FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITY EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 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, NC 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.
2,291,175 shares of Common Stock outstanding as of September
30, 1998.
Voting - 336,443
Class B Non-Voting - 1,954,732
CT COMMUNICATIONS, INC.
INDEX
Page No.
PART I Financial Information
Balance Sheets --
September 30, 1998 and December 31, 1997 3
Statements of Income --
Three and Nine Months Ended September 30, 1998
and 1997 5
Statements of Cash Flows --
Nine Months ended September 30, 1998 and 1997 6
Notes to Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
PART II. Other Information 16
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PART I. FINANCIAL INFORMATION
CT COMMUNICATIONS, INC.
Consolidated Balance Sheets
ASSETS
September 30, December 31,
1998 1997
_____________ _____________
Unaudited
Current assets:
Cash and cash equivalents $ 261,765
Short term investments 149,085 $ 168,979
Accounts receivable, net of
allowance for doubtful
accounts of $108,024 10,350,950 8,470,121
Other account receivable 3,160,808 372,801
Notes receivable 1,513,500 1,810,500
Materials and supplies 2,611,222 2,696,432
Deferred income taxes 1,580,507 1,545,470
Prepaid expenses and other assets 483,378 950,254
__________ __________
Total current assets 20,111,215 16,014,557
Investment securities 35,622,801 14,624,757
Investment in affiliates 30,505,790 29,550,326
Property, plant and equipment
Telephone plant in service:
Land, buildings, and
general equipment 35,018,964 28,730,045
Central office equipment 70,048,418 64,227,829
Pole, wire, cables
and conduit 84,329,260 80,143,917
Construction in progress 1,907,561 277,070
___________ __________
191,304,203 173,378,861
Less accumulated depreciation 92,238,924 86,229,072
___________ ___________
Net property, plant
and equipment 99,065,279 87,149,789
Intangibles net of accumulated
amortization of $217,644 6,293,978 --
___________ ___________
TOTAL ASSETS $191,599,063 $147,339,429
=========== ===========
See accompanying notes to consolidated financial statements.
-3-
CT COMMUNICATIONS, INC.
Consolidated Balance Sheets, (Continued)
LIABILITIES & STOCKHOLDERS' EQUITY
September 30, December 31,
1998 1997
_____________ ____________
Unaudited
Current liabilities:
Current portion of long term debt
and redeemable preferred stock $ 632,500 $ 632,500
Accounts payable 11,052,156 9,697,000
Customer deposits and advance
billings 1,801,745 1,591,284
Accrued payroll 2,462,205 1,304,573
Income taxes payable 2,424,998 992,750
Accrued pension cost 1,658,690 1,970,956
Other accrued liabilities 1,394,071 1,428,372
__________ __________
Total current liabilities 21,426,365 17,617,435
__________ __________
Long term debt 19,118,137 11,239,000
__________ __________
Deferred credits and other
liabilities:
Deferred income taxes 15,696,993 7,497,167
Investment tax credits 919,080 919,080
Post-retirement benefits other
than pension 10,446,514 10,026,128
Other 1,314,116 1,573,668
__________ __________
28,376,703 20,016,043
Redeemable preferred stock: 4.8% series
authorized 5,000 shares; issued and
outstanding 1,500 in 1998 and 1997 137,500 137,500
__________ __________
Total liabilities 69,058,705 49,009,978
Minority interest 1,360,998
Stockholders' equity:
Preferred stock not subject to
mandatory redemption:
5% series, $100 par value; 3,453
and 3,631 shares outstanding in
1998 and 1997 respectively 345,300 363,100
4.5% series, $100 par value; 628
and 1,218 shares outstanding in
1998 and 1997 respectively 62,800 121,800
Common Stock, no par value
Voting; 336,443 and 338,429
shares outstanding in 1998
and 1997 respectively 3,482,457 3,772,298
Non-voting; 1,954,732 and
1,900,361 shares outstanding
in 1998 and 1997
respectively 32,232,545 25,268,447
Other capital 298,083 298,083
Unearned compensation (891,315) (817,903)
Other accumulated comprehensive
income 18,995,327 6,169,443
Retained earnings 68,015,161 61,793,185
___________ __________
Total stockholders' equity 122,540,358 96,968,453
___________ __________
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $191,599,063 $147,339,429
=========== ===========
See accompanying notes to consolidated financial statements.
