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 June 30, 1999
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)722-2500
(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.
9,355,351 shares of Common Stock outstanding as of July 27, 1999.
<PAGE>
CT COMMUNICATIONS, INC.
INDEX
Page No.
PART I Financial Information
Balance Sheets --
June 30, 1999 and December 31, 1998 3
Statements of Income --
Three and Six Months Ended June 30, 1999 and
1998 5
Statements of Cash Flows --
Six Months ended June 30, 1999 and 6
1998
Statements of Comprehensive Income --
Three and Six Months ended June 30, 1999 and
1998 7
Notes to Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
PART II. Other Information 17
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<PAGE>
PART I. FINANCIAL INFORMATION
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
ASSETS
June 30, December 31,
1999 1998
--------- -------------
Current assets:
Cash and cash equivalents $ 11,625,107 $ 2,807,887
Short-term investments 444,467 116,681
Accounts receivable, net of
allowance for doubtful
accounts of $107,500 13,495,776 12,210,952
Notes receivable 1,513,500 1,513,500
Other accounts receivable 2,525,253 1,067,163
Materials and supplies 2,629,821 2,331,957
Deferred income taxes 1,051,855 1,051,855
Prepaid expenses and
other assets 1,078,838 1,583,232
------------ ------------
Total current assets 34,364,617 22,683,227
Investment securities 37,110,776 24,666,211
Investments in affiliates 29,231,322 29,789,794
Property, plant and equipment:
Telephone plant in service:
Land, buildings, and
general equipment 38,465,402 36,126,709
Central office equipment 77,835,110 70,787,607
Pole, wire, cables
and conduit 89,859,071 87,587,101
---------- ----------
206,159,583 194,501,417
Less accumulated depreciation 100,260,239 94,329,834
------------ ------------
Net property, plant
and equipment 105,899,344 100,171,583
Intangibles, net 5,990,560 6,323,543
------------ ------------
TOTAL ASSETS $212,596,619 $183,634,358
============ ============
See accompanying notes to consolidated financial statements.
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<PAGE>
CT COMMUNICATIONS, INC.
Consolidated Balance Sheets, (Continued)
LIABILITIES & STOCKHOLDERS' EQUITY
June 30, December 31,
1999 1998
--------- ------------
Current liabilities:
Current portion of long-term debt and
redeemable preferred stock $ 12,500 $ 12,500
Accounts payable 12,072,660 8,597,391
Customer deposits and advance billings 2,426,804 1,892,506
Accrued payroll 2,638,101 2,584,993
Income taxes payable 5,110,491 400,736
Accrued pension cost 1,192,433 1,411,430
Other accrued liabilities 2,191,084 1,795,533
------------ ------------
Total current liabilities 25,644,073 16,695,089
------------ ------------
Long-term debt 20,000,000 20,000,000
------------ ------------
Deferred credits and other liabilities:
Deferred income taxes 17,742,021 14,688,095
Investment tax credits 746,753 804,195
Post-retirement benefits other than pension 10,609,014 10,549,204
Other 989,675 1,189,587
------------ ------------
30,087,463 27,231,081
------------ ------------
Redeemable preferred stock: 4.8% series
authorized 5,000 shares; issued and
outstanding 1375 shares in 1999 and
1998 125,000 125,000
------------ ------------
Total liabilities 75,856,536 64,051,170
Stockholders' equity:
Preferred stock not subject to
mandatory redemption:
5% series, $100 par value; 3,381 and
3,440 shares outstanding in 1999 and
1998, respectively 338,100 344,000
4.5% series, $100 par value; 623 and
628 shares outstanding in 1999 and
1998, respectively 62,300 62,800
Common Stock
9,354,351 and 9,300,769 shares
outstanding in 1999 and 1998,
respectively 37,337,029 35,748,327
Other capital 298,083 298,083
Deferred compensation (1,304,114) (697,338)
Other accumulated comprehensive income 18,716,579 13,100,748
Retained earnings 81,292,106 70,726,568
------------ ------------
Total stockholders' equity 136,740,083 119,583,188
------------ ------------
Contingency --- ---
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $212,596,619 $183,634,358
============ ============
See accompanying notes to consolidated financial statements.
