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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____to____
Commission File No. 0-11174
WARWICK VALLEY TELEPHONE COMPANY
(Exact name of registrant as specified in its charter)
New York 14-1160510
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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) 986-1101
Securities registered pursuant to Section 12(b) of the Act: None
Common Stock (Without Par Value)
(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 ____ NO _____
Aggregate market value of voting stock held by non-affiliates as of March 20,
1996 - (no organized market exists)
Common shares outstanding, March 20, 1996 - 618,957
DOCUMENTS INCORPORATED BY REFERENCE
Name Incorporated Into
Annual Report to Shareholders for the year
ended December 31, 1995 Parts II and IV
Proxy statement for the 1996 Annual Meeting
of Shareholders Part III
The Exhibit Index for this report is located on page 11. The total number of
pages contained in this report is 110.
Part 1.
Item 1. BUSINESS.
Warwick Valley Telephone Company (the "Company") was incorporated in
New York on January 16, 1902 and is qualified to do business as a foreign
corporation in New Jersey. The Company's executive offices are located at 47-49
Main Street, Warwick, New York 10990 (Tel. No. 914-986-8080).
The Company is an independent telephone company with 13,506 access
lines in New York State and 8,286 in New Jersey at December 31, 1995. It
provides telephone service to customers in the contiguous towns of Warwick and
Goshen, New York, and the townships of West Milford and Vernon, New Jersey. The
Company operates exchanges in Warwick (9,207 access lines), Florida (2,960
access lines) and Pine Island (1,341 access lines), New York and Vernon (5,846
access lines) and Upper Greenwood Lake (2,446 access lines), New Jersey. The
Company's service area is primarily rural and has an estimated population of
50,000.
In 1995, 19,817,962 toll calls were made on the Company's system,
representing an increase of 7.2% from 18,482,545 in 1994. Business customers
represent 21.1% of total access lines, and no single customer's annual billings
represent a significant portion of the Company's gross revenues.
The Company has installed advanced digital switching equipment in all
of its exchanges and fiber optic routes between central offices and to most
neighboring telephone companies, and is currently constructing fiber optic
routes in certain other locations.
The Company sells, as well as leases, telephone equipment both within
its territory and with the territories of other telephone companies. Residential
telephone equipment sales are made through the Company's retail stores, which
are located in the Company's main office in Warwick, New York and at Route 515
and Guthrie Drive in Vernon, New Jersey. The Company also sells and leases
business telephone systems both in its own territory and elsewhere. At present,
the sale of telephone and other equipment does not constitute a material part of
the Company's business.
The Company holds a 7.5% limited partnership interest in a cellular
mobile telephone partnership which is licensed to operate as the wire-line
licensee in both Orange and Dutchess Counties, New York. The general partner is
New York Cellular Geographic Service Area, Inc. (An affiliate of Bell Atlantic
NYNEX Mobile), and the other limited partners are Highland Telephone Company,
Sylvan Lake Telephone Company and Taconic Telephone Corporation. Since the
inception of the partnership, the Company has made capital contributions of
$249,750; no further capital contributions are expected to be required in 1995.
The partnership began offering cellular service in both counties in February
1988. The partnership's pre-tax income for the year ended December 31, 1995 was
$3,970,000, and the Company's share of that pre-tax income was $297,750.
The Company has four wholly-owned subsidiaries. Warwick Valley Mobile
Telephone Company, Inc. ("WVMT") resells cellular telephone service to the
Company's subscribers as well as to others. WVMT also sells and installs
cellular telephone sets. For the year ended December 31, 1995, WVMT had a
pre-tax profit of $19,927. Warwick Valley Long Distance Company, Inc. ("WVLD")
resells toll telephone service to the Company's subscribers. WVLD commenced
operation in New Jersey in December, 1993 and in New York in May, 1994. WVLD had
a pre-tax profit in 1995 of $315,216. Warwick Valley Networks, Inc. ("WVN") was
established during 1994 and 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 a 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 is expected to be
in operation during 1996. Hometown Online,
Inc.("Online") was established during 1995. It is the entity through which WVTC
offers connectivity to the Internet as well as local and regional information
services to personal computer users. Service is offered within WVTC's service
area as well as in nearby areas in New York, New Jersey and Pennsylvania.