-4-
CT COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME
For 3 and 9 months ended September 30, 1998 and 1997
Unaudited
Three Months Ended Nine Months Ended
September 30, September 30,
______________________ ______________________
1998 1997 1998 1997
____ ____ ____ ____
Operating Revenues:
Local service $ 8,618,139 $ 6,372,862 $24,629,260 $18,691,912
Access and toll service 10,054,457 10,518,522 29,136,583 28,513,386
Other and unregulated 5,193,550 3,414,360 13,715,243 10,594,153
Less provision for
uncollectible accounts (105,536) (105,008) (296,698) (280,952)
___________ __________ __________ __________
Total operating revenues 23,760,610 20,200,736 67,184,388 57,518,499
Operating Expenses:
Plant specific 7,749,089 6,475,012 21,351,416 18,633,418
Depreciation and
amortization 3,414,331 2,855,460 9,050,202 7,499,150
Customer Operations 3,634,608 3,216,901 10,604,379 8,332,428
Corporate Operations 3,449,886 3,105,555 9,416,585 8,558,395
__________ __________ __________ __________
Total Operating
Expenses 18,247,914 15,652,928 50,422,582 43,023,391
__________ __________ __________ __________
Net Operating Revenues 5,512,696 4,547,808 16,761,806 14,495,108
Other Income (expenses):
Equity in income of
affiliates 257,433 626,587 162,252 1,351,423
Interest, dividend income and
gain on sale of investments 135,307 21,396 232,905 75,320
Other expenses, principally
interest (296,537) (260,474) (776,650) (517,055)
Expenses related to early
retirement plan -- -- -- (1,020,000)
_______ ________ ________ __________
Total other income 96,203 387,509 (381,493) (110,312)
Income before income
taxes and extraordinary
items 5,608,899 4,935,317 16,380,313 14,384,796
Income taxes 2,406,027 1,926,733 6,844,790 5,650,796
_________ _________ __________ __________
Net income before
extraordinary item 3,202,872 3,008,584 9,535,523 8,734,000
Extraordinary item - Discontinuance
of FAS 71, net of income
taxes of $1,493,212 -- -- -- 2,239,045
_________ _________ _________ __________
Net income 3,202,872 3,008,584 9,535,523 8,734,000
Dividends on preferred
stock 6,823 22,978 20,468 68,932
_________ _________ _________ _________
Earnings after extraordinary
items for common stock $3,196,049 $ 2,985,606 $9,515,055 $10,904,113
========= ========== ========= ==========
Basic earnings per common
share before extraordinary
item* $ 1.40 $ 1.33 $ 4.20 $ 3.88
Extraordinary items -- -- -- $ 1.00
Basic earnings per common
share after extraordinary
item* $ 1.40 $ 1.33 $ 4.20 $ 4.88
Diluted earnings per common
share before extraordinary
item* $ 1.39 $ 1.33 $ 4.18 $ 3.86
Extraordinary items -- -- -- $ 1.00
Diluted earnings per common
share after extraordinary
item* $ 1.39 $ 1.33 $ 4.18 $ 4.86
Dividends per common share * $ 0.49 $ 0.48 $ 1.45 $ 1.41
Basic weighted average shares
outstanding 2,290,129 2,237,918 2,266,878 2,235,319
Diluted weighted average shares
outstanding 2,302,130 2,246,726 2,277,868 2,244,127
See accompanying notes to consolidated financial statements.
* 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.
-5-
CT COMMUNICATIONS, INC.