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<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
---- ---- ---- ----
Operating revenues: $ 26,101,594 $ 22,408,193 $ 51,433,818 $ 43,423,778
Operating expenses: 20,457,816 16,717,426 40,550,648 32,174,668
------------- ------------ ------------ -----------
Operating income 5,643,778 5,690,767 10,883,170 11,249,110
------------- ------------ ------------ -----------
Other income (expenses):
Equity in income of
affiliates, net 12,324 (24,348) 79,576 (95,181)
Interest, dividend
income and gain on
sale of investments 10,318,467 14,909 12,322,316 97,598
Other expenses,
principally interest (485,991) (276,879) (1,335,150) (480,113)
------------- ----------- ----------- ----------
Total other income
(expenses) 9,844,800 (286,318) 11,066,742 (477,696)
------------- ----------- ---------- ----------
Income before income
taxes 15,488,578 5,404,449 21,949,912 10,771,414
Income taxes 6,345,777 2,209,251 8,937,063 4,438,763
------------- ----------- ---------- -----------
Net income 9,142,801 3,195,198 13,012,849 6,332,651
Dividends on preferred
stock 6,577 7,353 13,154 13,771
------------- ----------- ---------- -----------
Earnings for common 9,136,224 3,187,845 12,999,695 6,318,880
stock ============= =========== =========== ===========
Basic earnings per
common share $ 0.98 $ 0.35 $ 1.39 $ 0.69
=============== ============= ============ ==========
Diluted earnings per
common share $ 0.97 $ 0.34 $ 1.39 $ 0.69
=============== ============= ============ ==========
Basic weighted average
shares outstanding 9,344,207 9,216,723 9,331,927 9,156,073
=============== ============= =========== ==========
Diluted weighted average
shares outstanding 9,391,123 9,264,668 9,390,874 9,204,531
============== ============ =========== ==========
See accompanying notes to consolidated financial statements.
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<PAGE>
CT COMMUNICATIONS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
----------------
June 30, June 30,
1999 1998
------------- -----------
Cash flows from operating activities:
Net income $ 13,012,849 $ 6,332,651
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 7,359,563 5,635,871
Postretirement Benefits 59,810 63,770
Loss (gain) on sales of investment
securities (11,178,155) ---
Undistributed income of affiliates (79,576) 95,181
Deferred income taxes and tax credits (57,442) ---
Changes in operating assets and
liabilities, net of effects of
acquisitions in 1998:
Accounts receivable (2,742,913) (2,976,526)
Materials & supplies (297,864) 524,775
Other current assets 672,448 378,680
Accounts payable 3,475,269 2,186,751
Customer deposits and
advance billings 534,298 25,004
Accrued liabilities 275,495 491,665
Income taxes payable 4,709,755 (973,790)
------------- ------------
Net cash provided by
operating activities 15,743,537 11,784,032
------------- ------------
Cash flows from investing activities:
Capital expenditures, net (12,518,658) (13,152,847)
Purchase of investments in affiliates (1,317,412) (3,846,667)
Purchase of investment securities (5,774,436) (221,124)
Proceeds from sale of investment
securities 12,850,696 129,717
Partnership capital distribution 1,955,460 1,104,372
Notes receivable collections, net --- 297,000
Other --- 9,826
----------- ------------
Net cash used in investing
activities (4,804,350) (15,679,723)
------------- ------------
Cash flows from financing activities:
Proceeds from new debt --- 7,000,000
Dividends paid (2,447,311) (2,186,371)
Repurchase of common and preferred
stock (32,544) (333,817)
Proceeds from common stock issuances 357,888 66,046
Other --- (155,000)
------------- ------------
Net cash provided by (used in)
financing activities (2,121,967) 4,390,858
------------ ------------
Net increase in cash and cash equivalents 8,817,220 495,167
Cash and cash equivalents-beginning of period 2,807,887 ---
------------- ------------
Cash and cash equivalents-end of period $ 11,625,107 $ 495,167
============= ============
See accompanying notes to consolidated financial statements
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<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1999 1998 1999 1998
---- ---- ---- ----
Net income $ 9,142,801 $ 3,195,198 $13,012,849 $ 6,332,651
Other comprehensive
income, net of tax
Unrealized holding
gains (losses) on
available-for-sale
securities 2,278,372 5,578,338 12,242,721 13,533,420
Less reclassification
adjustment for gains
realized in net
income (6,626,890) --- (6,626,890) ---
------------- ------------ ------------ -----------
Comprehensive income $ 4,794,283 $ 8,773,536 $ 18,628,680 $19,866,071
============= ============= ============= ==========
See accompanying notes to consolidated financial statements.
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<PAGE>
CT COMMUNICATIONS, INC.
(Unaudited)
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, 1999 and 1998, and the results of
operations for the six months then ended and cash flows for the
six months then ended.
2. In certain instances, amounts previously reported in the 1998
consolidated financial statements have been reclassified to
conform with the 1999 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 six months ended June 30, 1999
and 1998 are not necessarily indicative of the results to be
expected for the full year.
4. All common stock share amounts have been adjusted to reflect the
conversion of each share of the Registrant's Voting Common Stock
to 4.4 shares Common Stock and each share of the Registrant's
Class B Nonvoting Common Stock to 4.0 shares of the Registrant's
Common Stock, effective January 28, 1999.
5. The following is a summary of common stock transactions during the
six months ended June 30, 1999.
........Common........
