-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EWg2UoZqCZLOCgGi/MY2KxyvsZZzvvEveayYHWhGwCzBhSqBRRZ0Ikapntz6tvno nFH4rOpNHqjLZ/5Kbf3Vzg== 0000104777-99-000008.txt : 19990816 0000104777-99-000008.hdr.sgml : 19990816 ACCESSION NUMBER: 0000104777-99-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WARWICK VALLEY TELEPHONE CO CENTRAL INDEX KEY: 0000104777 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 141160510 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-11174 FILM NUMBER: 99688150 BUSINESS ADDRESS: STREET 1: 47 49 MAIN ST CITY: WARWICK STATE: NY ZIP: 10990 BUSINESS PHONE: 9149861101 MAIL ADDRESS: STREET 1: 47 49 MAIN ST STREET 2: PO BOX 592 CITY: WARWICK STATE: NY ZIP: 10990 10-Q 1 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 June 30, 1999 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 (Exact name of registrant as specified in its charter) New York 14-1160510 (State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.) 47-49 Main Street, Warwick, New York 10990 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (914) 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 issuer's classes of common stock, as of the latest practicable date: 1,817,274 common shares, no par value, outstanding at June 30, 1999. PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements WARWICK VALLEY TELEPHONE COMPANY CONSOLIDATED BALANCE SHEET June 30, December 31, 1999 1998 (Unaudited) (Audited) CURRENT ASSETS: Cash $ 564,703 $ 593,867 Accounts receivable, less accounts receivable allowance 1999 -$71,782; 1998- $65,155; 4,299,510 3,709,447 Materials and supplies 1,734,276 1,598,443 Prepaid expenses 594,967 353,598 7,193,456 6,255,355 NONCURRENT ASSETS: Unamortized debt issuance expense 29,708 36,042 Other deferred charges 124,727 180,606 Investments 2,164,662 2,302,747 2,319,097 2,519,395 PROPERTY, PLANT & EQUIPMENT: Plant in service 42,446,606 40,188,147 Plant under construction 2,015,793 1,205,922 44,462,399 41,394,069 Less: Accumulated depreciation 18,200,971 16,927,427 TOTAL PLANT 26,261,428 24,466,642 TOTAL ASSETS $35,773,981 $33,241,392 Item 1. Financial Statements (Continued) WARWICK VALLEY TELEPHONE COMPANY CONSOLIDATED BALANCE SHEET June 30, December 31, LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998 (Unaudited) (Audited) CURRENT LIABILITIES: Current maturities-long term debt $ 3,000,000 $ 0 Notes payable 600,000 400,000 Accounts payable 3,510,028 2,620,858 Advance billing and payments 79,606 100,146 Customer deposits 136,374 133,433 Accrued taxes 198,025 87,183 Accrued interest 0 74,085 Accrued pension 410,268 310,232 Other accrued expenses 246,607 342,428 8,180,908 4,068,365 LONG-TERM DEBT 4,000,000 7,000,000 DEFERRED CREDITS: Accumulated deferred federal income taxes 2,293,884 2,283,976 Unamortized investment tax credits 138,347 158,447 Other deferred credits 168,053 158,685 2,600,284 2,601,108 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 1,990,626 for 6/30/99 and 12/31/98, respectively 3,330,861 3,330,861 Retained earnings 19,942,218 18,521,348 23,773,079 22,352,209 Less: Treasury stock at cost, 173,352 shares 6/30/99 and 12/31/98, respectively 2,780,290 2,780,290 20,992,789 19,571,919 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $35,773,981 $33,241,392 The accompanying notes are an integral part of the financial statements. Item 1. Financial Statements (Continued) WARWICK VALLEY TELEPHONE COMPANY CONSOLIDATED STATEMENT OF INCOME FOR THE THREE AND SIX MONTHS ENDED June 30, 1999 AND 1998 (Unaudited) Three Months Ended Six Months Ended June 30, June 30, 1999 1998 1999 1998 OPERATING REVENUES: Local network service $ 907,880 $ 734,289 $ 1,757,455 $ 1,485,688 Network access and long distance network service 2,098,159 2,274,574 4,561,884 4,557,294 Other services and sales 2,693,300 2,170,699 5,058,519 4,252,570 5,699,339 5,179,562 11,377,858 10,295,552 Less: Provision for uncollectibles (10,150) (10,000) (21,400) (20,000) Total operating revenues 5,689,189 5,169,562 11,356,458 10,275,552 OPERATING EXPENSES: Plant specific 619,045 641,943 1,166,988 1,168,215 Plant non-specific: Depreciation 810,785 712,363 1,599,288 1,408,402 Other 145,177 161,924 297,972 306,782 Customer operations 1,118,990 1,079,164 2,367,490 2,071,848 Corporate operations 525,556 540,113 1,003,798 937,020 Cost of services and sales 431,850 431,529 940,621 862,794 Total operating expenses 3,651,403 3,567,036 7,376,157 