Consolidated Statements of Cash Flows
For 9 months ended September 30, 1998 & 1997
Unaudited
1998 1997
Cash flows from operating activities:
Net Income $ 9,535,523 $ 10,973,045
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 9,050,202 7,499,150
Extra ordinary Item -- (2,239,045)
Deferred income taxes and tax
credits (456,017)
Post retirement benefits 420,386 783,578
Loss (gain) on sale of investments -- 29,216
Undistributed loss (income) of
affiliates (162,252) (1,221,781)
(Increase) in accounts receivable (1,708,186) (715,309)
(Increase) in other receivables (2,836,821) --
Decrease (increase) in materials
& supplies 85,210 (1,117,716)
Decrease in refundable income taxes -- 14,736
Decrease (increase) in other assets 512,434 (160,574)
Increase (decrease) in accounts
payable 1,221,283 (1,056,081)
(Decrease) increase in customer
deposits and advance billings (7,230) 126,229
Increase in accrued liabilities 551,513 228,423
Increase in income taxes payable 1,432,248 --
Increase in liability for early
retirement -- 1,020,000
__________ ___________
Net cash provided by operating
activities 18,094,310 13,707,854
Cash flows from investing activities:
Capital expenditures in telephone
plant (20,168,591) (12,864,376)
Purchase of investments in
affiliates (3,877,919) (5,107,796)
Purchase of investment securities (100,668) (493,979)
Sales & maturities of investment
securities 148,556 2,719,224
Notes receivable (503,000) (6,571,084)
Partnership capital distribution 2,230,402 1,741,793
_________ __________
Net cash used in investing
activities (22,271,220) (20,576,938)
__________ __________
Cash flows from financing activities:
Repayment of long-term debt (310,000) (1,905,000)
Dividends paid (3,313,034) (3,120,919)
Proceeds from common stock
issuance 209,739 643,600
Borrowing on line of credit 8,189,137 9,500,000
Other -- (11,743)
Purchase of shares outstanding (337,167) (248,796)
Purchase of fractional shares -- (73,080)
__________ __________
Net cash used in financing
activities 4,438,675 4,784,062
__________ __________
Net increase (decrease) in cash and cash
equivalents 261,765 (2,085,022)
Cash and cash equivalents-beginning of period -- 2,162,698
__________ ___________
Cash and cash equivalents-end of period $ 261,765 $ 77,676
========== ===========
See accompanying notes to consolidated financial statements
-6-
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, 1998, and the results of operations for the three
and nine months then ended and cash flows for the nine 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 statements presentation. Such
reclassifications have no effect on net income or retained earnings as
previously reported.
3. The results of operations for the three and nine months ended
September 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
nine months ended September 30, 1998.
........Voting........
Shares Value
_______ __________
Outstanding at December 31, 1997.... 338,429 $3,772,298
Purchase of shares.... (1,986) (289,841)
_______ __________
Outstanding at September 30, 1998.... 336,443 $3,482,457
======= ==========
Basic Diluted
Weighted average shares outstanding for the
nine months ended September 30, 1998 337,248 337,248
..Class B Non-Voting Class..
Shares Value
_________ ___________
Outstanding at December 31, 1997.... 1,900,361 $25,268,447
Issuance of common stock.... 54,371 6,964,098
_________ ___________
Outstanding at September 30, 1998.... 1,954,732 $32,232,545
========= ===========
Basic Diluted
Weighted average shares outstanding for the
nine months ended September 30, 1998 1,929,630 1,940,620
5. SECURITIES AVAILABLE-FOR-SALE
September 30, 1998
______________________
Gross unrealized
________________
Securities Amortized Fair
Available-For-Sale Cost Gains Losses Value
__________________ __________ _________ __________ ____________
Certificate of
Deposit $ 149,085 -- -- $ 149,085
Equity Securities 4,373,317 $34,323,429 (3,073,945) 35,622,801
_________ __________ _________ __________
Total $4,522,402 $34,323,429 (3,073,945) $35,771,886
========= ========== ========= ==========
Amortized Cost Fair Value
______________ ____________
Current $ 149,085 $ 149,085
Equity Securities 4,373,317 35,622,801
___________ ___________
Total $4,522,402 $35,771,886
=========== ===========
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<PAGE>
6. INVESTMENTS IN AFFILIATED COMPANIES
September 30, 1998 December 31, 1997
_____________________ _______________________
Equity Method:
Palmetto MobileNet $10,018,286 $ --
RSA 15 Partnership -- 7,478,888
Amaritel 8,566,777 6,860,000
BellSouth Carolinas, PCS, LP 2,429,752 3,752,556
U.S. Telecom Holdings 1,195,385 1,895,385
Wireless One of NC 4,149,854 4,100,204
Ellerbe Partnership -- 1,268,571
Access On 137,933 186,919
Cost Method:
ITC 2,724,129 2,724,129
Illuminet 1,068,624 1,068,624
Other 215,050 215,050
___________ __________
TOTAL $30,505,790 $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 Commission
approved the transaction. The transaction has been consummated and is
deemed effective as of January 1, 1998 with no resulting gain or loss
recorded.
