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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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, 1999
[ ] 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)
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<S> <C>
NORTH CAROLINA 56-1837282
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization Number)
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<S> <C>
68 CABARRUS AVENUE, EAST
CONCORD, NORTH CAROLINA 28025
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (704) 722-2500
Securities registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS: NAME OF EXCHANGE ON WHICH REGISTERED:
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None None
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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 $462,280,004 (based on the March 1, 2000 closing price
of the Common Stock of $56.75 per share). As of March 1, 2000, there were
9,397,636 shares of the Company's Common Stock outstanding. (Price and share
amounts have not been adjusted for the Company's two-for-one stock dividend
payable on April 5, 2000 to shareholders of record on March 15, 2000).
Documents Incorporated by Reference
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DOCUMENT OF THE COMPANY FORM 10-K REFERENCE LOCATION
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Certain portions of the Annual Report to
Shareholders for the fiscal year ended
December 31, 1999 PARTS I and II
2000 Annual Meeting Proxy Statement PART III
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CT COMMUNICATIONS, INC.
AND CONSOLIDATED SUBSIDIARIES
FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 12
Item 3. Legal Proceedings........................................... 13
Item 4. Submission of Matters to a Vote of Security Holders......... 13
Item 4A. Executive Officers of the Company........................... 14
PART II
Item 5. Market for the Company's Common Equity and Related
Shareholder Matters......................................... 15
Item 6. Selected Financial Data..................................... 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 17
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 22
Item 8. Financial Statements and Supplementary Data................. 22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 22
PART III
Item 10. Directors and Executive Officers of the Company............. 23
Item 11. Executive Compensation...................................... 23
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 23
Item 13. Certain Relationships and Related Transactions.............. 23
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 23
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PART I
ITEM 1. BUSINESS
The following discussion contains certain forward-looking statements that
involve risks and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements. Words such as
"expects," "anticipates," "believes," "estimates," variations of such words and
other similar expressions are intended to identify such forward-looking
statements. Information concerning certain factors that could impact expected
results is included in "Management's Discussion and Analysis of Financial
Condition and Results of Operations-- Forward-Looking Statements."
GENERAL
CT Communications, Inc. is a holding company that, through its operating
subsidiaries, provides integrated telecommunications services to residential and
business customers located primarily in North Carolina and South Carolina. We
offer a comprehensive package of telecommunications services, including local
and long distance telephone, Internet and data services and digital wireless
services.
We began operations in 1897 as the Concord Telephone Company. Concord
Telephone continues to operate as an incumbent local exchange carrier ("ILEC")
in a territory covering approximately 705 square miles in Cabarrus, Stanly and
Rowan Counties, North Carolina. This area is located just northeast of
Charlotte, North Carolina along the Interstate 85 corridor, a major north/south
connector between Atlanta, Georgia and Washington, D.C. Our ILEC offers a full
range of local telephone, long distance and other enhanced services.
In 1998, we began to operate as a competitive local exchange carrier
("CLEC") in the northern Charlotte markets contiguous to our ILEC service area.
A significant concentration of our customers are in the Salisbury, North
Carolina area. Our CLEC business focuses on small-to-medium-size companies in
secondary markets along the I-85 corridor. Our CLEC offers services
substantially similar to those offered by our ILEC.
We provide long distance telephone service in the same areas served by our
ILEC and CLEC. We have agreements with several interexchange carriers to
terminate traffic that originates on our network, and our switching platform
enables us to route traffic to the lowest cost provider.
We offer Internet and data services to both ILEC and CLEC business and
residential customers. In May 1998, we significantly expanded this business
through our strategic acquisition of Vnet, a business-oriented Internet service
provider based in Charlotte. We provide dial-up and high speed dedicated
Internet access, Web hosting, Web design, electronic commerce applications and
digital subscriber line ("DSL") services.
We offer our own branded digital wireless services through a resale
arrangement with BellSouth Corp.'s Carolinas' PCS Limited Partnership (the "DCS
Partnership"). The DCS Partnership offers service throughout most of North
Carolina and South Carolina and is one of the largest regional digital wireless
networks in the Southeast. Roaming agreements with other wireless carriers
enable our customers to utilize their digital wireless services throughout the
United States and in a number of foreign countries.
The operations of Concord Telephone are our primary business segment.
Concord Telephone accounted for approximately 73% of our operating revenues and
approximately 98% of our operating profit in 1999. Despite anticipated growth of
other products and services, as described below, we expect that Concord
Telephone will continue to account for a significant portion of our revenue and
earnings in 2000. Certain business, financial and competitive information about
our operations is discussed below. For certain other information regarding our
business segments, see the Note entitled "Segment Information" in the Notes to
Consolidated Financial Statements in our 1999 Annual Report of Shareholders,
which information is incorporated into this report by reference.
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Effective January 28, 1999, our Voting Common Stock and Class B Nonvoting
Common Stock were converted into a single class of Common Stock (the
"Recapitalization"). Pursuant to the Recapitalization, our Articles of
Incorporation were amended to (i) provide for one class of Common Stock,
consisting of 100 million authorized shares, and (ii) reclassify each issued and
outstanding share of Voting Common Stock into 4.4 shares of Common Stock and
each issued and outstanding share of Class B Nonvoting Common Stock into 4.0
shares of Common Stock. Cash was paid in lieu of issuing any fractional shares.
On July 24, 1997, the Board of Directors declared a three-for-two stock dividend
payable August 29, 1997. All share and per share amounts in this Annual Report
on Form 10-K have been adjusted to reflect the Recapitalization and the 1997
stock dividend, unless otherwise indicated.
On February 24, 2000, the Board of Directors declared a two-for-one stock
dividend payable on April 5, 2000 to shareholders of record on March 15, 2000.
Share and per share amounts in this Annual Report on Form 10-K have not been
adjusted to reflect this stock dividend.
CT Communications, Inc. is incorporated under the laws of North Carolina
and was organized in 1993 pursuant to the corporate reorganization of Concord
Telephone into a holding company structure. Our principal executive offices are
located at 68 Cabarrus Avenue, East, Concord, North Carolina 28025 (telephone
number: (704) 722-2500.)
OPERATIONS
Our four primary business segments are described in more detail below.
ILEC SERVICES
Concord Telephone offers integrated telecommunications services as an ILEC
to customers served by nearly 117,000 access lines in Cabarrus, Stanly and Rowan
Counties. Our ILEC network facilities include nearly 15,000 fiber miles, serving
nine exchanges in a host-remote switch architecture.
The access line growth rate has continued to accelerate in recent years,
increasing from 4.5% in 1995 to 7.1% in 1999. Strong growth in the business
market has been a significant driver of this increase. The business growth rate
has increased from 7.9% in 1995 to 13.9% in 1999. As a result of this strong
growth in the business market, we expect the percentage of total access lines
represented by business customers to continue to increase. The following table
details access line growth over the past five years:
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YEARS ENDED DECEMBER 31,
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1999 1998 1997 1996 1995
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ACCESS LINES
Residential...................................... 87,857 83,612 79,398 75,915 73,104
Business......................................... 29,078 25,535 23,175 20,632 18,498
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Total ILEC 116,935 109,147 102,573 96,547 91,602
======= ======= ======= ====== ======
PERCENTAGE GROWTH
Residential...................................... 5.1% 5.3% 4.6% 3.8% 3.7%
Business......................................... 13.9% 10.2% 12.3% 11.5% 7.9%
Total ILEC....................................... 7.1% 6.4% 6.2% 5.4% 4.5%
PERCENT OF TOTAL
Residential...................................... 75.1% 76.6% 77.4% 78.6% 79.8%
Business......................................... 24.9% 23.4% 22.6% 21.4% 20.2%
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Continued high customer satisfaction remains a top priority, and our
efforts are directed accordingly. We have implemented a number of performance
and satisfaction measures in our operations and continue to survey customers
monthly to gauge loyalty and satisfaction. We hold all of our employees
accountable for service quality, and a portion of their compensation depends
upon customer survey results.
Our ILEC sales team is structured to provide maximum flexibility for our
customers. Residential customers may personally meet with a sales and service
representative in one of our four business offices or
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can alternatively take advantage of the convenience of calling into our
centralized customer care center. Our sales team provides "one-stop" shopping;
each residential customer service representative is trained in all residential
applications, including Internet and data services, digital wireless and paging
services, and telephone equipment, and will additionally address any follow-up
sales and billing concerns.
Business customers are served by a specialized group trained to manage the
specialized products and services unique to business customers. Customers with
less complex needs are supported by a specialized telephone customer care group,
which develops solutions and schedules service installations. Major business
customers are assigned dedicated account executives that are familiar with their
complex applications and service requirements.
A centralized operations service center coordinates provisioning and
maintenance for all ILEC customers. In addition to receiving maintenance
requests, this center dispatches field personnel and monitors the status of all
service orders and maintenance requests. To ensure continued customer
satisfaction, the center is measured against targeted time intervals and the
ability to meet customer commitment dates.
Our core ILEC network is comprised of modern digital switching equipment
and fiber optic cable with self-healing SONET ring topology. In 1996, we began
conversion to a Nortel DMS 100/200 network switching platform. We continue to
upgrade our distribution network by moving fiber and electronics closer to the
customer through the use of remote switching units. The customer care service
center operations are supported by an AS400-based service order,
trouble-ticketing, billing and collection system and a Mitel private branch
exchange with automated call distribution capabilities. At the heart of our
network is a network operations center that identifies problems as they occur
and diagnoses potential network problems before customers are impacted.
Regulation. Our ILEC is subject to extensive regulation by various
federal, state and local governmental bodies. Federal laws and regulations have
opened our ILEC's local service market to competition, have required us to
permit interconnection with our network and have established our obligations
with respect to reciprocal compensation for completion of calls, the resale of
telecommunications services, the interconnection of facilities, the provision of
nondiscriminatory access to unbundled network elements, number portability,
dialing parity and access to poles, ducts, conduits and rights-of-way. As a
general matter, this ongoing regulation increases our ILEC's business risks and
may have a substantial impact on our ILEC's future operating results. Among
recent Federal Communications Commission regulatory developments is the FCC's
Third Report and Order in CC Docket No. 96-98 (the "UNE Remand Order"), which
was released on November 5, 1999. The UNE Remand Order established a new set of
unbundled network elements ("UNEs") that ILECs are obligated to provide to
competing carriers under Sections 251(e)(3) and 251(d)(2) of the
Telecommunications Act. Among other things, the UNE Remand Order effectively
requires ILECs to permit competing carriers to "convert" resold local exchange
services and, in certain circumstances, special access services, to
"combinations" of UNEs at reduced prices. On December 9, 1999, the FCC released
its Fourth Report and Order in CC Docket No. 96-98 and Third Report and Order in
CC Docket No. 98-147 ("Line Sharing Order"). The Line Sharing Order is designed
to promote competitive entry into broadband services by requiring ILECs to
provide competing carriers with access to the high frequency portion of the
telephone lines, or loops, that an ILEC uses to provide voice communication
services to its customers. This requirement will enable competing carriers to
offer advanced data services, such as DSL services used for high-speed access to
the Internet, to the ILEC's customers, using the same telephone lines as the
ILEC.
In the interrelated areas of access charge reform and universal service,
the FCC currently has several proceedings pending that could materially change
both the manner in which our ILEC imposes interstate access charges and the
level of those charges. On September 15, 1999, the FCC released a consolidated
Notice of Proposed Rulemaking in four of these ongoing proceedings (CC Docket
Nos. 94-1, 96-45, 96-262 and 99-249) seeking comments on a proposal submitted by
the Coalition for Affordable Local and Long Distance Service ("CALLS"), a
coalition of certain long distance and local service providers. The CALLS
proposal is a voluntary program for ILECs that have chosen to be subject to
price cap regulation
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for their interstate access charges. If adopted by the FCC, the CALLS proposal
would significantly alter the existing access charge rate structures of the
ILECs participating in the program, in a manner designed to eliminate certain
implicit subsidies previously authorized by the FCC. This would substantially
change the way in which those ILECs currently collect access charges, as well as
reduce the level of such charges for long distance calls by certain customers,
including multi-line business customers. The FCC is also considering other
competing proposals, including a proposal by the state members of the
Federal-State Joint Board on Universal Service that would eliminate certain ILEC
charges to end-user subscribers and instead impose a single flat charge on long
distance carriers. The outcome of these proceedings could have a substantial,
and potentially adverse, impact on the structure of our ILEC's access charges
and the level of access charge revenues that our ILEC collects. The FCC also
governs our ILEC's rates for interstate access services.
State laws and regulations require us to comply with North Carolina pricing
regulations, file periodic reports, pay various fees and comply with rules
governing quality of service, consumer protection and similar matters. Local
regulations require us to obtain municipal franchises and to comply with various
building codes and business license requirements. These federal, state and local
regulations are discussed in more detail under "Legislative and Regulatory
Developments" under this Item 1.
Since September 1997, our ILEC's rates for local exchange services have
been established under a price regulation plan approved by the North Carolina
Utilities Commission. Under the price regulation plan, our charges are no longer
subject to rate-base, rate-of-return regulation. Instead, the charges for most
of our local exchange services may be adjusted to reflect changes in inflation
reduced by a 2% assumed productivity offset. Charges are also subject to
adjustment when required to compensate for certain exogenous events outside of
our control, such as jurisdictional cost shifts or legislative mandates. We have
agreed to maintain current price levels for basic residential local service
until September 2000, when they may be adjusted.
Competition. Several factors have resulted in rapid change and increased
competition in the local telephone market over the past 15 years, including:
- growing customer demand for alternative products and services,
- technological advances in transmitting voice, data and video,
- development of fiber optics and digital electronic technology,
- a decline in the level of access charges paid by interexchange carriers
to local telephone companies to access their local networks, and
- legislation and regulations designed to promote competition.
As the incumbent local exchange carrier for Cabarrus, Stanly and Rowan
Counties, we compete with CLECs. In exchange for rate rebalancing, pricing
flexibility and simplification of rate plans in our price regulation plan, we
agreed to open our markets to competition for local dial tone service. In the
second quarter of 1998, we entered into interconnection agreements with Time
Warner Communications of North Carolina, L.P. and US LEC of North Carolina, LLC,
to provide access to our local telephone service market. We currently are
negotiating interconnection agreements with Alltel Communications, Inc. and with
Empire Communications Corp., which we expect to be finalized during 2000.
Although competitive losses have been minimal since we opened our market almost
two years ago, we expect these interconnection agreements to continue to create
significant competitive pressure regarding our largest business customers. To
address these competitive threats, our ILEC has matched the pricing and service
offerings of these competitors. This price regulation plan flexibility has
allowed us to maintain a 99% market share.
Cable operators are also entering the local exchange market. Time Warner
currently offers telephony services in its major markets and cable service in
our core service area. Also, AT&T Corp. recently has made significant
investments to upgrade its cable systems to offer telephony services. Other
sources of competition include various wireless service providers.
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On January 10, 2000, Time Warner and America Online, Inc. ("AOL"), the
country's largest internet service provider, announced that they had entered
into an agreement to merge. If the merger is consummated, the post-merger
company could become a formidable competitor to our ILEC and will seek to
provide consumers with a "one-stop" source for a broad array of
telecommunications, information and Internet services. AOL and Time Warner have
already stated that their proposed service offerings post-merger will include a
communications platform that combines AOL's instant messaging service with local
telephony over cable. According to AOL and Time Warner, the merger will
accelerate the availability of broadband interactive services to consumers and
drive further growth in electronic commerce. The merger may also presage further
consolidation involving telecommunications, cable and information services
providers.
CLEC AND LONG DISTANCE SERVICES
Our competitive local exchange carrier ("CLEC") business began in 1998
through our interconnection agreement with BellSouth Telecommunications, Inc. in
Salisbury, North Carolina and northern Charlotte. At December 31, 1999, we were
providing competitive local access to customers served by nearly 3,600 access
lines in these markets with an additional 400 sold but not yet in service.
Through February 2000, we also have sold an additional 1,600 access lines that
are not yet in service. In January 2000, we obtained approval to provide
competitive local access in South Carolina and have entered into interconnection
agreements with BellSouth and GTE Corporation/Sprint Corporation. We also
recently entered into an interconnection agreement with Alltel Carolinas, Inc.
allowing us to provide CLEC services in their territory, including the Matthews
and Mooresville, North Carolina areas. We service a majority of these customers
under resale arrangements. However, in 1999 we shifted from a resale strategy
and began offering service on our own facilities.
