SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from To
Commission file number 0-11174
WARWICK VALLEY TELEPHONE COMPANY
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(Exact name of registrant as specified in its charter)
New York 14-1160510
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(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
47 Main Street, Warwick, New York 10990
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(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code (845) 986-8080
Former name, former address and former fiscal year, if changed since last
report.
INDICATE BY CHECK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
Indicate the number of shares outstanding of each of the issuers'
classes of common stock, as of the latest practicable date: 1,803,519 common
shares, no par value, outstanding at September 30, 2001.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
WARWICK VALLEY TELEPHONE COMPANY
CONSOLIDATED BALANCE SHEET
SEPTEMBER, DECEMBER 31,
2001 2000
----------------- -----------------
(Unaudited) (Audited)
CURRENT ASSETS:
Cash $ 244,234 $ 738,495
Accounts receivable-net of reserve for uncollectibles 5,098,128 4,090,401
Materials and supplies 2,865,205 1,665,679
Prepaid expenses 1,022,965 487,805
----------------- ------------------
TOTAL CURRENT ASSETS 9,230,532 6,982,380
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NONCURRENT ASSETS:
Unamortized debt issuance expense 11,667 15,630
Other deferred charges 13,508 93,613
Investments 6,028,530 5,488,603
----------------- ------------------
TOTAL NONCURRENT ASSETS 6,053,705 5,597,846
----------------- ------------------
PROPERTY, PLANT & EQUIPMENT:
Plant in service 50,995,256 49,338,440
Plant under construction 5,439,672 2,454,882
----------------- ------------------
56,434,928 51,793,322
Less: Accumulated depreciation 25,136,902 22,360,624
----------------- ------------------
TOTAL PROPERTY, PLANT & EQUIPMENT 31,298,026 29,432,698
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TOTAL ASSETS $ 46,582,263 $ 42,012,924
================= ==================
Item 1. Financial Statements (Continued)
WARWICK VALLEY TELEPHONE COMPANY
CONSOLIDATED BALANCE SHEET
SEPTEMBER, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2001 2000
------------------ ----------------
(Unaudited) (Audited)
CURRENT LIABILITIES:
Notes payable $ 5,400,000 $ 4,950,000
Accounts payable 3,164,415 2,799,229
Advance billing and payments 55,830 193,862
Customer deposits 131,027 130,990
Accrued taxes 35,482 26,432
Accrued interest 94,263 28,563
Other accrued expenses 336,448 381,023
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TOTAL CURRENT LIABILITIES 9,217,465 8,510,099
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--------------- ------------
LONG TERM DEBT 4,000,000 4,000,000
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DEFERRED CREDITS & OTHER LONG TERM LIABILITIES:
Accumulated deferred federal income taxes 2,324,473 2,207,871
Unamortized investment tax credits 54,047 81,047
Other deferred credits 474,568 47,218
Post retirement benefit obligation 685,261 772,756
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TOTAL DEFERRED CREDITS & OTHER LONG TERM LIABILITIES 3,538,349 3,108,892
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STOCKHOLDERS' EQUITY:
Preferred stock - 5% cumulative; $100 par value;
Authorized 7,500 shares;
Issued and outstanding 5,000 shares 500,000 500,000
Common stock - no par value;
Authorized shares: 2,160,000
Issued 1,994,016 for 9/30/01 and 1,993,593 for 12/31/00 3,467,749 3,450,465
Retained earnings 29,243,500 25,828,268
Treasury stock at cost, 190,497 shares for 9/30/01 and
12/31/00, respectively (3,384,800) (3,384,800)
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TOTAL STOCKHOLDERS' EQUITY 29,826,449 26,393,933
--------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $46,582,263 $42,012,924
=============== ============
The accompanying notes are an integral part of these financial statements.
