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Exhibit Index on Page 14
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended JANUARY 1, 2002 to DECEMBER 31, 2002
---------------- -----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number , 0-11174
WARWICK VALLEY TELEPHONE COMPANY 401(K) PLAN
(Full title of the Plan)
WARWICK VALLEY TELEPHONE COMPANY
47 Main Street
P.O. Box 592
Warwick, New York 10990
(Address of principal executive office)
(Name of Issuer and address of principal executive office)
WARWICK VALLEY TELEPHONE COMPANY 401(k) PLAN
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2002
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WARWICK VALLEY TELEPHONE COMPANY 401(k) PLAN
INDEX TO FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
PAGE
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Report of Independent Public Accountants 3
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, 4
as of December 31, 2002 and 2001
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, 5
For the Years Ended December 31, 2002, 2001 and 2000
Notes to Financial Statements 6-11
Schedule of Assets Held for Investment Purposes
as of December 31, 2002 12
Signatures 13
Exhibit Index 14
Consent Form 15
Certification 16
2
June 19, 2003
To the Benefits Committee
Warwick Valley Telephone Company
401(k) Plan
P.O. Box 592
Warwick, New York 10990
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying statement of net assets available for benefits
of Warwick Valley Telephone Company 401(k) Plan (the Plan) as of December 31,
2002 and 2001, and the related statement of changes in net assets available for
benefits for the years ended December 31, 2002, 2001 and 2000. These financial
statements and the schedule referred to below are the responsibility of the
Plan's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits 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 net assets available for benefits of the Plan as of
December 31, 2002 and 2001, and the changes in its net assets available for
benefits, for the years ended December 31, 2002, 2001 and 2000, in conformity
with accounting principles generally accepted in the United States of America.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule listed in the
accompanying index is presented for purposes of additional analysis and is not a
required part of the basic financial statements but is supplementary information
required by the Department of Labor Rules and Regulations for Reporting and
Disclosure under the Employee Retirement Income Security Act of 1974. The
supplemental schedule has been subjected to the auditing procedures applied in
the audit of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
3
WARWICK VALLEY TELEPHONE COMPANY 401(K) PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2002 AND 2001
2002 2001
----------- -----------
Investments, at fair value:
Cash Equivalents (Money Market Fund) $ 1,925,279 $ 1,254,268
Warwick Valley Telephone Company Stock 5,168,368 5,295,980
Registered Investment Companies 3,658,254 3,858,868
----------- -----------
10,751,901 10,409,116
Participant Loan Receivables 274,890 219,123
----------- -----------
TOTAL ASSETS 11,026,791 10,628,239
----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $11,026,791 $10,628,239
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
WARWICK VALLEY TELEPHONE COMPANY 401(K) PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
----------- ----------- -----------
ADDITIONS:
Additions to net assets attributed to:
Net appreciation (depreciation) in fair
value of investments $ (25,900) $ 1,194,554 $(1,058,595)
Participant loan interest income 18,465 18,728 10,625
Interest and dividends 229,025 289,161 483,368
----------- ----------- -----------
221,590 1,502,443 (564,602)
----------- ----------- ------------
Contributions:
Participants' 572,497 586,071 566,561
Employer's 406,761 426,815 388,636
Other 5,912 10,585 24,369
----------- ----------- -----------
985,170 1,023,471 979,566
----------- ----------- -----------
TOTAL ADDITIONS 1,206,760 2,525,914 414,964
----------- ----------- -----------
DEDUCTIONS:
Deductions from net assets attributed to:
Benefits paid to participants 808,208 372,881 446,933
----------- ----------- -----------
TOTAL DEDUCTIONS 808,208 372,881 446,933
----------- ----------- -----------
NET INCREASE (DECREASE) 398,552 2,153,033 (31,969)
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of year 10,628,239 8,475,206 8,507,175
----------- ----------- -----------
END OF YEAR $11,026,791 $10,628,239 $ 8,475,206
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
5
WARWICK VALLEY TELEPHONE COMPANY 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF PLAN
The following description of the Warwick Valley Telephone Company
("Company") 401(k) Plan ("Plan") provides only general information.