Our CLEC business group employs the same sales strategy as our ILEC
business group, using locally based account executives who meet face-to-face
with business customers. Our CLEC offers an integrated combination of
communications services, including local service, long distance and enhanced
voice services, and Internet and data services. Our CLEC uses the same billing
platform as our ILEC. A significant portion of compensation for our CLEC's sales
organization is based on individual and group sales results.
Our CLEC manages our own network elements and those elements leased from
the incumbent local carrier, utilizing the MetaSolv TBS ordering and
provisioning system. The CLEC's customer care group has received specialized
training specific to interconnection ordering and provisioning processes. We
hold these employees to the same high standards for service quality as our ILEC
customer care groups.
We deploy a facilities-based network in our expansion markets, collocating
our own remote switching equipment with the incumbent telephone company. We
connect the local remote switches in each of our expansion markets using a
variety of fiber optic links. We typically lease appropriate network elements
from the incumbent carrier to give us greater control over the service quality
and platform for rapid expansion in the future. We expanded our facilities-based
service into the northern Charlotte markets in 1999 with the opening of the
Concord Mills Mall and expect to expand into 10 more markets in 2000. As we
develop a critical mass of customers in a specific market, we will evaluate the
economics of pushing our own network elements closer to our customer base,
providing even more control and flexibility. In 1996, we installed a Nortel DMS
500 switch in Charlotte that permits us to switch the local traffic from our
CLEC and all of our long distance traffic.
We have interconnection agreements with Carolinas FiberNet, LLC, which,
through its partners, offers a continuous fiber network encompassing 16 states
and more than 10,000 fiber route miles. The Carolinas FiberNet network extends
to many of the smaller markets in North Carolina and South Carolina. Barry R.
Rubens, our Chief Financial Officer, is a director of Carolinas FiberNet.
We began offering long distance services to our ILEC customers in 1992 and
now provide that service to approximately 79,000 access lines. We have
agreements with several interexchange carriers to terminate traffic that
originates on our network, and our switching platform enables us to route the
traffic to the
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lowest cost provider. In our ILEC service area, approximately 68% of the total
lines are subscribed to our own branded long distance service.
Regulation. In general, our CLEC establishes its own rates and charges for
local services and is subject to less extensive regulation as compared to our
ILEC. However, like the ILEC, our CLEC must comply with various rules of the
North Carolina Utilities Commission governing quality of service, consumer
protection and similar matters. The FCC has jurisdiction over our CLEC
interstate services, including access and long distance services.
Competition. Our CLEC competes primarily with local incumbent telephone
companies and, to a lesser extent, with other CLECs. We also face, and will
continue to face, competition from other current and potential future market
entrants, including other CLECs, cable television companies, electric utilities,
microwave carriers, wireless telecommunications providers, Internet service
providers and private networks built by large end-users.
The long distance market has become significantly more competitive since
1984, when AT&T was required to divest its local telephone system. Since that
time, new competitors have entered the market and prices have declined,
resulting in increased consumer demand and significant market growth. Increased
competition has also led to increased consolidation among long distance service
providers. Major long distance competitors include AT&T, Sprint and MCI
WorldCom, Inc. On October 5, 1999, Sprint and MCI WorldCom announced that they
had entered into a merger agreement, which, if approved by the applicable
regulatory authorities, would result in two dominant long distance competitors,
AT&T and MCI/Sprint. Furthermore, Bell Atlantic Corporation recently obtained
approval to provide long distance services in New York, and SBC Communications,
Inc. is seeking approval in Texas. BellSouth is expected by many industry
analysts to obtain approval to provide long distance service in some southern
states in late 2000 or early 2001. These competitors benefit from established
market share and from established trade names through nationwide advertising.
Internet-protocol telephony, a potential competitor for low cost telephone
service, is also developing.
INTERNET AND DATA SERVICES
In 1997, we began providing dial-up Internet access to residential and
business customers. In May 1998, we acquired Vnet, a business-oriented Internet
service provider based in Charlotte, North Carolina. The Vnet acquisition added
approximately 5,000 Internet accounts, including 400 business accounts. In
September 1999, we added approximately 900 Internet accounts through the
acquisition of Catawba Valley Internet Partnership, an Internet service provider
based in Cherryville, North Carolina. In February 2000, we purchased
substantially all of the business assets of Internet of Concord, including 1,845
dial-up and Web hosting accounts. At March 1, 2000, we had approximately 19,500
Internet customers.
Internet Access Service. We offer a variety of dial-up and dedicated
access solutions which provide access to the Internet. We also offer a full
range of customer premise equipment required to connect to the Internet. Our
access services include:
- Dedicated Access. We offer a broad line of high-speed dedicated access
utilizing frame relay and dedicated circuits, which provide business
customers with direct access to a full range of Internet applications.
- DSL Access. We began to offer high-speed Internet access service using
DSL technology in the third quarter of 1999. DSL technology permits high
speed digital transmission over the existing copper wiring of regular
telephone lines. Our DSL service is available at speeds up to 768 Kbps.
Our DSL services are designed for residential users and small-to-medium
sized businesses to provide high quality Internet access at speeds faster
than an integrated services digital network ("ISDN") and at flat-rate
prices that are lower than traditional dedicated access charges.
- Dial-up Access. Our dial-up services provide access to the Internet
through ordinary telephone lines at speeds of up to 56 Kbps and through
digital ISDN lines at speeds of up to 128 Kbps.
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Web Services. We offer a variety of value-added services, including Web
hosting, Web design, collocation, virtual private networks or intranets, remote
access and security solutions, and video conferencing.
Electronic Commerce. We provide software solutions that enable companies
to conduct electronic commerce. We offer electronic data interchange/extraNet
solutions consisting of software and services that are designed to help
businesses connect to their suppliers and customers. We also provide Internet
commerce software to allow businesses to build Web applications for
commerce-enabled Web sites, intranets and extranets. Common features of this
software include the ability to build electronic catalogs to conduct
transactions and to integrate with business systems, including purchasing,
accounting and inventory systems.
Account executives sell Internet and data services directly to business
customers in the Charlotte metropolitan area, including Gastonia, Concord,
Kannapolis, and Monroe, as well as in Raleigh and Greensboro, North Carolina and
in Charleston and Rock Hill, South Carolina. Our technical support staff is
available 24 hours a day, seven days a week. Our technicians design, order,
configure, install and maintain all of our equipment to suit the customer's
needs. We have a customer care group dedicated to Internet and data services.
We provide Internet and data services primarily through our own network in
our ILEC and CLEC territories. In other areas, we use the network of the local
telephone company. We purchase access to the Internet from national Internet
backbone providers, which provide DS-3 access at all major national access
points.
Regulation. In general, Internet and data services are not regulated at
the federal level. However, an important regulatory issue currently pending
before both the FCC and federal courts is how Internet traffic will be
classified and treated for purposes of interstate access charges and reciprocal
compensation related to local traffic. Internet service providers currently
obtain access services from local exchange carriers without having to pay the
access charges that interexchange carriers pay for equivalent service. This
special exemption may be withdrawn at any time, in which case Internet services
could be subject to access charges.
Currently, calls placed by end-users to Internet service providers are
subject to reciprocal compensation payments under existing interconnection
agreements. On February 26, 1999, the FCC decided that these calls are primarily
jurisdictionally interstate traffic and that the Telecommunications Act does not
require reciprocal compensation to be paid on them. The decision asserts that
because no federal rules governing inter-carrier compensation for this traffic
currently exist, the determination of whether it is subject to reciprocal
compensation may be made by state regulatory commissions. The FCC's decision
states that state commission decisions mandating the payment of reciprocal
compensation for Internet service providers' traffic may conform with federal
law. Although the FCC may re-assert jurisdictional authority and preempt state
commission findings regarding reciprocal compensation, it has not yet shown an
inclination to do so. We are uncertain as to the outcome of these matters or the
impact on our Internet business.
In cases between BellSouth and US LEC Corp. and between BellSouth and ICG
Communications, Inc., the North Carolina Utilities Commission has ruled that
Internet traffic originating and terminating in the same calling area is subject
to local reciprocal compensation as specified in existing interconnection
agreements. Commissions in numerous other states have made similar rulings.
However, our ILEC and BellSouth agreed in late 1999 to amend their
interconnection agreement to exclude Internet traffic from compensation
arrangements.
Another significant issue facing Internet service providers is whether they
will be given access to broadband systems operated by cable television
companies. Internet service providers generally believe that such mandatory
access is appropriate and would allow them to provide competitive high-speed
broadband service to more customers. For example, AOL, as the world's largest
Internet service provider, strongly advocates "open access," although it is not
currently supporting the need for government intervention to
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mandate open access. Time Warner and AOL recently agreed, as part of their
proposed merger, to open Time Warner's cable systems to competing Internet
service providers. AT&T and Mindspring Enterprise, Inc. recently have reached a
similar agreement. The issue continues to be debated and legislation has been
introduced to Congress to mandate access to broadband cable networks. However,
the FCC has thus far declined to take action on the matter. The ultimate outcome
of this issue could have a significant impact on the success of Internet service
providers.
Competition. The Internet and data services market is extremely
competitive, highly fragmented and has grown dramatically in recent years. The
market is characterized by the absence of significant barriers to entry and the
rapid growth in Internet usage among customers. Sources of competition are:
- access and content providers, such as AOL, the Microsoft Network and
Prodigy;
- local, regional and national Internet service providers, such as PSINet,
EarthLink, and Mindspring;
- the Internet services of regional, national and international
telecommunications companies, such as AT&T, BellSouth, and MCI WorldCom;
- online services offered by incumbent cable providers, such as Time
Warner; and
- DSL providers, such as COVAD and Northpoint.
The recently announced merger plans of AOL/Time Warner and MCI/Sprint
create further, formidable competitive threats in the Internet and data services
market, assuming that those mergers are approved by the applicable regulatory
authorities and consummated. In both instances, the merging companies have
announced plans to leverage their combined assets and resources post-merger to
offer a wide variety of Internet and data-related services.
DIGITAL WIRELESS SERVICES
Under our existing agreements with the DCS Partnership, we have the ability
to offer digital wireless services as part of our integrated services package to
customers anywhere in North Carolina and South Carolina. We offer digital
wireless services in Cabarrus, Stanly, Rowan and Iredell Counties in North
Carolina through a branded resale arrangement with the DCS Partnership. We sell
digital wireless services and products, including service packages, long
distance, features, handsets, prepaid plans, and accessories, through four
retail outlets in Concord (2), Statesville and Salisbury, North Carolina.
Digital wireless products and services are also sold through our ILEC business
offices and our direct sales force. At December 31, 1999, we served
approximately 10,700 customers, a 65% increase over the approximately 6,500
customers served at December 31, 1998. Customer attrition for 1999 averaged 2.8%
per month.
We have approximately a 2.0% interest in the DCS Partnership, which
includes BellSouth Telecommunications, a subsidiary of Duke Energy Company, a
subsidiary of Carolina Power & Light Company and approximately 30 other
independent telephone companies. The DCS Partnership owns a 100% digital
communications network in North Carolina and South Carolina, an area covering
approximately 11 million people. The DCS Partnership's digital wireless network
is based on Global System for Mobile Communications ("GSM") wireless technology,
which offers advanced services and functionality, secure communications, digital
voice quality and national and international roaming. GSM technology is proven
technology used by more than 370 service providers in over 129 countries and by
more than 200 million customers worldwide. GSM provides our customers with
extensive roaming capabilities both nationally and internationally.
The DCS Partnership is primarily responsible for the marketing function of
our digital wireless business. It develops and implements promotions, develops
and advertises pricing plans, conducts market research, develops collateral
materials, and otherwise markets the DCS Partnership's digital wireless service
throughout most of North Carolina and South Carolina. We support the DCS
Partnership's service plans and promotions through local advertising and
distribution efforts.
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Customer service is provided by specialized service representatives trained
to handle the specific requirements of our digital wireless customers. The
ordering and provisioning of digital wireless service can be performed at our
store locations or by the customer through a toll-free 800 number.
Each independent telephone company limited partner in the DCS Partnership
has the option to partition a pre-defined service area. Our pre-defined service
area includes Cabarrus, Rowan and Stanly Counties and the southern portion of
Iredell County. Partitioning would allow us to purchase the license, base
station sites, and any customers the DCS Partnership has acquired in the area.
After partitioning, we would continue to purchase pre-defined services from the
DCS Partnership, such as switching, under an operating agreement. The operating
agreement also provides customer service and technical performance requirements
for the DCS Partnership and the partitioning telephone company.
We have until June 30, 2000 to exercise our right to partition. We expect
the net cost of partitioning to be between $12 million and $15 million, payable
in full in the fourth quarter of 2000. Additionally, we must pay the costs to
own and operate the portion of the network in our partitioned area. If we elect
to partition, we expect to finance the costs associated with partitioning by
borrowing under our existing credit facility. Following partitioning, we would
operate as a provider of wireless products and services within our partitioned
area, and we could continue reselling wireless services outside the
partitionable area. At the time of partitioning, our wireless network is
expected to be substantially built out throughout our partitionable area. If we
elect not to partition, we may continue to resell the services of the DCS
Partnership throughout its service area.
Regulation. The construction, operation, management and transfer of
digital wireless systems in the United States is regulated by the FCC. Digital
wireless carriers are exempt from regulation by the North Carolina Utilities
Commission. The regulation of wireless services is discussed in more detail
under "Legislative and Regulatory Developments" in this Item 1.
Competition. Currently, six wireless carriers compete in the Charlotte
metropolitan area, including AT&T, Nextel, Sprint PCS, Alltel Mobile, Bell
Atlantic Mobile and BellSouth. This competition has led to intense pressure on
the pricing of services. In 1998, several providers introduced "flat rate"
pricing which eliminated roaming charges and further reduced prices. We intend
to compete by providing extensive geographical coverage, high quality technology
and service, competitive pricing and capitalizing on the strength of customers'
loyalty to us based on multiple service relationships.
INVESTMENTS
We have made several strategic investments designed to contribute to the
execution of our business strategy. The investments are described below.
Palmetto MobileNet. In January 1998, we merged our cellular telephone
interests with Palmetto MobileNet, L.P. We own 19.8% of Palmetto MobileNet,
which holds 50% general partnership interests in 10 rural service areas covering
more than two million people in North Carolina and South Carolina. Alltel Mobile
is the managing partner of the 10 cellular rural service area general
partnerships.
Maxcom. In 1996, we participated with Grupo Radio Centro in forming Maxcom
Telecommunicaciones, S.A. de C.V. (formerly Amaritel), a competitive
telecommunications company offering local, long distance and network
telecommunications services in Mexico. During 1998, we participated in an
additional $49 million private equity financing of Maxcom. The participants were
the original investors and a group of investors with international
telecommunications experience, including BankAmerica International Investment
Corporation, BancBoston Investments, Inc. and Bachow Investments Partners III,
L.P. The 1998 financing increased Maxcom's equity to $70 million, which combined
with a $100 million loan from an international bank, provided Maxcom with up to
$170 million to build the initial phases of its system. On March 10, 2000,
Maxcom privately issued $275 million of senior notes, the proceeds of which will
be used to prepay vendor financing and construct its next generation platform.
The system is being built primarily by Lucent Technologies, Inc., which is using
a wide spectrum of technology, ranging from microwave to wired fiber optic
networks. Maxcom began offering commercial services in Mexico City and
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<PAGE> 12
Puebla, Mexico in April 1999 and had over 17,000 lines in service on December
31, 1999. It expects to begin providing DSL service in June 2000.
On March 8, 2000, we entered into a Capital Contribution Agreement with
Maxcom and its shareholders. Under this agreement, the shareholders of Maxcom
are obligated to contribute a total of $35 million to Maxcom in exchange for
capital stock and warrants to purchase additional stock. The capital
contributions must be made to Maxcom by September 30, 2000. Our required capital
contribution is approximately $6 million. Our obligation to pay this amount is
secured by an Irrevocable Standby Letter of Credit that was issued on March 2,
2000.
