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0000950152-05-009377.txt : 200511170000950152-05-009377.hdr.sgml : 2005111720051117153549ACCESSION NUMBER:0000950152-05-009377CONFORMED SUBMISSION TYPE:8-KPUBLIC DOCUMENT COUNT:18CONFORMED PERIOD OF REPORT:20051117ITEM INFORMATION:Financial Statements and ExhibitsFILED AS OF DATE:20051117DATE AS OF CHANGE:20051117

FILER:

COMPANY DATA:COMPANY CONFORMED NAME:WARWICK VALLEY TELEPHONE COCENTRAL INDEX KEY:0000104777STANDARD INDUSTRIAL CLASSIFICATION:TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813]IRS NUMBER:141160510STATE OF INCORPORATION:NYFISCAL YEAR END:1231

FILING VALUES:FORM TYPE:8-KSEC ACT:1934 ActSEC FILE NUMBER:000-11174FILM NUMBER:051212647

BUSINESS ADDRESS:STREET 1:47 49 MAIN STCITY:WARWICKSTATE:NYZIP:10990BUSINESS PHONE:9149861101

MAIL ADDRESS:STREET 1:47 49 MAIN STSTREET 2:PO BOX 592CITY:WARWICKSTATE:NYZIP:10990

8-K1l17077ae8vk.htmWARWICK VALLEY TELEPHONE COMPANY 8-K

Warwick Valley Telephone Company 8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported) November17, 2005

WARWICK VALLEY TELEPHONE COMPANY

(Exact Name of Registrant as Specified in Charter)

NEW YORK

0-11174

14-1160510

(State or Other Jurisdiction
of Incorporation)

(Commission
File Number)

(IRS employer
Identification No.)

47 MAIN STREET, WARWICK, NEW YORK

10990

(Address of principal executive offices)

(Zip Code)

Registrants telephone number, including area code (845) 986-8080

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfythe filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule14d-2(b) under the Exchange Act (17 CFR240.14d-2(b))

o Pre-commencement communications pursuant to Rule13e-4(c) under the Exchange Act (17 CFR240.13e-4(c))

Item9.01. Financial Statements and Exhibits

Address of President at Annual Stockholders Meeting on November17, 2005

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registranthas duly caused this Report to be signed on its behalf by the undersigned hereunto dulyauthorized.

WARWICK VALLEY TELEPHONE COMPANY

Dated: November 17, 2005 By: /s/ M. Herbert Gareiss, Jr.

Name: M. Herbert Gareiss, Jr.

Title: President

ExhibitIndex

Exhibit No. Description

99.1

Presentation at Annual Stockholders Meeting on November17, 2005.

EX-99.12l17077aexv99w1.htmEXHIBIT 99.1 PRESENTATION AT ANNUAL REPORT

Exhibit 99.1

Exhibit99.1

Welcome to the Warwick Valley Telephone Company Annual Meeting. Thank you for coming.

Before I start, I too would like to acknowledge Brenda Schadt. Brenda has been a pillar in thisCompany for over 43years. It will be impossible to replace her. Brenda, you will be missed.Thank you for your dedication.

Also, will all of the employees in the audience please stand. I would like to acknowledge ourentire staff for meeting the recent challenges. Please give them a round of applause.

PricewaterhouseCoopers, our former Independent Auditor, and Withum, Smith & Browne, our newAuditor, are here today and both will be available to answer any questions after the close of themeeting.

WVT has gone thru a great deal of change in the last 18months. To start, we reorganized. Youprobably noticed when Chairman Buckbee introduced our Officer Team that when Brenda retires at theend of the year, there will only be two of us.

The whole staff, (executive, management and non management), continue to be streamlined so that wecan successfully meet the challenges of the future. Also, during this process, we have keptmanagement succession in mind.

With this first realignment, net payroll was reduced by over $467,000 (which equates to about$625,000 with associated benefits). Jobs being realigned will not be replaced. This savings willcontinue to be realized through the end of next year.

Also, both management and non-management pensions have been frozen, which will have a positivelong-term effect on our bottom line.

