FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-19179
CT COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-1837282
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
68 Cabarrus Avenue, East
P.O. Box 227, Concord, N.C. 28025
(Address of principal executive offices) (Zip Code)
(704) 722-2404
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
2,238,642 shares of Common Stock outstanding as of
September 30, 1997.
Voting - 338,429
Class B Non-Voting - 1,900,213
CT COMMUNICATIONS, INC.
INDEX
Page No.
PART I. Financial Information
Balance Sheets --
Sept. 30, 1997 and December 31, 1996 2-3
Statements of Income --
Three and Nine Months Ended Sept. 30, 1997 and 1996 4
Statements of Cash Flows --
Nine Months Ended Sept. 30, 1997 and 1996 5
Notes to Financial Statements 6-9
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-17
PART II. Other Information 18
-1-
PART I. FINANCIAL INFORMATION
CT COMMUNICATIONS, INC.
Consolidated Balance Sheets
Unaudited
ASSETS
September 30, December 31,
1997 1996
Current assets:
Cash and cash equivalents $ 77,676 $ 2,162,698
Short-term investments 383,155 316,158
Accounts receivable, net of allowance
for doubtful accounts of $100,000
in 1997 and 1996 8,330,046 7,614,737
Notes receivable 6,571,804 ---
Refundable income taxes --- 14,736
Materials and supplies 3,977,830 2,860,114
Deferred income taxes 67,583 103,399
Prepaid expenses and other assets 673,164 476,774
Total current assets 20,081,258 13,548,616
Investments securities 716,577 3,637,445
Investments in affiliates 29,980,309 25,888,315
Property, plant & equipment:
Telephone plant in service:
Land, buildings, and general equipment 27,213,163 22,146,226
Central office equipment 62,258,067 55,912,450
Poles, wire, cables and conduit 76,338,445 72,466,757
Construction in progress 73,913 2,778,779
165,883,588 153,304,212
Less accumulated depreciation 84,336,337 81,314,625
Net property, plant, and equipment 81,547,251 71,989,587
TOTAL ASSETS $132,325,395 $115,063,963
(Continued)
-2-
Consolidated Balance Sheets, (Continued)
LIABILITIES & STOCKHOLDERS' EQUITY
Unaudited
September 30, December 31,
1997 1996
Current liabilities:
Current portion of long-term debt &
redeemable preferred stock $ 632,500 $ 2,072,500
Accounts payable 8,906,068 9,962,149
Customer deposits and advance billings 1,397,791 1,271,562
Accrued payroll 1,408,584 1,250,396
Other accrued liabilities 539,727 469,492
Total current liabilities 12,884,670 15,026,099
Long-term debt 11,049,000 2,014,000
Deferred credits and other liabilities:
Deferred income taxes 2,230,269 1,106,910
Investment tax credits 947,801 1,033,965
Regulatory liability 470,570 2,507,029
Accrued pension cost 2,009,611 1,043,974
Postretirement benefits other than pension 10,206,151 9,422,573
Other 2,402,972 1,103,098
18,267,374 16,217,549
Redeemable preferred stock: 4.8% series;
authorized 5,000 shares; issued and
outstanding 1,625 shares in 1997
and 1996, respectively 150,000 150,000
Total liabilities 42,351,044 33,407,648
Stockholders' equity:
Preferred Stock not subject to mandatory redemption:
5% series, $100 par value; 15,087 shares
outstanding 1,508,700 1,508,700
4.5% series, $100 par value; 2,000 shares
outstanding 200,000 200,000
Discount on 5% preferred stock (16,059) (16,059)
Common stock:
Voting; 338,429 and 339,773 shares
outstanding in 1997 and 1996, respectively 3,772,298 4,021,094
Nonvoting; 1,900,213 and 1,891,552 shares
outstanding in 1997 and 1996, respectively 24,521,499 23,377,120
Other capital 360,324 298,083
Unearned compensation (163,099) (188,055)
Unrealized gain (loss) on securities
available- for-sale (170,222) 195,419
Retained earnings 59,960,910 52,260,013
Total stockholders' equity 89,974,351 81,656,315
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $132,325,395 $115,063,963
See Accompanying Notes To Financial Statements.
-3-
CT COMMUNICATIONS, INC.
