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, 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
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
47-49 Main Street, Warwick, New York 10990
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (914) 986-8080
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:
631,256 common shares, no par value, outstanding at June 30, 1997.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WARWICK VALLEY TELEPHONE COMPANY
BALANCE SHEET
June 30, December 31,
1997 1996
(Unaudited) (Audited)
CURRENT ASSETS:
Cash $ 771,968 $ 728,520
Telecommunications accounts receivable, 2,713,744 3,290,714
less accounts receivable allowance
1997-$64,452; 1996-$65,569;
Other accounts receivable 335,900 0
Materials and supplies 1,729,423 1,451,858
Prepaid expenses 596,982 306,532
TOTAL CURRENT ASSETS 6,148,017 5,777,624
NON-CURRENT ASSETS
Unamortized debt issuance expense 55,044 61,378
Other deferred charges 226,404 227,699
Investment in non-affiliated company 1,665,816 1,354,390
TOTAL NON-CURRENT ASSETS 1,947,264 1,643,467
TELEPHONE PLANT, AT COST:
Land, buildings and equipment
In service 35,940,716 34,578,033
Under construction 1,135,744 1,444,982
37,076,460 36,023,015
Less: Accumulated depreciation 14,212,851 13,200,526
TOTAL PLANT 22,863,609 22,822,489
TOTAL ASSETS $ 30,958,890 $ 30,243,580
The accompanying notes to financial statements are an integral part of these
statements.
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<PAGE>
Item 1. Financial Statements (Continued)
WARWICK VALLEY TELEPHONE COMPANY
BALANCE SHEET
June 30, December 31,
STOCKHOLDERS' EQUITY AND LIABILITIES 1997 1996
(Unaudited) (Audited)
CURRENT LIABILITIES:
Accounts payable 1,267,761 1,600,944
Notes payable 500,000 850,000
Advance billing and payments 349,711 188,865
Customer deposits 168,063 153,143
Accrued taxes 106,679 275,241
Other accrued liabilities 684,300 655,498
TOTAL CURRENT LIABILITIES 3,076,514 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 226,927 252,427
Net non-current deferred operating income
tax 2,376,729 2,313,224
Other deferred credits 153,338 243,690
TOTAL OTHER LIABILITIES & DEFERRED CREDITS 2,756,994 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 6/30/97 and 648,571 shares at
12/31/96 2,948,439 2,439,663
Retained earnings 15,502,143 14,596,085
18,950,582 17,535,748
Less: Treasury stock, at cost,
26,800 shares 825,200 825,200
TOTAL STOCKHOLDERS' EQUITY 18,125,382 16,710,548
TOTAL LIABILITIES $ 30,958,890 $ 30,243,580
The accompanying notes to financial statements are an integral part of these
statements.
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<PAGE>
Item 1. Financial Statements (Continued)
WARWICK VALLEY TELEPHONE COMPANY
STATEMENT OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 amd 1996
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Operating revenues:
Local network service $ 915,203 $ 868,989 $1,877,328 $1,776,083
Network access and long
distance network service 2,669,238 2,576,566 5,361,808 5,341,398
Miscellaneous 268,115 295,744 586,403 584,784
3,852,556 3,741,299 7,825,539 7,702,265
Less: Provisions for
uncollectibles 8,700 7,800 17,400 15,600
Operating revenues 3,843,856 3,733,499 7,808,139 7,686,665
Operating expenses:
Plant specific 553,643 541,623 1,089,479 1,161,897
Plant non-specific 724,919 675,036 1,436,556 1,345,260
Customer operations 822,821 708,052 1,602,376 1,401,865
Corporate operations 428,120 433,902 846,074 825,003
Operating expenses 2,529,503 2,358,613 4,974,485 4,734,025
Operating taxes:
Federal income taxes 331,038 337,766 702,091 760,337
Operating other taxes 280,579 222,666 606,360 451,259
Operating taxes 611,617 560,432 1,308,451 1,211,596
Income from operations 702,736 814,454 1,525,203 1,741,044
Non-operating income &
expenses - net (Note 2) 305,194 85,103 480,555 255,899
Income before fixed charges 1,007,930 899,557 2,005,758 1,996,943
Interest & related items:
Interest on funded debt 138,375 146,255 276,750 293,111
Other interest deductions 10,564 (4,620) 20,739 6,923
Amortization of debt
issuance expense 3,166 21,576 6,334 25,037
Total interest & related items 152,105 163,211 303,823 325,071
Net income all sources 855,825 736,346 1,701,935 1,671,872
PREFERRED DIVIDENDS 6,250 6,250 12,500 12,500
INCOME APPLICABLE TO COMMON
STOCK $ 849,575 $ 730,096 $1,689,435 $1,659,372
NET INCOME PER AVERAGE SHARE
OF OUTSTANDING COMMON STOCK 1.36 1.18 2.71 2.68
CASH DIVIDENDS PAID PER SHARE 0.65 0.45 1.25 0.85
AVERAGE SHARES OF COMMON STOCK
OUTSTANDING 626,514 621,188 624,142 620,073
The accompanying notes to financial statements are an integral part of these
statements.
