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, 1998
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) 986-8080
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:
1,800,816 common shares, no par value, outstanding at March 31, 1998.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WARWICK VALLEY TELEPHONE COMPANY
BALANCE SHEET
March 31, December 31,
1998 1997
(Unaudited) (Audited)
CURRENT ASSETS:
Cash $ 424,880 $ 482,534
Telecommunications accounts receivable, 2,407,743 3,544,562
less accounts receivable allowance
1998-$66,549; 1997-$65,155;
Other accounts receivable 494,251 420,798
Materials and supplies 1,246,289 1,133,637
Prepaid expenses 456,549 338,417
TOTAL CURRENT ASSETS 5,029,712 5,919,948
NON-CURRENT ASSETS
Unamortized debt issuance expense 45,543 48,710
Other deferred charges 165,565 217,575
Investment in non-affiliated company 1,850,874 1,664,582
TOTAL NON-CURRENT ASSETS 2,061,982 1,930,867
TELEPHONE PLANT, AT COST:
Land, buildings and equipment
In service 37,974,527 37,374,440
Under construction 1,201,853 824,595
39,176,380 38,199,035
Less: Accumulated depreciation 15,290,981 14,661,854
TOTAL PLANT 23,885,399 23,537,181
TOTAL ASSETS $ 30,977,093 $ 31,387,996
The accompanying notes to financial statements are an integral part of these
statements.
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Item 1. Financial Statements (Continued)
WARWICK VALLEY TELEPHONE COMPANY
BALANCE SHEET
March 31, December 31,
STOCKHOLDERS' EQUITY AND LIABILITIES 1998 1997
(Unaudited) (Audited)
CURRENT LIABILITIES:
Accounts payable 1,125,923 1,751,739
Notes payable 800,000 1,600,000
Advance billing and payments 63,584 163,882
Customer deposits 169,328 168,465
Accrued taxes 563,680 126,864
Other accrued liabilities 733,280 691,832
TOTAL CURRENT LIABILITIES 3,455,795 4,502,782
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 188,677 201,427
Net non-current deferred operating income 2,380,701 2,301,418
tax
Other deferred credits 104,908 179,230
TOTAL OTHER LIABILITIES & DEFERRED CREDITS 2,674,286 2,682,075
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;
2,160,000 shares authorized;
Issued and outstanding: 1,974,168 shares
at 3/31/98 and 1,974,168 shares at
12/31/97 2,948,438 2,948,438
Retained earnings 17,178,864 16,534,991
20,627,302 19,983,429
Less: Treasury stock, at cost,
173,352 shares at 3/31/98 and 173,352
shares at 12/31/97 2,780,290 2,780,290
TOTAL STOCKHOLDERS' EQUITY 17,847,012 17,203,139
TOTAL LIABILITIES $ 30,977,093 $ 31,387,996
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,
1998 1997
Operating Revenues:
Local network service $ 1,020,366 $ 962,125
Network access and long distance
network service 2,768,177 2,692,570
Miscellaneous 344,100 318,288
4,132,643 3,972,983
Less: Provisions for uncollectibles 10,000 8,700
Operating revenues 4,122,643 3,964,283
Operating Expenses:
Plant specific 526,271 535,836
Plant non-specific 753,890 711,637
Customer operating expense 816,960 779,555
Corporate operations 396,907 417,954
Operating expenses 2,494,028 2,444,982
Operating Taxes:
Federal income taxes 482,899 371,053
Other operating taxes 220,428 325,781
Operating taxes 703,327 696,834
Income from Operations 925,288 822,467
Non-Operating Income & Expenses,
Net (Note 2) 354,359 175,361
Income before fixed charges 1,279,647 997,828
Interest & Related Items:
Interest on funded debt 138,375 138,375
Other Interest Deductions 19,770 10,176
Amortization of debt issuance expense 3,167 3,167
Total interest & related items 161,312 151,718
Net income all sources 1,118,335 846,110
PREFERRED DIVIDENDS 6,250 6,250
INCOME APPLICABLE TO COMMON STOCK $ 1,112,085 $ 839,860
NET INCOME PER AVERAGE SHARE OF
OUTSTANDING COMMON STOCK $ 0.62 $ 0.44
CASH DIVIDENDS PAID PER SHARE $ 0.26 $ 0.20
AVERAGE SHARES OF COMMON STOCK
OUTSTANDING 1,800,816 1,865,313
The accompanying note to financial statements are an integral part of these
statements.
-4-
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
1998 1997
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $1,118,335 $ 846,110
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 612,198 581,483
Deferred income tax and investment tax credit (7,789) (25,332)
Interest charged to construction (12,818) (13,203)
CHANGE IN ASSETS AND LIABILITIES:
(Increase) Decrease in accounts receivable 1,063,366 512,255
(Increase) Decrease in materials and supplies (112,652) (303,301)
(Increase) Decrease in prepaid expenses (118,132) (344,625)
(Increase) Decrease in deferred charges 52,010 13,691
Increase (Decrease) in accounts payable (625,816) 140,533
Increase (Decrease) in customers' deposits 863 7,068
Increase (Decrease) in accrued expenses 336,519 15,236
Increase (Decrease) in other liabilities 41,448 90,775
Net Cash provided by operating activities 2,347,532 1,520,690
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (960,417) (637,443)
Interest charged to construction 12,818 13,203
Change in unamortized debt issuance expense 3,167 3,167
Change in other investment (186,292) (138,421)
Net Cash used in investing activities (1,130,724) (759,494)
CASH FLOW FROM FINANCING ACTIVITIES:
Increase (Decrease) in notes payable (800,000) (250,000)
Dividends (474,462) (379,313)
Net Cash used by financing activities (1,274,462) (629,313)
Increase (Decrease) in cash and cash
equivalents (57,654) 131,883
Cash and cash equivalents at beginning of year 482,534 728,520
Cash and cash equivalents at end of the period $ 424,880 $ 860,403
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, 1998 and
December 31, 1997, its income for the three-month periods ended March 31,
1998 and 1997 and its cash flow for the three-month periods ended March
31, 1998 and 1997.