Consolidated Statements of Income
For 3 and 9 months ended September 30, 1997 and 1996
Unaudited
Three Months Ended
September 30,
OPERATING REVENUES: 1997 1996
Local service $ 7,363,698 $ 6,173,732
Access and toll service 9,808,166 9,849,842
Other and unregulated 3,133,880 2,645,408
Provision for uncollectible accounts (105,008) 38,034
Total operating revenues 20,200,736 18,707,016
OPERATING EXPENSES:
Plant specific 7,636,614 7,565,899
Depreciation and amortization 2,855,460 3,009,958
Customer operations 2,694,357 1,780,148
Corporate operations 2,466,497 2,459,636
Total operating expenses 15,652,928 14,815,641
Net operating revenues 4,547,808 3,891,375
OTHER INCOME (EXPENSES):
Equity in income of affiliates 626,587 358,699
Interest, dividend income and
gain on sale 21,396 892,116
Other expenses, principally interest (260,474) (441,269)
Expense related to early retirement plan --- ---
Total other income 387,509 809,546
Income before income taxes and
extraordinary item 4,935,317 4,700,921
Income taxes 1,926,733 2,139,354
Net income before extraordinary item 3,008,584 2,561,567
Extraordinary item - discontinuance of
FAS 71, net of income taxes of $1,493,212 --- ---
Net income after extraordinary item 3,008,584 2,561,567
DIVIDENDS ON PREFERRED STOCK 22,978 23,128
EARNINGS FOR COMMON STOCK $ 2,985,606 $ 2,538,439
EARNINGS PER COMMON SHARE* $ 1.33 $ 1.14
DIVIDENDS PER COMMON SHARE* $ .48 $ .47
WEIGHTED AVERAGE SHARES OUTSTANDING* 2,237,918 2,230,973
*See accompanying notes to financial statements.
-4-
CT COMMUNICATIONS, INC.
Consolidated Statements of Income
For 3 and 9 months ended September 30, 1997 and 1996
Unaudited
Nine Months Ended
September 30,
OPERATING REVENUES: 1997 1996
Local service $21,121,851 $17,556,408
Access and toll service 26,363,927 22,213,474
Other and unregulated 10,313,673 7,621,748
Provision for uncollectible accounts (280,952) (135,341)
Total operating revenues 57,518,499 47,256,289
OPERATING EXPENSES:
Plant specific 19,104,617 15,558,184
Depreciation and amortization 7,499,150 7,575,129
Customer operations 8,731,893 5,166,996
Corporate operations 7,687,731 7,761,107
Total operating expenses 43,023,391 36,061,416
Net operating revenues 14,495,108 11,194,873
OTHER INCOME (EXPENSES):
Equity in income of affiliates 1,351,423 2,345,333
Interest, dividend income and
gain on sale 75,320 1,123,902
Other expenses, principally interest (517,055) (998,719)
Expense related to early retirement plan (1,020,000) ---
Total other income (110,312) 2,470,516
Income before income taxes and
extraordinary item 14,384,796 13,665,389
Income taxes 5,650,796 5,683,810
Net income before extraordinary item 8,734,000 7,981,579
Extraordinary item - discontinuance of
FAS 71, net of income taxes of $1,493,212 2,239,045 ---
Net income after extraordinary item 10,973,045 7,981,579
DIVIDENDS ON PREFERRED STOCK 68,932 69,382
EARNINGS FOR COMMON STOCK $10,904,113 $ 7,912,197
EARNINGS PER COMMON SHARE* $ 4.88 $ 3.55
DIVIDENDS PER COMMON SHARE* $ 1.41 $ 1.39
WEIGHTED AVERAGE SHARES OUTSTANDING* 2,235,220 2,230,640
*See accompanying notes to financial statements.
CT COMMUNICATIONS, INC.
Statements of Cash Flows
For 9 months ended September 30, 1997 and 1996
Unaudited
1997 1996
Cash flows from operating activities:
Net income $ 10,973,045 $ 7,981,579
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,499,150 7,575,129
Extraordinary item (2,239,045) ---
Deferred income taxes and tax credits (456,017) (453,289)
Postretirement benefits 729,215 1,024,993
Loss on retirement of non-regulated property --- 1,323
Decrease in regulatory liability (62,026) ---
Loss (gain) on sale of investments 29,216 78,581
Undistributed income of affiliates (1,221,781) (2,345,332)
(Increase) decrease in accounts receivable (715,309) 2,253,441
(Increase) decrease in notes receivable (6,571,804) ---
(Increase) in materials and supplies (1,117,716) (855,825)
Decrease in refundable income taxes 14,736 ---
Unrealized loss recorded in investment
securities 365,641 497,996
(Increase ) decrease in other assets (160,574) 383,035
(Decrease) increase in accounts payable (1,056,081) (1,336,470)
Increase in customer deposits and advance
billings 126,229 36,941
Increase in accrued liabilities 228,423 1,045,358
Increase in income taxes payable --- (633,498)
(Decrease) increase in unearned compensation (24,956) 137,745
Increase in liability for early retirement 1,020,000 ---
Net cash provided by operating activities 7,360,346 15,391,707
Cash flows from investing activities:
Capital expenditures in telephone plant (13,826,408) (13,631,677)
Removal cost - telephone plant retired (172,710) (156,794)
Purchase of investments in affiliates (4,613,005) (3,637,492)
Purchases of investment securities (493,979) (1,033,359)
Sales & maturities of investment securities 2,719,224 6,552,086
Partnership capital distribution 1,741,793 1,144,600
Net cash used in investing activities (14,645,085) (10,762,636)
Cash flows from financing activities:
Repayment of long-term debt (1,905,000) (485,000)
Proceeds from new debt 9,500,000 ---
Dividends paid (3,206,043) (3,144,595)
Proceeds from common stock issuance 1,144,379 186,955
Purchases of common stock (248,796) ---
Tax benefit from ESOP distribution --- 15,549
Other (11,743) 83,568
Purchase of fractional shares (73,080) ---
Net cash used in financing activities 5,199,717 (3,343,523)
Net increase (decrease) in cash and
cash equivalents (2,085,022) 1,285,548
Cash and cash equivalents-beginning of period 2,162,698 4,751,204
Cash and cash equivalents-end of period $ 77,676 $ 6,036,752
See Accompanying Notes To Financial Statements.
