<PAGE> 1
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, 2000
------------------
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 (IRS Employer
incorporation or organization) Identification No.)
47 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:
1,803,022 common shares, no par value, were outstanding at September 30, 2000.
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
----------------------------
WARWICK VALLEY TELEPHONE COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
----------- -----------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 438,072 $ 865,521
Accounts receivable, less accounts
receivable allowance 2000 -$68,720; 1999- $65,155; 4,879,120 4,015,673
Materials and supplies 1,615,593 983,222
Prepaid expenses 558,786 401,090
----------- -----------
7,491,571 6,256,506
----------- -----------
NONCURRENT ASSETS:
Unamortized debt issuance expense 16,951 23,374
Other deferred charges 23,301 224,845
Investments 5,175,329 2,858,301
----------- -----------
5,215,581 3,106,520
----------- -----------
PROPERTY, PLANT & EQUIPMENT:
Plant in service 48,210,026 45,049,356
Plant under construction 1,873,100 1,718,296
----------- -----------
50,083,126 46,767,652
Less: Accumulated depreciation 21,876,169 19,163,148
----------- -----------
TOTAL PLANT 28,206,957 27,604,504
----------- -----------
TOTAL ASSETS $40,914,109 $36,976,530
=========== ===========
</TABLE>
2
<PAGE> 3
Item 1. Financial Statements (Continued)
----------------------------------------
WARWICK VALLEY TELEPHONE COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
----------- -----------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities-long term debt $ 0 $ 3,000,000
Notes payable 3,800,000 900,000
Accounts payable 3,600,800 2,716,427
Advance billing and payments 59,402 0
Customer deposits 132,470 129,660
Accrued taxes 547,818 22,168
Accrued interest 94,087 73,067
Other accrued expenses 136,904 356,990
----------- -----------
8,371,481 7,198,312
----------- -----------
LONG TERM DEBT & DEFERRED CREDITS:
Long-term debt 4,000,000 4,000,000
Accumulated deferred federal income taxes 2,105,678 2,079,064
Unamortized investment tax credits 89,447 118,247
Other deferred credits 65,710 65,040
Post retirement benefit obligation 906,773 786,159
----------- -----------
7,167,608 7,048,510
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock - 5% cumulative; $100 par value;
Authorized 7,500 shares;
Issued and outstanding 5,000 shares 500,000 500,000
Common stock - no par value;
Authorized shares: 2,160,000
Issued 1,993,519 for 9/30/00 and 1,991,462 for 12/31/99 3,446,848 3,367,607
Retained earnings 24,812,972 21,642,391
----------- -----------
28,759,820 25,509,998
Less: Treasury stock at cost, 190,497 shares for 9/30/00 and
173,352 for 12/31/99 3,384,800 2,780,290
----------- -----------
25,375,020 22,729,708
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $40,914,109 $36,976,530
=========== ===========
</TABLE>
Please see the accompanying notes, which are an integral part of these
financial statements.
3
<PAGE> 4
Item 1. Financial Statements (Continued)
----------------------------------------
WARWICK VALLEY TELEPHONE COMPANY
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE and NINE MONTHS ENDED September 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Local network service $ 1,005,437 $ 921,447 $ 3,038,975 $ 2,678,902
Network access and long distance
network service 2,378,253 2,233,468 7,032,679 6,795,352
Other services and sales 4,036,792 2,787,044 9,931,623 7,845,563
------------ ------------ ------------ ------------
7,420,482 5,941,959 20,003,277 17,319,817
Less: Provision for uncollectibles (12,498) (7,950) (32,502) (29,350)
------------ ------------ ------------ ------------
Total operating revenues 7,407,984 5,934,009 19,970,775 17,290,467
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Plant specific 816,538 650,385 2,333,712 1,823,766
Plant non-specific:
Depreciation 825,987 847,485 2,636,041 2,446,774
Other 383,305 324,856 1,119,226 988,622
Customer operations 1,023,038 978,821 3,104,018 3,010,097
Corporate operations 744,727 504,624 2,288,724 1,522,193
Cost of services and sales 470,741 384,293 1,485,807 1,275,169
------------ ------------ ------------ ------------
Total operating expenses 4,264,336 3,690,464 12,967,528 11,066,621