Shares Value
------ -----
Outstanding at December 31, 1998.... 9,300,769 $35,748,327
Purchase of common stock.... (328) (26,144)
Issuance of common stock.... 53,910 1,614,846
---------- -------------
Outstanding at June 30, 1999.... 9,354,351 $37,337,029
========== ============
Basic Diluted
----- --------
Weighted average shares outstanding for the
six months ended June 30, 1999 9,344,207 9,391,123
6. SECURITIES AVAILABLE-FOR-SALE
The amortized cost, gross unrealized holding gains, gross
unrealized holding losses and fair value for the Registrant's
investments by major security type and class of security at June
30, 1999 and December 31, 1998 were as follows:
June 30, 1999
-------------
Securities Amortized Gross Unrealized Gross Unrealized Fair
Available for Sale Cost Holding Gains Holding Losses Value
- ------------------ ---------- ------------- -------------- -----
Certificate of Deposit $ 444,467 $ -- $ -- $ 444,467
Equity Securities 7,928,718 29,292,311 (110,253) 37,110,776
---------- ---------- ----------- ----------
Total $8,373,185 $ 29,292,311 $ (110,253) $37,555,243
========== ========== ============= ===========
December 31, 1998
-----------------
Securities Amortized Gross Unrealized Gross Unrealized Fair
Available for Sale Cost Holding Gains Holding Losses Value
- ------------------ ---------- ------------- -------------- ----
Certificate of Deposit $ 116,681 $ -- $ -- $ 116,681
Equity Securities 4,140,229 23,667,578 (3,141,596) 24,666,211
---------- ---------- ----------- -----------
Total $4,256,910 $ 23,667,578 $(3,141,596) 25,782,892
========== ========== ============= ===========
-8-
<PAGE>
NOTES TO FINANCIAL STATEMENTS CON'T.
- ------------------------------------
In the three months ended June 30, 1999, the company sold 410,000 shares of
ITC^Deltacom stock for a pre-tax gain of $10.4 million. As of June 30,
1999, the company owned approximately 1.1 million shares of ITC^Deltacom
stock.
7. INVESTMENTS IN AFFILIATED COMPANIES
June 30, 1999 June 30, 1998
------------- -------------
Equity Method:
Palmetto MobileNet, L.P. $10,392,004 $10,262,329
Wireless One of NC, LLC 4,983,809 4,366,105
Access On 77,545 118,476
BellSouth Carolinas PCS, LP 935,879 1,896,667
U.S. Telecom Holdings 347,693 695,385
Cost Method
ITC Holding Company 2,724,129 2,724,129
Illuminet Holdings, Inc. 1,068,624 1,068,624
Maxcom
Telecommunications, S.A. de C.V. 8,610,277 8,566,777
Other 91,302 91,302
------------ ------------
TOTAL $29,231,322 $29,789,794
============ ============
8. LONG-TERM DEBT:
Long-term debt consists of the following:
The Registrant has a $60,000,000 line of credit with interest at LIBOR plus
a spread based on the Registrant's ratio of debt to EBITDA. The interest
rate on June 30, 1999 was 5.81%. The credit facility provides for quarterly
payments of interest until maturity on December 31, 2000. The credit
facility can be renewed for two separate two-year extensions through
December 31, 2004. Subject to approval by the North Carolina Utilities
Commission, the credit facility will automatically convert to a five-year
credit facility maturity on December 31, 2003. The Registrant entered into
an interest rate swap transaction to fix $10.0 million of the outstanding
principal at a rate of 5.9% plus a spread, currently 0.5%. There was
$20,000,00 outstanding under this line of credit at June 30, 1999. The
Registrant also has two lines of credit for $5,000,000 each. No amounts
were outstanding under these credit lines at June 30, 1999.
June 30, 1999 December 31, 1998
------------- -----------------
Total Long Term Debt: $20,000,000 $20,000,000
9. Segment Information
Effective December 31, 1998, the Registrant adopted FAS 131, "Disclosures
about Segments of an Enterprise and Related Information." As a result of
the reorganization of internal reporting, the Registrant has redefined its
segments from Concord Telephone Company and other to the following: The
Registrant reports four segments, the incumbent local exchange carrier
(CTC), the competitive local exchange carrier and long distance services
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<PAGE>
(CLEC/LD), the internet service provider (ISP) and the digital wireless
group (DCS). Accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The Registrant
evaluates performance based on operating profit before other income
(expenses) and income taxes. Intersegment sales are accounted for as if the
transactions were to third parties. Segment assets are excluding
intercompany transactions.
