SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY RULE
14A-6(E)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to <section>240.14a-11(c) or
<section>240.14a-12
THE WOODBURY TELEPHONE COMPANY
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-
11.
1) Title to each class of securities to which transaction applies:
______________________________________________________________
2) Aggregate number of securities to which transaction applies:
______________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
_______________________________________________________________
4) Proposed maximum aggregate value of transaction:
_______________________________________________________________
5) Total fee paid:
_______________________________________________________________
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
______________________________________________________________
2) Form, Schedule or Registration Statement No.:
______________________________________________________________
3) Filing Party:
______________________________________________________________
4) Date Filed:
______________________________________________________________
THE
WOODBURY TELEPHONE
COMPANY
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE
HELD ON APRIL 3, 1996
TO THE SHAREHOLDERS:
The Annual Meeting of Shareholders of The Woodbury Telephone Company
will be held at the Curtis House, Main Street, Woodbury, Connecticut on
Wednesday, April 3, 1996 at 10:30 A.M., local time, to consider and take
action upon the following matters:
1. Election of three Class I directors who will hold office until
1999 and until their successors are elected and qualified. The current
three Class II directors and three Class III directors will continue to
serve in office until 1997 and 1998, respectively, and until their
successors are elected and qualified;
2. Ratification of the selection of Ernst & Young LLP as independent
auditors for calendar year 1996;
3. Action on two (2) shareholder proposals as set forth in the
accompanying Proxy Statement, if such proposals are properly presented at
the meeting; and
4. The transaction of such other business as may properly come before
the meeting or any adjournment thereof.
Only shareholders of record at the close of business on February 9,
1996 are entitled to notice of and to vote at said meeting or any
adjournment thereof. PLEASE NOTE THAT THE ANNUAL MEETING WILL CONVENE
PROMPTLY AT 10:30 A.M.
You are cordially invited to be present at the meeting and vote. If
you are unable to attend the meeting, you are urged to mark, sign and date
the enclosed proxy and return it in the self-addressed envelope enclosed
for that purpose.
By Order of the Board of Directors
HARMON L. ANDREWS
Secretary
Woodbury, Connecticut
March 4, 1996
THE
WOODBURY TELEPHONE
COMPANY
PROXY STATEMENT
The accompanying proxy is being solicited by the Board of Directors of
The Woodbury Telephone Company ("Company"), 299 Main Street South,
Woodbury, Connecticut 06798, for use at the annual meeting of shareholders
to be held on April 3, 1996, and at any and all adjournments thereof
("Annual Meeting"). Any proxy given by a shareholder may be revoked at any
time before it is exercised by the shareholder attending the Annual Meeting
and electing to vote in person or at any time before it is exercised by the
shareholder delivering to the Company either a duly executed instrument
revoking it or a duly executed proxy bearing a later date or, in the case
of the death or incapacity of the person executing the same, written notice
thereof.
The approximate date on which this Proxy Statement and the
accompanying proxy are first being mailed to shareholders is March 4, 1996.
A copy of the Annual Report for the fiscal year ended December 31, 1995,
which includes financial statements, accompanies this Proxy Statement.
The cost of soliciting proxies will be borne by the Company. In
addition to use of the mails, proxies may be solicited by personal
interview, telephone, facsimile transmission, telegram or cable by officers
or employees of the Company who will receive no additional compensation for
such solicitation other than reimbursement for out-of-pocket expenses, if
any. Arrangements will be made with banks, brokerage houses and others to
reimburse them for expenses, if any, incurred in connection with forwarding
copies of the proxy materials to their principals or requesting authority
for the execution of proxies.
Only holders of Common Stock of record at the close of business on
February 9, 1996, are entitled to notice of and to vote at the Annual
Meeting. On February 9, 1996 there were issued and outstanding 769,107
shares of Common Stock, $2.50 par value, the only class of stock issued by
the Company, each share of which is entitled to one vote. The holders of a
majority of the shares entitled to vote, present in person or by proxy,
shall, except as otherwise provided by law, constitute a quorum. An
affirmative vote of a majority of the shares represented at the Annual
Meeting shall be the act of the shareholders. Abstentions and broker non-
votes are not considered to be an affirmative vote.
DIRECTORS
Pursuant to the Certificate of Incorporation and the Bylaws, the Board
of Directors consists of three classes of directors (i.e., Class I, Class
II and Class III), with each class consisting of up to three directors and
being elected for staggered three year terms. At its meeting on December
20, 1995, the Board of Directors, acting in accordance with the Certificate
of Incorporation and the Bylaws, fixed the number of directorships at nine,
with each Class containing three directors.
Shares represented by executed proxies in the form enclosed will be
voted for the election of the nominees listed below as Class I directors,
unless otherwise specified in the proxy. The nominees for Class I
directors, Harmon L. Andrews, John A. Michaels and Walter F. Torrance, Jr.,
are presently directors of the Company. For information purposes, current
Class II and Class III directors also are identified below even though
their terms of office have not expired and they will continue in office
subject to the provisions of the law and the Bylaws. The information set
forth below regarding the nominees and the directors is as of January 31,
1996 (other than ages which are determined as of the date of the Annual
Meeting).
Although management has no reason to believe that any of the nominees
named below will be unable to serve as a director, if at the time of the
Annual Meeting, any nominee should be unavailable for election, it is the
intention of the persons designated as proxies to vote in their discretion
for such person, if any, as may be designated as a nominee by the
management of the Company.
________________________________________________________________
CLASS I NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
FOR A THREE-YEAR TERM EXPIRING APRIL, 1999
BUSINESS EXPERIENCE,
PRINCIPAL OCCUPATION
AND EMPLOYMENT DURING
NAME OF NOMINEE PAST FIVE YEARS AND DIRECTOR
FOR DIRECTOR OTHER DIRECTORSHIPS SINCE
Harmon L. Andrews Mr. Andrews is the Business 1973
Age 65 Administrator for the Board
of Education of Orange, CT,
a position he has held since
1986. Before that time,
he worked in various business
enterprises, including 25
years at UNIROYAL in manage-
ment positions. Mr. Andrews
served as the Company's Chairman
of the Board of Directors from
1981 to 1992. Mr. Andrews
currently serves as the Secretary
of the Company.
John A. Michaels Mr. Michaels is the Chief 1977
Age 53 Executive Officer of Michaels,
Inc. (a holding company for
retail jewelry stores) and
Irving Michaels & Co., Inc.
(distributor, importer and
consultant to retail jewelry
stores).
Walter F. Torrance, Jr. Mr. Torrance currently holds an 1969
Age 68 "of counsel" position with
the law firm of Carmody &
Torrance, after being a partner
with that firm from 1992 through
1995. He retired in July,
1992 from Northeast Utilities
after serving as its Senior
Vice President, Secretary and
General Counsel.
_________________________________________________________________
CLASS II DIRECTORS
WHOSE TERM WILL EXPIRE APRIL, 1997
BUSINESS EXPERIENCE,
PRINCIPAL OCCUPATION
AND EMPLOYMENT DURING
PAST FIVE YEARS AND DIRECTOR
NAME OF DIRECTOR OTHER DIRECTORSHIPS SINCE
William C. Bassett Mr. Bassett is the President 1978
Age 51 of W. E. Bassett Co., a
manufacturer of Trim manicure
implements located in Derby,
Connecticut.
William T. Drakeley Mr. Drakeley worked for the 1991
Age 56 State of Connecticut in various
capacities beginning in 1963,
and held the position of Deputy
Executive Director of the
Division of Special Revenue of
the State of Connecticut from
1983 to 1991. He is currently
self-employed as an antiques
dealer.
