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, 1997 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 (IRS 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 3/31/97 12,980,212
<PAGE>
CFW COMMUNICATIONS COMPANY
I N D E X
Page
Number
------
PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets,
March 31, 1997 and December 31, 1996 3- 4
Condensed Consolidated Statements of
Income, Three Months Ended
March 31, 1997 and 1996 5
Condensed Consolidated Statements of
Cash Flows, Three Months Ended
March 31, 1997 and 1996 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 13-14
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CFW COMMUNICATIONS COMPANY
Condensed Consolidated Balance Sheets
<CAPTION>
<S> <C>
ASSETS
March 31, 1997 December 31,
(unaudited) 1996
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 2,855,719 $ 3,003,607
Accounts receivable, including
interest receivable 10,005,313 9,441,979
Note receivable 122,341 126,062
Materials and supplies 2,035,761 2,019,836
Prepaid expenses 373,997 345,277
Income taxes receivable - 617,067
------------ ------------
15,393,131 15,553,828
------------ ------------
SECURITIES AND INVESTMENTS 15,127,793 20,597,270
------------ ------------
PROPERTY AND EQUIPMENT
In service 126,082,612 124,388,071
Under construction 3,868,800 2,807,983
------------ ------------
129,951,412 127,196,054
Less: accumulated depreciation 39,185,927 37,162,040
------------ ------------
90,765,485 90,034,014
------------ ------------
OTHER ASSETS
Cost in excess of net assets
of business acquired, less
accumulated amortization 12,559,606 12,660,497
Deferred charges 2,214,422 2,198,923
Deposit for PCS licenses 360,508 1,355,347
------------ ------------
15,134,536 16,214,767
------------ ------------
TOTAL ASSETS $136,420,945 $142,399,879
============ ============
</TABLE>
3
<PAGE>
<TABLE>
CFW COMMUNICATIONS COMPANY
Condensed Consolidated Balance Sheets
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
<S> <C>
March 31, 1997 December 31,
(unaudited) 1996
------------ ------------
CURRENT LIABILITIES
Accounts payable $ 2,514,505 $ 3,346,045
Customers' deposits 492,425 469,566
Advance billings 2,086,431 1,876,808
Accrued payroll 351,567 1,007,883
Accrued interest 382,627 726,000
Other accrued liabilities 3,573,162 2,987,816
Deferred revenue 1,371,699 1,181,481
Income taxes payable 739,865 -
------------ ------------
11,512,281 11,595,599
------------ ------------
LONG-TERM DEBT 21,650,000 24,000,000
------------ ------------
LONG-TERM LIABILITIES
Deferred income taxes 9,033,409 10,702,885
Retirement benefits other than
pensions 7,887,915 7,724,107
Other 1,471,054 1,478,467
------------ ------------
18,392,378 19,905,459
------------ ------------
MINORITY INTERESTS 983,644 896,895
------------ ------------
COMMITMENTS
SHAREHOLDERS' EQUITY
Preferred stock, no par - -
Common stock, no par 43,378,440 43,378,440
Retained earnings 41,306,274 40,163,310
Unrealized gain (loss) on securities
available for sale, net (802,072) 2,460,176
------------- ------------
83,882,642 86,001,926
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $136,420,945 $142,399,879
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
<TABLE>
CFW COMMUNICATIONS COMPANY
Condensed Consolidated Statements of Income
(Unaudited)
<CAPTION>
<S> <C>
Three Months Ended
-------------------------------------------------
March 31, March 31,
1997 1996
------------- ------------
OPERATING REVENUES
Wireline communications $ 8,313,260 $ 8,039,533
Wireless communications 2,708,918 1,966,713
Directory assistance 1,915,587 1,625,208
Other communications services 528,283 429,585
------------- ------------
13,466,048 12,061,039
------------- ------------
OPERATING EXPENSES
Maintenance and support 2,064,054 2,347,406
Depreciation & amortization 2,186,362 1,813,527
Customer operations 3,045,285 2,747,282
Corporate operations 1,684,006 1,431,171
------------- ------------
8,979,707 8,339,386
------------- ------------
OPERATING INCOME 4,486,341 3,721,653
OTHER INCOME (EXPENSES)