-5-
CT COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. In the opinion of Management, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial
position as of September 30, 1997, and the results of operations for
the three months and nine months then ended and cash flows for the
nine months then ended.
2. The results of operations for the three months and nine months ended
September 30, 1997 and 1996 are not necessarily indicative of the
results to be expected for the full year.
3. The following is a summary of common stock transactions during the
nine months ended September 30, 1997.
.....Voting.....
Shares Value
Outstanding at December 31, 1996.......... 227,019 $4,021,094
Purchase of shares........................ (1,344) (248,796)
Issued for stock split distributed
August 29, 1997 to holders of record
August 1, 1997.......................... 112,754 ---
Outstanding at September 30, 1997......... 338,429 $3,772,298
Weighted average shares outstanding
for the nine months ended
September 30, 1997...................... 338,787
.....Class B Non-Voting.....
Shares Value
Outstanding at December 31, 1996.......... 1,258,357 $23,377,120
Issuance of common stock.................. 5,113 509,699
Sale of common stock to employees......... 3,526 634,680
Issued for stock split distributed
August 29, 1997 to holders of record
August 1, 1997.......................... 633,195 ---
Outstanding at September 30, 1997......... 1,900,213 $24,521,499
Weighted average shares outstanding
for nine months ended
September 30, 1997...................... 1,896,433
On July 24, 1997, the Board of Directors declared a three for two
stock split (one new share for each two shares held) payable August
29, 1997 to shareholders of record August 1, 1997. This created an
additional 112,754 shares of common voting and 633,195 shares of Class
B non-voting shares. These amounts are reflected in all share data
presented herein.
-6-
4. SECURITIES AVAILABLE-FOR-SALE
September 30, 1997
Gross Unrealized
Securities Amortized Fair
Available-for-Sale Cost Gains Losses Value
State, county and municipal
debt securities $ 502,818 $ -- $ -- $ 502,818
Equity Securities 1,196,324 38,496 637,906 596,914
Total $1,699,142 $ 38,496 $637,906 $1,099,732
Amortized Cost Fair Value
Current $ 383,155 $ 383,155
Due after one through five years 119,663 119,663
Equity securities 1,196,324 596,914
Total $1,699,142 $1,099,732
5. INVESTMENTS IN AFFILIATED COMPANIES
9/30/97 12/31/96
ITC Associates Partnership (cost method) $ 5,519,832 $ 5,519,832
RSA 15 Partnership (equity method) 8,169,231 6,516,008
BellSouth Carolinas PCS, LP (equity method) 4,408,148 5,581,051
U.S. Telecom Holdings (equity method) 3,908,949 3,556,294
Wireless 1 - Carolinas (equity method) 4,443,731 1,371,000
ITC Holdings (cost method) 658,354 658,354
U.S. Intelco (cost method) 1,068,624 1,068,624
Ellerbe Partnership (equity method) 1,310,559 1,188,967
Access On (equity method) 200,472 199,095
Other (cost method) 292,409 229,090
TOTAL $ 29,980,309 $ 25,888,315
6. LONG-TERM DEBT:
Long-term debt excluding annual maturities comprised the following:
September 30, 1997 December 31, 1996
Note payable to a bank @ 7.25%
due in installments until 2001 $ 1,549,000 $2,014,000
Rural Telephone Finance Corp.
maturing on March 8, 1999 9,500,000 ---
TOTAL $11,049,000 $2,014,000
-7-
6. LONG-TERM DEBT: (Con't.)
Current maturities of long-term debt comprised the following:
September 30, 1997 December 31, 1996
Series F 6.25% First
Mortgage Bonds $ --- $1,440,000
Notes payable to bank @ 7.25% 620,000 620,000
--------- ----------
TOTAL $ 620,000 $2,060,000
========= ==========
Annual maturities of the long-term debt outstanding for the five year
period subsequent to September 30, 1997 are as follows: $155,000 in
1997; $620,000 in 1998; $10,120,000 in 1999 and $620,000 in 2000; and
$154,000 thereafter.