Michael Phelan* Mr. Phelan is currently Vice 1996
Age 49 President - Network Marketing
and Sales of The Southern New
England Telephone Company ("SNET"),
a position he has held since 1994.
Prior to that time and since 1977,
he has worked in various capacities
for SNET and its affiliates,
including holding the positions of
Assistant Vice President -
Regulatory Planning and Vice
President - Network Finance,
respectively, prior to his current
position and acting as President
and Chief Executive Officer of SNET
Credit, Inc. from 1991 to 1993.
*Mr. Phelan was elected as a director by the Board of Directors effective
January 31, 1996, to fill the vacancy created by the resignation of John
Sadek on November 26, 1995.
________________________________________________________________
CLASS III DIRECTORS
WHOSE TERM WILL EXPIRE APRIL, 1998
BUSINESS EXPERIENCE,
PRINCIPAL OCCUPATION
AND EMPLOYMENT DURING
PAST FIVE YEARS AND DIRECTOR
NAME OF DIRECTOR OTHER DIRECTORSHIPS SINCE
Joyce M. Davis Ms. Davis is an Executive 1978
Age 57 Assistant for the Goelet
Corp., a real estate company
located in New York, New York.
J. Garry Mitchell Mr. Mitchell retired from 1969
Age 67 the Company in 1993 after having
been principally employed by it
since 1948. He acted as its
general manager from 1961 to
1976, its President from 1976
to 1993, and its Chief Executive
Officer from 1992 to 1993.
In 1992, he also became the
Company's Chairman of the Board
of Directors, a position that he
still holds. Mr. Mitchell is
a director of Centerbank.
Donald E. Porter Mr. Porter is the Chief 1993
Age 46 Executive Officer, President
and Treasurer of the Company.
He has been principally
employed by the Company
since 1972, acting as its
Treasurer since 1976 and as its
Chief Executive Officer and
President since 1993.
Mr. Porter also served as a
Vice President of the Company
from 1991 to 1993, and as its
Chief Operating Officer from
1992 to 1993.
_________________________________________________________________
The Board of Directors of the Company held 13 meetings during its last
fiscal year. No director attended fewer than 75% of the meetings of the
Board of Directors. The Board of Directors has an Audit Committee and a
Salary and Nominating Committee, each of which met four times during 1995.
The members of the Audit Committee are Joyce M. Davis and John A.
Michaels. The function of the Audit Committee is to meet with the
Company's independent auditors to discuss the scope of the audit, the audit
fee and audit results and to recommend to the Board of Directors the audit
firm to be engaged for the next calendar year.
The members of the Salary and Nominating Committee are Harmon L.
Andrews and William T. Drakeley. The function of the Salary and Nominating
Committee is to establish salaries for specific job descriptions and
positions, to nominate persons to be Company officers and members of
various committees of the Board of Directors, and to recommend officers'
salaries and directors' fees. The Board of Directors nominates
directors of the Company. Shareholders may make nominations to the Board
of Directors at the Annual Meeting.
A MAJORITY OF THE VOTES CAST BY SHAREHOLDERS OF THE COMPANY AT THE
ANNUAL MEETING IS REQUIRED TO ELECT EACH NOMINEE FOR DIRECTOR. THE BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
ELECTION OF ALL NOMINEES.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of February 9, 1996, the
only beneficial owner known to the Company of more than 5% of the Common
Stock of the Company.
(1) (2) (3) (4)
Title Name & Address Amount & Nature Percent
of of Beneficial of Beneficial of
Class Owner Ownership (Shares) Class
Common Stock, The Southern New England 280,645 36.5%
$2.50 par value Telecommuni- (sole voting and
cations Corporation, investment power)
227 Church Street, New
Haven, Connecticut
The following table sets forth the beneficial ownership as of February
9, 1996 of all directors, nominees and executive officers of the Company.
(1) (3) (4)
Title (2) Amount & Nature Percent
of Name of of Beneficial of
Class Beneficial Owner Ownership (Shares)* Class
Common Stock, Harmon L. Andrews 973 0.13%
$2.50 par William C. Bassett 350 0.04%
value Joyce M. Davis 200 0.03%
William T. Drakeley 1820 0.24%
John A. Michaels 500 0.06%
J. Garry Mitchell 5909 0.77%
Michael Phelan 100 0.01%
Donald E. Porter 231 0.03%
Walter F. Torrance, Jr. 500 0.06%
All Directors and executive 10,583 ** 1.38%
officers as a group (9 persons)
{*}Pursuant to the Certificate of Incorporation, all directors of the
Company must be shareholders of the Company.
{**}The individual directors have sole investment and voting power
with respect to the shares owned by them except for 5709, 450 and 300
shares owned by Messrs. Mitchell, Andrews and Michaels, respectively, and
all of the shares owned by Mr. Drakeley, as to which each of them share
voting and investment power with their respective wives.
REMUNERATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth all remuneration during the fiscal year
ending December 31, 1995, for the Company's chief executive officer (there
being no other executive officers or any employees receiving remuneration
in excess of $100,000):
SUMMARY COMPENSATION TABLE*
Annual Compensation
(a) (b) (c) (d) (e)
Other
Name and Annual All Other
Principal Compensation** Comensation***
Position Year Salary($) ($) ($)
Donald E. Porter, 1995 92,923.16 2,500.00 10,496.47
Chief Executive 1994 90,300.12 0 9,903.25
Officer 1993 82,840.37 0 8,692.00
NOTES TO SUMMARY COMPENSATION TABLE
{*}The Company did not award or pay to, nor did any executive officer
whose compensation is subject to disclosure earn any bonus or long-term
compensation, including restricted stock awards, stock options, stock
appreciation rights or long-term incentive plan.
{**}Other annual compensation consists of a cash bonus paid to Mr.
Porter in 1995.
{***}Other compensation consists of contributions by the Company on
behalf of the named executive under the WTC Management 401(k) Plan
maintained by the Company ("WTC Management 401(k) Plan"), which includes a
salary reduction plan under the provisions of Section 401(k) of the Internal
Revenue Code. The WTC Management 401(k) Plan covers eligible employees
except those covered by collective bargaining agreements. Under the salary
reduction plan, income tax is deferred on amounts which employees elect to have
contributed to the WTC Management 401(k) Plan from their salaries. The WTC
Management 401(k) Plan permits an eligible employee to reduce up to 15% of
his compensation for contribution to the plan and the Company contributes,
on a matching basis, an amount determined according to the following formula:
the Company contributes an amount equal to each percent contributed by each
employee for salary reductions up to 3% and, thereafter, one-half (1/2) of
each percent contributed by each employee for salary reductions up to 7%,
with no matching occurring for salary reductions in excess of 7%. Also, under
the terms of the WTC Management 401(k) Plan, the Company must contribute to the
plan 6% of the compensation for each eligible employee without reference to
contributions made by such employees. In addition, the Board of Directors may
elect to contribute amounts to the WTC Management 401(k) Plan which all eligible
employees would share in proportion to their annual compensation (exclusive
of bonuses and overtime) without reference to salary reduction contributions.
No such elective contribution was made in 1995.
As a group (consisting of nine persons), executive officers and
directors earned $220,284.75 during the fiscal year ending December 31, 1995.
Directors of the Company who are not salaried officers receive an annual
retainer of $4,500. Directors also are compensated at the rate of $300 for
attendance at each meeting of the Board of Directors and each committee meeting
of the Board of Directors. The chairman of the Audit Committee is paid $500
annually in addition to all other fees. In lieu of the annual retainer and
meeting fees for standing committees, Messrs. Mitchell and Andrews received
a salary for serving as Chairman of the Board and Secretary, respectively,
and each was paid $300 for each committee meeting attended. During 1995, Mr.