Other expense, principally interest ( 390,234) ( 336,550)
Interest and dividend income 77,267 143,975
Equity income from wireless investees 62,530 231,727
------------- ------------
4,235,904 3,760,805
INCOME TAXES 1,611,006 1,409,609
------------- ------------
2,624,898 2,351,196
MINORITY INTERESTS ( 144,972) ( 45,077)
------------- -------------
NET INCOME $ 2,479,926 $ 2,306,119
============= ============
Net income per share:
Income before minority interests $ 0.201 $ 0.180
Minority interests ( 0.011) ( 0.003)
------------- -------------
Net income $ 0.190 $ 0.177
============= ============
Average shares outstanding 13,061,732 13,037,097
============= ============
Cash dividends per share $ 0.103 $ 0.098
============= ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
<TABLE>
CFW COMMUNICATIONS COMPANY
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
<S> <C>
Three Months Ended
-------------------------------------------------
March 31, March 31,
1997 1996
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,479,926 $ 2,306,119
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 2,062,418 1,690,149
Amortization 123,944 123,378
Deferred taxes 407,471 171,597
Retirement benefits other than
pensions, net 163,808 148,267
Other 153,883 316,154
Distributions received from investments 70,239 -
Equity income from wireless investees (62,530) (209,452)
Minority interests, net of distributions 86,749 (47,309)
Changes in assets and liabilities
from operations:
(Increase) decrease in accounts
receivable (563,334) 519,646
(Increase) decrease in materials and (15,925) 360,412
supplies
Decrease (increase) in other current
assets 592,068 (32,231)
Decrease in accounts payable (831,540) (1,550,436)
Decrease in other accrued
liabilities (763,881) (668,172)
Increase in other current liabilities 972,347 1,303,363
------------- ------------
Net cash provided by operating activities 4,875,643 4,431,485
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (2,793,889) (2,726,877)
Deposit refund for PCS licenses 1,344,377 -
Cash flows from securities and investments 112,943 21,220
------------- ------------
Net cash used in investing activities (1,336,569) (2,705,657)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Stock redeemed - (175,313)
Cash dividends (1,336,962) (1,272,221)
Principal payments on borrowings (2,350,000) -
Other, net - 60
------------ ------------
Net cash used in
financing activities (3,686,962) (1,447,474)
------------- -------------
(Decrease) increase in cash and
cash equivalents (147,888) 278,354
Cash and cash equivalents:
Beginning 3,003,607 5,264,986
------------- ------------
Ending $ 2,855,719 $ 5,543,340
============= ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
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, 1996, contain all adjustments
(consisting of only normal recurring accruals) necessary to present fairly
the financial position as of March 31, 1997 and December 31, 1996 and the
results of operations and cash flows for the three months ended March 31,
1997 and 1996.
Certain amounts on the 1996 financial statements have been reclassified,
with no effect on net income, to conform with classifications adopted in
1997.
(2) The results of operations for the three months ended March 31, 1997 and
1996 are not necessarily indicative of the results to be expected for the
full year.
(3) The Company has currently outstanding 418,422 options to acquire shares of
common stock, of which 196,008 are currently exercisable. In April 1997 the
shareholders approved the CFW Communications Company 1997 Stock
Compensation Plan (1997 Plan), which authorizes issuance of 950,000 shares
of Common Stock, under the guidelines of the 1997 Plan. The shareholders
also approved the CFW Communications Company Non-Employee Directors' Stock
Option Plan (Director's Plan), which authorizes 25,000 shares of Common
Stock to be issued upon the exercise of options granted under the
Directors' Plan.
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.
