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, 1997
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:
600,272 common shares, no par value, outstanding at September 30, 1997.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WARWICK VALLEY TELEPHONE COMPANY
BALANCE SHEET
September 30, December 31,
1997 1996
(Unaudited) (Audited)
CURRENT ASSETS:
Cash $ 633,889 $ 728,520
Telecommunications accounts receivable, 2,705,999 3,290,714
less accounts receivable allowance
1997-$62,504; 1996-$65,569;
Other accounts receivable 316,836 0
Materials and supplies 1,896,116 1,451,858
Prepaid expenses 723,232 306,532
TOTAL CURRENT ASSETS 6,276,072 5,777,624
NON-CURRENT ASSETS
Unamortized debt issuance expense 51,877 61,378
Other deferred charges 180,056 227,699
Investment in non-affiliated company 1,843,480 1,354,390
TOTAL NON-CURRENT ASSETS 2,075,413 1,643,467
TELEPHONE PLANT, AT COST:
Land, buildings and equipment
In service 36,177,684 34,578,033
Under construction 1,413,288 1,444,982
37,590,972 36,023,015
Less: Accumulated depreciation 14,837,537 13,200,526
TOTAL PLANT 22,753,435 22,822,489
TOTAL ASSETS $ 31,104,920 $ 30,243,580
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 1997 1996
(Unaudited) (Audited)
CURRENT LIABILITIES:
Accounts payable 1,201,931 1,600,944
Notes payable 1,900,000 850,000
Advance billing and payments 254,335 188,865
Customer deposits 173,489 153,143
Accrued taxes 288,043 275,241
Other accrued liabilities 728,987 655,498
TOTAL CURRENT LIABILITIES 4,546,785 3,723,691
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 214,177 252,427
Net non-current deferred operating income
tax 2,372,857 2,313,224
Other deferred credits 142,007 243,690
TOTAL OTHER LIABILITIES & DEFERRED CREDITS 2,729,041 2,809,341
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: 658,056 shares
at 9/30/97 and 648,571 shares at
12/31/96 2,948,439 2,439,663
Retained earnings 16,160,945 14,596,085
19,609,384 17,535,748
Less: Treasury stock, at cost,
57,784 shares at 9/30/97 and 26,800 shares
at 12/31/96 2,780,290 825,200
TOTAL STOCKHOLDERS' EQUITY 16,829,094 16,710,548
TOTAL LIABILITIES $ 31,104,920 $ 30,243,580
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, 1997 AND 1996
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Operating revenues:
Local network service $ 964,337 $ 868,851 $ 2,841,665 $ 2,644,934
Network access and long
distance network service 2,823,929 2,642,329 8,185,737 7,983,728
Miscellaneous 334,940 256,707 921,343 841,490
4,123,206 3,767,887 11,948,745 11,470,152
Less: Provisions for
uncollectibles 8,700 7,800 26,100 23,400
Operating revenues 4,114,506 3,760,087 11,922,645 11,446,752
Operating expenses:
Plant specific 509,299 552,073 1,598,778 1,713,970
Plant non-specific 728,658 698,712 2,165,214 2,043,972
Customer operations 747,563 778,697 2,349,939 2,180,562
Corporate operations 405,945 419,085 1,252,019 1,244,088
Operating expenses 2,391,465 2,448,567 7,365,950 7,182,592
Operating taxes:
Federal income taxes 459,928 314,376 1,162,019 1,074,713
Operating other taxes 288,673 252,207 895,033 703,466
Operating taxes 748,601 566,583 2,057,052 1,778,179
Income from operations 974,440 744,937 2,499,643 2,485,981
Non-operating income &
expenses - net (Note 2) 310,194 200,010 790,749 455,909
Income before fixed charges 1,284,634 944,947 3,290,392 2,941,890
Interest & related items:
Interest on funded debt 138,375 143,595 415,125 436,705
Other interest deductions 9,826 16,034 30,564 41,071
Amortization of debt issuance
expense 3,166 3,461 9,501 10,385
Total interest & related items 151,367 163,090 455,190 488,161
Net income all sources 1,133,267 781,857 2,835,202 2,453,729
PREFERRED DIVIDENDS 6,250 6,250 18,750 18,750
