SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM 10-K
(Mark one)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: December 31, 1998
[ ] 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 Identification
incorporation or organization Number)
68 CABARRUS AVENUE, EAST, CONCORD, NORTH CAROLINA 28025
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (704) 722-2500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of exchange on which registered:
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
RIGHTS TO PURCHASE COMMON STOCK
Indicate by check mark whether the Company (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 Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Company is approximately $343,544,640 (based on the March 12, 1999 closing price
of the Common Stock of $40.00 per share). As of March 12, 1999, there were
9,381,049 shares of the Company's Common Stock outstanding.
Documents Incorporated by Reference
NONE
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
In Section (a)(3) of Item 14, the parenthetical is deleted and the
financial statements of Palmetto MobileNet, L.P. are filed herewith. The
financial statements of CT Communications, Inc. also are filed herewith, rather
than incorporated by reference as with the Form 10-K previously filed. Item 14,
as amended, is set forth below. In addition, Exhibit 23.1 has been added to
include the consent of KPMG LLP.
(a) Documents filed as part of this report
(1) Financial Statements of CT Communications, Inc.: The following
financial statements, together with the report thereon of
independent auditors, are filed herewith:
<TABLE>
<CAPTION>
Page
<S> <C>
o Consolidated balance sheets as of December 31, 1998 and 1997 F-1
o Consolidated statements of income for the years ended F-3
December 31, 1998, 1997, and 1996
o Consolidated statements of cash flows for the years ended F-4
December 31, 1998, 1997, and 1996
o Consolidated statements of stockholders' equity for the years F-5
ended December 31, 1998, 1997, and 1996
o Consolidated statements of comprehensive income for the F-7
years ended December 31, 1998, 1997 and 1996
o Notes to consolidated financial statements for the years ended F-8
December 31, 1998, 1997, and 1996
o Report of Independent Public Accountants F-23
(2) Consolidated Financial Statement Schedules: The following
financial statement schedule, together with the report thereon of
independent auditors, is filed herewith:
o Schedule II - Valuation and Qualifying Accounts F-24
Other schedules are omitted because the required information is
included in the financial statements or is not applicable.
(3) Financial Statements of Palmetto MobileNet, L.P. (To be filed as
an amendment to this Report on Form 10-K.)
</TABLE>
2
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ MICHAEL R. COLTRANE
______________________________
Michael R. Coltrane
President and Chief
Executive Officer
Date: May 12, 1999
/s/ BARRY R. RUBENS
______________________________
Barry R. Rubens
Senior Vice President, Treasurer and
Chief Financial Officer
(Principal Financial and Principal
Accounting Officer)
Date: May 12, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ L.D. COLTRANE III
- ------------------------- Chairman of the Board May 12, 1999
L.D. Coltrane, III and Director
/s/ MICHAEL R. COLTRANE
- ------------------------- President, Chief Executive May 12, 1999
Michael R. Coltrane Officer and Director
(Principal Executive Officer)
/s/ JOHN R. BOGER, JR.
- ------------------------- Director May 12, 1999
John R. Boger, Jr.
3
<PAGE>
Signature Title Date
/s/ O. CHARLIE CHEWNING, JR.
- ---------------------------- Director May 12, 1999
O. Charlie Chewning, Jr.
/s/ WILLIAM A. COLEY
- ------------------------- Director May 12, 1999
William A. Coley
/s/ SAMUEL E. LEFTWICH
- ------------------------- Director May 12, 1999
Samuel E. Leftwich
/s/ JERRY H. MCCLELLAN
- ------------------------- Director May 12, 1999
Jerry H. McClellan
- ------------------------- Director _________, 1999
Ben F. Mynatt
/s/ PHIL W. WIDENHOUSE
- ------------------------- Director May 12, 1999
Phil W. Widenhouse
</TABLE>
4
<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Financial Statements and Schedules
December 31, 1998, 1997 and 1996
(With Independent Auditors' Report Thereon)
<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Financial Statements Index
December 31, 1998, 1997 and 1996
(1) Consolidated Financial Statements
The following financial statements, together with independent auditors'
report thereon, are included:
<TABLE>
<CAPTION>
<S> <C>
o Independent Auditors' Report F - 2
o Consolidated balance sheets as of December 31, 1998 and 1997 F - 3 and F - 4
o Consolidated statements of income for the years ended
December 31, 1998, 1997, and 1996 F - 5
o Consolidated statements of comprehensive income for the years
ended December 31, 1998, 1997 and 1996 F-6
o Consolidated statements of stockholders' equity for the years ended
December 31, 1998, 1997, and 1996 F - 7 and F - 8
o Consolidated statements of cash flows for the years ended
December 31, 1998, 1997, and 1996 F - 9
o Notes to consolidated financial statements for the years ended
December 31, 1998, 1997, and 1996 F - 10 to F - 36
(2) Consolidated Financial Statement Schedules
The following financial statement schedule is included:
o Schedule II - Valuation and Qualifying Accounts F - 37
</TABLE>
Other schedules are omitted because the required information is included
in the financial statements or is not applicable.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
CT Communications, Inc.:
We have audited the consolidated financial statements of CT Communications, Inc.
and subsidiaries as listed in the accompanying index. In connection with our
audits of these consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CT Communications,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
Charlotte, North Carolina
March 5, 1999
<PAGE>
<TABLE>
<CAPTION>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
1998 1997
------------------- -------------------
Assets
<S> <C>
Current assets:
Cash and cash equivalents $ 2,807,887 --
Short-term investments 116,681 168,979
Accounts receivable, net of allowance for doubtful
accounts of $107,500 and $100,000 in 1998 and 1997 12,210,952 8,842,922
Notes receivable 1,513,500 1,810,500
Other accounts receivable 1,067,163 --
Materials and supplies 2,331,957 2,696,432
Deferred income taxes 1,051,855 1,545,470
Prepaid expenses and other assets 1,583,232 950,254
------------------- -------------------
Total current assets 22,683,227 16,014,557
------------------- -------------------
Investment securities 24,666,211 14,624,757
Investments in affiliates 29,789,794 29,550,326
Property, plant, and equipment:
Telephone plant in service:
Land, buildings, and general equipment 35,676,763 28,730,045
Central office equipment 70,787,607 64,227,829
Poles, wires, cables and conduit 87,587,101 80,143,917
Construction in progress 449,946 277,070
------------------- -------------------
194,501,417 173,378,861
Less accumulated depreciation 94,329,834 86,229,072
------------------- -------------------
Net property, plant, and equipment 100,171,583 87,149,789
------------------- -------------------
Intangibles, net 6,323,543 --
Total Assets $ 183,634,358 147,339,429
=================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt and redeemable
preferred stock $ 12,500 632,500
Accounts payable 8,597,391 9,697,000
Customer deposits and advance billings 1,892,506 1,591,284
Accrued payroll 2,584,993 1,304,573
Income taxes payable 400,736 992,750
Accrued pension cost 1,411,430 1,970,956
Other accrued liabilities 1,795,533 1,428,372
------------------- -------------------
Total current liabilities 16,695,089 17,617,435
------------------- -------------------
Long-term debt 20,000,000 11,239,000
------------------- -------------------
Deferred credits and other liabilities:
Deferred income taxes 14,688,095 7,497,167
Investment tax credits 804,195 919,080
Postretirement benefits other than pension 10,549,204 10,026,128
Other 1,189,587 1,573,668
------------------- -------------------
27,231,081 20,016,043
------------------- -------------------
Redeemable preferred stock: 4.8% series; authorized 5,000
shares; issued and outstanding 1,375 and 1,500 shares in
1998 and 1997, respectively 125,000 137,500
------------------- -------------------
Total liabilities 64,051,170 49,009,978
------------------- -------------------
Minority interest -- 1,360,998
Stockholders' equity:
Preferred stock not subject to mandatory redemption:
5% series, $100 par value; 3,440 and 3,631 shares
outstanding in 1998 and 1997, respectively 344,000 363,100
4.5% series, $100 par value; 628 and 1,218 shares
outstanding in 1998 and 1997, respectively 62,800 121,800
Common stock:
9,300,769 and 9,090,531 shares outstanding in
1998 and 1997, respectively 35,748,327 29,040,745
Other capital 298,083 298,083
Deferred compensation (697,338) (817,903)
Other accumulated comprehensive income 13,100,748 6,169,443
Retained earnings 70,726,568 61,793,185
------------------- -------------------
Total stockholders' equity 119,583,188 96,968,453
Contingency
------------------- -------------------
Total Liabilities and Stockholders' Equity $ 183,634,358 147,339,429
=================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1998, 1997, and 1996
1998 1997 1996
-------------------- -------------------- -----------------
<S> <C> <C> <C>
Operating revenues:
Local service $ 35,661,398 29,197,401 24,715,038
Access and toll service 36,633,993 34,877,748 31,653,259
Other and unregulated 19,863,750 14,790,122 11,008,784
Less: provision for uncollectible accounts (433,747) (381,757) (323,075)
-------------------- -------------------- -----------------
Total operating revenues 91,725,394 78,483,514 67,054,006
-------------------- -------------------- -----------------
Operating expenses:
Plant specific 28,524,416 25,087,883 20,026,094
Depreciation and amortization 12,840,561 9,612,085 10,104,802
Customer operations 12,974,115 10,041,876 11,224,067
Corporate operations 15,933,322 12,628,528 9,995,004
Expense related to early retirement plan -- 1,020,000 --
-------------------- -------------------- -----------------
Total operating expenses 70,272,414 58,390,372 51,349,967
-------------------- -------------------- -----------------
Net operating revenues 21,452,980 20,093,142 15,704,039
-------------------- -------------------- -----------------
Other income (expenses):
Equity in income of affiliates, net 431,088 130,637 1,801,952
Interest, dividend income and gain on sale
of investments 1,916,446 261,459 244,213
Other expenses, principally interest (1,491,635) (985,275) (705,112)
-------------------- -------------------- -----------------
Total other income (expenses) 855,899 (593,179) 1,341,053
-------------------- -------------------- -----------------
Income before income taxes and
extraordinary item 22,308,879 19,499,963 17,045,092
Income taxes 8,926,469 7,898,159 6,583,671
-------------------- -------------------- -----------------
Net income before extraordinary item 13,382,410 11,601,804 10,461,421
Extraordinary item - discontinuance of SFAS 71, net of
income taxes of $1,493,312 -- 2,239,045 --
-------------------- -------------------- -----------------
Net income after extraordinary item 13,382,410 13,840,849 10,461,421
Dividends on preferred stock 28,457 73,073 92,535
-------------------- -------------------- -----------------
Earnings for common stock 13,353,953 13,767,776 10,368,886
==================== ==================== =================
Basic earnings per common share:
Earnings before extraordinary item 1.45 1.27 1.15
==================== ==================== =================
Extraordinary item -- 0.25 --
==================== ==================== =================
Earnings per common share 1.45 1.52 1.15
==================== ==================== =================
Diluted earnings per common share:
Earnings before extraordinary item 1.44 1.26 1.14
==================== ==================== =================
Extraordinary item -- 0.25 --
==================== ==================== =================
Earnings per common share $ 1.44 1.51 1.14
==================== ==================== =================
Basic weighted average shares outstanding 9,227,016 9,076,211 9,051,731
==================== ==================== =================
Diluted weighted average shares outstanding 9,276,504 9,111,439 9,078,385
==================== ==================== =================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years ended December 31, 1998, 1997, and 1996
1998 1997 1996
--------------- --------------- --------------
<S> <C> <C> <C>
Net income after extraordinary item $ 13,382,410 13,840,849 10,461,421
Other comprehensive income, net of tax
Unrealized holding gains (losses) on
available-for-sale securities 6,931,305 5,974,024 (1,001,347)
--------------- --------------- --------------
Comprehensive income $ 20,313,715 19,814,873 9,460,074
=============== =============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1998, 1997 and 1996
5% Series 4.5% Series Discount
Preferred Preferred of 5% Common
Stock Stock Preferred Stock
----------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Balances at December 31, 1995 $ 1,508,700 200,000 (16,059) 27,135,871
Net income -- -- -- --
Issuance of 14,136 shares of
common stock -- -- -- 262,343
Dividends declared:
5% preferred -- -- -- --
4.8% preferred -- -- -- --
4.5% preferred -- -- -- --
Common -- -- -- --
Tax benefit from exercise of stock options -- -- -- --
Other comprehensive income -- -- -- --
Unearned compensation related to the
granting of 8,548 shares of restricted
common stock, net of $25,172
earned during the year -- -- -- --
----------------- --------------- ---------------- ----------------
Balances at December 31, 1996 1,508,700 200,000 (16,059) 27,398,214
----------------- --------------- ---------------- ----------------
<CAPTION>
Other Total
Other Unearned Comprehensive Retained Stockholders'
Capital Compensation Income Earnings Equity
--------- ------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1995 298,083 (60,752) 1,196,766 46,010,093 76,272,702
Net income -- -- -- 10,461,421 10,461,421
Issuance of 14,136 shares of
common stock -- -- -- -- 262,343
Dividends declared:
5% preferred -- -- -- (75,435) (75,435)
4.8% preferred -- -- -- (8,100) (8,100)
4.5% preferred -- -- -- (9,000) (9,000)
Common -- -- -- (4,133,092) (4,133,092)
Tax benefit from exercise of stock options -- -- -- 14,126 14,126
Other comprehensive income -- -- (1,001,347) -- (1,001,347)
Unearned compensation related to the
granting of 8,548 shares of restricted
common stock, net of $25,172
earned during the year -- (127,303) -- -- (127,303)
--------- ------------- ---------------- -------------- ----------------
Balances at December 31, 1996 298,083 (188,055) 195,419 52,260,013 81,656,315
--------- ------------- ---------------- -------------- ----------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1998, 1997 and 1996
5% Series 4.5% Series Discount
Preferred Preferred of 5% Common
Stock Stock Preferred Stock
----------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Net income -- -- -- --
Issuance of 53,076 shares of
common stock -- -- -- 1,412,339
Issuance of stock options -- -- -- 74,279
Repurchases of shares:
11,456 shares of 5% preferred (1,145,600) -- 16,059 362,039
782 shares of 4.5% preferred -- (78,200) -- 46,920
9,090 shares of common -- -- -- (253,046)
Dividends declared:
5% preferred -- -- -- --
4.8% preferred -- -- -- --
4.5% preferred -- -- -- --
Common -- -- -- --
Other comprehensive income -- -- -- --
Unearned compensation related to the
granting of 27,476 shares of restricted
common stock, net of $140,931
earned during the year -- -- -- --
----------------- --------------- ---------------- -----------------
Balances at December 31, 1997 363,100 121,800 -- 29,040,745
----------------- --------------- ---------------- -----------------
Net income -- -- -- --
Issuance of 205,488 shares of
common stock -- -- -- 6,559,335
Issuance of stock options -- -- -- 425,619
Repurchases of shares:
191 shares of 5% preferred (19,100) -- -- 3,079
590 shares of 4.5% preferred -- (59,000) -- 27,824
9,570 shares of common -- -- -- (308,275)
Dividends declared:
5% preferred -- -- -- --
4.8% preferred -- -- -- --
4.5% preferred -- -- -- --
Common -- -- -- --
Other comprehensive income -- -- -- --
Unearned compensation related to the
granting of 8,084 shares of restricted
common stock, net of $385,316
earned during the year -- -- -- --
----------------- --------------- ---------------- -----------------
Balances at December 31, 1998 $ 344,000 62,800 -- 35,748,327
================= =============== ================ =================
<CAPTION>
Other Total
Other Unearned Comprehensive Retained Stockholders'
Capital Compensation Income Earnings Equity
------------- -------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Net income -- -- -- 13,840,849 13,840,849
Issuance of 53,076 shares of
common stock -- -- -- -- 1,412,339
Issuance of stock options -- -- -- -- 74,279
Repurchases of shares:
11,456 shares of 5% preferred -- -- -- -- (767,502)
782 shares of 4.5% preferred -- -- -- -- (31,280)
9,090 shares of common -- -- -- -- (253,046)
Dividends declared:
5% preferred -- -- -- (56,298) (56,298)
4.8% preferred -- -- -- (7,775) (7,775)
4.5% preferred -- -- -- (9,000) (9,000)
Common -- -- -- (4,234,604) (4,234,604)
Other comprehensive income -- -- 5,974,024 -- 5,974,024
Unearned compensation related to the
granting of 27,476 shares of restricted
