<PAGE> 1
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 March 31, 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.
9,339,791 shares of Common Stock outstanding as of April 30, 1999.
<PAGE> 2
CT COMMUNICATIONS, INC.
INDEX
Page No.
PART I Financial Information
Balance Sheets --
March 31, 1999 and December 31, 1998 3
Statements of Income --
Three Months Ended March 31, 1999 and
March 31, 1998 5
Statements of Cash Flows --
Three Months ended March 31, 1999 and 6
March 31, 1998
Notes to Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
PART II. Other Information 16
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<PAGE> 3
PART I. FINANCIAL INFORMATION
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,880,404 $ 2,807,887
Short term investments 122,786 $ 116,681
Accounts receivable, net of
allowance for doubtful
accounts of $107,500 13,770,038 12,210,952
Notes receivable 1,513,500 1,513,500
Other accounts receivable 2,760,554 1,067,163
Materials and supplies 2,411,754 2,331,957
Deferred income taxes 1,051,855 1,051,855
Prepaid expenses and other assets 1,168,519 1,583,232
------------ ------------
Total current assets 25,679,410 22,683,227
Investment securities 35,624,776 24,666,211
Investments in affiliates 30,116,453 29,789,794
Property, plant and equipment:
Telephone plant in service:
Land, buildings, and
general equipment 37,577,655 35,676,763
Central office equipment 72,880,558 70,787,607
Pole, wire, cables
and conduit 88,365,620 87,587,101
Construction in progress 65,843 449,946
------------ ------------
198,889,676 194,501,417
Less accumulated depreciation 97,618,174 94,329,834
------------ ------------
Net property, plant
and equipment 101,271,502 100,171,583
Intangibles net 6,158,958 6,323,543
------------ ------------
TOTAL ASSETS $198,851,099 $183,634,358
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 4
CT COMMUNICATIONS, INC.
Consolidated Balance Sheets, (Continued)
LIABILITIES & STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Current liabilities:
Current portion of long term debt and
redeemable preferred stock $ 12,500 $ 12,500
Accounts payable 9,234,824 8,597,391
Customer deposits and advance billings 2,373,765 1,892,506
Accrued payroll 2,003,260 2,584,993
Income taxes payable 2,836,386 400,736
Accrued pension cost 1,278,331 1,411,430
Other accrued liabilities 1,679,241 1,795,533
------------- -------------
Total current liabilities 19,418,307 16,695,089
------------- -------------
Long term debt 20,000,000 20,000,000
------------- -------------
Deferred credits and other liabilities:
Deferred income taxes 14,050,581 14,688,095
Investment tax credits 775,474 804,195
Post-retirement benefits other than pension 10,628,496 10,549,204
Other 1,088,364 1,189,587
------------- -------------
26,542,915 27,231,081
------------- -------------
Redeemable preferred stock: 4.8% series
authorized 5,000 shares; issued and
outstanding 1500 shares in
1999 and 1998 125,000 125,000
------------- -------------
Total liabilities 66,086,222 64,051,170
Stockholders' equity:
Preferred stock not subject to mandatory redemption:
5% series, $100 par value; 3,428 and
3,440 shares outstanding in 1999 and
1998 respectively 342,800 344,000
4.5% series, $100 par value; 623 and
628 shares outstanding in 1999 and
1998 respectively 62,300 62,800
Common Stock
9,334,776 and 9,300,769 shares
outstanding in 1999 and 1998
respectively 36,715,548 35,748,327
Other capital 298,083 298,083
Deferred compensation (1,102,436) (697,338)
Other accumulated comprehensive income 23,065,097 13,100,748
Retained earnings 73,383,485 70,726,568
------------- -------------
Total stockholders' equity 132,764,877 119,583,188
------------- -------------
Contingency -- --
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 198,851,099 $ 183,634,358
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 5
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For 3 months ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
------------ ------------
<S> <C> <C>
Operating Revenues: $ 25,332,224 $ 21,015,585
Operating Expenses: 20,092,832 15,457,242
------------ ------------
Operating Income 5,239,392 5,558,343
------------ ------------
Other Income (expenses):
Equity in income of
affiliates, net 67,252 (70,833)
Interest, dividend income and
gain on sale of investments 2,003,849 82,689
Other expenses,
principally interest (849,159) (203,234)
------------ ------------
Total other income (expenses) 1,221,942 (191,378)
------------ ------------
Income before income taxes 6,461,334 5,366,965
Income taxes 2,591,286 2,229,512
------------ ------------
Net income 3,870,048 3,137,453
Dividends on preferred stock 7,212 7,203
------------ ------------
Earnings for common stock 3,862,836 3,130,250
============ ============
Basic earnings per common share:
Earnings per common share 0.41 0.34
============ ============
Diluted earnings per common share:
Earnings per common share $ 0.41 0.34
============ ============
Basic weighted average shares
outstanding 9,319,647 9,095,423
============ ============
Diluted weighted average shares
outstanding 9,390,625 9,144,393
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 6
CT COMMUNICATIONS, INC.
