Case

Warwick Valley Telephone Company (WWVY)

Case outline

Warwick Valley Telephone Company is one of those unusual micro telephone independent companies that lived for almost a century in the shadow of AT&T. After the break up of AT&T, Warwick Valley Telephone Company did not see much opportunity for growth until recently. The growth comes from new products: internet, long-distance and cellular. Internet is the most important growth segment as shown by the following numbers

Warwick is a small town one hour from New York City. The area is attracting a growing professional suburban population. The number of access lines is growing by about 4% per year ( 21,126 in 1994, 22,132 in 1995, 23,719 in 1996, 25,154 in 1997 and 26,786 in 1998). Although the growth in access lines in moderate, it fuels the growth of the internet revenue. Thus, Warwick Valley Telephone Company has undertaken to become aggressive in expanding its local access lines. In 1998, it
filed petitions with the New York Public Service Commission and the New Jersey Board of Public Utilities to provide service anywhere in those states, and received approval. The same year, it purchased a building in Middletown, NY, where it installed a telephone central which was placed in service after the New York Public Service Commission ordered the reluctant incumbent Citizens Telecommunication Company to interconnect.

In 1998, the shares of Warwick Valley Telephone Company began trading on NASDAQ, with closing prices ranging from $ 36 1/8 to $ 43 1/2. Earnings per share were $1.97 in 1997 and $2.21 in 1998. The company's debt consists of a first mortgage bond $ 3 millions payable in 2000 and a first mortgage bond of $ 4 millions payable in 2003. The covenants of the bonds allow distribution of dividends of up to 75% of income if times-interest-earned exceeds 1.5. The company raised the dividend by 43% in 1997 to $.96 (on earnings per share of $ 1.97), and again by 18% in 1998 to $ 1.12 ( on earnings per share of $ 2.21). The company has a $2.5 million line of credit of which $ 2.1 millions remain unused in 1998.

Since its IPO the stock price has risen from $ 35 in mid 1998 to $ 48 in early 2000. In March the stock price tumbled by 30% to under $38 in spite of first quarter earnings report that showed an increase of 18%.

Financial data:

Condensed financial statements without notes are presented for selected years in following tables:

Table T-WWVY.1 - Warwick Valley Telephone Company Balance Sheets

Table T-WWVY.2 - Warwick Valley Telephone Company Income Statements

Normalized statements and selected ratios based on above financial statements are presented in

Table T-WWVY.3 - Warwick Valley Telephone Company Normalized Balance Sheets

Table T-WWVY.4 - Warwick Valley Telephone Company Normalized Income Statements

Table T-WWVY.5 - Warwick Valley Telephone Company Ratios

Information sources:

Visit company web site at http://www.warwickvalleytelephone.com

SEC 10-K file available at http://www.sec.gov/cgi-bin/srch-edgar or http://www.edgar-online.com/

Warwick Valley Telephone Company stock is traded on the NASDAQ National Market under the symbol WWVY. Find stock quotes and recent news from http://finance.yahoo.com/ or http://www.quote.com/ or from the exchange.

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