Mitchell was paid a salary (including standing committee attendance fees) of
$25,200 and received $13,500 pursuant to an employment agreement with the
Company entered into in 1991. Mr. Mitchell also received a $180 payment for
telephone allowance provided to all retired employees of the Company. During
1995, Mr. Andrews was paid a salary of $14,526 and received $2,400 for
attending committee meetings.
CERTAIN TRANSACTIONS
Mr. Phelan, a director of the Company since January 31, 1996, is
employed by The Southern New England Telephone Company ("SNET"), as its Vice
President - Network Marketing and Sales. The Southern New England
Telecommunications Corporation ("Telecommunications"), the parent company of
SNET, owns 36.5% of the Common Stock of the Company. In the normal course
of business the Company has several operating agreements with SNET. These
agreements, which are common to small independent telephone companies,
relate to operator services, directories, directory advertising, record
maintenance and consulting services, and are necessary to provide adequate
and complete service to the Company's customers. They are reviewed
periodically as to fairness and cost to the Company and are negotiated
without regard by the Company or SNET to the ownership by Telecommunications
of stock of the Company. The Company believes that the cost of purchasing
these services is less than the cost of providing them directly, to the
extent it is able to do so. The aggregate amount billed by SNET to the
Company during 1995 in connection with these arrangements was $141,175.22.
The Company carries accounts receivable and accounts payable with respect to
the relationships described above.
In addition, the Company, SNET Springwich, Inc., a subsidiary of
Telecommunications, and Granby Telephone & Telegraph Co. (a Massachusetts
local exchange carrier) are parties to an agreement pursuant to which the
Company holds a 1% investment interest in Springwich Cellular Limited
Partnership ("Springwich"), a limited partnership providing cellular
telephone service. The Company's profits and losses regarding its
investment in Springwich are determined without regard to any other
agreements between the Company and SNET or the ownership by
Telecommunications of the stock of the Company.
Mr. Torrance, a director of the Company since 1969, became a partner in
the law firm of Carmody & Torrance in 1992 and currently holds an "of
counsel" position with that firm. The Company has retained Carmody &
Torrance as its legal counsel since 1971, and members of such firm generally
advise the Company in all legal matters. The fees paid by the Company to
Carmody & Torrance in 1995 did not exceed 5% of such firm's gross revenues
during that year.
INDEPENDENT AUDITORS
Independent auditors for the Company for calendar year 1995 were Ernst &
Young LLP. This firm has been selected by the Board of Directors as the
Company's independent auditors for the calendar year 1996. This selection is
being presented to shareholders of the Company for ratification.
Representatives of Ernst & Young LLP will be present at the Annual Meeting
and will be available to respond to appropriate questions.
A MAJORITY OF THE VOTES CAST BY SHAREHOLDERS OF THE COMPANY AT THE
ANNUAL MEETING IS REQUIRED TO RATIFY THE APPOINTMENT OF THE INDEPENDENT
AUDITORS. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT
AUDITORS.
SHAREHOLDER PROPOSALS
SHAREHOLDER PROPOSAL #1
A shareholder has notified the Company of the intent to present the
following proposal at the Annual Meeting. The name and address of, and the
number of shares held by, the shareholder will be furnished to any person by
the Company upon written or oral request to the Company. The text of
the proposal and a supporting statement are provided as follows:
The shareholders request that the board retain the
services of an independent consultant who can
suggest a plan so as to increase the amount of
shares held by the directors and officers of the
Woodbury Telephone Company.
SUPPORTING STATEMENT: While the Woodbury Telephone Company and the
shareholders would benefit from the support of the directors and senior
officers of the company through their purchase of shares, it would seem that
only one director has purchased a total of 100 shares for the four year period
that began in 1992 and ended in early 1995. In total, the directors and
executive officers of the company hold only 1.4% of the total shares
outstanding.
Since there is an obvious lack of support and interest in the shares by
the directors and senior officers, a plan should be devised to make the
shares more attractive to them in the form of the issuance of warrants,
performance incentives and other such means used by the bulk of American
publicly traded corporations. Investor interest in the company would
obviously be highlighted if there was a show of support by the senior
executives and directors through their purchase of additional shares.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST SHAREHOLDER PROPOSAL #1
FOR THE FOLLOWING REASONS:
Proposal #1, in the opinion of the Board of Directors, is not in the
best interests of the Company. The Board of Directors recognizes the value
of stock purchase plans, not only to promote an identity of interest between
senior management and the shareholders, but also as a means of non-cash
compensation. However, the Board of Directors believes that it is not the
appropriate time to implement such a plan, nor is it necessary to retain a
consultant for that purpose.
In 1990, the Board of Directors proposed a stock plan (the "1990 Plan")
to replace the expiring stock plan that was adopted in 1982 (the "1982
Plan"). The ability of directors to participate in the 1990 Plan was one of
the distinguishing features when compared to the 1982 Plan which was
restricted to employees (including the Company's officers). The shareholders
approved the 1990 Plan, but the Connecticut Department of Public Utility
Control ("DPUC") refused to grant its approval. As a result, the Company
could not implement the 1990 Plan.
Proposal #1, based on the supporting statement of the proponent,
recommends that the Board of Directors revisit the issue of a director and
senior officer stock plan. After the DPUC refused to approve the 1990 Plan,
the Board of Directors considered the available options and decided not to
pursue another alternative at that time. In connection with Proposal #1, the
Board of Directors reconsidered the matter and declined to act.
The Board of Directors believes that the current compensation package
has allowed the Company to attract and retain experienced and qualified
individuals. While the Board of Directors appreciates that the share
ownership of the directors and executive officers has not changed
significantly during recent history, the trading practices of directors and
officers are not unlike many of the Company's shareholders who have held over
the long-term. Moreover, several factors, including prohibitions on insider
trading, constrain purchase (and sale) opportunities of directors and officers.
The Board of Directors believes that the Company's efforts should be
focused on the challenges of the competitive environment. The
telecommunications industry, especially in Connecticut, is being reshaped.
The Board of Directors has focused its energies on positioning the Company
as the provider of choice in its present market. At this time, the Board of
Directors feels that it would be unproductive to distract from that mission
by allocating the Company's resources to a stock plan.
The past demonstrates the Board of Directors' willingness to consider
and implement stock plans, when appropriate. The Board of Directors
anticipates that stock plans may be appropriate in the future. Nonetheless,
the Board of Directors opposes Proposal #1 because it implies the need for
immediate action, thereby possibly restricting the Company's flexibility.
Also, the Board of Directors feels that while an independent consultant may
add value to the process, the Company's advisors at the time of consideration
of a stock plan may be qualified to provide comparable services in a more
economic manner.
For all of the foregoing reasons, the Board of Directors urges
shareholders to vote against Proposal #1.
A MAJORITY OF THE VOTES CAST BY SHAREHOLDERS OF THE COMPANY AT THE ANNUAL
MEETING IS REQUIRED TO ADOPT SHAREHOLDER PROPOSAL #1. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "AGAINST" THE ADOPTION OF
SHAREHOLDER PROPOSAL #1.
SHAREHOLDER PROPOSAL #2
A shareholder has notified the Company of the intent to present the
following proposal at the Annual Meeting. The name and address of, and the
number of shares held by, the shareholder will be furnished to any person by
the Company upon written or oral request to the Company. The text of the
proposal and a supporting statement are provided as follows:
To heighten interest in the shares of the Woodbury
Telephone Company, the shareholders request that the company
retain the services of an independent financial communications
consultant so as to bring the company to the attention of a wider
audience of analysts, institutions and individual investors.
