SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1996 Commission File No. 0-16751
CFW COMMUNICATIONS COMPANY
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1443350
(State or other jurisdiction of (I R S employer
incorporation or organization) identification no.)
P. O. Box 1990, Waynesboro, Virginia 22980
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 540-946-3500
None
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark 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
(APPLICABLE ONLY TO CORPORATE ISSUERS)
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class COMMON STOCK, NO PAR VALUE Outstanding 3/31/96 12,976,847
CFW COMMUNICATIONS COMPANY
I N D E X
Page
Number
PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets,
March 31, 1996 and December 31, 1995 3- 4
Condensed Consolidated Statements of
Income, Three Months Ended
March 31, 1996 and 1995 5
Condensed Consolidated Statements of
Cash Flows, Three Months Ended
March 31, 1996 and 1995 6
Notes to Condensed Consolidated
Financial Statements 7
Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8-11
PART II. OTHER INFORMATION 12
SIGNATURES 13
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CFW COMMUNICATIONS COMPANY
Condensed Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
March 31, 1996 December 31,
(unaudited) 1995
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 5,543,340 $ 5,264,986
Accounts receivable, including
interest receivable 8,134,178 8,677,086
Note receivable 136,763 140,231
Materials and supplies 1,620,425 1,980,837
Prepaid expenses 246,374 207,319
Income taxes receivable - 3,356
------------ ------------
15,681,080 16,273,815
------------ ------------
SECURITIES AND INVESTMENTS 30,035,739 29,471,626
------------ ------------
PROPERTY AND EQUIPMENT
In service 108,245,681 107,420,864
Under construction 6,267,611 4,385,440
------------ ------------
114,513,292 111,806,304
Less: accumulated depreciation 32,336,449 30,713,237
------------ ------------
82,176,843 81,093,067
------------ ------------
OTHER ASSETS
Cost in excess of net assets
of business acquired, less
accumulated amortization 12,983,624 13,268,224
Deferred charges 3,299,428 3,144,581
------------ ------------
16,283,052 16,412,805
------------ ------------
TOTAL ASSETS $144,176,714 $143,251,313
============ ============
</TABLE>
3
CFW COMMUNICATIONS COMPANY
Condensed Consolidated Balance Sheets
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, 1996 December 31,
(unaudited) 1995
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 2,123,874 $ 3,674,310
Customers' deposits 480,575 477,393
Advance billings 1,550,558 1,506,777
Accrued payroll 316,094 833,232
Accrued interest 363,000 726,000
Other accrued liabilities 2,596,740 2,384,774
Deferred revenue 1,363,997 972,593
Income taxes payable 1,256,400 -
------------ ------------
10,051,238 10,575,079
------------ ------------
LONG-TERM DEBT 20,000,000 20,000,000
------------ ------------
LONG-TERM LIABILITIES
Deferred income taxes 14,155,061 13,866,047
Retirement benefits other than
pensions 7,298,224 7,149,957
Other 1,508,876 1,543,863
------------ ------------
22,962,161 22,559,867
------------ ------------
MINORITY INTERESTS 827,355 874,664
------------ ------------
SHAREHOLDERS' EQUITY
Preferred stock, no par - -
Common stock, no par 43,355,912 43,531,164
Retained earnings 36,734,757 35,700,859
Unrealized gain on securities
available for sale, net 10,245,291 10,009,680
------------ ------------
90,335,960 89,241,703
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $144,176,714 $143,251,313
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
CFW COMMUNICATIONS COMPANY
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------
March 31, March 31,
1996 1995
<S> <C> <C>
Operating revenues
Local service $ 2,177,287 $ 1,836,648
Access and toll service 3,835,321 3,321,338
Wireless communications and other 6,280,158 3,677,121
------------- ------------
12,292,766 8,835,107
------------- ------------
Operating expenses
Maintenance and support 2,347,406 1,703,777
Depreciation 1,571,659 1,358,208
Amortization 241,868 129,841
Customer operations 2,747,282 1,817,731
Corporate operations 1,208,921 1,195,645
Taxes other than income 222,250 183,170
------------- ------------
8,339,386 6,388,372
------------- ------------
Operating income 3,953,380 2,446,735
Other expenses, principally interest 336,550 290,366
Interest and dividend income 143,975 158,346
Gain on sale of investment - 915,864
------------- ------------
Income before income taxes and
minority interests 3,760,805 3,230,579
Income taxes 1,409,609 1,152,542
------------- ------------
Income before minority interests 2,351,196 2,078,037
Minority interests ( 45,077) ( 98,701)
------------- -------------
Net income $ 2,306,119 $ 1,979,336
