<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 September 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.
9,376,916 shares of Common Stock outstanding as of November 10, 1999.
<PAGE> 2
CT COMMUNICATIONS, INC.
INDEX
Page No.
PART I Financial Information
Balance Sheets --
September 30, 1999 and December 31, 1998 3
Statements of Income --
Three and Nine Months Ended September 30, 1999 and
1998 5
Statements of Cash Flows --
Nine Months ended September 30, 1999 and 6
1998
Statements of Comprehensive Income --
Three and Nine Months ended September 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> 3
PART I. FINANCIAL INFORMATION
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,957,672 $ 2,807,887
Short-term investments 149,111 116,681
Accounts receivable, net of
allowance for doubtful
accounts of $107,500 14,390,303 12,210,952
Notes receivable 1,513,500 1,513,500
Other accounts receivable 2,525,225 1,067,163
Materials and supplies 2,666,858 2,331,957
Deferred income taxes 1,051,855 1,051,855
Prepaid expenses and
other assets 1,081,383 1,583,232
------------ ------------
Total current assets 30,335,907 22,683,227
Investment securities 32,868,158 24,666,211
Investments in affiliates 30,163,115 29,789,794
Property, plant and equipment:
Telephone plant in service:
Land, buildings, and
general equipment 39,686,292 36,126,709
Central office equipment 81,856,039 70,787,607
Pole, wire, cables
and conduit 91,789,253 87,587,101
Construction in progress 171,665 449,946
------------ ------------
213,503,249 194,501,417
Less accumulated depreciation 103,463,342 94,329,834
------------ ------------
Net property, plant
and equipment 110,039,907 100,171,583
Intangibles, net 6,052,163 6,323,543
------------ ------------
TOTAL ASSETS $209,459,250 $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>
September 30, 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 7,649,990 8,597,391
Customer deposits and advance billings 2,374,029 1,892,506
Accrued payroll 2,468,371 2,584,993
Income taxes payable 2,755,427 400,736
Accrued pension cost 1,106,536 1,411,430
Other accrued liabilities 4,024,433 1,795,533
------------- -------------
Total current liabilities 20,391,286 16,695,089
------------- -------------
Long-term debt 20,000,000 20,000,000
------------- -------------
Deferred credits and other liabilities:
Deferred income taxes 16,857,191 14,688,095
Investment tax credits 718,031 804,195
Post-retirement benefits other than pension 10,600,120 10,549,204
Other 892,343 1,189,587
------------- -------------
29,067,685 27,231,081
------------- -------------
Redeemable preferred stock: 4.8% series
authorized 5,000 shares; issued and
outstanding 1,375 shares in 1999 and
1998 125,000 125,000
------------- -------------
Total liabilities 69,583,971 64,051,170
Stockholders' equity:
Preferred stock not subject to
mandatory redemption:
5% series, $100 par value; 3,362 and
3,440 shares outstanding in 1999 and
1998, respectively 336,200 344,000
4.5% series, $100 par value; 618 and
628 shares outstanding in 1999 and
1998, respectively 61,800 62,800
Common Stock
9,376,434 and 9,300,769 shares
outstanding in 1999 and 1998,
respectively 38,206,596 35,748,327
Other capital 298,083 298,083
Deferred compensation (1,205,438) (697,338)
Other accumulated comprehensive income 17,090,953 13,100,748
Retained earnings 85,087,084 70,726,568
------------- -------------
Total stockholders' equity 139,875,278 119,583,188
------------- -------------
Contingency -- --
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 209,459,250 $ 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
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating revenues: $ 26,594,439 $ 23,760,610 $ 78,028,257 $ 67,184,388
Operating expenses: 20,743,281 18,247,914 61,293,929 50,422,582
Operating income 5,851,158 5,512,696 16,734,328 16,761,806
------------ ------------ ------------ ------------
Other income (expenses):
Equity in income of
affiliates, net 709,034 257,433 788,610 162,252
Interest, dividend income
and gain on sale
of investments 2,533,344 135,307 14,855,660 232,905
Other expenses,
principally interest (593,460) (296,537) (1,928,610) (776,650)
------------ ------------ ------------ ------------
Total other income (expenses) 2,648,918 96,203 13,715,660 (381,493)
------------ ------------ ------------ ------------
Income before income taxes 8,500,076 5,608,899 30,449,988 16,380,313
Income taxes 3,485,265 2,406,027 12,422,328 6,844,790
------------ ------------ ------------ ------------
Net income 5,014,811 3,202,872 18,027,660 9,535,523
Dividends on preferred stock 6,548 6,823 19,702 20,468
------------ ------------ ------------ ------------
Earnings for common stock $ 5,008,263 $ 3,196,049 $ 18,007,958 $ 9,515,055