7. EXTRAORDINARY ITEM - FAS 71:
As the result of changes in the manner in which the Company is
regulated and the heightened competitive environment, the Company
determined that it no longer met the criteria for following
Statement of Financial Accounting Standards No 71 (FAS 71)
"Accounting for the Effects of Certain Types of Regulation". As of
April 1, 1997, the Company discontinued applying FAS 71. The
accounting impact was an extraordinary non-cash gain of $2,239,045,
net of applicable income taxes of $1,493,212. Although estimated
economic useful lives are shorter than previously used for
regulatory approved asset lives, the change has resulted in an
increase in net telephone plant due to the Company recording
additional depreciation charges totaling $15,414,156 over the past
five years. The effect on future charges for depreciation is not
expected to differ materially from what would have been recorded
under FAS 71 for the current year. The components of the gain,
pretax, are as follows:
Change in recorded value of long lived telephone plant $1,757,824
Elimination of regulatory liabilities 1,974,433
----------
Total $3,732,257
==========
The increase in net telephone plant, $1,757,824 pretax, was recorded
as a decrease to the related accumulated depreciation accounts.
Such change was the result of changing from regulator-approved asset
lives to estimated economic asset lives.
-8-
7. EXTRAORDINARY ITEM - FAS 71:
The average depreciable lives of affected categories of long lived
telephone plant have been changed to more closely reflect the
economic and technological lives. Differences between regulator-approved
asset lives and the current economic asset lives are as follows:
Composite of Estimate
Regulator-Approved Economic Asset
Category Asset Lives Lives
Digital switching 14 10
Circuit equipment 10 7
Aerial cable 19 17
Buried cable 16 17
The remaining components of the extraordinary charge, $1,974,433
pretax, was the result of the removal of regulatory liabilities that
were recorded as a result of previous actions by regulators.
Virtually all of these regulatory liabilities arose in connection
with the incorporation of new accounting standards into the
ratemaking process and were transitory in nature.
8. NOTES RECEIVABLE:
The Company has made two loans to U.S. Telecom Holdings ("USTH") in
the aggregate amount of $6,571,804. One loan is in the principal
amount of $1,275,000, bears interest at a rate equal to the rate
announced by NationsBank, N.A. from time to time as its "prime rate"
plus 2% per annum, matures on December 27, 1997 and is secured by
72,487 shares of Hungarian Telephone and Cable Corporation (the
"USTH Secured Note"). USTH has requested that the Registrant
liquidate this collateral in lieu of payment of the USTH Secured
Note. The second loan is in the principal amount of $5,296,804,
(the "USTH Convertible Note"), bears interest at a rate equal to the
rate announced by NationsBank, N.A. from time to time as its "prime
rate" plus 2% per annum, matures on December 24, 1997, and is
convertible into approximately 80% of the outstanding common stock
of a subsidiary of USTH, which owns an equity interest in Amaritel.
Amaritel is a joint venture formed for the purpose of providing domestic
and international long-distance services as well as local telephone
services in Mexico, including 111 communities representing approximately
25% of Mexico's population, border to border along the Gulf Coast and
Mexico City.
-9-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The liquidity of the Company increased during the nine month
period ending September 30, 1997. Current assets exceeded current
liabilities by $7,196,588 at September 30, 1997. In comparison,
current liabilities exceeded current assets by $1,477,483 at
December 31, 1996.
Current assets increased by $6,532,642 when compared to
December 31, 1996. This increase is primarily due to increases in
accounts receivable of $715,309 due to increased receivables from
substantial growth in revenue, the $1,275,000 USTH Secured Note, the
$5,296,804 USTH Convertible Note, increases in materials and
supplies of $1,117,716 to facilitate construction of outside plant
and increases of prepaid expenses and other assets of $196,390.
These increases were offset partially by a decrease in cash and cash
equivalents of $2,085,022 due to increased cash needs for
operational and capital requirements.
Current liabilities decreased by $2,141,429 during the nine
months ending September 30, 1997. This decrease is primarily from
the retirement of current maturities of long-term debt of $1,440,000
of Series F First Mortgage Bonds and decreases in accounts payable
of $1,056,081 due to the timing of payments on central office
equipment. These decreases were offset by increases in accrued
payroll of $158,188 due to timing of pay periods and increases in
other accrued liabilities of $70,235.