common stock, net of $140,931
earned during the year -- (629,848) -- -- (629,848)
------------- -------------- -------------- -------------- ----------------
Balances at December 31, 1997 298,083 (817,903) 6,169,443 61,793,185 96,968,453
------------- -------------- -------------- -------------- ----------------
Net income -- -- -- 13,382,410 13,382,410
Issuance of 205,488 shares of
common stock -- -- -- -- 6,559,335
Issuance of stock options -- -- -- -- 425,619
Repurchases of shares:
191 shares of 5% preferred -- -- -- -- (16,021)
590 shares of 4.5% preferred -- -- -- -- (31,176)
9,570 shares of common -- -- -- -- (308,275)
Dividends declared:
5% preferred -- -- -- (19,398) (19,398)
4.8% preferred -- -- -- (5,382) (5,382)
4.5% preferred -- -- -- (3,677) (3,677)
Common -- -- -- (4,420,570) (4,420,570)
Other comprehensive income -- -- 6,931,305 -- 6,931,305
Unearned compensation related to the
granting of 8,084 shares of restricted
common stock, net of $385,316
earned during the year -- 120,565 -- -- 120,565
------------- -------------- -------------- -------------- ----------------
Balances at December 31, 1998 298,083 (697,338) 13,100,748 70,726,568 119,583,188
============= ============== ============== ============== ================
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
<TABLE>
<CAPTION>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997, and 1996
1998 1997 1996
------------ ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 13,382,410 13,840,849 10,461,421
Adjustments to reconcile net income to
net cash provided by operating activities:
Extraordinary item -- (2,239,045) --
Depreciation and amortization 12,840,561 9,612,085 10,104,802
Postretirement benefits 523,076 603,555 1,317,608
Loss (gain) on sale of investment securities (1,113,546) 23,667 75,667
Undistributed income of affiliates (431,088) (130,637) (1,801,952)
Deferred income taxes and tax credits 4,138,338 (589,093) 31,700
Changes in operating assets and liabilities, net of effects of
acquisitions in 1998:
Accounts and notes receivable (4,306,651) (1,228,185) 1,263,961
Materials and supplies 364,475 163,682 (1,056,695)
Other current assets (402,502) (473,480) 56,611
Accounts payable (1,519,073) (1,565,023) 1,109,877
Customer deposits and advance billings 83,531 319,722 190,789
Accrued liabilities 703,974 1,878,013 525,529
Refundable income taxes -- 14,736 161,492
Income taxes payable (592,014) 992,750 --
------------------------------------------------
Net cash provided by operating activities 23,671,491 21,223,596 22,440,810
------------------------------------------------
Cash flows from investing activities:
Capital expenditures, net (24,789,296) (21,573,658) (24,118,712)
Purchases of investments in affiliates (4,375,949) (11,148,674) (4,263,200)
Purchases of investment securities (100,919) (356,268) (1,067,060)
Proceeds from sale of investment securities 1,473,727 2,306,812 4,606,652
Maturities of investment securities 216,240 476,487 2,751,739
Partnership capital distribution 3,609,252 4,229,675 1,965,792
Notes receivable collections, net (503,000) (1,810,500) --
------------------------------------------------
Net cash used in investing activities (24,469,945) (27,876,126) (20,124,789)
------------------------------------------------
Cash flows from financing activities:
Repayment of long-term debt (21,281,889) (2,215,000) (640,000)
Proceeds from new debt 29,422,889 10,000,000 --
Redemption of preferred stock (12,500) (12,500) (12,500)
Dividends paid (4,449,027) (4,307,677) (4,225,627)
Repurchases of common and preferred stock (385,863) (1,067,468) --
Proceeds from common stock issuances 312,731 643,600 109,869
Minority interest -- 1,360,998 --
Other -- 87,879 (136,269)
------------------------------------------------
Net cash provided by (used in) financing activities 3,606,341 4,489,832 (4,904,527)
------------------------------------------------
Net (decrease) increase in cash and cash equivalents 2,807,887 (2,162,698) (2,588,506)
Cash and cash equivalents - beginning of year -- 2,162,698 4,751,204
------------------------------------------------
Cash and cash equivalents - end of year $ 2,807,887 -- 2,162,698
================================================
Supplemental cash flow information:
Cash paid for income taxes 4,827,202 7,912,449 6,474,267
Cash paid for interest 1,093,473 390,735 310,099
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997, and 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION AND ORGANIZATION
These consolidated financial statements include the accounts of CT
Communications, Inc. (the Company), a holding company, and its
wholly-owned subsidiaries, The Concord Telephone Company ("CTC"),
CTC Long Distance Services, Inc. ("CTC LDS"), CT Cellular, Inc.,
Carolina Personal Communications, Inc. (dba "CT Wireless, Inc."),
CT Wireless Cable, Inc., CTC Exchange Services, Inc., CT Global
Telecommunications, Inc. ("CTGT"), CT Communications Northeast
Trust, and CTC Internet Services, Inc. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
CT Communications, Inc. and subsidiaries operate entirely in the
communications industry. Concord Telephone, the Company's
principal subsidiary, provides local telephone service as well as
telephone and equipment rental to customers who are primarily
residents of Cabarrus, Stanly and Rowan counties in North
Carolina. The Company also provides long distance service via CTC
LDS. CT Cellular owns and accounts for investments in two general
partnerships which provide cellular mobile telephone services to
various counties in North and South Carolina. CT Wireless, which
began operations in 1996, accounts for the retail operations and
services provided in relation to personal communications services,
a new wireless telecommunications system which includes voice,
data interface and paging. CT wireless Cable, which was
established in 1996, accounts for an investment in Wireless One of
North Carolina, LLC, which participates in the wireless cable
television market in North Carolina. CTC Exchange Services, which
was established in 1997, was formed to provide competitive local
telephone service in North Carolina. CT Global, which became a
subsidiary in 1997, was formed to build telecommunications
networks outside of the United States. CT Communications Northeast
Trust was formed in 1998 to hold the Company's investment
securities and investments in affiliates. CTC Internet Services,
Inc., which was established in 1998 as a result of the Company's
acquisition of G.A. Technologies, doing business as Vnet (note 5),
was formed to provide internet services to customers in North
Carolina.
Effective April 1, 1997, the Company discontinued application of
Statement of Financial Accounting Standards (SFAS) No. 71,
"Accounting for the Effects of Certain Types of Regulation." See
note 14 for further discussion of the impacts of discontinuance of
SFAS No. 71.
(B) RECLASSIFICATIONS
In certain instances, amounts previously reported in the 1997 and
1996 consolidated financial statements have been reclassified to
conform with the 1998 consolidated financial statement
presentation. Such reclassifications have no effect on net income
or retained earnings as previously reported.
(Continued)
F-10
<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997, and 1996
(C) PROPERTY, PLANT AND EQUIPMENT
Telephone plant in service is stated at original cost and includes
certain indirect costs consisting of payroll taxes, pension and
other fringe benefits, administrative, and general cost.
Depreciation is calculated using the straight-line method over the
estimated useful lives of the respective assets.
Prior to the Company's discontinued applications of SFAS No. 71 on
April 1, 1997 (see note 14), depreciation on telephone plant in
service was provided on a straight-line basis using composite
rates acceptable to the regulatory authorities. During 1996, under
authority of the North Carolina Utilities Commission (the
Commission), the Company recorded additional amortization relating
to certain telephone plant accounts. Such "special amortization",
as approved by the Commission, increased the Company's total
depreciation and amortization expense and related accumulated
depreciation by $574,363 in 1996.
Maintenance, repairs, and minor renewals are primarily charged to
maintenance expense accounts. Additions, renewals, and betterments
are charged to telephone plant accounts. The original cost of
depreciable property retired is removed from telephone plant
accounts and charged to accumulated depreciation, which is
credited with the salvage less removal cost. Under this method, no
profit or loss is calculated on ordinary retirements of
depreciable property.
See note 14 for a discussion of SFAS No. 71 and its effect on
property, plant and equipment.