============ ============ ============ ============
Basic earnings per common share $ 0.53 $ 0.34 $ 1.93 $ 1.03
============ ============ ============ ============
Diluted earnings per common share $ 0.53 $ 0.34 $ 1.92 $ 1.03
============ ============ ============ ============
Basic weighted average shares
outstanding 9,368,722 9,295,095 9,344,371 9,202,414
============ ============ ============ ============
Diluted weighted average shares
outstanding 9,427,219 9,343,076 9,402,868 9,250,713
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 6
CT COMMUNICATIONS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------------
September 30, September 30,
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 18,027,660 $ 9,535,523
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 11,517,009 9,050,202
Postretirement Benefits 50,915 420,386
Gain on sales of investment
securities (13,450,074) --
Undistributed income of affiliates (788,609) (162,252)
Deferred income taxes and tax credits (86,164) --
Changes in operating assets and
liabilities, net of effects of
acquisitions in 1998:
Accounts receivable (3,173,594) (4,545,007)
Materials & supplies (334,901) 85,310
Other current assets 501,849 512,434
Accounts payable (947,401) 1,221,283
Customer deposits and
advance billings 481,523 (7,230)
Accrued liabilities 1,815,351 551,513
Income taxes payable 2,354,691 1,432,248
------------ ------------
Net cash provided by
operating activities 15,968,255 18,094,310
------------ ------------
Cash flows from investing activities:
Capital expenditures, net (20,299,978) (20,168,591)
Purchase of investments in affiliates (1,615,173) (3,877,919)
Purchase of investment securities (5,754,943) (100,668)
Proceeds from sale of investment
securities 16,954,454 148,556
Partnership capital distribution 1,955,460 2,230,402
Notes receivable collections, net -- (503,000)
Net cash used in investing
activities (8,760,180) (22,271,220)
------------ ------------
Cash flows from financing activities:
Proceeds from new debt -- 7,879,137
Dividends paid (3,667,613) (3,313,034)
Repurchase of common and preferred stock (42,917) (337,167)
Proceeds from common stock issuances 652,240 209,739
Other -- --
------------ ------------
Net cash used in financing
activities (3,058,290) (4,438,675)
------------ ------------
Net increase in cash and cash equivalents 4,149,785 261,765
Cash and cash equivalents-beginning of period 2,807,887 --
------------ ------------
Cash and cash equivalents-end of period $ 6,957,672 $ 261,765
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE> 7
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------------- ---------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 5,014,811 $ 3,202,872 $ 18,027,660 $ 9,535,523
Other comprehensive
income, net of tax
Unrealized holding
gains (losses) on
available-for-sale
securities (124,699) (707,536) 12,118,022 12,825,884
Less reclassification
adjustment, net of tax,
for gains realized in
net income (1,457,927) -- (8,084,817) --
------------ ------------ ------------ ------------
Comprehensive income $ 3,432,185 $ 2,495,336 $ 22,060,865 $ 22,361,407
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<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
September 30, 1999 and 1998, and the results of operations for the nine
months then ended and cash flows for the nine 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 nine months ended September 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 nine
months ended September 30, 1999.
Shares Value
------------ ------------
Outstanding at December 31, 1998 9,300,769 $ 35,748,327
Purchase of common stock (548) (34,117)
Issuance of common stock 76,213 2,492,386
------------ ------------
Outstanding at September 30, 1999 9,376,434 $ 38,206,596
============ ============
Basic Diluted
------------ ------------
Weighted average shares outstanding for the
nine months ended September 30, 1999 9,344,371 9,402,868
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 September 30, 1999 and December
31, 1998 were as follows:
<TABLE>
<CAPTION>
September 30, 1999
Securities Amortized Gross Unrealized Gross Unrealized Fair
Available for Sale Cost Holding Gains Holding Losses Value
- ------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Certificate of Deposit $ 149,111 $ -- $ -- $ 149,111
Equity Securities 6,173,079 26,861,841 (166,762) 32,868,158
----------- ----------- ----------- -----------
Total $ 6,322,190 $26,861,841 $ (166,762) $33,017,269
=========== =========== =========== ===========
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) $24,782,892
=========== =========== =========== ===========
</TABLE>
-8-
<PAGE> 9
NOTES TO FINANCIAL STATEMENTS CON'T.
