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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1996
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 X 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, 1997 - 621,771
DOCUMENTS INCORPORATED BY REFERENCE
Name Incorporated Into
Annual Report to Shareholders for the year
ended December 31, 1996 Parts II and IV
Proxy statement for the 1997 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 28.
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
Main Street, Warwick, New York 10990 (Tel. No. 914-986-8080).
The Company is an independent telephone company with 14,634 access lines
in New York State and 8,739 in New Jersey at December 31, 1996. 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 (10,082 access lines), Florida (3,135 access
lines) and Pine Island (1,417 access lines), New York and Vernon (6,178 access
lines) and Upper Greenwood Lake (2,561 access lines), New Jersey. The Company's
service area is primarily rural and has an estimated population of 50,000.
In 1996, 22,297,227 toll calls were made on the Company's system,
representing an increase of 12.5% from 19,817,462 in 1995. Business customers
represent 21.8% 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 within 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 1997. The
partnership began offering cellular service in both counties in February 1988.
The partnership's pre-tax income for the year ended December 31, 1996 was
$8,885,000, and the Company's share of that pre-tax income was $666,375.
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, 1996, WVMT had a
pre-tax profit of $16,417. 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 1996 of $376,585. 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 began partial
operations during 1996
and is expected to be fully in operation in 1997. 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 $380,008 in
1996.
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")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 affected first are the regional toll areas in both states. Regional toll
competition was implemented in New York on January 1, 1997 and is expected to be
implemented in New Jersey in May 1997. 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
$2,100,000. 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. 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 has taken 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
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calling markets as well as a significant portion of the intrastate calling
markets through all interested inter-exchange carriers, including WVLD. Equal
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 1997. 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.
Should NYSINET offer services to non-members, WVN will indirectly be
competing against NYNEX and others.
STATE AND FEDERAL REGULATIONS
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 69.5% 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 1996, the Company paid approximately $61,000 to that fund.
The Company's contributions to the fund are expected to be approximately $65,000
in 1997. 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 toll usage. 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 $285,000 to the NYSASP on
an annual basis. A current proceeding before the NYSPSC will determine the
future of the NYSASP and the Company's obligation to make further contributions.
In the Company's two New Jersey exchanges, intrastate toll revenues are
retained by toll carriers of which the Company will be one in May, 1997 when
regional toll competition is implemented. The associated access charges are
retained by the Company. Revenues resulting from traffic between the Company and
Bell Atlantic and United Telephone are adjusted by charges payable to each
company for terminating traffic.
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
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services provided by the Company are not regulated. They are provided under
contract by the Company. Intrastate billing and collection remain partly
regulated in New York and fully regulated in New Jersey. The regulated services
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 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 took the position that all benefits
realized from such reduction is tax liability should be deferred. The Company's
deferred tax savings were applied during 1994 through 1996, and will be
completed during 1997. These applications were used as an offset against amounts
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 106 full-time and part-time employees, including 83
non-management employees. Forty-two (42) 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.
Twelve Online help desk technicians are not classified as being
represented by either union at this time. Their status was the subject of a unit
clarification hearing held before a hearing officer of the National Labor
Relations Board in December, 1996. Both unions participated as did the Company.
A decision in the matter is expected in the near future.
EXECUTIVE OFFICERS AND REGISTRANT
Name Age Position and Period Served
Fred M. Knipp 66 President since 1988
Philip S. Demarest 60 Vice President since 1989; Vice President-
Finance and Administration 1977-1989;
Secretary since 1972; Treasurer since 1989;
Assistant Treasurer 1982-1989
Herbert Gareiss, Jr. 51 Vice President since 1989; Treasurer 1982-
1989; Assistant Treasurer since 1989;
Assistant Secretary since 1980
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
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Company's other exchanges. Of the Company's investment in telephone plan in
service, central office equipment represents approximately 44.0%; connecting
lines and related equipment, 36.7%; telephone instruments and related equipment,
3.7%; land and buildings, 6.3%; and other telephone plant, 9.3%. A substantial
portion of the Company's properties is subject to the lien of the Company's
Indenture or Mortgage.
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, 1996, 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 1997 Annual Meeting of Shareholders, to be filed pursuant to
Section 14(a) of the Securities Exchange Act of 1934.
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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, 1996, are incorporated herein by reference:
Reference Pages
Annual Report
On Form 10-K
Consolidated Statement of Income - Years
Ended December 31, 1996, 1995 and 1994 16
Consolidated Balance Sheet - December 31,
1996 and 1995 15
Consolidated Statement of Stockholders'
Equity - Years Ended December 31, 1996,
1995 and 1994 17
Consolidated Statement of Cash Flows - Years
Ended December 31, 1996, 1995 and 1994 18
Notes to Consolidated Financial Statements
2. Financial Statement Schedules: 19-26
Report of Independent Certified
Public Accountants on Financial
Statement Schedules 24
Schedules:
VIII. Valuation and Qualifying Accounts 8
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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, 1996, 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, 1996.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WARWICK VALLEY TELEPHONE COMPANY
Dated: March 26, 1997 By /s/ FRED M. KNIPP
----------------------------------
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 26th day of March, 1997.
Signature Title
/s/ FRED M. KNIPP
_______________________________________ President and Director
Fred M. Knipp (Principal Executive Officer)
/s/ PHILIP S. DEMAREST
_______________________________________ Vice President, Treasurer,
Philip S. Demarest Secretary and Director
(Principal Financial
and Accounting Officer)
/s/ EARL V. BARRY
_______________________________________ Director
Earl V. Barry
/s/ WISNER H. BUCKBEE
_______________________________________ Director
Wisner H. Buckbee
/s/ HOWARD CONKLIN, JR.
_______________________________________ Director
Howard Conklin, Jr.
/s/ JOSEPH E. DELUCA
_______________________________________ Director
Joseph E. DeLuca
_______________________________________ Director
Corinna S. Lewis
_______________________________________ Director
Victor J. Marotta
/s/ HENRY L. NIELSEN, JR.
_______________________________________ 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, 1997
We consent to the incorporation by reference in this Annual Report (Form 10-K)
for the year ended December 31, 1996 of Warwick Valley Telephone Company of our
report dated February 8, 1997, included in the 1996 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, 1997 with respect to the consolidated financial
statements of Warwick Valley Telephone Company incorporated herein by reference
and our report dated February 8, 1997 with respect to schedules of Warwick
Valley Telephone Company included in this Annual Report (Form 10-K) for the year
ended December 31, 1996.
Bush & Germain, P.C.
Syracuse, New York
/26
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WARWICK VALLEY TELEPHONE COMPANY
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1996, 1995 and 1994
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 1996 $65,154 $35,085 $15,695 $50,780 $65,154
Year 1995 $65,155 $59,956 $18,509 $78,466 $65,154
Year 1994 $65,155 $25,144 $10,262 $35,406 $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.
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EXHIBIT INDEX
Exhibit No. Description of Exhibit Page
13 Annual Report to Shareholders for the
year ended December 31, 1996 together
with separate manually executed Independent
Auditor's Report.
23 Consent of Independent Auditor
Exhibit 3(a) is incorporated by reference to Exhibit 3(a) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995. 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, 1993. Exhibit 4(a) is incorporated by
reference to Exhibit 4(a) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995. 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 4(d) is
incorporated by reference to Exhibit 4(d) to the Company's Annual Report on Form
10-K for the year ended December 31, 1995. Exhibit 4(e) is incorporated by
reference to Exhibit 4(e) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993.
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