SUPPORTING STATEMENT: During the year 1995, shares of telephone and
telecommunications companies have in general seen increases in prices,
sometimes as high as 35%. During the same period, despite a fine performance
and earnings growth, Woodbury Telephone Company shares have had a modest
price decline. There is obviously a need to bring the company's track
record, growth and earnings gains to the attention of prospective investors,
whether they be from the private or institutional sectors. An individual
financial communications consultant would assist the company by working on
plans to professionally issue periodic press releases based on company news,
the placement of same in local media and through electronic services that carry
financial news in addition to other financial media, to include the major
financial reporting services. Also, the consultant would be in a position to
arrange meetings with brokerage firms in the area, who should be more aware
of the Woodbury Telephone Company and its management team. It is further
suggested that the independent consultant be either a firm or individual
based in Connecticut who has expertise in working with publicly traded
corporate entities of modest size.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST SHAREHOLDER PROPOSAL #2
FOR THE FOLLOWING REASONS:
Proposal #2, in the opinion of the Board of Directors, is not in the
best interests of the Company. The Board of Directors acknowledges such
publicity could increase shareholder value. Indeed, management has been
exploring the available options, and in fact, has implemented some of
the suggestions made by the proponent during the 1995 annual meeting.
However, the Board of Directors believes that it is not the appropriate time
to retain a financial communications consultant given the challenges facing the
Company.
The Board of Directors appreciates that like similar investments, the
Company should promote the liquidity of Common Stock. The Board of Directors
also recognizes that, compared to large publicly-traded companies, there is no
active trading market in the Company's Common Stock. Historically, a local
stock broker has handled a majority of the trades involving the Common Stock,
and the volume of past trades, among other factors, has somewhat handicapped
the ability to create an active market. As a result the Company's Common
Stock has not experienced the price fluctuations experienced by other
publicly-traded telecommunications companies.
Recent trends demonstrate that the level of trading activity has the
potential to increase. The Company has seen an increase in the number of
shares held in "streetname" by brokers. As reported in the Second Quarter
Report for 1995, shareholders and potential investors now can obtain price
and trading information through the NASDAQ Bulletin Board, which may be
accessed through most brokers and on-line services. The Company also reports
results to local newspapers.
The Board of Directors opposes Proposal #2 because it feels that the
best interests of the Company will be served by deferring the undertaking
anticipated by Proposal #2. The current competitive and operational issues
facing the Company require management's primary attention. An attempt to
increase shareholder value through dissemination of information, without a
more comprehensive plan, may not be effective. Indeed, the magnitude of that
undertaking may detract from more immediate concerns. It may be appropriate
to retain a communications consultant in the future to initiate and
complement the process.
For all of the foregoing reasons, the Board of Directors urges
shareholders to vote against Proposal #2.
A MAJORITY OF THE VOTES CAST BY SHAREHOLDERS OF THE COMPANY AT THE
ANNUAL MEETING IS REQUIRED TO ADOPT SHAREHOLDER PROPOSAL #2. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "AGAINST" THE
ADOPTION OF SHAREHOLDER PROPOSAL #2.
OTHER BUSINESS
Management of the Company does not know of any business which will be
presented for consideration at the Annual Meeting other than that set forth
in the Notice of Annual Meeting of Shareholders. However, if any other
business is properly brought before the Annual Meeting, the intention of
the persons named in the proxy is to vote the proxy in accordance with their
discretion and judgment.
SHAREHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Shareholder proposals for inclusion in the proxy statement relating to
the next annual meeting must comply in all respects with the rules and
regulations of the Securities and Exchange Commission and be received at the
Company's principal office not later than November 5, 1996.
It is important that proxies be returned promptly. Shareholders who do
not expect to attend in person are urged to mark, sign and date the enclosed
proxy and return it in the enclosed envelope.
HARMON L. ANDREWS
Secretary
THE WOODBURY TELEPHONE COMPANY WILL PROVIDE WITHOUT CHARGE TO ANY
SHAREHOLDER, UPON WRITTEN REQUEST, A COPY OF ITS ANNUAL REPORT TO THE
SECURITIES AND EXCHANGE COMMISSION (FORM 10-K) FOR THE FISCAL YEAR ENDING
DECEMBER 31, 1995. SUCH REQUEST SHOULD BE DIRECTED TO:
THE WOODBURY TELEPHONE COMPANY
299 MAIN STREET SOUTH
WOODBURY, CONNECTICUT 06798
ATTENTION: TREASURER
March 4, 1996
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS OF THE WOODBURY TELEPHONE COMPANY.
Annual Meeting of Shareholders - April 3, 1996
The undersigned hereby appoints J. Garry Mitchell and Donald E. Porter,
each with the power to appoint his substitute, and hereby authorizes each and
either of them to represent and to vote, as designated below, all the shares
of common stock of The Woodbury Telephone Company held on record by the
undersigned on February 9, 1996, at the annual meeting of shareholders to be
held at the Curtis House, Main Street, Woodbury, Connecticut on April 3, 1996,
at 10:30 a.m., local time, or any adjournment thereof.
(1) ELECTION OF DIRECTORS
_____ FOR all nominees listed below (except as marked to the contrary
below).
_____ WITHHOLD AUTHORITY to vote for all nominees listed below.
CLASS I DIRECTORS ELECTED TO A THREE YEAR TERM:
Harmon L. Andrews, John A. Michaels and Walter F. Torrance, Jr.
(Instruction: To withhold authority to voter for an individual nominee,
write that nominee's name in the space below.)
_________________________________________________________________
Unless authority to vote is withheld in whole or in part as set forth
above, this proxy shall be deemed to grant authority to vote FOR the election
of management's nominees for Directors.
(2) PROPOSAL TO APPROVE THE APPOINTMENT OF ERNST & YOUNG LLP as the
independent auditors of the Company.
For_______________ Against______________ Abstain______________
(3) PROPOSAL TO ADOPT SHAREHOLDER PROPOSAL #1 regarding the retention
of a consultant to increase the share ownership of directors.
For_______________ Against______________ Abstain______________
(4) PROPOSAL TO ADOPT SHAREHOLDER PROPOSAL #2 regarding the retention
of a consultant to make a wider audience of analysts, institutions and
individual investors aware of the Company.
For_______________ Against______________ Abstain______________
(5) In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting, or any adjournment
thereof, including all matters which the undersigned would be entitled to vote
upon if personally present.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned.
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED (1) FOR THE
ELECTION OF MANAGEMENT'S NOMINEES FOR DIRECTORS; (2) FOR THE RATIFICATION OF
THE SELECTION OF INDEPENDENT AUDITORS; (3) AGAINST THE ADOPTION OF SHAREHOLDER
PROPOSAL #1; AND (4) AGAINST THE ADOPTION OF SHAREHOLDER PROPOSAL #2.
Receipt of Notice of Annual Meeting of Shareholders, the Company's
Annual Report of 1995 and the Proxy Statement dated March 4, 1996, is hereby
acknowledged.
- ------------------------------------------------------------------------------
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized
person.
_______________________________(NAME)
Dated _____________________________, 1996
___________________________________
Signature
___________________________________
Signature (if held jointly)
PLEASE PROMPTLY MARK, SIGN, DATE AND RETURN THE PROXY CARD USING THE ENCLOSED
ENVELOPE.
