UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the year ended DECEMBER 31, 1995 Commission file number 0-8621
THE WOODBURY TELEPHONE COMPANY
(Exact name of registrant as specified in its charter)
CONNECTICUT 06-0594990
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
299 MAIN STREET SOUTH, WOODBURY, CT 06798
(address of principal Zip Code
executive offices)
Registrant's telephone number, including area code - (203) 263-2121
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $2.50 A SHARE
(Title of Class)
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 .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K./__/
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant as of February 9, 1996.
COMMON STOCK, $2.50 PAR VALUE--$19,227,675*
(based on the market value on February 23, 1996)
*Southern New England Telecommunications Corporation ("Telecommunications")
owns 280,645 shares (or 36.5%) of the Company's Common Stock. However, it is
the Company's position, with which Telecommunications concurs, that
Telecommunications is not an affiliate of the Company despite its stock
ownership, because for the past several years the Company's management has held
sufficient proxies to elect the Board of Directors' nominees without regard to
Telecommunications' vote of its shares. Excluding Telecommunications' stock,
the aggregate market value of the Common Stock as of February 23, 1996 was
$12,211,550.
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of March 27, 1996.
COMMON STOCK, $2.50 PAR VALUE--769,107
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's 1995 Annual Report are incorporated by reference into
Part II hereof and filed as Exhibit 13 hereto.
Portions of the proxy statement mailed on or about March 4, 1996, for the
annual shareholders' meeting to be held April 3, 1996 are incorporated by
reference into Part III.
PART I
Item 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS - The Woodbury Telephone
Company (the "Company") is a Connecticut corporation which commenced
business in 1899. The purposes for which the Company was formed, as set
forth in its Certificate of Organization, are to build, own, equip, buy,
sell, operate and maintain systems of telephone exchange in any or all of
the cities, towns and villages of the State of Connecticut; and systems and
methods of communication from and between any or all of said cities, towns
and villages by means of telephones and telephone apparatus; and,
generally, to lease, rent, sell and buy telephones and telephone apparatus,
and rights of every and all description. The Certificate of Organization
of the Company, as amended, permits it to enter into businesses in addition
to the telephone business. However, the Company has no present plans to
enter into any other business.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS - The sole
business in which the Company is engaged and its only industry segment is
providing telephone services (both regulated and unregulated) to its
customers as hereinafter described in Item 1(c).
(c) NARRATIVE DESCRIPTION OF BUSINESS
1. (i) PRINCIPAL BUSINESS - The Company is engaged in the
business of furnishing local exchange telephone services, intrastate toll
services, and access to long distance telephone services (both intrastate
and interstate). The Company also sells telephone equipment. The Company
currently is the primary provider of local exchange service in the major
portions of the Towns of Woodbury, Southbury, and Bethlehem, Connecticut,
and provides local exchange service to small portions of the Towns of
Oxford and Roxbury, Connecticut (the area to which the Company provides
exchange service being sometimes hereinafter referred to as its "Service
Area"). The Service Area was established by agreement with The Southern
New England Telephone Company ("SNET"). The Service Area has been accepted
by the Department of Public Utility Control of the State of Connecticut
("DPUC") and is incorporated in tariffs filed by the Company with the DPUC;
however, as described in clause (x) below regarding competition, recent
Connecticut and Federal legislation may enable competitive providers to
offer local service in the Service Area. The Company has no geographical
limitation on its unregulated business. The Company's business and number
of customers has grown with the increase in the population of the Service
Area and the introduction of new telecommunications applications (e.g.,
facsimiles, computer-based communications). Future growth is expected to
be impacted by population increases; however, competition (as described in
clause (x) below) and additional expansion of telecommunications
applications, including a growing proficiency in telecommunications-based
technology, may have a greater influence on the Company's business. The
total number of exchange 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 local exchange service in the Service Area
to its customers through central office switching equipment and cables
(underground and attached to poles). Customers have the option of
purchasing or leasing their telephone instrument 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 carriers. The Company provides intrastate toll service through SNET
tariffs, as approved by the DPUC. The Company provides intrastate and
interstate access through National Exchange Carrier Association Tariff No.
5. The Company has upgraded its switching system to provide for equal
access to interstate carriers (e.g., AT&T, Sprint, MCI).