The Company's primary source of liquidity is funds provided by
operations. During the nine months ended September 30, 1997, cash
provided by operations totaled $7,360,346, a decrease of $8,031,361
when compared to the nine months ended September 30, 1996. This
decrease was caused primarily by increases in accounts receivable of
$715,309 from increased volumes of business, the loan made to USTH
as discussed above, increased materials and supplies of $1,117,716
to facilitate the construction of outside plant and a decrease in
accounts payable as discussed above. These amounts were offset by
increases in a liability of $1,020,000 recognized for early
retirement offered to certain employees. The Registrant also drew
on a line of credit with the Rural Telephone Finance Corporation
("RTFC") as of January 17, 1997, in the amount of $2,000,000 in
order to pay Nortel for the switch equipment being installed at
Registrant's Central Office. The Registrant drew an additional $7.5
million between July and September which represented the $1,275,000
USTH Secured Loan, and the $5,296,804 USTH Convertible Note. The
remaining amount reflected the refinancing of the Series F Bonds as
described above. There is $500,000 of available credit remaining
under the Registrant's line of credit with RTFC. The Registrant
also has a $3,500,000 line of credit with First Charter National
Bank that is unused.
-10-
Liquidity and Capital Resources (Con't.)
The Registrant received $1,741,793 from Alltel Corporation as a
distribution of income from the Cellular partnerships RSA 5 and RSA
15.
The primary use of cash during this period was for normal
additions to telephone plant - $13,826,408, purchase of investments
in affiliates - $4,613,005, payment of dividends - $3,206,043,
purchase of investment securities - $493,979, the USTH Secured Note
and the USTH Convertible Note - $6,571,804 and repayment of long-term debt
comprised of $1,440,000 Series F 6.25% First Mortgage
Bonds and $465,000 to Wachovia Bank for installments on an unsecured
note. The Registrant purchased and retired 1,344 shares of its
Common Voting from an individual for $248,796. Of the cash expended
for investments in affiliates, $3,093,172 was invested in CT
Wireless Cable, Inc. in connection with its investment in Wireless
One of North Carolina, L.L.C. ("WONC") and WONC's expenditures to
acquire the rights to lease certain television channel frequencies
from the University of North Carolina. An additional $991,950 was
expended in capital calls for the Partnership with BellSouth
Mobility providing a digital wireless service in North and South
Carolina. Funds needed in excess of those generated by operations
were generated by the sale or maturity of investments available for
sale and borrowing on the RTFC line of credit as described above.
Sales and maturities of these investments totaled $2,719,224 during
the nine months ending September 30, 1997.
At September 30, 1997, the Company's investment portfolio
totaled $1,099,732, all of which could be pledged to secure
additional borrowing, or sold, if needed for liquidity purposes. At
September 30, 1997, the Company had available lines of credit
totaling $13,500,000, of which $9,500,000 was outstanding.
The Registrant anticipates that all of the capital requirements
in 1997 associated with its construction program, payments
associated with long-term debt and investments as summarized above
will be provided by cash flows from operations, existing cash, cash
equivalents and short-term investments and currently available lines
of credit. If additional funds are required during 1997, management
expects that such funds will be raised through additional bank
borrowings.
-11-
Results of Operations
3 months ended September 30, 1997 and September 30, 1996
Operating revenues increased $1,493,720 or 8.0% for the three
months ended September 30, 1997 compared to same period of 1996.
Local service revenues increased $1,189,966 or 19.3% when
compared to the quarter ending on September 30, 1996. This increase
was comprised of a $540,526 increase in basic local service
revenues; a $147,612 increase in Digital Communications Services
("DCS") revenues from the operations of Registrant's Carolinas
Personal Communications, Inc. (doing business as "CT Wireless,
Inc.") subsidiary; and a $226,786 increase in growth of metro
calling plan revenues. The remaining increases are from other
miscellaneous local service revenues. Due to access line growth and
increased customer demand, this area of operations is expected to
continue to grow.
Access and toll revenues decreased $41,676 or less than 1% when
compared to the period ending on September 30, 1996. During the
three months ending September 30, 1996, access charges were
reclassified as an expense. Without this one-time reclassification
totaling $2,382,954 for access and toll services, the period ending
September 30, 1997 would have increased by $2,341,278 or 31.3%.
With the continued emphasis on toll operations by the Registrant and
expansion into areas outside of its traditional service area of
operations, growth is expected to continue in the access and toll
revenue category.
Other and unregulated income increased $488,472 or 18% over the
comparable period ending on September 30, 1996. This increase was
comprised of $205,002 in DCS telephone sales; a $36,472 increase in
business systems sales; approximately $59,239 in increase sales for
voice mail service; and a $135,071 in increased inside wire
maintenance. The remaining amount relates to increases of billing
and collecting, public telephone and directory advertising. The
Registrant is continually placing more emphasis on revenues and
sales from the non-regulated area of operations, and it is expected
that non-regulated revenues will continue to increase.