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, 1997.
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, 1998 and 1997 were as follows:
Three Months Ended
March 31,
1998 1997
Interest income $ 328 $ 131
Interest during construction 12,818 13,203
G/L disposition certain property 14,199 15,711
Special charges (2,290) (12,088)
Other non-operating income 185,861 132,486
Equity in earnings of affiliated
company 143,443 25,918
$354,359 $175,361
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - Three Months Ended March 31, 1998 - The Company's net
income from all sources increased $272,225 (or 32.173%) to
$1,118,335 for the three-month period ended March 31, 1998, as compared
the same period in 1997. Operating revenues increased by $158,359
(or 3.99%) after provision for uncollectibles, to $4,122,643 for the
three-month period ended March 31, 1998 as compared to $3,964,283 for
the corresponding period of 1997. The change in operating revenues was
primarily the result of increases of $58,241 (or 6.1%)in local network
service, $75,608 (or 2.8%) in toll and $25,812 (or 8.1%) in
miscellaneous revenues.
Operating expenses increased by $49,046 (or 2.0%) to $2,494,028 for the
three-month period ended March 31, 1998 as compared to the same period
in 1997. Increased depreciation ($37,724), payroll and benefits
($35,208), and compute operating costs ($10,256), were offset by
reductions in legal fees ($23,448) and postage ($12,427).
Non-operating income and expenses increased by $178,998 from $175,361 in
the three-month period ended March 31, 1997 to $354,359 in the same
period of 1998 largely as a result of improved earnings in the Company's
Cellular, Long Distance and Online subsidiaries. (See Liquidity and
Capital Resources).
LIQUIDITY AND CAPITAL RESOURCES - The Company's working capital decreased to
$1,573,921 at March 31, 1998 from $2,317,876 at March 31, 1997.
Decreases in cash and material and supplies, which were offset by a
reduction in accounts payable, were the major contributing factors in
this decrease.
The Company issued 16,715 shares of its common stock on April 1, 1998 to
employees participating in its retirement savings plans at a price of
$23.30 per share, realizing $389,459.50. 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 1999 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 $269,000 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
$101,000 during the first three months of 1998, compared to $70,000 for
the corresponding 1997 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
-7-
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 was in
operation during 1997 although not all members have been added to the
network. WVN invested approximately $40,000 in NYSINET to date.
Moderate additional investment requirements are anticipated during 1998.
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 $1,520,000 in ONLINE since its inception, of
which $210,000 was invested in the first quarter of 1998. ONLINE
reached positive cash flow and achieved positive net earnings 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 has been felt in a form of a modest reduction in market
share retained by the Company and may be in the future by 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.
ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
PART II - OTHER INFORMATION
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 1998 Annual Meeting of Common Shareholders held on April 24,
1998, Wisner H. Buckbee, Joseph E. DeLuca and Fred M. Knipp were elected
as directors for three-year terms. The terms of Earl V. Barry, Howard
Conklin, Jr., Victor J. Marotta, Philip S. Demarest, Henry L. Nielsen,
Jr., and Corinna S. Lewis continued after the meeting.
Matters voted on at the meeting and the results of each vote are as
follows:
For Against Abstain
1. Set the number of directors 1,250,418 600 840
at nine until the next
annual meeting
-8-
For Against Abstain
2. Election of directors -
Wisner H. Buckbee 1,236,488 200 15,170
Joseph E. DeLuca 1,178,565 58,123 15,170
Fred M. Knipp 1,236,488 200 15,170
For Against Abstain
3. Ratify the appointment of 1,251,173 325 360
Bush and Germain as the
independent public account-
ants of the Company
ITEM 5. OTHER INFORMATION
a) Election of Officers
At its reorganizational meeting on April 24, 1998, 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
Herbert Gareiss, Jr. - Vice President
Barbara Barber - Secretary
Robert A. Sieczek - Treasurer
Bonnie A. Jackowitz - Assistant Secretary
Colleen M. Shannon - Assistant Secretary
Dorinda M. Masker - Assistant Treasurer
b) Beginning Trading on NASDAQ
The Company's common stock began trading on NASDAQ National Market on
April 28, 1998. Trading symbol WWVY.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits - Not applicable
b) Reports on Form 8-K - Not applicable
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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 5/15/98 (signed) Herbert Gareiss, Jr.
Herbert Gareiss, Jr., Vice President
(Duly Authorized Officer)
Date 5/15/98 (signed) Philip S. Demarest
Philip S. Demarest, Vice President
(Principal Financial and Chief
Accounting Officer)
-10-
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