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 JUNE 30, 1998
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.
2,289,501 shares of Common Stock outstanding as of June 30,
1998.
Voting - 336,443
Class B Non-Voting - 1,953,058
CT COMMUNICATIONS, INC.
INDEX
Page No.
PART I. Financial Information
Balance Sheets --
June 30, 1998 and December 31, 1997 2-3
Statements of Income --
Three and Six Months Ended June 30, 1998
and 1997 4
Statements of Cash Flows --
Six Months Ended June 30, 1998 and 1997 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
-1-
PART I. FINANCIAL INFORMATION
CT COMMUNICATIONS, INC.
Consolidated Balance Sheets
ASSETS
June 30, December 31,
1998 1997
------------ ----------------
Unaudited
Current assets:
Cash and cash equivalents $ 495,167 $ ---
Short-term investments 260,386 168,979
Accounts receivable, net of
allowance for doubtful
accounts of $107,500 10,141,479 8,842,922
Other accounts receivable 1,801,798 ---
Notes receivable 1,513,500 1,810,500
Materials and supplies 2,171,657 2,696,432
Deferred income taxes 1,580,507 1,545,470
Prepaid expenses and other
assets 617,132 950,254
---------- ----------
Total current assets 18,581,626 16,014,557
---------- ----------
Investment securities 36,792,060 14,624,757
Investments in affiliates 30,795,150 29,550,326
Property, plant, and equipment:
Telephone plant in service:
Land, buildings, and general
equipment 34,015,752 28,730,045
Central office equipment 68,964,538 64,227,829
Poles, wire, cables and
conduit 82,349,938 80,143,917
Construction in progress 1,186,306 277,070
----------- -----------
186,516,534 173,378,861
Less accumulated depreciation 91,325,304 86,229,072
----------- -----------
Net property, plant, and
equipment 95,191,230 87,149,789
Intangibles 6,217,008 ---
------------ ------------
TOTAL ASSETS $187,577,074 $147,339,429
============ ============
(Continued)
See accompanying notes to consolidated financial statements.
-2-
Consolidated Balance Sheets, (Continued)
LIABILITIES & STOCKHOLDERS' EQUITY
Unaudited
June 30, December 31,
1998 1997
----------- -------------
Unaudited
Current liabilities:
Current portion of long-term debt
and redeemable preferred stock $ 632,500 $ 632,500
Accounts payable 12,250,177 9,697,000
Customer deposits and advance
billings 1,833,979 1,591,284
Accrued payroll 2,042,243 1,304,573
Income taxes payable 18,960 992,750
Accrued pension cost 1,739,892 1,970,956
Other accrued liabilities 1,062,711 1,428,372
---------- ----------
Total current liabilities 19,580,462 17,617,435
---------- ----------
Long-term debt 18,084,000 11,239,000
---------- ----------
Deferred credits and other liabilities:
Deferred income taxes 16,149,465 7,497,167
Investment tax credits 919,080 919,080
Post-retirement benefits other
than pension 10,320,962 10,026,128
Other 1,443,892 1,573,668
---------- ----------
28,833,399 20,016,043
Redeemable preferred stock: 4.8% series;
authorized 5,000 shares; issued and
outstanding 1,500 and 1,500 shares
in 1998 and 1997, respectively 137,500 137,500
----------- ----------
Total liabilities 66,635,361 49,009,978
----------- ----------
Minority interest --- 1,360,998
Stockholders' equity:
Preferred stock not subject to mandatory
redemption:
5% series, $100 par value; 3,503
and 3,631 shares outstanding in 1998
and 1997, respectively 350,300 363,100
4.5% series, $100 par value; 628
and 1,218 shares outstanding in 1998
and 1997, respectively 62,800 121,800
Common stock:
Voting; 336,443 and 338,429 shares
outstanding in 1998 and 1997,
respectively 3,482,457 3,772,298
Nonvoting; 1,953,058 and 1,900,361
shares outstanding in 1998 and 1997,
respectively 32,080,401 25,268,447
Other capital 298,083 298,083
Unearned compensation (975,122) (817,903)
Other accumulated comprehensive
income 19,702,863 6,169,443
Retained earnings 65,939,931 61,793,185
---------- ----------
Total stockholders' equity 120,941,713 96,968,453
----------- ----------
TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY $187,577,074 $147,339,429
See accompanying notes to consolidated financial statements.