In October 1997, we entered into an operating agreement with Maxcom, under
which we provided management expertise and strategic advice for the venture. The
operating agreement was amended as of October 1, 1999 to accelerate the
transition of management responsibilities from our employees to Maxcom
employees. We now primarily provide support and advisory services as requested
by Maxcom. In addition to certain advisory fees, we can earn an additional
$450,000 each year plus options to acquire 250,000 shares of Maxcom common stock
if certain operating and financial performance goals are met. The operating
agreement expires on December 31, 2000.
Wireless One. In 1995, we participated with Wireless One, Inc. in forming
Wireless One of North Carolina to develop and launch wireless cable systems in
North Carolina. Wireless One of North Carolina entered into contracts with
approximately 45 community colleges, several private schools in North Carolina
and the University of North Carolina system to provide wireless cable services
and holds the majority of the spectrum rights covering North Carolina. In late
1998, the FCC liberalized the use of these frequencies to include two-way data
and telephone service. Wireless One of North Carolina continuously evaluates
potential uses of its frequency spectrum, including digital video, high speed
Internet and other traditional telephony services.
In December 1999, MCI WorldCom purchased Wireless One, Inc., which owns a
50.0% interest in Wireless One of North Carolina, for cash and stock plus the
assumption of certain liabilities. We continue to own a 49.5% interest of
Wireless One of North Carolina. We are evaluating our various alternatives with
respect to our ownership interest in Wireless One of North Carolina, including a
possible sale of our interest. We currently have no arrangements or agreement to
sell our interest.
DCS Partnership. In 1994, we purchased an approximate 2.0% interest in the
DCS Partnership.
Passive Investments. Our passive investments consist of equity interests
in several private and public companies. We own 3.8% of ITC Holding Company,
which participated in the formation of a number of successful telecommunications
companies, including ITC-DeltaCom, Inc. (Nasdaq: "ITCD"), Powertel, Inc.
(Nasdaq: "PTEL") and MindSpring Enterprise, Inc. (Nasdaq: "MSPG").
As a result of the corporate reorganization of ITC Holding Company in 1997,
we received shares of ITC-DeltaCom and currently own 1.6% of the outstanding
shares of ITC-DeltaCom. We sold an aggregate of 660,000 shares of ITC-DeltaCom
from time to time during 1999 and expect to continue to sell shares in 2000 as
we deem appropriate.
ITC Holding has announced a further reorganization pursuant to which we
will receive shares of Knology, Inc., in a tax-free spin-off. To maintain the
tax-free nature of this transaction, we, and other ITC Holding Company
shareholders, have agreed not to sell or transfer the Knology shares for two
years following the date on which the shares are distributed to us.
In addition, we own approximately 3.1% of Illuminet Holdings, Inc., which
was formed by a group of independent telephone companies, including our ILEC, to
provide billing and collection services and a national SS7 network and now
markets these services to other carriers. Illuminet completed its initial public
offering of common stock in October 1999 and now trades on the Nasdaq National
Market ("ILUM"). Our Illuminet shares are subject to certain sale restrictions
that expire in April 2000. We expect to sell Illuminet shares from time to time
as we deem appropriate.
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<PAGE> 13
LEGISLATIVE AND REGULATORY DEVELOPMENTS
The telecommunications industry is subject to federal, state and local
regulation. The application of these regulations to our business segments is
discussed above. A more general description is set forth below.
Federal Regulations. The FCC regulates interstate and international
telecommunications services, which includes using local telephone facilities to
originate and terminate interstate and international calls. The
Telecommunications Act is intended to promote competitive development of new
service offerings, to expand public availability of telecommunications services
and to streamline regulation of the industry. Implementation of its legislative
objectives is the task of the FCC, state public utilities commissions and a
federal-state joint board. The Telecommunications Act makes all state and local
barriers to competitive entry unlawful, whether they are direct or indirect. The
Telecommunications Act directs the FCC to hold notice and comment proceedings
and to preempt all inconsistent state and local laws and regulations. Among the
numerous pending FCC proceedings are its Implementation of the Local Competition
Provisions of the Telecommunications Act of 1996 proceeding (CC Docket No.
96-98), its Deployment of Wireline Services Offering Advanced Telecommunications
Capability proceeding (CC Docket No. 98-147), and at least four proceedings
relating to universal service and access charge reform (CC Docket Nos. 94-1,
96-45, 96-262, 99-249).
In addition to opening up local exchange markets, the Telecommunications
Act contains provisions for:
- updating and expanding telecommunications service guarantees;
- removing certain restrictions relating to former AT&T operating companies
(the Regional Bell Operating Companies) resulting from the federal court
antitrust consent decree issued in 1984;
- the entry of telephone companies into video services;
- the entry of cable television operators into other telecommunications
industries;
- changes in the rules for ownership of broadcasting and cable television
operations; and
- changes in the regulations governing cable television.
Each state retains the power to impose "competitively neutral" requirements
that are both consistent with the Telecommunications Act's universal service
provision and necessary for universal service, public safety and welfare,
continued service quality and consumer rights. Although a state may not impose
requirements that effectively function as barriers to entry or create a
competitive disadvantage, the scope of state authority to maintain existing or
adopt new requirements under this section is not clear. In addition, before it
preempts a state or local requirement as violating the entry barrier
prohibition, the FCC must hold a notice and comment proceeding.
The FCC must forbear from applying any statutory or regulatory provision
that is not necessary to keep telecommunications rates and terms reasonable or
to protect consumers. A state may not apply a statutory or regulatory provision
that the FCC decides to forbear from applying. In addition, the FCC must review
its telecommunications regulations every two years and repeal or modify any that
it deems to be no longer in the public interest.
Although certain interpretive issues under the Telecommunications Act have
not yet been resolved, it is apparent that the requirements of the
Telecommunications Act have led to increased competition among providers of
local telecommunications services and have simplified the process of switching
from incumbent local exchange carrier services to those offered by competitive
access providers and competitive local exchange carriers.
The FCC regulates wireless services through its Wireless Telecommunications
Bureau. Providers of wireless mobile radio services are considered "common
carriers" and are subject to the obligations of such carriers, except where
specifically exempted by the FCC. As a result, our wireless operations and
business
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<PAGE> 14
plans may be impacted by FCC regulatory activity. For example, the FCC has
concluded that commercial mobile radio service providers are entitled to enter
into reciprocal compensation arrangements with local exchange carriers. The FCC
has declined at this time to classify commercial mobile radio service providers
themselves as local exchange carriers subject to the obligations of the
Telecommunications Act, but could do so at some point in the future. Other
regulatory issues currently facing wireless carriers include issues relating to
telephone number administration. Because they are common carriers, wireless
carriers are subject to FCC and state actions regarding exhaustion, conservation
or expansion of telephone numbers and area codes. Programs to conserve or expand
telephone number and area code resources may possibly have a disproportionate
impact on wireless carriers because such carriers may not have a large reserve
of spare numbers, as wireline carriers may have, and so-called "area code
overlay" programs are sometimes imposed on wireless carriers alone, which forces
their customers to dial more digits for most local calls than wireline callers
in the same area. Within the past year, the FCC has issued an order asserting
jurisdiction over nearly all telephone numbering issues.
A cellular licensee must apply for FCC authority to use additional
frequencies to modify the technical parameters of existing licenses, to expand
its service territory and to provide new services. In addition to regulation by
the FCC, cellular systems are subject to certain Federal Aviation Administration
tower height regulations with respect to the siting and construction of cellular
transmitter towers and antennas. The FCC also has a rulemaking proceeding
pending to update the guidelines and methods it uses for evaluating acceptable
levels of radio frequency emissions from radio equipment, including cellular
telephones, which could result in more restrictive standards for such devices.
State and Local Regulation. We are also regulated by the North Carolina
Utilities Commission because we provide intrastate telephone services within
North Carolina. As a result, we must comply with North Carolina pricing
regulations, file periodic reports, pay various fees and comply with rules
governing quality of service, consumer protection and similar matters. The rules
and regulations are designed primarily to promote the public's interest in
receiving quality telephone service at reasonable prices. Our networks are
subject to numerous local regulations such as requirements for franchises,
building codes and licensing. Such regulations vary on a city by city and county
by county basis.
EMPLOYEES
At December 31, 1999, we had approximately 570 employees. None of our
employees are represented by a labor union, and we consider relations with our
employees to be good.
ITEM 2. PROPERTIES
Our properties consist of land, buildings, central office equipment,
exchange and toll switches, data transmission equipment, underground conduits
and cable, aerial cable, poles, wires, telephone instruments and other
equipment. Our principal operations are conducted in a building we own at 68
Cabarrus Avenue East, Concord, North Carolina. This headquarters facility was
built in 1956 and expanded in 1967. More recently, in 1999 we made substantial
interior renovations to the Cabarrus Avenue facility. This headquarters building
has approximately 53,000 square feet of floor space.
During 1994, we acquired 14.7 acres of property north of Concord adjoining
Interstate 85 for use as a campus-style business office center. We purchased an
additional acre of property at this site during 1996. The first of several
buildings to be constructed at this site was completed in the fourth quarter of
1996. This building is currently occupied by our customer service personnel and
has approximately 12,000 square feet of floor space. In the second quarter of
1998, we completed construction of the second building on this tract of
property. It is identical to the building completed there during 1996. It is
occupied primarily by our sales and marketing group, which freed office space at
the Cabarrus Avenue headquarters facility. There is significant room on this
property for construction of additional facilities as needed in the future.
We also own a general warehouse located in Concord. This facility was
completely renovated in 1991 and has approximately 12,300 square feet of floor
space. We enlarged our warehouse storage facilities by
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<PAGE> 15
adding approximately 9,760 square feet of warehouse space in 1995. Approximately
3,800 square feet of the warehouse space renovated in 1995 is currently occupied
by our outside plant engineering group.
In November 1997, we purchased a one-third interest in 22.4 acres of
undeveloped property located on Weddington Road Extension and Speedway Boulevard
in the King's Grant Development. This property may be used for future
development if needed.
All of our central office switching equipment is digital. In mid-1997, we
began replacing Concord Telephone's digital switching platform by changing from
AG switches to state-of-the-art Nortel DMS switches. This replacement process
will continue as business conditions warrant. In 1997, we also replaced the DOTS
operator workstations used by Concord Telephone with TOPS workstations from
Nortel. In 1998, we installed and co-located a Reltec digital loop carrier at
the BellSouth central office in Salisbury, North Carolina.
In connection with our PCS operations, we have entered into four real
property leases to house our retail outlets in Concord, Statesville and
Salisbury, North Carolina. We also lease office space on West Cabarrus Avenue
and Penny Lane, Northeast, in Concord, North Carolina and on University
Executive Park Drive and East Ninth Street in Charlotte, North Carolina. None of
these leases are material to our operations or financial condition.
As of December 31, 1999, 18% of our telephone plant in service was
represented by land, buildings and general equipment; 38% by central office
equipment; and 44% by wires, cables, conduits, poles and related equipment.
These connecting lines, poles, wires, cables and conduits and related equipment
are located on streets and public highways that we do not own, pursuant to
consents of various governmental bodies or to leases, permits, easements,
agreements, or licenses, express or implied through use without objection by the
owners.
We use approximately 135 motor vehicles in our operations.
During 1997, a portion of our physical property was subject to a Indenture
of Mortgage and Deed of Trust dated August 1, 1958, as supplemented and amended,
securing our First Mortgage Bonds. This debt was retired on March 1, 1997, and
the related liens were released.
ITEM 3. LEGAL PROCEEDINGS
In December 1992, we were notified by the Environmental Protection Agency
("EPA") that we are a potentially responsible party ("PRP") under the
Comprehensive Environmental Response, Compensation and Liability Act at the
Bypass 601 Groundwater Contamination Superfund Site (the "Site") in Concord,
North Carolina. We, along with approximately 70 other companies, have entered
into a Consent Decree with the United States. Pursuant to the Consent Decree,
the companies are conducting a cleanup of the Site. The companies have also
reimbursed the EPA for approximately $4.3 million in costs that the agency has
incurred at the Site. Under the allocation system adopted by the companies, we
have paid a total of $53,128. Based on the progress of the cleanup thus far and
the funds available from other sources to pay for the cleanup, the companies do
not expect that they or we will be required to pay any additional amounts.
CT Communications and Concord Telephone are named as defendants, in
addition to numerous other named defendants, in a lawsuit filed by six former
employees of US Telecom and US Telecom East, Inc. CT Communications, through its
subsidiaries, previously participated as a financial investor in US Telecom
Holdings, Inc. We believe that the claims are without merit and are vigorously
defending the suit. We further believe that the outcome of this litigation will
not be material to our financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
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ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY
The following list sets forth with respect to each of our current executive
officers, his or her name, age, positions and offices held with CT
Communications, the period served in such positions or offices and, if such
person served in such position or office for less than five years, the prior
employment of such person.
L. D. Coltrane, III, age 81, has been a director since 1965 and became
President and Chairman of the Board in 1986. He is the father of Michael R.
Coltrane.
Michael R. Coltrane, age 53, has been a director since 1988 when he also
became President and Chief Executive Officer. Prior to joining us in 1988, he
was Executive Vice President of First Charter National Bank for more than six
years and Vice President of a large regional bank for more than ten years. Mr.
Coltrane is Vice Chairman of Maxcom, and a director of Palmetto MobileNet,
Northeast Medical Center, Vice Chairman of First Charter Corporation and Vice
Chairman of the United States Telephone Association. Mr. Coltrane is the son of
L. D. Coltrane, III.
Barry R. Rubens, age 40, has been a Senior Vice President, the Chief
Financial Officer, Secretary and Treasurer since 1995. He was Vice
President-External Affairs from 1992 to 1995. Mr. Rubens serves on the executive
committee of BellSouth Carolinas PCS, LLC, as a director of Maxcom, as a
director of Carolinas FiberNet and as an officer and board member of Wireless
One of North Carolina, LLC. Prior to joining us, Mr. Rubens was a senior manager
with Ernst & Young's telecommunications practice in Washington, D.C.
Catherine A. Duda, age 47, has been a Senior Vice President and Assistant
Secretary since 1996. Beginning in mid-1998, Ms. Duda assumed primary
responsibility for the customer service and sales operations of our ILEC. From
1995 to 1996, she was the Vice President-Marketing. Prior to joining us, she was
the Vice President of Frontier Corporation.
Michael R. Nash, age 47, has been a Senior Vice President since January
1999 and has primary responsibility for our network technology and network
operations. From 1995 to 1998, he was a Vice President of Standard Telephone
Company. From 1974 to 1995, he was an operations director of BellSouth.
Thomas A. Norman, age 59, has been a Senior Vice President and Assistant
Secretary since 1995. Since mid-1998, Mr. Norman has served as interim Chief
Executive Officer and a director of Maxcom. Mr. Norman has 30 years of
experience with Ohio Bell Telephone Company and Sprint, where he was most
recently State President of Sprint-Illinois.
Kenneth R. Argo, age 65, has been a Vice President and Assistant Secretary
since 1983. Since January 1999, Mr. Argo managed our Year 2000 computer project
and assisted with our CLEC operations. From 1995 to 1998, Mr. Argo was Chief
Information Officer and from 1983 to 1995 he was the Controller. Prior to
joining us, Mr. Argo was Treasurer of Cannon Mills.
Richard L. Garner, Jr., age 53, has been Vice President-Human Resources
since June 1998. From 1979 to January 1998, he was the Senior Vice President of
Personnel and Real Estate at Pic N' Pay Stores.
John A. Goocher, age 36, was Senior Director of Sales and Operations for
Sprint PCS from January 1998 to July 1999 and was its Director of Finance from
April 1996 to January 1998. Prior to that time, he held various management
positions at BellSouth. Mr. Goocher joined the Company as Vice President --
Marketing after leaving Sprint PCS.
Amy M. Justis, age 35, has been Vice President -- Finance since September
1999. From March 1999 to September 1999, she was the Director of Finance of the
Network and Carrier Service Division (North Operations) of BellSouth Telecom,
Inc., a telecommunications provider. From 1994 to March 1999, she was the
Manager of Finance of the Network and Carrier Service Division of BellSouth
Telecom, Inc.