Participants should refer to the Plan agreement for a more complete
description of the Plan's provisions.
GENERAL
The Plan is a defined contribution plan covering all eligible employees
of the Company who are scheduled to work 1,000 hours per year. It is
subject to the provisions of the Employee Retirement Income Security Act
of 1974 (ERISA).
CONTRIBUTIONS
Each year, participants may contribute up to 100% of pretax annual
compensation, as defined in the Plan, subject to certain IRS limitations.
Participants direct the investment of their contributions into various
investment options offered by the Plan. The Plan currently offers a
variety of mutual funds, as well as the stock of the Company, as
investment options for participants. The Company will match 100% of each
participant's contributions, subject to certain limitations. The matching
contributions range from 6% to 9% of the annual compensation of eligible
participants. The Plan permits eligible participants, as defined in the
Plan, to rollover cash or other property acceptable to the Plan
Administrator from another qualified plan in addition to making qualified
voluntary participant contributions.
PARTICIPANT ACCOUNTS
Each participant's account is updated daily to reflect activity
(contributions, fund transfers, loan repayments, loans and/or
withdrawals) and the earnings or losses of the Plan assets in the
account.
VESTING
Participant accounts are fully vested and nonforfeitable at all times.
PARTICIPANT LOANS
Participants may borrow from their fund accounts a minimum of $1,000 up
to a maximum of $50,000 or 50% of their account balance, whichever is
less. The loans are secured by the balance in the participant's account
and bear interest at prime plus 1%, with prime being the rate published
on the first business day of the month in which the loan is requested.
The interest rate does not change for the duration of the loan. Principal
and interest is paid ratably through monthly payroll deductions.
6
WARWICK VALLEY TELEPHONE COMPANY 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF PLAN (CONTINUED)
PAYMENT OF BENEFITS
On termination of service due to disability or retirement, a
participant may elect to receive either a lump-sum amount equal to the
value of the participant's vested interest in his or her account, or
equal periodic payments. For termination of service due to death, a
participant's beneficiary may receive the value of the vested interest in
the participant's account as a lump-sum distribution.
If a participant has any portion of their account invested in Warwick
Valley Telephone Company Stock, he or she may take the stock as an
"in-kind" distribution or take the stock as cash. "In-kind" distribution
means the participant will receive a stock certificate for the whole
shares in his or her account. Fractional shares will be paid in cash. If
the participant wishes to take the stock portion of their account as a
cash distribution, the Company will buy the stock at the bid price on the
day the withdrawal is processed.
WITHDRAWALS
Participants may make withdrawals under the hardship provisions of the
Plan while still employed by the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accompanying financial statements of the Plan have been prepared on
the accrual method of accounting. Contributions due from the Company are
recorded on the cash basis, as the weekly remittance of contributions to
the Plan results in a negligible amount being due at the end of any
month.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America requires
the plan administrator to make estimates and assumptions that affect
certain reported amounts and disclosures. Accordingly, actual results may
differ from those estimates. Prior year amounts have been restated to
conform to the current year presentation.
RISKS AND UNCERTAINTIES
The Plan provides participants with various investment options: money
market and fixed income securities, bonds, and equity funds, as well as
the stock of Warwick Valley Telephone Company. All investment securities
are exposed to some type of risk, including, but not limited to, exposure
to changes in interest rates, market fluctuations, economic conditions,
and currency devaluation. Due to the level of risk associated with
certain investment securities, it is possible that changes in near term
risk factors could materially affect participants' account balances and
the amounts reported in the Statement of Net Assets Available for
Benefits and the Statement of Changes in Net Assets Available for
Benefits.
7
WARWICK VALLEY TELEPHONE COMPANY 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENT VALUATION AND INCOME RECOGNITION
The Plan's investments are stated at fair value. Quoted market prices
are used to value investments. Shares of mutual funds and the Company's
common stock are valued at quoted market prices, which represent the net
asset value of shares held by the Plan at year-end. The Company's common
stock is traded on the NASDAQ.
Purchases and sales of securities are recorded on a trade-date basis.