7. ACQUISITIONS
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.
8. LONG TERM DEBT:
Long-term debt excluding annual maturities comprised the following:
First Mortgage Bonds: September 30, 1998 December 31, 1997
_______________________ __________________ _________________
Note payable to bank @ 7.25% due in
installments until 2001 $ 929,000 $ 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
@ 7.00% 2,189,137 --
___________ _____________
TOTAL $19,118,137 $11,239,000
=========== =============
Annual maturities of the long-term debt outstanding amounts to $155,000 in
1998; $18,809,137 in 1999; $620,000 in 2000; and $154,000 thereafter.
-8-
<PAGE>
9. 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 nine months ended September 30, 1998
and 1997 is as follows:
Three Months Ended
September 30, 1998 September 30, 1997
__________________ __________________
Net Income $ 3,202,872 $ 3,008,584
Other Comprehensive Income
Unrealized gain (loss) on securities
available-for-sale
net of income taxes (707,536) 95,021
_________ _________
Comprehensive Income $ 2,495,336 $ 3,103,605
========= =========
Nine Months Ended
September 30, 1998 September 30, 1997
__________________ ___________________
Net Income $ 9,535,523 $10,973,045
Other Comprehensive Income
Unrealized gain (loss) on securities
available-for-sale
net of income taxes 12,825,884 (365,641)
___________ ___________
Comprehensive Income $22,361,407 $10,607,404
=========== ===========
Recent Accounting Pronouncements
In June 1998, the FASB issued 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.
-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
ended September 30, 1998. Current liabilities exceeded current assets by
$1,315,150 at September 30, 1998. In comparison, current liabilities
exceeded current assets by $1,602,878 at December 31, 1997.
Current assets increased by $4,096,658 when compared to December 31,
1997, primarily due to increases in cash and cash equivalents of $261,765;
accounts receivable of $1,880,829; increased accounts receivable from
Amaritel of $2,347,715; for expenses, labor, and management fees from the
Registrant's activity in Mexico City, Mexico; increased receivable from the
North Carolina Dept. of Transportation of $317,246 for facilities
relocated, and deferred income taxes of $35,037. These increases were
offset in part by decreased prepaid expenses of $466,876; a decrease in
notes receivable of $297,000; decreased material and supplies of $85,210;
and decreased short term investment of $19,894.
Current liabilities increased by $3,808,930 during the nine months ended
September 30, 1998, primarily from the increase in accounts payable of
$1,355,156; $1,432,248 increase in income taxes payable due to the timing
of tax payments, and an increase of $1,157,632 in accrued payroll due to
timing of payroll and accrued incentive bonuses. These increases were
offset in part by a reduction of accrued pension cost of $312,266 due to
earnings from the pension plan and decreases in other accrued liabilities
of $34,301, principally due to property taxes.
The Registrant's primary source of liquidity is funds provided by
operations. During the nine months ended September 30, 1998, cash provided
by operations totaled $18,094,310. The Registrant also has a $20,000,000
line of credit with the Rural Telephone Finance Corporation on which it
drew an additional $6,000,000 during the nine month period leaving
$4,000,000 unused. The Registrant also has a $3,500,000 line of credit
with First Charter National Bank on which it drew $2,189,137 during the
nine month period leaving $1,310,863 unused.