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Charlotte S. Walsh, age 53, has been a Vice President since December 1998
and currently functions as our Chief Information Officer. From 1996 to 1998, she
was the Vice President-Chief Information Officer of Thorn America, a retail
furniture company. From 1992 to 1996, she was the Division Vice
President-Information Services of Helzberg Diamonds, a retail jewelry company.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Prior to January 29, 1999, both our Voting Common Stock and our Class B
Nonvoting Common Stock traded principally in local transactions without the
benefit of an established public trading market, although a Charlotte-based
brokerage firm made a market as shares of the Class B Nonvoting Common Stock
were offered for sale. During 1998, the last reported sale prices for the Class
B Nonvoting Common Stock ranged from $31.50 to $50.00 per share, as adjusted to
reflect the Recapitalization. On January 29, 1999, the Recapitalization became
effective and our Common Stock began trading on the Nasdaq National Market under
the symbol "CTCI."
The following table shows the high and low last reported sale prices per
share of our Common Stock as reported on the Nasdaq National Market for the
periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Year Ended December 31, 1999
First Quarter............................................. 56.75 38.75
Second Quarter............................................ 44.50 37.00
Third Quarter............................................. 49.38 40.50
Fourth Quarter............................................ 59.50 45.00
Year Ending December 31, 2000
First Quarter (through March 1, 2000)..................... 60.13 50.25
</TABLE>
We paid the following cash dividends per share during the past two calendar
years:
<TABLE>
<CAPTION>
DIVIDEND
--------
<S> <C>
Year Ended December 31, 1998
First Quarter............................................. $.12
Second Quarter............................................ .12
Third Quarter............................................. .12
Fourth Quarter............................................ .12
Year Ended December 31, 1999
First Quarter............................................. $.13
Second Quarter............................................ .13
Third Quarter............................................. .13
Fourth Quarter............................................ .13
</TABLE>
Dividends are paid only as and when declared by our board of directors, in
its sole discretion, based on our financial condition, results of operations,
market conditions and such other factors as it may deem appropriate. Under the
terms of a credit agreement, the amount of cash dividends payable on our Common
Stock in any fiscal year may not exceed 100% of our consolidated net earnings
for the immediately preceding fiscal year and may not have a material adverse
effect on our properties, business, prospects, operations or condition
(financial or otherwise). In addition, we may not pay dividends on our Common
Stock if any dividends on our Preferred Stock are in arrears. These provisions
are not expected to have a material effect on our ability to pay dividends.
The number of holders of record of our Common Stock as of March 1, 2000,
was 1,762. This number does not include beneficial owners of Common Stock whose
shares are held in the name of various dealers, depositories, banks, brokers or
other fiduciaries.
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The foregoing stock prices and dividend amounts have been adjusted to
reflect the Recapitalization. They have not been adjusted to reflect the
two-for-one stock dividend payable on April 5, 2000 to shareholders of record on
March 15, 2000.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth our selected historical consolidated
financial data. We derived the data as of and for the five years ended December
31, 1999, 1998, 1997, 1996 and 1995 from our audited consolidated financial
statements and related notes. This data should be read in conjunction with our
audited consolidated financial statements and related notes for the years ended
December 31, 1999, 1998 and 1997 included in our 1999 Annual Report to
Shareholders, incorporated herein by reference, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Income Statement Data(1)
Operating revenues....... $105,591,594 $ 91,725,394 $ 78,483,514 $ 67,054,006 $ 60,417,351
Operating expenses....... 83,223,191 70,272,414 58,390,372 51,349,967 43,201,065
------------ ------------ ------------ ------------ ------------
Operating income...... 22,368,403 21,452,980 20,093,142 15,704,039 17,216,286
Other income
(expense)(2).......... 16,397,523 855,899 1,645,866 1,341,053 2,561,081
Income taxes............. (15,697,657) (8,926,469) (7,898,159) (6,583,671) (6,760,624)
------------ ------------ ------------ ------------ ------------
Net income................. 23,068,269 13,382,410 13,840,849 10,461,421 13,016,743
Dividends on preferred
stock................. 26,210 28,457 73,073 92,535 93,135
------------ ------------ ------------ ------------ ------------
Earnings for common
stock.................... $ 23,042,059 $ 13,353,953 $ 13,767,776 $ 10,368,886 $ 12,923,608
============ ============ ============ ============ ============
Diluted Per Share Data(3)
Weighted average common
shares outstanding.... 9,425,925 9,276,504 9,111,439 9,078,385 8,990,336
Earnings................. $ 2.44 $ 1.44 $ 1.51(2) $ 1.14 $ 1.44
Dividends................ $ .52 $ .48 $ .47 $ .46 $ .45
Balance Sheet Data (end of
period)
Book value -- year end... $ 18.67 $ 12.86 $ 10.82 $ 9.02 $ 9.04
Total assets............. $257,695,210 $183,634,358 $147,339,429 $115,063,963 $107,765,477
Long-term debt (excluding
current maturities)... $ 20,000,000 $ 20,000,000 $ 11,239,000 $ 2,014,000 $ 4,074,000
Redeemable preferred
stock (excluding
current maturities)... $ 112,500 $ 125,000 $ 137,500 $ 150,000 $ 162,500
</TABLE>
- ---------------
(1) Beginning in 1996, we recategorized access and settlement charges from an
offsetting revenue account to an expense item. We also changed the amounts
previously reported in our 1995 income statement to reflect this change.
This change has no effect on historical net income.
(2) Other income in 1997 includes an extraordinary item of $2,239,045, net of
income taxes of $1,493,312 (or $.25 per share), because of the
discontinuance of SFAS No. 71.
(3) Share data is based on the weighted average number of shares outstanding
after giving retroactive effect to a 2-for-1 stock dividend effective May 3,
1996, a 3-for-2 stock dividend effective August 1, 1997, and the
Recapitalization effective January 28, 1999. Dividends declared have been
restated to give retroactive effect to these events. These amounts have not
been adjusted to reflect the 2-for-1 stock dividend to be effective April 5,
2000.
16
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and related notes incorporated by reference in this report and the
selected financial data included elsewhere in this report.
OVERVIEW
We are a growing provider of telecommunications services to residential and
business customers located primarily in North Carolina and South Carolina. We
offer an integrated package of telecommunications services consisting of local
and long distance telephone services, Internet and data services, and digital
wireless products and services.
We have worked to expand our ILEC business in recent years by adding
telecommunications services to our integrated service packages, emphasizing
customer service and taking advantage of the strong demographic growth in our
service area. Another key component to our business strategy is to grow our
CLEC, Internet and data services, and digital wireless businesses. We
significantly expanded our Internet and data services in May 1998 through our
acquisition of Vnet and further expanded in September 1999 and in February 2000
through our acquisitions of Catawba Valley Internet Partnership and Internet of
Concord.
We devoted substantial effort in 1997, 1998 and 1999 to developing business
plans, enhancing our management team and board of directors, and designing and
developing our business support and operating systems. Development of these
areas has required significant investment of capital and start-up expenses. We
believe that we are now well positioned to achieve our strategic objectives by
capitalizing on these recent investments.
Our primary focus now is to maximize our ILEC business in our current
markets by cross-selling integrated products and packages and expand into new
markets through our CLEC, Internet and data services, and digital wireless
businesses. We will also consider strategic acquisitions and investments as
opportunities arise.
17
<PAGE> 20
In early 1999, we changed our internal financial reporting to better manage
our business segments. Beginning with the three months ended March 31, 1999, we
began reporting our business in four specific segments. Selected data by
business segment, excluding intersegment revenue and expense, was as follows for
the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING REVENUES:
ILEC..................................................... $ 76,653 $ 70,647 $ 64,417
CLEC/Long distance services.............................. 16,904 13,884 11,881
Internet and data services............................... 5,717 3,369 580
Digital wireless services................................ 5,193 3,151 1,605
Other.................................................... 1,125 674 --
-------- -------- --------
Consolidated operating revenues....................... $105,592 $ 91,725 $ 78,483
======== ======== ========
EBITDA(1):
ILEC..................................................... $ 34,722 $ 32,188 $ 28,314
CLEC/Long distance services.............................. 3,415 2,719 4,725
Internet and data services............................... 397 462 (61)
Digital wireless services................................ (1,674) (1,045) (2,139)
Other.................................................... 633 (30) (1,134)
-------- -------- --------
Consolidated EBITDA................................... $ 37,493 $ 34,294 $ 29,705
======== ======== ========
</TABLE>
- ---------------
(1) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. EBITDA is commonly used in the telecommunications industry to
analyze companies on the basis of operating performance, leverage and
liquidity. EBITDA is not intended to represent cash flows for the period and
should not be considered as an alternative to cash flows from operating,
investing or financing activities as determined in accordance with generally
accepted accounting principles and may not be comparable with other
similarly titled measures of other companies.
RESULTS OF OPERATIONS
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998.
Operating revenues increased $13.9 million or 15.1% to $105.6 million for
the year ended December 31, 1999 compared to 1998.
Excluding intersegment revenues, ILEC revenue was $76.7 million, a $6.0
million or 8.5% increase over 1998. This growth arose primarily from increased
demand for local service and increased custom call feature revenue as a result
of telemarketing and sales efforts. Approximately 7,800 new access lines were
connected to the network in 1999, bringing the total number of local access
lines in our ILEC's three-county service area to 116,935. Higher equipment sales
also contributed to this increase.
CLEC and long distance services revenue was $16.9 million, a $3.0 million
or 21.8% increase over 1998. CLEC revenue contributed $2.6 million, a $2.1
million increase over 1998, driven by the addition of 1,900 access lines,
bringing the total CLEC lines in service to nearly 3,600. The CLEC operation
added nearly 1,000 access lines at Concord Mills Mall for 100% of the retailers
in the second half of the year. The revenue in this area and in new CLEC markets
is expected to continue to grow. Long distance services revenue, derived from
providing long distance communications between designated areas, was $14.3
million, a $0.9 million or 6.7% increase over 1998. This increase is a result of
increased sales and marketing efforts and increased calling volume.
Internet and data services revenue was $5.7 million, a $2.3 million or
69.7% increase over 1998. This increase was driven by the acquisition of Vnet,
an Internet service provider, in the second quarter of 1998, coupled with an
increase in the number of dial-up, web hosting and dedicated high speed
customers. In
18
<PAGE> 21
1999, customers grew in number from nearly 13,300 to nearly 17,000.
Approximately 900 customers were added through the acquisition of Catawba Valley
Internet Partnership in September 1999. In addition, 1,845 customers were added
in February 2000 through the acquisition of Internet of Concord.
Digital wireless services revenue was $5.2 million, a $2.0 million or 64.8%
increase over 1998. This growth is related to the increased number of
subscribers. Over 4,200 net customers were added during 1999, bringing the total
number of subscribers to 10,700, a 64.9% increase over 1998.
Operating expenses increased $13.0 million or 18.4% to $83.2 million for
the year ended December 31, 1999 compared to 1998.
Excluding intersegment expenses, ILEC operating expenses were $41.9
million, a $3.5 million or 9.0% increase over 1998 driven by an increase in
personnel, higher contracted services expenses related to the telephone plant
growth and increased reciprocal compensation charges. In the fourth quarter of
1999, we received billing from CLECs in the amount of $0.5 million related to
reciprocal compensation. This represented a significant increase over the prior
quarter. We are currently reviewing and plan to dispute these charges.
Therefore, these charges were not included in 1999 ILEC operating expenses.
Depreciation and amortization increased to $12.9 million, a $1.3 million or
11.4% increase over 1998 related to the increase in depreciable assets.
CLEC and long distance services operating expenses were $13.5 million, a
$2.3 million or 20.8% increase over 1998. This increase was driven by additional
marketing and service expenses related to line growth and higher access expense
as a result of higher toll revenue. Depreciation and amortization increased to
$1.1 million, a $0.4 million or 67.2% increase over 1998 due to the addition of
plant to serve the CLEC lines at Concord Mills Mall and additional plant in
service primarily for the anticipated increase of our CLEC operations.
Internet and data services operating expenses were $5.3 million, a $2.4
million or 83.0% increase over 1998 due to higher network expenses, the addition
of sales and technical personnel along with the full year of expenses for Vnet.
Depreciation and amortization increased to $0.9 million, a $0.4 million or 67.4%
increase over 1998 due to the full year of goodwill amortization expense related
to the acquisition of Vnet.
Digital wireless services operating expenses were $6.9 million, a $2.7
million or 63.6% increase over 1998. This increase was driven by the opening of
a new retail store and an increased number of customers.
Other income (expenses) increased to $16.4 million, a $15.5 million
increase over 1998. This increase reflects:
- $0.7 million related to lower losses associated with the BellSouth DCS
partnership ($0.5 million) and the investment in US Telecom Holdings
($0.5 million), partially offset by lower earnings from Palmetto
MobileNet ($0.3 million); and
- An increase in interest, dividend and gain on sale of investments due to
the pre-tax gains for the sale of ITC(*)DeltaCom stock of $17.8
million in 1999, versus $1.9 million in 1998.
The increase was partially offset by higher other expenses due to higher
interest expense in 1999.
Net income was $23.1 million in 1999, a $9.7 million or 72.4% increase over
1998.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Operating revenues increased $13.2 million or 16.9% for the year ended
December 31, 1998 compared to 1997. All business segments contributed to the
revenue growth.
ILEC revenue increased $6.2 million or 9.7% compared to 1997. This growth
came from increased demand for local service due to the growth of the serving
area coupled with revenue increases related to our price regulation plan
implemented in September 1997. Over 6,500 new access lines were connected to the
network in 1998, bringing the total number of local access lines in our
three-county service area to 109,147.
19
<PAGE> 22
CLEC and long distance services revenue increased $2.0 million or 16.9%
during 1998 compared to 1997. This increase was generated by an increased number
of customers and calling volumes, partially offset by reduction of revenue per
minute. Our CLEC contributed $0.5 million to revenue in 1998.
Internet and data services revenue increased $2.8 million primarily due to
the May 1998 acquisition of Vnet, which contributed $2.0 million to the total
revenue increase.
Digital wireless services revenue increased $1.5 million or 96.3% due to
the addition of more than 3,200 new customers, bringing the total number of
digital wireless customers to nearly 6,500.
Other revenue increased $0.7 million, consisting of the management fee that
we received for our operating role in Maxcom.
Operating expenses, excluding depreciation and amortization, increased $8.7
million or 17.7%.
ILEC operating expenses increased $2.4 million or 6.5% primarily due to an
increase in personnel coupled with an increase in contracted services of $0.7
million due to telephone plant growth.
CLEC and long distance services operating expenses increased $4.0 million
or 56.0% due to the start-up expenses associated with the CLEC operation, which
was fully launched in the second quarter of 1998. Additionally, we increased
sales and marketing efforts for long distance services.
Internet and data services operating expenses increased $2.3 million due to
the acquisition of Vnet in May 1998. Vnet contributed $1.8 million in expenses
in 1998.
Digital wireless services operating expenses increased $0.5 million due to
an increased number of customers, offset in part by lower customer acquisition
costs.
Other operating expenses decreased $0.4 million in 1998. In 1997, we
offered an early retirement program to our employees and recorded an additional
expense of $1.0 million.
Depreciation and amortization expense increased $3.2 million or 33.8%. This
increase was a result of an increase in the depreciable asset base, a 1997
reduction of $0.7 million due to a reclassification of circuit equipment to
longer-lived central office switching equipment and the 1998 goodwill
amortization of approximately $0.4 million related to the Vnet acquisition.
Other income (expense) increased $1.4 million excluding an extraordinary
gain of $2.2 million. This increase was due to a $1.7 million increase in
dividend income, interest income and a gain on sale of investment partially
offset by increased interest expense. Our share of losses from the DCS
Partnership was offset by our earnings from our cellular investment in Palmetto
MobileNet.
Our net income before extraordinary items in 1998 increased $1.8 million or
15.3%. Including the 1997 extraordinary item arising from the discontinuance of
SFAS 71, 1998 net income decreased $0.5 million or 3.3%.
LIQUIDITY AND CAPITAL RESOURCES
We had net cash provided by operating activities for the year ended
December 31, 1999 of $18.1 million. Our primary use of cash during this period
was for additions to our telephone plant of $27.6 million, purchases of
investment securities of $11.9 million, payment of dividends of $4.9 million and
investments in the DCS Partnership of $0.5 million.
Working capital was $8.1 million on December 31, 1999, compared to $6.0
million at December 31, 1998. Current assets increased by $1.3 million in the
year ended December 31, 1999 primarily due to an increase in accounts
receivable. Current liabilities decreased $0.8 million in the year ended
December 31, 1999 primarily due to a decrease in accounts payable.
