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For a printable copy of the report below, click here. |
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March 29, 2011 Note: A Forum participant subsequently provided a copy of the company's summary of 2010 operations, referenced below in the "Concluding Observations" section of the report:
The company's report is introduced with the following statement from the company's chairman and president, responding to the shareholder interests reported below in the "Need for Additional Reporting to Shareholders" section: To our Shareholders: As we close out 2010 and move into a new year, we take this opportunity to communicate with you regarding our performance for the year. This letter is part of a new Operations & Financial Summary that we will produce at the end of each year. The financial statements included in this report are unaudited statements. As we have previously communicated to you, our audited financial statements have been late in the past due to delays in obtaining audited financial statements from a partnership that materially impacts our non-operating income. We have developed this Operations & Financial Summary as a means to provide current information to you. At such time as our audited financial statements are available, we will promptly send you a copy. *** |
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Forum Report: North State Telecommunications Corporation
Survey of North State Telecommunications Shareholders Ranking the Importance of Investor Interests Ranking the Importance of Investor Interests Time Periods Considered in Evaluating Interests Need for Additional Reporting to Shareholders Shareholder Questions for Management Exhibit: Shareholder Questions Presented for Management The Shareholder Forum was asked to conduct an independent survey of North State Telecommunications shareholders to determine their views of the relative importance of investment interests such as dividend income, stock price, business risk, and financial reporting. All shareholders who had been registered owners of North State stock for at least one year were invited to participate in the survey.[1] The responses of participating shareholders to questions about their period of stock ownership, number of shares owned and how shares were acquired indicated that their range of perspectives could be considered generally representative of North State’s long-term investors.[2] Their views of what is important are summarized below, and the actual questions that shareholders asked the Forum to present to the company’s management are presented in an appended exhibit. Ranking the Importance of Investor Interests
The chart above shows the proportions of participating shareholders who ranked each of the listed interests “essential,” “important,” “considered” or “irrelevant.” Notably, even for a traditional telephone company, the participants ranked dividends significantly higher in importance than stock price, with more than half the participants viewing the amount of dividend essential, and about 80% of them viewing both the amount and risk relating to the dividend as either essential or important. This focus on dividends was more pronounced among larger shareholders, with more than 85% of the holders of over 1,000 shares viewing the amount of dividends essential and almost 90% of them viewing risk relating to dividends either an important or essential concern. This unusually strong interest in dividends may be attributable to the relatively high proportion of responding shareholders whose investment interests are concentrated in North State. The following comment is representative of these perspectives: “Most of my income is NST dividends; therefore it is essential for my living (age [over 65]).” – from a participant who reported being a shareholder for over 10 years, with over 5,000 shares acquired by inheritance or gift (exact age deleted from comment to avoid identification of an anonymous participant) Other comments presented concerns about interests other than those listed in the survey question, such as these: “Ability to compete with current broadband suppliers.” – from a participant who reported being a shareholder for over 10 years, with between 1,000 and 5,000 shares acquired by inheritance or gift “I like owning a local stock and appreciate their contribution to the community. I bought it for the dividend and hope for some appreciation. I trust management to decide what is best, to sell or to hang in there.” – from a participant who reported being a shareholder for 1 to 3 years, with between 100 and 1,000 shares acquired “from a family member through the company” Time Periods Considered in Evaluating Interests
As would be expected of investors holding stock that is not actively traded, the chart of responses above shows that North State’s shareholders generally consider their interests in the context of relatively long periods of time. The exceptionally high proportion of “immediate” concern with dividend income is significant, though, especially in the context of the strong ranking of dividend importance in the previous question. Responding in the space for commenting on interests other than those listed above, participants offered these views: “I am concerned that North State will not be able to keep up with technology to compete with other telcoms. Also, even if it does, I am concerned that whatever is gained will be enough to offset the loss of landline users. Further, I wonder if some of the decisions of management are based more upon sentimentality than practicality. Even though North State is a company with a long, distinctive past in the community, management must consider the future and be objective when considering all the options available to the shareholders now.”[3] – from a participant who reported being a shareholder for over 10 years, with between 100 and 1,000 shares acquired by inheritance or gift “ability to track stock value, and some form of independent evaluation of the company's future” – from a participant who who reported being a shareholder for over 10 years, with between 100 and 1,000 shares acquired by inheritance or gift Need for Additional Reporting to Shareholders
