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, 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:
621,771 common shares, no par value, outstanding at March 31, 1997.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WARWICK VALLEY TELEPHONE COMPANY
BALANCE SHEET
March 31, December 31,
1997 1996
(Unaudited) (Audited)
CURRENT ASSETS:
Cash $ 860,403 $ 728,520
Telecommunications accounts receivable, 2,546,889 3,290,714
less receivable allowance
1997-$68,619; 1996-$65,569;
Other accounts receivable 231,570 0
Materials and supplies 1,755,159 1,451,858
Prepaid expenses 651,157 306,532
TOTAL CURRENT ASSETS 6,045,178 5,777,624
NON-CURRENT ASSETS
Unamortized debt issuance expense 58,211 61,378
Other deferred charges 214,008 227,699
Investment in non-affiliated company 1,492,811 1,354,390
TOTAL NON-CURRENT ASSETS 1,765,030 1,643,467
TELEPHONE PLANT, AT COST:
Land, buildings and equipment
In service 35,266,517 34,578,033
Under construction 1,404,215 1,444,982
36,670,732 36,023,015
Less: Accumulated depreciation 13,792,283 13,200,526
TOTAL PLANT 22,878,449 22,822,489
TOTAL ASSETS $ 30,688,657 $ 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
March 31, December 31,
STOCKHOLDERS' EQUITY AND LIABILITIES 1997 1996
(Unaudited) (Audited)
CURRENT LIABILITIES:
Accounts payable 1,741,477 1,600,944
Notes payable 600,000 850,000
Advance billing and payments 53,421 188,865
Customer deposits 160,211 153,143
Accrued taxes 425,920 275,241
Other accrued liabilities 746,273 655,498
TOTAL CURRENT LIABILITIES 3,727,302 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 239,677 252,427
Net non-current deferred operating income
tax 2,379,827 2,313,224
Other deferred credits 164,505 243,690
TOTAL OTHER LIABILITIES & DEFERRED CREDITS 2,784,009 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: 648,571 shares
at 3/31/97 and 648,571 shares at
12/31/96 2,439,663 2,439,663
Retained earnings 15,062,883 14,596,085
18,002,546 17,535,748
Less: Treasury stock, at cost,
26,800 and 26,800 shares 825,200 825,200
TOTAL STOCKHOLDERS' EQUITY 17,177,346 16,710,548
TOTAL LIABILITIES $ 30,688,657 $ 30,243,580
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,
1997 1996
Operating Revenues:
Local network service $ 962,125 $ 907,094
Network access and long distance
network service 2,692,570 2,764,832
Miscellaneous 318,288 289,040
3,972,983 3,960,966
Less: Provisions for uncollectibles 8,700 7,800
Operating revenues 3,964,283 3,953,166
Operating Expenses:
Plant specific 535,836 620,274
Plant non-specific 711,637 670,224
Customer operating expense 779,555 693,813
Corporate operations 417,954 391,101
Operating expenses 2,444,982 2,375,412
Operating Taxes:
Federal income taxes 371,053 422,571
Other operating taxes 325,781 228,593
Operating taxes 696,834 651,164
Income from Operations 822,467 926,590
Non-Operating Income & Expenses,Net (Note 2) 175,361 170,796
Income before fixed charges 997,828 1,097,386
Interest & Related Items:
Interest on funded debt 138,375 146,856
Other interest deductions 10,176 11,543
Amortization of debt issuance expense 3,167 3,461
Total interest & related items 151,718 161,860
Net income all sources 846,110 935,526
PREFERRED DIVIDENDS 6,250 6,250
INCOME APPLICABLE TO COMMON STOCK $ 839,860 $ 929,276
NET INCOME PER AVERAGE SHARE OF
OUTSTANDING COMMON STOCK $ 1.35 $ 1.50
CASH DIVIDENDS PAID PER SHARE $ 0.40 $ 0.40
AVERAGE SHARES OF COMMON STOCK OUTSTANDING 621,771 618,957
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, 1997 AND 1996
(Unaudited)
1997 1996
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 846,110 $ 935,526
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 581,483 531,931
Deferred income tax and investment tax credit (25,332) (276)
Interest charged to construction (13,203) (6,904)
CHANGE IN ASSETS AND LIABILITIES:
(Increase) Decrease in accounts receivable 512,255 930,263
(Increase) Decrease in materials and supplies (303,301) (113,296)
(Increase) Decrease in prepaid expenses (344,625) (225,429)
(Increase) Decrease in deferred charges 13,691 (8,650)
Increase (Decrease) in accounts payable 140,533 (329,248)
Increase (Decrease) in customers' deposits 7,068 (428)
Increase (Decrease) in accrued expenses 15,236 142,026
Increase (Decrease) in other liabilities 90,775 41,304
Net Cash provided by operating activities 1,520,690 1,896,819
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (637,443) (679,240)
Interest charged to construction 13,203 6,904
Change in unamortized debt issuance expense 3,167 3,462
Change in other investment (138,421) 61,451
Net Cash used in investing activities (759,494) (607,423)
CASH FLOW FROM FINANCING ACTIVITIES:
Increase (Decrease) in notes payable (250,000) (950,000)
Reduction of long term debt 0 (27,500)
Dividends (379,313) (253,833)
Net Cash used by financing activities (629,313) (1,231,333)
Increase (Decrease) in cash and cash
equivalents 131,883 58,063
Cash and cash equivalents at beginning of year 728,520 482,049