-3-
CT COMMUNICATIONS, INC.
Consolidated Statements of Income
For 3 and 6 months ended June 30, 1998 and 1997
Unaudited
Three Months Ended Six Months Ended
June 30 June 30
1998 1997 1998 1997
--------- --------- ---------- ----------
Operating revenues:
Local service $ 8,107,192 $ 6,193,142 $16,010,692 $12,036,940
Access and
toll service 9,886,242 9,727,213 19,339,006 18,960,886
Other and
unregulated 4,493,589 3,643,206 8,265,242 6,495,881
Less provisions
for uncollectible
accounts (78,830) (98,027) (191,162) (175,944)
------------ ----------- ----------- -----------
Total operating
revenues 22,408,193 19,465,534 43,423,778 37,317,763
Operating expenses:
Plant specific 6,873,953 6,520,593 13,361,755 12,158,406
Depreciation and
amortization 2,950,027 2,738,423 5,635,871 4,643,690
Customer
operations 4,021,044 2,799,857 7,205,595 5,115,527
Corporate
operations 2,872,402 2,731,632 5,971,447 5,452,840
---------- ---------- ---------- ----------
Total operating
expenses 16,717,426 14,790,505 32,174,668 27,370,463
---------- ---------- ---------- ----------
Net operating
revenues 5,690,767 4,675,029 11,249,110 9,947,300
Other income (expenses):
Equity in income
(loss) of affiliates (24,348) 545,717 (95,181) 724,836
Interest, dividend
income and gain
on sale of
investments 14,909 13,644 97,598 53,924
Other expenses,
principally
interest (276,879) (151,453) (480,113) (256,581)
Expense related
to early
retirement plan ---- ---- ---- (1,020,000)
---------- --------- --------- -----------
Total other income
(expenses) (286,318) 407,908 (477,696) (497,821)
Income before
income taxes
and extraordinary
item 5,404,449 5,082,937 10,771,414 9,449,479
Income taxes 2,209,251 2,006,913 4,438,763 3,724,063
---------- ---------- ---------- ----------
Net income before
extraordinary
item 3,195,198 3,076,024 6,332,651 5,725,416
Extraordinary item-Discontinuance
of FAS 71
Net of income taxes
of $1,493,212 ---- 2,239,045 ---- 2,239,045
--------- ---------- ---------- ----------
Net income 3,195,198 5,315,069 6,332,651 7,964,461
Dividends on
preferred stock 4,454 22,996 11,657 46,055
---------- ----------- ----------- -----------
Earnings after
extraordinary items
for common
stock $ 3,190,744 $ 5,292,073 $ 6,320,994 $ 7,918,406
=========== =========== =========== ===========
Basic earnings per common share
before extraordinary
items $ 1.40 $ 1.37 $ 2.80 $ 2.54
=========== =========== =========== ===========
Extraordinary
items ---- $ 1.00 ---- $ 1.00
=========== =========== =========== ===========
Basic earnings per common share
after extraordinary
items* $ 1.40 $ 2.37 $ 2.80 $ 3.54
=========== =========== =========== ===========
Diluted earnings per common share
before extraordinary
items* $ 1.40 $ 1.36 $ 2.79 $ 2.53
========== =========== =========== ===========
Extraordinary Items $ ---- $ 1.00 $ ---- $ 1.00
========== =========== =========== ===========
Diluted earnings per common share
after extraordinary
items* $ 1.40 $ 2.36 $ 2.79 $ 3.53
========== =========== =========== ===========
Dividends per common
share* $ .48 $ .47 $ .96 $ .93
========== =========== =========== ===========
Basic weighted average
shares outstanding* 2,270,634 2,232,942 2,255,253 2,231,823
Diluted weighted average
shares outstanding* 2,282,620 2,241,750 2,265,736 2,240,631
* In July 1997, the Registrant effected a three for two stock
split in the form of a one for two stock dividend to
shareholders of record at August 1, 1997. Earnings per share,
dividends per share and weighted average shares outstanding
have been restated for prior periods.
See accompanying notes to consolidated financial statements.
-4-
CT COMMUNICATIONS, INC.