1995 ANNUAL REPORT
Year Ended December 31, 1995
The Woodbury Telephone Company
The financial and other information included in this Annual Report to
Shareholders is provided solely for the information of the Securities and
Exchange Commission and is not deemed "filed."
Selected Financial Data
1995 1994 1993
Operating revenues $12,592,857 $12,038,143 $11,457,557
Net income 1,831,810 1,624,177 1,302,518
Long-term debt 9,000,000 9,000,000 9,000,000
Total assets 27,323,156 28,083,937 26,994,308
Per share of common stock
Net income 2.38 2.11 1.69
Cash dividends 1.52 1.52 1.52
1992 1991
Operating revenues $11,422,319 $10,584,049
Net income 1,526,030 1,237,147
Long-term debt 9,000,000 2,830,000
Total assets 26,609,485 25,929,965
Per share of common stock:
Net income 1.98 1.61
Cash dividends 1.52 1.52
Letter to Shareholders
In 1995, The Woodbury Telephone Company completed yet another successful year.
Only in 1990 did net income exceed last year's total of $1,831,810. Growth in
the number of access lines served, an increase in the use of our network, the
introduction of new services, and the continued efforts in cost control and
improved efficiency were the chief contributors to our success.
Additional access lines, many to meet demand created by personal computers, fax
machines, on-line services, the Internet, and work-at-home or telecommuting,
outpaced the population growth within our service territory. The same can be
said of network usage for calls beyond our extended local calling area.
In mid-year, the Company introduced CLASS services (such as Caller ID and
Selective Call-Forwarding) and Voice Messaging Service. While revenues
generated from these new services were relatively small in 1995, their future
use may be as common as touchtone dialing and their contribution to earnings
increasingly significant.
Notwithstanding the above, the key to our success in 1995 was the benefit
realized from our recently introduced budgeting system. Operating expenses
other than depreciation increased by 2.5% over 1994 levels and, expressed on
an access line basis, actually decreased. And, we're committed to reduce
them further in 1996.
This will be more necessary than ever as the day of competition in the local
exchange market moves ever closer. The recent enactment by the U. S. Congress
of a sweeping overhaul of communications law promises to change forever the
way telecommunications and broadcast services are delivered to consumers.
With reduced regulation, increased competition, and the removal of constraints
previously placed on the Regional Bell Operating Companies, consumers will
expect more choice, better technology, and lower prices.
The further disposition of dockets currently under development by the
Connecticut Department of Public Utility Control should provide more insight
as to the Company's future position within the market. As a result of recent
proceedings, The Southern New England Telephone Company is in the process of
unbundling its local network, reselling its local exchange services, and
providing equal access to competitive carriers for in-state toll services.
We expect a similar transformation to occcur in our service area; however, the
timing and extent of such changes have yet to be determined.
Comments on 1995 would not be complete without my extension, on behalf of the
entire Board of Directors, of warm wishes to John Sadek, who retired from our
Board in November. John brought keen insight and years of telephone experience
to the table, and he will be missed. We wish him the best.
We expect 1996 to be anything but business as usual. I speak for all employees
when I assure you that we will continue to do all in our power to continue to
serve our local communications consumers and you, our loyal shareholders.
/s/Donald E. Porter
Donald E. Porter
Chief Executive Officer
President and Treasurer
Description of Business
The Woodbury Telephone Company is a Connecticut corporation which commenced
business in 1899. The Company is engaged in the business of furnishing local
and long distance telephone servcies and selling telephone equipment. The
Company is the primary provider of local telephone service in the major
portions of the towns of Woodbury, Southbury, and Bethlehem, Connecticut, and
also serves small portions of the towns of Oxford and Roxbury, Connecticut.
The service area was established by agreement with The Southern New England
Telephone Company (SNET) and was accepted by the Department of Public Utility
Control of the State of Connecticut (DPUC); however, recent state and federal
legislation may enable competitive providers to offer local service in the
Company's service area. The Company has no geographical limitation on its
unregulated business. The total number of access lines in service at the end
of each of the last five years was 16,174 for 1991, 16,640 for 1992, 17,240 for
1993, 17,977 for 1994 and 18,710 for 1995. Approximately 59% of the Company's
exchange lines are located in the town of Southbury, 29% in the town of
Woodbury, 10% in the town of Bethlehem and 2% in the towns of Oxford and Roxbury
combined. The Company provides telephone service in the service area to its
customers through central office switching equipment and cables, both
underground and attached to poles. Customers have the option of purchasing or
leasing their telephone instruments and other terminal equipment from the
Company or other sources. The Company's lines and cables are interconnected with
those of other telephone companies in the United States and many other countries
through the facilities of SNET and other common carriers. The Company provides
intrastate services through SNET tariffs, as approved by the DPUC. The Company
provides interstate service by access tariffs to other common carriers, as
approved by the Federal Communications Commission (FCC).
The Company is a public service company subject to regulation by the DPUC as
to intrastate rates and services, issuance of securities, reporting
requirements, and other matters. The Company is also subject to regulation by
the FCC as to reporting requirements and use of a uniform system of accounting
established by the FCC for telephone companies, and other matters.
COMMON STOCK MARKET PRICES AND DIVIDENDS
The approximate number of record holders of the Company's Common Stock as of
February 9, 1996 was 710. There is no active trading market in the Company's
Common Stock. The prices at which stock of the Company is traded are, however,
presented through the NASDAQ OTC Bulletin Board trading system using the
symbol "WBTL". The prices quoted herein are based on information obtained
from the NASDAQ OTC Bulletin Board. Also listed herein is the frequency and
amount of dividends paid during the last two years.
DIVIDENDS PAID
PRICE OF COMMON STOCK PER SHARE
High Low Close
1995:
First Quarter $26 1/4 $23 $23 $.38
Second Quarter $25 $22 1/2 $22 3/4 $.38
Third Quarter $24 1/2 $23 $24 1/2 $.38
Fourth Quarter $27 $23 3/4 $25 $.38
1994:
First Quarter N/A N/A $27 $.38
Second Quarter $30 $27 $28 $.38
Third Quarter $28 $26 3/4 $27 1/2 $.38
Fourth Quarter $28 $23 3/4 $24 $.38
The Company, as a regulated public utility, is allowed to earn and pay a
return on the investment by its shareholders. Though there is no assurance as
to future dividends, the Company has paid dividends every quarter since 1951
and expects to continue to pay dividends in the foreseeable future. The
Company's ability to pay dividends is limited by the terms of an Indenture of
Mortgage and Deed of Trust dated February 1, 1973, as amended, pursuant to
which the Company issued first mortgage bonds having an aggregate principal
amount outstanding of $9,000,000 as of December 31, 1995 such that dividends
and restricted investments after January 1, 1992 may not exceed $3,000,000
plus 100% of the cumulative net income after January 1, 1992 (reduced for any
net losses after such date). As of December 31, 1995, approximately
$4,608,000 of retained earnings is available for dividends. The Company
currently has no restricted investments.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
OPERATIONS
Total operating revenues increased by $554,714 (4.6%) in 1995 compared to 1994,
and by $580,586 (5.1%) in 1994 compared to 1993. Local service revenues
increased by $191,968 (6.6%) in 1995 compared to 1994, and by $123,074 (4.4%)
in 1994 compared to 1993. These increases are due primarily to increases in the
customer base for the periods of 4.1% and 4.3% respectively. Network service
revenues increased by $370,215 (4.5%) in 1995 compared to 1994, due largely to
increased customer usage of the toll network. Network service revenues
increased by $473,616 (6.1%) in 1994 compared to 1993, as a result of generally
more favorable access charge settlements, and the effects of a renegotiated
agreement between the Company and The Southern New England Telephone Company
(SNET), regarding the division of revenues for certain jointly-provided long
distance private line circuits. Other revenues declined by $73,108 (7.1%) in
1994 compared to 1993. The decline was caused primarily by the expiration of
an agreement with SNET under which the Company received compensation for its
investment in certain equipment used in providing joint services. The agreement
expired November 1, 1993.