(ii) NEW PRODUCTS - The Company has no present plans to
introduce a new product or enter into business in a second industry segment
which would require the investment of a material amount of the assets of
the Company, or which is otherwise material. However, the Company, SNET
Springwich, Inc. and Granby Telephone & Telegraph Co. (a Massachusetts
local exchange carrier) are parties to a limited partnership agreement
pursuant to which the Company holds a 1% investment interest in Springwich
Cellular Limited Partnership ("Springwich"), a limited partnership that
provides cellular mobile telephone service. The Company's allocation of
profits and losses are determined in accordance with such agreement.
(iii) SOURCES AND AVAILABILITY OF RAW MATERIALS - The Company
is not directly dependent on the availability of raw materials, but is
dependent on its suppliers to furnish it with finished goods and products.
The Company has alternative sources of supplies and is not dependent on any
one supplier of finished goods and products.
(iv) REGULATION - 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 Federal Communications
Commission ("FCC") as to interstate access charges, reporting requirements,
use of a uniform system of accounting established by the FCC for telephone
companies, and other matters.
(v) SEASONAL BUSINESS - No material portion of the Company's
business is seasonal.
(vi) WORKING CAPITAL ITEMS - The Company bills its customers
on a monthly basis for interstate and intrastate toll calls (to the extent
it maintains a billing and collection arrangement with the interstate
carrier) made during the preceding month and in advance, at established
rates, for local exchange service. The Company also has various
arrangements with interexchange carriers for access to the Company's
network. None of its current business practices results in any unusual
demands on working capital requirements.
(vii) CUSTOMERS - Substantially all of the Company's
customers are users of telephone services in the Service Area and
interexchange carriers that pay access charges to the Company. No material
part of the business of the Company is dependent on a single customer or a
few customers who use its telephone services, purchase telephone equipment,
or pay access charges. At this time, a significant portion of the
customers in the Service Area have selected one interexchange carrier as
their long-distance carrier. Therefore, a material portion of the
Company's access charges for interstate service are derived from that
carrier. Notwithstanding the foregoing, a change of carrier by such
customers would not materially affect the Company's revenue from access
charges since the carriers replacing the current carrier would be required
to pay the same access rates under the applicable tariff.
(viii) BACKLOG - The Company ordinarily completes orders for
telephone service within five (5) working days of receipt. There has never
been any material number of uncompleted orders for service. The nature of
the Company's business does not permit a reporting of the dollar amount of
uncompleted orders for service.
(ix) GOVERNMENT CONTRACTS - No material portion of the
Company's business is with the Government.
(x) COMPETITION - As a result of regulatory, legislative and
judicial rulings, telephone service is structured in basically three
"unbundled" markets:
1. Local exchange telephone service;
2. Network services, interstate andintrastate; and
3. Competitive services.
Currently, competition for the Company and other local
exchange carriers generally is in the areas of billing and collection of
interstate services, directory advertising and customer premises equipment.
An increasing number of customers are providing their
own equipment and other facilities in lieu of equipment and facilities
leased by the Company. The Company offers customer premises equipment on
an unregulated basis under an FCC approved plan.
FCC's decisions limited the ability of local telephone
companies to provide interstate toll services. The Company does not
provide such services at the present time. The method for compensating the
Company for its services in connection with interstate toll calls is based
on access charges. These access charges are paid by the interstate toll
carriers and end users. Under this system, the Company's revenues from
interstate toll calling are not affected by the caller's choice of carrier.
Regulatory and judicial rulings have generally
increased competition within the telephone industry by requiring AT&T to
divest itself of the 22 Bell operating companies and deregulating the
provision of new terminal equipment and enhanced services. In addition,
the Telecommunications Act of 1996 (the "Federal Telecommunications Act")
recently became law. Among other things, the Federal Telecommunications
Act opens local phone markets to competition by imposing interconnection,
resale and unbundling obligations on all local exchange carriers.
The Federal Telecommunications Act includes several
protections and exemptions for a "rural telephone company." The Company
qualifies as such a rural telephone company because it provides telephone
exchange services to fewer than 50,000 access lines. As a result, for
example, the DPUC would have to make certain economic and technical
determinations, consistent with universal service principles, before
requiring the Company to unbundle and/or resell its services under the
Federal Telecommunications Act. Based on the foregoing and given its
recent enactment, the Company cannot reasonably estimate the competitive
effect of the Federal Telecommunications Act on it, though the Company
anticipates that the Federal Telecommunications Act will generally promote
increased competition in the U.S. telecommunications industry.