In the three and nine months ended September 30, 1999, the Registrant sold
90,000 shares and 500,000 shares respectively of ITC(+)Deltacom common stock for
a pre-tax gain of $2.3 million and $13.8 million. As of September 30, 1999, the
Registrant owned approximately 1.0 million shares of ITC(+)Deltacom common
stock.
7. INVESTMENTS IN AFFILIATED COMPANIES
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Equity Method:
Palmetto MobileNet, L.P. $12,048,321 $10,262,329
Wireless One of NC, LLC 5,059,216 4,366,105
Access On 57,824 118,476
BellSouth Carolinas PCS, LP 404,577 1,896,667
U.S. Telecom Holdings 173,846 695,385
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 16,301 91,302
----------- -----------
TOTAL $30,163,115 $29,789,794
=========== ===========
</TABLE>
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
September 30, 1999 was 5.81%. The credit facility provides for quarterly
payments of interest until 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 $20,000,000
outstanding under this line of credit at September 30, 1999. The Registrant also
has two lines of credit for $5,000,000 each. As of September 30, 1999 the
Registrant had $1,540,000 in short term debt outstanding under these credit
lines.
September 30, 1999 December 31, 1998
------------------ -----------------
Total Long Term Debt: $20,000,000 $20,000,000
-9-
<PAGE> 10
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 (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 September 30, 1999:
<TABLE>
<CAPTION>
CTC CLEC/LD ISP DCS OTHER TOTAL
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
External revenues $ 19,318,018 $ 4,309,661 $ 1,490,861 $ 1,363,398 $ 112,501 $ 26,594,439
Intersegment revenues 965,264 -- -- 13,176 -- 978,440
External expenses 10,087,135 3,445,347 1,347,210 1,627,770 171,180 16,678,642
Intersegment expense 125,058 602,782 233,489 17,111 -- 978,440
Depreciation and
amortization 3,459,019 296,205 226,505 15,778 67,132 4,064,639
----------------------------------------------------------------------------------------------------------
Segment operating
profit/(loss) $ 6,612,070 $ (34,673) $ (316,343) $ (284,085) $ (125,811) $ 5,851,158
----------------------------------------------------------------------------------------------------------
Segment assets $117,767,428 $ 8,370,871 $ 7,679,299 $ 1,807,235 $ 73,834,417 $209,459,250
</TABLE>
Three Months Ended September 30, 1998:
<TABLE>
<CAPTION>
CTC CLEC/LD ISP DCS OTHER TOTAL
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
External revenues $ 18,135,164 $ 3,601,558 $ 1,126,075 $ 785,314 $ 112,499 $ 23,760,610
Intersegment revenues 1,319,619 -- -- -- -- 1,319,619
External expenses 9,503,205 2,879,072 1,045,054 1,239,732 166,520 14,833,583
Intersegment expense 38,214 1,165,064 80,360 35,981 -- 1,319,619
Depreciation and
amortization 2,963,304 182,397 254,759 13,871 -- 3,414,331
----------------------------------------------------------------------------------------------------------
Segment operating
profit/(loss) $ 6,950,060 (624,975) $ (254,098) $ (504,270) $ (54,021) $ 5,512,696
----------------------------------------------------------------------------------------------------------
Segment assets $108,285,702 $ 4,194,562 $ 7,007,279 $ 637,051 $ 71,474,469 $191,599,063
</TABLE>
Nine Months Ended September 30, 1999:
<TABLE>
<CAPTION>
CTC CLEC/LD ISP DCS OTHER TOTAL
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
External revenues $ 56,922,118 $ 12,643,965 $ 4,225,056 $ 3,674,617 $ 562,501 $ 78,028,257
Intersegment revenues 2,895,133 -- -- 30,710 -- 2,925,843
External expenses 30,856,158 9,811,727 3,917,768 4,713,716 477,551 49,776,920
Intersegment expense 282,888 1,986,560 611,561 44,834 -- 2,925,843
Depreciation and
amortization 9,856,065 793,771 680,990 45,340 140,843 11,517,009
---------------------------------------------------------------------------------------------------------
Segment operating
profit/(loss) $ 18,822,140 51,907 (985,263) $ (1,098,563) $ (55,893) $ 16,734,328
---------------------------------------------------------------------------------------------------------
Segment assets $117,767,428 $ 8,370,871 $ 7,679,299 $ 1,807,235 $ 73,834,417 $209,459,250
</TABLE>
Nine Months Ended September 30, 1998:
<TABLE>
<CAPTION>
CTC CLEC/LD ISP DCS OTHER TOTAL
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
External revenues $ 52,292,096 $ 10,238,357 $ 2,179,550 $ 2,136,885 $ 337,500 $ 67,184,388