We have significant cash requirements due to growth in our service area,
planned improvements to our existing plant and equipment, and our geographic
expansion. Capital expenditures for the year ended December 31, 1999 and
December 31, 1998 were $27.6 million and $24.8 million, respectively, for
network
20
<PAGE> 23
improvements, including upgrades to the switching platform, and improvements in
the outside plant including poles, aerial cable and buried cable. Our capital
expenditures in 2000 are expected to be approximately $42.5 million, as follows:
- $12.4 million for ILEC network facilities and outside plant,
- $9.9 million for CLEC and long distance network expansion,
- $6.2 million for ILEC network switching additions and enhancements,
- $4.4 million for provisioning software and other management information
systems upgrades and additions,
- $3.3 million for property and building growth,
- $3.1 million for internet and high speed data services, and
- $3.2 million for other telecommunications assets.
Other anticipated uses of cash in 2000 include additional investments in
affiliates. We expect to contribute approximately $0.3 million in 2000 to
Wireless One of North Carolina. In connection with our DCS Partnership interest,
we paid $0.5 million in 1999 and are committed to pay $0.1 million in 2000. If
we elect to exercise our right to partition certain territories in the DCS
Partnership, the resulting net cost is expected to be between $12.0 million and
$15.0 million. We expect to fund these costs through additional borrowings under
our credit facility.
We have an unsecured revolving credit facility with a syndicate of banks
for $60.0 million, of which $20.0 million was outstanding on December 31, 1999.
The interest rate on the credit facility is variable based on LIBOR plus a
spread based on our ratio of debt to EBITDA. The LIBOR interest rate on December
31, 1999 was approximately 6.0% and the applicable spread was .50%. The credit
facility provides for quarterly payments of interest until maturity on December
31, 2004. We entered into an interest rate swap transaction in March 1999 to fix
$10.0 million of the outstanding principal at a rate of 5.9% plus a spread,
currently 0.5%. In addition, we have two $5.0 million revolving credit
facilities with Rural Telephone Finance Corporation and First Charter National
Bank at interest rates not to exceed a specified prime rate plus 1.5% and minus
1.5%, respectively. As of December 31, 1999, there were no amounts outstanding
under either of these facilities.
We believe our existing sources of liquidity, cash provided by operations,
credit facilities and the sale of investment securities will satisfy our
anticipated working capital and capital expenditure requirements for the
foreseeable future.
ACCOUNTING CONSIDERATIONS
Effective December 31, 1998, we adopted FAS 131, "Disclosures about
Segments of an Enterprise and Related Information." Our four reportable segments
include: ILEC, CLEC and long distance services, Internet and data services, and
digital wireless services. We evaluate performance based on operating profit
before other income (expenses) and income taxes. See note 15 to our consolidated
financial statements for additional information.
YEAR 2000 CONSIDERATIONS
None of our business applications, network systems, components or other
operations, including, to our knowledge, business systems that we sold to third
parties, have been affected by Year 2000 computer issues. We do not expect any
such issues to arise in the future. As expected our out-of-pocket expenses for
the Year 2000 project were approximately $0.5 million, and we do not expect to
incur additional expenses. However, it is possible that Year 2000 issues or
expenses may arise in the future.
21
<PAGE> 24
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain "forward-looking statements," as defined in
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, that are based on the beliefs of our management, as well
as assumptions made by, and information currently available to, our management.
We have based these forward-looking statements on our current expectations and
projections about future events and trends affecting the financial condition of
our business. These forward-looking statements are subject to risks,
uncertainties and assumptions about us, including, among other things:
- changes in industry conditions created by the Telecommunications Act and
related state and federal legislation and regulations,
- recovery of the substantial costs which will result from the
implementation of our new businesses,
- retention of our existing customer base and our ability to attract new
customers,
- rapid changes in technology, and
- actions of our competitors.
These forward-looking statements are principally contained in the following
sections of this report:
- Item 1. Business; and
- Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
In addition, in those and other portions of this report, the words and
phrases such as "expects, "estimates," "intends," "plans," "believes,"
"projection," "will continue" and "is anticipated" are intended to identify
forward-looking statements.
These forward-looking statements may differ materially from actual results
because they involve estimates, assumptions and uncertainties. In making these
forward-looking statements, we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995. We undertake 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have an unsecured revolving credit facility with a syndicate of banks
for $60.0 million, of which $20.0 million was outstanding on December 31, 1999.
The interest rate on the credit facility is variable based on LIBOR plus a
spread based on our ratio of debt to EBITDA. The interest rate was approximately
6.5% with the spread on December 31, 1999. We 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
us, to the extent of $10.0 million of outstanding principal amount, against an
upward movement in interest rates, but subjects us to above market interest
costs if interest rates decline. We believe that reasonably foreseeable
movements in interest rates will not have a material adverse effect on our
financial condition or operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements, the financial statement schedules
required to be filed with this report and the report of independent public
accountants are set forth on pages 15 through 35 of our Annual Report to
Shareholders. The selected quarterly financial data required by this Item is
included in Note 17 of our consolidated financial statements. The foregoing are
included herein as Exhibit 13.1 and are hereby incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
22
<PAGE> 25
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information called for by Item 10 with respect to directors and Section
16 matters is set forth in the Proxy Statement for our 2000 Annual Meeting of
Shareholders under the captions "Election of Directors," and "Section 16(a)
Beneficial Ownership Reporting Compliance," respectively, and is hereby
incorporated by reference. The information called for by Item 10 with respect to
executive officers is set forth in Part I, Item 4A of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by Item 11 is set forth in the Proxy Statement
for our 2000 Annual Meeting of Shareholders under the captions "Election of
Directors -- Compensation of Directors," "Executive Compensation" and
"Compensation Committee Interlocks and Insider Participation," respectively, and
is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by Item 12 is set forth in the Proxy Statement
for our 2000 Annual Meeting of Shareholders under the captions "Principal
Shareholders" and "Management Ownership of Common Stock," respectively, and is
hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Item 13 is set forth in the Proxy Statement
for our 2000 Annual Meeting of Shareholders under the captions "Certain
Relationships and Related Transactions" and is hereby incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report
(1) Financial Statements: The following financial statements, together
with the report thereon of independent auditors, are included in this
Report by incorporation to pages 15 through 35 of our 2000 Annual Report to
Shareholders (included herein as Exhibit 13.1) as set forth in Item 8:
- Consolidated balance sheets as of December 31, 1999 and 1998
- Consolidated statements of income for the years ended December 31,
1999, 1998, and 1997
- Consolidated statements of cash flows for the years ended December 31,
1999, 1998 and 1997
- Consolidated statements of stockholders' equity for the years ended
December 31, 1999, 1998 and 1997
- Consolidated statements of comprehensive income for the years ended
December 31, 1999, 1998 and 1997
- Notes to consolidated financial statements for the years ended
December 31, 1999, 1998 and 1997 Report of Independent Public
Accountants
(2) Consolidated Financial Statement Schedules: Financial statement
schedules are omitted because the required information for Schedule II is
included. All other financial statement schedules are not applicable.
23
<PAGE> 26
(3) Financial Statements of Palmetto MobileNet, L.P. (To be filed as
an amendment to this Report on Form 10-K.)
(4) The exhibits filed as part of this Report and exhibits
incorporated herein by reference to other documents are listed in the Index
to Exhibits to this Report.
(b) Reports on Form 8-K
We did not file any reports on Form 8-K during the three months ended
December 31, 1999.
(c) Exhibits
See (a)(4), above.
(d) Financial statement schedules
See (a)(2), above.
24
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, we have 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: March 27, 2000
By: /s/ BARRY R. RUBENS
------------------------------------
Barry R. Rubens
Senior Vice President, Treasurer and
Chief Financial Officer
(Principal Financial and Principal
Accounting Officer)
Date: March 27, 2000
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 Company
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ L.D. COLTRANE, III March 27, 2000
- ----------------------------------------------------- Chairman of the Board and
L.D. Coltrane, III Director
/s/ MICHAEL R. COLTRANE President, Chief Executive March 27, 2000
- ----------------------------------------------------- Officer and Director (Principal
Michael R. Coltrane Executive Officer)
/s/ JOHN R. BOGER, JR. March 27, 2000
- -----------------------------------------------------
John R. Boger, Jr. Director
/s/ O. CHARLIE CHEWNING March 27, 2000
- -----------------------------------------------------
O. Charlie Chewning Director
/s/ WILLIAM A. COLEY March 27, 2000
- -----------------------------------------------------
William A. Coley Director
/s/ SAMUEL E. LEFTWICH March 27, 2000
- -----------------------------------------------------
Samuel E. Leftwich Director
/s/ JERRY H. MCCLELLAN March 27, 2000
- -----------------------------------------------------
Jerry H. McClellan Director
/s/ BEN F. MYNATT March 27, 2000
- -----------------------------------------------------
Ben F. Mynatt Director
/s/ PHIL W. WIDENHOUSE March 27, 2000
- -----------------------------------------------------
Phil W. Widenhouse Director
</TABLE>
25
<PAGE> 28
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
3.1 Articles of Incorporation of the Company, as amended.
(Incorporated by reference to Exhibit 3.1 of the Company's
Registration Statement on Form 8-A filed on January 28,
1999.)
3.2 Bylaws of the Company, as amended. (Incorporated by
reference to Exhibit 3.2 to the Company's Annual Report on
Form 10-K dated March 26, 1999.)
4.2 Amended and Restated Rights Agreement, dated as of January
28, 1999 and effective as of August 27, 1998, between the
Company and First Union National Bank, including the Rights
Certificate attached as an exhibit thereto. (Incorporated by
reference to Exhibit 4.2 of the Company's Registration
Statement on Form 8-A filed on January 28, 1999).
4.3 Specimen of Common Stock Certificate. (Incorporated by
reference to Exhibit 4.1 of the Company's Registration
Statement on Form 8-A filed on January 28, 1999.)
4.4 Credit Agreement, dated as of December 31, 1998, by and
among the Company, the Subsidiary Borrowers referred to
therein, the Lenders referred to therein and First Union
National Bank, as administrative agent. (Incorporated by
reference to Exhibit 4.4 of the Company's Annual Report on
Form 10-K dated March 26, 1999.)
4.5 The Company has certain long-term debt, but has not filed
the instruments evidencing such debt as part of Exhibit 4
because such instruments do not authorize the issuance of
debt exceeding 10% of the total consolidated assets of the
Company. The Company agrees to furnish a copy of such
instruments to the Commission upon request.
10.1 BellSouth Carolinas PCS Limited Partnership Agreement dated
December 8, 1994. (Incorporated by reference to Exhibit
10(h) to the Company's Amendment No. 1 to Annual Report Form
10-K/A dated July 14, 1995.)
10.2 Limited Liability Company Agreement of Wireless One of North
Carolina, L.L.C. dated October 10, 1995 by and among CT
Wireless Cable, Inc., Wireless One, Inc. and O. Gene
Gabbard. (Incorporated by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K dated March 31, 1997.)
10.3 1989 Executive Stock Option Plan dated April 26, 1989.
(Incorporated by reference to Exhibit 10(d) to the Company's
Annual Report Form 10-K dated March 29, 1994.)*
10.4 Comprehensive Stock Option Plan dated April 27, 1995.
(Incorporated by reference to Exhibit 99.1 to the Company's
Registration Statement on Form S-8 (No. 33-59645) dated May
26, 1995.)*
10.5 Employee Stock Purchase Plan dated April 27, 1995.
(Incorporated by reference to Exhibit 99.1 to the Company's
Registration Statement on Form S-8 (No. 33-59643) dated May
26, 1995.)*
10.6 Restricted Stock Award Program dated April 27, 1995.
(Incorporated by reference to Exhibit 99.1 to the Company's
Registration Statement on Form S-8 (No. 33-59641) dated May
26, 1995.)*
10.7 Omnibus Stock Compensation Plan dated April 24, 1997.
(Incorporated by reference to Exhibit 10.10 to the Company's
Annual Report on Form 10-K dated April 9, 1998.)*
10.8 1997 Employee Stock Purchase Plan dated April 24, 1997.
(Incorporated by reference to Exhibit 10.11 to the Company's
Annual Report on Form 10-K dated April 9, 1998.)*
10.9 Change in Control Agreement, dated October 1, 1997, between
the Company and Michael R. Coltrane. (Incorporated by
reference to Exhibit 10.12 to the Company's Annual Report on
Form 10-K dated April 9, 1998.)*
</TABLE>
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
10.10 Change in Control Agreement, dated October 1, 1997, between
the Company and Barry R. Rubens. (Incorporated by reference
to Exhibit 10.13 to the Company's Annual Report on Form 10-K
dated April 9, 1998.)*
10.11 Change in Control Agreement, dated October 1, 1997, between
the Company and Nicholas L. Kottyan. (Incorporated by
reference to Exhibit 10.14 to the Company's Annual Report on
Form 10-K dated April 9, 1998.)*
10.12 Change in Control Agreement, dated October 1, 1997, between
the Company and Thomas A. Norman. (Incorporated by reference
to Exhibit 10.15 to the Company's Annual Report on Form 10-K
dated April 9, 1998.)*
10.13 Change in Control Agreement, dated October 1, 1997, between
the Company and Catherine A. Duda. (Incorporated by
reference to Exhibit 10.16 to the Company's Annual Report on
Form 10-K dated April 9, 1998.)*
10.14 Change in Control Agreement, dated as of June 22, 1998,
between the Company and Richard L. Garner, Jr. (Incorporated
by reference to Exhibit 10.14 to the Company's Annual Report
on Form 10-K dated March 26, 1999.)*
10.15 Change in Control Agreement, dated as of December 12, 1998,
between the Company and Michael R. Nash. (Incorporated by
reference to Exhibit 10.14 to the Company's Annual Report on
Form 10-K dated March 26, 1999.)*
10.16 Change in Control Agreement, dated as of December 30, 1998,
between the Company and Charlotte S. Walsh. (Incorporated by
reference to Exhibit 10.14 to the Company's Annual Report on
Form 10-K dated March 26, 1999.)*
10.17 Form of Supplemental Executive Retirement Plan, dated June
27, 1997. (Incorporated by reference to Exhibit 10.17 to the
Company's Annual Report on Form 10-K dated April 9, 1998.)*
10.18 Contribution Agreement by and among Palmetto MobileNet,
L.P., PMN, Inc., the Company and Ellerbe Telephone Co.,
dated as of January 1, 1998. (Incorporated by reference to
Exhibit 10.18 to the Company's Annual Report on Form 10-K
dated April 9, 1998).
10.19 Separation Agreement and Release, dated as of January 18,
1999, between the Company and Nicholas L. Kottyan.
(Incorporated by reference to Exhibit 10.14 to the Company's
Annual Report on Form 10-K dated March 26, 1999.)*
10.20 Employment Agreement, dated September 10, 1998, among the
Company, CT Global Telecommunications, Inc. and Thomas A.
Norman. (Incorporated by reference to Exhibit 10.14 to the
Company's Annual Report on Form 10-K dated March 26, 1999.)*
10.21 Change in Control Agreement, dated September 27, 1999,
between the Company and Amy M. Justis.*
10.22 Change in Control Agreement, dated as of July 1, 1999,
between the Company and John A. Goocher.*
13.1 CT Communications, Inc. 2000 Annual Report to Shareholders:
Consolidated Financial Statements on pages 15 to 35. (With
the exception of such portions, the 2000 Annual Report to
Shareholders is not deemed to be filed or incorporated by
reference as a part of this Report.)
21 Subsidiaries of the Company.
23 Consent of KPMG LLP.
27 Financial Data Schedule (for SEC use only).
</TABLE>
- ------------------------
* Indicates management contract or compensatory plan required to be filed as an
Exhibit.
