FORM 10-Q/A No.1
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 JUNE 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) 782-7000
(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.
1,489,144 shares of Common Stock outstanding as of
June 30, 1997.
Voting - 225,685
Class B Non-Voting - 1,263,459
CT COMMUNICATIONS, INC.
INDEX
Page No.
PART I. Financial Information
Balance Sheets --
June 30, 1997 and December 31, 1996 2-3
Statements of Income --
Three and Six Months Ended June 30, 1997 and 1996 4
Statements of Cash Flows --
Six Months Ended June 30, 1997 and 1996 5
Notes to Financial Statements 6-8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-15
PART II. Other Information 16
The Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997 is amended and restated in its entirety by this Form
10-Q/A No.1 to reflect the financial effect of the discontinued
application of Statement of Financial Accounting Standards No.
71, "Accounting for the Effects of Certain Types of Regulation."
Such discontinuance necessitated the amendment of the unaudited
Balance Sheets, Statements of Income, Statements of Cash Flows,
Notes to Financial Statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations set
forth in Part I. Financial Information of the Registrant's
Current Report on Form 10-Q filed on August 14, 1997.
-1-
PART I. FINANCIAL INFORMATION
CT COMMUNICATIONS, INC.
Consolidated Balance Sheets
Unaudited
ASSETS
June 30, December 31,
1997 1996
Current assets:
Cash and cash equivalents $ 1,431,235 $ 2,162,698
Short-term investments 221,735 316,158
Accounts receivable, net of allowance
for doubtful accounts of $100,000
in 1996 and 1995 9,795,532 7,614,737
Refundable income taxes 195,491 14,736
Materials and supplies 3,783,887 2,860,114
Deferred income taxes 103,399 103,399
Prepaid expenses and other assets 585,170 476,774
Total current assets 16,116,449 13,548,616
Investments securities 630,054 3,637,445
Investments in affiliates 28,610,272 25,888,315
Property, plant & equipment:
Telephone plant in service:
Land, buildings, and general equipment 26,183,108 22,146,226
Central office equipment 61,107,817 55,912,450
Poles, wire, cables and conduit 74,803,055 72,466,757
Construction in progress 73,913 2,778,779
162,167,893 153,304,212
Less accumulated depreciation 81,859,783 81,314,625
Net property, plant, and equipment 80,308,110 71,989,587
TOTAL ASSETS $125,664,885 $115,063,963
(Continued)
See accompanying notes to consolidated financial statements.
-2-
Consolidated Balance Sheets, (Continued)
LIABILITIES & STOCKHOLDERS' EQUITY
Unaudited
June 30, December 31,
1997 1996
Current liabilities:
Current portion of long-term debt and
redeemable preferred stock $ 632,500 $ 2,072,500
Accounts payable 10,259,960 9,962,149
Customer deposits and advance billings 1,330,905 1,271,562
Accrued payroll 1,533,961 1,250,396
Other accrued liabilities 613,729 469,492
Total current liabilities 14,371,055 15,026,099
Long-term debt 5,204,000 2,014,000
Deferred credits and other liabilities:
Deferred income taxes 2,689,162 1,106,910
Investment tax credits 976,523 1,033,965
Regulatory liability 532,596 2,507,029
Accrued pension cost 2,023,440 1,043,974
Postretirement benefits other than pension 10,049,092 9,422,573
Other 2,402,972 1,103,098
18,673,785 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 38,398,840 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; 225,685 and 227,019 shares
outstanding in 1997 and 1996, respectively 3,773,036 4,021,094
Nonvoting; 1,263,459 and 1,258,357 shares
outstanding in 1997 and 1996, respectively 23,886,819 23,377,120
Other capital 298,083 298,083
Unearned compensation (168,079) (188,055)
Unrealized gain (loss) on securities available-
for-sale (247,830) 195,419
Retained earnings 58,031,375 52,260,013
Total stockholders' equity 87,266,045 81,656,315
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $125,664,885 $115,063,963
See accompanying notes to consolidated financial statements.
-3-
CT COMMUNICATIONS, INC.