Total operating expenses increased by $347,171 (3.9%) in 1995 compared to 1994,
and by $28,098 (0.3%) in 1994 compared to 1993. Depreciation and amortization
expense increased by $190,362 (7.3%) in 1995 compared to 1994, and by $163,129
(6.7%) in 1994 compared to 1993. The increase in both years reflects a greater
investment in telephone plant. Operating expenses other than depreciation and
amortization increased by $156,809 (2.5%) in 1995 compared to 1994. Maintenance
expenses increased by $139,866 (5.1%) in 1995 compared to 1994 as certain
personnel were re-assigned from corporate operations to plant operations. Other
expenses included an increase in call completion expense of $73,655 (67.8%) in
1995 compared to 1994. The increase is due primarily to implementation of a
revised agreement whereby SNET provides directory assistance for the Company.
The old agreement expired July 26, 1994. Under a tariff which took effect
July 27, 1994, coincident with the new agreement with SNET, Woodbury Telephone
began billing its customers for certain directory assistance charges.
Additional network service revenues of approximately $114,000 were recorded in
1995, compared to approximately $48,000 in 1994. Operating expenses other
than depreciation and amortization decreased by $135,031 (2.1%) in 1994
compared to 1993. Reduced payroll and related benefits due to a reduction in
employees, coupled with increased capitalized labor incurred with the
construction of certain plant facilities, contributed to the decrease in 1994.
Other income increased by $188,535 (63.0%) in 1995 compared to 1994. In 1994,
there was a charge to income (reduction) of approximately $80,000 for the
removal from inventory of obsolete rental equipment and repair parts. In
addition, the Company raised its rental rates for telephone equipment,
effective May 1, 1994.
Net income increased by $207,633 (12.8%) in 1995 compared to 1994, and by
$321,659 (24.7%) in 1994 compared to 1993.
LIQUIDITY AND CAPITAL RESOURCES
Expenditures to purchase telephone equipment were approximately $2,076,000 in
1995, $3,536,000 in 1994, and $2,041,000 in 1993. In all three years cash
provided by operating activities was adequate to meet the financing of capital
expenditures.
Current assets exceeded current liabilities by $3,616,636 at December 31,
1995, compared to $2,625,958 at December 31, 1994. Additional liquidity is
provided, if needed, by a short-term line of credit of $750,000, which
expires May 31, 1996. Management expects it will be able to refinance this
agreement for another year.
The Woodbury Telephone Company
Balance Sheets
ASSETS
December 31
1995 1994
Current assets:
Cash and cash equivalents $ 2,238,782 $ 1,942,924
Accounts receivable, less allowance
for losses of $60,000 in 1995 and 1994 1,589,030 1,765,155
Other receivables 1,254,484 1,260,337
Materials and supplies-at cost 421,306 430,899
Prepaid expenses 51,689 141,842
--------------- --------------
Total current assets 5,555,291 5,541,157
Telephone plant and other property:
In service 41,179,838 39,850,063
Accumulated depreciation (deduction) (20,857,711) (18,955,421)
---------------- ---------------
20,322,127 20,894,642
Other property 76,717 76,717
---------------- ---------------
20,398,844 20,971,359
Other assets:
1% Investment in Springwich Cellular
Limited Partnership 535,068 535,068
Deferred charges, less accumulated
amortization of $703,698 in 1995 and
$560,265 in 1994 480,209 623,642
Regulatory asset 353,744 412,711
---------------- ----------------
1,369,021 1,571,421
$ 27,323,156 $ 28,083,937
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31
1995 1994
Current liabilities:
Accounts payable $ 1,281,373 $ 1,984,024
Advance billings and customers' deposits 286,640 280,918
Accrued interest 337,500 337,500
Income taxes 33,142 312,757
---------------- -----------------
Total current liabilities 1,938,655 2,915,199
Long-term debt 9,000,000 9,000,000
Deferred credits:
Income taxes 2,044,044 2,407,979
Investment tax credits 276,114 348,114
Regulatory liability 808,735 914,060
---------------- -----------------
3,128,893 3,670,153
Other liabilities 453,872 359,617
Shareholders' equity:
Common Stock, par value $2.50 per share,
authorized 1,250,000 shares, issued and
outstanding 769,107 shares 1,922,768 1,922,768
Additional paid-in capital 1,475,394 1,475,394
Retained earnings 9,403,574 8,740,806
--------------- -----------------
12,801,736 12,138,968
$ 27,323,156 $ 28,083,937
============== =================
See accompanying notes.
The Woodbury Telephone Company
Statements of Income and Retained Earnings
Year ended December 31
1995 1994 1993
------------ ------------ ------------
Operating revenues:
Local service $ 3,090,758 $ 2,898,790 $ 2,775,716
Network service 8,591,136 8,220,921 7,747,305
Other 970,328 955,917 1,029,025
Provision for uncollectibles
(deduction) (59,365) (37,485) (94,489)
------------- ------------- -------------
12,592,857 12,038,143 11,457,557
Operating expenses:
Maintenance 2,902,074 2,762,208 2,763,438
Depreciation and amortization 2,791,605 2,601,243 2,438,114
General office 1,268,579 1,263,010 1,391,977
Commercial 1,377,052 1,398,643 1,424,074
Other 906,922 873,957 853,360
------------ ------------ -----------
9,246,232 8,899,061 8,870,963
------------ ------------ -------------
3,346,625 3,139,082 2,586,594
Other income:
Rental of telephone equipment
and other, net 358,759 204,574 175,688
Interest 129,163 94,813 81,887
------------ ------------- -------------
487,922 299,387 257,575
------------ ------------- -------------
3,834,547 3,438,469 2,844,169
Interest expense 827,011 821,562 839,830
------------ ------------ -------------
Income before income taxes 3,007,536 2,616,907 2,004,339
Income taxes 1,175,726 992,730 701,821
------------ ------------ -------------
Net income (per share:
1995-$2.38; 1994-$2.11;
1993-$1.69) 1,831,810 1,624,177 1,302,518
Retained earnings at
beginning of year 8,740,806 8,285,671 8,152,195
------------ ------------ ------------
10,572,616 9,909,848 9,454,713
Dividends ($1.52 per share) 1,169,042 1,169,042 1,169,042
------------ ------------ -----------
Retained earnings at end
of year $ 9,403,574 $8,740,806 $8,285,671
============ ============ ===========
Average number of shares of
Common Stock outstanding 769,107 769,107 769,107
See accompanying notes.