Three Months Ended June 30, 1999:
<TABLE>
<CAPTION>
CTC CLEC/LD ISP DCS OTHER TOTAL
------------ ---------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
External revenues $ 18,799,856 $4,291,271 $1,427,674 $ 1,245,293 $ 337,500 $ 26,101,594
Intersegment revenues 1,008,855 - - 10,708 - 1,019,563
External expenses 10,536,862 2,981,519 1,335,514 1,626,499 154,253 16,634,647
Intersegment expense 76,547 713,597 213,517 15,902 - 1,019,563
Depreciation and
amortization 3,278,839 262,410 230,108 14,955 36,857 3,823,169
----------------------------------------------------------------------------------------------------------
Segment operating profit $5,916,463 $ 333,745 $ (351,465) $ (401,355) $ 146,390 $ 5,643,778
----------------------------------------------------------------------------------------------------------
Segment assets $120,764,854 $6,130,377 $7,404,041 $ 866,774 $77,430,573 $212,596,619
Three Months Ended June 30, 1998:
CTC CLEC/LD ISP DCS OTHER TOTAL
----------- ---------- ---------- ---------- ----------- ------------
External revenues $ 17,198,789 $3,454,864 $ 804,436 $ 818,437 $ 131,667 $ 22,408,193
Intersegment revenues 1,220,904 - - - - 1,220,904
External expenses 9,279,441 2,616,723 618,819 1,065,034 187,382 13,767,399
Intersegment expense 42,106 1,109,331 33,486 35,981 - 1,220,904
Depreciation and
amortization 2,766,870 152,777 34,611 13,701 (17,932) 2,950,027
----------------------------------------------------------------------------------------------------------
Segment operating profit $6,331,276 $ (423,967) $ 117,520 $ (296,279) $ (37,783) $ 5,690,767
----------------------------------------------------------------------------------------------------------
Segment assets $100,701,018 $4,047,770 $7,240,720 $ 465,802 $75,121,764 $187,577,074
Six Months Ended June 30, 1999:
CTC CLEC/LD ISP DCS OTHER TOTAL
------------ ---------- ---------- ----------- --------- -------------
External revenues $ 37,604,100 $8,334,304 $2,734,195 $ 2,311,219 $ 450,000 $ 51,433,818
Intersegment revenues 1,929,869 - - 17,534 - 1,947,403
External expenses 20,769,023 6,366,380 2,570,558 3,085,946 306,371 33,098,278
Intersegment expense 157,830 1,383,778 378,072 27,723 - 1,947,403
Depreciation and
amortization 6,397,046 497,566 454,485 29,562 73,711 7,452,370
----------------------------------------------------------------------------------------------------------
Segment operating profit $12,210,070 $ 86,580 (668,920) $ (814,478) $ 68,918 $ 10,883,170
----------------------------------------------------------------------------------------------------------
Segment assets $120,764,854 $6,130,377 $7,404,041 $ 866,774 $77,430,573 $212,596,619
Six Months Ended June 30, 1998:
CTC CLEC/LD ISP DCS OTHER TOTAL
TOTAL ----------- ---------- ---------- --------- ----------- -----------
External revenues $ 34,156,932 $6,636,799 $1,053,475 $1,351,571 $ 225,001 $43,423,778
Intersegment revenues 2,282,181 - - - - 2,282,181
External expenses 18,621,244 4,754,328 908,906 1,943,791 310,528 26,538,797
Intersegment expense 70,979 2,101,631 43,485 66,086 - 2,282,181
Depreciation and 5,297,133 270,564 40,946 27,228 - 5,635,871
amortization
---------------------------------------------------------------------------------------------------------
Segment operating profit $12,449,757 $ (489,724) $ 60,138 $(685,534) $(85,527) $11,249,110
---------------------------------------------------------------------------------------------------------
Segment assets $100,701,018 $4,047,770 $7,240,720 $ 465,802 $75,121,764 $187,577,074
</TABLE>
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<PAGE>
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 ended June 30, 1999. Current assets exceeded current liabilities by
$8,720,543 at June 30, 1999. In comparison, current assets exceeded current
liabilities by $5,988,138 at December 31, 1998.
Current assets increased by $11,681,389 when compared to December
31, 1998. This increase is primarily due to increases in cash and cash
equivalents of $8,817,220 resulting from the sale of ITC^DeltaCom stock;
increases of $327,786 in short-term investments; increased accounts
receivable, net, of $1,284,824 due to increased activity; increased other
accounts receivable of $1,458,090 primarily from Maxcom Telecommunicaciones
S.A. de C.V., a provider of telecommunication services in Mexico City,
Mexico with whom the Registrant has an affiliation and an increase of
$297,864 in materials and supplies due to increased outside plant
construction activity. These increases were offset in part by a decrease of
$504,394 in prepaid expenses and other assets.
Current liabilities increased by $8,948,984 during the six months
ended June 30, 1999, when compared to December 31, 1998. This increase is
primarily from increases in accounts payable of $3,475,269 due to increased
business activity; increases in customer deposits and advance billings of
$534,298 due to increased customers and revenues; increased income taxes
payable of $4,709,755 due to taxes accrued on the sales of ITC^DeltaCom
shares and increases in other accrued liabilities of $395,551. These
increases were offset in part by a decrease in accrued pension cost of
$218,997.
The Registrant's primary source of liquidity is funds provided by
operations. During the six months ended June 30, 1999, cash provided by
operations totaled $15,743,537.