Online, which began business in July, 1995, had a pre-tax loss of $200,003 in
1995.
COMPETITION
Residential customers can purchase telephone sets (including cellular
sets) and equipment compatible and operational with the Company's telephone and
cellular systems at other retail outlets inside and outside the Company's
territory and not affiliated with the Company. Such outlets include other
telephone company telephone stores, department stores, discount stores and
mail-order services. Businesses in the Company's service area are also allowed
to purchase equipment compatible and operational with the Company's system from
other telephone and "interconnect" companies. The Company's territory is
surrounded by the territories of NYNEX, Bell Atlantic, Citizens Utilities,
Sprint-United Telephone and Frontier Telephone, all of which offer residential
and business telephone equipment. There are also several interconnect companies
located within a 30-mile radius of Warwick, New York.
The Telecommunications Act of 1996 (the "Act"), which recently became
law, 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. Because the states are
responsible for implementing many of the Act's provisions, the impact on WVTC
will be dependent primarily on proceedings currently underway in New York and
New Jersey. The markets most likely to be affected first are the regional toll
areas in both states. The competition in these areas is expected to have the
effect of reducing Warwick's revenues. The extent of such reductions cannot yet
be determined, but is expected to be small in New York, where carrier access is
the main revenue source. In the ongoing New Jersey proceeding, the Company has
urged that it be allowed to realign its local, toll and access rates to prevent
a shortfall which could result from the loss of a significant portion of the
regional toll market. Currently the Company's revenues from toll and access in
the intrastate New Jersey market approximate $2,300,000. The effects of
competition will be felt both in market share retained by the Company and the
level of its toll rates required in order to remain competitive. Although any
loss of toll revenue will be partially offset by increased access revenue, the
current level of access rates will also be reduced. It is expected that regional
toll competition in both states will be implemented before the end of 1996. The
Company anticipates that local competition, as permitted by the Act, will occur
first in major cities. It is impossible, at this time, to determine the extent,
or the timing, of the advent of competition in the Company's service area, which
is defined as rural under provisions of the Act. There are special provisions in
the Act governing competition in rural areas but it is the responsibility of the
States to implement them. To prepare for competition, which is expected to arise
eventually, the Company is taking steps such as establishing subsidiaries as
listed in this section, to compete in various markets, reengineering its
processes, establishing a local business office in New Jersey and planning for
cooperation with providers of personal communications services.
The cellular partnership referred to above is in competition with two
non-wire-line licensees, one of which is currently operating a cellular system
in Dutchess County, New York, and the other in Orange County, New York.
WVMT competes against Bell Atlantic-NYNEX Mobile Communication Retail
Company, Orange County Cellular Telephone Corporation and others offering either
cellular service or the sale and installation of cellular equipment.
The Company currently provides access to the national and international
calling markets as well as a significant portion of the intrastate calling
markets through all interested inter-exchange carriers, including WVLD. Equal
2
access ("one-plus") service to all toll carriers has been available to the
Company's customers since August 1, 1991. Access to the remainder of the
intrastate calling markets is provided through NYNEX and Bell Atlantic. WVLD, as
an inter-exchange carrier, competes against all such other carriers, providing
full toll services to its customers at discounted rates.
Online has numerous competitors whose services are available to
customers throughout our marketing area. The Company competes both on the basis
of service and price. Despite the presence of many competitors, it is
experiencing a level of growth which exceeds Management's expectations. If
customer growth continues and current levels of pricing can be maintained,
profitability is anticipated during 1996. Whether growth and pricing levels can
be maintained depends, in part, on the actions of existing competitors and on
the possible entry into the market of new competitors, such as AT&T or cable TV
companies.
Should NYSINET offer services to non-members, WVN will indirectly be
competing against NYNEX and others.