WVTs achievements in the past year and one half were made nearly invisible because of the expenseand effort required to comply with the Public Company Accounting Reform and Investor Protection Actof 2002 (affectionately known as The Sarbanes-Oxley Act or SOX).

We have written a great deal about this in our filings and shareholder correspondence.

In a nutshell:

SOX was designed to prevent situations like the failures of Enron and WorldCom. SOXis simply overkill for small companies.

We had to prepare a comprehensive report assessing the Companys internal controlsover financial reporting.

Our assessment then had to be evaluated by the Companys Independent Accountants.

SOX standards were designed with the practices of large corporations in mind andtheir economies of scale. Expenses incurred by small companies in complying with SOXare higher as a percentage of revenues than those of large companies.

So, good or bad, we met the challenge. We are current on all SEC filings and NASDAQrequirements.

And, more importantly, we once again received an unqualified opinion on ourfinancial statements.

But there is more good news to this story.

The assessment we carried out and the changes we are making will eliminate many of our manualprocedures and will make the overall administration of the Company more efficient.

Lets look at the 2004 results:

In reviewing our financials, it is evident that our core revenue streams are decreasing and ouroperating expenses are way up because of SOX.

SOX related charges reflected in operating expense were approximately $2million in 2004 and $2.2million year to date. As we go forward, the new requirements will cause us to spend approximately$900,000 per year as compared to pre-SOX audit fees of approximately $350,000 per year.

So the real question is Can this be reversed in 2006?

Heres how we intend to do that:

1. By implementing our strategic plan, we will add new revenues through the introductionof new products and services, some of which are already in production. We will continue tobe an innovative company as we have in the past.

2. WE will continue to look for accretive acquisitions.

3. WE will continue to reduce operating overheads by replacing our systems and continuingto reorganize.

Its important to note that throughout this period our share price held up.

I have asked Legg Mason, our investment bankers, to prepare a three year and a one year StockPerformance chart.

Both compare WVTs share price to a weighted capitalization index of seven peer publicly tradedtelecommunication companies:

CT Communications
Commonwealth Telephone
D&E Communications
Hickory Tech
North Pittsburg Systems
New Ulm Telecom
Sure West Communications

For the three year period, our share price was up 25.1% as compared to the index which grew 4.6%.

For the one year period, our share price grew 8.7% versus the peer index which actually decreased15.8%.

So lets focus on the industry, the market trends that affect us and programs that will driveCompany revenues and income in 2006 and beyond.

What is happening to our industry?

WVT believes:

Voice, Video and Data (the Triple Play) have converged. Customers began purchasing thethree services from us in 2001 when we began rolling out our Digital TV. Today customerscan buy the Triple play from either WVT or cable TV. Customers can also purchaseindividual services from alternative providers such as wireless, satellite dish andvoice-over-internet protocol companies ... like Vonage.

We believe that the residential market has become commoditized. This market is focusedon price, not necessarily quality.

WVT has a reputation for providing outstanding customer service both residential andbusiness. Our customers want work done quickly and correctly. We achieve that.

With the relentless commoditization, of telephone services, one service neglected by thecompetition is helping customers use the communications networks that we offer toachieve improved business results. It is not all about price with businesses. Businesseswant help to utilize services to their advantage. They also want reliability. We willprovide that.

As a result, we are putting additional focus on growing our business base. We are targetingthe 5 to 15 line businesses that are prevalent in our markets by offering a suite ofexpanded services, such as the

integrated T-1 and WVT eTalk (our Voice over Internettelephone product), web hosting and more, especially in our New Jersey markets where majordevelopment is occurring.

The switching and delivery systems currently in place will be upgraded by nextgeneration and more robust technologies.

The last major change that we are dealing with involves the regulatory landscape, whichis at a crossroads. Crucial decisions will have to be made at both the Federal and Statelevel. Government will be changing subsidy programs and creating new rules for the newcompetitive environment.

Over the years, we have anticipated this by adding non-regulated or lightly regulated businesses,intentionally becoming less reliant on subsidy programs.

For this reason we do not expect to be as adversely affected. Others may be.

Looking ahead and given these changes and challenges, let me expand on our initiatives.

