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| WWVY > SEC Filings for WWVY > Form 10-Q on 6-Nov-2009 | All Recent SEC Filings |
6-Nov-2009
Quarterly Report
Overview
During the three-month period ended September 30, 2009, net income increased by 2% to $1,670 from $1,635 in comparison to the three-month period ended September 30, 2008. This increase was attributable to our investment in O-P. During the nine-month period ended September 30, 2009, net income increase by 12% to $4,504 from $4,013 in comparison to the nine-month period ended September 30, 2008. This increase was also attributable to our investment in O-P.
During the three-month period ended September 30, 2009, total revenue increased by 3% to $6,443 from $6,245 in comparison to the same period in the prior year. This increase was attributable to the US Datanet acquisition that occurred during the second quarter. During the nine-month period ended September 30, 2009, total revenue increased by 3% to $17,830 from $17,266 in comparison to the same period in the prior year. This increase was also attributable to the US Datanet acquisition that occurred during the second quarter.
During the three-month period ended September 30, 2009, total operating expenses increased by 14% to $7,098 from $6,205 in comparison to the same period in the prior year. This increase was attributable primarily to the US Datanet acquisition that occurred during the second quarter and expenses associated with pension and postretirement. During the nine-month period ended September 30, 2009, total operating expenses increased by 12% to $20,499 from $18,349 in comparison to the same period in the prior year. This increase was attributable primarily to the US Datanet acquisition that occurred during the second quarter and expenses associated with pension and postretirement.
This discussion and analysis provides information about the important aspects of our operations and investments, both at the consolidated and segment levels, and includes discussions of our results of operations, financial position and sources and uses of cash. The presentation of dollar amounts in this discussion is in thousands. This discussion and analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and Notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q and our Consolidated Financial Statements and Notes therein contained in our Annual Report on Form 10-K for the year ended December 31, 2008.
We provide Incumbent Local Exchange Carrier ("ILEC") and Competitive Local
Exchange Carrier ("CLEC") communication services to customers in the Lower
Hudson Valley of New York and New Jersey. As a result of the purchase of the US
Datanet acquisition on April 24, 2009, we extended our services to upstate New
York and selected other states. Our services include providing local and toll
telephone service to residential and business customers, access and billing and
collection services to interexchange carriers, VoIP services, Internet access,
video service and conferencing. We report our results in two operating segments:
Telephone and Online. The telephone segment provides telecommunications
services, including local, network access, long distance services, yellow and
white pages advertising, electronic publishing and wireless service. The Online
segment provides video, broadband, and VoIP services.
Our acquisition of US Datanet on April 24, 2009 extends our CLEC customer base geographically to selected other states and expands the scope of our product offerings to include business telecommunications conferencing and wholesale. The acquisition is a component of our corporate strategy to expand our business beyond our regulated franchise area.
Consistent with the past several years, we continued to experience overall declines in revenue and access lines due to sustained competition and wireless substitution for landline telephone services in our regulated franchise area.
Results of operations for the three months ended September 30, 2009 and 2008
OPERATING REVENUES
Operating revenues for the three-month period ended September 30, 2009 increased by $198 (or 3%) to $6,443 from $6,245 for the same period in the prior year. This increase was due primarily to:
· An increase in data services revenue of $727 (or 56%) due mainly to the acquisition of US Datanet as well as the introduction of our hosted VoIP and DirecTV products.
Partially offset by:
· A decrease in network access revenue of $284 (or 11%) due mainly to a decrease in Universal Service Fund revenue.
· A decrease in other services and sales revenue of $98 (or 20%) due primarily to lower revenue associated with private branch exchange ("PBX") sales, circuit revenue, leased equipment, voice mail, inside wire and other ancillary services.
· A decrease in long distance revenue of $75 (or 10%) due mainly to the effect of customers switching to our promotional prices as well as declining minutes of use.
· A decrease in local network service revenue of $35 (or 5%) mainly as a result of access line loss attributable to competitive land line telephone service as well as wireless and VoIP substitutions.
· A decrease in directory service revenue of $35 (or 11%) due primarily to reduced sales associated with yellow page advertising.
OPERATING EXPENSES
Operating expenses for the three-month period ended September 30, 2009 increased by $893 (or 14%) to $7,098 from $6,205 for the same period in the prior year. This increase was due primarily to:
· Cost of services and products increased $469 (or 19%) primarily due to access and trunkline costs mainly associated with the acquisition of US Datanet and higher benefit costs associated with pension and postretirement and higher content costs for video services, partially offset by lower regulatory fees and utility costs.