The primary use of cash during this period was for normal additions to
telephone plant - $20,168,591, investments in affiliates - $3,877,919,
payment of dividends - $3,313,034, repurchase of shares outstanding
$337,167 and purchase of investment securities - $100,668. Of the cash
expended for investments in affiliates, $471,735 was invested in CT
Wireless Cable, Inc. in connection with its investment in Wireless One of
North Carolina, $845,103 was invested in BellSouth PCS Partnership,
$1,706,777 was invested in Amaritel and $1,511,400 was invested in CT
Global.
The $1,511,400 investment in CT Global 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 my 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 $148,556 during the nine months
ended September 30, 1998.
At September 30, 1998, the Registrant's investment securities totaled
$36 million, all of which could be pledged to secure additional borrowing,
or sold, if needed for liquidity purposes. The Registrant anticipates that
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 flow 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, although
the Registrant does not have any such loans or loan commitments in place
and there can be no assurances that such funds will be available if needed.
-10-
Results of Operations
3 months ended September 30, 1998 and September 30, 1997
Operating revenues increased $3,559,874 or 18% for the three months
ended September 30, 1998 when compared to the same period of 1997.
Local service revenues increased $2,245,277 or 35% when compared to the
quarter ended on September 30, 1997. This increase was comprised of a
$1,267,352 increase in basic local service revenues, due to access line
growth and the implementation of the price regulation plan as adopted by
the Registrant in September 1997, a $324,590 increase in Digital
Communications Services ("DCS") revenues from the operations of
Registrant's Carolinas Personal Communications, Inc. (doing business at "CT
Wireless, Inc.") subsidiary and an increase of $136,245 in CLEC revenue.
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.
Under the Price Regulation Plan adopted by the Registrant in September
1997, intralata toll revenues are reduced when the customer selects one of
the premium calling plans for local telephone service. Accordingly, access
and toll revenues decreased $464,065 or 4% when compared to the period
ended September 30, 1997. This decrease is comprised primarily of
reductions in intralata long distance charges in the amount of $594,198 and
Metro Plan revenues of $156,107. These decreases are primarily offset by
increases in the interlata long distance revenues of $230,850 and increased
interlata access of $28,901.
With the continued emphasis on the long distances 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 $1,779,190 or 52% over the
comparable period ended September 30, 1997. This increase was comprised of
an increase of $990,293 in internet revenues due in part to the V-Net
acquisition; $219,180 in public telephone revenues; $156,066 in directory
advertising; $324,915 in business system sales; and $112,500 in operating
fees relating to CT Global. 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.
-11-
<PAGE>
Results of Operations
3 months ended September 30, 1998 and September 30, 1997
(continued)
Operating expenses, exclusive of depreciation, increased $2,036,115 or
14% when compared to the previous period ended on September 30, 1997.
Plant specific expenses increased $1,274,077 or 20% when compared to the
previous period ended September 30, 1997. This increase was the result of
an increase of $135,938 in interlata access expense due to additional sale
of toll service, an increase of $555,491 internet access due to growth in
internet sales and the acquisition of V-Net, $309,369 in CLEC (out of area
local service) resell and access expense relating to the start up of CT
Exchange Service, Inc. The remaining increase relates to reselling expenses
associated with Carolina PCS subsidiary.
Customer operations expenses increased $417,707 or 13% when compared to
the previous period ended on September 30, 1997. This increase was
comprised of $352,603 associated with additional sales and marketing labor
and $141,016 additional advertising and marketing. These increases were
offset in part by decreased expenses of $35,832 related to the centennial
observance which occurred last year and decreased professional services of
$88,512.
Corporate operations increased $344,331 or 11% when compared to the
previous period ended September 30, 1997. This increase is primarily the
result of increased salaries and wages with associated benefits of
$316,588; increased rent and lease expense of $179,036; and increased
software costs of $173,891. These increases were offset in part by
decreased professional service of $173,247; decreased contracted services
of $126,372 and decreased utilities of $35,810.
Depreciation expenses increased by $558,871 when compared to the
previous period ended September 30, 1997. This increase is due to an
increase in depreciable plant balances.
Other income (expenses) decreased by $291,306 when compared to the
previous period. This reduction in other income is a result of decreased
equity in income of affiliates of $359,154 and increased interest expenses
of $201,147, offset in part by increased interest and dividend income of
$232,733 and handling fees billed to Amaritel of $38,619.