The Company will adopt FAS 128, Earnings Per Share (EPS), for periods
ending after December 15, 1997. This standard replaces the presentation of
primary EPS with a presentation of basic EPS. The required change in the
computation of EPS is not expected to have a significant impact on the
Company's EPS.
7
<PAGE>
CFW COMMUNICATIONS COMPANY
Item 2. Management's Discussion And Analysis
Of Financial Conditions And Results Of Operations
Three Months Ended March 31, 1997 and 1996
OVERVIEW
CFW Communications Company ("CFW" or the "Company") is a diversified
communications company providing a broad range of products and services to
business and residential customers in Virginia. These communications products
and services include local telephone, cellular and paging, wireless and wireline
cable television, directory assistance, competitive access, local Internet
access, and alarm monitoring and installation.
The Company's strategy is to be a regional full-service provider of
communications products and services to customers within an expanding service
area. The Company has implemented this strategy through acquisitions,
investments in spectrum licenses and internal growth through capital investment.
In addition, the Company has leveraged its existing switching platform and fiber
optic network by introducing new services such as long distance directory
assistance, cable television, local Internet access, and various enhanced
services such as Call Waiting and Caller Identification. These activities have
contributed to considerable growth in the Company's operating revenues.
As a result of the Company's increasing focus on and growth in wireless
communications and other competitive communications related businesses, a larger
percentage of the Company's operating revenues and operating cash flows
(operating cash flow is defined as operating income before depreciation and
amortization) are being generated by businesses other than the mature telephone
operations. Accordingly, management believes operating cash flow is a meaningful
indicator of the Company's performance. Operating cash flow is commonly used in
the wireless communications industry and by financial analysts and others who
follow the industry to measure operating performance.
Management expects continued proportionate growth in revenue, operating cash
flows and operating income from its current consolidated operations. However,
lower operating margins due to start-up costs of newer businesses are expected.
The Company's recognition of its proportionate share of losses associated with
the start-up of Virginia PCS Alliance, L.C. (Alliance) and other PCS joint
ventures is expected to offset net income growth from consolidated operations
and reduce net income as a percent of revenue. These losses are expected to
continue to grow until build-out is completed and a sufficient customer base is
established.
The Company wishes to caution readers that these forward-looking statements and
any other forward-looking statements made by the Company are based on a number
of assumptions including, but not limited to, continuation of economic growth
and demand for wireless and wireline communications services; continuation of
current level of services for certain material customers; reform initiatives
being considered by the FCC being relatively revenue neutral; significant
competition in the Company's telephone service area not emerging in 1997; and
achievement of build-out, operational, and marketing plans relating to
deployment of PCS services. Any significant deviations from these assumptions
could cause actual results to differ materially from those in the above and
other forward-looking statements.
8
<PAGE>
CFW COMMUNICATIONS COMPANY
Item 2. Management's Discussion And Analysis
Of Financial Conditions And Results Of Operations
Continued
RESULTS OF OPERATIONS
The Company had net income of $2.5 million, or $0.19 per share, for the first
quarter 1997, an increase of 8% over the net income of $2.3 million, or $0.18
per share, for the comparable 1996 period. Operating revenues were $13.5 million
for the first quarter 1997, a 12% increase over first quarter 1996 revenues of
$12.1 million. Operating income for the first quarter 1997 was $4.5 million, a
21% increase over first quarter 1996 operating income of $3.7 million. Operating
cash flows for the first quarter 1997 were $6.7 million, a 21% increase over
first quarter 1996 operating cash flows of $5.5 million.
These results reflect strong contributions from CFW's managed cellular
operations, positive cash flow contributions from wireless cable and growth in
telephone access lines, minutes of use and calling features.
OPERATING REVENUES
Total operating revenues increased $1.4 million or 12% for the three months
ended March 31, 1997 compared to the three months ended March 31, 1996. The
increase is primarily attributable to cellular and wireless cable customer
growth of 46% and 36% respectively, coupled with 4% growth in access and toll
minutes.