============= ============
Net income per share:
Income before minority interests $ 0.180 $ 0.163
Minority interests ( 0.003) ( 0.008)
------------- -------------
Net income per share $ 0.177 $ 0.155
============= ============
Weighted average shares outstanding 13,037,097 12,738,267
============= ============
Cash dividends per share $ 0.098 $ 0.09475
============= ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
CFW COMMUNICATIONS COMPANY
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------
March 31, March 31,
1996 1995
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,306,119 $ 1,979,336
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,813,527 1,488,049
Deferred taxes and
tax credit amortization 171,597 ( 37,101)
Retirement benefits other than
pensions 148,267 151,232
Other 316,154 ( 231,708)
Share of equity investees income ( 209,452) -
Minority interests ( 47,309) 42,471
Gain on sale of investment - ( 915,864)
Changes in assets and liabilities
from operations:
Decrease (increase) in accounts
receivable 519,646 ( 294,842)
Decrease in materials and supplies 360,412 86,618
(Increase) decrease in other current
assets ( 32,231) 1,049,649
(Decrease) in accounts payable ( 1,550,436) ( 2,055,598)
(Decrease) in other accrued
liabilities ( 668,172) ( 167,014)
Increase in other current liabilities 1,303,363 854,383
------------- ------------
Net cash provided by operating activities 4,431,485 1,949,611
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment ( 2,726,877) ( 2,013,957)
Cash flows from securities and investments 21,220 1,696,066
------------- ------------
Net cash used in investing activities ( 2,705,657) ( 317,891)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Stock redeemed ( 175,313) ( 978,000)
Cash dividends ( 1,272,221) ( 1,208,481)
Other, net 60 216,379
------------- ------------
Net cash used in
financing activities ( 1,447,474) ( 1,970,102)
------------- -------------
Increase (decrease) in cash and
cash equivalents 278,354 ( 338,382)
Cash and cash equivalents:
Beginning 5,264,986 8,558,886
------------- ------------
Ending $ 5,543,340 $ 8,220,504
============= ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
CFW COMMUNICATIONS COMPANY
Notes To Condensed Consolidated Financial Statements
(1) In the opinion of the Company, the accompanying condensed consolidated
financial statements which are unaudited, except for the condensed
consolidated balance sheet dated December 31, 1995, contain all
adjustments (consisting of only normal recurring accruals) necessary to
present fairly the financial position as of March 31, 1996 and December
31, 1995 and the results of operations and cash flows for the three
months ended March 31, 1996 and 1995.
(2) The results of operations for the three months ended March 31, 1996 and
1995 are not necessarily indicative of the results to be expected for
the full year.
(3) The Company has currently outstanding 321,902 options to acquire shares
of common stock, of which 157,569 are currently exercisable.
The earnings per common share were computed on the weighted average
number of shares outstanding. The common stock equivalents resulting
from the options mentioned in the preceding paragraph have been included
in the computation as outstanding shares.
(4) Decrease in common shares is due to shares purchased by the Company
under a plan approved by the Board of Directors authorizing up to
230,000 shares to be purchased. The decrease is offset by issuances of
common stock pursuant to the Company's stock option plan.
(5) In April, 1996 the Company announced that the Virginia PCS Alliance, L.
C. (Alliance), a consortium of ten independent telephone companies, had
signed an agreement to acquire from PCS PrimeCo, L. P. a portion of its
30 MHz personal communication services (PCS) radio spectrum license
covering the central and western portions of Virginia. The acquisition
price for the partitioned license is approximately $16 million. In May,
1996 the FCC announced the conclusion of the Block "C" auction of the 30
MHz PCS radio spectrum licenses. The Alliance was the high bidder on the
Charlottesville and Winchester Basic Trading Areas (BTAs) for a net
purchase price of approximately $12 million. Both purchases are subject
to approval by the Federal Communications Commission.
The Company anticipates that before year end, the Company will make an
investment of approximately $5 million in the Alliance in exchange for
common and convertible preferred stock interest in the Alliance. The
Company will account for its investment in the Alliance under the equity
method of accounting. Pursuant to a service agreement with the Alliance,
the Company will build and operate the PCS system with service expected
to be provided in initial areas in the second half of 1997.