<PAGE> 1
EXHIBIT 10.21
AGREEMENT
THIS AGREEMENT is made and entered into as of the 27th day of
September, 1999 by and between CT COMMUNICATIONS, INC. (the "Company"), a North
Carolina corporation, and AMY JUSTIS. ("Employee"), an individual residing in
Mecklenburg County, North Carolina;
WHEREAS, the Employee is a valued employee of the Company or one of the
Company's subsidiaries, and in order to induce the Employee to continue
employment with the Company and to enhance the Employee's job security, the
Company desires to provide compensation to the Employee in the event the
Employee's employment is terminated following a change in control of the
Company, as hereinafter provided; and
WHEREAS, because the Employee has or will become familiar with the
Company's products, relationships, trade secrets and confidential information
relating to both the Company's and its customers' business, products, processes
and development and may generate or have generated confidential information, the
Company wishes to protect its long-term interests by having the Employee enter
into non-disclosure and non-competition covenants;
NOW, THEREFORE, in consideration of the terms contained herein,
including the compensation the Company agrees to pay to the Employee upon
certain events, the Employee's continued employment with the Company, the
Employee's covenants and other good and valuable considerations, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Employee agree
as follows:
I. TERMINATION FOLLOWING A CHANGE IN CONTROL
A. If a Change in Control (as defined in Section IA(iii) hereof) occurs
and if, within two years following the Change in Control, the employment of the
Employee is terminated (A) by the Company other than for Cause (as defined in
Section IA(i) hereof), or (B) by the Employee for Good Reason (as defined in
Section IA(ii) hereof), the Employee's Compensation (as defined in Section
IA(iv) hereof) shall continue to be paid in monthly installments, subject to
applicable withholdings, by the Company for a period of twelve (12) months
following such termination of employment. In lieu of receiving payment of
Compensation for such 12-month period in installments, the Employee may elect,
at any time prior to the earlier to occur of a Change in Control or action by
the Board of Directors of the Company (the "Board") with respect to an event
which would, upon consummation, result in a Change in Control (which election
shall be evidenced by notice filed with the Company), to be paid the present
value of any such Compensation in a lump sum within 30 days of termination of
the Employee's employment under circumstances entitling such Employee to
Compensation hereunder. The calculation of the amount due shall be made by the
independent accounting firm then performing the Company's independent audit, and
such calculation, including but not limited to any discount factor used to
determine present value, shall be conclusive.
For purposes of this Agreement, the following terms shall have the
meanings indicated:
<PAGE> 2
(i) CAUSE. Termination by the Company for "Cause" shall mean
termination with the approval of the Board (A) because of
willful misconduct of a material nature by the Employee in
connection with the performance of his duties as an employee;
(B) because of the Employee's use of alcohol or illegal drugs
that affects his ability to perform his assigned duties as an
employee; (C) because of the Employee's conviction of a felony
or serious misdemeanor involving moral turpitude; (D) because
of the Employee's embezzlement or theft from the Company; (E)
because of the Employee's gross inattention to or dereliction
of duty; or (F) because of performance by the Employee of any
other willful act(s) which the Employee knew or reasonably
should have known would be materially detrimental to the
Company; provided, however, that prior to the determination by
the Board that "Cause" as described in A, E or F above has
occurred, the Board shall (1) provide to the Employee in
writing, in reasonable detail, the reasons for the Board's
determination that such "Cause" exists, (2) afford the
Employee a reasonable opportunity to remedy any such breach,
(3) provide the Employee an opportunity to be heard at the
Board meeting where the final decision to terminate the
Employee's employment hereunder for such "Cause" is to be
considered, and (4) make any decision that such "Cause" exists
in good faith.
(ii) GOOD REASON. Termination by the Employee for "Good Reason"
shall mean (A) a material reduction in the Employee's
position, duties, responsibilities or status as in effect
immediately preceding the Change in Control, or a change in
the Employee's title resulting in a material reduction in his
responsibilities or position with the Company as in effect
immediately preceding the Change in Control, in either case
without the Employee's consent, but excluding for this purpose
any isolated, insubstantial and inadvertent action not taken
in bad faith and which is remedied promptly by the Company
after receiving notice from the Employee and further excluding
any such reductions or changes made in good faith to conform
with generally accepted industry standards for the Employee's
position; (B) a reduction in the rate of the Employee's base
salary as in effect immediately preceding the Change in
Control or a decrease in any bonus amount to which the
Employee was entitled pursuant to the Company's bonus or
incentive plans at the end of the fiscal year immediately
preceding the Change in Control, in either case without the
Employee's consent; provided, however, that a decrease in the
Employee's bonus amount shall not constitute "Good Reason" and
nothing herein shall be construed to guarantee such bonus
awards if performance, either by the Company or the Employee,
is below such targets as may reasonably and in good faith be
set forth in such bonus or incentive plans; or (C) the
relocation of the Employee, without his consent, to a location
outside a 30 mile radius of Concord, North Carolina, following
a Change in Control.
(iii) CHANGE IN CONTROL. For purposes of this Agreement, "Change in
Control" shall mean (A) the consummation of a merger,
consolidation, share exchange or similar transaction of the
Company with any other corporation, entity or group, as a
result of which the holders of the voting capital stock of the
Company as a group would
2
<PAGE> 3
receive less than 50% of the voting capital stock of the
surviving or resulting corporation; (B) the consummation of an
agreement providing for the sale or transfer (other than as
security for obligations of the Company) of substantially all
the assets of the Company; or (C) in the absence of a prior
expression of approval by the Board, the acquisition except by
inheritance or devise of more than 20% of the Company's voting
capital stock by any person within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended,
other than a person, or group including a person, who
beneficially owned, as of the date of this Agreement, more
than 5% of the Company's voting stock or equity, except that
transactions between the Company and any affiliate or
subsidiary of the Company and transactions between the Company
and any employee stock ownership plan shall not be deemed a
"Change in Control" as described in A, B or C above.
(iv) COMPENSATION. The Employee's Compensation shall consist of the
following: (A) the Employee's annual base salary, as paid by
the Company, in effect immediately preceding the Change in
Control plus (B) an annual bonus equal to the average bonus
(calculated as a percentage of base salary, without regard to
vesting schedules or restrictions on the bonus compensation
and converting all post-employment payments in stock and stock
options to a cash present value) paid by the Company for each
one-year performance period (often referred to as the "annual
incentive program") to the Employee for the three (3) most
recent fiscal years ending prior to such Change in Control
pursuant to the Company's incentive and bonus plans or, if the
relevant bonus program has not existed for three (3) years
preceding the Change of Control, an amount equal to the
estimated average bonus as calculated by the independent
accounting firm then performing the Company's independent
audit, which calculation shall be conclusive.
B. Upon termination of the Employee's employment entitling the Employee
to Compensation set forth in Section IA hereof, and for the 12-month period
following such termination of employment (unless terminated sooner as provided
herein), the Company shall:
(i) maintain in full force and effect for the continued benefit of
the Employee medical insurance (including coverage for the
Employee's dependents to the extent dependent coverage is
provided by the Company for its employees generally) under
such medical insurance plans and programs in which the
Employee was entitled to participate immediately prior to the
date of such termination of employment, provided that the
Employee's continued participation is possible under the
general terms and provisions of such plans and programs.
During such period, the Company will pay the Employee's
portion, if any, of such medical insurance premiums that may
be required, and the Employee's termination of employment at
the beginning of the period shall not constitute a "qualifying
event" under the Consolidated Omnibus Budget Reconciliation
Act of 1985 ("COBRA"). At the conclusion of such period, the
Employee shall be entitled to full rights to continued medical
insurance coverage as provided under COBRA, if eligible. In
the event that the Employee's participation in any such plan
or program is barred for any reason, the Company shall
3
<PAGE> 4
arrange to provide the Employee with medical insurance
benefits for such 12-month period substantially similar to
those which the Employee would otherwise have been entitled to
receive under such plans and programs from which his continued
participation is barred; provided, however, in no event will
the Employee receive from the Company the medical insurance
contemplated by this Section IB if the Employee receives
comparable insurance from any other source;
(ii) permit the Employee to participate in all qualified retirement
plans, including without limitation the Company's pension plan
and salary-reduction defined contribution plan;
(iii) maintain in full force and effect for the continued benefit of
the Employee the Employee's life insurance (both basic and
supplemental, if applicable);and
(iv) maintain in full force and effect for the continued benefit of
the Employee the Employee's short term disability and long
term disability insurance policies.
C. Upon termination of the Employee's employment entitling the Employee
to Compensation as set forth in Section IA hereof, the Employee will become
immediately vested in any and all stock options and shares of restricted stock
previously granted to him by the Company notwithstanding any provision to the
contrary of any plan under which the options or restricted stock are granted.
Any accrued but ungranted stock options or restricted stock shall also be fully
vested upon grant to the Employee. The Employee may exercise such options only
at the times and in the method described in such options. All restrictions on
shares of the Company's stock granted under any plan shall lapse upon a Change
of Control. The Company will amend such options or plans in any manner necessary
to facilitate the provisions of this Section IC.
D. It is the intention of the Company and the Employee that no portion
of the payment made under this Agreement, or payments to or for the Employee
under any other agreement or plan, be deemed to be an excess parachute payment
as defined in the Internal Revenue Code of 1986, as amended (the "Code") section
280G or any successor provision. The Company and the Employee agree that the
present value of any payment hereunder and any other payment to or for the
benefit of the Employee in the nature of compensation, receipt of which is
contingent on a Change in Control of the Company, and to which Code section 280G
or any successor provision thereto applies, shall not exceed an amount equal to
one dollar less than the maximum amount that the Employee may receive without
becoming subject to the tax imposed by Code section 4999 or any successor
provision or which the Company may pay without loss of deduction under Code
section 280G or any successor provisions. Present value for purposes of this
Agreement shall be calculated in accordance with Code section 1274(b)(2) or any
successor provision. In the event that the provisions of Code sections 280G and
4999 or any successor provisions are repealed without succession, this Section
ID shall be of no further force or effect.
E. The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation, share exchange or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Employee, to
4
<PAGE> 5
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Employee to compensation from the Company in the
same amount and on the same terms as he would be entitled to hereunder if he
terminated his employment for Good Reason, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the date the Employee's employment was terminated. As
used in this Agreement, "Company" shall mean the Company as defined herein and
any successor to its business and/or assets as aforesaid that executes and
delivers the agreement provided for in this Section IE or that otherwise becomes
bound by the all terms and provisions of this Agreement by operation of law.
F. Except as elected by the Employee with the prior consent of the
Company, all payments provided for under this Section I shall be paid in cash
(including the cash values of stock options or restricted stock, if any) from
the general funds of the Company, and no special or separate fund shall be
established, and no other segregation of assets shall be made to assure payment,
except as provided to the contrary in funded benefits plans. The Employee shall
have no right, title or interest whatsoever in or to any investments that the
Company may make to aid the Company in meeting its obligations under this
Section I. Nothing contained herein, and no action taken pursuant to the
provisions hereof, shall create or be construed to create a trust of any kind or
a fiduciary relationship between the Company and the Employee or any other
person. To the extent that any person acquires a right to receive payments from
the Company hereunder, such right shall be no greater than the right of an
unsecured creditor of the Company.
G. Following the Employee's termination as a result of a Change in
Control, the Corporation agrees (i) to indemnify, defend and hold harmless the
Employee from and against any liabilities other than those contained in Section
II and III hereof and crimes committed by the Employee against the Company to
which he may be subject as a result of his service as an officer or director of
the Company or as an officer or director of any of the Company's subsidiaries or
affiliates, and (ii) to indemnify the Employee for all costs, including
attorney's fees and other professional fees and disbursements, of (a) any legal
action brought or threatened against him as a result of such employment, or (b)
any legal action in which the Employee is compelled to give testimony as a
result of his employment hereunder, to the fullest extent permitted by, and
subject to the limitations of, the laws of the state of North Carolina.
H. In the event that any dispute shall arise between the Employee and
the Company relating to his rights under this Agreement following a Change in
Control, and it is determined by agreement between the parties, or by a final
judgment of a court of competent jurisdiction that is no longer subject to
appeal, that the Employee has been substantially successful in his claims, then
reasonable legal fees and disbursements of the Employee in connection with such
dispute shall be paid by the Company.
5
<PAGE> 6
I. Following the employee's termination as a result of a Change in
Control, the Employee shall be entitled to receive outplacement assistance for a
period of six (6) months at the Company's expense.
II. COVENANT NOT TO DISCLOSE CONFIDENTIAL INFORMATION
A. The Employee understands that his position with the Company is one
of trust and confidence because of the Employee's access to trade secrets and
confidential and proprietary business information. The Employee pledges his best
efforts and utmost diligence to protect and keep confidential the trade secrets
and confidential or proprietary business information of the Company.
B. Unless required by the Company in connection with his employment or
with the Company's express written consent, the Employee agrees that he will
not, either during his employment or afterwards, directly or indirectly, use,
misappropriate, disclose or aid anyone else in disclosing to any third party for
the Employee's own benefit or the benefit of another all or any part of any of
the Company's trade secrets or confidential or proprietary information, whether
or not the information is acquired, learned, or developed by the Employee alone
or in conjunction with others. The Employee makes the same pledge with regard to
the confidential information of the Company's customers, contractors, or others
with whom the Company has a business relationship.
C. The Employee understands that trade secrets and confidential or
proprietary information, for purposes of this Agreement, shall include, but not
be limited to, any and all versions of the Company's computer software,
hardware, and documentation; all methods, processes, techniques, practices,
product designs, pricing information, billing histories, customer requirements,
customer lists, employee lists and salary/commission information, personnel
matters, financial data, operating results, plans, contractual relationships,
and projections for business opportunities for new or developing business of the
Company; and all other confidential or proprietary information, patents, ideas,
know-how and trade secrets which are in the possession of the Company, no matter
what the source, including any such information that the Company obtains from a
customer, contractor or another party or entity and that the Company treats or
designates as confidential or proprietary information, whether or not such
information is owned or was developed by the Company.
D. The Employee also agrees that all notes, records (including all
computer and electronic records), software, drawings, handbooks, manuals,
policies, contracts, memoranda, sales files, customer lists, employee lists or
other documents that are made or compiled by the Employee, or which were
available to the Employee while he was employed at the Company, in whatever
form, including but not limited to all such documents and data concerning any
processes, inventions, services or products used or developed by the Employee
during his employment, shall be the property of the Company. The Employee
further agrees to deliver and make available all such documents and data to the
Company, regardless of how stored or maintained and including all originals,
copies and compilations thereof, upon the separation of his employment, for any
reason, or at any other time at the Company's request.
6
<PAGE> 7
E. The Employee understands that the Company expects him to respect any
trade secrets or confidential information of any of the Employee's former
employers, business associates, or other business relationships. The Employee
also agrees to respect the Company's express direction to the Employee not to
disclose to the Company, its officers, or any of its employees any such
information so long as it remains confidential.
F. The Employee understands that the secrecy of certain communications
is protected by state and federal laws, and that violations of the Federal
Communications Act may subject the Employee to fines of up to $10,000, or
imprisonment for up to ten years, or both. Therefore, the Employee agrees that
the following restrictions apply to all modes of communications during the
duration of the Employee's employment with the Company:
1. The Employee will not divulge to any unauthorized person
any knowledge that he may have regarding communication arrangements
between the Company and its customers.
2. Except as required by the daily performance of his duties,
the Employee will not give to any individual or group any information
whatsoever regarding the location of telecommunications equipment,
trunks, cables, circuits, etc., or regarding the installation of the
Company's central office equipment, or any information regarding the
Company's plant or facilities.
3. Except as required in the performance of his duties with
the Company, the Employee will not listen in on any telephone
conversation in any form, nor disclose to any unauthorized individual
or group any part of any telephone conversation which the Employee may
overhear in the performance of his duties.
4. The Employee will not discuss with his family, friends or
acquaintances any information gained through his employment with the
Company regarding military installations, communications, filter
centers or other communication procedures and equipment relating to
national security.
5. The Employee will not divulge to any unauthorized
individual or group the existence, substance, purport, effect of
meaning of any communication between the Company's customers.
6. The Employee will promptly refer to his supervisor any
unauthorized request regarding telephone communications.
III. COVENANT NOT TO COMPETE
A. For and in consideration of this Agreement, the change in control
protection contained herein and the Employee's continued employment with the
Company, the Employee agrees that, unless specifically authorized by the Company
in writing, the Employee will not during
7
<PAGE> 8
his employment with the Company and for a period of one year after his
employment with the Company has terminated or ended (whatever the reason for the
end of the employment relationship):
1. Engage in any "Competitive Activity" (as defined below)
within the "Restricted Territory" (as defined below); and/or
2. Serve as an employee, director, owner, partner, contractor,
consultant or agent of, or own any interest in (except for ownership of
a minor percentage of stock in a "public" competitor), any person, firm
or corporation that engages in "Competitive Activity" within the
"Restricted Territory"; and/or
3. Engage in any "Competitive Activity" with, for or towards
or divert, attempt to divert or direct others to divert any business of
the Company from an existing Company customer, a joint venturer or
other business partner of the Company (hereinafter referred to as an
"affiliate"), or from a potential customer identified through leads or
relationships developed during the Employee's employment with the
Company, within the "Restricted Territory".