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Item 1. Financial Statements
WARWICK VALLEY TELEPHONE COMPANY
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
---- ---- ---- ----
OPERATING REVENUES:
Local network service $1,078,617 $1,005,437 $ 3,244,870 $ 3,038,975
Network access service 1,890,271 1,791,806 5,635,357 5,250,566
Long distance network service 535,023 586,446 1,626,692 1,782,113
Directory advertising 308,035 274,926 870,784 801,375
Long distance sales 530,622 519,329 1,571,055 1,477,737
Internet services 1,584,507 1,523,299 4,555,969 4,148,869
Other services and sales 978,899 1,719,239 3,215,475 3,503,642
---------- ---------- ----------- -----------
Total operating revenues 6,905,974 7,420,482 20,720,202 20,003,277
---------- ---------- ----------- -----------
OPERATING EXPENSES:
Plant specific 781,533 816,538 2,603,852 2,333,712
Plant non-specific:
Depreciation & amortization 899,954 827,308 2,820,542 2,642,465
Other 520,480 383,305 1,553,870 1,119,226
Customer operations 1,111,260 1,023,038 3,315,491 3,104,018
Corporate operations 707,283 744,727 2,177,505 2,288,724
Cost of services and sales 489,564 483,239 1,639,892 1,518,309
Property, revenue and payroll taxes 346,553 424,852 1,213,468 1,224,717
---------- ---------- ----------- -----------
Total operating expenses 4,856,627 4,703,007 15,324,620 14,231,171
---------- ---------- ----------- -----------
OPERATING INCOME 2,049,347 2,717,475 5,395,582 5,772,106
OTHER INCOME (EXPENSE)
Interest expense (144,776) (153,324) (513,309) (442,602)
Interest income 82,795 28,127 196,649 78,962
Income from cellular partnership 1,170,691 928,827 3,566,010 2,441,945
Other income (expense) (9,640) 14,934 (12,579) 70,626
---------- ---------- ----------- -----------
Total other income (expense) - net 1,099,070 818,564 3,236,771 2,148,931
INCOME BEFORE TAXES 3,148,417 3,536,039 8,632,353 7,921,037
FEDERAL INCOME TAXES 1,061,461 1,192,651 2,907,999 2,664,352
NET INCOME 2,086,956 2,343,388 5,724,354 5,256,685
PREFERRED DIVIDENDS 6,250 6,250 18,750 18,750
---------- ---------- ----------- -----------
INCOME APPLICABLE TO COMMON STOCK $2,080,706 $2,337,138 $ 5,705,604 $ 5,237,935
---------- ---------- ----------- -----------
NET INCOME PER AVERAGE SHARE OF
OUTSTANDING COMMON STOCK $ 1.15 $ 1.32 $ 3.16 $ 2.91
========== ========== =========== ===========
CASH DIVIDENDS PAID PER SHARE $ 0.43 $ 0.40 $ 1.27 $ 1.14
========== ========== =========== ===========
AVERAGE SHARES OF COMMON STOCK
OUTSTANDING 1,804,251 1,806,087 1,804,251 1,814,437
========== ========== =========== ===========
The accompanying notes are an integral part of the financial statements.
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Item 1. Financial Statements (Continued)
WARWICK VALLEY TELEPHONE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(Unaudited)
2001 2000
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CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 5,724,354 $ 5,256,685
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and amortization 2,820,542 2,642,465
Deferred income tax and investment tax credit 429,457 119,098
Interest charged to construction (185,824) (60,200)
Change in assets and liabilities:
(Increase) Decrease in accounts receivable (1,007,727) (863,447)
(Increase) Decrease in materials and supplies (1,199,526) (632,371)
(Increase) Decrease in prepaid expenses (535,160) (157,696)
(Increase) Decrease in deferred charges 80,105 201,544
Increase (Decrease) in accounts payable 365,186 884,371
Increase (Decrease) in customers' deposits 37 2,810
Increase (Decrease) in advance billing and payment (138,032) 59,402
Increase (Decrease) in accrued expenses 74,750 546,670
Increase (Decrease) in other liabilities (44,575) (220,084)
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Net cash provided by operating activities 6,383,587 7,779,247
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CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (4,681,907) (3,238,495)
Interest charged to construction 185,824 60,200
Changes in other investments (539,927) (2,317,028)
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Net cash used in investing activities (5,036,010) (5,495,323)
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CASH FLOW FROM FINANCING ACTIVITIES:
Increase (Decrease) in notes payable 450,000 2,900,000
Repayment of long term debt 0 (3,000,000)
Sale of common stock 17,284 79,241
Purchase of treasury stock 0 (604,510)
Dividends (2,309,122) (2,086,104)
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Net cash provided by (used in) financing activities (1,841,838) (2,711,373)
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Increase (Decrease) in cash and cash equivalents (494,261) (427,449)
Cash and cash equivalents at beginning of year 738,495 865,521
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Cash and cash equivalents as of September 30, $ 244,234 $ 438,072
=========== ===========
The accompanying notes are an integral part of the financial statements.