(D) INVESTMENT SECURITIES
Investment securities at December 31, 1998 and 1997 consist of
state, county and municipal debt securities, and corporate equity
securities. The Company classifies its debt and equity securities
in one of three categories: trading, available-for-sale, or
held-to-maturity. Trading securities are bought and held
principally for the purpose of selling them in the near term.
Held-to-maturity securities are those securities in which the
Company has the ability and intent to hold until maturity. All
other securities not included in trading or held-to-maturity are
classified as available-for-sale.
Trading and available-for-sale securities are recorded at fair
value. Held-to-maturity securities are recorded at amortized cost,
adjusted for the amortization or accretion of premiums or
discounts. Unrealized holding gains and losses on trading
securities are included in earnings. Unrealized holding gains and
losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and are reported as a
separate component of other comprehensive income until realized.
Realized gains and losses from the sale of available-for-sale
securities are determined on a specific identification basis.
(Continued)
F-11
<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997, and 1996
A decline in the market value of any available-for-sale or
held-to-maturity security below cost that is deemed to be other
than temporary results in a reduction in carrying amount to fair
value. The impairment is charged to earnings and a new cost basis
for the security is established. Premiums and discounts are
amortized or accreted over the life of the related
held-to-maturity security as an adjustment to yield using the
effective interest method. Dividend and interest income are
recognized when earned.
At December 31, 1998 and 1997, all securities are classified as
available-for-sale securities.
(E) INVESTMENTS IN AFFILIATED COMPANIES
The Company has interests in several partnerships and corporations
which operate in the communications industry. Investments in
affiliates over which the Company has the ability to exercise
significant influence are accounted for by the equity method.
(F) MATERIALS AND SUPPLIES
Materials and supplies are valued principally at the lower of
average cost (first-in, first-out method) or market.
(G) INCOME TAXES
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Investment tax credits related to telephone plant have been
deferred and amortized as a reduction of federal income tax
expense over the estimated useful lives of the assets giving rise
to the credits. Unamortized deferred investment tax credits are
treated as temporary differences.
(H) REVENUE RECOGNITION
Local and toll service and access charges are recognized when
earned regardless of the period in which they are billed.
(Continued)
F-12
<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997, and 1996
(I) INTANGIBLES
Intangibles consist primarily of goodwill representing the excess
of the purchase price of Vnet and tarheel.net (note 5) over the
fair value of the net assets acquired. Goodwill is amortized using
the straight line method over 10 years. Amortization expense and
accumulated amortization at December 31, 1998 amounted to
$483,770.
(J) CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers
all short-term investments with original maturities at the date of
purchase of three months or less to be cash equivalents.
(K) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(L) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF
The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
(M) STOCK OPTION PLANS
Statement of Financial Accounting Standards (SFAS) No. 123 allows
entities to apply the provisions of APB Opinion No. 25 and provide
pro forma net income and pro forma earnings per share disclosures
for employee stock option grants made in 1995 and future years as
if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.
(Continued)
F-13
<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997, and 1996
(N) RECENT ACCOUNTING PRONOUNCEMENTS
On January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130 "Reporting Comprehensive
Income". SFAS No. 130 requires companies to display, with the same
prominence as other financial statements, the components of
comprehensive income. Items considered to be other comprehensive
income include adjustments made for unrealized holding gains and
losses on available-for-sale securities.
During 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 131 "Disclosures about Segments of an
Enterprise and Related Information". SFAS No. 131 establishes
standards for the way public business enterprises are to report
information about operating segments in annual financial
statements and requires those enterprises to report selected
financial information about operating segments in interim
financial reports issued to shareholders. The Company has
identified its primary operating segment as The Concord Telephone
Company.
During 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 132, "Employers' Disclosures About Pension
and Other Postretirement Benefits" and has revised its disclosures
for its pension and postretirement plans accordingly.
(2) NOTES RECEIVABLE
At December 31, 1998 and 1997, the Company had notes receivables of
$1,513,500 and $1,810,500 due from US Telecom Holdings, Inc. ("USTH")
with interest at 9.75%. The notes are secured by a first priority
security interest in 4,950.50 shares of common stock of Telco Investors
II, Inc. owned by USTH and are due April 1, 1999. Interest due to the
Company as of December 31, 1998 and 1997 was $170,131 and $58,245,
respectively.
(Continued)
F-14
<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997, and 1996
(3) INVESTMENT SECURITIES
The amortized cost, gross unrealized holding gains, gross unrealized
holding losses and fair value for the Company's investments by major
security type and class of security at December 31, 1998 and 1997, were
as follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
--------------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C>
At December 31, 1998
Available-for-sale:
State, county and municipal
debt securities $ 116,681 -- -- 116,681
Equity securities 4,140,229 23,667,578 (3,141,596) 24,666,211
--------------- ------------- ---------------- ---------------
$ 4,256,910 23,667,578 (3,141,596) 24,782,892
=============== ============= ================ ===============
At December 31, 1997
Available-for-sale:
Certificates of deposit 168,979 -- -- 168,979
Equity securities 4,290,011 13,165,751 (2,831,005) 14,624,757
--------------- ------------- ---------------- ---------------
$ 4,458,990 13,165,751 (2,831,005) 14,793,736
=============== ============= ================ ===============
</TABLE>
In 1998 and 1997, proceeds from the sale of investment securities
available for sale were $1,473,727 and $2,306,812 and included in income
were gross realized gains of $1,274,437 and $1,389 and gross realized
losses of $160,891 and $25,162, respectively.
(Continued)
F-15
<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997, and 1996
(4) INVESTMENTS IN AFFILIATED COMPANIES
Investments in affiliated companies consist of the following:
<TABLE>
<CAPTION>
1998
OWNERSHIP
PERCENTAGE 1998 1997
------------------ ------------------- -------------------
<S> <C> <C> <C>
Equity Method:
Palmetto Mobile Net, L.P. 19.54% $ 10,262,329 --
RSA 15 Partnership -- -- 7,478,888
Maxcom Telecomunicaciones,
S.A. de C.V. 16.20 8,566,777 6,860,000
Wireless One of North
Carolina, LLC 49.05 4,366,105 4,100,204
BellSouth Carolinas PCS, LP 1.95 1,896,667 3,752,556
U.S. Telecom Holdings 27.70 695,385 1,895,385
Ellerbe-Concord Partnership -- -- 1,268,571
Access On 19.58 118,476 186,919
Cost Method:
Illuminet Holdings, Inc. 4.00 1,068,624 1,068,624
ITC Holding Company 4.40 2,724,129 2,724,129
Other various 91,302 215,050
------------------- -------------------
$ 29,798,794 29,550,326
=================== ===================
</TABLE>
CT Cellular, Inc. and Ellerbe Telephone entered into agreements to
exchange their respective interests in RSA 4/5 and RSA 15 for interests
in Palmetto MobileNet, L.P., a South Carolina limited partnership. In
April 1998, the Federal Communications Commission approved the
transaction which was deemed effective as of January 1, 1998.
Maxcom Telecomunicaciones, S.A. de C.V. ("Maxcom", formerly known as
Amaritel, S.A. de C.V.) is creating a competitive telecommunications
company offering local, long distance, and network telecommunications
services in Mexico. The Company's investment in Maxcom is through its
subsidiary, CTGT.
The purpose of Wireless One of North Carolina, LLC is to develop and
deploy wireless cable in North Carolina.
(Continued)
F-16
<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997, and 1996
BellSouth Carolinas PCS, L.P. is in the business of providing digital
personal communications services that competes with cellular phone
service.
U.S. Telecom Holdings is in the business of investing directly or
indirectly in regional operating telephone companies in Hungary, Mexico
and other developing countries.
Access On, in cooperation with the Company and thirteen other North
Carolina independent telephone companies, was formed to build and operate
a broadband backbone telecommunications network throughout much of North
Carolina. As a result of the Company's significant influence over this
company's operating and financial policies, this investment is accounted
for under the equity method.
ITC Holding Company structurally separated ITC Deltacom, Inc.
("Deltacom") (a publicly held company) and its subsidiaries from ITC
Holding Company. ITC Holding Company created the "New ITC Holding
Company", of which the Company received one share of stock for each share
of "Old ITC Holding Company" stock. The Company also received 2.3 shares
of Deltacom stock for each share of "Old ITC Holding Company" stock. The
investment in Deltacom is included in available-for-sale equity
securities in note 3.