6,755,061 OPERATING TAXES: Federal income taxes 690,465 409,326 1,288,375 966,120 Property, revenue and payroll 383,272 419,982 778,761 713,379 Total operating taxes 1,073,737 829,308 2,067,136 1,679,499 Operating income 964,049 773,218 1,913,165 1,840,992 NONOPERATING INCOME (EXPENSES)-NET: 555,177 218,316 946,795 430,189 Income available for fixed charges 1,519,226 991,534 2,859,960 2,271,181 FIXED CHARGES: Interest on funded debt 138,375 138,375 276,750 276,750 Other interest charges 8,312 17,916 16,796 37,686 Amortization 3,167 3,167 6,334 6,334 Total fixed charges 149,854 159,458 299,880 320,770 NET INCOME 1,369,372 832,076 2,560,080 1,950,411 PREFERRED DIVIDENDS 6,250 6,250 12,500 12,500 INCOME APPLICABLE TO COMMON STOCK $1,363,122 $ 825,826 $ 2,547,580 $ 1,937,911 NET INCOME PER AVERAGE SHARE OF OUTSTANDING COMMON STOCK $ 0.75 $ 0.46 $ 1.40 $ 1.07 CASH DIVIDENDS PAID PER SHARE $ 0.31 $ 0.28 $ 0.62 $ 0.54 AVERAGE SHARES OF COMMON STOCK OUTSTANDING 1,817,274 1,809,123 1,817,274 1,804,970 The accompanying notes are an integral part of the financial statements. 1. Financial Statements (Continued) WARWICK VALLEY TELEPHONE COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (Unaudited) 1999 1998 CASH FLOW FROM OPERATING ACTIVITIES: Net Income $ 2,560,080 $ 1,950,411 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,605,622 1,414,736 Deferred income tax and investment tax credit (824) (15,526) Interest charged to construction (72,537) (13,485) Change in assets and liabilities: (Increase) Decrease in accounts receivable (590,063) 1,014,060 (Increase) Decrease in materials and supplies (135,833) (636,407) (Increase) Decrease in prepaid expenses (241,369) (208,319) (Increase) Decrease in deferred charges 55,879 60,119 Increase (Decrease) in accounts payable 889,170 (627,766) Increase (Decrease) in customers' deposits 2,941 2,695 Increase (Decrease) in advance billing and payment (20,540) 0 Increase (Decrease) in accrued expenses 136,793 77,373 Increase (Decrease) in other liabilities (95,821) (69,052) Net cash provided by operating activities 4,093,498 2,948,839 CASH FLOW FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment (3,394,074) (1,558,886) Interest charged to construction 72,537 13,485 Changes in other investments 138,085 (409,922) Net cash used in investing activities (3,183,452) (1,955,323) CASH FLOW FROM FINANCING ACTIVITIES: Increase (Decrease) in notes payable 200,000 (200,000) Dividends (1,139,210) (989,621) Sale of common stock 0 382,426 Net cash provided by (used in) financing activities (939,210) (807,195) Increase (Decrease) in cash and cash equivalents (29,164) 186,321 Cash and cash equivalents at beginning of year 593,867 482,534 Cash and cash equivalents at end of year $ 564,703 $ 668,855 The accompanying notes are an integral part of the financial statements. Item 1. Financial Statements (Continued) WARWICK VALLEY TELEPHONE COMPANY NOTES TO FINANCIAL STATEMENTS 1.In the opinion of the management of the Warwick Valley Telephone Company, the accompanying financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the company's financial position as of June 30, 1999 and December 31, 1998, its income for the three-month and six-month periods ended June 30, 1999 and 1998 and its cash flow for the six periods ended June 30, 1999 and 1998. These financial statements should be read in conjunction with the financial statements and the notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. The results of operations for any interim period are not necessarily indicative of the results of operations for a full year. 2.Non-operating income and expenses for the three-month and six-month periods ended June 30, 1999 and 1998 were as follows: Three Months Ended Six Months Ended June 30, June 30, 1999 1998 1999 1998 Interest income $ 3,537 $ 703 $ 7,017 $ 1,994 Interest during construction 46,533 667 72,537 13,485 G/L disposition certain property 52,606 311 53,491 14,510 Special charges (6,966) (6,994) (11,831) (9,292) Other non-operating income 459,467 223,629 825,581 409,492 $555,177 $218,316 $946,795 $430,189 WARWICK VALLEY TELEPHONE COMPANY ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS -SIX MONTHS ENDED JUNE 30, 1999 - The Company's net income from all sources increased $609,669 (or 31.3%) to $2,560,080 for the six- month period ended June 30, 1999, as compared to the same period in 1998. Operating revenues increased by $1,080,906 (or 10.5%) after provision for uncollectibles, to $11,356,458 for the six-month period ended June 30, 1999 as compared to $10,275,552 for the corresponding period of 1998. The change in operating revenues was primarily the result of increases in local network service of $271,767 (or 18.3%) and other services and sales of $805,949 (or 18.9%) during the period as compared to the same six month period of 1998. Operating expenses increased by $621,096 (or 9.2%) to $7,376,157 for the six-month period ended June 30, 1999 as compared to the same period in 1998. Increased costs of salaries and benefits (approximately $195,000), depreciation ($191,000), legal fees ($76,000) and trunkline agreements ($264,000) were partially offset by decreases in costs for employee recruiting ($34,000), regulatory agency expense ($31,000), directory commissions ($21,000) and stationery and printing ($22,000). Non-operating income and expenses increased by $516,606 from $430,189 in the six-month period ended June 30, 1998 to $946,795 in the same period of 1999 largely as a result ofimproved earnings in the Company's cellular partnership. (See Liquidity and Capital Resources). RESULTS OF OPERATIONS -THREE MONTHS ENDED JUNE 30, 1999 -The Company's net income from all sources increased $537,296 (or 64.5%) to $1,369,372 for the three-month period ended June 30, 1999, as compared to $832,076 for the same period in 1998. Operating revenues increased by $519,627 (or 10.1%) after provisions for uncollectibles, to $5,689,189 for the three-month period ended June 30, 1999 as compared to $5,169,562 for the corresponding period of 1998. The increase in operating revenues was caused mainly by the increase in other services and sales over the 1998 period. Operating expenses increased by $84,367 (or 2.4%) to $3,651,403 for the three-month period ended June 30, 1999 as compared to the same period in 1998. Increased costs of trunk line agreements ($139,000) and depreciation ($98,500) were offset by decreases in costs for regulatory agency expense ($45,700), employee recruiting ($34,000), material ($12,000), directory commissions ($21,000), stationery and printing ($22,000) and repairs and maintenance to vehicles ($15,600). Non-operating income and expenses increased by $336,861 to $555,177 in the three month period ended June 30, 1999 as compared to the same period of 1998 largely as a result of increased earnings in our cellular partnership referred to above under Results of Operations - Six Months ended June 30, 1999. (See Liquidity and Capital Resources below.) LIQUIDITY AND CAPITAL RESOURCES - The Company's working capital decreased to ($987,452) at June 30, 1999 from $2,250,904 at June 30, 1998. Increases in current maturities-long term debt,accounts payable and notes payable were the main factors contributing to this decrease. The Company holds a 7.5% limited partnership interest in the cellular mobile telephone partnership which is licensed to operate as the wire-line licensee in both Orange and Dutchess Counties, New York. Since the inception of the partnership, the Company has made capital contributions of $249,750. No further capital contributions are currently scheduled. The Company's share in the partnership's earnings was approximately $828,000 during the first six months of 1999, compared to $416,000 for the corresponding 1998 period. A wholly-owned subsidiary of the Company, Warwick Valley Mobile Telephone Company (WVMT), resells cellular telephone service to the Company's subscribers as well as to others. WVMT also sells and installs cellular telephone sets. The Company has invested approximately $182,000 in WVMT since its operations began on April 1, 1989. WVMT earned approximately $38,000 during the first six months of 1999, compared to $33,000 for the corresponding 1998 period. A second wholly-owned subsidiary, Warwick Valley Long Distance Company, Inc. (WVLD), began business in December 1993 in New Jersey and in May 1994 in New York. WVLD resells toll service to customers of Warwick Valley Telephone. WVLD achieved positive retained earnings prior to the end of 1994 and has been profitable since then, earning approximately $201,000 during the first six months of 1999, compared to $210,000 for the corresponding 1998 period. An additional wholly-owned subsidiary, Warwick Valley Networks, Inc. (WVN), was established during 1994. WVN is a partner in the New York State