The primary use of cash during this six-month period was for
additions to telephone plant and other capital assets - $12,518,658,
purchase of investments in affiliates - $1,317,412, purchase of investment
securities - $5,774,436, payment of dividends - $2,447,311 and purchase of
common and preferred stock - $32,544. Of the amount expended for
investments in affiliates, $392,380 was invested in the BellSouth Carolina
PCS Limited Partnership; $881,533 was invested in Wireless One of North
Carolina, LLC and $43,500 was invested in Maxcom Telecommunicaciones S.A.
de C.V.
At June 30,1999, the fair market value of the Registrant's
investment securities was $37.1 million, all of which could be pledged to
secure additional borrowing or sold, if needed for liquidity purposes. At
June 30, 1999, the Registrant has available lines of credit from First
Union National Bank of $60,000,000, First Charter National Bank of
$5,000,000 and Rural Telephone Finance Cooperation of $5,000,000. At June
30, 1999, the Registrant had $20,000,000 of principal outstanding under the
line with First Union National Bank.
The Registrant anticipates that all of the capital requirements in
1999 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 the available lines of credit.
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<PAGE>
Results of Operations
- ---------------------
Three months ended June 30, 1999 and June 30, 1998
- --------------------------------------------------
Operating revenues increased $3.7 million or 16% for the three
months ended June 30, 1999 when compared to the same period of 1998.
Excluding intersegment revenues, Concord Telephone revenue was
$18.8 million, a $1.6 million or 9% increase over the comparable period
ending on June 30, 1998. This increase was mainly due to an increase in
access revenue due to an increase in minutes and an increase in local
revenue driven by access line growth of 5.8%. Custom call features revenue
increased almost 20% due to increased telemarketing and sales efforts.
Competitive local and long distances services revenue was $4.3
million, a $.8 million or 24% increase in revenue. Competitive local
exchange services were fully launched during second quarter of 1998, and
contributed more than $.6 million to the increase in revenue. At June 30,
1999, 2,343 CLEC lines were in service.
Internet and data services contributed $1.4 million to the three
months ended June 30, 1999, an increase of $.6 million over the same period
last year. This increase was driven by the acquisition of VNet, an internet
service provider, in second quarter of 1998, coupled with an increase in
the June 30, 1999 number of dial-up customers. There were over 14,000
internet and data services customers at June 30, 1999.
Digital wireless services contributed $1.2 million to revenue, a
$.4 million or 52% increase over last year due to the increased number of
customers. At June 30, 1999, the digital wireless services business had
8,996 customers.
Operating expenses, exclusive of depreciation and amortization,
increased $2.9 million or 21% for the three months ended June 30, 1999 when
compared to the same period of 1998.
Excluding intersegment expenses, Concord Telephone expenses were
$10.5 million, a $1.3 million or 14% increase over the comparable period
ending on June 30, 1998. This increase was mainly due to the cost of goods
sold associated with business system sales coupled with the costs
associated with contracted services and additional headcount.
Competitive local and long distances services operating expenses
were $3.0 million, a $.4 million or 14% increase over the same period last
year. This increase reflects additional expenses related to the efforts
behind the competitive local exchange service and higher access expense due
to the increase in toll revenue. The increase is primarily driven by the
costs of the competitive lines sold in 1998 coupled with additional
headcount. Since June 30, 1998 the company has installed approximately
1,800 additional access lines.
Internet and data services operating expenses were $1.3 million
for the three months ended June 30, 1999, an increase of $.7 million over
the same period last year. This increase was driven by the acquisition of
VNet in second quarter of 1998, coupled with an increase in the number of
dial-up customers.
Digital wireless services operating expenses were $1.6 million , a
$.6 million or 53% increase over last year due to the increased customer
acquisition cost.
Depreciation expense increased $.9 million or 30% for the three
months ended June 30, 1999 when compared to the same period of 1998. This
increase reflects an increase in the depreciable assets coupled with the
goodwill amortization expense of $.2 million related to the VNet
acquisition.
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<PAGE>
Other income (expenses) increased $10.1 million when compared to
the same period in the prior year. This increase was primarily due to the
pre-tax gain from the sale of 410,000 shares of ITC^DeltaCom stock of $10.4
million. At June 30, 1999, the Company owned approximately 1.1 million
shares of ITC^DeltaCom. This gain was partially offset by higher interest
and other expenses of $.2 million. Equity in income of affiliates remained
relatively flat with 1998, the income from the cellular partnership,
Palmetto MobileNet, was offset by a one-time additional charge of $791,810
related to the Palmetto MobileNet partnership to reflect the Registrant's
19.54% share of a change in accounting for goodwill amortization.
Net income increased $5.9 million or 186% over the same period
last year.
Six months ended June 30, 1999 and June 30, 1998
- ------------------------------------------------
Operating revenues increased $8.0 million or 18% for the six
months ended June 30, 1999 when compared to the same period of 1998.