First of all, to drive in new revenues we have several exciting projects lined up for next year.

1.The first is Web Hosting. This year, we upgraded our Web Hosting platform and we nowoffer a suite of services including server collocation, domains, e-commerce storage, and more.Customers can view, modify, and even pay for services 24/7, only dealing with a real person if theywish to.

The next step is to add more sophisticated services such as data base backup, LAN/WANmaintenance and diagnostics, and new offerings such as Customer Relationship Managementcapabilities. Let me explain CRM. CRM lets businesses generate online summaries formetrics such as sales performance, scheduling, account management and contract retrieval,all from a single data base. Capital requirements are minimal and the service can be offeredanywhere in the country.

2.Another service that does not require capital and will grow the Company is oursale of wireless services obtained thru Verizon and Sprint networks. A solution hasevolved in the last six months and we are preparing to implement this new service bythe end of the First Quarter 2006.

3.A CLEC is a competitive local exchange carrier. It can be an existing telephone companyor a start-up that enters an incumbents territory using their network along with theCLECs own network to offer competitive services.

WVT has been a CLEC since 1999 in both Orange County, NY (primarily in Middletown) and inSussex County, NJ (primarily Vernon).

We will offer new services such as the integrated T-1 and business internet telephone, webhosting and advanced services, again primarily in the Route 94 Corridor in NJ.

4.WiMax is a term used to describe the next generation of wireless broadband delivery.Today we have WiFi or line-of-site wireless. WiMax does not require line-of-site and canaccommodate more bandwidth for services such as voice, video and data and does not require awired infrastructure.

Because WiMax significantly reduces the need for physical plant, it will lower the barriersto entry into many of our target markets. However, it will also make it correspondinglyeasier for us to compete outside our traditional area.

We believe that many small to medium-size businesses need more bandwidth than provided byDSL but cannot justify the cost of a full T-1.

5.WVT eTalk is our Voice over Internet Protocol service. It is a cost effective andfeature-rich substitute for local, domestic and international calling. It increases theconvenience and control customers have over their communications services and gives us theability to offer the Quadruple Play, which others do not offer.

Our launch of residential WVT eTalk is temporarily on hold due to stringent E911requirements placed on all new entrants to this market by the FCC. Once this regulatoryobstacle has been overcome, we are ready to go.

We will soon finish the planning process for the business WVT eTAlk which does not have thesame E911 problem and operates off of a different platform.

WVT eTalk can be marketed anywhere either by us or by WVT agents.

6.Our video business unit lets us offer our triple play of services voice, video andhigh-speed data within our territory. We did this before any of our competitors.

Though it is not yet profitable as a stand alone service, it drives in other lucrativeincremental revenues such as DSL and Caller ID.

Our statistics show that video customers are more likely to take these incremental servicesthan those who do not use our video service.

In addition, our churn studies prove that customers subscribing to our video service are not aslikely to leave us for the competition.

In order to become more efficient and in order to add additional revenues by offeringenhanced services such as Video-on-Demand and High Definition TV, we are now evaluating thenext generation of video platforms. We have halted new video construction using the oldtechnology, pending the completion of our evaluation next month.

7.Independent Optical Network is a consortium of thirteen NYS Independent telephonecompanies that is putting together a fiber optic network that will facilitate the deliveryof voice, video and high-speed data services throughout the more rural areas of NY State.When completed, ION will connect 52 New York cities, including Manhattan.

GO TO CHART

WVT has invested $950,000 in ION representing a 25% interest. Demand for this statewidenetwork is driven by the need for statewide connectivity of high bandwidth applications.

In addition to providing statewide connectivity to our customers, WVT will be able to offerour video head end services to other telcos that need to get into video but cannot justifythe cost of a head end. Another possibility will be the offering perhaps of back officefunctions to those wishing to enter the Voice over Internet Protocol market.

Our SECOND Initiative is to grow by pursing ACCRETIVE ACQUISITIONS.