Cash and cash equivalents at end of the
period $ 860,403 $ 540,112
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, 1997 and
December 31, 1996, its income for the three-month periods ended March
31, 1997 and 1996 and its cash flow for the three-month periods ended
March 31, 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 periods ended
March 31, 1997 and 1996 were as follows:
Three Months Ended
March 31,
1997 1996
Interest income $ 131 $ 117
Interest during construction 13,203 6,904
G/L disposition certain property 15,711 49,396
Special charges (12,088) (1,445)
Other non-operating income 132,486 148,200
Equity in earnings of affiliated company 25,918 (32,376)
$175,361 $170,796
- 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, 1997 - The Company's net
income from all sources decreased $89,416 (or 9.56%) to $846,110 for the
three-month period ended March 31, 1997, as compared to the same period in
1996. Operating revenues increased by $11,117 (or 0.3%) after provision for
uncollectibles, to $3,964,283 for the three-month period ended March 31, 1997
as compared to $3,953,166 for the corresponding period of 1996. The change in
operating revenues was primarily the result of a reduction in network access
and long distance revenues, which decreased $72,262 (or 2.6%), largely because
several winter storms took place during the 1996 period generating heavy state
and interstate volumes. This was offset by increases of $55,031 (or 6.1%)in
local network service and $29,248 (or 10.1%) in miscellaneous revenues.
Operating expenses increased by $69,570 (or 2.9%) to $2,444,982 for the three-
month period ended March 31, 1997 as compared to the same period in 1996.
Increased depreciation ($42,837) and payroll and benefits ($100,915), were
offset by reductions in returned and repaired items ($16,847), Labor other
than company ($5,459), travel and business related expenses ($10,862), and
cost studies ($13,017).
Non-operating income and expenses increased by $4,565 from $170,796 in the
three-month period ended March 31, 1996 to $175,361 in the same period of 1997
largely as a result of improved earnings in the Company's Cellular and Online
subsidiaries offset by reduced earnings in the sale of business communications
equipment. (See Liquidity and Capital Resources).
LIQUIDITY AND CAPITAL RESOURCES - The Company's working capital increased to
$2,317,876 at March 31, 1997 from $1,845,613 at March 31, 1996. An increase
in cash and a reduction in current maturities of long term debt and accounts
payable were partially offset by an increase in notes payable.
The Company issued 8,694 shares of its common stock on April 1, 1997 to
employees participating in its retirement savings plans at a price of $53.64
per share, realizing $466,346.16. 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
1998 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 $308,000 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.
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.
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 $1,500,000 in
ONLINE since its inception, of which $140,000 was invested in the first
quarter of 1997. ONLINE is very close to break-even and is likely to be
profitable on a cash-flow basis during 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 has begun 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 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. 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 1997 Annual Meeting of Common Shareholders held on April 25, 1997,
Howard Conklin, Jr., Victor J. Marotta and Henry L. Nielsen, Jr. were elected
as directors for three-year terms. The terms of Earl V. Barry, Wisner H.
Buckbee, Joseph E. DeLuca, Philip S. Demarest, Fred M. Knipp, and Corinna S.
Lewis 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 398,455 0 9,121 97,166
at nine until the next
annual meeting
Broker
For Against Abstain Non-Votes
2. Election of directors -
Howard Conklin, Jr. 405,572 0 2,004 97,166
Victor J. Marotta 395,851 9,721 2,004 97,166
Henry L. Nielsen, Jr. 404,372 1,200 2,004 97,166
3. Approval of Amendment to the Certificate of Incorporation increasing the
number of authorized common shares from 720,000 to 2,160,000 to allow a
3-for-1 stock split.
Broker
For Against Abstain Non-Votes
405,841 0 1,735 97,166
Broker
For Against Abstain Non-Votes
4. Ratify the appointment of 398,492 0 9,084 97,166
Bush and Germain as the
independent public account-
ants of the Company
ITEM 5. Other Information
At its reorganizational meeting on April 25, 1997, 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
Barbara Barber - Assistant Secretary
Robert A. Sieczek - Assistant Treasurer
ITEM 6. Exhibits and Reports on Form 8-K
a) Exhibits - Not applicable
b) Reports on Form 8-K - Not applicable
<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
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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