B. Furthermore, the Employee will not during his employment with the
Company and for a period of two years after his employment with the Company has
terminated or ended (whatever the reason for the end of the employment
relationship) solicit or hire for employment or as an independent contractor any
employee of the Company, or solicit, assist, induce, recruit, or assist or
induce anyone else to recruit or cause another person in the employ of the
Company or any of the Company's affiliates to leave his employment with the
Company or affiliate for the purpose of joining, associating, or becoming
employed with any business or activity with which the Employee is or expects to
be directly or indirectly associated or employed.
C. "Competitive Activity" means: (1) the business activities engaged in
by the Company during the Employee's employment with the Company, including the
sales, marketing, distribution and provision of telecommunications services,
equipment or other products of the type of which the Employee sold or was
involved during his employment with the Company; and/or (2) the performance of
any other business activities competitive with the Company for or on behalf of
any telecommunications entity.
D. "Restricted Territory" means: (1) the geographic area encompassing a
seventy- five (75) mile radius of Concord, North Carolina; and/or (2) any
Metropolitan Statistical Area (as defined by the United States Department of
Commerce) from which the Company generated at least two percent (2%) of its
gross annual revenue during the last two calendar years before the end of the
Employee's employment with the Company.
IV. ACKNOWLEDGMENTS BY EMPLOYEE
A. The Employee acknowledges that the restrictions placed upon him by
this Agreement are reasonable given the nature of the Employee's position with
the Company, the area in which the
8
<PAGE> 9
Company markets its products and services, and the consideration provided by the
Company to the Employee pursuant to this Agreement. Specifically, the Employee
acknowledges that the length of the Covenant Not to Compete in Section III is
reasonable and that the definitions of "Competitive Activity" and "Restricted
Territory" are reasonable.
B. The Employee agrees that in the event of any breach or threatened
breach of the provisions of Section II and III hereof by the Employee, the
Company's remedies at law would be inadequate, and the Company shall be entitled
to an injunction (without any bond or other security being required),
restraining such breach, and costs and attorneys' fees relating to any such
proceeding or any other legal action to enforce the provisions of this
Agreement, but nothing herein shall be construed to preclude the Company from
pursuing any other remedies at law or in equity available to it for any such
breach or threatened breach. Moreover, the Employee also agrees that if the
Employee breaches any of Sections II or III above, the Employee shall be
required to refund to the Company and the Company shall be entitled to recover
of the Employee 90% of the amount of the Employee's Compensation (as defined in
Section IA(iv) herein) for a Change in Control already paid to the Employee by
the Company under this Agreement at the time of the breach, and the Employee
shall forfeit at the time of the breach the right to any additional payments or
benefits under this Agreement, except that if the breach occurs before the
payments set forth in Section IA are made, the Employee shall be entitled to
receive the first monthly payment set forth in Section IA, if generally eligible
under Section I, and nothing more. In such case, the Employee and the Company
agree that the confidential information and non-compete obligations contained in
this Agreement shall remain valid and enforceable based upon the consideration
actually paid.
C. The Employee acknowledges that all of the provisions of the
Agreement are fair and necessary to protect the interests of the Company.
Accordingly, the Employee agrees not to contest the validity or enforceability
of Section II or Section III hereof and agrees that if any court should hold any
provision of Section II or Section III hereof to be unenforceable, the remaining
provisions will nonetheless be enforceable according to their terms. Further, if
any provision or subsection is held to be overly broad as written, the Employee
agrees that a court should view the above provisions and subsections as
separable and uphold those separable provisions and subsections deemed to be
reasonable.
D. The Employee understands that every provision of this Agreement is
severable from each other provision of this Agreement. Therefore, if any
provision of this Agreement is held invalid or unenforceable, every other
provision of this Agreement will continue to be fully valid and enforceable. In
the event that any provision of this Agreement is determined by a court of
competent jurisdiction to be void or unenforceable, the Employee and the Company
agree that such provision shall be enforced to the extent reasonable under the
circumstances and that all other provisions shall be enforceable to the fullest
extent permissible by law. The Employee and the Company further agree that, if
any court makes such a determination, such court shall have the power to reduce
the duration, scope and/or area of such provisions and/or delete specific words
and phrases by "blue penciling" and, in its reduced or blue penciled form, such
provisions shall then be enforceable as allowed by law.
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<PAGE> 10
V. MISCELLANEOUS
A. The Employee shall have no right to receive any payment hereunder
except following a Change of Control as determined pursuant to Section I.
Nothing contained in this Agreement shall confer upon the Employee any right to
continued employment by the Company or shall interfere in any way with the right
of the Company to terminate his employment at any time for any/or no reason. The
provisions of this Agreement shall not affect in any way the right or power of
the Company to change its business structure or to effect a merger,
consolidation, share exchange or similar transaction, or to dissolve or
liquidate, or sell or transfer all or part of its business or assets.
B. The Employee understands that his obligations under this Agreement
will continue whether or not his employment with the Company is terminated
voluntarily or involuntarily, or with or without cause.
C. This Agreement replaces any previous agreement relating to the same
or similar subject matter which the Employee and the Company may have entered
into with the Company with respect to the Employee's employment by the Company.
This Agreement may not be changed in any detail by any verbal statement,
representation, or other agreement made by any other Company employee, or by any
written document signed by any Company employee, other than a Company officer.
D. The Employee agrees that the Company's waiver of any default by the
Employer shall not constitute a waiver of its rights under this Agreement with
respect to any subsequent default by the Employee. No waiver of any provision of
this Agreement shall be valid unless in writing and signed by all parties.
E. This Agreement shall be binding upon, and inure to the benefit of,
the Employee and the Company and their respective permitted successors and
assigns. Neither this Agreement nor any right or interest hereunder shall be
assignable by the Employee, his beneficiaries, or legal representatives without
the Company's prior written consent.
F. Where appropriate as used in this Plan, the masculine shall include
the feminine.
G. This Agreement has been executed and delivered in the State of North
Carolina, and the laws of the State of North Carolina shall govern its validity,
interpretation, performance and enforcement.
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<PAGE> 11
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto effective as of the day and year first above stated.
CT COMMUNICATIONS, INC.
By: /s/ Michael R. Coltrane
------------------------------------
EMPLOYEE:
/s/ Amy Justis (Seal)
-----------------------------------
Amy Justis
11
<PAGE> 1
EXHIBIT 10.22
AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of July, 1999
by and between CT COMMUNICATIONS, INC. (the "Company"), a North Carolina
corporation, and JOHN GOOCHER. ("Employee"), an individual residing in
Mecklenburg County, North Carolina;
WHEREAS, the Employee is a valued employee of the Company or one of the
Company's subsidiaries, and in order to induce the Employee to continue
employment with the Company and to enhance the Employee's job security, the
Company desires to provide compensation to the Employee in the event the
Employee's employment is terminated following a change in control of the
Company, as hereinafter provided; and
WHEREAS, because the Employee has or will become familiar with the
Company's products, relationships, trade secrets and confidential information
relating to both the Company's and its customers' business, products, processes
and development and may generate or have generated confidential information, the
Company wishes to protect its long-term interests by having the Employee enter
into non-disclosure and non-competition covenants;
NOW, THEREFORE, in consideration of the terms contained herein,
including the compensation the Company agrees to pay to the Employee upon
certain events, the Employee's continued employment with the Company, the
Employee's covenants and other good and valuable considerations, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Employee agree
as follows:
I. TERMINATION FOLLOWING A CHANGE IN CONTROL
A. If a Change in Control (as defined in Section IA(iii) hereof) occurs
and if, within two years following the Change in Control, the employment of the
Employee is terminated (A) by the Company other than for Cause (as defined in
Section IA(i) hereof), or (B) by the Employee for Good Reason (as defined in
Section IA(ii) hereof), the Employee's Compensation (as defined in Section
IA(iv) hereof) shall continue to be paid in monthly installments, subject to
applicable withholdings, by the Company for a period of twelve (12) months
following such termination of employment. In lieu of receiving payment of
Compensation for such 12-month period in installments, the Employee may elect,
at any time prior to the earlier to occur of a Change in Control or action by
the Board of Directors of the Company (the "Board") with respect to an event
which would, upon consummation, result in a Change in Control (which election
shall be evidenced by notice filed with the Company), to be paid the present
value of any such Compensation in a lump sum within 30 days of termination of
the Employee's employment under circumstances entitling such Employee to
Compensation hereunder. The calculation of the amount due shall be made by the
independent accounting firm then performing the Company's independent audit, and
such calculation, including but not limited to any discount factor used to
determine present value, shall be conclusive.
For purposes of this Agreement, the following terms shall have the
meanings indicated:
<PAGE> 2
(i) CAUSE. Termination by the Company for "Cause" shall mean
termination with the approval of the Board (A) because of
willful misconduct of a material nature by the Employee in
connection with the performance of his duties as an employee;
(B) because of the Employee's use of alcohol or illegal drugs
that affects his ability to perform his assigned duties as an
employee; (C) because of the Employee's conviction of a felony
or serious misdemeanor involving moral turpitude; (D) because
of the Employee's embezzlement or theft from the Company; (E)
because of the Employee's gross inattention to or dereliction
of duty; or (F) because of performance by the Employee of any
other willful act(s) which the Employee knew or reasonably
should have known would be materially detrimental to the
Company; provided, however, that prior to the determination by
the Board that "Cause" as described in A, E or F above has
occurred, the Board shall (1) provide to the Employee in
writing, in reasonable detail, the reasons for the Board's
determination that such "Cause" exists, (2) afford the
Employee a reasonable opportunity to remedy any such breach,
(3) provide the Employee an opportunity to be heard at the
Board meeting where the final decision to terminate the
Employee's employment hereunder for such "Cause" is to be
considered, and (4) make any decision that such "Cause" exists
in good faith.
(ii) GOOD REASON. Termination by the Employee for "Good Reason"
shall mean (A) a material reduction in the Employee's
position, duties, responsibilities or status as in effect
immediately preceding the Change in Control, or a change in
the Employee's title resulting in a material reduction in his
responsibilities or position with the Company as in effect
immediately preceding the Change in Control, in either case
without the Employee's consent, but excluding for this purpose
any isolated, insubstantial and inadvertent action not taken
in bad faith and which is remedied promptly by the Company
after receiving notice from the Employee and further excluding
any such reductions or changes made in good faith to conform
with generally accepted industry standards for the Employee's
position; (B) a reduction in the rate of the Employee's base
salary as in effect immediately preceding the Change in
Control or a decrease in any bonus amount to which the
Employee was entitled pursuant to the Company's bonus or
incentive plans at the end of the fiscal year immediately
preceding the Change in Control, in either case without the
Employee's consent; provided, however, that a decrease in the
Employee's bonus amount shall not constitute "Good Reason" and
nothing herein shall be construed to guarantee such bonus
awards if performance, either by the Company or the Employee,
is below such targets as may reasonably and in good faith be
set forth in such bonus or incentive plans; or (C) the
relocation of the Employee, without his consent, to a location
outside a 30 mile radius of Concord, North Carolina, following
a Change in Control.
(iii) CHANGE IN CONTROL. For purposes of this Agreement, "Change in
Control" shall mean (A) the consummation of a merger,
consolidation, share exchange or similar transaction of the
Company with any other corporation, entity or group, as a
result of which the holders of the voting capital stock of the
Company as a group would
2
<PAGE> 3
receive less than 50% of the voting capital stock of the
surviving or resulting corporation; (B) the consummation of an
agreement providing for the sale or transfer (other than as
security for obligations of the Company) of substantially all
the assets of the Company; or (C) in the absence of a prior
expression of approval by the Board, the acquisition except by
inheritance or devise of more than 20% of the Company's voting
capital stock by any person within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended,
other than a person, or group including a person, who
beneficially owned, as of the date of this Agreement, more
than 5% of the Company's voting stock or equity, except that
transactions between the Company and any affiliate or
subsidiary of the Company and transactions between the Company
and any employee stock ownership plan shall not be deemed a
"Change in Control" as described in A, B or C above.
(iv) COMPENSATION. The Employee's Compensation shall consist of the
following: (A) the Employee's annual base salary, as paid by
the Company, in effect immediately preceding the Change in
Control plus (B) an annual bonus equal to the average bonus
(calculated as a percentage of base salary, without regard to
vesting schedules or restrictions on the bonus compensation
and converting all post-employment payments in stock and stock
options to a cash present value) paid by the Company for each
one-year performance period (often referred to as the "annual
incentive program") to the Employee for the three (3) most
recent fiscal years ending prior to such Change in Control
pursuant to the Company's incentive and bonus plans or, if the
relevant bonus program has not existed for three (3) years
preceding the Change of Control, an amount equal to the
estimated average bonus as calculated by the independent
accounting firm then performing the Company's independent
audit, which calculation shall be conclusive.
B. Upon termination of the Employee's employment entitling the Employee
to Compensation set forth in Section IA hereof, and for the 12-month period
following such termination of employment (unless terminated sooner as provided
herein), the Company shall:
(i) maintain in full force and effect for the continued benefit of
the Employee medical insurance (including coverage for the
Employee's dependents to the extent dependent coverage is
provided by the Company for its employees generally) under
such medical insurance plans and programs in which the
Employee was entitled to participate immediately prior to the
date of such termination of employment, provided that the
Employee's continued participation is possible under the
general terms and provisions of such plans and programs.
During such period, the Company will pay the Employee's
portion, if any, of such medical insurance premiums that may
be required, and the Employee's termination of employment at
the beginning of the period shall not constitute a "qualifying
event" under the Consolidated Omnibus Budget Reconciliation
Act of 1985 ("COBRA"). At the conclusion of such period, the
Employee shall be entitled to full rights to continued medical
insurance coverage as provided under COBRA, if eligible. In
the event that the Employee's participation in any such plan
or program is barred for any reason, the Company shall
3
<PAGE> 4
arrange to provide the Employee with medical insurance
benefits for such 12-month period substantially similar to
those which the Employee would otherwise have been entitled to
receive under such plans and programs from which his continued
participation is barred; provided, however, in no event will
the Employee receive from the Company the medical insurance
contemplated by this Section IB if the Employee receives
comparable insurance from any other source;
(ii) permit the Employee to participate in all qualified retirement
plans, including without limitation the Company's pension plan
and salary-reduction defined contribution plan;
(iii) maintain in full force and effect for the continued benefit of
the Employee the Employee's life insurance (both basic and
supplemental, if applicable);and
(iv) maintain in full force and effect for the continued benefit of
the Employee the Employee's short term disability and long
term disability insurance policies.
C. Upon termination of the Employee's employment entitling the Employee
to Compensation as set forth in Section IA hereof, the Employee will become
immediately vested in any and all stock options and shares of restricted stock
previously granted to him by the Company notwithstanding any provision to the
contrary of any plan under which the options or restricted stock are granted.
Any accrued but ungranted stock options or restricted stock shall also be fully
vested upon grant to the Employee. The Employee may exercise such options only
at the times and in the method described in such options. All restrictions on
shares of the Company's stock granted under any plan shall lapse upon a Change
of Control. The Company will amend such options or plans in any manner necessary
to facilitate the provisions of this Section IC.
D. It is the intention of the Company and the Employee that no portion
of the payment made under this Agreement, or payments to or for the Employee
under any other agreement or plan, be deemed to be an excess parachute payment
as defined in the Internal Revenue Code of 1986, as amended (the "Code") section
280G or any successor provision. The Company and the Employee agree that the
present value of any payment hereunder and any other payment to or for the
benefit of the Employee in the nature of compensation, receipt of which is
contingent on a Change in Control of the Company, and to which Code section 280G
or any successor provision thereto applies, shall not exceed an amount equal to
one dollar less than the maximum amount that the Employee may receive without
becoming subject to the tax imposed by Code section 4999 or any successor
provision or which the Company may pay without loss of deduction under Code
section 280G or any successor provisions. Present value for purposes of this
Agreement shall be calculated in accordance with Code section 1274(b)(2) or any
successor provision. In the event that the provisions of Code sections 280G and
4999 or any successor provisions are repealed without succession, this Section
ID shall be of no further force or effect.