Intersegment revenues 3,601,800 -- -- -- -- 3,601,800
External expenses 28,124,449 7,633,400 1,953,960 3,183,523 477,048 41,372,380
Intersegment expense 109,193 3,266,695 123,845 102,067 -- 3,601,800
Depreciation and
amortization 8,260,437 452,961 295,705 41,099 -- 9,050,202
----------------------------------------------------------------------------------------------------------
Segment operating
profit/(loss) $ 19,399,817 $ (1,114,699) $ (193,960) $ (1,189,804) $ (139,548) $ 16,761,806
----------------------------------------------------------------------------------------------------------
Segment assets $108,285,702 $ 4,194,562 $ 7,007,279 $ 637,051 $ 71,474,469 $191,599,063
</TABLE>
-10-
<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 nine-month period
ended September 30, 1999. Current assets exceeded current liabilities by
$9,944,621 at September 30, 1999. In comparison, current assets exceeded current
liabilities by $5,988,138 at December 31, 1998.
Current assets increased by $7,652,680 when compared to December 31,
1998. This increase is primarily due to increased cash and cash equivalents of
$4,149,785 due to the sale of ITC(+)Deltacom common stock; increased accounts
receivable of $2,179,351 from increased sales and revenues; 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 $334,901 in materials
and supplies due to increased outside plant construction activity.
Current liabilities increased by $3,696,197 from December 31, 1998 to
September 30, 1999. This increase is primarily from increases in customer
deposits and advance billings of $481,523 due to increased customers and
revenues; increased income taxes payable due to taxes accrued on the sale of
ITC(+)DeltaCom shares and increases in other accrued liabilities of $2,228,900
due to the increases in outstanding line of credit with First Charter National
Bank of $1,540,000. These increases were offset in part by a decrease in accrued
pension cost of $304,894 and decreases in accounts payable of $947,401.
The Registrant's primary source of liquidity is funds provided by
operations. During the nine months ended September 30, 1999, cash provided by
operations totaled $16,000,687.
The primary use of cash during this period was for additions to
telephone plant - $20,299,978, purchase of investments in affiliates -
$1,615,173, purchase of investment securities - $5,754,943, payment of dividends
- - $3,667,613 and purchase of common and preferred stock - $42,917. Of the amount
expended for investments in affiliates, $486,140 was invested in the BellSouth
Carolina PCS Limited Partnership; $1,085,533 was invested in Wireless One of
North Carolina, LLC and $43,500 was invested in Maxcom Telecommunicaciones S.A.
de C.V. The funds used to purchase investment securities were obtained primarily
from the sale of ITC(+)Deltacom common stock.
At September 30,1999, the fair market value of the Registrant's
investment securities was $32.9 million, all of which could be pledged to secure
additional borrowing or sold, if needed for liquidity purposes. At September 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 September 30, 1999, the
Registrant had $20,000,000 of principal outstanding with First Union National
Bank and $1,540,000 outstanding under the line with First Charter 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.
-11-
<PAGE> 12
Results of Operations
Three months ended September 30, 1999 and September 30, 1998
Operating revenues increased $2.8 million or 12% to $26.6 million for
the three months ended September 30, 1999 when compared to the same period of
1998.
Excluding intersegment revenues, Concord Telephone revenue was $19.3
million, a $1.2 million or 7% increase over the comparable period ending on
September 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 6.8%. Custom call features revenue increased almost 22%
due to increased telemarketing and sales efforts.
Competitive local exchange carrier ("CLEC")and long distance services
revenue was $4.3 million, a $.7 million or 20% increase over the same period
last year. CLEC contributed $.5 million to the increase in revenue. At September
30, 1999, 3,326 CLEC lines were in service compared to 989 CLEC lines at
September 30, 1998. Approximately one third of these lines are located at
Concord Mills Mall in Concord, North Carolina, which opened in late September,
1999.