WIRELINE COMMUNICATIONS
Revenues from the Company's wireline operations, which include telephone
revenues, fiber optic network usage and wireline cable revenues increased
$273,700 or 3% for the three months ended March 31, 1997. Telephone revenues,
which include local service, access and toll services, directory advertising and
called feature revenues were $7.0 million , an increase of $180,100 or 3%. This
revenue increase was due in part to a 5% increase in access minutes of use for
the three month period. Revenues from leased fiber optic capacity increased
$71,300 or 9% due to a 43% increase in DS-3's leased. This increase was offset
by a reduction in lease rates.
WIRELESS COMMUNICATIONS
Revenues from the Company's wireless communications, which include cellular,
paging, wireless cable, and other miscellaneous revenues, increased $742,200 or
38% for the three months ended March 31, 1997. Cellular revenues, including
access, airtime and roaming charges, increased by $572,500 or 41% for the three
month period due to a 46% growth in the cellular customer base over the same
three months last year. Wireless cable revenue increased $169,700 or 30% due to
customer growth of 36%. The cable customer growth reflects continued penetration
in the Charlottesville, Shenandoah Valley and Richmond markets.
9
<PAGE>
CFW COMMUNICATIONS COMPANY
Item 2. Management's Discussion And Analysis
Of Financial Conditions And Results Of Operations
Continued
DIRECTORY ASSISTANCE
The commencement of directory assistance services to customers seeking telephone
numbers in New Jersey during the first quarter generated an additional $290,400
or an increase of 18% in directory assistance revenues for the first three
months of 1997 as compared to the same period for 1996. The addition of New
Jersey is expected to generate, on an annualized basis, over 60% growth in
calling volume.
OPERATING EXPENSES
Operating expenses increased $640,300 or 8% for the three month period ended
March 31, 1997. Approximately $300,000 of this increase was due to the operating
expenses, excluding depreciation and amortization, of the Company's directory
assistance service, which expanded to include New Jersey during the first
quarter 1997. Depreciation and amortization expense increased $372,800 or 21% as
a result of capital additions. As a percentage of total operating revenues,
total operating expenses decreased from 69.1% to 66.7% for the three months
ended March 31, 1997. Expansion of directory assistance operations, and strong
wireless cable and cellular customer growth have contributed to improved
operating margins for the first three months of 1997.
MAINTENANCE AND SUPPORT EXPENSE
Maintenance and support expense, which includes property and equipment
maintenance, general engineering and general administration of plant operations,
decreased $283,400 or 12% for the three months ended March 31, 1997. This
decrease is primarily attributable to a decrease in pricing for network
facilities for the directory assistance service.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense increased $372,800 or 21% for the three
month period ended March 31, 1997. Capital expenditures related to wireless
cable customer growth increased depreciation by approximately $200,000.
Expansion of the fiber optic network for competitive access was also a
contributing factor to the increase in depreciation and amortization expense.
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 $298,000 or 11% for the three month period, reflecting training and
additional staff related to the expansion of area codes handled for directory
assistance in the New Jersey area.
CORPORATE OPERATIONS EXPENSE
Corporate operations expense, which includes taxes other than income, executive,
planning, accounting, external relations, legal, purchasing, information
management, human resources and other general and administrative expenses
increased $252,800 or 18% for the three month period.
10
<PAGE>
CFW COMMUNICATIONS COMPANY
Item 2. Management's Discussion And Analysis
Of Financial Conditions And Results Of Operations
Continued
EQUITY INCOME FROM WIRELESS INVESTEES
Equity income from wireless investees, which includes equity earnings from the
Company's interest in the Roanoke and RSA5 cellular partnerships decreased
$169,200 or 73% for the first three months in 1997 as compared to 1996. This
decrease is a result of higher operating costs. In April 1997, the Company sold
its 30% limited interest in the Roanoke MSA cellular partnership to GTE and will
recognize a $5.0 million gain in the second quarter.