Dividends are recorded on the ex-dividend date. Interest and dividends
include distributions from the investments in mutual funds, interest from
the money market fund and dividends from the Company stock.
PLAN EXPENSES
Expenses related to the administration of the Plan have been paid by
the Company. These costs represent professional services and amounted to
approximately $49,525, $41,000 and $45,000, for the years ending December
31, 2002, 2001 and 2000, respectively.
3. INVESTMENTS
As of December 31, 2002, participants could invest their funds in the
following investment vehicles:
SCHWAB INSTITUTIONAL ADVANTAGE MONEY MARKET FUND
A fund that purchases short-term bonds from a diversified selection
of government entities and businesses including utilities, energy,
financial, durables, staples, services, retail, health and
technology.
WARWICK VALLEY TELEPHONE COMPANY COMMON STOCK FUND
The fund invests entirely in common stock of Warwick Valley
Telephone Company.
FIDELITY MAGELLAN FUND
This fund seeks capital appreciation. The fund invests primarily in
common stocks and convertible securities, with up to 20% of assets
invested in debt securities of all types and qualities. It features
domestic corporations operating primarily in the U.S., domestic
corporations that have significant activities and interests outside
the U.S., and foreign companies.
FIDELITY GROWTH AND INCOME FUND
This fund seeks long-term growth, current income and growth of
income, consistent with reasonable investment risk. The fund invests
primarily in dividend-paying common stocks with growth potential.
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WARWICK VALLEY TELEPHONE COMPANY 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
3. INVESTMENTS (CONTINUED)
FIDELITY PURITAN FUND
This fund seeks income consistent with preservation of capital.
This fund invests in a diversified array of high-yielding securities
such as common stocks, preferred stocks and bonds. The fund may
purchase foreign securities, zero-coupon bonds and indexed
securities.
FREMONT BOND FUND
This fund seeks total return consistent with preservation of
capital. The fund ordinarily invests at least 65% of assets in debt
securities, such as U.S. and foreign government obligations, domestic
and foreign corporate debt and mortgage and asset-backed securities.
VANGUARD WELLINGTON FUND
This fund seeks conservation and reasonable income. The fund
normally invests 60% to 70% of assets in common stocks and
convertible securities. It typically invests the balance of assets in
investment-grade corporate debt and U.S. government obligations. The
fund may invest up to 10% of assets in foreign securities.
VANGUARD U.S. GROWTH FUND
This fund seeks long-term growth of capital. The fund invests
primarily in common stocks and convertible securities issued by
established U.S. companies. In selecting investments, the advisor
emphasizes companies that it believes to have exceptional growth
records, strong market positions, reasonable financial strength and
relatively low sensitivity to changing economic conditions.
WELTZ VALUE FUND
This fund seeks capital appreciation, current income is secondary.
The fund invests primarily in equity securities. The advisor seeks
securities trading at prices lower than their intrinsic values. The
fund may invest in foreign securities and securities that are not
readily marketable. It may also write covered call options.
INVESCO DYNAMICS FUND
This Fund seeks capital appreciation by investing primarily in
common stocks of domestic companies.
OPPENHEIMER INTERNATIONAL GROWTH FUND
Oppenheimer International Growth Fund seeks capital appreciation.
The fund normally invests at least 65% of assets in foreign equities;
it typically invests in at least three foreign countries, including
emerging-market nations.
9
WARWICK VALLEY TELEPHONE COMPANY 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
3. INVESTMENTS (CONTINUED)
PILGRIM GNMA INCOME FUND
Pilgrim GNMA Income Fund seeks current income consistent with
liquidity and safety of principal. The fund normally invests at least
80% of assets in Government National Mortgage Association (GNMA)
certificates.
STATE STREET RESEARCH AURORA FUND
State Street Research Aurora Fund seeks high total return. The fund
normally invests at least 65% of assets in small company value
stocks. It invests in companies that appear to be trading below their
true worth. The fund normally invests in convertible securities,
warrants, common and preferred stocks.