Internet and data services revenue was $1.5 million in the three months
ended September 30, 1999, an increase of $.4 million or 32% over the same period
last year. This increase was driven by a 30% increase in the number of dial-up,
dedicated high speed and web hosting customers. There were over 15,000 internet
and data services customers at September 30, 1999, compared to 11,699 at
September 30, 1998.
Digital wireless services revenue was $1.4 million, in the three months
ended September 30, 1999, a $.6 million or 74% increase over last year due to
the increased number of customers. At September 30, 1999, the digital wireless
services business had 9,750 customers, compared to 5341 customers at September
30, 1998.
Operating expenses, exclusive of depreciation and amortization,
increased $1.8 million or 12% to $16.7 million for the three months ended
September 30, 1999 when compared to the same period of 1998.
Excluding intersegment expenses, Concord Telephone expenses were $10.1
million, a $.6 million or 6% increase over the comparable period ending on
September 30, 1998. This increase was mainly due to the cost associated with
contracted services and additional headcount.
The Registrant is engaged in several new business ventures which have
experienced operating losses as a result of increased expenses for the
associated start up costs.
CLEC and long distances services operating expenses were $3.4 million,
a $.6 million or 20% increase over the same period last year. This increase
reflects additional expenses due to marketing and service cost related to the
CLEC service and higher access expense due to the increase in toll revenue.
Internet and data services operating expenses were $1.3 million for the
three months ended September 30, 1999, an increase of $.3 million or 29% over
the same period last year. This increase was driven by the addition of
approximately 3,557 additional internet and data services customers and
additional headcount.
Digital wireless services operating expenses were $1.6 million , a $.4
million or 31% increase over last year. This increase was primarily due to the
increased number of customers.
Depreciation expense increased $.65 million or 19% to $4.1 million for
the three months ended September 30, 1999 when compared to the same period of
1998. This increase reflects an increase in the depreciable assets.
-12-
<PAGE> 13
Other income (expenses) increased $2.6 million when compared to the
same period in the prior year. This increase was primarily due to:
- a $2.3 million pre-tax gain from the sale of 90,000 shares of
ITC(+)DeltaCom stock. At September 30, 1999, the Company owned
approximately 1.0 million shares of ITC(+)DeltaCom.
- Lower BellSouth PCS Mobility partnership losses coupled with
higher Palmetto MobileNet cellular partnership earnings
reflecting a $.5 million increase in equity in income of
affiliates.
These increases were partially offset by:
- higher other expenses of $.3 million, primarily due to higher
interest expense in 1999.
Net income increased $1.8 million or 57% to $5.0 million over the same
period last year.
Nine months ended September 30, 1999 and September 30, 1998
Operating revenues increased $10.8 million or 16% to $78.0 million for
the nine months ended September 30, 1999 when compared to the same period of
1998.
Excluding intersegment revenues, Concord Telephone revenue was $56.9
million, a $4.6 million or 9% increase over the comparable period ending on
September 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 6.8% from September 30, 1998 to September 30, 1999. Custom
call features revenue increased 25% due to increased telemarketing and sales
efforts. Higher equipment sales also contributed to the increase.
CLEC and long distance services revenue was $12.6 million, a $2.4
million or 23% increase over the same period last year. CLEC services
contributed $1.6 million to the increase in revenue.
Internet and data services revenues were $4.2 million for the nine
months ended September 30, 1999, an increase of $2.0 million or 94% 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.
Digital wireless communications services contributed $3.7 million to
revenue, a $1.5 million or 72% increase over last year due to the increased
number of DCS customers.
Operating expenses, exclusive of depreciation and amortization,
increased $8.4 million or 20% to $49.8 million for the nine months ended
September 30, 1999 when compared to the same period of 1998.
Excluding intersegment expenses, Concord Telephone expenses were $30.9
million, a $2.7 million or 10% increase over the comparable period ending on
September 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.
CLEC and long distance services operating expenses were $9.8 million, a
$2.2 million or 29% increase over last year. This increase reflects additional
marketing and service expenses related to the CLEC 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 nine months of
1999 coupled with additional headcount.
-13-
<PAGE> 14
Internet and data services operating expenses were $3.9 million for the
nine months ended September 30, 1999, an increase of $2.0 million or 101% over
the same period last year. This increase was driven by the acquisition of Vnet
in second quarter of 1998, along with an increase in the number of dial-up
customers and additional headcount.
Digital wireless services operating expenses were $4.7 million to
revenue, an increase $1.5 million or 48% increase over last year due to the
increased number of DCS customers.