Consolidated Statements of Cash Flows
For 6 months ended June 30, 1998 and 1997
Unaudited
1998 1997
----------- -------------
Cash flows from operating activities:
Net income $6,332,651 $7,964,461
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 5,635,871 4,643,690
Extraordinary item-
Discontinuance of FAS71, net
of income taxes --- (2,239,045)
Deferred income taxes and
tax credits --- 31,598
Post-retirement benefits 63,770 626,519
Loss on sale of investments --- 26,755
Undistributed (income) loss of
affiliates 95,181 (724,836)
(Increase) in accounts receivable (1,174,728) (2,180,795)
(Increase) in other receivables (1,801,798) ---
Decrease (Increase) in materials
and supplies 524,775 (923,773)
(Increase) in refundable income
taxes --- (180,755)
Decrease (Increase) in other
assets 378,680 (108,396)
Increase in accounts payable 2,186,751 257,277
Increase in customer deposits
and advance billings 25,004 59,343
Increase in accrued liabilities 491,665 427,802
(Decrease) in income taxes payable (973,790) ---
Increase in liability for early
retirement --- 1,020,000
Unrealized loss on securities
available for sale --- 310,439
----------- ------------
Net cash provided by operating
activities 11,784,032 9,010,284
---------- ------------
Cash flows from investing activities:
Capital expenditures in telephone
plant (13,152,847) (9,904,515)
Purchases of investments in
affiliates (3,846,667) (3,740,055)
Purchases of investment securities (221,124) (110,824)
Sales and maturities of investment
securities 129,717 2,432,195
Notes receivable 297,000 ---
Partnership capital distribution 1,104,372 1,741,793
Other 9,826 (60,787)
---------- ----------
Net cash used in
investing activities (15,679,723) (9,642,193)
---------- ----------
Cash flows from financing activities:
Repayment of long-term debt (155,000) (1,750,000)
Proceeds from new debt --- 3,500,000
Dividends paid (2,186,371) (2,131,495)
Proceeds from common stock issuance 66,046 509,699
Borrowing on line of credit 7,000,000 ---
Other --- 20,300
Purchase of shares outstanding (333,817) (248,058)
---------- -----------
Net cash provided by (used in)
financing activities 4,390,858 (99,554)
---------- -----------
Net increase (decrease) in cash and
cash equivalents 495,167 (731,463)
Cash and cash equivalents-beginning
of period --- 2,162,698
---------- ----------
Cash and cash equivalents-end of period 495,167 1,431,235
---------- ----------
See accompanying notes to consolidated 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, 1998,
and the results of operations for the three and six months
then ended and cash flows for the six months then ended.
2. In certain instances, amounts previously reported
in the 1997 consolidated financial statements have been
reclassified to conform with the 1998 consolidated financial
statement presentation. Such reclassifications have no
effect on net income or retained earnings as previously
reported.
3. The results of operations for the three and six
months ended June 30, 1998 and 1997 are not necessarily
indicative of the results to be expected for the full year.
4. The following is a summary of common stock
transactions during the six months ended June 30, 1998.
.....Voting.....
Shares Value
------- ---------
Outstanding at December 31, 1997... 338,429 $3,772,298
Purchase of shares................. (1,986) (289,841)
------- ---------
Outstanding at June 30, 1998....... 336,443 $3,482,457
======= =========
Basic Diluted
Weighted average shares outstanding
for the six months ending
June 30, 1998.................. 337,652 337,652
..Class B Non-Voting Class..