7
CFW COMMUNICATIONS COMPANY
Item 2. Management's Discussion And Analysis
Of Financial Conditions And Results Of Operations
Three Months Ended March 31, 1996 and 1995
OVERVIEW
The Company provides wireline services, such as local telephone
exchange, long distance and cable television services; wireless services, such
as cellular telephone, cable television and paging services; and directory
assistance services. The Company also provides other telecommunications related
services, such as directory advertising, security alarm monitoring and billing
and collection services.
The Company derives the majority of its revenues from charges to
customers for use of the Company's wireline and wireless network, including:
telephone revenues derived from local service and toll access charges; network
service revenues from charges to long distance and other carriers for use of the
Company's fiber optic network; cellular monthly service charges, including
roaming and long distance charges and equipment sales; cable television revenues
from installation charges and monthly subscription fees, including basic service
charges and charges for premium channels; directory assistance revenues from
providing long distance directory listings for a four state region; and various
other revenues from services such as directory advertising sales, paging and
enhanced services such as call waiting and caller identification. The Company's
expenses come primarily from the maintenance and support of its local exchange
and interexchange network and its cellular and cable television facilities, its
directory assistance support, and general and administrative expenses.
Historically, the Company has derived most of its revenues from its base
local exchange telephone business. However, as a result of the Company's
increasing focus on wireless telecommunications and other competitive
communications related businesses, a larger percentage of the Company's revenues
and operating cash flow is being generated by businesses other than local
exchange. (Operating cash flow is defined as operating income before
depreciation and amortization.) Accordingly, management believes operating cash
flow is a meaningful indicator of the Company's performance. Operating cash flow
is commonly used in the wireless telecommunications industry and by financial
analysts and others who follow the industry to measure operating performance.
Operating cash flow for first quarter 1996 was $5.8 million, a 46.6%
increase over first quarter 1995 operating cash flow of $3.9 million. These
results reflect growth in access lines and access and toll minutes coupled with
the non-recurrence of heavy start-up costs incurred in 1995 related to launching
directory assistance.
OPERATING REVENUES
Total operating revenues increased $3.5 million or 39.1% for the three
months ended March 31, 1996 compared to the three months ended March 31, 1995.
Revenues from the Company's telephone operations, which include local and access
and toll service revenues, increased $854,600 or 16.6% for the same time period.
Revenues from the Company's wireless communications and other operations, which
include cellular, directory advertising, billing and collection, wireless cable,
fiber optic leases, directory assistance, sales and lease of equipment and other
miscellaneous revenues, increased $2.6 million or 70.8% for the three months
ended March 31, 1996.
TELEPHONE REVENUES
Local service revenues increased $340,600 or 18.6% for the three months
ended March 31, 1996. The introduction of an extended area calling plan for
Waynesboro customers, which enables local calling or reduced per-call charges to
an extended area, accounted for $238,600 or 13.0% of the increase in local
service revenues in the first quarter of 1996. Revenues from toll minutes for
calling to the extended area were classified as access and toll revenues in
1995. Other factors contributing to the increase were increased access lines
($37,800), service connection charges ($25,600), and demand for custom calling
features ($33,100), such as call waiting, call forwarding and caller
identification. The Company has not had a general telephone rate increase since
November 1, 1981.
8
CFW COMMUNICATIONS COMPANY
Item 2. Management's Discussion And Analysis
Of Financial Conditions And Results Of Operations
Continued
Access and toll service revenues increased $514,000 or 15.5% for the
three months ended March 31, 1996. This revenue increase was due in part to a
12.9% increase in access minutes of use for the three month period. Additional
access revenues were also realized due to the Company's exit from the National
Exchange Carrier Associations (NECA's) average schedule interstate access
revenue pool in favor of billing its own interstate access rates to
interexchange carriers and retaining the revenues.
WIRELESS COMMUNICATIONS AND OTHER REVENUES
Directory assistance service, which became operational late in the first
quarter of 1995, generated an additional $1,534,800 in revenues for the first
three months of 1996 as compared to the same period for 1995. Cellular revenues,
including access, airtime and roaming charges, increased by $184,600 or 12.0%
for the three month period due to a 43% growth in the cellular customer base
over the same three months last year. Wireless cable customer growth of 20% is
responsible for $114,400 or 25.8% of the three month revenue increase in
wireless communications and other operations for the period ended March 31,
1996. The cable customer growth reflects continued penetration in the
Charlottesville and Shenandoah Valley markets and commencement of wireless cable
services in the Richmond market in December, 1995. Revenues from wireline cable,
which was acquired during second quarter 1995, contributed $379,300 for the
first quarter 1996. Revenues from leased fiber optic capacity increased $167,700
or 25.6% primarily due to a 17% increase in DS-3's leased.
