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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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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, 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
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(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
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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:
1,818,110 common shares, no par value, outstanding at March 31, 2000.
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<PAGE>
PART 1 -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WARWICK VALLEY TELEPHONE COMPANY
CONSOLIDATED BALANCE SHEET
March 31, December 31,
2000 1999
----------- -----------
(Unaudited) (Audited)
CURRENT ASSETS:
Cash ......................................... $ 670,478 $ 865,521
Accounts receivable, less accounts
Receivable allowance 2000 - $69,534;
1999 - $65,800; .......................... 3,733,047 4,015,673
Materials and supplies ....................... 1,312,993 983,222
Prepaid expenses ............................. 533,525 401,090
----------- -----------
6,250,043 6,256,506
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NONCURRENT ASSETS:
Unamortized debt issuance expense ............ 20,207 23,374
Other deferred charges ....................... 96,387 224,845
Investments .................................. 3,584,710 2,858,301
----------- -----------
3,701,304 3,106,520
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PROPERTY, PLANT & EQUIPMENT:
Plant in service ............................. 45,910,054 45,049,356
Plant under construction ..................... 2,102,240 1,718,296
----------- -----------
48,012,294 46,767,652
Less: Accumulated depreciation ........... 20,280,708 19,163,148
----------- -----------
TOTAL PLANT .................................... 27,731,586 27,604,504
----------- -----------
TOTAL ASSETS .............................. $37,682,933 $36,976,530
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<PAGE>
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
WARWICK VALLEY TELEPHONE COMPANY
CONSOLIDATED BALANCE SHEET
<CAPTION>
MARCH 31, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
------------ ------------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities-long term debt ....................... $ 3,000,000 $ 3,000,000
Notes payable ........................................... 700,000 900,000
Accounts payable ........................................ 2,274,009 2,716,427
Advance billing and payments ............................ 13,955 0
Customer deposits ....................................... 131,768 129,660
Accrued taxes ........................................... 637,737 22,168
Accrued interest ........................................ 207,188 73,067
Other accrued expenses .................................. 153,954 356,990
----------- -----------
7,118,611 7,198,312
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LONG TERM DEBT & DEFERRED CREDITS:
Long-term debt .......................................... 4,000,000 4,000,000
Accumulated deferred federal income taxes ............... 2,087,935 2,079,064
Unamortized investment tax credits ...................... 108,647 118,247
Other deferred credits .................................. 64,965 65,040
Post retirement benefit obligation ...................... 831,056 786,159
----------- -----------
7,092,603 7,048,510
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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 1,991,462 for 3/31/00 and 12/31/99, respectively 3,367,607 3,367,607
Retained earnings ....................................... 22,384,402 21,642,391
----------- -----------
26,252,009 25,509,998
Less: Treasury stock at cost, 173,352 shares 3/31/00
and 12/31/99, respectively ...................... 2,780,290 2,780,290
----------- -----------
23,471,719 22,729,708
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............ $37,682,933 $36,976,530
=========== ===========
</TABLE>
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
WARWICK VALLEY TELEPHONE COMPANY
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED March 31, 2000 AND 1999
2000 1999
----------- -----------
OPERATING REVENUES:
Local network service ..................... $ 1,029,709 $ 849,575
Network access and long distance
Network service ......................... 2,400,051 2,463,725
Other services and sales .................. 2,822,606 2,364,719
----------- -----------
6,252,366 5,678,019
Less: Provision for uncollectibles ........ (10,002) (11,250)
----------- -----------
Total operating revenues ................. 6,242,364 5,666,769
----------- -----------
OPERATING EXPENSES:
Plant specific ............................ 698,227 547,943
Plant non-specific:
Depreciation ............................ 900,215 788,503
Other ................................... 370,295 152,795
Customer operations ....................... 1,084,854 1,248,500
Corporate operations ...................... 801,126 478,242
Cost of services and sales ................ 501,108 508,771
----------- -----------
Total operating expenses ................. 4,355,825 3,724,754
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OPERATING TAXES:
Federal income taxes ...................... 717,465 597,910
Property, revenue and payroll ............. 375,283 395,489
----------- -----------
Total operating taxes ................... 1,092,748 993,400
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Operating income ........................ 793,791 948,615
NONOPERATING INCOME (EXPENSES)-NET: .......... 777,101 391,618
----------- -----------
Income available for fixed charges ...... 1,570,892 1,340,233
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FIXED CHARGES:
Interest on funded debt ................... 138,375 138,375
Other interest charges .................... 8,388 8,484
Amortization .............................. 3,167 3,167
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Total fixed charges ..................... 149,930 150,026
----------- -----------
NET INCOME .............................. 1,420,962 1,190,207
PREFERRED DIVIDENDS .......................... 6,250 6,250
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INCOME APPLICABLE TO COMMON STOCK .......... $ 1,414,712 $ 1,183,957