STATE AND FEDERAL REGULATION
The Company's New York telephone service operations are subject to the
jurisdiction of the New York State Public Service Commission (the "NYSPSC"); its
New Jersey telephone service operations, to the jurisdiction of the New Jersey
Board of Public Utilities (the "NJBPU"). These two bodies have regulatory
authority over the Company with respect to rates, facilities, services, reports,
issuance of securities and other matters. Interstate toll and access services
are subject to the jurisdiction of the FCC.
The Company, like many other telephone companies of its size, depends
heavily for its revenues on inter-and intrastate toll usage, receiving
approximately 68.7% of its revenues from these sources.
With regard to interstate toll calls, the Company receives
reimbursement from toll carriers in the form of charges for providing toll
carriers access to and from the Company's local network.
Pursuant to FCC requirements, the Company is obligated to make
contributions to a long-term support fund of the National Exchange Carrier
Association. During 1995, the Company paid approximately $54,000 to that fund.
The Company's contributions to the fund are expected to be approximately $75,000
in 1996. Such fund contributions are considered as part of the Company's cost of
providing access services and are recoverable from inter-exchange carriers that
use the Company's network.
The Company also receives access charges from toll carriers for all
intrastate/interLATA toll usage. In New York State, the Company also provides
access to NYNEX; the Company is obligated to make contributions to the New York
State Access Settlement Pool (the "NYSASP") but does not pool its toll or access
revenues therein. The NYSASP began operations on October 1, 1992 and supports
the operations of certain telephone companies other than the Company. The
Company is obligated to contribute approximately $220,000 to the NYSASP during
the period January 1 to September 30. A current proceeding before the NYSPSC
will determine the future of the NYSASP and the Company's obligation after that
date.
In the Company's two New Jersey exchanges, intrastate/interLATA toll
revenues are retained by toll carriers and the associated access charges are
retained by the Company. New Jersey intrastate/intraLATA toll revenues are
generally retained by the filing company; those of such revenues resulting from
traffic between the Company and Bell Atlantic are, however, adjusted by charges
payable to each company for terminating traffic. It is anticipated that in late
1996, the intrastate/intraLATA relationships just described will be replaced by
competition. The impact of such a change on the Company was discussed in the
previous section on Competition.
3
In addition to charging for access to and from the Company's local
network, the Company bills and collects charges for most inter- and intrastate
toll messages carried on its facilities. Interstate billing and collection
services provided by the Company are not regulated. They are provided under
contract by the Company. Intrastate billing and collection remain regulated, and
are provided under tariff. Some carriers provide their own billing and
collection services.
The Tax Reform Act of 1986, while reducing the potential liability of
the Company for income taxes, also affects the rates the Company is permitted to
charge to customers. The NJBPU has ruled that any reduction of tax liability
must be passed on to the Company's subscribers in the form of reduced rates.
Rate reductions in the New Jersey exchanges commenced July 1, 1987 and
approximate $180,000 on an annual basis. The NYSPSC has taken the position that
all benefits realized from such reduction in tax liability should be deferred.
The Company's deferred tax savings were applied during 1994, and will continue
to be applied in subsequent years, as an offset against the amount the NYSPSC
requires the Company to contribute to a fund for the payment of post-retirement
health benefits for the Company's employees.
For further information concerning compensation for toll usage see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Annual Report to Shareholders filed as an exhibit hereto.
EMPLOYEES
The Company has 95 full-time and part-time employees, including 73
non-management employees. Forty of the non-management employees (primarily the
office staff and operators) are represented by the Warwick Valley Telephone
Company Employees' Association ("WVTEA"). The current three-year agreement
between the Company and WVTEA expires November 5, 1998.
Twenty-eight (28) non-management employees (primarily plant employees)
are represented by Local 503 of the International Brotherhood of Electrical
Workers (IBEW). The current three-year contract between the Company and Local
503 expires on April 30, 1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position and Period Served
Fred M. Knipp 65 President since 1988
Philip S. Demarest 59 Vice President since 1989; Vice President-
Finance and Administration 1977-1989;
Secretary since 1972; Treasurer since 1989;
Assistant Treasurer 1982-1989
Herbert Gareiss, Jr. 50 Vice President since 1989; Treasurer 1982-
1989; Assistant Treasurer since 1989;
Assistant Secretary since 1980
John P. Nye, Vice President of the Company retired on October 1, 1995.