OPERATING EXPENSES
Operating expenses increased $2.0 million or 30.5% for the three month
period ended March 31, 1996. Approximately $524,100 of this increase was due to
the operating expenses, excluding depreciation and amortization, of the
Company's directory assistance service which began operations during first
quarter 1995 and became fully operational in June, 1995. Depreciation and
amortization expense increased $325,500 as a result of capital additions.
Commissions paid to agents for the sale of cellular phones increased $109,450 or
170% due to a 176% increase in phones sold for first quarter 1996 compared to
first quarter 1995. Wireline cable operating expenses totaled $267,100 for the
three months ended March 31, 1996.
As a percentage of total operating revenues, total operating expenses
decreased from 72.3% to 67.8% for the three months ended March 31, 1996. During
the first quarter 1995, increased staffing and training expenses were incurred
in preparation for the phase-in of the directory assistance operation.
MAINTENANCE AND SUPPORT EXPENSE
Maintenance and support expense, which includes property and equipment
maintenance, general engineering and general administration of plant operations,
increased $643,600 or 37.8% for the three months ended March 31, 1996. This
increase is primarily attributable to Company growth and property and equipment
expansion.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense increased $325,500 or 21.9% for
the three month period ended March 31, 1996. This increase was due to
commencement of wireless cable services in Richmond in December, 1995 and the
June, 1995 acquisition of a wireline cable operation. Continued expansion of
property and equipment has also contributed to this increase.
CUSTOMER OPERATIONS EXPENSE
Customer operations expense, which includes marketing, product
management, product advertising, sales, publication of a regional telephone
directory, customer services, directory assistance services and local directory
services increased $929,600 or 51.1% for the three month period, reflecting an
increase in staffing and additional sales commissions, primarily related to
sales of cellular phones. In addition, the new directory assistance service,
which became fully operational in June, 1995, added $466,200 during the first
quarter 1996 as compared to 1995.
9
CFW COMMUNICATIONS COMPANY
Item 2. Management's Discussion And Analysis
Of Financial Conditions And Results Of Operations
Continued
CORPORATE OPERATIONS EXPENSE
Corporate operations expense, such as executive, planning, accounting,
external relations, legal, purchasing, information management, human resources
and other general and administrative expenses increased $13,300 or 1.1% for the
three month period.
TAXES, OTHER THAN INCOME
Taxes, other than income, which include property and special assessment
taxes, increased $39,100 or 21.3% for the three month period ended March 31,
1996, as a result of taxes on additional property and equipment.
OTHER EXPENSES, PRINCIPALLY INTEREST
Other expenses, principally interest, increased $46,200 or 15.9% for the
three month period. The three month increase is attributable to interest
capitalized during the construction of the directory assistance centers in the
first quarter of 1995.
INTEREST AND DIVIDEND INCOME
Interest and dividend income decreased $14,400 or 9.1% for the three
months ended March 31, 1996. This decrease is a result of cash expenditures for
capital expansion.
GAIN ON SALE OF INVESTMENT
In the first quarter of 1995 the Company sold its Virginia MetroTel,
Inc. investment in exchange for $65,600 and stock of the acquiring company which
is publicly traded on a national exchange. A gain of $787,600 resulted from the
sale. Stock of the acquiring company was sold for an additional gain of
$128,300.
INCOME TAXES
Income taxes increased $257,100 for the first quarter of 1996 as
compared to the same period in 1995. This increase is due to an increase in
taxable income from operations. The effective rate for 1996 is 37.9% as compared
to 36.8% for 1995. Additional non-deductible goodwill amortization related to
business acquisitions is the primary reason for the increased effective tax
rate.
MINORITY INTERESTS
Minority interests decreased $53,600 or 54.3% for the three month
period, reflecting higher commission and related expenses associated with a
greater number of phones sold for cellular operations.
NET INCOME
Net income increased $326,800 or 16.5% for the three months ended March
31, 1996. Results for 1995 included a gain of $568,300 ($915,600 pre-tax) from
the first quarter sale of an investment. Excluding this gain, net income from
operations increased $895,100 or 63.4%, reflecting strong growth in access and
toll minutes coupled with the nonrecurrence of heavy start-up costs incurred in
1995 related to launching directory assistance and expansion of wireless cable.