Shares Value
--------- -----------
Outstanding at December 31, 1997.. 1,900,361 $25,268,447
Issuance of common stock.......... 52,697 6,811,954
--------- -----------
Outstanding at June 30, 1998...... 1,953,058 $32,080,401
========= ===========
Basic Diluted
Weighted average shares outstanding
For the six months ending
June 30, 1998................. 1,917,601 1,928,084
-6-
5. SECURITIES AVAILABLE-FOR-SALE
June 30, 1998
----------------------------
Gross Unrealized
-------------------
Securities Amortized Fair
Available-for-Sale Cost Gains Losses Value
- ------------------ --------- ---------- ---------- -----------
Certificate of Deposit $ 260,386 $ 260,386
Equity securities 4,491,394 35,262,517 (2,961,851) 36,792,060
--------- ---------- ---------- -----------
Total $4,751,780 35,262,517 (2,961,851) $37,052,446
========== ========= =========== ==========
Amortized Cost Fair Value
------------- ------------
Current $ 260,386 $ 260,386
Equity securities 4,491,394 36,792,060
------------ ------------
Total $ 4,751,780 $37,052,446
============ ============
6. INVESTMENTS IN AFFILIATED COMPANIES
June 30, 1998 December 31, 1997
--------------- -------------------
Palmetto MobileNet $ 9,711,089 $ ---
(equity method)
RSA 15 Partnership
(equity method) --- 7,478,888
Amaritel (equity method) 8,534,300 6,860,000
BellSouth Carolinas PCS, LP
(equity method) 2,799,050 3,752,556
U.S. Telecom Holdings
(equity method) 1,495,385 1,895,385
Wireless One of
NC (equity method) 4,089,785 4,100,204
ITC Holdings (cost method) 2,724,129 2,724,129
Illuminet (cost method) 1,068,624 1,068,624
Ellerbe Partnership
(equity method) --- 1,268,571
Access On (equity method) 157,738 186,919
Other (cost method) 215,050 215,050
----------- -----------
TOTAL $30,795,150 $ 29,550,326
=========== ===========
As previously disclosed, CT Cellular, Inc. and Ellerbe Telephone
entered into agreements to exchange their respective interests in RSA
4/5 and RSA 15 for interests in Palmetto MobileNet, L.P., a South Carolina
limited partnership. The completion of the transaction was subject to receipt
of applicable regulatory approvals. In April 1998, the Federal Communication
Commission approved the transaction. Therefore, the transaction has been
consummated and is deemed effective as of January 1, 1998.
7. LONG-TERM DEBT:
Long-term debt excluding annual maturities comprised
the following:
First Mortgage Bonds: June 30, 1998 December 31, 1997
--------------------- --------------- -------------------
Note payable to a bank
@ 7.25% due in
installments until 2001 $ 1,084,000 $ 1,239,000
Rural Telephone Finance
Corp. maturing on
March 8, 1999 @ 7.25% 16,000,000 10,000,000
Draw on unsecured credit
line at First Charter
National Bank @ 7.25% 1,000,000
----------- ----------
TOTAL $18,084,000 $11,239,000
Annual maturities of the long-term debt outstanding
amounts to $310,000 in 1998; $16,620,000 in 1999; $620,000 in
2000; and $154,000 thereafter.
-7-
8. COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." As required
by the Statement, the Company displays the accumulated balance
of other comprehensive income separately from retained earnings
and additional paid-in capital in the equity section of the
Consolidated Balance Sheet. Items considered to be other
comprehensive income include adjustments made for unrealized
holding gains and losses on available-for-sale securities (under
Statement 115). Comprehensive income for the three and six
months ended June 30, 1998 and 1997 is as follows:
Three Months Ended
----------------------
June 30, 1998 June 30, 1997
--------------- --------------
Net Income $ 3,195,198 $ 3,076,024
Other Comprehensive Income
Unrealized gain (loss) on
Securities available-for-sale
Net of Income Taxes 5,578,338 (111,466)
------------- ------------
Comprehensive Income $ 8,773,536 $ 2,964,558
============= ============
Six Months Ended
---------------------
June 30, 1998 June 30, 1997
--------------- ----------------
Net Income $ 6,322,651 $ 7,964,461
Other Comprehensive Income
Unrealized gain (loss) on
Securities available-for-sale
Net of Income Taxes 13,533,420 (460,662)
-------------- ---------------
Comprehensive Income $19,866,071 $7,503,799
============== ===============
Recent Accounting Pronouncements
- --------------------------------
In June 1998, the FASB isued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133). SFAS No. 133 requires that an enterprise
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. SFAS No. 133 is effective for all fiscal quarters and all fiscal
years beginning after June 15, 1999. The Company is currently assessing
the effects of SFAS No. 133 on its financial position.
-8-
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
six-month period ended June 30, 1998. Current liabilities
exceeded current assets by $998,836 at June 30, 1998. In
comparison, current liabilities exceeded current assets
by $1,602,878 at December 31, 1997.
Current assets increased $2,567,069 when compared
to December 31, 1997, primarily due to increases
in cash and cash equivalents of $495,167; accounts receivable of
$1,298,557; accounts receivable from Amaritel of $1,801,798 for
expenses, labor, and management fees from the Registrant's
activity in Mexico City, Mexico; short-term investments of
$91,407; and deferred income taxes of $35,037. These increases
are offset in part by a decrease in notes receivable
of $297,000; decreased material and supplies of $524,775 and
decreased prepaid expenses of $333,122.