· Selling, general and administrative expenses increased $244 (or 9%) primarily due to costs for billing services, building rental and maintenance fees of $141 associated with the US Datanet acquisition, higher benefits of $93 associated with pension and postretirement, higher legal and consulting fees of $51, partially offset by cost reduction initiatives of $62.
· Depreciation and amortization expense increased $180 (or 16%) primarily due to equipment associated with our new VoIP product and depreciation and amortization associated with the acquisition of US Datanet.
OTHER INCOME (EXPENSE)
Other income (expense) for the three-months ended September 30, 2009 increased $598 (or 23%) to $3,182 from $2,584 for the same period in the prior year. This increase is due primarily to:
· An increase in income from equity method investments of $536 from $2,663 in the same quarter 2008 to $3,199 as a result of increased earnings from our limited partnership interest in the O-P. The increased earnings from the O-P was primarily due to increased subscribers and continued growth in text messaging service revenue.
· A decrease in interest expense of $41 (or 58%) mainly due to lower rates associated with our long-term debt.
Results of operations for the nine months ended September 30, 2009 and 2008
OPERATING REVENUES
Operating revenues for the nine-month period ended September 30, 2009 increased by $564 (or 3%) to $17,830 from $17,266 for the same period in the prior year. This increase was due primarily to:
· An increase in data services revenue of $1,403 (or 35%) due mainly to the acquisition of US Datanet, as well as, and the introduction of our hosted VoIP and DirecTV products.
Partially offset by:
· A decrease in long distance revenue of $304 (or 13%) due mainly to the effect of customers switching to our promotional prices and declining minutes of use.
· A decrease in other services and sales revenue of $169 (or 12%) due mainly to lower revenue associated with PBX sales, circuit revenue, leased equipment, voice mail, inside wire and other ancillary services.
· A decrease in network access revenue of $158 (or 3%) due mainly to a decrease in Universal Service Fund revenue.
· A decrease in local network revenue of $143 (or 6%) due mainly as a result of access line loss attributable to competitive land line telephone service as well as wireless and VoIP substitutions.
· A decrease in directory service revenue of $65 (or 7%) due mainly to reduced sales associated with yellow page advertising.
OPERATING EXPENSES
Operating expenses for the nine-month period ended September 30, 2009 increased by $2,150 (or 12%) to $20,499 from $18,349 for the same period in the prior year. This increase was due primarily to:
· Cost of services and products increased $1,127 (or 17%) primarily due to access and trunkline costs and wages mainly associated with the integration costs associated with the US Datanet acquisition, higher benefit costs associated with pension and postretirement and higher content costs for video services, offset by lower regulatory fees and utility costs.
· Selling, general and administrative expenses increased $830 (or 10%) due mainly to postretirement liability curtailment gain of $469 in 2008 resulting from the elimination of benefits of certain union employees as a result of the negotiation of a union agreement and higher benefits of $125. In addition, higher legal expenses, billing services and consulting fees of $442 were incurred primarily due to the acquisition of US Datanet. These increases were partially offset by cost reduction initiatives of $227.
· Depreciation and amortization expense increased $193 (or 5%) primarily due to equipment associated with our new VoIP product and the depreciation and amortization associated with the acquisition of US Datanet.
OTHER INCOME (EXPENSE)
Other income (expense) for the nine-month period ended September 30, 2009 increased $2,084 (or 28%) to $9,455 from $7,371 for the same period in the prior year. This increase is due primarily to:
· An increase in income from equity method investments of $1,796 (or 24%) from $7,384 to $9,180 as a result of increased earnings from our investment in O-P.
· An increase in other income of $324 (or 689%) from an expense of $47 to income of $277 due mainly to the receipt of an insurance refund with respect to damages incurred in a December 2008 ice storm.
Partially offset by:
· A decrease of interest income (expense) of $36 (or 105%) mainly as a result of the reversal of accrued interest for our liability that resulted from the accounting standard regarding accounting for uncertainty in income taxes, which was de-recognized due to the approval by the IRS to allow the reporting of its taxable income in future periods.
LIQUIDITY AND CAPITAL RESOURCES
We had $8,656 of cash and cash equivalents and short-term investments available at September 30, 2009, as compared with $7,677 at December 31, 2008. Our cash equivalents consist primarily of money market mutual funds and bank certificates of deposit.