The Woodbury Telephone Company
Statements of Cash Flows
Year ended December 31
1995 1994 1993
------------ ---------- -----------
Operating activities
Net income $ 1,831,810 $ 1,624,177 $ 1,302,518
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 2,648,172 2,457,914 2,294,687
Amortization of deferred
charges 143,433 143,329 143,427
Provision for losses on
accounts receivable 59,365 37,485 94,489
Deferred income taxes (benefit) (410,293) (287,815) (120,529)
Amortization of deferred
investment tax credits (72,000) (72,000) (99,972)
Changes in operating assets
and liabilities:
decrease (increase) in
accounts receivable and
other receivables 122,613 (502,655) 20,299
Decrease (increase) in
other current assets 99,746 39,282 (88,628)
(Decrease) increase in
accounts payable (702,651) 634,840 122,426
Increase in advance
billings and customers'
deposits 5,722 13,986 966
Increase (decrease) in
accrued interest 236 (556)
Increase in other
liabilities 94,255 91,454 68,163
(Decrease) increase in
income taxes (279,615) 312,757
Decrease in deferred
income taxes (168,074)
------------ ------------ ------------
Net cash provided by operating
activites 3,540,557 4,492,990 3,596,216
Investing activities
Expenditures for telephone plant (2,075,657) (3,535,521) (2,040,524)
----------- ----------- -----------
Net cash used by investing
activities (2,075,657) (3,535,521) (2,040,524)
Financing activities
Dividends paid (1,169,042) (1,169,042) (1,169,042)
------------- ----------- -----------
Net cash used by financing
activities (1,169,042) (1,169,042) (1,169,042)
Increase (decrease) in cash
and cash equivalents 295,858 (211,573) 359,650
Cash and cash equivalents at
beginning of year 1,942,924 2,154,497 1,794,847
------------ ----------- ------------
Cash and cash equivalents
at end of year $ 2,238,782 $ 1,942,924 $ 2,154,497
============= ============ ============
Supplemental disclosures of
cash flow information:
Income tax payments $ 1,405,000 $ 1,137,003 $ 1,116,755
============= ============ ============
Interest paid $ 827,011 $ 821,326 $ 840,386
See accompanying notes
The Woodbury Telephone Company
Notes to Financial Statements-December 31, 1995
1. Business and Accounting Policies
The Woodbury Telephone Company (the Company) derives substantially all of its
revenues from providing local exchange telephone services, intrastate toll
services, and access to interstate long-distance telephone services to
customers in Woodbury, Southbury, and Bethlehem, Connecticut. The financial
statements of the Company have been prepared in conformity with generally
accepted accounting principles applicable to rate-regulated utilities. Such
accounting principles are consistent in all material respects with accounting
principles prescribed by the Federal Communications Commission (the FCC).
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Management believes the estimates and related assumptions in these
financial statements are reasonable and adequate. However, actual results
could differ from those estimates.
Revenue Recognition
Operating revenues are recognized when services are provided to customers.
Certain network revenues are recognized based on estimates of pooled revenue
earnings from the National Exchange Carrier Association (NECA), of which the
Company is a member. NECA negotiates interstate access charge tariff agreements
with the FCC. NECA also accumulates and distributes pooled revenues derived
from such agreements to its members. The Company records the effect of NECA
settlements, including retroactive adjustments, if applicable, for pooled
network revenues upon notification of such settlements from NECA.
Cash and Cash Equivalents
Cash and cash equivalents approximate fair value. Cash equivalents consist of
highly liquid debt instruments with a maturity of three months or less when
purchased.
Telephone Plant
Telephone plant is stated on the basis of cost. Depreciation is computed by the
straight-line method. Lives used for calculating depreciation are in accordance
with the rules of the FCC and are based on the estimated economic useful lives
of the assets.
Normally, when telephone plant assets are retired or otherwise disposed of,
the cost of the asset is removed from assets and charged to accumulated
depreciation. Further, the cost of removal and salvage proceeds are charged
and credited, respectively, to accumulated depreciation. Consequently, for
normal retirements, no gain or loss is recognized upon disposition.
1% Investment in Springwich Cellular Limited Partnership
The 1% Investment in Springwich Cellular Limited Partnership is stated at cost;
related distributions, if applicable, are recorded as income when received.
Deferred charges
Amounts included in deferred charges, consisting of gross revenue taxes related
to legislation enacted January 1, 1990 and the unrecovered cost of certain
central office equipment retired and replaced with upgraded equipment are being
amortized by the straight-line method over ten and five year periods,
respectively, in accordance with applicable regulatory accounting regulations.
The deferred debt expense amount in deferred charges is being amortized over the
term of the related debt.
Benefit Plans
The Company has contributory defined contribution benefit plans covering
substantially all employees. Contributions under these plans are based on
specified percentages of employee compensation, as defined, plus additional
amounts determined at the discretion of the Company's Board of Directors.
The Company also sponsors a postretirement medical plan and a postretirement
life insurance plan. All employees who retire from the Company after age 59 1/2
with 15 years of service are eligible for benefits. The retiree must pay the
premium for benefits before age 65. After age 65, the Company pays the full cost
of the life insurance benefits, and shares the cost of the Medicare supplemental
benefits with the retiree. The Company-paid portion of the premium varies by
years of service and is subject to a "cap." The retiree pays the remaining
portion of the premium. Neither plan is funded. Effective January 1, 1993 the
Company adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions"
(SFAS No. 106). Under SFAS No. 106, the Company recognizes the cost of
providing the aforementioned postretirement benefits on an accrual basis
during the period such benefits are earned by the employees. These benefits
had been previously expensed by the Company when paid. Under applicable
regulatory requirements the Company is recognizing the transition obligation
on a prospective basis over 20 years.
Income Taxes
Effective January 1, 1993 the Company adopted Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes." In connection
with adopting SFAS 109 under applicable regulatory guidelines, a regulatory
asset and a regulatory liability were recognized for the future increases
(decreases) in income taxes that will be received or settled through future
rate revenues. The regulatory asset and liability are being amortized over
the prescribed term which approximates 13 years.
Deferred income taxes are provided on the temporary differences between the
tax and financial reporting bases of assets and liabilities.
Investment Tax Credits
Investment tax credits which arose prior to 1986 were deferred and are being
amortized over the service lives of the assets which gave rise to such credits.
2. Deferred charges
Deferred charges consist of:
December 31
1995 1994
-------- --------
Deferred debt expense $ 143,105 $ 155,461
Gross revenue taxes 274,672 343,316
Retired central office equipment 62,432 124,865
--------- ---------
$ 480,209 $ 623,642
========= =========
3. Credit Arrangements
Long-term debt consists of First Mortgage Bonds, Series G payable in increasing
annual installments ranging from $500,000 commencing August 1, 1999 to
$3,250,000 on August 1, 2007 plus interest at 9%. Virtually all telephone
plant and miscellaneous physical property are pledged as collateral. In
addition, among other covenants, the Company is required to maintain certain
financial ratios. Further, new borrowings and the payment of dividends are
restricted. At December 31, 1995 $4,608,000 of retained earnings was
available for the payment of dividends.
The Woodbury Telephone Company
Notes to Financial Statements (continued)
Under a line of credit arrangement with a bank, the Company may borrow up to
$750,000 with interest, adjusted monthly, at the lower of the bank's base rate
or the one-month LIBOR plus 1.5%. There were no borrowings under this
arrangement in 1995 or 1994. A commitment fee of 1/8% per annum is payable on
the unadvanced portion of the bank's commitment. The arrangement expires May 31,
1996.
4. Other Liabilities
Other liabilities consist of:
December 31
1995 1994
--------- ---------
Self-insurance for catastrophic event (A) $ 200,000 $200,000
Accrued postretirement medical and life
insurance benefits cost 253,872 159,617
--------- ---------
$ 453,872 $ 359,617
========= =========
(A) At the direction of the Department of Public Utility Control of the State
of Connecticut (DPUC), the Company established a $200,000 noncurrent liability
in 1987 for a portion of the potential effects of a catastrophic event on the
Company's transmission and distribution facilities for which external insurance
is unavailable.