There are no arrangements between any officer and any other person
pursuant to which he was selected an officer.
Item 2. PROPERTIES
The Company owns an approximately 22,000 square-foot building in
Warwick, New York, which houses its general offices, operators, data processing
equipment and the central office switch for the Warwick exchange. In addition,
the Company owns several smaller buildings which serve as workshops, storage
space or garages or which house switching equipment at the Company's other
exchanges. Of the Company's investment in telephone plant in service, central
office equipment represents approximately 44.1%; connecting lines and related
equipment, 36.7%; telephone instruments and related equipment, 3.5%; land and
buildings, 6.7%; and other telephone plant, 9.0%. A substantial portion of the
Company's properties is subject to the lien of the Company's Indenture or
Mortgage.
4
Part II.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS. (1)
Item 6. SELECTED FINANCIAL DATA. (1)
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. (1)
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. (1)
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
Part III.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. (2)
Item 11. EXECUTIVE COMPENSATION. (2)
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. (2)
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. (2)
1 The material called for by Items 5, 6, 7, and 8 is included on the
Company's Annual Report to its Shareholders for the year ended December 31,
1995, which pages have been incorporated.
2 With the exception of the identification of executive officers as listed on
page 4, the material called for by Items 10-13 is included in the Company's
definitive proxy statement, incorporated by reference herein, for its 1996
Annual Meeting of Shareholders, to be filed pursuant to Section 14(a) of
the Securities Exchange Act of 1934.
5
Part IV.
Item 14. EXHIBITS, FINANCIAL SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements: The following financial statements of the Company,
included in the Annual Report of the Company to its Shareholders for the year
ended December 31, 1995, are incorporated herein by reference:
Reference Pages
Annual Report
On Form 10-K
Consolidated Statement of Income - Years
Ended December 31, 1995, 1994 and 1993 96
Consolidated Balance Sheet - December 31, 94-95
1995 and 1994
Consolidated Statement of Stockholders' 97
Equity - Years Ended December 31, 1995,
1994 and 1993
Consolidated Statement of Cash Flows - Years 98
Ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements 99-107
2. Financial Statement Schedules:
Report of Independent Certified 9
Public Accountants on Financial
Statement Schedules
Schedules:
VIII. Valuation and Qualifying Accounts 10
6
3. Exhibits:
Exhibit No. Description of Exhibit Reference
3(a) Articles of Incorporation, Incorporated by reference
as amended to Exhibit 3(a) to the
Company's Annual Report of
Form 10-K for 1990
3(b) By-Laws Incorporated by reference to
Exhibit 3(b) to the Company's
Annual Report on Form 10-K
for 1993
4(a) Form of Common Stock Incorporated by reference to
Certificate Exhibit 4(a) to the Company's
Annual Report on Form 10-K
for 1990
4(b) Loan Agreement, dated Incorporated by reference to
June 1,1976, with Stromberg- Exhibit 4(c) to the Company's
Carlson Corporation Registration Statement on
Form 10 (File No. 0-11174),
dated April 29, 1983
4(c) Indenture of Mortgage, dated Incorporated by reference to
November 1, 1952, and all Exhibit 4(d) to the Company's
indentures supplemental Registration Statement on
thereto, except the Eighth Form 10 (File No. 0-11174),
Supplemental Indenture dated April 29, 1983
4(d) Eighth Supplemental Incorporated by reference to
Indenture, dated as of Exhibit 4(d) to the Company's
May 1, 1990, to the Annual Report on Form 10-K
Indenture of Mortgage, for 1990
dated November 1, 1952,
including form of 9.05%
First Mortgage Bond,
Series I, Due May 1, 2000
4(e) Ninth Supplemental Incorporated by reference
Indenture, dated as of Exhibit 4(e) to the Company's
October 1, 1993, to the Annual Report on Form 10-K
Indenture of Mortgage, for 1993
dated November 1, 1952,
including form of 7.05%
First Mortgage Bond,
Series J, Due October
1, 2003
13 Annual Report to Share- Filed herewith
holders for the year ended
December 31, 1995, together
with separate manually
executed Independent
Auditor's Report.