INCOME APPLICABLE TO
COMMON STOCK $ 1,127,017 $ 775,607 $ 2,816,452 $2,434,979
NET INCOME PER AVERAGE SHARE
OF OUTSTANDING COMMON STOCK 1.80 1.25 4.51 3.91
CASH DIVIDENDS PAID PER SHARE 0.78 0.50 2.03 1.35
AVERAGE SHARES OF COMMON STOCK
OUTSTANDING 626,092 622,914 624,792 621,020
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, 1997 AND 1996
(Unaudited)
1997 1996
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 2,835,202 $ 2,453,729
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,736,195 1,613,654
Deferred income tax and investment tax credit (80,300) (58)
Interest charged to construction (37,270) (16,449)
CHANGE IN ASSETS AND LIABILITIES:
(Increase) Decrease in accounts receivable 267,879 1,153,788
(Increase) Decrease in materials and supplies (444,258) (277,401)
(Increase) Decrease in prepaid expenses (416,700) (312,262)
(Increase) Decrease in deferred charges 47,643 (44,062)
Increase (Decrease) in accounts payable (399,013) (1,058,135)
Increase (Decrease) in customers' deposits 20,346 (8,868)
Increase (Decrease) in accrued expenses 78,273 (229,424)
Increase (Decrease) in other liabilities 73,489 121,558
Net Cash provided by operating activities 3,681,486 3,396,070
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,667,143) (2,286,029)
Interest charged to construction 37,270 16,449
Change in unamortized debt issuance expense 9,501 10,385
Change in other investment (489,090) (278,258)
Net cash used in investing activities (2,109,462) (2,537,453)
CASH FLOW FROM FINANCING ACTIVITIES:
Increase (Decrease) in notes payable 1,050,000 350,000
Reduction of long term debt 0 (342,500)
Dividends (1,270,341) (858,257)
Purchase of treasury stock (1,955,090) (50,000)
Sale of common stock 508,776 158,428
Net Cash used by financing activities (1,666,655) (742,329)
Increase (Decrease) in cash and cash
equivalents (94,631) 116,288
Cash and cash equivalents at beginning of year 728,520 482,049
Cash and cash equivalents at end of the period $ 633,889 $ 598,337
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 financialstatements contain all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the
Company's financial position as of September 30, 1997 and December 31,
1996, its income for the three-month and nine-month periods ended
September 30, 1997 and 1996 and its cash flow for the nine-month periods
ended September 30, 1997 and 1996.
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, 1996.
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 nine-month
periods ended September 30, 1997 and 1996 were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Interest income $ 116 $ 117 $ 359 $ 348
Interest during construction 12,660 5,361 37,270 16,449
G/L disposition certain
property (15,856) (3,825) 8,805 55,217
Special charges (1,895) (2,022) (15,575) (24,673)
Other non-operating income 174,616 176,400 480,107 483,900
Equity in earnings of
affiliated companies 140,553 23,979 279,783 (75,332)
$310,194 $200,010 $790,749 $455,909
- 6 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1997 - The Company's
net income from all sources increased $381,473 (or 15.5%) to $2,835,202 for
the nine-month period ended September 30, 1997, as compared to the same
period in 1996. Operating revenues increased by $475,893 (or 4.2%) after
provision for uncollectibles, to $11,922,645 for the nine-month period ended
September 30, 1997 as compared to $11,446,752 for the corresponding period of
1996. The increase in operating revenues was caused mainly by increases in
local network service revenues of $196,731 (or 7.4%) and network access and
long distance revenue of $202,009 (or 2.5%) during the period, as compared to
the same nine months of 1996.