----------- -----------
NET INCOME PER AVERAGE SHARE OF
OUTSTANDING COMMON STOCK ................. $ 0.77 $ 0.65
=========== ===========
CASH DIVIDENDS PAID PER SHARE ............. $ 0.37 $ 0.31
=========== ===========
AVERAGE SHARES OF COMMON STOCK
OUTSTANDING .............................. 1,818,110 1,817,274
=========== ===========
The accompanying notes are an integral part of the financial statements.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
WARWICK VALLEY TELEPHONE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income ....................................... $ 1,420,962 $ 1,190,208
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and amortization .................. 903,382 791,670
Deferred income tax and investment tax credit .. 44,093 (1,168)
Interest charged to construction ............... (19,860) (26,004)
Change in assets and liabilities:
(Increase) Decrease in accounts receivable ....... 282,626 364,777
(Increase) Decrease in materials and supplies .... (329,771) 423,538
(Increase) Decrease in prepaid expenses .......... (132,435) (116,278)
(Increase) Decrease in deferred charges .......... 128,458 59,981
Increase (Decrease) in accounts payable .......... (442,420) (772,821)
Increase (Decrease) in customers' deposits ....... 2,108 3,682
Increase (Decrease) in advance billing and payment 13,955 (43,708)
Increase (Decrease) in accrued expenses .......... 749,690 549,736
Increase (Decrease) in other liabilities ......... (203,036) (46,435)
----------- -----------
Net cash provided by operating activities ............... 2,417,752 2,377,178
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CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment ........ (1,027,295) (1,985,621)
Interest charged to construction ................. 19,860 26,004
Changes in other investments ..................... (726,409) (375,784)
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Net cash used in investing activities ................... (1,733,844) (2,335,401)
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CASH FLOW FROM FINANCING ACTIVITIES:
Increase (Decrease) in notes payable ............. (200,000) 700,000
Dividends ........................................ (678,951) (569,605)
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Net cash provided by (used in) financing activities ..... (878,951) 130,395
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Increase (Decrease) in cash and cash equivalents ........ (195,043) 172,172
Cash and cash equivalents at beginning of year .......... 865,521 593,867
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Cash and cash equivalents at end of year ................ $ 670,478 $ 766,039
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</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
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, 2000 and 1999, its income for
the three-month periods ended March 31, 2000 and 1999 and its cash flow for
the three-month periods ended March 31, 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 for the year ended December 31, 1999.
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, 2000 and 1999 were as follows:
Three Months Ended
March 31,
---------------------
2000 1999
-------- --------
Interest income ........................... $ 5,183 $ 3,480
Interest during construction .............. 19,860 26,004
G/L disposition certain property .......... 34,012 885
Special charges ........................... (8,284) (4,865)
Other non-operating income ................ $726,330 $366,114
-------- --------
$777,101 $391,618
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<PAGE>
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, 2000 - The Company's net
income from all sources increased $230,754 (or 19.4%) to $1,420,962 for the
three-month period ended March 31, 2000, as compared to the same period in 1999.
Operating revenues increased by $575,595 (or 10.2%) after provision for
uncollectibles, to $6,242,364 for the three-month period ended March 31, 2000 as
compared to $5,666,769 for the corresponding period of 1999. The change in
operating revenues was primarily the result of increases in local network
service of $180,134 (or 21.2%) and other services and sales of $457,887 (or
19.4%) during the period as compared to the same three month period of 1999.
Operating expenses increased by $631,071 (or 16.9%) to $4,355,825 for
the three-month period ended March 31, 2000 as compared to the same period in
1999. Increased costs of salaries and benefits (approximately $261,700),
depreciation ($111,700), non-qualified pension expense ($92,000), trunkline
agreements ($112,400), financing costs ($20,000), advertising ($17,000) and
employment advertising ($55,000) were partially offset by decreases in costs for
directory commissions ($52,000), and legal fees ($21,000).
Non-operating income and expenses increased by $385,483 from $391,618
in the three-month period ended March 31, 1999 to $777,101 in the same period of
2000 largely as a result of improved earnings in the Company's cellular
partnership. (See Liquidity and Capital Resources).
LIQUIDITY AND CAPITAL RESOURCES - The Company's working capital decreased to
($868,568) at March 31, 2000 from $1,296,672 at March 31, 1999 largely due to a
reclassification of $3,000,000 for the current maturity of the Company's Series
I bond due May 1, 2000.
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. The Company's share in
the partnership's earnings was approximately $726,000 during the first three
months of 2000, compared to $368,000 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 $130,000 in WVMT since
its operations began on April 1, 1989. WVMT earned approximately $18,700 during
the first three months of 2000, compared to $22,000 for the corresponding 1999
period.
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 $104,700 during the first three
months of 2000, compared to $102,700 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 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 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.
<PAGE>
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 $783,000 in ONLINE
since its inception. ONLINE earned approximately $92,000 during the first three
months of 2000, compared to $34,000 for the corresponding 1999 period.