Excluding intersegment revenues, Concord Telephone revenue was
$37.6 million, a $3.4 million or 10% increase over the comparable period
ending on June 30, 1998. This increase was mainly due to an increase in
access revenue due to an increase in minutes and an increase in local
revenue driven by access line growth of 5.8% from June 30, 1998 to June 30,
1999. Custom call features revenue increased 27% due to increased
telemarketing and sales efforts. Higher equipment sales also contributed to
the increase.
Competitive local and long distance services revenue was $8.3
million, a $1.7 million or 26% increase in revenue. Competitive local
exchange services were fully launched during the second quarter of 1998,
and contributed more than $.6 million to the increase in revenue.
Internet and data services contributed $2.7 million to the six
months ended June 30, 1999, an increase of $1.7 million over the same
period last year. This increase was driven by the acquisition of VNet in
second quarter of 1998, coupled with an increase in the number of dial-up
customers.
Digital wireless communications services contributed $2.3 million
to revenue, a $1.0 million or 71% increase over last year due to the
increased number of customers.
Operating expenses, exclusive of depreciation and amortization,
increased $6.6 million or 25% for the six months ended June 30, 1999 when
compared to the same period of 1998.
Excluding intersegment expenses, Concord Telephone expenses were
$20.8 million, a $2.1 million or 12% increase over the comparable period
ending on June 30, 1998. This increase was mainly due to the cost of goods
sold associated with business system sales, higher contracted service
expenses and increased headcount.
Competitive local and long distance services operating expenses
were $6.4 million, a $1.6 million or 34% increase over last year. This
increase reflects additional expenses related to the efforts behind the
competitive local exchange service and higher access expense due to the
increase in toll revenue. The increase is primarily driven by the costs of
the competitive lines sold in 1998 and the first six months of 1999 coupled
with additional headcount.
-13-
<PAGE>
Internet and data services operating expenses were $2.6 million
for the six months ended June 30, 1999, an increase of $1.7 million over
the same period last year. This increase was driven by the acquisition of
VNet in second quarter of 1998 and the first six months of 1999 coupled
with additional headcount.
Digital wireless communications services operating expenses were
$3.1 million to revenue, a $1.1 million or 59% increase over last year due
to the increased number of customers.
Depreciation expense increased $1.8 million or 32% to $7.5 million
for the six months ended June 30, 1999 when compared to the same period of
1998. This increase reflects an increase in the depreciable assets coupled
with the goodwill amortization expense of $.3 million related to the VNet
acquisition.
Other income (expenses) increased $11.5 million when compared to
the same period in the prior year. This increase was primarily due to:
o Pre-tax gains for the sales of ITC^DeltaCom stock of $11.5 million
in 1999,
o An increase in income from affiliates due to lower BellSouth PCS
Mobility partnership losses coupled with higher Palmetto MobileNet
cellular partnership earnings, partially offset by a one-time
amortization adjustment ($.6 million) for Palmetto MobileNet,
partially offset by
o Higher other expenses, primarily due to higher interest expense
in 1999.
Net income increased $6.7 million or 105% over the same period last year.
Year 2000 Considerations
- ------------------------
The Year 2000 project is a top corporate priority and has the full
support and commitment of the Registrant's executive management team. In
January 1998, the Registrant did a first study of our Year 2000
capabilities and needs and made all appropriate employees aware of the Year
2000 issues. A Year 2000 Project Team, with members representing all
significant areas of the Registrant's business operations, was set up. The
Registrant retained DMR Consulting Group to help coordinate the initial
phases of the Year 2000 project. DMR established a project office in the
Registrant's offices and met regularly with members of the Project Team
during the first three quarters of 1998 to coordinate overall project
needs. DMR completed substantially all of its services during the fourth
quarter of 1998 and no longer has an office at the Registrant's offices.
The Year 2000 Project Team continues to focus on the Year 2000
impact on the Registrant's telecommunications network, internal information
systems and business operations generally. Fourteen individual business
unit teams have been established, each having responsibility to address
Year 2000 issues within the business units, but with direct reporting to
and coordination with the Project Team. The Project Team is putting into
place an overall compliance process consisting of four phases: (1)
Inventory; (2) Assessment; (3) Remediation/Replacement; and (4) Testing.
The Project Team has completed the inventory and assessment phases
of the Year 2000 project. The Registrant estimates that as of July 15,
1999, remediation and replacement efforts company-wide were 99% complete
and the testing phase is complete.
-14-
<PAGE>
The Project Team has created a test lab for validating internal
information systems, including all management information systems, billing
functions and financial systems. This test data is supplemented by making
similar inquiries to application vendors. The Registrant typically
purchases third-party software for its major business applications instead
of writing its own. Routine upgrades of systems pursuant to maintenance
agreements have enhanced progress on the Year 2000 Project.