- 4 -
<PAGE>
WARWICK VALLEY TELEPHONE COMPANY
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
1997 1996
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 1,701,935 $ 1,671,872
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,152,362 1,087,150
Deferred income tax and investment tax credit (52,347) (301)
Interest charged to construction (24,610) (11,088)
CHANGE IN ASSETS AND LIABILITIES:
(Increase) Decrease in accounts receivable 241,070 905,648
(Increase) Decrease in materials and supplies (277,565) (484,288)
(Increase) Decrease in prepaid expenses (290,450) (218,959)
(Increase) Decrease in deferred charges 1,295 (29,252)
Increase (Decrease) in accounts payable (333,183) (475,952)
Increase (Decrease) in customers' deposits 14,920 (8,675)
Increase (Decrease) in accrued expenses (7,715) (115,259)
Increase (Decrease) in other liabilities 28,802 (31,871)
Net Cash provided by operating activities 2,154,514 2,289,025
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,193,481) (1,485,243)
Interest charged to construction 24,610 11,088
Change in unamortized debt issuance expense 6,334 6,923
Change in other investment (311,426) (101,849)
Net cash used in investing activities (1,473,963) (1,569,081)
CASH FLOW FROM FINANCING ACTIVITIES:
Increase (Decrease) in notes payable (350,000) (450,000)
Reduction of long term debt 0 (55,000)
Dividends (795,879) (540,621)
Sale of common stock 508,776 191,087
Net cash used by financing activities (637,103) (854,534)
Increase (Decrease) in cash and cash equivalents 43,448 (134,590)
Cash and cash equivalents at beginning of year 728,520 482,049
Cash and cash equivalents at end of the
period $ 771,968 $ 347,459
The accompanying notes to financial statements are an integral part of these
statements.
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<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 financial statements contain all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the
Company's financial position as of June 30, 1997 and December 31,1996, its
income for the three-month and six-month periods ended June 30, 1997 and
1996 and its cash flow for the six-month periods ended June 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 six-month periods
ended June 30, 1997 and 1996 were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Interest income $112 $115 $243 $232
Interest during construction 11,407 4,184 24,610 11,088
G/L disposition certain
property 8,950 9,646 24,661 59,042
Special charges (1,592) (21,207) (13,680) (22,652)
Other non-operating income 173,005 159,300 305,491 307,500
Equity in earnings of
affiliated companies 113,312 (66,935) 139,230 (99,311)
$305,194 $85,103 $480,555 $255,899
- 6 -
<PAGE>
WARWICK VALLEY TELEPHONE COMPANY
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - Six Months Ended June 30, 1997 - The Company's net
income from all sources increased $30,063 (or 1.8%) to $1,701,935 for the
six-month period ended June 30, 1997, as compared to the same period in 1996.
Operating revenues increased by $121,474 (or 1.6%) after provision for
uncollectibles, to $7,808,139 for the six-month period ended June 30, 1997 as
compared to $7,686,665 for the corresponding period of 1996. The increase in
operating revenues was caused mainly by an increase in local network service
revenues of $101,245 or (5.7%) during the period, as compared to the same six
months of 1996.
Operating expenses increased by $240,460 (or 5.1%) to $4,974,485 for the
six-month period ended June 30, 1997 as compared to the same period in 1996.
Increased costs of salaries and benefits (approximately $225,000) and
depreciation ($84,000) were offset by decreases in costs for returned and
repaired items ($24,000), toll study costs ($22,000), and tariff filing costs
($10,000).
Net non-operating income and expenses increased by $224,656 from $255,899
in the six-month period ended June 30, 1996 to $480,555 in the same period of
1997. An improvement of $216,000 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 $214,651 during the 1996 period but achieved a profit of $1,333 during the
1997 period. See Liquidity and Capital Resources below.
RESULTS OF OPERATIONS - Three Months Ended June 30, 1997 - The Company's net
income from all sources increased $119,479 (or 1.6%) to $855,825 for the
three-month period ended June 30, 1997, as compared to $736,346 for the same
period in 1996. Operating revenues increased by $110,357 (or 3.0%) after
provision for uncollectibles, to $3,843,856 for the three-month period ended
June 30, 1997 as compared to $3,733,499 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 increased by $170,890 (or 7.2%) to $2,529,503 for the
three-month period ended June 30, 1997 as compared to the same period in 1996.
Increased costs of salaries and benefits ($77,000) and depreciation ($41,000)
were largely responsible for the increase.
Non-operating income and expenses increased by $220,091 from $85,103 in
the three-month period ended June 30, 1996 to $305,194 in the same period of
1997, largely as a result of the Online increase referred to above under
Results of Operations - Six Months Ended June 30, 1997. See Liquidity and
Capital Resources below.
LIQUIDITY AND CAPITAL RESOURCES - The Company's working capital increased to
$3,071,503 at June 30, 1997 from $2,055,008 at June 30, 1996. An increase in
cash and a reduction in accounts payable were the main factors contributing to
this increase.
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.
-7-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (Cont'd)
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 $310,000 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 $121,000 during the first six
months of 1997, compared to $116,000 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 $1,660,000 in Online since its
inception, of which $300,000 was invested in the first six months of 1997.
Online has reached break-even and should be profitable on a cash-flow basis in
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.
ITEMS 1. (Legal Proceedings), 2 (Changes in Securities), and 3 (Defaults Upon
Senior Securities) are inapplicable.
-8-
<PAGE>
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
/s/ HERBERT GAREISS, JR.
Date: August __, 1997 ------------------------------------
Herbert Gareiss, Jr., Vice President
(Duly Authorized Officer)
/s/ PHILIP S. DEMAREST
Date: August __, 1997 ------------------------------------
Philip S. Demarest, Vice President
Secretary and Treasurer
(Principal Financial and Chief
Accounting Officer)
-9-
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