We have a $4,000 line of credit with Provident Bank (the "Bank"), of which the entire amount remained unused at September 30, 2009. In the event of a drawdown, interest would be applied based on a variable rate that is a function of the Prime Commercial Lending Rate as listed in the Wall Street Journal. Borrowings are on a demand basis with limited restrictions relating to written notification to the Bank requesting a drawdown, the use of requested funds, and the expected means for repayment. As of September 30, 2009, $4,556 in principal amount was outstanding under the CoBank ACB term loan. The final payment is due July 20, 2012. We are required to make interest and outstanding principal payments in quarterly installments under the term loan.
CASH FROM OPERATING ACTIVITIES
Our primary source of funds continues to be generated from operations and cash distributions from the O-P. Our cash distributions from the O-P totaled $8,919 and $7,054 for the nine months ended September 30, 2009 and 2008, respectively. The O-P's cash distributions are made to us on a quarterly basis at the discretion of the general partner. The increase in the O-P's revenues discussed in results of operations above reflects revenues as accrued for accounting purposes. The amounts discussed in this paragraph reflect actual cash receipts from O-P.
CASH FROM INVESTING ACTIVITIES
Capital expenditures totaled $1,386 during the nine months ended September 30, 2009 as compared to $2,978 for the corresponding period of 2008. Capital expenditures decreased in both our Telephone and Online segments as result of the reduced needs of our business. On April 24, 2009, we purchased certain assets of US Datanet for approximately $1,487.
CASH FROM FINANCING ACTIVITIES
Dividends declared on our Common shares by the Board of Directors were $0.22 per share for the three months ended September 30, 2009 and were $0.20 for the three months ended September 30, 2008. The total amount of dividends paid on our common shares by us for each of the nine-month periods ended September 30, 2009 and 2008 was $3,552 and $3,211, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2009, the FASB issued the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. The FASB Accounting Standards Codification ("Codification") is intended to be the source of authoritative U.S. generally accepted accounting principles ("GAAP") and reporting standards as issued by the FASB. Its primary purpose is to improve clarity and use of existing standards by grouping authoritative literature under common topics. The codification is effective for reporting periods ending after September 15, 2009, and once effective, will supersede all U.S. GAAP accounting standards, aside from rules and interpretive releases issued by the Securities and Exchange Commission ("SEC"). The Codification is not intended to change GAAP; rather, it will change the referencing of U.S. GAAP. Therefore, it is not expected to have an impact on the Company's results of operations, statement of position or cash flows. The Company has adopted this new standard during the quarter ended September 30, 2009.
In April 2009, the accounting standard regarding disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements was amended. This new standard requires those disclosures in all interim financial statements. The Company adopted this new standard during the quarter ended June 30, 2009.
In December 2008, the accounting standard regarding employer's disclosure about postretirement benefit plan assets was updated to provide guidance on an employer's disclosures about plan assets of a defined benefit pension or other postretirement plan. It requires additional disclosures about investment policies and strategies, categories of plan assets, fair value measurements of plan assets and significant concentrations of risk. The disclosures about plan assets required are effective for fiscal years ending after December 15, 2009. The Company does not expect the adoption of this new standard to have a material impact on its financial position, results of operations or cash flows. The Company will adopt the disclosure requirements for its fiscal year ending December 31, 2009.
In April 2009, the Company adopted the accounting standard relating to business combinations, including assets acquired and liabilities assumed arising from contingencies. This standard requires the use of the acquisition method of accounting, defines the acquirer, establishes the acquisition date and applies to all transactions and other events in which one entity obtains control over one or more other businesses. Upon the adoption of this standard the Company was required to expense certain transaction costs and related fees associated with business combinations that were previously capitalized. In addition, with the adoption of this standard, changes to valuation allowances for acquired deferred income tax assets and adjustments to unrecognized tax benefits acquired generally are to be recognized as adjustments to income tax expense rather than goodwill.
CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-Q, including, without limitation, statements containing the words "believes," "anticipates," "intends," "expects" and words of similar import, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others the following: general economic and business conditions, both nationally and in the geographic regions in which we operate; industry capacity; demographic changes; technological changes and changes in consumer demand; existing governmental regulations and changes in or the failure to comply with, governmental regulations; legislative proposals relating to the businesses in which we operate; competition; or the loss of any significant ability to attract and retain qualified personnel. Given these uncertainties, current and prospective investors should be cautioned in their reliance on such forward-looking statements. Except as required by law we disclaim any obligation to update any such factors or to publicly announce the results of any revision to any of the forward-looking statements contained herein to reflect future events or developments. For a further discussion of the matters described above, see Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2008, and Quarterly Report on Form 10-Q for the quarter ended March 31, 2009.
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