The Telecommunications Act of 1996 (the 'Act') creates 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 both states. 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 three months of 2000 was 9.0% in New York and 16.9%
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 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 June 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 implore any such additional plans, or that other companies
will not begin providing competitive local exchange telephone service in the
Company's franchise territory.
DEALING WITH THE IMPACT OF YEAR 2000 ON INFORMATION PROCESSING SYSTEMS -The
Company incurred costs of approximately $700,000 to address the impact of the
Year 2000 problem on its information systems, internet service and telephone
service.
Since 1994, the Company has been making the necessary modifications in all
software that it has generated internally. In 1997, it began a broader program
to address the readiness of its systems for Year 2000 date-change issues. In the
second quarter of 1997, the Company created a continually updated document that
was intended to contain all procedures and plans related to the Company's Year
2000 remediation efforts. The management of the Company reviewed and adopted
this document in the third quarter of 1997. In the fourth quarter of 1997, the
Company's Management Information Systems Department began a more detailed
analysis of the software and hardware in each of the applications identified in
the inventory. This analysis was completed in the second quarter of 1998. In the
third quarter of 1998, the Company began making the software modifications
identified as being necessary and replaced all date-dependent computer chips in
its personal computers. In the first quarter of 1999 the Management Information
Systems Department finished making all necessary modifications to the software
programs for which upgrades were not purchased from outside suppliers. During
the second quarter of 1999 the Company updated its Nortel Switching Equipment to
Year 2000 compliance. The Company did not experience any service interruptions
or operational system failures resulting from the Year 2000.
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.
<PAGE>
PART II -- OTHER INFORMATION
ITEMS 1. (Legal Proceedings), 2 (Changes in Securities),
3 (Defaults Upon Senior Securities),
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS - At the Company's
2000 Annual Meeting of Common Shareholders held on April 28, 2000, Howard
Conklin, Jr., Robert J. DeValentino, Henry L. Nielsen, Jr. and M. Lynn Pike were
elected as directors for three-year terms. The terms of Fred M. Knipp, Herbert
Gareiss, Jr., Philip S. Demarest, Corinna S. Lewis, Wisner H. Buckbee and Joseph
E. DeLuca 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 at 1,359,885 273 4,478
ten until the next annual meeting
FOR AGAINST ABSTAIN
--- ------- -------
2. Election of directors --
Howard Conklin, Jr. 1,364,153 470 13
Robert J. DeValentino 1,360,444 4,179 13
Henry L. Nielsen, Jr. 1,359,044 5,579 13
M. Lynn Pike 1,358,947 5,676 13
FOR AGAINST ABSTAIN
--- ------- -------
3. Ratify the appointment of 1,355,419 739 8,478
Bush and Germain as the
independent public accountants
of the Company
ITEM 5. OTHER INFORMATION
a) Election of Officers
At its reorganizational meeting on April 28, 2000, 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
M. Lynn Pike - President
Herbert Gareiss, Jr. - Vice President
Larry Drake - Vice President
Brenda A. Schadt - Vice President
Barbara Barber - Secretary
Robert A. Sieczek - Treasurer
Bonnie A. Jackowitz - Assistant Secretary
Colleen M. Shannon - Assistant Secretary
Dorinda M. Masker - 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 5/15/00 /s/ HERBERT GAREISS, JR.
------------------------------------------
Herbert Gareiss, Jr., Vice President
(Duly Authorized Officer)
Date 5/15/00 /s/ ROBERT A. SIECZEK
------------------------------------------
Robert A. Sieczek, Treasurer
(Principal Financial and Chief
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> UT
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-2000
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 27,731,586
<OTHER-PROPERTY-AND-INVEST> 3,584,710
<TOTAL-CURRENT-ASSETS> 6,250,043
<TOTAL-DEFERRED-CHARGES> 116,594
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 37,682,933
<COMMON> 3,367,607
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 22,384,402
<TOTAL-COMMON-STOCKHOLDERS-EQ> 25,752,009
0
500,000
<LONG-TERM-DEBT-NET> 4,000,000
<SHORT-TERM-NOTES> 700,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 3,000,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,730,924
<TOT-CAPITALIZATION-AND-LIAB> 37,682,933
<GROSS-OPERATING-REVENUE> 6,252,364
<INCOME-TAX-EXPENSE> 717,465
<OTHER-OPERATING-EXPENSES> 375,283
<TOTAL-OPERATING-EXPENSES> 4,355,825
<OPERATING-INCOME-LOSS> 793,791
<OTHER-INCOME-NET> 777,101
<INCOME-BEFORE-INTEREST-EXPEN> 1,570,892
<TOTAL-INTEREST-EXPENSE> 149,930
<NET-INCOME> 1,420,962
6,250
<EARNINGS-AVAILABLE-FOR-COMM> 1,414,712
<COMMON-STOCK-DIVIDENDS> 672,701
<TOTAL-INTEREST-ON-BONDS> 138,375
<CASH-FLOW-OPERATIONS> 2,417,752
<EPS-BASIC> .77
<EPS-DILUTED> 0
</TABLE>