Separate from, and prior to the enactment of, the
Federal Telecommunications Act, Connecticut has taken steps to increase
competition in the provision of local exchange telephone service. Sections
16-247a et seq. of the Connecticut General Statutes, "An Act Implementing
the Recommendations of the Telecommunications Task Force," effective July
1, 1994 (the "Connecticut Telecommunications Act"), promotes broader
competition in the Connecticut telecommunications market, with the stated
goal of assuring high quality customer and technical services. The DPUC
has been charged with implementing the Connecticut Telecommunications Act.
It has held numerous hearings and meetings designed to identify competitive
services, emerging competitive services and noncompetitive services, and to
establish a regulatory framework consistent with the legislation.
The Company has been participating in the proceedings
involving the implementation of the Connecticut Telecommunications Act, and
the DPUC has opened three dockets to examine the cost of providing service,
intrastate depreciation rates, and unbundling the local telecommunications
network, respectively, for the Company. The DPUC has completed a
conceptual analysis that establishes a "vision" for Connecticut's
telecommunications infrastructure, but given the number of interested
parties, the volume of dockets involved in the proceeding, and the relative
importance of the regulatory process, the DPUC has not adopted a detailed
plan to implement the Connecticut Telecommunications Act as it affects the
Company. However, the DPUC has made several decisions in corresponding
dockets concerning SNET (currently the largest provider of local
telecommunications services in Connecticut). While the Company cannot
anticipate the precedential effect of the SNET dockets, the Company expects
that decisions in those dockets will serve as the basis for the proceedings
in the Company's dockets.
Since the proceedings in the SNET dockets have not been
completed, the Company cannot reasonably estimate the applicability of the
competitive principles adopted therein. In general, as the result of
proceedings in its dockets, SNET 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. In connection with the
implementation of the Connecticut Telecommunications Act, more than 100
organizations have been certified to operate as telecommunications
companies in Connecticut, including several (including AT&T and MCI) that
have been certified to provide local service. It is expected that the
implementation process will continue through 1996, and SNET will experience
competition in its local exchanges during that time.
Although the Company anticipates some changes in the
conduct of its business due to the Connecticut Telecommunications Act, the
Company cannot reasonably estimate the effects, if any, of such
legislation. Also, the Federal Telecommunications Act may affect
proceedings involving the Company under the Connecticut Telecommunications
Act. As mentioned above, certain aspects of the Company's business will be
examined in separate dockets, and the DPUC will likely focus on the Company
in 1996.
2. (i) RESEARCH ACTIVITIES - The Company continually
reviews technological advances in products and methods of providing
services used or usable by it. Expenses for these activities are
classified as general operating expenses. No material amount of money, or
time of any employee or officer of the Company, is spent on Company
sponsored research and development activities or customer sponsored
research activities.
(ii) CUSTOMERS - The Company does not have sales in an
amount equal to ten (10%) percent or more of its revenue to any single
customer or to any group of customers under common control or affiliated
with each other.
(iii) COMPLIANCE WITH ENVIRONMENTAL PROTECTION LAWS -
Compliance by the Company with Federal, state, and local provisions
relating to the discharge of materials into the environment or otherwise
relating to the protection of the environment does not have a material
effect upon the capital expenditures, earnings, or competitive position of
the Company.
(iv) EMPLOYEES - As of December 31, 1995, the Company
employed 70 persons. In January, 1996, the Company negotiated a three year
contract with its nonmanagement employees who are represented by the
Connecticut Union of Telephone Workers, Inc., which contract will expire
January 31, 1999.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
AND EXPORT SALES - Substantially all operating revenues and sales of the
Company were derived from the Service Area.
Item 2. PROPERTIES.
The Company's executive office is located on Main Street, Woodbury,
Connecticut. The Company owns a building adjacent to the executive office,
which serves as the Company's commercial and accounting offices and its
customer service center. The Company's two central offices, which contain
its primary switching equipment, are located in the Towns of Woodbury and
Southbury in buildings owned by the Company and situated on land that it
owns in fee. Substantially all connecting lines that are not located on
customers' premises are located on public roads, streets, and highways.
The remainder of the connecting lines and remote switching locations are
located on property pursuant to easements or permits in favor of the
Company. Most of the poles that hold the Company's cables and lines are
owned jointly by the Company and an electric light and power company.