Consolidated Statements of Income
For 3 and 6 months ended June 30, 1997 and 1996
Unaudited
Three Months Ended
June 30,
OPERATING REVENUES: 1997 1996
Local service $ 7,514,911 $ 6,079,767
Access and toll service 8,437,429 7,364,861
Other and unregulated 3,611,221 2,038,613
Less provision for uncollectible accounts (98,027) (101,138)
Total operating revenues 19,465,534 15,382,103
OPERATING EXPENSES:
Plant specific 5,955,013 5,423,166
Depreciation and amortization 2,738,423 2,339,552
Customer operations 3,421,879 1,763,627
Corporate operations 2,675,190 3,188,371
Total operating expenses 14,790,505 12,714,716
Net operating revenues 4,675,029 2,667,387
OTHER INCOME (EXPENSES):
Equity in income of affiliates 545,717 1,195,275
Interest, dividend income and
gain on sale 13,644 67,327
Other expenses, principally interest (151,453) (434,942)
Expense related to early retirement plan --- ---
Total other income 407,908 827,660
Income before income taxes
and extraordinary item 5,082,937 3,495,047
Income taxes 2,006,913 1,407,635
Net income before extraordinary item 3,076,024 2,087,412
Extraordinary Item - Discontinuance of FAS
71, net of income taxes of $1,493,212 2,239,045 ---
Net income 5,315,069 2,087,412
DIVIDENDS ON PREFERRED STOCK 22,996 23,146
EARNINGS AFTER EXTRAORDINARY
ITEMS FOR COMMON STOCK $ 5,292,073 $ 2,064,266
EARNINGS BEFORE EXTRAORDINARY
ITEMS PER COMMON SHARE * $ 2.05 $ 1.39
EXTRAORDINARY ITEMS $ 1.50 $ .00
EARNINGS PER COMMON SHARE $ 3.55 $ .00
DIVIDENDS PER COMMON SHARE * $ .70 $ .70
WEIGHTED AVERAGE SHARES OUTSTANDING * 1,489,103 1,484,979
Six Months Ended
June 30,
OPERATING REVENUES: 1997 1996
Local service $13,758,153 $11,738,300
Access and toll service 16,555,761 14,490,322
Other and unregulated 7,179,793 4,620,716
Less provision for uncollectible accounts (175,944) (173,375)
Total operating revenues 37,317,763 30,675,963
OPERATING EXPENSES:
Plant specific 11,468,003 10,118,975
Depreciation and amortization 4,643,690 4,565,171
Customer operations 6,037,536 3,386,848
Corporate operations 5,221,234 5,301,471
Total operating expenses 27,370,463 23,372,465
Net operating revenues 9,947,300 7,303,498
OTHER INCOME (EXPENSES):
Equity in income of affiliates 724,836 1,986,634
Interest, dividend income and
gain on sale 53,924 231,786
Other expenses, principally interest (256,581) (557,450)
Expense related to early retirement plan (1,020,000) ---
Total other income (497,821) 1,660,970
Income before income taxes
and extraordinary item 9,449,479 8,964,468
Income taxes 3,724,063 3,544,456
Net income before extraordinary item 5,725,416 5,420,012
Extraordinary item - Discontinuance of FAS
71, net of income taxes of $1,493,212 2,239,045 ---
Net income 7,964,461 5,420,012
DIVIDENDS ON PREFERRED STOCK 46,055 46,355
EARNINGS AFTER EXTRAORDINARY
ITEMS FOR COMMON STOCK $ 7,918,406 $ 5,373,657
EARNINGS BEFORE EXTRAORDINARY
ITEMS PER COMMON SHARE * $ 3.82 $ 3.62
EXTRAORDINARY ITEMS 1.50 $ .00
EARNINGS PER COMMON SHARE $ 5.32 $ .00
DIVIDENDS PER COMMON SHARE * $ 1.40 $ 1.38
WEIGHTED AVERAGE SHARES OUTSTANDING * 1,487,882 1,484,523
* In April 1996, the Registrant effected a three for one stock split in the
form of a two for one dividend to shareholders of record at May 3, 1996.
Earnings per share, dividends per share and weighted average shares out-
standing have been restated for prior periods.
See accompanying notes to financial statements.
-4-
CT COMMUNICATIONS, INC.