Current liabilities increased by $1,963,026 during
the six months ending on June 30, 1998, primarily from the increase
in accounts payable of $2,553,177 and an increase of $737,670 in
accrued payable due to timing of payroll and accrued incentive bonuses.
These increases are offset in part by decreases of $973,790 in income
taxes payable due to the timing of tax payments; decreased accrued
pension cost of $231,064 due to earnings from the pension plan and
decreases in other accrued liabilities of $365,661, principally
property taxes.
The Registrant's primary source of liquidity is
funds provided by operations. During the six months ended June
30, 1998, cash provided by operations totaled $11,784,032. The
Registrant also has a $25,000,000 line of credit
with the Rural Telephone Finance Corporation on which it drew
$6,000,000 leaving $9,000,000 unused. The Registrant also has a
$3,500,000 line of credit with First Charter National Bank on
which it drew $1,000,000, leaving $2,500,000 unused.
The primary use of cash during this period was
for normal additions to telephone plant - $13,152,847, purchase
of investments in affiliates - $3,846,667, payment of dividends -
$2,186,371, repurchase of shares outstanding - $333,817 and purchase
of investment securities - $221,124. Of the cash expended for investments
in affiliates, $260,000 was invested in CT Wireless Cable, Inc. in
connection with its investment in Wireless One of North Carolina,
$510,079 was invested in BellSouth PCS Partnership, $1,674,300 was
invested in Amaritel and $1,511,400 was invested in CT Global.
The $1,511,400 was composed of $711,400 in cash and $800,000 in
cancellation of notes receivable due from U.S. Telecom Holdings,
Inc. This investment represented the acquisition of the minority
interest in CT Global held by U.S. Telecom Holdings, Inc. An
additional $503,000 was advanced to U.S. Telecom in the form of
notes receivable. Sales and maturities of
investments totaled $129,717 during the six months ending June
30, 1998.
At June 30, 1998, the Registrant's investment
securities totaled $37 million, all of which could be pledged to
secure additional borrowing, or sold, if needed for liquidity
purposes. At June 30, 1998, the Company had available lines of
credit totaling $28,500,000, of which $17,000,000 was
outstanding.
The Registrant anticipates that all of the capital
requirements in 1998 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 1998, management expects that such funds will be
raised through additional bank borrowings.
-9-
Results of Operations
3 months ended June 30, 1998 and June 30, 1997
Operating revenues increased $2,942,659 or 15% for the
three months ended June 30, 1998 when compared to the same period
of 1997.
Local service revenues increased $1,914,050
or 31% when compared to the quarter ended on June 30, 1997. This
increase was comprised of a $1,470,958 increase in basic local
service revenues, due to implementation of the price regulation
plan as adopted by the Registrant in September 1997; $495,403
increase in Digital Communications Services ("DCS") revenues from
the operations of Registrant's Carolinas Personal Communications,
Inc. (doing business as "CT Wireless, Inc.") subsidiary. The
remaining increase was primarily attributable to revenue growth
from installation charges. Due to access line growth and increased
customer demand, this area of operations is expected to continue to
grow.
Access and toll revenues increased $159,029 or 2% over the
comparable period ended on June 30, 1997. This increase was
comprised of $450,370 in interlata toll revenues and $856,379 of
interlata access revenue. These increases are offset in part by
reductions in intralata toll in the amount of $707,436 and metro
plan revenues of $356,891 due to the implementation of the price
regulation plan adopted by the Registrant in September 1997.
Under this plan, intralata toll billings are reduced when the
customer selects one of the premium plans for local telephone
service. 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 revenues increased $850,383 or 23% over
the comparable period ended on June 30, 1997. This increase
was comprised of an increase of $656,098 in internet revenues due
in part to the V-Net acquisition; $139,864 in directory
advertising; and $131,667 in operating fees relating to CT
Global. These increases were offset in part by a decrease of
$475,715 in business system sales due to a large sale during the
second quarter of 1997 which was not replicated in 1998. The
remaining amount relates to increases in security plus, paging
and voice mail revenue. 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 decreased
modestly in spite of its expanding its competitive businesses
due to a more effective credit and collection effort.
Operating expenses, exclusive of depreciation, increased
$1,715,317 or approximately 14% when compared to the
previous quarter ended on June 30, 1997.