Substantially all other telephone plant is owned by the Company.
Capital expenditures for all telephone plant were approximately
$3,630,000 for 1991, $1,812,000 for 1992, $2,041,000 for 1993, $3,536,000
for 1994 and $2,076,000 for 1995. Included were the replacement of the
Company's older poles and cable and additions to its central office
equipment. All of the Company's customers are served by digital central
office switching equipment, which the Company upgraded in 1992.
Based on estimates of population growth and current business
practices, the Company's central office buildings are believed to be
adequate to serve its customers for at least the next fifteen years. The
Company possesses sufficient garage and storage facilities, primarily under
a long term lease of certain property located in Woodbury, Connecticut.
Under the terms of such lease, in the second half of 2004, the Company
possesses the option to purchase such property at its then fair market
value. All telephone plant is adequate to serve the Company's present
customers. As required by increased demand for service, additional plant
will be added.
The Company is indebted pursuant to an Indenture of Mortgage and
Deed of Trust dated as of February 1, 1973, as amended by a First
Supplemental Indenture dated as of April 1, 1975, a Second Supplemental
Indenture dated as of November 1, 1977, a Third Supplemental Indenture
dated March 1, 1982, and a Fourth Supplemental Indenture dated as of July
31, 1992, by and between the Company and The First National Bank of Boston
as Trustee, pursuant to which the Company issued its Series A, B, C, D, E,
F and G First Mortgage Bonds. Series A, B, C, D, E and F have been paid
and retired. The payment of Series G bonds, in the aggregate outstanding
principal amount of $9,000,000 as of December 31, 1995, is secured by a
first mortgage of substantially all of the Company's property.
Item 3. LEGAL PROCEEDINGS.
The Company is not a party to any material pending legal
proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of the security holders since
the last annual meeting of the Company.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The discussion of the market for the Company's Common Stock,
dividends paid, and other information with respect thereto contained on
page 4 of the Company's 1995 Annual Report attached hereto as Exhibit 13 is
incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA.
The Selected Financial Data on page 2 of the Company's 1995 Annual
Report attached hereto as Exhibit 13 is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Management's Discussion and Analysis of Financial Condition and
Results of Operations on page 5 of the Company's 1995 Annual Report
attached hereto as Exhibit 13 is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and the report of Ernst & Young LLP,
independent auditors, dated February 5, 1996, included on pages 6 through
15 of the Company's 1995 Annual Report attached hereto as Exhibit 13 are
incorporated herein by reference. Additional financial information, which
is qualified in its entirety by the above-referenced financial statements,
is contained in the Financial Data Schedule attached hereto as Exhibit 27.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
The information called for by Part III (Items 10, 11, 12 and 13) is
incorporated herein by reference to pages 4 through 10 of the Company's
Proxy Statement mailed to shareholders on or about March 4, 1996.
To the best of the Company's knowledge, based on its review of
forms submitted during the year ended December 31, 1995, no officer,
director or beneficial owner of more than ten percent (10%) of the
Company's Common Stock failed to file or was delinquent in filing any
report required to be filed in accordance with Section 16(a) of the
Securities Exchange Act of 1934.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a)(1) and (2) The response to this portion of Item 14 is
submitted as a separate section of this report.
(3) Listing of Exhibits*:
The Company's 1995 Annual Report
Consent of Independent Auditors
Financial Data Schedule
(b) Reports on Form 8-K filed in the fourth quarter of 1995 -
None.
(c) Exhibits
(13) The Company's 1995 Annual Report
(23) Consent of Independent Auditors
(27) Financial Data Schedule
(d) Financial Statement Schedules - The response to this
portion of Item 14 is submitted as a separate section of
this report.
An index to the Exhibits filed or incorporated by reference
immediately precedes such Exhibits.
_____________
* The Company's previously filed Certificate of Organization (amended
to September 15, 1988) is incorporated by reference to the Company's Form
10-K for the year ended December 31, 1993, attached as Exhibit 3(i)
thereto. The Company's Bylaws (revised to June 28, 1995) are hereby
incorporated by reference to the Company's Form 10-Q for the quarter ended
September 30, 1995, attached as Exhibit 3(ii) thereto. The Company's
Fourth Supplemental Indenture of Trust dated July 31, 1992 is incorporated
by reference to the Company's Form 10-K for the year ended December 31,
1992, attached as Exhibit 4 thereto.