WVT has an extremely strong balance sheet, a very low debt to equity ratio and an excellent creditrating. An accretive acquisition could provide revenue and operating income growth. In the last 12months, we have analyzed four acquisition opportunities two Internet Service Providers, oneCompetitive Local Exchange Provider and one Voice over Internet Protocol provider. Some were notpriced right and some did not fit well into our organization. We will continue our search.

Our THIRD Initiative is to improve the Bottom line through Cost Containment.

Additional reductions in corporate overhead will occur as we outsource various functions that arecurrently handled in house. We have already outsourced our Payroll functions, and we are in theprocess of outsourcing our bill presentation and bill payment processing. There is an additionalbenefit. Not only does this create cost savings and operating efficiencies. It also serves toremediate issues identified during the SOX process.

As we stated in our 10-K, the Board and Management are committed to the remediation of our manualprocesses by replacing our core IT systems.

Three benefits will be gained.

Upgrading:

1. will eliminate issues discovered in SOX.

2. will reduce audit fees.

3. will make us more efficient, allowing us to shift staff to positions where theycan better serve the customer.

To replace our systems, RFPs have been issued to evaluate vendors and their offerings. The fieldhas been narrowed to four and we are now in the demo phase of the project. The implementation ofthese systems is scheduled to be completed by third quarter, 2006.

Let me comment on Orange County-Poughkeepsie Limited Partnership (O-P)

The Company believes that O-P is important to its customers and its shareholders. O-P has allowedus to pay a strong dividend, while modernizing our infrastructure so that we can offer newderegulated products and services, all without excessive debt, and all aimed at strengthening theCompanys income over time. We stay in contact with O/Ps management and know of no plan that willsignificantly change the amount of distribution that we currently receive.

IN CLOSING

Our plans are in place, our organization is engaged and our direction is clear. We will work toprotect and expand our market share with new and existing products and services based on ourcore strengths.

WVTs strength lies in its dedicated and knowledgeable staff, its loyal customers and shareholders,and its ability to move quickly to capture and exit markets. By leveraging these strengths, WVTstrives to remain an solid investment for its shareholders.

Thank you.

Corporate Reorganization

Reduction of Staff

Net payroll reduced by over$467,000 (or $625,000 includingbenefits)

Management and Non-Management Pensions have beenFrozen

Sarbanes-Oxley

Comprehensive Assessmentof Internal Controls

Major Expenses Incurred

Current with all SEC Filings

Highlights

11,529

5,119

1,699

2003

1,662

12,838

27,903

$0.70

$1.43

$7,730

$28,649

WVLD Lines

Online DSL Customers

CLEC Access Lines

Digital TV Subscribers

Online Dial-up Customers

ILEC Access Lines

Dividends per Share

Earnings per Share

Net Income (000's)

Revenues (000's)

Expenses (000's)

12,246

6,078

1,825

2004

2,304

8,843

26,587

$0.98

$1.65

$8,928

$27,678

$26,564

$25,472

Major Initiatives

Drive In New Revenue

Accretive Acquisitions

Programs to ImproveOperating Efficiency

Performance since 11/11/02:

Warwick Valley 25.1%

RLEC Index 4.6% Date Warwick Valley RLEC Index 11/8/2002 100 100 11/11/2002 98.445 98.72 11/11/2002 100 100 11/12/2002 100.338 99.471 11/13/2002 101.144 102.139 11/14/2002 101.547 103.297 11/15/2002 102.756 102.715 11/18/2002 97.76 101.033 11/19/2002 101.515 99.352 11/20/2002 102.353 100.985 11/21/2002 108.849 103.827 11/22/2002 107.672 104.134 11/25/2002 103.127 104.086 11/26/2002 100.822 103.786 11/27/2002 106.061 107.502 11/28/2002 106.061 107.502 11/29/2002 104.747 107.941 12/2/2002 111.219 105.863 12/3/2002 109.01 106.813 12/4/2002 111.219 105.062 12/5/2002 110.026 105.163 12/6/2002 109.977 106.201 12/9/2002 110.026 102.507 12/10/2002 110.058 104.057 12/11/2002 111.186 105.399 12/12/2002 111.552 103.694 12/13/2002 111.949 101.52 12/16/2002 111.584 103.243 12/17/2002 111.186 103.162 12/18/2002 111.965 101.943 12/19/2002 109.855 103.296 12/20/2002 110.505 104.935 12/23/2002 110.277 107.415 12/24/2002 108.995 106.838 12/25/2002 108.995 106.838 12/26/2002 107.94 107.133 12/27/2002 109.092 106.226 12/30/2002 111.641 104.233 12/31/2002 112.809 101.645 1/1/2003 112.809 101.645 1/2/2003 112.728 105.143 1/3/2003 110.196 103.709 1/6/2003 110.537 106.232 1/7/2003 111.056 105.752 1/8/2003 111.868 106.186 1/9/2003 112.745 107.367 1/10/2003 112.745 107.253 1/13/2003 114.4 106.842 1/14/2003 115.194 106.756 1/15/2003 114.254 105.735 1/16/2003 113.637 106.12 1/17/2003 113.475 103.434 1/20/2003 113.475 103.434 1/21/2003 113.897 100.476 1/22/2003 110.375 96.628 1/23/2003 106.867 96.478 1/24/2003 108.573 94.845 1/27/2003 108.411 92.709 1/28/2003 108.752 93.199 1/29/2003 108.005 93.221 1/30/2003 108.752 91.99 1/31/2003 108.752 92.478 2/3/2003 109.141 93.861 2/4/2003 111.754 94.061 2/5/2003 111.852 91.789 2/6/2003 111.795 90.781 2/7/2003 111.836 89.691 2/10/2003 114.79 89.328 2/11/2003 114.351 89.48 2/12/2003 119.708 90.148 2/13/2003 125.389 92.755 2/14/2003 115.212 93.464 2/17/2003 115.212 93.464 2/18/2003 119.091 95.688 2/19/2003 118.004 93.915 2/20/2003 120.925 92.976 2/21/2003 123.36 94.467 2/24/2003 129.025 92.391 2/25/2003 121.786 92.166 2/26/2003 120.455 91.657 2/27/2003 123.49 93.698 2/28/2003 124.172 92.416 3/3/2003 124.017 92.704 3/4/2003 124.139 92.906 3/5/2003 123.441 94.033 3/6/2003 123.961 92.917 3/7/2003 124.723 92.905 3/10/2003 119.724 91.845 3/11/2003 123.75 93.368 3/12/2003 123.409 93.544 3/13/2003 124.983 96.766 3/14/2003 123.165 97.479 3/17/2003 123.165 100.462 3/18/2003 123.75 101.427 3/19/2003 123.341 101.49 3/20/2003 124.158 102.521 3/21/2003 127.163 102.325 3/24/2003 124.142 99.971 3/25/2003 120.875 102.246

(1)

Three-Year Stock Price Performance

Source: FactSet

Note:

The RLEC Index represents a capitalization weighted index of CT Communications, Commonwealth Telephone, D&E Communications, HectorCommunications, Hickory Tech, North Pittsburgh Systems, New Ulm Telecom and SureWest Communications.

Historical Stock Price Performance

Performance since 11/11/04:

Warwick Valley 8.7%

RLEC Index -15.8% Date Warwick Valley RLEC Index 11/11/2004 100 100 11/12/2004 99.376 101.133 11/15/2004 99.871 99.681 11/16/2004 98.084 99.479 11/17/2004 101.961 100.083 11/18/2004 99.153 99.727 11/19/2004 98.039 98.891 11/22/2004 98.886 100.924 11/23/2004 99.287 100.795 11/24/2004 100.178 100.793 11/25/2004 100.178 100.793 11/26/2004 102.362 100.662 11/29/2004 102.184 100.82 11/30/2004 99.51 100.418 12/1/2004 102.268 101.723 12/2/2004 101.56 102.207 12/3/2004 100.223 101.067 12/6/2004 100 100.325 12/7/2004 101.381 97.981 12/8/2004 103.387 99.492 12/9/2004 103.115 98.654 12/10/2004 102.843 99.299 12/13/2004 100.666 99.625 12/14/2004 101.709 100.163 12/15/2004 102.253 99.431 12/16/2004 102.208 98.211 12/17/2004 104.067 98.242 12/20/2004 102.707 98.146 12/21/2004 102.933 99.399 12/22/2004 102.389 100.652 12/23/2004 103.387 100.563 12/24/2004 103.387 100.563 12/27/2004 103.024 99.242 12/28/2004 103.16 101.589 12/29/2004 102.661 100.876 12/30/2004 102.299 100.461 12/31/2004 102.162 99.845 1/3/2005 104.294 98.856 1/4/2005 103.024 98.727 1/5/2005 103.477 96.104 1/6/2005 104.022 95.655 1/7/2005 103.84 94.94 1/10/2005 104.294 95.578 1/11/2005 107.826 96.037 1/12/2005 105.382 95.347 1/13/2005 104.067 94.566 1/14/2005 105.427 94.406 1/17/2005 105.427 94.406 1/18/2005 103.795 96.583 1/19/2005 105.291 94.71 1/20/2005 103.341 93.465 1/21/2005 104.384 92.856 1/24/2005 103.205 92.291 1/25/2005 103.387 93.34 1/26/2005 103.387 93.861 1/27/2005 104.702 94.098 1/28/2005 103.659 94.232 1/31/2005 104.294 94.734 2/1/2005 106.153 95.624 2/2/2005 105.155 95.862 2/3/2005 104.43 95.864 2/4/2005 105.473 96.235 2/7/2005 104.384 96.51 2/8/2005 104.883 95.956 2/9/2005 103.931 94.104 2/10/2005 105.337 93.608 2/11/2005 104.248 95.518 2/14/2005 103.84 97.106 2/15/2005 104.112 93.087 2/16/2005 105.155 93.211 2/17/2005 106.062 92.249 2/18/2005 105.427 91.65 2/21/2005 105.427 91.65 2/22/2005 105.609 90.489 2/23/2005 103.024 90.402 2/24/2005 104.883 90.997 2/25/2005 105.019 91.75 2/28/2005 104.248 91.905 3/1/2005 103.477 92.094 3/2/2005 103.387 92.774 3/3/2005 104.248 93.061 3/4/2005 103.976 94.345 3/7/2005 104.203 93.136 3/8/2005 104.203 93.009 3/9/2005 103.523 91.548 3/10/2005 104.112 91.069 3/11/2005 103.614 90.671 3/14/2005 103.387 90.271 3/15/2005 100.711 88.889 3/16/2005 96.268 88.37 3/17/2005 97.275 88.423 3/18/2005 96.588 89.906 3/21/2005 96.13 89.852 3/22/2005 96.634 89.453 3/23/2005 95.718 88.344 3/24/2005 97.687 89.119 3/25/2005 97.687 89.119 3/28/2005 96.085 88.998 3/29/2005 97.453 87.656

(1)

One-Year Stock Price Performance

Source: FactSet

Note:

The RLEC Index represents a capitalization weighted index of CT Communications, Commonwealth Telephone, D&E Communications, HectorCommunications, Hickory Tech, North Pittsburgh Systems, New Ulm Telecom and SureWest Communications.

Historical Stock Price Performance

Market Trends

Convergence of Voice, Video andData

Residential Customers Focus on Price

Businesses focus on Reliability andAvailability - Not Just Price

Regulatory Environment

Federal Subsidy ProgramChanges

Creation of New Rules atFederal and State Levels

Driving in Revenues and Other Income

Web Hosting and Advanced Services

Wireless (Cellular Service)

CLEC - Competitive Local Exchange Carrier

WiMax

WVT eTalk (VOIP)

WVT Digital TV

ION (Independent Optical Network)

Major Initiatives

Accretive Acquisitions

Strong Balance Sheet

Low Debt to Equity Ratio

Excellent Credit Rating

Major Initiatives

Cost Containment & Improvements

Outsource Various Functions

Remediate Manual Processes

Replace Outdated I/T Systems

Major Initiatives

Orange County-PoughkeepsieLimited Partnership (O/P)

Allows:

Payment of a Strong Dividend

Modernization of Infrastructure

Development of New Productsand Services

GRAPHIC3l17077al17077z0001.jpgGRAPHIC

begin 644 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