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Item 1. Financial Statements
WARWICK VALLEY TELEPHONE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of the
Company's management, all adjustments (consisting of normal recurring
accruals) considered necessary for fair presentation have been included.
Operating results for the nine-month period ended September 30, 2001 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2001.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements, and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates. The
balance sheet as of December 31, 2000 has been derived from the audited
consolidated financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
For further information, please refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2000.
RECENT ACCOUNTING PRONOUNCEMENTS - In June 2001, the FASB issued SFAS No.
141, "Business Combinations." This pronouncement eliminated the use of the
"pooling of interests" method of accounting for all mergers and
acquisitions. As a result, all mergers and acquisitions will be accounted
for using the "purchase" method of accounting. SFAS No. 141 is effective
for all mergers and acquisitions initiated after June 30, 2001. Adoption of
this pronouncement has no impact on our results from operations or our
financial position.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." This statement addresses financial accounting and
reporting for intangible assets (excluding goodwill) acquired individually
or with a group of other assets at the time of their acquisition. It also
addresses financial accounting and reporting for goodwill and other
intangible assets subsequent to their acquisition. SFAS No. 142 is
effective for fiscal years beginning after December 15, 2001. We currently
estimate the adoption of SFAS No. 142 will have no impact on our results
from operations or our financial position.
In August 2001, the FASB issued SFAS 144, "Accounting for the
Impairment or Disposal of Long Lived Assets", which addresses financial
accounting and reporting for the impairment or disposal of long-lived
assets. SFAS 144 is effective for fiscal years beginning after December 15,
2001. The adoption of SFAS 144 will have no impact on our results of
operation or our financial position.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS NINE MONTHS ENDED September 30, 2001 - The Company"s net
income from all sources increased $467,669 (or 8.9%) to $5,724,354 for the
nine-month period ended September 30, 2001, as compared to an increase of
$1,182,324 to $5,256,685 for the corresponding period in 2000. Operating
revenues increased by $716,925 (or 3.6%) to $20,720,202 for the nine-month
period ended September 30, 2001 as compared to $20,003,277 for the corresponding
period of 2000. The change in operating revenues was primarily the result of
increases in online services of $407,100 (or 9.8%) and network access service of
$384,791 (or 7.3%) during the period as compared to the same nine-month period
of 2000.
Operating expenses increased by $1,093,449 (or 7.7%) to $15,324,620 for
the nine-month period ended September 30, 2001 as compared to an increase of
$1,956,173 (or 15.9%) to $14,231,171 for the corresponding period in 2000 due
primarily to increased trunkline agreements ($622,174), costs of salaries and
benefits ($360,962), and depreciation expense of ($180,539).
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Other income and expenses increased by $1,087,840 (or 50.6%) from
$2,148,931 in the nine-month period ended September 30, 2000 to $3,236,771 in
the corresponding period of 2001 largely as a result of improved earnings in the
Company's cellular partnership, Orange Poughkeepsie. (See Liquidity and Capital
Resources).
RESULTS OF OPERATIONS-THREE MONTHS ENDED September 30, 2001 - The Company"s net
income decreased $256,432 (or 10.9%) to $2,086,956 for the three-month period
ended September 30, 2001, as compared to the $2,343,388 for the corresponding
period in 2000. Operating revenues decreased by $514,508 (or 6.9%) to $6,905,974
for the three-month period ended September 30, 2001 as compared to $7,420,482
for the corresponding period of 2000. The change in operating revenues was
largely due to a reciprocal compensation decrease in the amount of $749,921 (or
76.0%) for the Company's CLEC operations partially offset by an increase of
$215,114 (or 14.4%) in switched access revenues during the period as compared to
the corresponding period of 2000.