Consolidated Statements of Cash Flows
Three months ended March 31, 1999 & 1998
(Unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 3,870,048 $ 3,137,453
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 3,577,718 2,685,844
Postretirement Benefits 79,292 173,670
Loss (gain) on sales of investment
securities (1,064,444) --
Undistributed income of affiliates (67,252) 70,832
Deferred income taxes and tax credits (28,721) --
Changes in operating assets and
liabilities, net of effects of
acquisitions in 1998:
Accounts receivable (3,252,477) (184,509)
Materials & supplies (79,797) (46,115)
Other current assets 420,196 430,903
Accounts payable 637,433 196,490
Customer deposits and
advance billings 481,259 39,088
Accrued liabilities (686,610) (622,888)
Income taxes payable 2,435,650 1,468,419
----------- -----------
Net cash provided by
operating activities 6,322,295 7,349,187
----------- -----------
Cash flows from investing activities:
Capital expenditures, net (4,460,690) (6,071,439)
Purchase of investments in affiliates (259,407) (1,717,340)
Purchase of investment securities (1,769,967) (217,395)
Proceeds from sale of investment
securities 1,203,144 122,759
Partnership capital distribution -- 343,833
Notes receivable collections, net -- 297,000
Other (6,105) 26,615
----------- -----------
Net cash used in investing
activities (5,293,025) (7,215,967)
----------- -----------
Cash flows from financing activities:
Proceeds from new debt -- 1,000,000
Redemption of preferred stock -- --
Dividends paid (1,213,131) (1,078,510)
Repurchase of common and preferred stock (26,268) (104,582)
Proceeds from common stock issuances 282,646 49,092
Other -- 780
----------- -----------
Net cash provided by (used in)
financing activities (956,753) (133,220)
----------- -----------
Net increase in cash
and cash equivalents 72,517 --
Cash and cash equivalents-beginning of period 2,807,887 --
----------- -----------
Cash and cash equivalents-end of period $ 2,880,404 --
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE> 7
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Three months ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net income $ 3,870,048 $ 3,137,453
Other comprehensive income, net of tax
Unrealized holding gains (losses) on
available-for-sale securities 9,964,349 7,956,064
----------- -----------
Comprehensive Income $13,834,397 $11,093,517
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-7-
<PAGE> 8
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 March
31, 1999, and the results of operations for the three months then ended
and cash flows for the three 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 three months ended March 31, 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 three
months ended March 31, 1999.
<TABLE>
<CAPTION>
............Common.............
Shares Value
------------ ------------
<S> <C> <C>
Outstanding at December 31, 1998 9,300,769 $ 35,748,327
Purchase of common stock ....... (328) (24,568)
Issuance of common stock ....... 34,335 991,789
------------ ------------
Outstanding at March 31, 1999 .. 9,334,776 $ 36,715,548
============ ============
Basic Diluted
Weighted average shares outstanding for the
three months ended March 31, 1999 9,319,647 9,390,625
</TABLE>
6. SECURITIES AVAILABLE-FOR-SALE
<TABLE>
<CAPTION>
March 31, 1999
--------------
Gross unrealized
----------------
Securities Amortized Fair
Available-For-Sale Cost Gains Losses Value
- ------------------ ---------- ----- ------ -----
<S> <C> <C> <C> <C>
Certificate of Deposit $ 122,785 -- -- $ 122,785
Equity Securities 5,835,891 30,342,793 (553,908) 35,624,776
----------- ----------- ----------- -----------
Total $ 5,958,676 30,342,793 (553,908) $35,747,561
=========== =========== =========== ===========
Amortized Cost Fair Value
-------------- ----------
Current $ 122,785 $ 122,785
Equity Securities 5,835,891 35,624,776
---------- -----------
Total $5,958,676 $35,747,561
========== ===========
</TABLE>
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<PAGE> 9
NOTES TO FINANCIAL STATEMENTS CON'T
7. INVESTMENTS IN AFFILIATED COMPANIES
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
----------- -----------
<S> <C> <C>
Equity Method:
Palmetto MobileNet $11,320,122 $10,262,329
Maxcom Telecommunications 8,566,777 8,566,777
Wireless One of NC 4,257,563 4,366,105
Access On 97,719 118,476
BellSouth Carolinas, PCS, LP 1,468,678 1,896,667
U.S. Telecom Holdings 521,539 695,385
Cost Method
ITC Holding Company 2,673,879 2,724,129
Illuminet Holdings, Inc. 1,068,624 1,068,624
Other 91,302 91,302
----------- -----------
TOTAL $30,066,203 $29,789,794
=========== ===========
</TABLE>
8. LONG TERM DEBT:
Long-term debt consists of the following:
Line of credit with interest at LIBOR plus .5% due December 31, 2000, renewable
for two separate two-year extensions through December 31, 2004.