Understanding that some shareholders were concerned about the quality and timeliness of North State reporting – recently limited to mailing an annual report almost a year after the end of the period[4] and only brief summaries of interim performance in dividend cover letters – the survey included a question about whether various alternatives would be considered useful.[5] A majority of participating shareholders, as shown in the chart above, considered each of the listed reporting improvements to be either “necessary” or “useful.” Significantly, about half the shareholders gave a “necessary” ranking to compliance with the 120 day state law requirement for annual reports and also to full disclosures of management compensation and related party interests. It should be noted, however, that the responses also included representation of a view that there is no need to change existing reporting practices. One survey participant, for example, ranked every listed reporting alternative as “unnecessary” and offered the following comment: “I find the quarterly reports that accompany dividend checks to be more informative and useful than anything I get from other investments.” – from a participant who reported being a shareholder for over 10 years, with between 100 and 1,000 shares bought in the open market, ranking the amount of dividends and price of stock equally as only “considered” and commenting that the “essential” investment interest was as follows: “The company has plans in place for future growth, and those plans are already showing results. Instead of selling now to a bunch of vultures who just want to take cash and run, I would rather watch my stock double in value as growth plans play out.”[6] Shareholder Questions for Management Shareholders participating in the survey were invited to present questions for the Forum’s submission to North State’s management, identifying sources only as anonymous participants in the survey to encourage candid inquiries. Nine questions were presented, and the Forum submitted them to the company’s chief executive and chairman of the board on March 14, 2011. Other than to acknowledge receipt, the company has declined to respond to the shareholder questions. Copies of the submitted questions are presented in the appended exhibit, exactly as participating shareholders submitted them except for noted deletions of information that might identify the anonymous source. The views reported by shareholders participating in this survey showed a relatively strong focus on dividends as well as normal levels of interest in stock price. As would be expected of shareholders with long-term perspectives, and especially with a high proportion of inherited holdings, survey participants also expressed a strong interest in being provided with information that would allow them to understand the company’s progress and prospects, and also to monitor its executive management. Shareholders should have opportunities during the next few weeks to seek the information they need. Although North State’s management declined to respond to the questions presented by participants in this survey, the company’s chief executive officer and chairman did respond to the survey with his own letter to shareholders stating that the company will welcome questions and comments submitted directly to them.[7] The company’s management has also promised to immediately send holders of the Class A voting stock copies of “unaudited summary financial statements” for the 2009 and 2010 fiscal years [see March 29, 2011 note, above] and to review the company’s “financial results and operations” with that class of shareholders at the annual meeting on April 6, 2011.[8] It is assumed that management will provide the same information access rights to the holders of Class B stock. This report of survey results will of course be provided to the company’s management. North State shareholders are encouraged to offer their further questions and comments to the Forum, or to the company’s management. In any event, all of the shareholders who participated in the survey are thanked for their time and efforts to help define the investor interests that should be addressed. GL – March 28, 2011
Gary Lutin Chairman, The Shareholder Forum c/o Lutin & Company 575 Madison Avenue, 10th Floor New York, New York 10022 Tel: 212-605-0335 Email: gl@shareholderforum.com
[1] A February 8, 2011 invitation letter from the Shareholder Forum was mailed to a list of shareholders reported to own either the Class A or Class B common stock of the company one year ago, in February 2010. For what was presented to shareholders, see · Letter inviting participation · Survey (for printable version of questionnaire, click here) [2] More than 75% of participating shareholders answered optional questions about their perspectives, in the proportions shown in these charts:
[3] The participant continued this comment on the subject of the survey itself, as follows: “Regarding this survey, since it is conducted under anonymity, you will be able to report how many shareholders respond but you won't be able to report the number of shares that are represented. So, while I think your findings will be interesting, I don't think they will be conclusive.” [4] The company’s annual report for the year ended December 31, 2009 was sent to shareholders in December 2010, with an audit opinion dated October 14, 2010. See the 2009 Annual Report of North State Telecommunications Corporation [distributed December 2010] (40 pages, 2,294 KB, in PDF format). [5] This question also presented the following parenthetical statement: “Note that North State is not currently required to follow SEC reporting rules, and that references to SEC rules are intended only as an indication of practices followed by other companies. For applicable state law reporting requirements, see North Carolina General Statutes §55‑16‑20, Financial statements for shareholders.” [6] This participant also presented the following question for submission to the company’s management: “Dear Management, I believe you have an excellent plan in place to grow the company. I honestly believe the company can easily double in size in the next 10 years. Keep up the good work. A shareholder” [7] See February 16, 2011, C. Hayden McKenzie, Chairman and Chief Executive Officer of North State Telecommunications, letter to shareholders concerning survey of investor interests (1 page, 357 KB, in PDF format). [8] The notice for the annual meeting states that this year “Attendance at the Meeting is limited to holders of Shares of Class A Voting Common Stock.” See March 9, 2011 Notice of Meeting to Holders of Class A Voting Common Stock, for Annual Meeting of Stockholders of North State Telecommunications Corporation on April 6, 2011 (2 pages, 574 KB, in PDF format). |
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