Illuminet Holdings, Inc., formerly USTN Holdings, Inc., provides network
services such as seamless routing for wireless services and database and
billing support.
Included in the Company's share of earnings from affiliates accounted for
under the equity method for 1998 were total losses of $4,693,034 and
total income of $5,124,122. 100% of the income was attributable to
Palmetto Mobile Net.
Summarized unaudited financial position information for Palmetto Mobile
Net as of December 31, 1998 is as follows: current assets - $26,402,498;
property and other non-current assets - $82,963,255; current liabilities
- $8,667,110; partners' capital - $100,698,643. Summarized unaudited
combined results of operations for this entity for the year ended
December 31, 1998, is as follows: revenues - $136,662,613; operating
income - $51,266,827 and net income $51,612,899.
(Continued)
F-17
<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997, and 1996
(5) ACQUISITIONS
On May 8, 1998, the Company acquired G.A. Technologies, Inc., an internet
provider based in Charlotte, North Carolina doing business as Vnet, for
$6,449,134. This transaction was structured as a merger of Vnet into the
Company's subsidiary, CTC Internet Services, Inc. Pursuant to the merger,
the shareholders of Vnet exchanged their Vnet shares for shares of the
Company's common stock. This transaction was accounted for under the
purchase method of accounting and the total purchase has been allocated
to assets and liabilities assumed as follows:
Cash $ 27,216
Accounts receivable 123,829
Deferred taxes 35,037
Prepaid expenses 45,558
Property, plant & equipment 407,929
Goodwill 6,354,910
Other intangibles 38,772
Accounts payable (366,426)
Customer deposits (217,691)
---------------
Total purchase price $ 6,449,134
===============
On December 23, 1998, the Company acquired tarheel.net, an internet
provider based in Hickory, North Carolina, for $110,000. The total
purchase price has been allocated to assets acquired as follows:
Accounts receivable $ 4,713
Property, plant & equipment 11,500
Goodwill 93,787
---------------
Total purchase price $ 110,000
===============
Results of operations for the acquired entities have been included from
the date of acquisition. Pro forma results for these two entities are not
material to the consolidated financial statements.
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of the company's financial instruments:
Cash and cash equivalents, short-term investments, accounts
receivable, notes receivable, other assets, accounts payable and
accrued expenses - the carrying amount approximates fair value
because of the short maturity of these instruments.
Investment Securities - debt and equity securities are carried at
market value.
(Continued)
F-18
<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997, and 1996
Long-term debt - the fair value of the Company's long-term debt is
estimated by discounting the scheduled payment streams to present
value based on current rates for similar instruments of comparable
maturities.
Based on the methods and assumptions noted above, the estimated fair
values of the Company's financial instruments and carrying amounts at
December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------------- ---------------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Financial liabilities:
Long-term debt and redeemable
preferred stock, including
current maturities
$ 20,137,500 20,137,500 12,009,000 12,009,000
============== ============== ============== ==============
</TABLE>
(7) LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1998 1997
------------------ -----------------
<S> <C> <C>
Line of credit with interest at LIBOR plus .5% (5.57% at December
31, 1998) due December 31, 2000, renewable for two separate
two-year extensions through December
31, 2004 $ 20,000,000 --
Line of credit (at 7.25%), paid in 1998 -- 10,000,000
Note payable to a bank (at 7.25%), paid in 1998 -- 1,859,000
------------------ -----------------
Total long-term debt 20,000,000 11,859,000
Less: current installments -- 620,000
------------------ -----------------
Long-term debt, excluding current installments $ 20,000,000 11,239,000
================== =================
</TABLE>
The Company has an available line of credit totaling $60,000,000, of
which $20,000,000 was outstanding at December 31, 1998.
(Continued)
F-19
<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997, and 1996
(8) REDEEMABLE PREFERRED STOCK
The 4.8% redeemable preferred stock is callable at a redemption price of
$100 a share plus accumulated dividends. Sinking fund requirements in the
next five years are $12,500 annually.
There have been no changes in the 4.8% series preferred stock in the
three years ended December 31, 1998, other than the annual sinking fund
requirement of $12,500.
(9) COMMON STOCK AND PREFERRED STOCK NOT SUBJECT TO MANDATORY REDEMPTION
There are 100,000,000 shares of voting common stock, no par value,
authorized.
In August 1997, the company effected a three-for-two stock split in the
form of a one-for-two stock distribution to stockholders of record at
August 1, 1997. In January 1999, the Company effected a recapitalization
plan creating one class of common stock (see note 18). Earnings per
share, dividends per share and weighted average shares outstanding have
been retroactively restated for all years presented.
Cash dividends per share of common stock are as follows: $.48 in 1998,
$.47 in 1997; and $.46 in 1996.
Preferred stock is comprised of cumulative $100 par value 5% and 4.5%
series stock. There are 17,000 shares of the 5% series stock authorized.
There are 2,000 shares of the 4.5% series stock authorized.
(Continued)
F-20
<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997, and 1996
(10) STOCK COMPENSATION PLANS
At December 31, 1998, the Company has five stock-based compensation
plans, which are described below. The Company applies APB Opinion No. 25
and related Interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its fixed stock option plans
and its stock purchase plan. Had compensation cost for the Company's
stock-based compensation plans been determined consistent with SFAS No.
123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997
------------------- ----------
<S> <C> <C> <C>
Net income As Reported $ 13,382,410 13,840,849
Pro forma $ 13,322,783 13,814,363
Basic earnings per common
share As Reported $ 1.45 1.52
Pro forma $ 1.44 1.46
Diluted earnings per common
share As Reported $ 1.44 1.51
Pro Forma $ 1.43 1.46
</TABLE>
(Continued)
F-21
<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997, and 1996
The Company has an Executive Stock Option Plan (the Plan) to allow key
employees to increase their holdings of the Company's common stock.
45,000 shares of common stock were reserved for issuance under the Plan.
At December 31, 1998, all shares reserved for issuance have been granted.
Options are granted at prices determined by the board of directors,
generally the most recent sales price at the date of grant, and must be
exercised within five years of the date of grant. Options are exercisable
immediately when granted. Activity under the Plan for each of the years
in the three-year period ended December 31, 1998, is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF OPTIONS PRICE
----------------- ----------------
<S> <C> <C>
Options outstanding and exercisable at December 31,
1995 24,840 $ 13
Options granted -- --
Options exercised (3,476) 10
----------------- ----------------
Options outstanding and exercisable at December 31,
1996 21,364 13
Options granted -- --
Options exercised (448) 12
Options forfeited (24) 12
----------------- ----------------
Options outstanding and exercisable at December 31,
1997 20,892 13
Options granted -- --
Options exercised (8,468) 11
----------------- ----------------
Options outstanding and exercisable at
December 31, 1998 12,424 $ 14
================= ================
</TABLE>
As of December 31, 1998 and 1997, the 12,424 and 20,892 options
outstanding and exercisable have exercise prices between $11 and $14 and
a weighted-average remaining contractual life of 6 months and 1.3 years,
respectively.
The Company has a comprehensive Stock option plan (the Plan) to allow key
employees to increase their holdings of the Company's common stock.
90,000 shares of common stock have been reserved for issuance under the
Plan. At December 31, 1998, the number of common stock reserved for
issuance but ungranted was 240 shares. Options are granted at prices
determined by the board of directors, generally the most recent sales
price at the date of grant, and must be exercised within ten years of the
date of grant. Options become exercisable over periods from six months to
four years after the grant date.
(Continued)
F-22
<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997, and 1996
Activity under the Plan for each of the years in the three-year period
ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF OPTIONS PRICE
---------------- ----------------
<S> <C> <C>
Options outstanding at December 31, 1995 55,800 $ 18
Options granted -- --
Options exercised -- --
---------------- ----------------
Options outstanding at December 31, 1996 55,800 18
Options granted 33,956 18
Options exercised (600) 18
Options forfeited (3,000) 18
---------------- ----------------
Options outstanding at December 31, 1997 86,156 18
Options granted -- --
Options exercised (2,656) 18
Options forfeited (5,308) 18
---------------- ----------------
Options outstanding at December 31, 1998 78,192 $ 18
================ ================
Options exercisable at December 31, 1998 55,456 $ 18
================ ================
</TABLE>
As of December 31, 1998 and 1997, the 78,192 and 86,156 options
outstanding have exercise prices between $15 and $18 and a
weighted-average remaining contractual life of 7.5 and 8.5 years,
respectively.