5. Operating Lease Commitment
The Company has an operating lease for a maintenance center. Under the lease,
the Company is obligated to pay for insurance, taxes and maintenance costs
applicable to the property. The lease expires in December 2005. At December 31,
1995, future minimum monthly lease payments of $16,432 are required through
December 1996. Thereafter, such payments are adjusted annually to reflect
changes in the consumer price index. The lease may be renewed for two
consecutive five-year periods at fair rental value, as defined. Rent expense
under this lease was $210,363 in 1995, $186,958 in 1994 and $171,801 in 1993.
The Company has an option to purchase the leased property between June 2004
and December 2004 at its then fair market value.
6.Benefit Plans
Amounts recognized in the accompanying balance sheets for postretirement
medical and life insurance benefits follow:
December 31
1995 1994
---------- ----------
Accumulated unfunded postretirement
benefit obligation:
Retirees $ 259,874 $ 303,088
Active employees 723,396 685,839
--------- ---------
983,270 988,927
Less:
Unrecognized transition obligation (561,662) (594,700)
Unrecognized net loss (131,735) (198,358)
---------- ----------
Accrued cost $ 289,873 $ 195,869
========== ==========
Accrued cost included in:
Current liabilities $ 36,001 $ 36,252
Noncurrent liabilities 253,872 159,617
---------- ----------
$ 289,873 $ 195,869
========== ==========
Net periodic postretirement benefit cost included these components:
Year ended
December 31
1995 1994 1993
---------- --------- ---------
Service cost $ 36,233 $ 34,497 $ 24,972
Interest cost 66,339 66,502 54,189
Amortization of transition obligation 33,038 33,038 33,038
Amortization of unrecognized net loss 1,230 5,561
--------- --------- ---------
Net postretirement benefit cost $136,840 $ 139,598 $ 112,199
=========== ========= ==========
For measurement purposes, a 10.9% annual rate of increase in the per capita
cost of covered health care benefits was used for 1995 (11.4% in 1994); the rate
was assumed to decrease gradually to 5% (both 1995 and 1994) in 2013 and
remain at that level thereafter. The health care cost trend rate assumption
affects the medical benefit portion of the postretirement amounts reported;
increasing the assumed health care cost trend rate one percentage point would
increase the accumulated unfunded postretirement obligation as of December 31,
1995 and 1994 by approximately $46,000 and $58,000, respectively, and the
aggregate of the service and interest cost components of the net periodic
postretirement benefit cost for 1995, 1994 and 1993 by approximately $6,000 in
each year.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligations was 7% in 1995 and 1994.
Expense recognized under the Company's defined contribution benefit plans was
$233,322 in 1995, $221,915 in 1994 and $217,869 in 1993.
7. Income Taxes
The components of the Company's deferred income tax and related regulatory
asset and regulatory liability accounts follow:
December 31
1995 1994
---------- ----------
Deferred tax liabilities:
Gross revenue taxes $ 112,422 $ 142,784
Depreciation 2,302,423 2,484,529
----------- -----------
2,414,845 2,627,313
Regulatory liability 808,735 914,060
----------- -----------
3,223,580 3,541,373
Deferred tax assets:
1% Investment in Springwich
Cellular Limited Partnership 133,226 129,888
Other liability-self-insurance
for catastrophic event 81,860 83,180
Other 155,715 6,266
------------ -----------
370,801 219,334
Regulatory asset 353,744 412,711
------------ -----------
724,545 632,045
------------ -----------
Net deferred income tax and
regulatory liabilities $2,499,035 $2,909,328
============ ===========
The Woodbury Telephone Company
Notes to Financial Statements (continued)
7. Income Taxes (continued)
Income and other taxes consist of:
1995 1994 1993
--------- ---------- ----------
Income taxes:
Federal:
Current $ 1,197,251 $ 979,126 $ 649,128
Deferred (benefit) (360,059) (275,705) (181,188)
State:
Current 460,768 373,419 273,194
Deferred (benefit) (122,234) (84,110) (39,313)
---------- --------- ----------
$ 1,175,726 $ 992,730 $ 701,821
========== ========== ==========
A reconciliation of the amount of income taxes based on the statutory federal
income tax rate to income taxes reflected in operations follows:
1995 1994 1993
---------- ---------- ---------
Amount based on statutory
federal income tax rate $ 1,022,562 $ 889,748 $ 681,475
State income taxes, less
federal tax effect 223,309 198,623 152,129
Investment tax credit amortization (72,000) (72,000) (99,972)
Other, including adjustments of
prior years' estimates 1,855 (23,641) (31,811)
--------- --------- ----------
Income taxes $1,175,726 $ 992,730 $ 701,821
========= ======== ========
8. Related Party Transactions
The Company has an agreement with The Southern New England Telephone Company
(SNET) under which the proportionate shares of intrastate toll revenues are
divided between the companies. SNET is a subsidiary of The Southern New England
Telecommunications Corporation (SNET Corporation), the owner of approximately
37% of the outstanding Common Stock of the Company at December 31, 1995.
Revenues reflect $4,166,584 in 1995, $4,393,760 in 1994, and $4,257,764 in
1993 under this agreement.
9. NECA Settlements
In December 1994, the Company received a retroactive settlement notification
from NECA which reduced 1994 network revenues by $303,000 (see Note 1). The
retroactive adjustment applies to the two years ended December 31, 1994.
Approximately $90,000 (unaudited) of the retroactive adjustment related to
network revenues previously recorded during the nine months ended September 30,
1994 and $188,000 related to network revenues recorded in 1993.
12. Fair Value Disclosures
Carrying
Amount Fair Value
---------- ------------
1% Investment in Springwich Cellular
Limited Partnership $ 535,068 $4,600,000
Long-term debt 9,000,000 9,482,000
The fair value of the Company's investment in the partnership was estimated
based upon a comparison with other cellular operations, and public
company sales. The fair value of the Company's long-term debt was estimated
using discounted cash flows, based on the Company's incremental borrowing rates
for similar types of borrowing arrangements.
Report of Ernst & Young LLP,
Independent Auditors
The Woodbury Telephone Company
We have audited the accompanying balance sheets of The Woodbury Telephone
Company as of December 31, 1995 and 1994, and the related statements of income
and retained earnings, and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted accounting
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Woodbury Telephone Company
at December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
/s/Ernst & Young LLP
/s/Ernst & Young LLP
Hartford, Connecticut
February 5, 1996
Board of Directors Officers
HARMON L. ANDREWS ## ++ J. GARRY MITCHELL
Business Administrator Chairman of the Board
Board of Education
Town of Orange, CT DONALD E. PORTER
Chief Executive Officer
WILLIAM C. BASSETT ++ President and Treasurer
President
W. E. Bassett Co. HARMON L. ANDREWS
(manufacturer of manicure Secretary
instruments)
JOYCE M. DAVIS *
Executive Assistant for the
Goelet Corp., of New York, New York
(real estate company)
WILLIAM T. DRAKELEY ##
Self Employed Antiques Dealer
JOHN A. MICHAELS *
Chief Executive Officer
Michaels, Inc.
(jewelry business)
J. GARRY MITCHELL++
Chairman of the Board
The Woodbury Telephone Company
MICHAEL PHELAN
Vice-President
Network Marketing and Sales
The Southern New England Telephone Company
DONALD E. PORTER
Chief Executive Officer,
President and Treasurer
The Woodbury Telephone Company
WALTER F. TORRANCE, JR. ++
Of Counsel,
Carmody & Torrance
(law firm)
* member of Audit Committee
## member of Salary and Nominating Committee
++ member of Executive Committee
A copy of The Woodbury Telephone Company's 10-K Report filed with the
Securities and Exchange Commission for 1995 may be obtained by writing to:
Treasurer, The Woodbury Telephone Company
P. O. Box N, Woodbury, CT 06798-0478.