Statements of Cash Flows
For 6 months ended June 30, 1997 and 1996
Unaudited
1997 1996
Cash flows from operating activities:
Net income $ 7,964,461 $ 5,420,012
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,643,690 4,565,171
Extraordinary item - Discontinuance of FAS
71, net of income taxes of $1,493,212 (2,239,045) ---
Deferred income taxes and tax credits 31,598 (134,714)
Postretirement benefits 626,519 718,799
Loss (gain) on sale of investments 26,755 73,708
Undistributed income of affiliates (724,836) (1,986,634)
(Increase) decrease in accounts
receivable (2,180,795) 42,341
(Increase) in materials and supplies (923,773) (346,908)
(Increase) in refundable income taxes (180,755) ---
(Increase) decrease in other assets (108,396) 36,587
Increase (decrease) in accounts payable 257,277 (162,660)
Increase in customer deposits and advance
billings 59,343 124,784
Increase in accrued liabilities 427,802 531,603
Increase (decrease) in income
taxes payable --- (1,232,667)
Increase in liability for early
retirement 1,020,000 ---
Unrealized loss on securities available
for sale 310,439 ---
Net cash provided by operating
activities 9,010,284 8,249,422
Cash flows from investing activities:
Capital expenditures in telephone plant (9,904,515) (8,859,330)
Purchase of investments in affiliates (3,740,055) (2,282,867)
Purchases of investment securities (110,824) (811,149)
Sales & maturities of investment securities 2,432,195 5,837,571
Partnership capital distribution 1,741,793 230,674
Other (60,787) ---
Net cash used in investing activities (9,642,193) (5,885,101)
Cash flows from financing activities:
Repayment of long-term debt (1,750,000) (330,000)
Proceeds from new debt 3,500,000 ---
Dividends paid (2,131,495) (2,100,587)
Proceeds from common stock issuance 509,699 34,480
Other 20,300 150,836
Purchase of shares outstanding (248,058) ---
Net cash used in financing activities (99,554) (2,245,271)
Net increase (decrease) in cash and
cash equivalents (731,463) 119,050
Cash and cash equivalents-beginning of period 2,162,698 4,751,204
Cash and cash equivalents-end of peri $ 1,431,235 $ 4,870,254
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 June 30, 1997, and the results of operations for the
three and six months then ended and cash flows for the six months
then ended.
2. The results of operations for the three and six months ended June 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
six months ended June 30, 1997.
.....Voting.....
Shares Value
Outstanding at December 31, 1996.......... 227,019 $4,021,094
Purchase of shares........................ (1,334) (248,058)
------- ---------
Outstanding at June 30, 1997.............. 225,685 $3,773,036
======= =========
Weighted average shares outstanding
for the six months ending
June 30, 1997.......................... 226,213
....Class B Non-Voting....
Shares Value
Outstanding at December 31, 1996.......... 1,258,357 $23,377,120
Issuance of common stock.... ............. 5,102 509,699
--------- ----------
Outstanding at June 30, 1997.............. 1,263,459 $23,886,819
========= ==========
Weighted average shares outstanding
for six months ending
June 30, 1997.......................... 1,261,669
-6-
4. SECURITIES AVAILABLE-FOR-SALE
June 30, 1997
-------------------------------
Gross Unrealized
------------------
Securities Amortized Fair
Available-for-Sale Cost Gains Losses Value
------------------ ---------- --------- -------- ---------
State, county and municipal
debt securities $ 409,153 0 0 409,153
Equity Securities 877,205 0 434,569 442,636
---------- --------- --------- ----------
$1,286,358 0 434,569 851,789
========== ========= ========= ==========
Amortized Cost Fair Value
-------------- ----------
Current $ 221,735 $ 221,735
Due after one through five years 187,418 187,418
Equity securities 877,205 442,636
---------- ----------
Total $1,286,358 $ 851,789
========== ==========
5. INVESTMENTS IN AFFILIATED COMPANIES
June 30, 1997 December 31, 1996
ITC Associates Partnership
(cost method) $ 5,519,832 $ 5,519,832
RSA 15 Partnership (equity method) 7,094,736 6,516,008
BellSouth Carolinas PCS, LP
(equity method) 4,851,064 5,581,051
U.S. Telecom Holdings (equity method) 3,445,386 3,556,294
Wireless 1 - Carolinas (equity method) 4,318,731 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) 1,152,301 1,188,967
Access On (equity method) 200,472 199,095
Other (cost method) 300,772 229,090
TOTAL $ 28,610,272 $ 25,888,315
6. LONG-TERM DEBT:
Long-term debt excluding current maturities comprised the following:
First Mortgage Bonds: June 30, 1997 December 31, 1996
Note payable to a bank @ 7.25%
due in installments until 2001 $ 1,704,000 $ 2,014,000
Rural Telephone Finance Corp.
maturing on March 8, 1999 3,500,000 ---
TOTAL $ 5,204,000 $ 2,014,000
Annual maturities of the long-term debt outstanding amounts to $310,000
in 1997; $620,000 in 1998; $4,120,000 in 1999; $620,000 in 2000; and
$154,000 thereafter.