The per share fair value of stock options granted in 1997 was $6 at the
date of grant. The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions: 1997 - Dividend yield of 2.7%,
expected volatility of 20%; risk-free interest rate of 6%; and expected
lives of 10 years.
(Continued)
F-23
<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997, and 1996
The Company has a Restricted Stock Award Program (the Program) to provide
deferred compensation and additional equity participation to certain
executive management and key employees. The aggregate amount of common
stock that may be awarded to participants under the Program is 90,000
shares. The Company records deferred compensation in the amount of the
fair market value of the stock granted and amortizes this amount on a
straight line basis over the restricted period, generally 4 to 10 years.
In 1998, 1997 and 1996, respectively, the Company granted 3,856, 27,476
and 8,548 shares to participants with a weighted-average fair value of
$33, $19, and $18. Deferred compensation at December 31, 1998 and 1997,
respectively was $697,338 and $817,903, which is disclosed net of
accumulated amortization of $385,316 and $170,359, in the consolidated
statements of stockholders' equity.
In 1996, a Director Compensation Plan (the Plan) was approved to provide
each member of the Board of Directors the right to receive the Director's
compensation in shares of common stock or cash, at the Director's
discretion. An aggregate of 45,000 shares have been reserved for issuance
under the Plan. All compensation for a Director who elects to receive
shares of stock in lieu of cash will be converted to shares of stock
based upon the fair market value of the common stock on the grant date.
The initial grant date is the first day that is six months and one day
following the Directors election. All subsequent compensation shall be
converted to shares of common stock based upon the fair market value of
the common stock on the date such compensation is paid or made available
to the Director. During 1998, 1997 and 1996, the Company granted 2,608,
3,132 and 2,112 shares, respectively, with an average fair market value
of $33, $29 and $22, respectively.
During 1997, the CT Communications, Inc. Omnibus Stock Compensation Plan
(the Plan) was approved. 400,000 shares of common stock have been
reserved for issuance under the Plan. The Plan provides for awards of
stock, stock options and stock appreciation rights. At December 31, 1998,
the number of common stock reserved for issuance but ungranted was
379,248 shares. Options are granted at prices determined by the board of
directors, generally the most recent sales price at the date of grant,
and must be exercised within ten years of the date of grant.
(Continued)
F-24
<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
Activity under the Plan for the year ended December 31, 1998 is as
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF OPTIONS PRICE
---------------- ----------------
<S> <C> <C> <C>
Options outstanding at December 31, 1997 -- $ --
Options granted 20,752 33
Options exercised -- --
Options forfeited -- --
---------------- ----------------
Options outstanding at December 31, 1998 20,752 $ 33
================ ================
Options exercisable at December 31, 1998 -- $ --
================ ================
</TABLE>
As of December 31, 1998, the 20,752 options outstanding have exercise
prices of $33 and a weighted-average remaining contractual life of 9.2
years.
The per share fair value of stock options granted in 1998 was $13 at the
date of grant. The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions: 1998 - dividend yield of 1.5%;
expected volatility of 20%; risk-free interest rate of 6%, and expected
lives of 10 years.
(11) EMPLOYEE STOCK PURCHASE PLAN
The Company approved Employee Stock Purchase Plans in 1997 (the Plan)
which authorized 48,000 shares of common stock to be offered to all
employees eligible to buy shares. Purchase price of shares is 100% of
fair market value with the option to finance up to 100% of purchase by
payroll deduction over a period of up to 24 months at 6% interest. 2,344
and 21,420 shares were issued under the Plan at a purchase price of $33
and $30 per share in 1998 and 1997, respectively.
(12) EMPLOYEE BENEFIT PLANS
(A) PENSION PLAN AND SAVINGS PLAN
The Company has a trusteed, defined benefit, noncontributory
pension plan covering substantially all of its employees. The
benefits are based on years of service and the employee's highest
five consecutive plan years of compensation. Contributions to the
plan are based upon the Entry Age Normal Method with Frozen
Initial Liability and comply with the funding requirements of the
Employee Retirement Income Security Act. Since the plan is
adequately funded, there have been no contributions made in 1998
or 1997. Plan assets are invested primarily in common stocks,
long-term bonds and U.S. treasury notes.
(Continued)
F-25
<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
The following table sets forth the funded status of the Company's
pension plan and amounts recognized in the Company's financial
statements at December 31, 1998 and 1997.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
CHANGE IN BENEFIT OBLIGATION 1998 1997
------------------ ------------------
<S> <C> <C>
Benefit Obligation at end of prior plan year (28,633,948) (26,375,271)
Service Cost (776,031) (666,447)
Interest Cost (1,961,462) (1,893,377)
Actuarial Gain/(Loss) (258,303) (1,527,066)
Actual Distributions 1,583,191 1,828,213
------------------ ------------------
BENEFIT OBLIGATION AT END OF YEAR $ (30,046,553) (28,633,948)
================== ==================
CHANGE IN PLAN ASSETS
Plan Assets at Fair Value at Beginning of Year 40,472,587 32,848,100
Actual Return on plan assets 3,539,124 9,452,700
Actual Distributions (1,583,191) (1,828,213)
------------------ ------------------
PLAN ASSETS AT FAIR VALUE AT END OF YEAR $ 42,428,520 40,472,587
================== ==================
(ACCRUED)/PREPAID PENSION COST
Funded Status 12,381,967 11,838,639
Unrecognized net actuarial (Gain)/Loss (13,214,157) (13,440,795)
Unrecognized Prior Service Cost (34,991) (38,490)
Unrecognized Transition Obligation/(Asset) (264,249) (330,310)
------------------ ------------------
NET AMOUNT RECOGNIZED $ (1,131,430) (1,970,956)
================== ==================
</TABLE>
The Company also has an unqualified Supplemental Executive
Retirement Plan. Accrued costs related to this plan were $280,000
at December 31, 1998.
Net pension cost for 1998, 1997, and 1996 included the following:
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ------------------ -----------------
<S> <C> <C> <C>
Service cost, benefits earned during
the period $ 776,031 666,447 651,591
Interest cost on projected benefit
obligation 1,961,462 1,893,377 1,724,700
Actual return on plan assets (3,539,124) (9,452,700) (3,784,646)
Net amortization and deferral (37,895) 6,776,734 1,309,296
---------------- ------------------ -----------------
Net periodic pension credit $ (839,526) (116,142) (99,059)
================ ================== =================
</TABLE>
(Continued)
F-26
<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
The weighted average discount rate of 7% in 1998, 1997 and 1996
and the rate of increase in future compensation levels of 5% in
1998, 1997 and 1996 were used in determining the actuarial present
value of the projected benefit obligations at the end of the year.
The assumed long-term rate of return on pension plan assets was
7.5% in 1998, 1997 and 1996.
(B) EMPLOYEE SAVINGS PLAN
The Company has a 401(k) salary savings plan which provides that
employees may contribute a portion of their salary to the plan on
a tax deferred basis. The Company's match of a portion of the
employee's contribution totaled $560,311, $265,746 and $229,500 in
1998, 1997, and 1996, respectively.
(C) EMPLOYEE STOCK OWNERSHIP PLAN
The Employee Stock Ownership Plan of The Concord Telephone Company
(the Plan) was originally a defined contribution plan sponsored by
the Company. The Company was responsible for all contributions to
the Plan. Contributions were in the form of Company stock or cash
used to purchase Company stock. Prior to the Tax Reform Act of
1986 (the Act), the Company was eligible for certain tax credits
as a result of the Plan contributions. Subsequent to the Act,
these tax credits were no longer available. As a result, the plan
has been frozen. As of January 1, 1987, no more contributions can
be made into the plan and no employee may become eligible to
participate.
(D) POSTRETIREMENT BENEFITS
In addition to the Company's defined benefit pension plan, the
Company sponsors a health care plan that provides postretirement
medical benefits and life insurance coverage to full-time
employees who meet minimum age and service requirements. The plan
is contributory with respect to coverage for beneficiaries. The
Company's policy is to fund the cost of medical benefits on a cash
basis.