Plant specific expenses increased $353,360 or 5% when
compared to the previous period ending June 30, 1997. This
increase was the result of an increase of $144,709 in cost of
goods sold associated with PCS telephone sales; paging and caller
ID equipment; an increase in interlata access expense of $208,378
due to additional sales of toll services; an increase of $274,818
relating to internet network expense; and a decrease in cost
associated with contracted services of $123,287; the remaining
difference primarily relates to a decrease in costs associated
with settlement and software expenses.
-10-
Customer operations expenses increased $1,221,187 or 44% when
compared to the previous period ended on June 30, 1997.
This increase was comprised of $542,799 associated with
additional sales and marketing labor and $559,459 additional
advertising and marketing. The remaining increases are due to
additional expenditures in local regulated and non-regulated
operations for customer service.
Corporate operations increased $140,770 or approximately 5%
when compared to the expenses period ending on June 30, 1997.
This increase is primarily the result of increased salaries and wages.
Depreciation expenses increased by $211,604 when compared to
the previous quarter ending on June 30, 1997. This increase is
due to an increase in depreciable plant balances.
Other income (expenses) decreased by $694,226 when compared to
the previous period. This reduction in other income is a result
of decreased equity in income of affiliates of $570,065;
increased interest expenses of $125,426; and increased interest
and dividend income of $1,265.
-11-
Results of Operations
6 months ended June 30, 1998 and June 30, 1997
Operating revenues increased $6,106,015 or 16% for the six
months ended June 30, 1998 when compared to the same period of 1997.
Local service revenues increased $3,973,752 or 33% when
compared to the previous period ended on June 30, 1997. This
increase was comprised of a $2,545,748 increase in basic local
service revenues, due to implementation of the price regulation
plan as adopted by the Registrant in September 1997; a $782,342
increase in Digital Communications Services ("DCS") revenues from
the operations of Registrant's Carolinas Personal Communications, Inc.
(doing business as "CT Wireless, Inc.") subsidiary. The remaining
increase was primarily attributable to revenue growth from installation
charges and subscriber line charges. Due to access line growth
and increased customer demand, this area of operations is
expected to continue to grow.
Access and toll revenues increased $378,120 or 2.0% over the
comparable period ended on June 30, 1997. This increase was comprised
of $936,423 in interlata toll revenues and $1,012,962 of interlata
access revenue. These increases are offset in part by reductions in
intralata toll in the amount of $1,310,983 and metro plan revenues of
$478,122 due to the implementation of the price regulation plan adopted
by the Registrant in September 1997. Under this plan, intralata toll
billings are reduced when the customer selects one of the premium
plans for local telephone service. The remaining increase was
primarily related to growth in intralata access revenues.
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 regulated income increased $1,769,361 or 27% over
the comparable period ending on June 30, 1997. This increase was
comprised of an increase of $817,507 in internet revenues due in part
to the acquisition of V-Net; $263,993 in directory advertising;
$85,415 in paging revenue and $225,000 in operating fees relating
to CT Global. The remaining amount relates to increases in security
plus and voice mail revenue. 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
modestly due to registrant expanding its competitive businesses.
Operating expenses, exclusive of depreciation, increased
$3,812,024 or approximately 17% when compared to the previous
period ending on June 30, 1997.
Plant specific expenses increased $1,203,349
or 10% when compared to the previous period ended June 30, 1997.
This increase was the result of an increase of $472,249 in cost
of goods sold associated with PCS telephone sales, paging and
caller ID equipment, and an increase in interlata access expense
of $314,891 due to additional sales of toll services, and an
increase of $376,941 relating to internet network expense. The
remainder primarily related to an increase in contracted
services.
Customer operations expenses increased $2,090,068 or 41% when
compared to the previous period ended on June 30, 1997. This increase
was comprised of $784,584 associated with additional marketing and
advertising; and $1,005,000 relating to the salaries of sales and
marketing personnel. The remaining increases are due to additional
expenditures in local regulated and non-regulated operations for customer
service.
Corporate operations increased $518,607 or approximately 9.5% when
compared to the expenses period ended on June 30, 1997. This increase
is primarily the result of increased salaries which was offset in part by
a decrease in utilities.
Depreciation expenses increased by $992,181 when compared to the
previous period ended onn June 30, 1997. This arose from a 1997 reduction
in depreciation expense of $736,971 due to a reclassification of circuit
equipment to central office switching equipment. Without this prior year
reclassification, depreciation expense would have increased $255,210 due to
increased depreciable plant balances.