As a result of improved collection results, Registrant's
provision for uncollectible accounts increased only modestly in
spite of increased volume of business activity.
Operating expenses, exclusive of depreciation, increased
$991,785 or 8.4% when compared to the previous quarter ending on
September 30, 1996.
Plant specific expenses increased $70,715 or less than 1% when
compared to the previous period ending September 30, 1996. Within
the period ending September 30, 1996, access charges were re-classified
as an expense. This re-classified amount is $2,382,954
and increased this period expense accordingly. Without this one-time
re-classification, these expenses would have increased
$2,453,669. This increase was a result of decreased intrastate
intralata access expenses of
-12-
Results of Operations (Con't.)
3 months ended September 30, 1997 and September 30, 1996 (Con't.)
approximately $94,129; an increase of $420,796 in DCS cost of goods
sold associated with the CT Wireless, Inc. subsidiary; an increase
in interstate and intrastate interlata access expense of $584,766
due to additional sales of toll services; and an increase in DCS
expense of $420,796 for the ongoing start up costs associated with
the offering of DCS services. The remaining increase is primarily
for maintenance of outside plant including substantial expense
incurred for premature replacement of poles.
Customer operations increased $914,209 or 51% when compared to
the previous period ending on September 30, 1996. This increase was
comprised of costs associated with additional long distance sales
and marketing efforts of approximately $385,000 and cost increases
of $246,500 due to DCS sales and marketing efforts. The remaining
increase primarily relates to the implementation of the Registrant's
price reg plan as discussed below. In view of increasing
competitive pressures, the Registrant has expended considerable
resources in this area of operation in order to raise the level of
service to its customers.
Depreciation expenses decreased $154,498 or 5% when compared to
the previous quarter ending on June 30, 1996. This result is from
the fact that the 1996 expense amount contains an additional accrual
of $600,000 which was recorded in anticipation of earnings in excess
of the maximum rate of return allowed by the North Carolina
Utilities Commission. Without this accrual, this expense category
would have increased by $445,502 or 18%, which would be expected due
to the increased depreciable plant balances.
Other income decreased by $422,037 or 52% when compared to the
previous period. This reduction is a result of increased losses of
$422,281 relating to the Registrant's prorata share of losses
incurred by BellSouth Carolinas PCS Limited Partnership and its DCS
network which became operational in the third quarter of 1996. It
is expected the PCS losses will continue, but at a decreasing rate
for approximately three more years.
-13-
Results of Operations
9 months ended September 30, 1997 and September 30, 1996
Operating revenues increased $10,262,210 or 22% for the nine
months ended September 30, 1997 when compared to the same period of
1996.
Local service revenues increased $3,565,443 or 20% when
compared to the quarter ending September 30, 1996. This increase
was comprised of a $1,470,489 increase in basic local service
revenues; a $767,489 increase in Digital Communications Services
("DCS"); revenues from the operations of Registrant's Carolinas
Personal Communications, Inc. (doing business as "CT Wireless,
Inc.") subsidiary; a $330,271 increase in custom calling features;
and a $811,334 increase in growth of metro calling plan revenues.
Due to access line growth and increased customer demand, this area
of operations is expected to continue to grow.
Access and toll revenues increased $4,150,453 or 19% over the
comparable period ending on September 30, 1996. This increase was
comprised of $2,396,097 in interstate and intrastate interlata toll
revenues; $1,503,295 of area calling settlement charge revenues; and
$498,000 of other access revenue. The remainder of this increase is
primarily gains in intrastate intralata toll revenue. With the
continued emphasis on toll operations by the Registrant and
expansion into areas outside of its traditional service area of
operations, growth is expected to continue in the access and toll
revenue category.
Other and unregulated income increased $2,691,925 or 35% over
the comparable period ending September 30, 1996. This increase was
comprised of $345,846 in DCS telephone sales; a $864,000 increase in
business systems sales; a $193,600 increase in internet revenue,
approximately $185,000 in increased voice mail revenues; a $368,827
increase in inside wire maintenance and $440,663 increase in
directory advertising. The remaining amount primarily relates to
increases of billing and collecting. The Registrant is continually
placing more emphasis on revenues and sales from the non-regulated
area of operations, and it is expected that non-regulated revenues
will continue to increase.
The Registrant's provision for uncollectible accounts increased
only modestly in spite of increased volume of business activity.
Operating expenses, exclusive of depreciation, increased
$7,037,954 or approximately 25% when compared to the previous
quarter ending on September 30, 1996.