------------ ------------ ------------ ------------
OPERATING TAXES:
Federal income taxes 1,192,652 764,856 2,664,352 2,053,231
Property, revenue and payroll 424,852 390,766 1,224,717 1,169,526
------------ ------------ ------------ ------------
Total operating taxes 1,617,504 1,155,622 3,889,069 3,222,757
------------ ------------ ------------ ------------
Operating income 1,526,144 1,087,923 3,114,178 3,001,089
NONOPERATING INCOME (EXPENSES)-NET: 971,889 584,618 2,591,533 1,531,413
------------ ------------ ------------ ------------
Income available for fixed charges 2,498,033 1,672,541 5,705,711 4,532,502
------------ ------------ ------------ ------------
FIXED CHARGES:
Interest on funded debt 70,500 138,375 302,000 415,125
Other interest charges 82,824 16,719 140,602 33,515
Amortization 1,321 3,167 6,424 9,501
------------ ------------ ------------ ------------
Total fixed charges 154,645 158,261 449,026 458,141
------------ ------------ ------------ ------------
NET INCOME 2,343,388 1,514,280 5,256,685 4,074,361
PREFERRED DIVIDENDS 6,250 6,250 18,750 18,750
------------ ------------ ------------ ------------
INCOME APPLICABLE TO COMMON STOCK $ 2,337,138 $ 1,508,030 $ 5,237,935 $ 4,055,611
============ ============ ============ ============
NET INCOME PER AVERAGE SHARE OF
OUTSTANDING COMMON STOCK $ 1.32 $ 0.83 $ 2.91 $ 2.25
============ ============ ============ ============
CASH DIVIDENDS PAID PER SHARE $ 0.41 $ 0.35 $ 1.15 $ 0.97
============ ============ ============ ============
AVERAGE SHARES OF COMMON STOCK
OUTSTANDING 1,806,087 1,817,549 1,814,437 1,817,366
============ ============ ============ ============
</TABLE>
Please see the accompanying notes, which are an integral part of these
financial statements.
4
<PAGE> 5
Item 1. Financial Statements (Continued)
----------------------------------------
WARWICK VALLEY TELEPHONE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 5,256,685 $ 4,074,361
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,642,465 2,456,275
Deferred income tax and investment tax credit 119,098 (647)
Interest charged to construction (60,200) (116,632)
Change in assets and liabilities:
(Increase) Decrease in accounts receivable (863,447) (651,974)
(Increase) Decrease in materials and supplies (632,371) 265,336
(Increase) Decrease in prepaid expenses (157,696) (199,259)
(Increase) Decrease in deferred charges 201,544 51,777
Increase (Decrease) in accounts payable 884,371 (293,794)
Increase (Decrease) in customers' deposits 2,810 979
Increase (Decrease) in advance billing and payment 59,402 (42,250)
Increase (Decrease) in accrued expenses 546,670 213,648
Increase (Decrease) in other liabilities (220,084) 45,020
----------- -----------
Net cash provided by operating activities 7,779,247 5,802,840
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (3,238,495) (4,830,627)
Interest charged to construction 60,200 116,632
Changes in other investments (2,317,028) (367,613)
----------- -----------
Net cash used in investing activities (5,495,323) (5,081,608)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Increase (Decrease) in notes payable 2,900,000 1,000,000
Repayment of long term debt (3,000,000) 0
Sale of common stock 79,241 14,355
Purchase of treasury stock (604,510) 0
Dividends (2,086,104) (1,781,621)
----------- -----------
Net cash provided by (used in) financing activities (2,711,373) (767,266)
----------- -----------
Increase (Decrease) in cash and cash equivalents (427,449) (46,034)
Cash and cash equivalents at beginning of year 865,521 593,867
----------- -----------
Cash and cash equivalents at end of period $ 438,072 $ 547,833
=========== ===========
</TABLE>
Please see the accompanying notes, which are an integral part of these
financial statements.
5
<PAGE> 6
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
September 30, 2000, its income for the three-month and nine-month
periods ended September 30, 2000 and 1999 and its cash flow for
the nine-month periods ended September 30, 2000 and 1999.
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 on the year ended December 31, 1999.
The Consolidated Balance Sheet as of December 31, 1999 has been
derived from the audited consolidated financial statements
included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999.