March 31, 1999 December 31, 1998
-------------- -----------------
Total Long Term Debt: $20,000,000 $20,000,000
The Registrant has available lines of credit totaling $65,000,000 of which
$20,000,000 was outstanding at March 31, 1999.
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 the 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 (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.
March 31, 1999:
<TABLE>
<CAPTION>
CTC CLEC/LD ISP DCS OTHER TOTAL
--- ------- --- --- ----- -----
<S> <C> <C> <C> <C> <C> <C>
External revenues 18,804,244 4,043,033 1,306,521 1,065,926 112,500 25,332.224
Intersegment revenues 921,014 - - 6,826 -
Depreciation and
amortization 3,118,207 235,156 224,377 14,607 36,854 3,629,201
Segment operating profit 6,293,607 (247,165) (317,455) (413,123) (76,472) 5,239,392
Segment assets 132,050,265 2,278,153 6,244,658 (2,540,065) 60,818,088 198,851,099
</TABLE>
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<PAGE> 10
March 31, 1998:
<TABLE>
<CAPTION>
CTC CLEC/LD ISP DCS OTHER TOTAL
--- ------- --- --- ----- -----
<S> <C> <C> <C> <C> <C> <C>
External revenues 16,958,143 3,181,935 249,039 533,134 93,334 21,015,585
Intersegment revenues 1,061,277 - - - - 1,061,277
Depreciation and
amortization 2,530,263 117,787 6,335 13,527 17,932 2,685,844
Segment operating profit 6,118,481 (65,757) (57,382) (389,255) (47,744) 5,558,343
Segment assets 113,631,236 4,234,523 - (988,177) 46,513,513 163,391,095
</TABLE>
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<PAGE> 11
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 three month period
ended March 31, 1999. Current assets exceeded current liabilities by $6,261,103
at March 31, 1999. In comparison, current assets exceeded current liabilities by
$5,988,138 at December 31, 1998.
Current assets increased by $2,996,183 when compared to December 31,
1998. This increase is primarily due to increases in accounts receivable of
$1,559,086 from increased sales and revenues; and increases in other accounts
receivable of $1,693,391, principally from Maxcom Telecommunicaciones S.A. de
C.V., a provider of telecommunication services in Mexico City, Mexico with whom
the Registrant has an affiliation. These increases were offset in part by a
decrease of $414,713 in prepaid expenses and other items.
Current liabilities increased by $2,723,218 during the three months
ended March 31, 1999, when compared to December 31, 1998. This increase is
primarily from increases in accounts payable of $637,433 due to increased
business activity; increases in customer deposits and advance billings of
$481,259 due to increased revenues and business and increased income taxes
payable of $2,435,650 due to the timing of tax payments. These increases were
offset in part by decreases in accrued payroll of $581,733 due to timing of
payments; decreased accrued pension cost of $133,099 due to recording of
earnings on the pension plan and a decrease of $116,292 in other accrued
liabilities.
The Registrant's primary source of liquidity is funds provided by
operations. During the three months ended March 31, 1999, cash provided by
operations totaled $6,331,658.
The primary use of cash during this period was for additions to
telephone plant - $4,460,690, purchase of investments in affiliates - $259,407,
purchase of investment securities - $1,769,967, payment of dividends -
$1,213,131 and repurchase of common and preferred stock - $26,268. The entire
amount of the cash expended for investments in affiliates was for the BellSouth
Carolinas PCS Limited Partnership.