Plant specific expenses increased $3,546,433 or 23% when
compared to the previous period ending September 30, 1996. This
increase was a result of an increase of $1,223,371 in DCS access
expense and cost of goods sold associated with the CT Wireless, Inc.
subsidiary; an increase in interstate and intrastate interlata
access expense of $797,745 due to additional sales of toll services;
and an increase of $513,564 relating to business systems cost of
goods sold. The remaining increase is primarily expenses associated
with an increase in outside contractor cost relating to the
replacement of SPN poles and an increase in general plant
expenditures due to growth.
-14-
Results of Operations (Con't.)
9 months ended September 30, 1997 and September 30, 1996 (Con't.)
Customer operations expenses increased $3,564,897 or 69% when
compared to the previous period ending on September 30, 1996. This
increase was comprised of costs associated with additional long
distance sales and marketing efforts of approximately $1,580,222 and
cost increases of $1,162,777 due to DCS sales and marketing efforts.
The remaining increases are due to additional expenditures in local
regulated and non-regulated operations for customer service, sales
and marketing. This area of operation receives an allocation of
post retirement benefit costs which were previously classified as
corporate expenditures. The Registrant is placing continued
resources toward customer service in order to raise the level of
service to its customers.
Depreciation expenses decreased by $75,979 when compared to the
previous quarter ending on September 30, 1996. This small decrease
results from a reclassification of circuit equipment amounts into
the Central Office switching category and recalculating previously
recorded depreciation expense at the lower rates used for switching
equipment. The reduction of depreciation expense due to
reclassification is $736,971. The Registrant also recorded an
additional accrual in the amount of $600,000 during the same period
of the prior year in anticipation of earnings in excess of the
maximum allowed rate of return. Without these factors, this expense
would have increased by $1,260,992, which would be expected due to
the increased depreciable plant balances.
Other income decreased $2,580,828 when compared to the previous
period. This reduction is a result of reduced equity in income of
affiliates of $993,910, $1,536,755 relating to the Registrant's pro
rata share of start up losses incurred by BellSouth Carolinas PCS
Limited Partnership and its DCS network which became operational in
the third quarter of 1996 offset by an increase of $361,502 in the
earnings of the Registrant's investment in RSA 4/5 and RSA 15. The
Registrant also incurred a one-time expense of $1,020,000 during the
first quarter of 1997 related to an early retirement plan offered to
certain Concord Telephone Company employees.
Net income increased $2,991,466 or 37%, over the previous nine
months period due primarily to an extraordinary non-cash gain of
$2,239,045, net of applicable income taxes of $1,493,212, and the
factors described above. See "--Accounting Considerations" and Note
7 to the unaudited consolidated financial statements of the Company.
-15-
Other Events
New Rate Plan
The Registrant appeared in March 1997 before the NCUC in a
public hearing on the new rate plan request filed by the Registrant
on November 1, 1996, as disclosed in earlier filings. The NCUC
granted the requests as filed and issued an order effective May 30,
1997. The Registrant implemented the changes with billings
beginning September 1, 1997.
As a result of the new rate plan, the rates charged by the
Registrant for Local Access and Metro Rate Plan services will be set
by the NCUC. Although the new rate structure reflects an increase in
the cost to the customer of basic service, other rate changes offset
these increases for many customers. Overall, the new rate structure
is expected to reduce the Registrant's revenues by approximately
$232,000 in 1997 and approximately $696,000 in 1998.
The new rate structure will substantially expand the area in
which customers of the Registrant can call without paying long
distance charges. A customer may select one of five metro calling
packages which provide a flat monthly fee from no charge to $48.00
for specified monthly minutes of use from 30 minutes to unlimited
minutes of use. In excess of the flat rates minutes purchased, the
customer may pay from $.00 to $.10 per minute for usage in excess of
the monthly purchased amounts. However, the Registrant has also
agreed, as a part of the new rate structure, to open its markets to
competition for local dial tone service, on the condition that the
Registrant is allowed to "rebalance" or adjust its rates at the same
time. Although the competitive pressures of opening its markets to
competition from other local telephone service providers may lead to
reductions in the Registrant's future local service revenues,
management believes that by rebalancing its local service rates, it
can compete in emerging markets and continue to sustain local rates
that are affordable for customers.
These new rates, made effective on all billings rendered after
September 1, 1997, did not have a material effect on revenues for
this period.
Accounting Considerations
Extraordinary item - FAS 71
As described in Note 7 to the unaudited consolidated financial
statements, the Company discontinued applying Statement of Financial
Accounting Standards No. 71 (FAS 71), "Accounting for the Effects of
Certain Types of Regulation," as of April 1, 1997. The Company
determined that it no longer met the criteria for following FAS 71
due to changes in the manner in which the Company is regulated and
the heightened competitive environment. The accounting impact was
an extraordinary non-cash gain of $2,239,045, net of applicable
income taxes of $1,493,212. The effect on future charges for
depreciation is not expected to differ materially from what would
have been recorded under FAS 71 for the current year.