Operating expenses increased by $183,358 (or 2.6%) to $7,365,950 for the
nine-month period ended September 30, 1997 as compared to the same period in
1996. Increased costs of salaries and benefits (approximately $175,000) and
depreciation ($123,000) were offset by decreases in costs for returned and
repaired items ($18,000), toll study ($25,000), and tariff filing ($12,000).
Net non-operating income and expenses increased by $334,840 from $455,909
in the nine-month period ended September 30, 1996 to $790,749 in the same
period of 1997. An improvement of $328,000 in net income of Hometown Online,
Inc.(Online), the Company's subsidiary which provides personal computer users
connectivity to the Internet, was the principal factor in the change. Online
experienced a loss of $267,533 during the 1996 period but achieved a profit
of $60,904 during the 1997 period. See Liquidity and Capital Resources below.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1997 - The Company's
net income from all sources increased $351,410 (or 44.9%) to $1,133,267 for
the three-month period ended September 30, 1997, as compared to $781,857 for
the same period in 1996. Operating revenues increased by $354,419 (or 9.4%)
after provision for uncollectibles, to $4,114,506 for the three-month period
ended September 30, 1997 as compared to $3,760,087 for the corresponding
period of 1996. The increase in operating revenues was caused mainly by
increases in access and toll revenues over the 1996 period.
Operating expenses decreased by $57,102 (or 2.3%) to $2,391,465 for the
three-month period ended September 30, 1997 as compared to the same period in
1996, primarily because of decreased costs for salaries and benefits
($49,000).
Non-operating income and expenses increased by $110,184 or (55.0%) from
200,010 in the three-month period ended September 30, 1996 to $310,194 in the
same period of 1997, largely as a result of the Online increase referred to
above under Results of Operations - Nine Months Ended September 30, 1997.
See Liquidity and Capital Resources below.
LIQUIDITY AND CAPITAL RESOURCES - The Company's working capital decreased to
$1,729,287 at September 30, 1997 from $1,974,774 at September 30, 1996. An
increase in notes payable and an offsetting increase in accounts receivable
were the main factors contributing to this decrease.
During September 1997, the Company purchased 30,984 shares of its common
stock from three shareholders for the treasury. No additional purchases are
planned at this time.
The three-for-one stock split approved by the shareholders at the 1997
Annual Meeting has received all necessary regulatory approvals and will occur
during November, 1997.
LIQUIDITY AND CAPITAL RESOURCES(Cont'd)
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 $290,000 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
and has been profitable since then, earning approximately $185,000 during the
first nine months of 1997, compared to $180,000 for the corresponding 1996
period.
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 connections to member companies in late 1996 and is expected to
be in full operation before the end of 1997.
Hometown Online, Inc. (Online), referred to above, 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 $1,300,000 in Online
since its inception. Online has been profitable since mid 1997.
The Telecommunications Act of 1996 (the Act), 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 affected first have been the regional toll areas in both
states, where competitive service began in 1997. 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 previously was the main revenue
source. The effects of competition in New Jersey will be felt both in market
share retained by the Company and the level of its toll rates required in
order to remain competitive. Early results indicate that market share losses
have been moderate, although it is too soon to predict the long term impact.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
PART II - OTHER INFORMATION
ITEMS 1. (Legal Proceedings), 2 (Changes in Securities), 3 (Defaults Upon
Senior Securities), 4 (Submission of Matters to a Vote of Security Holders),
5 (Other Information), and 6 (Exhibits and Reports on Form 8-K) are
inapplicable.
SIGNATURES
Pursuant to the requirements of the Securitites 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 TELEHONE COMPANY
Registrant
/s/ FRED M. KNIPP
Date: November 10, 1997 Fred M. Knipp (President)
(Duly authorized officer)
/s/PHILIP S. DEMAREST
Date: November 10, 1997 Philip S. Demarest(Vice President)
Secretary and Treasurer
(Principal Financial and Chief
Accounting Officer)
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