Independent Network (NYSINET), which was created by the independent telephone companies of New York to build and operate its own data connections network. NYSINET will make it unnecessary for its member companies to rely on outside companies for these services and may also offer services to companies who are not members, creating a potential source of additional revenue. The NYSINET network was in operation during 1997 with Warwick Valley Telephone Company connecting in July of that year. To this date not all members have been added to the network. WVN has invested approximately $52,000 in NYSINET to date. Another wholly-owned subsidiary, Hometown Online, Inc. (ONLINE) was organized during 1995. ONLINE is the corporate entity through which WVTC provides personal computer users connectivity to the Internet as well as local and regional information services. Service is offered within WVTC's service area as well as in nearby areas of New York, New Jersey and Pennsylvania. ONLINE began service in July 1995. WVTC has invested approximately $1,059,000 in ONLINE since its inception. ONLINE earned approximately $249,000 during the first six months of 1999, compared to $143,000 for the corresponding 1998 period. 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 Company itself can provide competitive local exchange telephone service outside its franchised territory. Certification as a common carrier in the State of New York was received on October 2, 1998 and in the State of New Jersey on March 3, 1999. As a result, the Company has negotiated agreements for local wireline network interconnection with Citizens Telecommunications of New York, Inc. in the Middletown, New York area. On December 23, 1998 The New York State Public Service Commission ( NYPSC') issued an order requiring Citizens Telecommunications of New York, Inc. to provide local wireline network interconnection to the Company by March 31, 1999. This date was subsequently postponed by the NYPSC to June 7, 1999. Based upon the above agreement the Company installed a central office at 24 John Street in Middletown, New York on February 10, 1999, where it has provided extended local service since June 10, 1999. The Company is reviewing plans to provide limited service in other surrounding areas in both New York and New Jersey. DEALING WITH THE IMPACT OF YEAR 2000 ON INFORMATION PROCESSING SYSTEMS - The Company incurred costs during 1998 and has incurred additional costs during 1999 addressing the impact of the Year 2000 problem on its information systems. The Year 2000 problem, which affects most corporations to varying degrees, concerns the inability of information systems, primarily computer software programs, to properly recognize and process date sensitive information as the year 2000 approaches. This inability results largely from the use in earlier software of two, rather than four digits to identify years. The Company has completed an assessment of its systems and has developed a specific work plan to address this issue. The Company currently believes it will be able to modify or replace its affected systems in time to minimize any detrimental effects on operations. If it cannot, the Company could, in the worst case, have inaccurate dating of its telephone toll records or be unable to provide internet service. As a telephone company and provider of other telecommunications services, the Company depends for its operations on various kinds of hardware and software that may require modification or replacement in order to properly treat certain dates, including dates beginning on January 1, 2000. Since 1994, the Company has been making the necessary modifications in all software that it has generated internally. In 1997, it began a broader program to address the readiness of its systems for Year 2000 date-change issues. In the second quarter of 1997, the Company created a continually updated document that is intended to contain all procedures and plans related to the Company's Year 2000 remediation efforts. The first part of the planning and implementation document to be created was an inventory of all computer applications and a ranking of those applications by potential business impact. The management of the Company reviewed and adopted this document in the third quarter of 1997. In the fourth quarter of 1997, the Company's Management Information Systems Department began a more detailed