Other income (expenses) decreased by $20,125 when compared to the previous
period. This decrease is primarily a result of the reduction of expenses
related to an early retirement plan of $1,020,000 offered to certain
employees during the first quarter of 1997 but not repeated during 1998.
This reduction in expenses was primarily offset by a reduction in equity
income from affiliates of $820,017 when compared to 1997; increase of interest
and dividend income of $43,674 and an increase in interest expense of $223,532.
-12-
Other Events
As previously disclosed, CT Cellular, Inc. and Ellerbe Telephone
entered into agreements to exchange their respective interests in RSA
4/5 and RSA 15 for interests in Palmetto MobileNet, L.P., a South Carolina
limited partnership. The completion of the transaction was subject to receipt
of applicable regulatory approvals. In April 1998, the Federal Communication
Commission approved the transaction. Therefore, the transaction has been
consummated and is deemed effective as of January 1, 1998.
On May 8, 1998 the Registrant completed the acquisition of G.A.
Technologies, an internet provider based in Charlotte, North Carolina
doing business as V-Net. This transaction was structured as a merger of
V-Net into a subsidiary of the Registrant. Pursuant to the merger the
shareholders of V-Net exchanged their V-Net shares for shares of the
Registrant's Class B non-voting stock. It is not expected that this
transaction will have a material effect on the Registrant's operations.
This transaction is accounted for under the purchase method of accounting.
Year 2000 Considerations
The Registrant is continuing to assess and address the
business issues associated with the Year 2000 that may impact its
information systems and technology, both internally and in
relation to external customers, suppliers and other business
associates. Several months ago, the Registrant identified a Year
2000 Project Team, whose members represent all significant areas
of its operations. The Project Team is responsible for
assessing and addressing all Year 2000 issues that may exist.
The Registrant has retained DMR Consulting Group ("DMR") to
help the Project Team coordinate the Year 2000 project. DMR has
established a project office at the Registrant's offices and is
meeting regularly with the members of the Project Team to
coordinate overal project needs. The Registrant believes the
Year 2000 project is proceeding on schedule to be completed in
all respects by the end of 1999, although a specific completion
date has not been set.
-13-
Year 2000 considerations continued
An initial study of the Registrant's capabilities and needs
has been completed. Awareness of Year 2000 issues has
been established across the Registrant's management team. An
inventory of the Registrant's personal computers and mainframe
computer systems, inbound and outbound data feeds, management
informations systems and other data sensitive computer
applications and systems throughout the Registrant's business is
currently underway. In addition, the Registrant is putting into
place processes for contacting key outside service providers and
suppliers regarding their Year 2000 readiness, including computer
systems providers, telephone switch manufacturers, and various
telecommunications carriers who supply key components of the
Registrant's services.
Registrant has not yet completed its estimate of the cost of
completing the Year 2000 project, including the costs of any
remediation that may be necessary. However, based on its efforts to date,
management believes that such costs will not be material to the
Registrant. The Registrant has incurred out-of-pocket costs of
approximately $100,000 to date.
Failure to accurately assess or remedy the Registrant's Year
2000 issues prior to the end of 1999, including failure of
third parties on whom the Registrant depends, could significantly
disrupt the Registrant's business and materially adversely affect
the Registrant's financial condition liquidity and business
operations. A majority of the Registrant's services rely heavily
on information technology that would cease to operate, or
operate much less efficiently, if affected by the Year 2000
issue. The Registrant has not yet devised contingency plans for
dealing with the possibility of Year 2000 system failures,
although such plans will be developed as the Year 2000 project
proceeds.
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 based on management's current expectations,
estimates and projections about the markets in which The Company
operates, management's beliefs, and assumptions made by
management. Words such as "expects," "anticipates," "believes,"
"estimates," variations of such words and other similar
expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and
assumptions that are difficult to predict. Therefore,
actual results could 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 judgement 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.
-14-
Factors That May Affect Future Results continued
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 Telecom Act, and
related state and federal legislation and regulations, (2)
the Registrant's ability to recover the substantial costs to be
incurred in connection with the implementation of its PCS
business, (3) 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
including the Year 2000 considerations discussed above, (4) the
Registrant's ability to effectively manage rapid change in
technology and (5) 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 23, 1998
All directors were re-elected.