-7-
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.
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-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
The liquidity of the Registrant increased during the six
month period ending June 30, 1997. Current assets exceeded
current liabilities by $1,745,394 at June 30, 1997. In
comparison, current assets exceeded current liabilities by
$1,477,483 at December 31, 1996.
Current assets increased by $2,567,833 when compared to
December 31, 1996. This increase is primarily due to increases
in accounts receivable of $2,180,795 due to increased
receivables from the National Exchange Carrier Association of
$1,006,501 from prior period adjustments and increased
receivables from other interexchange carriers, increases in
refundable income taxes of $180,755 due to prepayment of income
taxes, increases in materials and supplies of $923,773 to
facilitate construction of outside plant and increases of
prepaid expenses and other assets of $108,396. These increases
were offset primarily by a decrease in cash and cash
equivalents of $731,463 due to increased cash needs for
operational and capital requirements.
Current liabilities decreased by $655,044 during the six
months ending June 30, 1997. This decrease is primarily from
the reduction of current maturities of long-term debt in the
amount of $1,440,000 of Series F First Mortgage Bonds. This
decrease is offset in part by increases in accounts payable of
$297,811, increase in accrued payroll of $583,565 due to timing
of pay periods and increases in other accrued liabilities of
$144,237.
The Company's primary source of liquidity is funds
provided by operations. During the six months ended June 30,
1997, cash provided by operations totaled $9,010,284, an
increase of $760,862 over the six months ended June 30, 1996.
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 $1,500,000 on the
RTFC line on June 26, 1997 to fund the June capital call of
BellSouth Mobility in the amount of $311,200 and the capital
call in the amount of $1,233,945 to CT Wireless Cable. There
is $6,500,000 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.
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 - $9,904,515, purchase of
investments in affiliates - $3,740,055, payment of dividends -
$2,131,495, purchase of investment securities - $110,824 and
repayment of long-term debt comprised of $1,440,000 Series F
6.25% First Mortgage Bonds and $310,000 to Wachovia Bank for an
installment on an unsecured note. The Registrant purchased
1,334 shares of Common Voting from an individual for $248,058.
Of the cash expended for investments in affiliates, $2,968,172
was invested in CT Wireless Cable, Inc. in connection with its
investment in Wireless One of North Carolina, L.L.C. ("WONC")
and
-9-
Liquidity and Capital Resources (Con't.)
WONC's expenditures to acquire the rights to lease certain
television channel frequencies from the University of North
Carolina. An additional $700,200 was expended in capital calls
for the C-Tec Partnership with BellSouth Mobility providing a
digital cellular 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
$2,432,195 during the six months ending June 30, 1997.
At June 30, 1997, the Company's investment portfolio
totaled $855,000, all of which could be pledged to secure
additional borrowing, or sold, if needed for liquidity
purposes. At June 30, 1997, the Company had available lines of
credit totaling $13,500,000, of which $3,500,000 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.
Results of Operations
3 months ended June 30, 1997 and June 30, 1996
Operating revenues increased $4,083,431 or 26.6% for the
three months ended June 30, 1997 compared to same period of
1996.
Local service revenues increased $1,790,768 or 14.6% when
compared to the quarter ending on June 30, 1996. This increase
was comprised of a $205,000 increase in basic local service
revenues; a $240,000 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 $133,000 increase in custom
calling features and a $334,000 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 increased $1,072,568 or 14.6%
over the comparable period ending on June 30, 1996. This
increase was comprised of $835,000 in interstate and intrastate
interlata toll revenues; $152,000 of area calling settlement
charge revenues; and $139,000 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.
-10-
Results of Operations (Con't.)
3 months ended June 30, 1997 and June 30, 1996 (Con't.)
Other and unregulated income increased $1,216,984 or 51%
over the comparable period ending on June 30, 1996. This
increase was comprised of $114,000 in DCS telephone sales; a
$718,456 increase in business systems sales; approximately
$65,000 in increase sales for voice mail service; and a
$251,000 in increased inside wire maintenance. The remaining
amount relates to increases of billing and collecting public
telephone and directory and 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 decreased slightly in
spite of increased volume of business activity.