-12-
Results of Operations
9 months ended September 30, 1998 and September 30, 1997
Operating revenues increased $9,665,889 or 17% for the nine months ended
September 30, 1998 when compared to the same period of 1997.
Local service revenues increased $5,937,348 or 32% when compared to the
previous period ended on September 30, 1997. This increase was comprised
of a $4,023,441 increase in basic local service revenues, due to access
line growth and the implementation of the price regulation plan as adopted
by the Registrant in September 1997. A $1,106,933 increase in DCS revenues
from the operations of Registrant's Carolinas Personal Communications, Inc.
subsidiary and an increase of $203,512 in CLEC revenue. 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 $623,197 when compared to the period
ended on September 30, 1997.
Under the Price Regulation Plan adopted by the Registrant in September,
1997, intralata toll revenues are reduced when the customer selects on of
the premium calling plans for local telephone service. Accordingly,
intralata toll revenues decreased $1,814,714 and Metro Plan revenues
decreased $634,229. These decreases were offset by increases in the
interlata toll in the amount of $1,167,273 and increased interlata access
of $1,768,034. With the continued emphasis on the long distance operations
by the Registrant and its 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 $3,121,090 or 29% over the
comparable period ended on September 30, 1997. This increase was comprised
of an increase of $1,807,799 in internet revenues due in part to the
acquisition of V-Net; $420,058 in directory advertising; $294,323 in public
telephone revenue; in paging revenue and $337,500 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 $5,848,139 or
16% when compared to the previous period ended on September 30, 1997.
Plant specific expenses increased $2,717,997 or 15% when compared to the
previous period ended September 30, 1997. This increase was the result of
an increase of $706,392 in interlata access expense due to additional sales
of toll services, an increase of $996,717 in internet access expenses due
to growth in internet sales and the acquisition of V-Net; and $565,596 in
CLEC (out of area local service) resell and access expense relating to the
start up of CT Exchange Services, Inc. The remaining increase primarily
relates to DCS resell expense attributable to growth in Carolina PCS, Inc.
Customer operations expenses increased $2,271,951 or 26% when compared
to the previous period ended September 30, 1997. This increase was
comprised of $925,600 associated with additional marketing and advertising
and $1,357,607 relating to the salaries of sales and marketing personnel.
These increases were offset in part by reduction in professional services.
-13-
Results of Operations
9 months ended September 30, 1998 and September 30, 1997
(continued)
Corporate operations increased $858,190 or 10% when compared to the
previous period ended on September 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 $1,551,052 or 21% when compared to
the previous period ended on September 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 expenses would have increased
$814,081 due to increased depreciable plant balances.
Other income (expenses) decreased by $271,181 when compared to the
previous period. This decrease was primarily a result of a $1,189,171
reduction in equity in income from affiliates and an increase in interest
expense of $494,603. The decrease in other income (increase in other
expenses) was offset by handling fees billed to Amaritel of $109,666. 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 and an increase of interest and dividend income of
$157,413.
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
operations generally, both internally and in relation to external
customers, suppliers and other business associates. In early 1998, 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. An initial
study of the Registrant's capabilities and needs was completed, and awareness
of Year 2000 issues was established across the Registrant's management team.
The Registrant retained DMR Consulting Group ("DMR") to help the Project Team
coordinate the Year 2000 project. DMR established a project office at the
Registrant's offices and met regularly with the members of the Project Team
during the first three quarters of the year to coordinate overall project
needs. DMR has completed substantially all of its services for the
Registrant and no longer maintains an on site project office.
An inventory of the Registrant's personal computers and mainframe computer
systems, inbound and outbound data feeds, management information systems
and other data sensitive computer applications and systems throughout the
Registrant's business has been completed. The Registrant writes very little
original software code, but purchases third party software for its major
business applications. Based on information from third party vendors and
from DMR, the Registrant believes that approximately 65% of the systems are
Year 2000 compliant, 11% are noncompliant and the remainder are still being
investigated. In addition, the Registrant is putting into place processes
for Year 2000 readiness, including computer systems providers, telephone
switch manufacturers, and various telecommunications carriers who supply key
components of the Registrant's services.