-16-
Factors That May Affect Future Results
The foregoing discussion contains forward-looking statements
about the Registrant's financial condition and results of
operations, which are subject to certain risks and uncertainties
that could cause actual results to differ materially from those
reflected in the forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements,
which reflect management's judgment only as of the date hereof. The
Registrant undertakes no obligation to publicly revise these
forward-looking statements to reflect events and circumstances that
arise after the date hereof.
Factors that may cause actual results to differ materially from
these forward-looking statements are (1) the Registrant's ability to
respond effectively to the sweeping changes in industry conditions
created by the Telecommunications Act of 1996, and related state and
federal legislation and regulations, (2) whether the Registrant
successfully implements and markets the price regulation plan as
approved by the NCUC, (3) the Registrant's ability to recover the
substantial costs to be incurred in connection with the
implementation of its DCS business, (4) the Registrant's ability to
retain its existing customer base against local and long distance
service competition, and to market such services to new customers,
(5) the Registrant's ability to effectively manage rapid changes in
technology and (6) whether the Registrant can effectively respond to
the actions of its competitors.
-17-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
There were no current reports on Form 8-K filed during the
third quarter.
-18-
SIGNATURES
Pursuant to the requirements 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.
CT COMMUNICATIONS, INC.
(Registrant)
/s/ BARRY R. RUBENS
Barry R. Rubens
Senior Vice President,
Secretary and Treasurer
November 13, 1997
Date
(The above signatory has dual responsibility as duly authorized
officer and principal financial and accounting officer of the
registrant.)
-19-
EXHIBIT INDEX
Exhibit No. Description of Exhibit
3.1 Articles of Incorporation of the
Registrant effective October 25, 1993.
(Incorporated by reference to Exhibit
3.1 of the Registrant's Annual Report Form
10-K dated March 29, 1994.)
3.2 By-laws of the Registrant effective
October 25, 1993. (Incorporated by
reference to Exhibit 3.2 of the
Registrant's Annual Report Form 10-K
dated March 29, 1994.)
11 Computation of Earnings Per Share
27 Financial Data Schedules.
EXHIBIT 11
CT COMMUNICATIONS, INC.
AND SUBSIDIARIES
Computation of Earnings Per Share
Years Ended
September 30 September 30
1997 1996
Computation of share totals used
in computing earnings per share:
Weighted average number of
shares outstanding 2,235,220 2,230,472
(Adjusted for stock dividend
August 1, 1997)
Primary average shares
a - Outstanding 2,235,220 2,235,472
Incremental shares arising
from outstanding stock options 26,769 19,291
b - Totals 2,261,989 2,249,763
c - Net Income before
extraordinary item
for Common Stock 8,665,068 7,981,579
d - Extraordinary item 2,239,045 ---
e - Net Income after
extraordinary item
for Common Stock $10,904,113 $7,981,579
Net Income Per Primary Share
before extraordinary item - c/a $3.88 $3.58
Extraordinary item per
primary share - d/a 1.00 ---
Net Income Per Primary Share
after extraordinary item $3.82 $3.62
Net Income Per Share before
extraordinary item assuming
full dilution - c/b $3.83 $3.55
Net Income Per Share after
extraordinary item assuming
full dilution - e/b $4.82 $3.55
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Appendix A to Item 601(c) of Regulation S-K
Commercial and Industrial Companies
Article 5 of Regulation S-X
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
<CASH> 77,676
<SECURITIES> 383,155
<RECEIVABLES> 14,901,850
<ALLOWANCES> (100,000)
<INVENTORY> 3,977,830
<CURRENT-ASSETS> 20,081,258
<PP&E> 165,883,588
<DEPRECIATION> 84,336,337
<TOTAL-ASSETS> 132,325,395
<CURRENT-LIABILITIES> 12,884,670
<BONDS> 11,049,000
150,000
1,692,641
<COMMON> 28,293,797
<OTHER-SE> 27,003
<TOTAL-LIABILITY-AND-EQUITY> 89,974,351
<SALES> 57,518,499
<TOTAL-REVENUES> 57,518,499
<CGS> 19,104,617
<TOTAL-COSTS> 8,731,893
<OTHER-EXPENSES> 7,687,731
<LOSS-PROVISION> (280,952)
<INTEREST-EXPENSE> 517,055
<INCOME-PRETAX> 14,384,796
<INCOME-TAX> 5,650,796
<INCOME-CONTINUING> 8,734,000
<DISCONTINUED> 0
<EXTRAORDINARY> 2,239,045
<CHANGES> 0
<NET-INCOME> 10,973,045
<EPS-PRIMARY> 4.88
<EPS-DILUTED> 4.82
</TABLE>