Proxies were solicited for the following matters:
(1) To amend the bylaws to increase the size
of the Board of Directors
For 324,380 Against 183 Authority withheld 3,812
(2) To elect eight directors for terms designated
John R. Boger, Jr.
O. C. Chewning
L. D. Coltrane, III
Samuel E. Leftwich
Ben F. Mynatt
Jerry H. McClellan
Phil W. Widenhouse
For 328,375 Authority Withheld 153
Broker Non-Vote 0
(Each nominee received the same number of votes)
Item 5. Other Information
On May 21, 1998, the Securites and Exchange Commission
adopted an amendment to Rule 14a-4 promulgated under the
Securites Exchange Act of 1934, as amended, which governs a
company's use of its discretionary proxy voting authority with
respect to certain shareholder proposals raised at a
shareholder meeting. For the Registrant's 1999 Annual Meeting of
Shareholders, if the Registrant received notice of a shareholder
proposal after February 2, 1999, such notice will be considered
untimely. Therefore, the persons named in proxies solicited by
the Board of Directors, if any, may exercise discretionary voting
power with respect to such proposal.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
Exhibit No. Description of Exhibit
11 Computation of Earnings Per Share.
27 Financial Data Schedule.
(B) Reports on Form 8-K.
None
-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
Sr. Vice President, Secretary
and Chief Financial Officer
Date: August 14, 1998
(The above signatory has dual responsibility as duly authorized
officer and principal financial and accounting officer of the
registrant.)
EXHIBIT INDEX
Exhibit No. Description
- ------------ ------------------------------------------
11 Computation of Earnings Per Share.
27 Financial Data Schedule.
EXHIBIT 11
CT COMMUNICATIONS, INC.
AND SUBSIDIARIES
Computation of Earnings Per Share
3 months ended 6 months ended
June 30 June 30
-------------------- --------------------
1998 1997 1998 1997
--------- ---------- --------- ----------
Computation of share
totals used in
computing earnings
per share:
Weighted average number
of shares outstanding 2,270,634 2,232,942 2,255,253 2,231,823
(Adjusted for stock
dividend August 1, 1997)
Basic average shares
a-Outstanding 2,270,634 2,232,942 2,255,253 2,231,823
Incremental shares
arising, from out-
standing stock
options 11,986 8,808 10,483 8,808
--------- --------- --------- ---------
b-Totals 2,282,620 2,241,750 2,265,736 2,240,631
========= ========= ========= =========
c-Net Income for
Common Stock before
extraordinary item $3,190,744 $3,053,028 $6,320,994 $5,679,361
d Extraordinary Item --- $2,239,045 --- ---
e Net Income for
Common Stock after --------- ---------- --------- ---------
extraordinary item $3,190,744 $5,292,073 $6,320,994 $7,918,406
Net Income Per Share
Basic - c/a $ 1.40 $ 1.37 $ 2.80 $ 2.54
Extraordinary item per Basic
Average Shares d/a $ --- $ 1.00 $ --- $ 1.00
--------- ---------- ---------- ----------
Net Income Per Basic
Average Share After
Extraordinary item $ 1.40 $ 2.37 $ 2.80 $ 3.54
========= ========== ========== ==========
Net Income Per Share
before Extraordinary
item assuming Full
dilution c/b $ 1.40 $ 1.36 $ 2.79 $ 2.53
========= ========== ========== =========
Net Income Per Share
after extraordinary
item assuming full
dilution e/b $ 1.40 $ 1.36 $ 2.79 $ 3.53
========= ========== ========= =========
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 495,167
<SECURITIES> 260,386
<RECEIVABLES> 13,564,277
<ALLOWANCES> 107,500
<INVENTORY> 2,171,657
<CURRENT-ASSETS> 18,581,626
<PP&E> 186,516,534
<DEPRECIATION> 91,325,304
<TOTAL-ASSETS> 187,577,074
<CURRENT-LIABILITIES> 19,580,462
<BONDS> 18,084,000
137,500
413,100
<COMMON> 35,562,858
<OTHER-SE> 19,025,824
<TOTAL-LIABILITY-AND-EQUITY> 187,577,074
<SALES> 0
<TOTAL-REVENUES> 43,423,778
<CGS> 0
<TOTAL-COSTS> 32,174,668
<OTHER-EXPENSES> 477,696
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,771,414
<INCOME-TAX> 4,438,763
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,332,651
<EPS-PRIMARY> 2.80
<EPS-DILUTED> 2.79
</TABLE>