The results of operations for any interim period are unaudited and
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, 2000 and 1999 were as
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income $ 6,957 $ 4,850 $ 18,762 $ 11,867
Interest during construction 21,170 44,095 60,200 116,632
G/L disposition certain property 37,452 (18,811) 112,017 34,680
Special charges (22,517) (19,181) (41,391) (31,012)
Other non-operating income $ 928,827 $ 573,665 $ 2,441,945 $ 1,399,246
----------- ----------- ----------- -----------
$ 971,889 $ 584,618 $ 2,591,533 $ 1,531,413
=========== =========== =========== ===========
</TABLE>
6
<PAGE> 7
WARWICK VALLEY TELEPHONE COMPANY
Item 2. Management's Discussion and Analysis of
-----------------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
RESULTS OF OPERATIONS -NINE MONTHS ENDED SEPTEMBER 30, 2000 - The Company"s net
income from all sources increased $1,182,324 (or 29.0%) to $5,256,685 for the
nine-month period ended September 30, 2000, as compared to $933,413 for the same
period in 1999. Operating revenues increased by $2,680,308 (or 15.5%) after
provision for uncollectibles, to $19,970,775 for the nine-month period ended
September 30, 2000, as compared to $17,290,467 for the corresponding period of
1999. The change in operating revenues was primarily the result of increases in
other services and sales of $2,086,060 (or 26.6%) during the period as compared
to the same nine-month period of 1999.
Operating expenses increased by $1,900,907 (or 17.2%) to $12,967,528
for the nine-month period ended September 30, 2000, as compared to $1,045,822
for the same period in 1999. This increase was due primarily to increased costs
of salaries and benefits (approximately $615,400), trunkline agreements
(approximately $417,000), depreciation (approximately $189,000), and
non-qualified pension expense (approximately $255,300).
Non-operating income and expenses increased by $1,060,120 (or 69.2%) to
$2,591,533 for the nine-month period ended September 30, 2000, as compared to
$1,531,413 for the same period of 1999 largely as a result of improved earnings
in the Company"s cellular partnership. See "Liquidity and Capital Resources"
RESULTS OF OPERATIONS -THREE MONTHS ENDED SEPTEMBER 30, 2000 -The Company's net
income from all sources increased $829,108 (or 54.8%) to $2,343,388 for the
three-month period ended September 30, 2000, as compared to $1,514,280 for the
same period in 1999. Operating revenues increased by $1,473,975 (or 24.8%) after
provisions for uncollectibles, to $7,407,984 for the three-month period ended
September 30, 2000, as compared to $5,934,009 for the corresponding period of
1999. The increase in operating revenues was caused mainly by the increase in
other services and sales over the 2000 period.
Operating expenses increased by $573,872 (or 13.5%) to $4,264,336 for
the three-month period ended September 30, 2000, as compared to $424,726 for the
same period in 1999. The change in operating expenses was primarily the result
of increases in costs of trunk line agreements (approximately $162,000),
non-qualified pension (approximately $92,000) and other services and sales
(approximately $86,000).
Non-operating income and expenses increased by $387,271 (or 66.2%) to
$971,889 in the three month period ended September 30, 2000, as compared to
$196,364 for the same period of 1999 largely as a result of increased earnings
in the Company's cellular partnership referred to above under "Results of
Operations - Nine Months ended September 30, 2000." See "Liquidity and Capital
Resources" below.
LIQUIDITY AND CAPITAL RESOURCES - The Company"s working capital decreased to
($879,910) at September 30, 2000, compared to a decrease of ($1,196,750) at
September 30, 1999, largely due to the payment of the Company's $3,000,000
Series I bond at its maturity on May 1, 2000.
The Company holds a 7.5% limited partnership interest in a cellular
mobile telephone partnership, Verizon Wireless, 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. The
Company"s share in the partnership"s earnings was approximately $2,442,000
during the first nine months of 2000, compared to $1,399,000 for the
corresponding 1999 period.
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 $107,000 in WVMT since
its operations began on April 1, 1989. WVMT earned approximately $42,300 during
the first nine months of 2000, compared to $56,400 for the corresponding 1999
period.
7
<PAGE> 8
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 such time, earning approximately $272,700 during the nine month
period ended September 30, 2000, compared to $312,700 for the corresponding 1999
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 makes it unnecessary for its member companies to rely on outside
companies for these services and also offers services to companies who are not
members, creating a potential source of additional revenue. The NYSINET network
was in operation during 1997 with Warwick Valley Telephone Company connecting in
July of that year. To this date not all members have been added to the network.