To date, the Registrant has incurred out of pocket expenses of approximately
$450,000 for the Year 2000 effort. The additional cost to complete the project
is estimated to be approximately $500,000; however, this cost could be
lessened because the Registrant writes very little original software code.
Also, routine yearly maintenance agreements with vendors already factored
into operating expenses may include software upgrades that include Year 2000
compliancy.
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 are
being developed concurrent with software and system upgrades.
-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 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 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.
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
None
Item 5. Other Information
On May 21, 1998 the Securities and Exchange Commission adopted an
amendment to Rule 14a-4 promulgated under the Securities 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: November 13, 1998
(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
11 Computation of Earnings per Share
27 Financial Data Schedule
-18-
EXHIBIT 11
CT COMMUNICATIONS, INC.
AND SUBSIDIARIES
Computation of Earnings Per Share
3 months ended 9 months ended
September 30 September 30
-------------------- --------------------
1998 1997 1998 1997
--------- ---------- --------- ----------
Computation of share
totals used in
computing earnings
per share:
Weighted average number
of shares outstanding 2,290,129 2,237,918 2,266,878 2,235,319
(Adjusted for stock
dividend August 1, 1997)
Basic average shares
a-Outstanding 2,290,129 2,237,918 2,266,878 2,235,319
Incremental shares
arising, from out-
standing stock
options 12,001 8,808 10,990 8,808
--------- --------- --------- ---------
b-Totals 2,302,130 2,246,726 2,277,868 2,244,127
========= ========= ========= =========
c-Net Income for
Common Stock before
Extraordinary Item $3,196,049 $2,985,606 $9,515,055 $10,904,113
d Extraordinary Item --- --- --- $ 2,239,045
e Net Income for
Common Stock after --------- ---------- --------- ---------
Extraordinary Item $3,196,049 $2,985,606 $9,515,055 $10,094,113
Net Income Per Share
Basic - c/a $ 1.40 $ 1.33 $ 4.20 $ 3.88
Extraordinary Item per
Basic Average Shares
d/a $ --- $ --- $ --- $ 1.00
--------- ---------- ---------- ----------
Net Income Per Basic
Average Share After
Extraordinary Item $ 1.40 $ 1.33 $ 4.20 $ 4.88
========= ========== ========== ==========
Net Income Per Share
before Extraordinary
Item assuming full
dilution c/b $ 1.39 $ 1.33 $ 4.18 $ 3.86
========= ========== ========== =========
Net Income Per Share
after Extraordinary
Item assuming full
dilution e/b $ 1.39 $ 1.33 $ 4.18 $ 4.86
========= ========== ========= =========
<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-31-1997
<PERIOD-END> SEP-30-1998
<CASH> 261,765
<SECURITIES> 149,085
<RECEIVABLES> 15,133,282
<ALLOWANCES> (108,024)
<INVENTORY> 2,611,222
<CURRENT-ASSETS> 20,111,215
<PP&E> 191,203,203
<DEPRECIATION> 92,238,924
<TOTAL-ASSETS> 191,599,063
<CURRENT-LIABILITIES> 21,426,365
<BONDS> 19,118,137
137,500
408,100
<COMMON> 35,715,002
<OTHER-SE> 86,417,256
<TOTAL-LIABILITY-AND-EQUITY> 191,599,063
<SALES> 67,184,388
<TOTAL-REVENUES> 67,184,388
<CGS> 21,351,416
<TOTAL-COSTS> 10,604,379
<OTHER-EXPENSES> 18,466,787
<LOSS-PROVISION> (296,698)
<INTEREST-EXPENSE> 776,650
<INCOME-PRETAX> 16,380,313
<INCOME-TAX> 6,844,790
<INCOME-CONTINUING> 9,535,523
<DISCONTINUED> 00
<EXTRAORDINARY> 00
<CHANGES> 00
<NET-INCOME> 9,535,523
<EPS-PRIMARY> 4.20
<EPS-DILUTED> 4.18
</TABLE>