analysis of the software and hardware in each of the applications identified in the inventory. This analysis was completed in the second quarter of 1998. In the third quarter of 1998, the Company began making the software modifications identified as being necessary and is replacing all date-dependent computer chips in its personal computers. In the second quarter of 1999 the Company finished making all necessary modifications to the software programs for which upgrades will not be purchased from outside suppliers. The Company's operations depend largely on two different main computer systems, an IBM AS/400 operating system used for processing orders, billing and accounting, and a NorTel DMS 100/200 telephone switching system, which performs all telephone switching operations. The IBM AS/400 operating system software has been upgraded to a version that IBM has certified as Year 2000 compliant. The NorTel DMS 100/200 software has been upgraded to a version that NorTel has certified as Year 2000 compliant. The Company was able to test the software of the AS/400 systems for compliance in the program test environment of the system, but it must rely on NorTel's certification with respect to the NorTel DMS 100/200 system, since the Company has no effective means of shutting down its switches for testing. During 1998 the cost of upgrading the Company's personal computers and operating systems was expensed and did not exceed $18,000. The cost of upgrading the NorTel DMS 100/200, anticipated to total approximately $660,000, was incurred during the second quarter of 1999 and capitalized. The cost for upgrading the AS/400 software was included with the price of the new AS/400 system installed in the first quarter of 1999. The Company does not directly interface with third parties in connection with the operations that are run on its AS/400 system. All third-party data utilized on the AS/400 is transmitted in tape form and is in a standard format, for which the Company has plans to make programming adaptations as necessary. The operating systems of the Company's internet and local area network servers have also been represented to be Year 2000 compliant by the systems providers. The Company is able to handle partial failures of AS/400 system and would utilize normal back-up procedures in the event of such partial failures. The Company, however, has no contingency plan for the eventuality that its NorTel DMS 100/200 switches could fail, both because management considers the likelihood of such a failure to be very low and because switching equipment is built with totally parallel hardware to deal with hardware, but not software, failure. The Company's ability to supply long-distance and internet service to its customers in the future will depend in part on the effectiveness of the Year 2000 remediation efforts of the companies with which it interconnects. The Company has communicated with those companies and will continue to communicate with them. In addition, there can be no guarantee that the systems of those other companies will be timely corrected, or that a failure to correct by another company would not have a material adverse effect on the Company. 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, 1998. 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 a 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. The Company also has a line of credit which accrues interest at 0.75% below prime rate. PART II - OTHER INFORMATION ITEMS 1. (Legal Proceedings), 2 (Changes in Securities), and 3 (Defaults Upon Senior Securities), 4 (Submission of Matters to a Vote of Securities Holders) and 5 (Other Information) are inapplicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits - Not applicable b) Reports on Form 8-K - Not applicable 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 August 13, 1999 /S/ Herbert Gareiss, Jr., Vice President (Duly Authorized Officer) Date August 13, 1999 /S/ Robert A. Sieczek, Treasurer (Principal Financial and Chief Accounting Officer) EX-27 2
UT 6-MOS DEC-31-1998 JUN-30-1999 PER-BOOK 26,261,428 2,164,622 7,193,456 124,727 0 35,773,981 3,330,861 0 19,942,218 23,273,079 0 500,000 4,000,000 600,000 0 0 3,000,000 0 0 0 4,440,902 35,773,981 11,377,858 1,288,375 778,761 7,376,157 1,913,165 946,795 2,859,960 299,880 2,560,080 12,500 2,547,580 1,126,710 276,750 4,093,498 1.40 0
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