WVN has invested approximately $52,000 in NYSINET to date.
Another wholly-owned subsidiary, Hometown Online, Inc. ("ONLINE") was
organized during 1995. ONLINE is the corporate entity through which WVTC
provides personal computer users with connection 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
$149,900 in ONLINE since its inception. ONLINE earned approximately $789,000
during the nine-month period ended September 30, 2000, compared to $543,600 for
the corresponding 1999 period.
On July 28, 2000 the Company purchased 8.9% of the outstanding units of
Hudson Valley DataNet, L.L.C. ("HVDN") for $1,000,000. HVDN is a competitive
telecommunications company that expects to offer high speed bandwidth throughout
the region by the fourth quarter of 2000. No further capital contributions are
currently scheduled, although the Company may voluntarily increase or be asked
to increase its investment from time to time.
On, October 20, 2000 the Company purchased 17.0% of Zephyr Wireless,
LLC, a licensed reseller of wireless service nationwide, with a $1,000,000 cash
investment and an additional commitment of up to $1,000,000 in the form of a
promissory note to be drawn upon when needed. Zephyr Wireless will allow the
Company to resell wireless services under private labeling.
The Telecommunications Act of 1996 (the "Act") created a nationwide
structure in which competition is allowed and encouraged between local exchange
carriers, interexchange carriers, competitive access providers, cable TV
companies and other entities. The markets affected first have been the regional
toll areas in New York and New Jersey. Regional toll competition was implemented
in New York on January 1, 1997 and in New Jersey in May 1997. The competition in
these areas has had the effect of reducing Warwick"s revenues. The reduction in
regional toll revenues for the first nine months of 2000 was $142,162 (or 15.8%)
in New York and $119,429 (or 9.8%) in New Jersey. Under the Act the Company
itself can provide competitive local exchange telephone service outside its
franchised territory.
Certification as a common carrier in the State of New York was
received by the Company on October 2, 1998 and in the State of New Jersey on
March 3, 1999. As a result, the Company negotiated agreements for local wireline
network interconnection with Citizens Telecommunications of New York, Inc. in
the Middletown, New York area. The New York State Public Service Commission
("NYSPSC") approved the Company"s application on December 23, 1998. Based upon
this agreement, the Company installed a central office at 24 John Street in
Middletown, New York on February 10, 1999, where it began providing extended
local service on September 10, 1999. The Company is reviewing plans to provide
limited service in other surrounding areas in both New York and New Jersey.
There can be no assurances that the Company will implement any such additional
plans, or that other companies will not begin providing competitive local
exchange telephone service in the Company's franchise territory.
8
<PAGE> 9
CONSOLIDATION - The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All material intercompany
transactions and balances have been eliminated in the consolidated financial
statements. Certain prior year amounts have been reclassified to conform with
the financial statements in the Company"s Annual Report on Form 10-K for the
year ended December 31, 1999.
Item 3. Quantative and Qualitative Disclosures About Market Risk - The Company
does not hold or issue derivatives instruments for any purposes or other
financial instruments for trading purposes. The Company"s only assets exposed to
market risk are its interest bearing bank accounts, into which the Company
deposits its excess operating funds on a daily basis. The Company"s mortgage
liabilities currently bear interest at fixed rates. If the Company refinances
its liabilities when they mature the nature and amount of the applicable
interest rate or rates will be determined at that time. The Company also has a
line of credit which accrues interest at 0.75% below prime rate. On May 1, 2000
the Company repaid its $3,000,000 Series I bond with short-term borrowing. The
Company has the option of renewing such short-term borrowing every thirty, sixty
or ninety days at prime rate or LIBOR rate plus 1.75%.
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 Securities Holders) and 5
(Other Information) are inapplicable.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits - Not applicable
b) Reports on Form 8-K - None
9
<PAGE> 10
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 11/14/00 /S/ Herbert Gareiss, Jr.
-------- --------------------------
Herbert Gareiss, Jr., Vice President
(Duly Authorized Officer)
Date 11/14/00 /S/ Robert A. Sieczek
-------- ---------------------
Robert A. Sieczek, Treasurer
(Principal Financial and Chief
Accounting Officer)
10