At March 31,1999, the fair value of the Registrant's investment
securities was $35.8 million, all of which could be pledged to secure additional
borrowing, or sold, if needed for liquidity purposes. At March 31, 1999, the
Registrant has available lines of credit from First Union National Bank of
$60,000,000 and First Charter National Bank of $5,000,000. At March 31, 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> 12
Results of Operations
Three months ended March 31, 1999 and March 31, 1998
Operating revenues increased $4.3 million or 21% for the three months
ended March 31, 1999 when compared to the same period of 1998.
Concord Telephone revenue was $18.8 million, a $1.8 million or 11%
increase over the comparable period ending on March 31, 1998. This increase was
mainly due to a $1.7 million increase in local revenue driven by access line
growth of 6% and increased telephone systems sales in first quarter of 1999.
Competitive local and long distances services revenue was $4.0 million,
a $.9 million or 27% increase in revenue. Long distance revenue increased over
last year due to an increase in the number of customers. Competitive local
exchange services were fully launched in second quarter of 1998.
Internet and data services contributed $1.3 million to the three months
ended March 31, 1999, an increase of $1.1 million over the same period last
year. This increase was driven primarily by the acquisition of VNet, an internet
service provider, in second quarter of 1998, coupled with an increase in the
number of dial-up customers.
Wireless services contributed $1.1 million to revenue, a $.5 million or
100% increase over last year due to the increased number of DCS customers as the
BellSouth Partnership buildout was completed.
Operating expenses, exclusive of depreciation and amortization,
increased $3.7 million or 29% for the three months ended March 31, 1999 when
compared to the same period of 1998.
Concord Telephone expenses were $10.2 million, a $.9 million or 10%
increase over the comparable period ending on March 31, 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.
Competitive local and long distances services operating expenses were
$2.2 million, a $1.2 million or 58% increase over last year. This increase
reflects additional expenses related to the start-up 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 March
31, 1998 the company has sold approximately 2,000 access lines on a resale basis
through interconnection agreements.
Internet and data services operating expenses were $1.2 million for the
three months ended March 31, 1999, an increase of $.9 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 number of dial-up customers.
Wireless services operating expenses were $1.5 million , a $.6 million
or 66% increase over last year due to the increased number of customers.
Depreciation expense increased $.9 million or 35% for the three months
ended March 31, 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> 13
Results of Operations Con't.
Other income (expenses) increased $1.4 million when compared to the same
period in the prior year. This increase was primarily due to $1.1 million of
pre-tax gains from sale of investments mainly due to the sale of ITC DeltaCom
stock and a settlement of $.8 million received related to telephone pole
litigation. These gains were offset in part by a $71,984 increase in interest
expense and expenses related to a Private Branch Exchange fraud event of $.3
million.
Other Events
CT Communications Northeast, Inc. ("CTCNI"), a wholly owned subsidiary
of the Registrant headquartered in Bedford, Massachusetts, sold 260,000 shares
of ITC DeltaCom during the month of April. April sales of ITC DeltaCom stock
resulted in gains of approximately $6.6 million before taxes. April stock sales
will be reflected in the second quarter's financial results.
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 everyone 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 in to 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 May 15, 1999,
remediation and replacement efforts company-wide were 95% complete and the
testing phase is also well underway. Testing is expected to continue through
1999.
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.
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<PAGE> 14
Year 2000 Considerations Con't.
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.
Management estimates that the Registrant's critical business applications,
network systems and components will be Year 2000 ready by June 1999, although it
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. Management expects these supplemental contingency plans to be
completed by June 30, 1999.
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.
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<PAGE> 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Registrant has an unsecured credit facility for $60 million with
First Union National Bank, as Administrative Agent. There was $20 million
outstanding under the credit facility as of March 31, 1999. The interest rate on
borrowed funds under the credit facility is variable based on three-month LIBOR.
Therefore, if interest rates increase generally, the rate paid by the Registrant
will increase; likewise, if interest rates fall generally, its rate will fall.
The Registrant has entered into an interest rate swap transaction to establish a
fixed rate of interest on $10 million of outstanding principal amount, against
an upward movement in interest rates, but subjects us to higher interest costs
if interest rates decline. Management believes that reasonably foreseeable
movements in interest rates will not have a material adverse effect on its
financial condition or operations.