The fair value of investments as of December 31, 2002 and 2001 are as
follows:
12/31/02 12/31/01
----------- -----------
Schwab Money Market Fund $ 1,925,279* $ 1,254,268*
Warwick Valley Telephone Company
Common Stock 5,168,368* 5,295,980*
Fidelity Magellan Fund 850,824* 1,141,370*
Fidelity Growth and Income Fund 695,507* 938,019*
Fidelity Puritan Fund 197,403 306,193
Fremont Bond Fund 278,934 182,060
Vanguard Wellington Fund 292,262 271,167
Vanguard U.S. Growth Fund 255,411 340,039
Weitz Value Fund 515,671 544,619*
Invesco Dynamics Fund 16,984 8,631
Oppenheimer Int'l Growth Fund 18,496 5,425
Pilgrim GNMA Income Fund 286,977 27,204
State Street Research Aurora Fund 249,785 94,141
----------- -----------
TOTAL INVESTMENTS $10,751,901 $10,409,116
=========== ===========
*Individual investments representing 5% or more of the Plan's net
assets.
The Plan's investments (including gains and losses on investments
bought and sold, as well as held during the year) appreciated
(depreciated) in value during the year ending December 31, 2002 as
follows:
Mutual Funds $ (819,901) $ (418,464)
Warwick Valley Telephone Company Common Stock 794,001 1,613,018
----------- -----------
$ (25,900) $ 1,194,554
=========== ===========
4. FEDERAL INCOME TAX STATUS
The Internal Revenue Service has determined and informed the Company by
a letter dated March 19, 2002 that the Plan and related trust are
designed in accordance with applicable sections of the Internal Revenue
Code (IRC). Accordingly, the Plan is exempt from paying income taxes.
10
WARWICK VALLEY TELEPHONE COMPANY 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
5. PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the
right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions of ERISA. In the event of
Plan termination, participants will continue to have a non forfeitable
interest in their Plan account.
6. RELATED PARTY TRANSACTIONS
Certain expenses of administration and servicing of the Plan, including
payroll related expenses of administrative and clerical personnel and
fees of the Trustee are provided by the Company without charge to the
Plan. The Plan has certain investments that qualify as party-in-interest
investments. These would consist of the Plan's investments in the Warwick
Valley Telephone Company Common Stock and the Schwab Money Market Fund,
as the Charles Schwab Trust Company is a trustee for the Plan.
11
WARWICK VALLEY TELEPHONE COMPANY 401(K) PLAN
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 2002
EIN: 14-1160510
PN: 006
NUMBER OF MARKET
SHARES VALUE
----------- --------
Cash Equivalents:
*Schwab Money Market Fund 1,925,279 $ 1,925,279
Common Stock:
*Warwick Valley Telephone Company 74,365 5,168,368
Investments in Registered Investment Companies:
Fidelity Magellan Fund 10,775 850,824
Fidelity Growth and Income Fund 22,946 695,507
Fidelity Puritan Fund 12,502 197,403
Fremont Bond Fund 26,795 278,934
Vanguard Wellington Fund 11,900 292,262
Vanguard U.S. Growth Fund 21,178 255,411
Weitz Value Fund 18,470 515,671
Invesco Dynamics Fund 1,593 16,984
Oppenheimer Int'l Growth Fund 1,693 18,496
Pilgrim GNMA Income Fund 31,816 286,977
State Street Research Aurora Fund 9,682 249,785
-----------
3,658,254
Participant Loans:
Participant loan accounts (rates 5.75%-10.50%)
(Maturities range from 2003-2007) 274,890
-----------
TOTAL INVESTMENTS $11,026,791
===========
*Denotes party-in-interest
The accompanying notes to financial statements are an integral part of this
schedule.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Warwick
Valley Telephone Company, The Trustee, has duly caused this annual report to be
signed on its behalf by the undersigned thereunto duly authorized.
Warwick Valley Telephone Company 401(k) Plan
By: /s/ Colleen Shannon
----------------------------------
Colleen Shannon Plan Administrator
Date: June 26, 2003
13
EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT
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23 Consent of Independent Public Accountants (Filed herewith)
99 Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
14