LIQUIDITY AND CAPITAL RESOURCES
In the three months ended March 31, 1996, net cash provided by operating
activities was $4.4 million. Principal changes in operating assets and
liabilities included a $847,800 decrease in current assets and a $915,200
decrease in current liabilities. The decrease in current assets resulted from a
decrease in accounts receivable due primarily to collections on December
billings and a decrease in material and supplies. Operating liabilities
decreased due to a decrease in accounts payable, primarily related to payments
on capital projects. The Company's investing activities included $2.7 million
for the purchase of property and equipment, including $425,000 for fiber
expansion related to competitive access services, $416,000 for improvements to
the wireline cable service,
10
CFW COMMUNICATIONS COMPANY
Item 2. Management's Discussion And Analysis
Of Financial Conditions And Results Of Operations
Continued
$390,000 for expenditures related to equipment for additional wireless cable
subscribers, and $256,000 for additional AT&T 5ESS switching capabilities. Net
cash used in financing activities aggregated $1.4 million, including $1.3
million used to pay dividends on outstanding capital stock, and $175,300 used to
retire common shares.
For the first three months of 1996, working capital decreased $68,900.
Capital expenditures for the remainder of the year are anticipated to be
approximately $15 million for market expansion of the wireless cable and fiber
optics systems and improvements to the wireline cable system. Before year end
the Company will also invest approximately $5 million in Virginia PCS Alliance,
L. C. (Alliance), a consortium of ten independent telephone companies, in
exchange for common and convertible preferred equity interests in the Alliance.
Funds required for this investment, dividends, capital expenditures, partnership
contributions and annual interest payments on long term debt are expected to be
provided from available cash, cash generated from operations and borrowings
available under the Company's lines of credit.
11
CFW COMMUNICATIONS COMPANY
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes In Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission Of Matters To A Vote Of Security Holders
At the regular Annual Meeting of the Shareholders held April 16,
1996, directors C. W. McNeely, III, J. B. Mitchell, Sr., J. N.
Neff, J. S. Quarforth and C. A. Rosberg, being the same as the
nominees in the proxy solicitation, were elected.
The following votes were cast for each of the following nominees
for Director or were withheld with respect to such nominees:
<TABLE>
<CAPTION>
===================================================================================================================================
NOMINEE FOR WITHHELD %
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
C. W. McNeely, III 9,722,076 124,267 74.9
- -----------------------------------------------------------------------------------------------------------------------------------
J. B. Mitchell, Sr. 9,720,495 125,849 74.9
- -----------------------------------------------------------------------------------------------------------------------------------
J. N. Neff 9,702,043 144,300 74.7
- -----------------------------------------------------------------------------------------------------------------------------------
J. S. Quarforth 9,717,896 128,447 74.9
- -----------------------------------------------------------------------------------------------------------------------------------
C. A. Rosberg 9,623,575 222,769 74.1
===================================================================================================================================
</TABLE>
Item 5. Other Information
Not applicable
Item 6. Exhibits And Reports On Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K - None
12
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.
CFW COMMUNICATIONS COMPANY
s/J. S. Quarforth
----------------------------------
J. S. Quarforth, President
May 10, 1996 and Chief Executive Officer
s/C. S. Smith
----------------------------------
C. S. Smith, V P - Administration,
May 10, 1996 Treasurer and Secretary
s/M. B. Moneymaker
----------------------------------
M. B. Moneymaker
May 10, 1996 Vice President - Finance
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 5543340
<SECURITIES> 0
<RECEIVABLES> 8270941
<ALLOWANCES> 0
<INVENTORY> 1620425
<CURRENT-ASSETS> 15681080
<PP&E> 114513292
<DEPRECIATION> 32336449
<TOTAL-ASSETS> 144176714
<CURRENT-LIABILITIES> 10051238
<BONDS> 20000000
0
0
<COMMON> 43355912
<OTHER-SE> 46980048
<TOTAL-LIABILITY-AND-EQUITY> 144176714
<SALES> 0
<TOTAL-REVENUES> 12292766
<CGS> 0
<TOTAL-COSTS> 8339386
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 192575
<INCOME-PRETAX> 3760805
<INCOME-TAX> 1409609
<INCOME-CONTINUING> 2306119
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2306119
<EPS-PRIMARY> 0.177
<EPS-DILUTED> 0
</TABLE>