The Company has adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," and has elected to amortize the
transition liability over 15 years. The Statement requires the
accrual, during the years that an employee renders the necessary
service, of the expected cost of providing those benefits to the
employee and employee's beneficiaries and covered dependents.
(Continued)
F-27
<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
The following table presents the plan's accumulated postretirement
benefit obligation reconciled with amounts recognized in the
Company's balance sheets at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
CHANGE IN BENEFIT OBLIGATION 1998 1997
------------------ ------------------
<S> <C> <C>
Benefit Obligation at end of prior plan year (9,532,566) (12,789,710)
Service Cost (180,087) (216,693)
Interest Cost (608,299) (631,910)
Amendments -- 4,022,722
Actuarial Gain/(Loss) 437,227 83,025
Other 594,826 --
------------------ ------------------
BENEFIT OBLIGATION AT END OF YEAR $ (9,288,899) (9,532,566)
================== ==================
(ACCRUED)/PREPAID POSTRETIREMENT COST
Funded Status (9,288,899) (9,532,566)
Unrecognized net actuarial (Gain)/Loss (2,525,808) (1,868,016)
Unrecognized Prior Service Cost (3,017,078) (3,519,925)
Unrecognized Transition Obligation/(Asset) 4,282,581 4,894,379
------------------ ------------------
NET AMOUNT RECOGNIZED $ (10,549,204) (10,026,128)
================== ==================
</TABLE>
During 1997, Plan benefits were expanded to include Medicare
supplements and additional medical benefits resulting in increased
postretirement benefit costs.
Net periodic postretirement benefit cost for 1998, 1997 and 1996
includes the following components:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- ------------------- -------------------
<S> <C> <C> <C>
Service cost $ 180,087 216,693 321,990
Interest cost 608,299 631,910 828,192
Amortization of transition
obligation over 15 years 611,798 611,798 611,798
Amortization of gain (101,181) (74,769) (72,216)
Amortization of prior service
cost (502,847) (502,847) --
-------------------- ------------------- -------------------
Net periodic postretirement
benefit cost $ 796,156 882,785 1,689,764
==================== =================== ===================
</TABLE>
(Continued)
F-28
<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
For measurement purposes, a 10.0% percent annual rate of increase in the
per capita cost of covered benefits (i.e., health care cost trend rate)
was assumed for 1998 and the rate was assumed to decrease annually to
5.5% by the year 2003 and to remain level thereafter. The health care
cost trend rate assumption has a significant effect on the amounts
reported. For example, increasing the assumed health care cost trend
rate by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1998, to
approximately $10,489,025 and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for the year
ended December 31, 1998 to approximately $904,415. Decreasing the assumed
health care cost trend rate by one percentage point in each year would
decrease the accumulated postretirement benefit obligation as of December
31, 1998, to approximately $8,396,311 and the aggregate of the service
and interest cost components of net periodic postretirement benefit cost
for the year ended December 31, 1998 to approximately $707,349.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7% in 1998, 1997 and 1996.
(13) INCOME TAXES
Total income taxes for the years ended December 31, 1998, 1997 and 1996
were allocated as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------ -------------------- ------------------
<S> <C> <C> <C>
Income before extraordinary item $ 8,926,469 7,898,159 6,583,671
Extraordinary item -- 1,493,312 --
------------------ -------------------- ------------------
$ 8,926,469 9,391,471 6,583,671
================== ==================== ==================
Stockholders' equity, for
unrealized holding gain on
debt and equity securities
recognized for financial
reporting purposes
$ 3,605,700 3,929,182 (640,204)
================== ==================== ==================
</TABLE>
(Continued)
F-29
<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
Income tax expense (benefit) attributable to income before
extraordinary item for the years ended December 31, 1998, 1997, and
1996, consists of:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- ------------------- -------------------
<S> <C> <C> <C>
Current:
Federal $ 3,896,673 6,694,381 5,385,969
North Carolina 1,104,868 1,965,013 1,292,799
-------------------- ------------------- -------------------
5,001,541 8,659,394 6,678,768
-------------------- ------------------- -------------------
Deferred:
Federal, net of investment tax
credit amortization 3,284,653 (651,140) (111,920)
North Carolina 640,275 (110,095) 16,823
-------------------- ------------------- -------------------
3,924,928 (761,235) (95,097)
-------------------- ------------------- -------------------
Total $ 8,926,469 7,898,159 6,583,671
==================== =================== ===================
Income tax expense attributable to income before extraordinary item
differs from the amounts computed by applying the U.S. federal income tax
rate of 35 percent to pretax income from continuing operations as a
result of the following:
1998 1997 1996
----------------- ------------------- -------------------
Amount computed at statutory rate $ 7,808,108 6,824,987 5,965,782
State income taxes, net of federal
income tax benefit 1,134,343 1,205,697 851,254
Nontaxable interest income (2,166) (12,133) (104,315)
Amortization of federal investment
tax credit (114,885) (114,885) (114,885)
Amortization of deferred regulatory
liability -- -- (126,256)
Other, net 101,069 (5,507) 112,091
----------------- ------------------- -------------------
Income tax expense $ 8,926,469 7,898,159 6,583,671
================= =================== ===================
</TABLE>
(Continued)
F-30
<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities as of
December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
<S> <C> <C>
Deferred tax assets:
Accrued postretirement and pension benefits 4,638,380 4,804,705
Deferred investment tax credits 98,514 321,678
Environmental remediation costs 21,097 142,280
Accrued incentive 466,546 492,558
Intangibles 70,725 99,750
Net operating loss carryforwards 554,000 394,000
Other accrued expenses and allowances 484,610 529,439
Other -- 371,174
----------------- -----------------
Total gross deferred tax assets 6,333,872 7,155,584
----------------- -----------------
Less valuation allowance (554,000) (394,000)
----------------- -----------------
Net deferred tax assets 5,779,872 6,761,584
----------------- -----------------
Deferred tax liabilities:
Property, plant and equipment, primarily related
to depreciation differences 10,915,270 8,659,278
Unrealized gain on securities 7,698,734 4,054,003
Other 802,108 --
----------------- -----------------
Total gross deferred tax liabilities 19,416,112 12,713,281
----------------- -----------------
Net deferred tax liability $ 13,636,240 5,951,697
================= =================
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1998 was
$394,000. The net change in the total valuation allowance for the year
ended December 31, 1998 was an increase of $160,000. In assessing the
realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods
in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and
projections for future taxable income over the periods which the deferred
tax assets are deductible, management believes it is more like than not
the Company will realize the benefits of these deductible differences,
net of the existing valuation allowances at December 31, 1998. The amount
of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
period are reduced.
Subsequently recognized tax benefits relating to the valuation allowance
for deferred tax assets as of December 31, 1998, will be allocated to
income tax expense.
At December 31, 1998, the Company has net operating loss carryforwards
for state income tax purposes of approximately $8,200,000 which will
expire in the years 2001-2013.
(Continued)
F-31
<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(14) ACCOUNTING FOR THE EFFECTS OF REGULATION
Prior to April 1, 1997 the Company's regulated operations were subject to
the provisions of SFAS 71. Actions of a regulator could provide
reasonable assurance of the existence of an asset, reduce or eliminate
the value of an asset and impose a liability on a regulated enterprise.
Therefore, regulatory assets and liabilities established by the actions
of a regulator were required to be recorded, and, accordingly, reflected
in the balance sheet of an entity subject to SFAS 71.
As the result of changes in the manner in which the Company is regulated
and the heightened competitive environment, the Company determined that
it no longer met the criteria for following SFAS No. 71. As of April 1,
1997, the Company discontinued applying SFAS No. 71. The accounting
impact was an extraordinary non-cash gain of $2,239,045, net of
applicable income taxes of $1,493,212. Although estimated economic useful
lives are shorter than previously used for regulatory approved asset
lives, the change has resulted in an increase in net telephone plant due
to the Company recording additional depreciation charges totaling
$15,414,156 over the prior five years. The effect on future charges for
depreciation is not expected to differ materially from what would have
been recorded under SFAS No.