Depreciation expense increased $2.5 million or 27% to $11.5 million for
the nine months ended September 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 $.5 million related to the VNet
acquisition.
Other income (expenses) increased $14.1 million when compared to the
same period in the prior year. This increase was primarily due to:
- Pre-tax gains for the sales of ITC(+)DeltaCom stock of $13.8
million in 1999,
- An increase in income from affiliates due to lower BellSouth
PCS Mobility partnership losses coupled with higher Palmetto
MobileNet cellular partnership earnings, partially offset by a
one-time amortization adjustment ($.6 million) for Palmetto
MobileNet,
- Higher other expenses, primarily due to higher interest
expense in 1999.
Net income increased $8.5 million or 89% to $18 million 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 has implemented an overall compliance process consisting
of four phases: (1) Inventory; (2) Assessment; (3) Remediation/Replacement; and
(4) Testing. The Registrant has completed these four phases of the Year 2000
Project, and believes that it is 100 percent compliant.
-14-
<PAGE> 15
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; however, the restraint has supplemented
these plans and has developed additional contingency plans to address the
potential impact of the Year 2000 problems of our network and information
systems. These plans are complete and have been tested. 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. In the nine months ended September 30, 1999, the
Registrant has expended approximately $455,000 for completion of Year 2000
Project.
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> 16
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
September 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 September 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. The
Registrant had $1,540,000 outstanding on an unsecured revolving credit loan with
First Charter on September 30, 1999. The interest rate on this credit facility
is variable based on prime rate minus 1.2%. The interest rate was 7.05% on
September 30, 1999. 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> 17
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
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
-17-
<PAGE> 18
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
November 15, 1999
- --------------------------------
Date
(The above signatory has dual responsibility as duly authorized officer and
principal financial and accounting officer of the registrant.)
-18-
<PAGE> 19
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
11 Computation of Earnings per Share
27 Financial Data Schedule
-19-
<PAGE> 1
EXHIBIT 11
CT COMMUNICATIONS, INC.
AND SUBSIDIARIES
Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
-------------------------------- --------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Computation of share
totals used in
computing earnings
per share:
Weighted average number
of shares outstanding 9,368,722 9,295,095 9,344,371 9,202,414
Basic average shares
a-Outstanding 9,368,722 9,295,095 9,344,371 9,202,414
Incremental shares
arising, from out-
standing stock
options 58,497 47,981 58,497 48,299
----------- ----------- ----------- -----------
b-Totals 9,427,219 9,343,076 9,402,868 9,250,713
=========== =========== =========== ===========
c-Net Income $ 5,008,263 $ 3,196,049 $18,007,958 $ 9,515,055
=========== =========== =========== ===========
Net Income Per Share
Basic - c/a $ .53 $ .34 $ 1.93 $ 1.03
=========== =========== =========== ===========
Net Income Per Share
assuming full dilution c/b $ .53 $ .34 $ 1.92 $ 1.03
=========== =========== =========== ===========
</TABLE>
-20-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 6,957,672 261,765
<SECURITIES> 32,868,158 149,085
<RECEIVABLES> 18,536,528 15,133,282
<ALLOWANCES> 107,500 108,024
<INVENTORY> 2,666,858 2,611,222
<CURRENT-ASSETS> 25,349,607 20,111,215
<PP&E> 213,503,249 191,304,203
<DEPRECIATION> 103,463,342 92,238,924
<TOTAL-ASSETS> 209,459,250 191,599,063
<CURRENT-LIABILITIES> 20,391,286 21,426,365
<BONDS> 20,000,000 19,118,137
125,000 137,500
398,000 408,100
<COMMON> 38,206,596 37,715,002
<OTHER-SE> 101,270,682 86,417,256
<TOTAL-LIABILITY-AND-EQUITY> 209,459,250 191,599,063
<SALES> 0 0
<TOTAL-REVENUES> 78,028,257 67,184,388
<CGS> 0 0
<TOTAL-COSTS> 61,293,929 50,422,582
<OTHER-EXPENSES> (15,644,270) (395,157)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,928,610 776,650
<INCOME-PRETAX> 30,449,988 16,380,313
<INCOME-TAX> 12,422,328 6,844,790
<INCOME-CONTINUING> 18,027,660 9,535,523
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 18,027,660 9,535,523
<EPS-BASIC> 1.93 1.03
<EPS-DILUTED> 1.92 1.03
</TABLE>
