested in the first
six 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 is unable to determine at this
time when ONLINE will become profitable.
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. These proceedings will be affected by rulings of the Federal
Communications Commission. 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 during 1997. The Company anticipates that local
competition, as permitted by the Act, will occur first in major cities where
concentrations of high usage customers are located. No such high usage
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.
-8-
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 August 9, 1996
Herbert Gareiss, Jr., Vice President
(Duly Authorized Officer)
DATE August 9, 1996
Philip S. Demarest, Vice President
Secretary and Treasurer
(Principal Financial and Chief
Accounting Officer)
<PAGE>
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