A significant aspect of the Year 2000 project focuses on local and
long-distance service delivery, network access and network
interoperability. The Registrant identified its critical system and network
component suppliers during its inventory and assessment process. The
Registrant has continuously communicated with these critical suppliers to
obtain reliable information regarding their readiness of key system
hardware and software components. This information is updated regularly so
that the Project Team remains aware of any status changes. In addition, the
Registrant participates in important telecommunications forums, such as the
United States Telephone Association and the Alliance for Telecommunications
Industry Solutions, both of which are devoting significant attention to the
Year 2000 problems in the telecommunications industry. Interoperability
testing information generated by the Alliance's National Testing Committee,
of which the Registrant is a member, is an important aspect of its effort
to maintain the integrity of its network, and the Registrant's ability to
interconnect with other systems. Although the Registrant is not
independently testing network system hardware and software components for
Year 2000 readiness, it believes that reliance on testing information
generated by vendors and the National Testing Committee is appropriate.
Another component of the Registrant's business is the sale of
advanced business systems, such as voice mail and private branch exchange
switches, as an authorized distributor for several manufacturers. The
Registrant has communicated with customers who bought advanced business
systems from us to distribute Year 2000 readiness information made
available by the manufacturers of those systems.
Management believes that the Registrant has a sound plan that
anticipates and resolves potential Year 2000 issues in a timely manner. The
Registrant's critical business applications, network systems and components
are Year 2000 ready. The Registrant plans to continue testing and
coordination with other network and system operators through 1999.
The Registrant has existing standard contingency plans in place
for handling outages and other emergencies. A consultant has been retained
to assist in developing supplemental contingency plans to address any Year
2000 problems that may arise. The written contingency plan is complete, and
implementation testing is on-going.
In 1998, out-of-pocket expenses for the Year 2000 project were
approximately $500,000. An additional $500,000 has been budgeted for
completion of the Year 2000 project effort during 1999.
If the Registrant has failed to accurately assess or remedy the
Year 2000 issues by the end of 1999, including any failure by third parties
on whom it depends, its business could be disrupted resulting in a
materially adverse effect on its financial condition, liquidity and
business operations. A majority of the Registrant's services rely heavily
on technology that could stop operating, or could operate much less
efficiently, if affected by the Year 2000 problem. In addition, Year
2000-related problems could lead to potential third-party claims, the
impact of which cannot be known.
-15-
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Registrant has an unsecured revolving credit facility with a
syndicate of banks for $60.0 million of which $20.0 million was outstanding
on June 30, 1999. The interest rate on the credit facility is variable
based on LIBOR plus a spread based on the Registrant's ratio of debt to
EBITDA. The interest rate was 5.81% on June 30, 1999. The Registrant
entered into an interest rate swap transaction to establish a fixed rate of
interest on $10.0 million of the outstanding principal at December 31,
1998. The interest rate swap will protect the Registrant, the extent of
$10.0 million of outstanding principal amount, against an upward movement
in interest rates, but subjects the Registrant to above market interest
costs if interest rates decline. Management believes that reasonably
foreseeable movements in interest rates will not have a material adverse
effect on the Registrant's financial condition or operations.
Factors That May Affect Future Results
- --------------------------------------
The foregoing discussion contains forward-looking statements about
the Registrant that are based on the beliefs of management, as well as
assumptions made by, and information currently available to, management.
Management has based these forward- looking statements on its current
expectations and projections about future events and trends affecting the
financial condition and operations of the Registrant's business. These
forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from those reflected
in the forward-looking statements.
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 creased
by the Telecommunications Act of 1996, 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 various new businesses, (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, (4) the Registrant's ability
to effectively manage rapid changes in technology, (5) whether the
Registrant can effectively respond to the actions of its competitors and
(6) whether the Registrant can successfully implement its Year 2000 plan.
The words and phrases such as "expects," "estimates," "intends,"
"plans," "believes," "projection," "will continue" and "is anticipated" are
intended to identify forward-looking statements. In making forward-looking
statements, the Registrant claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995. The Registrant undertakes no obligation to update or
revise any forward-looking statements, whether as a result of new
information, future events or otherwise. All forward-looking statements
should be viewed with caution.
-16-
<PAGE>
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
An Annual Meeting of Shareholders was held on April 22,
1999. All directors were re-elected for the terms set
forth below.
Proxies were solicited for the following matters:
(1) To elect a Board of Directors
Three Directors for a three-year term expiring in 2002
For Abstain
O. Charlie Chewning, Jr. 7,788,658 2,016
L. D. Coltrane, III 7,788,658 2,016
Phil W. Widenhouse 7,786,470 4,204
Three Directors for a two-year term expiring in 2001
For Abstain
John R. Boger, Jr. 7,788,658 2,016
William A. Coley 7,788,658 2,016
Ben F. Mynatt 7,788,295 2,379
Three Directors for a one-year term expiring in 2000
For Abstain
Michael R. Coltrane 7,788,658 2,016
Samuel E. Leftwich 7,788,658 2,016
Jerry H. McClellan 7,788,146 12,528
(2) To approve the Corporation's 1999 Employee Stock
Purchase Plan
For Against Authority Withheld
7,270,552 9,249 510,873
-17-
<PAGE>
Item 4. continued
(3) To ratify the action of the Board of Directors
in selecting KPMG LLP as independent public
accountants to audit the books of the
Corporation for the year.