INCOME TAXES
Income taxes increased $201,400 for the first quarter of 1997 as compared to the
same period in 1996. This increase is due to an increase in taxable income from
operations. The effective rate for 1997 is 39% as compared to 38% for 1996. A
reduction in the gross receipts tax credit allowed is the primary reason for the
increased effective tax rate.
MINORITY INTERESTS
Minority interests increased $99,900 or 222% for the three month period,
reflecting customer growth and improved profitability from Company managed
cellular operations.
LIQUIDITY AND CAPITAL RESOURCES
In the three months ended March 31, 1997, net cash provided by operating
activities was $4.9 million. Principal changes in operating assets and
liabilities included a $12,800 decrease in current assets excluding cash and a
$83,300 decrease in current liabilities. Operating liabilities decreased due to
a decrease in accounts payable, primarily related to payments on capital
projects. The Company's investing activities included $2.8 million for the
purchase of property and equipment, including $700,000 for accounting and human
resources software, and additions attributable to customer expansion throughout
all operating divisions. Other investing activities include a $1.3 million
refund for deposit with FCC for auction of PCS radio spectrum licenses. Net cash
used in financing activities aggregated $3.7 million, including $2.4 million to
repay funds borrowed on an available line of credit and $1.3 million used to pay
dividends on outstanding capital stock.
Capital expenditures for 1997 are expected to approximate 1996 levels in order
for the Company to continue its growth trend in wireless communications and
other services.
The Company has entered into guaranty agreements whereby the Company is
committed to provide guarantees of up to $36.2 million of the Alliance's debt
and redeemable preferred obligations, with such guarantee becoming effective as
obligations are incurred by the Alliance. At March 31, 1997, the Company has
guaranteed $11.4 million of the Alliance's obligations.
11
<PAGE>
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 22,
1997, directors W.W. Gibbs, V, R.S. Yeago, Jr., and J.N. Neff,
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>
<S> <C>
NOMINEE FOR WITHHELD %
------- --- -------- -
W. W. Gibbs, V 9,345,553 99,901 72.0
J. N. Neff 9,310,062 135,392 71.7
R. S. Yeago 9,353,502 91,952 72.6
- --------------------------------- ----------------------------- ------------------------------ ----------------------
</TABLE>
The shareholders approved the CFW Communications Company 1997 Stock
Compensation Plan. The votes were as follows:
FOR AGAINST ABSTAIN
--- ------- -------
8,091,912 509,785 164,945
The shareholders approved the CFW Communications Company
Non-Employee Directors' Stock Option Plan. The votes were as
follows:
FOR AGAINST ABSTAIN
--- ------- -------
7,987,636 556,247 164,945
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
<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.
CFW COMMUNICATIONS COMPANY
s/J. S. Quarforth
J. S. Quarforth, President
------------------------------------
May 12, 1997 and Chief Executive Officer
s/C. S. Smith
------------------------------------
C. S. Smith, VP - Administration,
May 12, 1997 Treasurer and Secretary
S/M. B. Moneymaker
------------------------------------
M. B. Moneymaker
May 12, 1997 Vice President - Finance
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Mar-31-1997
<CASH> 2885719
<SECURITIES> 0
<RECEIVABLES> 10127654
<ALLOWANCES> 0
<INVENTORY> 2035761
<CURRENT-ASSETS> 15393131
<PP&E> 126082612
<DEPRECIATION> 39185927
<TOTAL-ASSETS> 136420945
<CURRENT-LIABILITIES> 11512281
<BONDS> 2165000
0
0
<COMMON> 43378440
<OTHER-SE> 40504202
<TOTAL-LIABILITY-AND-EQUITY> 136420945
<SALES> 0
<TOTAL-REVENUES> 13466048
<CGS> 0
<TOTAL-COSTS> 8979707
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 299163
<INCOME-PRETAX> 4235904
<INCOME-TAX> 1611006
<INCOME-CONTINUING> 2479926
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2479926
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0
</TABLE>