Operating expenses increased by $153,620 (or 3.3%) to $4,856,627 for
the three-month period ended September 30, 2001 as compared to the $4,703,007
for the corresponding period in 2000, primarily due to increased costs of
trunkline agreements ($239,600) offset by a decrease of $65,700 in pension
expense.
Other income and expenses increased by $280,506 (or 34.3%) from
$818,564 in the three-month period ended September 30, 2000 to $1,099,070 for
the corresponding period of 2001 largely as a result of improved earnings in the
Company"s cellular partnership, Orange Poughkeepsie. (See Liquidity and Capital
Resources).
LIQUIDITY AND CAPITAL RESOURCES - We had $244,234 of cash and cash equivalents
available at September 30, 2001. The company has lines of credit with two banks
totaling $5,500,000 of which $100,000 remains unused. $2,500,000 of the total
line of credit is at a variable lending rate and borrowings are on a demand
basis without restrictions.
CASH FROM OPERATING ACTIVITIES - During 2001 the Company's primary source of
funds continues to be cash generated from operations, as shown in the
consolidated statements of cash flows. Net cash provided by operating activities
exceeded our capital expenditures during the nine-month period ending September
30, 2001; this excess is referred to as free cash flow, a supplemental measure
of liquidity. The Company generated free cash flow of $1,701,680 during the
nine-month period ending September 30, 2001 as compared to $4,540,752 for the
corresponding period of 2000.
CASH FROM INVESTING ACTIVITIES - In order to provide the high-quality
communications services expected from our customers, the company continued to
aggressively invest in and upgrade its property, plant and equipment. The amount
of investment is influenced by demand for services and products, ongoing growth,
regulatory commitments and plant refurbishment.
Our capital expenditures totaled $4,681,907 during the nine-month
period ending September 30, 2001 as compared to $3,238,495 for the corresponding
period of 2000. The majority of these expenditures can be attributed to the
expansion of our local exchange service into new markets, DSL and digital and
broadband network upgrades.
Bell Atlantic Orange County/Poughkeepsie Limited Partnership is
licensed to operate as the wire line licensee in both Orange and Dutchess
Counties, New York. The Company's share in the partnership's earnings increased
by $1,124,010 (or 46.0%) to $3,566,010 during the first nine months of 2001,
compared to $2,442,000 for the corresponding 2000 period. It is expected that
these significant increases will continue in the near future.
The Company purchased an 8.9% ownership interest in Hudson Valley
DataNet ("HVDN"), L.L.C., for $1,000,000. HVDN is a competitive
telecommunications company that offers high-speed bandwidth throughout the
region of Orange, Dutchess and Ulster counties.
The Company owns a 16.943% interest in Zefcom, L.L.C., a licensed
reseller of wireless services, during 2000. In addition to the initial capital
contribution of $1,000,000, the Company has a commitment to contribute another
$500,000 to Zefcom, L.L.C. in the form of a promissory note payable on demand.
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CASH FROM FINANCING ACTIVITIES - Dividends declared by the Board of Directors of
Warwick Valley Telephone Company were $1.27 per share for the nine-month period
ending September 30, 2001, compared to $1.14 for the corresponding period in
2000. The total dividends paid through the third quarter of 2001 for common
stock by Warwick Valley Telephone Company was $2,290,372, compared to $2,067,354
for the same period in 2000. Warwick Valley Telephone Company's dividend policy
considers both the expectations and requirements of shareowners and the internal
requirements of the company.
During 2000, the company refinanced the $3,000,000 Series I bond due
May 1, 2000 to a notes payable with the Bank of New York.