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
March 27, 1996
THE WOODBURY TELEPHONE COMPANY
By /s/ J. Garry Mitchell
J. Garry Mitchell
Its Chairman of the Board
of Directors
By /s/ Donald E. Porter
Donald E. Porter
Its Chief Executive Officer,
President and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By/s/ J. Garry Mitchell By/s/ Donald E. Porter
Chairman of the Board A Director
of Directors Donald E. Porter
J. Garry Mitchell
Date: MARCH 27, 1996 Date: MARCH 27, 1996
By/s/ William C. Bassett By/s/ Joyce M. Davis
A Director A Director
William C. Bassett Joyce M. Davis
Date: MARCH 27, 1996 Date: MARCH 27, 1996
By/s/ John A. Michaels
A Director
John A. Michaels
Date: MARCH 27, 1996
Annual Report on Form 10-K
Item 14(a)(1) and (2), (c) and (d)
List of Financial Statements and Financial Statement Schedule
Certain Exhibits
Financial Statement Schedule
Year Ended December 31, 1995
The Woodbury Telephone Company
Woodbury, Connecticut
Form 10-K--Item 14(a)(1) and (2)
The Woodbury Telephone Company
Index to Financial Statements and Financial Statement Schedule
The report of Ernst & Young LLP, independent auditors, dated February 5,
1996, and the following financial statements of the Company, included in
the Company's 1995 Annual Report, are incorporated by reference in Item 8:
Balance sheets--December 31, 1995 and 1994
Statements of income and retained earnings--Years ended December 31,
1995, 1994 and 1993
Statements of cash flows--Years ended December 31, 1995, 1994 and 1993
Notes to financial statements
The following financial statement schedule of the Company is included in
Item 14(d):
PAGE NO.
Schedule II-Valuation and qualifying accounts F-3
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore
have been omitted.
The Woodbury Telephone Company
Schedule II--Valuation and Qualifying Accounts
COL. A COL. B COL. C
ADDITIONS
Description Balance at Charged to Costs Charged to
Beginning of and Expenses Other
Period Accounts--
Describe
Allowance for doubtful accounts:
Year ended December 31, 1995 $60,000 $59,365
Year ended December 31, 1994 $60,000 $37,485
Year ended December 31, 1993 $40,000 $94,489
COL. D COL. E
Allowance for doubtful acounts:
Year ended December 31, 1995 $59,365 $60,000
Year ended December 31, 1994 $37,485 $60,000
Year ended December 31, 1993 $74,489 $60,000
(1) Uncollectible amounts charged off, less recoveries which are not
significant in amount.
EXHIBIT INDEX
FORM 10-K ANNUAL REPORT
FOR FISCAL YEAR ENDED DECEMBER 31, 1995
EXHIBIT NO.
3(i) Certificate of Organization, By Reference
amended to September 15, 1988.
Exhibit 3(i) to December 31,
1993 Form 10-K is incorporated
herein by reference.
3(ii) Bylaws, revised to June 28, 1995. By Reference
Exhibit 3(ii) to September 30, 1995
Form 10-Q is incorporated herein by
reference.
4 Fourth Supplemental Indenture of By Reference
Trust, dated July 31, 1996.
Exhibit 4 to December 31, 1992
Form 10-K is incorporated herein by
reference.
13 Portions of 1995 Annual Report to Attached
Stockholders
23 Consent of Ernst & Young, LLP, Attached
Independent Auditors
27 Financial Data Schedule Attached
Exhibit 13
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 related to this charge 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 plant and 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
activities 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 date 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 by the
straight-line method over the term of the related debt.
Benefit Plans
The Company has contributory defined contribution benefit plans covering
substantially all emoloyees. 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)
---------- --------- ----------
Income Taxes $ 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.
10. 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
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.
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of The Woodbury Telephone Company of our report dated February 5, 1996,
included in the 1995 Annual Report to Shareholders of The Woodbury Telephone
Company.
Our audits also included the financial statement schedule listed in Item 14(a).
This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
the financial statement schedule, referred to above, when considered in
relation to the basic financial statements taken as a whole, presents fairly
in all material respsects the information set forth therein.
/s/ Ernst & Young LLP
Ernst & Young LLP
Hartford, Connecticut
February 5, 1996