Operating expenses, exclusive of depreciation, increased
$1,676,918 or 16% when compared to the previous quarter ending
on June 30, 1996.
Plant specific expenses increased $531,847 or 19.8% when
compared to the previous period ending June 30, 1996. This
increase was a result of increased intrastate intralata access
expenses of approximately $178,000; an increase of $168,000 in
DCS cost of goods sold associated with the CT Wireless, Inc.
subsidiary; an increase in interstate and intrastate interlata
access expense of $300,000 due to additional sales of toll
services; and an increase in DCS access expense of $231,000 for
the ongoing start up costs associated with the offering of DCS
services. These increases are partially offset by decreases in
regulated plant maintenance expense.
Customer operations expenses increased $1,658,252 or 94%
when compared to the previous period ending on June 30, 1996.
This increase was comprised of costs associated with additional
long distance sales and marketing efforts of approximately
$465,000 and cost increases of $380,000 due to DCS sales and
marketing efforts. This area of operation also received an
allocation of postretirement benefit cost due to the allocation
process 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.
Corporate operations decreased $513,181 or approximately
16% when compared to the expenses period ending on June 30,
1996. This is primarily a result of allocation of
postretirement benefits to departments and functions which
generate these costs. This allocation results in some of these
costs being capitalized and not expensed currently. Also, the
three months ending June 30, 1996 contain a one time adjustment
to reconcile customer accounts receivable.
Depreciation expenses increased $398,871 or 17% when
compared to the previous quarter ending on June 30, 1996. This
result is from the increase in depreciable plant balances.
-11-
Results of Operations (Con't.)
3 months ended June 30, 1997 and June 30, 1996 (Con't.)
Other income decreased by $419,752 or 51% when compared to
the previous period. This reduction is a result of reduced
equity in income of affiliates of $649,558, which is primarily
a result of 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, which is partially offset by a reduction in other
expense, principally loss on disposal of investment of $325,651
in the quarter ending June 30, 1996. It is expected the PCS
losses will continue, but at a decreasing rate for
approximately three more years.
Net income increased by $3,227,657, or 155%, over the
previous 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.
Results of Operations
6 months ended June 30, 1997 and June 30, 1996
Operating revenues increased $6,641,800 or 22% for the six
months ended June 30, 1997 when compared to the same period of
1996.
Local service revenues increased $2,019,853 or 21% when
compared to the quarter ending June 30, 1996. This increase
was comprised of a $407,000 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 $283,000 increase in custom
calling features; and a $585,000 increase in growth of metro
calling plan revenues. The remaining increases are from other
miscellaneous 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 $2,065,439 or 14% over
the comparable period ending on June 30, 1996. This increase
was comprised of $1,575,000 in interstate and intrastate
interlata toll revenues; $98,000 of area calling settlement
charge revenues; and $424,000 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 $2,559,077 or 55%
over the comparable period ending June 30, 1996. This increase
was comprised of $234,000 in DCS telephone sales; a $833,456
increase in business systems sales; approximately $125,000 in
increase sales for voice mail service; and $738,000 in
increased inside wire maintenance and installation. The
remaining amount relates to increases of billing and collecting
public telephone and directory advertising and publishing. 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.
-12-
Results of Operations (Con't.)
6 months ended June 30, 1996 and June 30, 1995
As a result of improved collection results, the
Registrant's provision for uncollectible accounts increased
only modestly in spite of increased volume of business
activity.
Operating expenses, exclusive of depreciation, increased
$3,919,479 or approximately 21% when compared to the previous
quarter ending on June 30, 1996.
Plant specific expenses increased $1,349,028 or 13% when
compared to the previous period ending June 30, 1996. This
increase was a result of increased intrastate intralata access
expenses of approximately $658,000; an increase of $485,000 in
DCS cost of goods sold associated with the CT Wireless, Inc.
subsidiary; an increase in interstate and intrastate interlata
access expense of $520,000 due to additional sales of toll
services; and an increase in DCS access expense of $422,000 for
the ongoing start up costs associated with the offering of DCS
services. The remaining increase is primarily expenses
associated with non-regulated plant specific expenditures and
local plant operations.
Customer operations expenses increased $2,650,688 or 78%
when compared to the previous period ending on June 30, 1996.