23 Consent of Independent Filed herewith
Auditor
(b) No reports on Form 8-K were filed during the last quarter
of the year ended December 31, 1995.
7
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.
WARWICK VALLEY TELEPHONE COMPANY
Dated: March ____, 1996 By______________________________
Fred M. Knipp
President
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 in the capacities indicated and on the ____ day of March, 1996.
Signature Title
_______________________________________ President and Director
Fred M. Knipp (Principal Executive Officer)
_______________________________________ Vice President, Treasurer,
Philip S. Demarest Secretary and Director
(Principal Financial
and Accounting Officer)
_______________________________________ Director
Earl V. Barry
_______________________________________ Director
Wisner H. Buckbee
_______________________________________ Director
Howard Conklin, Jr.
_______________________________________ Director
Joseph E. DeLuca
_______________________________________ Director
Corinna S. Lewis
_______________________________________ Director
Victor J. Marotta
_______________________________________ Director
Henry L. Nielsen, Jr.
8
BUSH & GERMAIN, PC
CERTIFIED PUBLIC ACCOUNTANTS
901 LODI STREET
SYRACUSE, NEW YORK 13203
PHONE: (315) 424-1145
CONSENT OF INDEPENDENT AUDITORS
February 8, 1996
We consent to the incorporation by reference in this Annual Report (Form 10-K)
for the year ended December 31, 1995 of Warwick Valley Telephone Company of our
report dated February 8, 1996, included in the 1995 Annual Report to
Shareholders of Warwick Valley Telephone Company.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-46836) pertaining to the Warwick Valley Telephone Company of
our report dated February 8, 1996 with respect to the consolidated financial
statements of Warwick Valley Telephone Company incorporated herein by reference
and our report dated February 8, 1996 with respect to schedules of Warwick
Valley Telephone Company included in this Annual Report (Form 10-K) for the year
ended December 31, 1995.
Bush & Germain, P.C.
Syracuse, New York
/26
9
WARWICK VALLEY TELEPHONE COMPANY
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1995, 1994 and 1993
Col. A Col. B Col. C Col. D Col. E
Additions
Balance at Charged to Charged to Balance at
Beginning Costs and Other End
Description of Period Expenses Accounts Deductions of Period
(Note a) (Note b) (Note c)
Allowance for
uncollectibles:
Year 1995 $65,155 $59,956 $18,509 $78,466 $65,154
Year 1994 $65,155 $25,144 $10,262 $35,406 $65,155
Year 1993 $65,638 $28,718 $15,440 $44,641 $65,155
(a) Provision for uncollectibles as stated in statements of income.
(b) Amounts previously written off which were credited directly to this account
when recovered.
(c) Amounts written off as uncollectible.
10
EXHIBIT INDEX
Exhibit No. Description of Exhibit Page
3 (a) Articles of Incorporation, as amended 12
4 (a) Form of Common Stock Certificate 80
4 (d) Eighth Supplemental Indenture, dated as of
May 1, 1990, to the Indenture of Mortgage,
dated November 1, 1952, including form of
9.05% First Mortgage Bond, Series I,
Due May 1, 2000 81
13 Annual Report to Shareholders for the year
ended December 31, 1995 89
Exhibit 3(b) is incorporated by reference to Exhibit 3(b) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1988. Exhibits 4(b)
and 4(c) are incorporated by reference to Exhibits 4(b) and 4(c), respectively,
to the Company's Registration Statement on Form 10 (File No. 0-11174), dated
April 29, 1983. Exhibit 10 is incorporated by reference to Exhibit 10 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1989.
11