71. The components of the gain, pretax, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Change in recorded value of long lived telephone plant $ 1,757,824
Elimination of regulatory liabilities 1,974,433
--------------------
Total $ 3,732,257
====================
</TABLE>
The increase in net telephone plant, $1,757,824 pretax, was recorded as a
decrease to the related accumulated depreciation accounts. Such change
was the result of changing from regulator-approved asset lives, and
additional depreciation charges, to estimated economic asset lives.
The average depreciable lives of affected categories of long-lived
telephone plant have been changed to more closely reflect the economic
and technological lives. Differences between regulator-approved asset
lives and the current economic asset lives are as follows:
<TABLE>
<CAPTION>
COMPOSITE OF ESTIMATED ECONOMIC
REGULATOR-APPROVED ASSET
ASSET LIVES LIVES
<S> <C> <C>
Digital switching 14 10
Circuit equipment 10 7
Aerial cable 19 17
Buried cable 16 17
</TABLE>
(Continued)
F-32
<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
The remaining components of the extraordinary charge, $1,974,433 pretax,
was the result of the removal of regulatory liabilities that were
recorded as a result of previous actions by regulators. Virtually all of
these regulatory liabilities arose in connection with the incorporation
of new accounting standards into the ratemaking process and were
transitory in nature.
During 1996, the Company filed a price regulation plan with its state
regulators seeking permission to become regulated based on prices rather
than traditional rate base rate of return regulation. During 1997, the
Company's plan was approved. Under the plan, the Company "rebalanced" its
rates, lowering or eliminating many toll rates while bringing the price
of monthly local services closer to its underlying costs and
significantly expanding it's local and discounted toll calling areas. In
exchange for the greater flexibility in setting prices, the Company
agreed to open up its markets for competition for local dial-tone
services. By rebalancing rates, management believes the Company can
compete in emerging markets and still sustain local rates that are
affordable.
(15) SEGMENT INFORMATION
Effective December 31, 1998, the Company adopted FAS 131, "DISCLOSURES
ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION." The Company's
only reportable segment, The Concord Telephone Company (CTC), provides
local telephone and other services primarily to residential and business
customers located in North Carolina. Accounting policies of the segments
are the same as those described in the summary of significant accounting
policies. The Company 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.
December 31, 1998:
------------------
<TABLE>
<CAPTION>
CTC ALL OTHER TOTAL
-------------------- ------------------- -------------------
<S> <C> <C> <C>
External revenues $ 70,646,749 21,078,645 91,725,394
Intersegment revenues 5,017,641 -- 5,017,641
Depreciation and amortization 11,530,611 1,309,950 12,840,561
Segment operating profit 20,140,552 1,312,428 21,452,980
Segment assets 127,673,177 55,961,181 183,634,358
December 31, 1997:
CTC ALL OTHER TOTAL
-------------------- ------------------- -------------------
External revenues $ 64,952,387 13,531,127 78,483,514
Intersegment revenues 3,629,556 -- 3,629,556
Depreciation and amortization 9,021,245 590,840 9,612,085
Segment operating profit 18,101,086 1,992,056 20,093,142
Segment assets 107,244,263 40,095,166 147,339,429
</TABLE>
(Continued)
F-33
<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
December 31, 1996:
------------------
<TABLE>
<CAPTION>
CTC ALL OTHER TOTAL
-------------------- ------------------- -------------------
<S> <C> <C> <C>
External revenues $ 56,675,193 10,378,813 67,054,006
Intersegment revenues 2,387,185 -- 2,387,185
Depreciation and amortization 10,050,370 54,432 10,104,802
Segment operating profit 15,169,084 534,955 15,704,039
Segment assets 90,855,542 24,208,421 115,063,963
Capital expenditures
</TABLE>
(16) RECONCILIATION OF BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING
<TABLE>
<CAPTION>
<S> <C>
1998:
Basic weighted average shares outstanding 9,227,016
Effect of dilutive securities:
Stock options 49,488
--------------------
Diluted weighted average shares outstanding 9,276,504
====================
1997:
Basic weighted average shares outstanding 9,076,211
Effect of dilutive securities:
Stock options 35,228
--------------------
Diluted weighted average shares outstanding 9,111,439
====================
1996:
Basic weighted average shares outstanding 9,051,731
Effect of dilutive securities:
Stock options 26,654
--------------------
Diluted weighted average shares outstanding 9,078,385
====================
</TABLE>
(Continued)
F-34
<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(17) SUMMARY OF INCOME STATEMENT INFORMATION (UNAUDITED)
A summary of quarterly income statement information for the years ended
December 31, 1998 and 1997, follows:
<TABLE>
<CAPTION>
1998 QUARTERS ENDED
------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Operating revenues $ 21,015,585 22,408,193 23,760,610 24,541,006
Income before other income
(expenses) and income
taxes 5,558,343 5,690,767 5,512,696 4,691,174
Net income 3,137,453 3,195,198 3,202,872 3,846,887
Basic earnings per common
share $ .34 .35 .34 .42
============== ============== ============== ==============
Diluted earnings per common
share $ .34 .34 .34 .42
============== ============== ============== ==============
1997 QUARTERS ENDED
------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------------- -------------- -------------- --------------
Operating revenues $ 17,852,229 19,465,534 20,200,736 20,965,015
Income before other income
(expenses) and income
taxes 5,272,271 4,675,029 4,547,808 5,598,034
Net income 2,649,392 5,315,069 3,008,584 2,867,804
Basic earnings per common
share $ .29 .58 .33 .32
============== ============== ============== ==============
Diluted earnings per common
share $ .29 .58 .33 .31
============== ============== ============== ==============
</TABLE>
Earnings for the second quarter of 1997 reflect an extraordinary gain
from the discontinuance of FAS 71 of $2,239,045, net of income taxes of
$1,493,312, as mentioned in note 14. Amounts have also been adjusted for
the effects of implementing SFAS No. 128.
(Continued)
F-35
<PAGE>
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(18) SUBSEQUENT EVENTS
On January 28, 1999, the Company's shareholders approved a plan of
recapitalization for its common stock. On that date, the Company's
Articles of Incorporation were amended to provide for one class of common
stock, rather than the two existing classes of Voting Common Stock and
Class B Nonvoting Common Stock. Each outstanding share of Voting Common
Stock has been automatically converted into 4.4 shares of common stock,
and each outstanding share of Class B Nonvoting Common Stock has been
automatically converted into 4.0 shares of common stock. In lieu of
issuing fractional shares, the Company intends to pay cash for these
shares. The Company's common stock has been approved for trading on The
Nasdaq Stock Market under the symbol "CTCI". The foregoing financial
statements and footnotes have been adjusted to reflect the
recapitalization.
On March 5, 1999, the Company entered into an interest rate swap
transaction with First Union Capital Markets to establish a fixed rate of
interest on $10,000,000 of the outstanding line of credit at December 31,
1998.
(Continued)
F-36
<PAGE>
Schedule II
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
<S> <C>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
------------------------------------------- -------------- ---------------- --------------
DEDUCTIONS
------------- ADDITIONS FROM BALANCE,
BALANCE, CHARGED RESERVES AT END
DESCRIPTION BEGINNING TO INCOME (SEE NOTE) OF YEAR
OF YEAR
------------------------------------------- ------------- -------------- ---------------- --------------
Valuation and qualifying accounts deducted
from assets to which they apply:
Allowance for uncollectible accounts:
Year ended December 31, 1998 $ 100,000 433,747 426,247 107,500
============== ============== ================ ==============
Year ended December 31, 1997 $ 100,000 381,757 381,757 100,000
============== ============== ================ ==============
Year ended December 31, 1996 $ 100,000 323,075 323,075 100,000
============== ============== ================ ==============
</TABLE>
Note: Represents balances written-off as uncollectible less collections
on balances previously written off of $202,512, $436,511 and
$508,391 for 1998, 1997, and 1996, respectively.
F-37
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
CT Communications, Inc.:
We consent to incorporation by reference in the Registration Statements on Form
S-8 (Registration Nos. 33-59641, 33-59643, 33-59645, 333-15537, 333-30125, and
333-38895) of CT Communications, Inc. of our report dated March 5, 1999,
relating to the consolidated balance sheets of CT Communications, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1998, and related schedule,
which report is included in the December 31, 1998 Annual Report on Form 10-K
of CT Communications, Inc.
/s/ KPMG LLP
-------------------------
KPMG LLP
Charlotte, North Carolina
May 12, 1999