This increase was comprised of costs associated with additional
long distance sales and marketing efforts of approximately
$825,000 and cost increases of $750,000 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.
Corporate operations remained approximately the same.
Depreciation expenses increased by $78,519 when compared
to the previous quarter ending on June 30, 1996. This small
increase 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.
Without this one-time change to reclassify previously deducted
depreciated amounts, this expense would have increased by
$815,310, which would be expected due to the increased
depreciable plant balances.
Other income decreased $2,158,791 when compared to the
previous period. This reduction is a result of reduced equity
in income of affiliates of $1,262,940, which is primarily a
result of 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, as well as 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.
-13-
Results of Operations (Con't.)
6 months ended June 30, 1996 and June 30, 1995
Net income increased $2,544,449, or 47%, over the previous
six-month 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.
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 will implement
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 nothing 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.
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.
-14-
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.
-15-
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
Annual Meeting was held April 24, 1997.
All directors were reelected.
Proxies were solicited for the following matters:
(1) To elect eight directors for terms designated.
John R. Boger, Jr.
O. C Chewning
L. D. Coltrane, III
Michael R. Coltrane
Samuel E. Leftwich
Ben F. Mynatt
Jerry H. McClellan
Phil W. Widenhouse
For 210,872 Authority Withheld 0 Broker Non-Vote 0
(Each nominee received the same number of votes)
(2) Approval of the Omnibus Stock Compensation Plan
For 194,590 Against 6872 Abstain 6601 Broker Non-Vote 0
(3) Approval of the Employee Stock Purchase Plan
For 201,685 Against 230 Abstain 6148 Broker Non-Vote 0
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
second quarter.
-16-
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
October 24, 1997
Date
(The above signatory has dual responsibility as duly authorized
officer and principal financial and accounting officer of the
registrant.)
-17-
EXHIBIT INDEX
Exhibit No. Description
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 Schedule
EXHIBIT 11
CT COMMUNICATIONS, INC.
AND SUBSIDIARIES
Computation of Earnings Per Share
Years Ended
June 30 June 30
1997 1996
---------------- ---------------
Computation of share totals used
in computing earnings per share:
Weighted average number of
shares outstanding 1,487,882 1,484,523
(Adjusted for stock dividend
May 3, 1996)
Primary average shares
a - Outstanding 1,487,882 1,484,823
Incremental shares arising
from outstanding stock options 17,846 12,861
---------------- ----------------
b - Totals 1,505,728 1,497,384
================ ================
c - Net Income before
extraordinary item
for Common Stock $5,679,361 $5,373,657
d - Extraordinary item 2,239,045 ---
---------------- ----------------
e - Net Income after
extraordinary item
for Common Stock $7,918,406 $5,373,657
================ ================
Net Income Per Primary Share
before extraordinary item - c/a $3.82 $3.62
Extraordinary item per primary
share - d/a 1.50 ---
---------------- -----------------
Net Income Per Primary Share
after extraordinary item $5.32 $3.62
================ =================
Net Income Per Share before
extraordinary item assuming
full dilution - c/b $3.77 $3.59
================ =================
Net Income Per Share after
extraordinary item assuming
full dilution - e/b $5.26 $3.59
================ =================
<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> JUN-30-1997
<CASH> 1,431,235
<SECURITIES> 221,735
<RECEIVABLES> 9,895,532
<ALLOWANCES> 100,000
<INVENTORY> 3,783,887
<CURRENT-ASSETS> 16,116,449
<PP&E> 162,167,893
<DEPRECIATION> 81,577,933
<TOTAL-ASSETS> 125,946,735
<CURRENT-LIABILITIES> 14,371,055
<BONDS> 5,204,000
150,000
1,692,641
<COMMON> 27,659,855
<OTHER-SE> 58,199,782
<TOTAL-LIABILITY-AND-EQUITY> 125,946,735
<SALES> 0
<TOTAL-REVENUES> 37,317,763
<CGS> 0
<TOTAL-COSTS> 27,370,463
<OTHER-EXPENSES> 241,240
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 256,581
<INCOME-PRETAX> 9,449,479
<INCOME-TAX> 3,724,063
<INCOME-CONTINUING> 5,725,416
<DISCONTINUED> 0
<EXTRAORDINARY> 2,239,045
<CHANGES> 0
<NET-INCOME> 7,964,461
<EPS-PRIMARY> 5.32
<EPS-DILUTED> 5.26
</TABLE>