For Against Authority Withheld
7,150,243 243 640,188
Item 5. Other Information
Completion of Secondary Offering
--------------------------------
On June 29, 1999, the Registrant completed a secondary offering of
1,100,000 shares of common stock at a price to the public of $38.00 per
share. The shares were registered with the Securities and Exchange
Commission and sold in a firm commitment underwritten offering on behalf of
the General Board of Global Ministries of the United Methodist Church and
The Cannon Foundation, Inc. On July 8, 1999, an additional 165,000 shares
of the Registrant's common stock were sold pursuant to an over-allotment
option granted by the selling shareholders to the underwriters in
connection with the offering. The Registrant did not sell any of its shares
and did not receive any proceeds from the offering.
Wireless One of North Carolina, LLC
-----------------------------------
In July 1999, MCI WorldCom ("MCI") purchased from Wireless One,
Inc. its 50.9% interest in Wireless One of North Carolina, LLC ("WONC") for
a purchase price of $22.6 million. The Registrant continues to own the
remaining 49.1% interest of WONC.
WONC currently owns various commercial wireless frequencies in
North Carolina. In 1998, the Federal Trade Commission determined that these
types of frequencies may be used for two-way data and telephone service, as
well as for their original purpose of wireless cable systems. WONC
continues to evaluate potential uses for its frequency spectrum, including
digital video, high speed Internet and other traditional telephony
services. The Registrant is currently evaluating its various alternatives
with respect to its ownership interest in WONC, including a possible sale
of its interest. The Registrant currently has no arrangements or agreement
to sell its interest.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
Exhibit No. Description
----------- -----------
11 Computation of Earnings per Share
27 Financial Data Schedule
(B) Reports on Form 8-K
None
-18-
<PAGE>
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
August 10, 1999
- --------------------------------
Date
(The above signatory has dual responsibility as duly authorized officer and
principal financial and accounting officer of the registrant.)
-19-
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
11 Computation of Earnings per Share
27 Financial Data Schedule
-20-
EXHIBIT 11
CT COMMUNICATIONS, INC.
AND SUBSIDIARIES
Computation of Earnings Per Share
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
1999 1998 1999 1998
---- ---- ---- ----
Computation of share
totals used in
computing earnings
per share:
Weighted average number
of shares outstanding 9,344,207 9,216,723 9,331,927 9,156,073
Basic average shares
a-Outstanding 9,344,207 9,216,723 9,331,927 9,156,073
Incremental shares
arising, from out-
standing stock
options 46,916 47,945 58,947 48,458
--------- --------- --------- ---------
b-Totals 9,391,123 9,264,668 9,390,874 9,204,531
========= ========= ========= =========
c-Net Income $9,136,224 $ 3,190,744 $ 12,999,695 $6,320,994
========= ========= ========== =========
Net Income Per Share
Basic - c/a $ .98 $ .35 1.39 .69
========= ========= ========== =========
Net Income Per Share
assuming full dilution c/b $ .97 $ .34 1.39 .69
========== ========= ========== ==========
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> JUN-30-1999 JUN-30-1998
<CASH> 11,625,107 495,167
<SECURITIES> 37,110,776 260,386
<RECEIVABLES> 17,642,029 13,564,277
<ALLOWANCES> 107,500 107,500
<INVENTORY> 2,629,821 2,171,657
<CURRENT-ASSETS> 34,364,617 18,581,626
<PP&E> 206,159,583 186,516,534
<DEPRECIATION> 100,260,239 91,325,304
<TOTAL-ASSETS> 212,596,619 187,577,074
<CURRENT-LIABILITIES> 25,644,073 19,580,462
<BONDS> 20,000,000 18,084,000
125,000 137,500
400,400 413,100
<COMMON> 37,337,029 35,562,858
<OTHER-SE> 99,002,654 19,025,824
<TOTAL-LIABILITY-AND-EQUITY> 212,596,619 187,577,074
<SALES> 0 0
<TOTAL-REVENUES> 51,433,818 43,423,778
<CGS> 0 0
<TOTAL-COSTS> 40,550,648 32,174,668
<OTHER-EXPENSES> (12,401,892) (2,417)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,335,150 480,113
<INCOME-PRETAX> 21,949,912 10,771,414
<INCOME-TAX> 8,937,063 4,438,763
<INCOME-CONTINUING> 13,012,849 6,332,651
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 13,012,849 6,332,651
<EPS-BASIC> 1.39 .69
<EPS-DILUTED> 1.39 .69
</TABLE>