Factors That May Affect Future Results
The foregoing discussion contains forward-looking statements about the
Registrant's financial condition and results of operations, which are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those reflected in the forward-looking statements.
Readers are cautioned not to place undue reliance on the forward-looking
statement, which reflect management's judgement only as of the date thereof. 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 creased 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 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.
-15-
<PAGE> 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
Effective January 28, 1999, each outstanding share of the
Registrant's Voting Common Stock was converted into 4.4 shares of a newly
created class of Common Stock and each outstanding share of the Registrant's
Class B Nonvoting Common Stock was converted into 4.0 shares of Common Stock.
The Common Stock is identical in all respects to the Voting Common Stock and the
Class B Nonvoting Common Stock, except that all holders of the Class B Nonvoting
Common Stock were not entitled to vote on matters presented to the shareholders
(unless otherwise required by law). The terms of the Common Stock are described
in the Registrant's Registration statement on Form 8-A, filed with the
Securities and Exchange Commission on January 28, 1999.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
A Special Meeting of the Shareholders of the Registrant was held
on January 28, 1999 for the purpose of acting on a proposal to amend the
Registrant's Articles of Incorporation to (a) provide for one class of Common
Stock, consisting of 100,000,000 authorized shares, and (b) reclassify, change
and convert each issued and outstanding share of Voting Common Stock into 4.4
shares of Common Stock and each issued and outstanding share of Class B
Nonvoting Common Stock into 4.0 shares of Common Stock. The proposal was
approved by the following vote, with each class voting separately as a group:
Voting Common Stock Class B Nonvoting Common Stock
------------------- ------------------------------
For: 279,512 1,697,068
Against: 10,967 72,720
Abstain: 0 2,980
Item 5. Other Information
None
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-
<PAGE> 17
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
May 14, 1999
- --------------------------
Date
(The above signatory has dual responsibility as duly authorized officer and
principal financial and accounting officer of the registrant.)
-17-
<PAGE> 18
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
11 Computation of Earnings per Share
27 Financial Data Schedule
-18-
<PAGE> 1
EXHIBIT 11
CT COMMUNICATIONS, INC.
AND SUBSIDIARIES
Computation of Earnings Per Share
<TABLE>
<CAPTION>
Quarters Ended
--------------
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Computation of share
totals used in
computing earnings
per share:
Weighted average number
of shares outstanding 9,319,647 9,095,423
Basic average shares
a-Outstanding 9,319,647 9,095,423
Incremental shares
arising, from out-
standing stock
options 70,978 48,970
---------- ----------
b-Totals 9,390,625 9,144,393
========== ==========
c-Net Income $3,862,836 3,130,250
========== ==========
Net Income Per Share
Basic - c/a $ .41 .34
========== ==========
Net Income Per Share
assuming full dilution c/b $ .41 .34
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> MAR-31-1999 MAR-31-1998
<CASH> 2,880,404 0
<SECURITIES> 35,634,139 26,637,925
<RECEIVABLES> 18,151,592 10,640,931
<ALLOWANCES> 107,500 100,000
<INVENTORY> 2,411,754 2,742,547
<CURRENT-ASSETS> 25,670,047 15,615,643
<PP&E> 198,889,076 179,450,300
<DEPRECIATION> 97,618,174 88,760,839
<TOTAL-ASSETS> 101,271,502 163,391,095
<CURRENT-LIABILITIES> 19,418,307 18,663,780
<BONDS> 20,000,000 12,239,000
125,000 137,500
405,100 454,300
<COMMON> 36,715,548 29,398,768
<OTHER-SE> 73,383,485 77,254,500
<TOTAL-LIABILITY-AND-EQUITY> 198,651,099 163,391,095
<SALES> 0 0
<TOTAL-REVENUES> 25,332,224 21,127,917
<CGS> 0 0
<TOTAL-COSTS> 20,092,832 15,457,242
<OTHER-EXPENSES> 0 11,856
<LOSS-PROVISION> 0 112,332
<INTEREST-EXPENSE> 2,003,849 203,234
<INCOME-PRETAX> 6,461,334 5,366,965
<INCOME-TAX> 2,591,286 2,229,512
<INCOME-CONTINUING> 3,870,048 3,137,453
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,870,048 3,137,453
<EPS-PRIMARY> .41 .34
<EPS-DILUTED> .41 .34
</TABLE>