COMPETITION -The Telecommunications Act of 1996 (the "Act") creates a nationwide
structure in which competition is allowed and encouraged between local exchange
carriers, interexchange carriers, competitive access providers, cable TV
companies and other entities. The markets affected first have been the regional
toll areas in New York and New Jersey. Regional toll competition was implemented
in New York on January 1, 1997 and in New Jersey in May 1997. The competition in
these regional toll areas has had the effect of reducing Warwick"s revenues. The
reduction in regional toll revenues for the first nine months of 2001 was
$80,735 (or 10.6%) from $760,034 to $679,299 in New York and $106,701 (or 9.7%)
from $1,104,554 to $997,852 in New Jersey as compared to the same period in
2000. Under the Act the Company itself can provide competitive local exchange
telephone service outside its franchised territory. The Company is currently
competing with Citizen's Telecommunications of New York in the Middletown, New
York area for local service by leasing loops and overbuilding Citizen's plant.
The Company is also reviewing plans to provide limited service in other
surrounding areas in both New York and New Jersey. However, there can be no
assurances that the Company will implement any such additional plans, or that
other companies will not begin providing competitive local exchange telephone
service in the Company's franchise territory.
The Company's February 9, 2001 petition to issue unsecured promissory
notes in the aggregate of $21,238,971, with the New York State Public Service
Commission ("NYSPSC") remains pending. Action on this petition by the NYSPSC is
now expected, but not assured, during the fourth quarter of 2001.
The Company has filed a petition with the NYSPSC seeking approval to
reorganize its corporate structure in order to create a holding company that
would separate its regulated local exchange operations from its deregulated
operations. Under this reorganization plan, corporate management and
administrative functions would remain at Warwick Valley Telephone Company,
proposed to be renamed WVT Communications Inc., which would become the
unregulated holding company of a regulated local exchange subsidiary (proposed
to be named Warwick Valley Telephone Company) and other unregulated
subsidiaries. Before the Company may complete this proposed reorganization plan,
it must first obtain the approval of both the NYSPSC and its shareholders.
Assuming all approvals are obtained, the Company expects to complete this
reorganization by the end of 2001.
CONSOLIDATION - The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All material intercompany
transactions and balances have been eliminated in the consolidated financial
statements. Certain prior year amounts have been reclassified to conform with
the financial statements in the Company"s Annual Report on Form 10-K for the
year ended December 31, 2000.
FORWARD LOOKING STATEMENTS - Certain statements contained in this Form 10-Q,
including, without limitation, statements containing the words "believes,"
"anticipates," "intends," "expects" and words of similar import, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others the following: general economic and business conditions, both
nationally and in the geographic regions in which the Company operates; industry
capacity; demographic changes; existing governmental regulations and changes in
or the failure to comply with, governmental regulations; legislative proposals
relating to the businesses in which the Company operates; competition; or the
loss of any significant ability to attract and retain qualified personnel. Given
these uncertainties, current and prospective investors should be cautioned in
their reliance on such forward-looking statements. The Company disclaims any
obligations to update any such factors or to publicly announce the results of
any revision to any of the forward-looking statements contained herein to
reflect future events or developments.
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ITEM 3. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - The Company
does not hold or issue derivatives instruments for any purposes or other
financial instruments for trading purposes. The Company"s only assets exposed to
market risk are its interest bearing bank accounts, into which the Company
deposits its excess operating funds on a daily basis. The Company's mortgage
liabilities currently bear interest at fixed rates. If the Company refinances
its liabilities when they mature the nature and amount of the applicable
interest rate or rates will be determined at that time
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - Not Applicable
ITEM 2. CHANGES IN SECURITIES - Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS - Not Applicable
ITEM 5. OTHER INFORMATION - Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits - Not applicable
b) Reports on Form 8-K - Form 8-K reporting date: May 11, 2001. Item
Reported - Item 5. Other Events and Regulation FD. Disclosure: The
Company filed a petition with the New York Public Service Commission
seeking approval to reorganize its corporate structure in order to
create a holding company that would separate its regulated local
exchange operations from its deregulated operations.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Warwick Valley Telephone Company
Registrant
Date 11/14/01 /S/ Herbert Gareiss, Jr.
-------- -----------------------------------------
Herbert Gareiss, Jr., Vice President
(Duly Authorized Officer)
Date 11/14/01 /S/Philip A. Grybas
-------- ------------------------------------------
Philip A. Grybas, Vice President
(Principal Financial and Chief
Accounting Officer)
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