E. The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation, share exchange or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Employee, to
4
<PAGE> 5
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle the Employee to compensation from the Company in the
same amount and on the same terms as he would be entitled to hereunder if he
terminated his employment for Good Reason, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the date the Employee's employment was terminated. As
used in this Agreement, "Company" shall mean the Company as defined herein and
any successor to its business and/or assets as aforesaid that executes and
delivers the agreement provided for in this Section IE or that otherwise becomes
bound by the all terms and provisions of this Agreement by operation of law.
F. Except as elected by the Employee with the prior consent of the
Company, all payments provided for under this Section I shall be paid in cash
(including the cash values of stock options or restricted stock, if any) from
the general funds of the Company, and no special or separate fund shall be
established, and no other segregation of assets shall be made to assure payment,
except as provided to the contrary in funded benefits plans. The Employee shall
have no right, title or interest whatsoever in or to any investments that the
Company may make to aid the Company in meeting its obligations under this
Section I. Nothing contained herein, and no action taken pursuant to the
provisions hereof, shall create or be construed to create a trust of any kind or
a fiduciary relationship between the Company and the Employee or any other
person. To the extent that any person acquires a right to receive payments from
the Company hereunder, such right shall be no greater than the right of an
unsecured creditor of the Company.
G. Following the Employee's termination as a result of a Change in
Control, the Corporation agrees (i) to indemnify, defend and hold harmless the
Employee from and against any liabilities other than those contained in Section
II and III hereof and crimes committed by the Employee against the Company to
which he may be subject as a result of his service as an officer or director of
the Company or as an officer or director of any of the Company's subsidiaries or
affiliates, and (ii) to indemnify the Employee for all costs, including
attorney's fees and other professional fees and disbursements, of (a) any legal
action brought or threatened against him as a result of such employment, or (b)
any legal action in which the Employee is compelled to give testimony as a
result of his employment hereunder, to the fullest extent permitted by, and
subject to the limitations of, the laws of the state of North Carolina.
H. In the event that any dispute shall arise between the Employee and
the Company relating to his rights under this Agreement following a Change in
Control, and it is determined by agreement between the parties, or by a final
judgment of a court of competent jurisdiction that is no longer subject to
appeal, that the Employee has been substantially successful in his claims, then
reasonable legal fees and disbursements of the Employee in connection with such
dispute shall be paid by the Company.
I. Following the employee's termination as a result of a Change in
Control, the Employee shall be entitled to receive outplacement assistance for a
period of six (6) months at the Company's expense.
5
<PAGE> 6
II. COVENANT NOT TO DISCLOSE CONFIDENTIAL INFORMATION
A. The Employee understands that his position with the Company is one
of trust and confidence because of the Employee's access to trade secrets and
confidential and proprietary business information. The Employee pledges his best
efforts and utmost diligence to protect and keep confidential the trade secrets
and confidential or proprietary business information of the Company.
B. Unless required by the Company in connection with his employment or
with the Company's express written consent, the Employee agrees that he will
not, either during his employment or afterwards, directly or indirectly, use,
misappropriate, disclose or aid anyone else in disclosing to any third party for
the Employee's own benefit or the benefit of another all or any part of any of
the Company's trade secrets or confidential or proprietary information, whether
or not the information is acquired, learned, or developed by the Employee alone
or in conjunction with others. The Employee makes the same pledge with regard to
the confidential information of the Company's customers, contractors, or others
with whom the Company has a business relationship.
C. The Employee understands that trade secrets and confidential or
proprietary information, for purposes of this Agreement, shall include, but not
be limited to, any and all versions of the Company's computer software,
hardware, and documentation; all methods, processes, techniques, practices,
product designs, pricing information, billing histories, customer requirements,
customer lists, employee lists and salary/commission information, personnel
matters, financial data, operating results, plans, contractual relationships,
and projections for business opportunities for new or developing business of the
Company; and all other confidential or proprietary information, patents, ideas,
know-how and trade secrets which are in the possession of the Company, no matter
what the source, including any such information that the Company obtains from a
customer, contractor or another party or entity and that the Company treats or
designates as confidential or proprietary information, whether or not such
information is owned or was developed by the Company.
D. The Employee also agrees that all notes, records (including all
computer and electronic records), software, drawings, handbooks, manuals,
policies, contracts, memoranda, sales files, customer lists, employee lists or
other documents that are made or compiled by the Employee, or which were
available to the Employee while he was employed at the Company, in whatever
form, including but not limited to all such documents and data concerning any
processes, inventions, services or products used or developed by the Employee
during his employment, shall be the property of the Company. The Employee
further agrees to deliver and make available all such documents and data to the
Company, regardless of how stored or maintained and including all originals,
copies and compilations thereof, upon the separation of his employment, for any
reason, or at any other time at the Company's request.
E. The Employee understands that the Company expects him to respect any
trade secrets or confidential information of any of the Employee's former
employers, business associates, or other business relationships. The Employee
also agrees to respect the Company's express direction to the
6
<PAGE> 7
Employee not to disclose to the Company, its officers, or any of its employees
any such information so long as it remains confidential.
F. The Employee understands that the secrecy of certain communications
is protected by state and federal laws, and that violations of the Federal
Communications Act may subject the Employee to fines of up to $10,000, or
imprisonment for up to ten years, or both. Therefore, the Employee agrees that
the following restrictions apply to all modes of communications during the
duration of the Employee's employment with the Company:
1. The Employee will not divulge to any unauthorized person
any knowledge that he may have regarding communication arrangements
between the Company and its customers.
2. Except as required by the daily performance of his duties,
the Employee will not give to any individual or group any information
whatsoever regarding the location of telecommunications equipment,
trunks, cables, circuits, etc., or regarding the installation of the
Company's central office equipment, or any information regarding the
Company's plant or facilities.
3. Except as required in the performance of his duties with
the Company, the Employee will not listen in on any telephone
conversation in any form, nor disclose to any unauthorized individual
or group any part of any telephone conversation which the Employee may
overhear in the performance of his duties.
4. The Employee will not discuss with his family, friends or
acquaintances any information gained through his employment with the
Company regarding military installations, communications, filter
centers or other communication procedures and equipment relating to
national security.
5. The Employee will not divulge to any unauthorized
individual or group the existence, substance, purport, effect of
meaning of any communication between the Company's customers.
6. The Employee will promptly refer to his supervisor any
unauthorized request regarding telephone communications.
III. COVENANT NOT TO COMPETE
A. For and in consideration of this Agreement, the change in control
protection contained herein and the Employee's continued employment with the
Company, the Employee agrees that, unless specifically authorized by the Company
in writing, the Employee will not during his employment with the Company and for
a period of one year after his employment with the Company has terminated or
ended (whatever the reason for the end of the employment relationship):
7
<PAGE> 8
1. Engage in any "Competitive Activity" (as defined below)
within the "Restricted Territory" (as defined below); and/or
2. Serve as an employee, director, owner, partner, contractor,
consultant or agent of, or own any interest in (except for ownership of
a minor percentage of stock in a "public" competitor), any person, firm
or corporation that engages in "Competitive Activity" within the
"Restricted Territory"; and/or
3. Engage in any "Competitive Activity" with, for or towards
or divert, attempt to divert or direct others to divert any business of
the Company from an existing Company customer, a joint venturer or
other business partner of the Company (hereinafter referred to as an
"affiliate"), or from a potential customer identified through leads or
relationships developed during the Employee's employment with the
Company, within the "Restricted Territory".
B. Furthermore, the Employee will not during his employment with the
Company and for a period of two years after his employment with the Company has
terminated or ended (whatever the reason for the end of the employment
relationship) solicit or hire for employment or as an independent contractor any
employee of the Company, or solicit, assist, induce, recruit, or assist or
induce anyone else to recruit or cause another person in the employ of the
Company or any of the Company's affiliates to leave his employment with the
Company or affiliate for the purpose of joining, associating, or becoming
employed with any business or activity with which the Employee is or expects to
be directly or indirectly associated or employed.
C. "Competitive Activity" means: (1) the business activities engaged in
by the Company during the Employee's employment with the Company, including the
sales, marketing, distribution and provision of telecommunications services,
equipment or other products of the type of which the Employee sold or was
involved during his employment with the Company; and/or (2) the performance of
any other business activities competitive with the Company for or on behalf of
any telecommunications entity.
D. "Restricted Territory" means: (1) the geographic area encompassing a
seventy- five (75) mile radius of Concord, North Carolina; and/or (2) any
Metropolitan Statistical Area (as defined by the United States Department of
Commerce) from which the Company generated at least two percent (2%) of its
gross annual revenue during the last two calendar years before the end of the
Employee's employment with the Company.
IV. ACKNOWLEDGMENTS BY EMPLOYEE
A. The Employee acknowledges that the restrictions placed upon him by
this Agreement are reasonable given the nature of the Employee's position with
the Company, the area in which the Company markets its products and services,
and the consideration provided by the Company to the Employee pursuant to this
Agreement. Specifically, the Employee acknowledges that the length of
8
<PAGE> 9
the Covenant Not to Compete in Section III is reasonable and that the
definitions of "Competitive Activity" and "Restricted Territory" are reasonable.
B. The Employee agrees that in the event of any breach or threatened
breach of the provisions of Section II and III hereof by the Employee, the
Company's remedies at law would be inadequate, and the Company shall be entitled
to an injunction (without any bond or other security being required),
restraining such breach, and costs and attorneys' fees relating to any such
proceeding or any other legal action to enforce the provisions of this
Agreement, but nothing herein shall be construed to preclude the Company from
pursuing any other remedies at law or in equity available to it for any such
breach or threatened breach. Moreover, the Employee also agrees that if the
Employee breaches any of Sections II or III above, the Employee shall be
required to refund to the Company and the Company shall be entitled to recover
of the Employee 90% of the amount of the Employee's Compensation (as defined in
Section IA(iv) herein) for a Change in Control already paid to the Employee by
the Company under this Agreement at the time of the breach, and the Employee
shall forfeit at the time of the breach the right to any additional payments or
benefits under this Agreement, except that if the breach occurs before the
payments set forth in Section IA are made, the Employee shall be entitled to
receive the first monthly payment set forth in Section IA, if generally eligible
under Section I, and nothing more. In such case, the Employee and the Company
agree that the confidential information and non-compete obligations contained in
this Agreement shall remain valid and enforceable based upon the consideration
actually paid.
C. The Employee acknowledges that all of the provisions of the
Agreement are fair and necessary to protect the interests of the Company.
Accordingly, the Employee agrees not to contest the validity or enforceability
of Section II or Section III hereof and agrees that if any court should hold any
provision of Section II or Section III hereof to be unenforceable, the remaining
provisions will nonetheless be enforceable according to their terms. Further, if
any provision or subsection is held to be overly broad as written, the Employee
agrees that a court should view the above provisions and subsections as
separable and uphold those separable provisions and subsections deemed to be
reasonable.
D. The Employee understands that every provision of this Agreement is
severable from each other provision of this Agreement. Therefore, if any
provision of this Agreement is held invalid or unenforceable, every other
provision of this Agreement will continue to be fully valid and enforceable. In
the event that any provision of this Agreement is determined by a court of
competent jurisdiction to be void or unenforceable, the Employee and the Company
agree that such provision shall be enforced to the extent reasonable under the
circumstances and that all other provisions shall be enforceable to the fullest
extent permissible by law. The Employee and the Company further agree that, if
any court makes such a determination, such court shall have the power to reduce
the duration, scope and/or area of such provisions and/or delete specific words
and phrases by "blue penciling" and, in its reduced or blue penciled form, such
provisions shall then be enforceable as allowed by law.
9
<PAGE> 10
V. MISCELLANEOUS
A. The Employee shall have no right to receive any payment hereunder
except following a Change of Control as determined pursuant to Section I.
Nothing contained in this Agreement shall confer upon the Employee any right to
continued employment by the Company or shall interfere in any way with the right
of the Company to terminate his employment at any time for any/or no reason. The
provisions of this Agreement shall not affect in any way the right or power of
the Company to change its business structure or to effect a merger,
consolidation, share exchange or similar transaction, or to dissolve or
liquidate, or sell or transfer all or part of its business or assets.
B. The Employee understands that his obligations under this Agreement
will continue whether or not his employment with the Company is terminated
voluntarily or involuntarily, or with or without cause.
C. This Agreement replaces any previous agreement relating to the same
or similar subject matter which the Employee and the Company may have entered
into with the Company with respect to the Employee's employment by the Company.
This Agreement may not be changed in any detail by any verbal statement,
representation, or other agreement made by any other Company employee, or by any
written document signed by any Company employee, other than a Company officer.
D. The Employee agrees that the Company's waiver of any default by the
Employer shall not constitute a waiver of its rights under this Agreement with
respect to any subsequent default by the Employee. No waiver of any provision of
this Agreement shall be valid unless in writing and signed by all parties.
E. This Agreement shall be binding upon, and inure to the benefit of,
the Employee and the Company and their respective permitted successors and
assigns. Neither this Agreement nor any right or interest hereunder shall be
assignable by the Employee, his beneficiaries, or legal representatives without
the Company's prior written consent.
F. Where appropriate as used in this Plan, the masculine shall include
the feminine.
G. This Agreement has been executed and delivered in the State of North
Carolina, and the laws of the State of North Carolina shall govern its validity,
interpretation, performance and enforcement.
10
<PAGE> 11
IN WITNESS WHEREOF, this Agreement has been executed by the parties
hereto effective as of the day and year first above stated.
CT COMMUNICATIONS, INC.
By: /s/ Michael R. Coltrane
-----------------------------------
EMPLOYEE:
John Goocher (Seal)
----------------------------------
John Goocher
11
<PAGE> 1
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Financial Statements and Schedules
December 31, 1999, 1998 and 1997
(With Independent Auditors' Report Thereon)
<PAGE> 2
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Financial Statements Index
December 31, 1999, 1998 and 1997
(1) Consolidated Financial Statements
The following financial statements, together with independent auditors'
report thereon, are included:
<TABLE>
<S> <C>
o Independent Auditors' Report F - 2
o Consolidated balance sheets as of December 31, 1999 and 1998 F - 3 and F - 4
o Consolidated statements of income for the years ended
December 31, 1999, 1998, and 1997 F - 5
o Consolidated statements of comprehensive income for the years
ended December 31, 1999, 1998 and 1997 F-6
o Consolidated statements of stockholders' equity for the years ended
December 31, 1999, 1998, and 1997 F - 7 and F - 8
o Consolidated statements of cash flows for the years ended
December 31, 1999, 1998, and 1997 F - 9
o Notes to consolidated financial statements for the years ended
December 31, 1999, 1998, and 1997 F - 10 to F - 35
</TABLE>
(2) Consolidated Financial Statement Schedules
The following financial statement schedule is included:
o Schedule II - Valuation and Qualifying Accounts F - 36
Other schedules are omitted because the required information is included
in the financial statements or is not applicable.
<PAGE> 3
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, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, 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.
/s/ KPMG LLP
Charlotte, North Carolina
February 25, 2000
<PAGE> 4
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
Assets 1999 1998
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,561,778 2,924,568
Accounts receivable, net of allowance for doubtful
accounts of $107,500 in 1999 and 1998 14,859,359 12,210,952
Notes receivable 1,513,500 1,513,500
Other accounts receivable 2,260,038 1,067,163
Materials and supplies 2,551,724 2,331,957
Deferred income taxes 154,669 1,051,855
Prepaid expenses and other assets 1,107,238 1,583,232
------------- -------------
Total current assets 24,008,306 22,683,227
------------- -------------
Investment securities 81,950,045 24,666,211
Investments in affiliates 31,683,635 29,789,794
Property and equipment:
Land, buildings, and general equipment 38,873,719 35,676,763
Central office equipment 83,054,096 70,787,607
Poles, wires, cables and conduit 95,335,716 87,587,101
Construction in progress 2,426,293 449,946
------------- -------------
219,689,824 194,501,417
Less accumulated depreciation (105,514,615) (94,329,834)
------------- -------------
Net property and equipment 114,175,209 100,171,583
------------- -------------
Intangibles, net 5,878,015 6,323,543
$ 257,695,210 183,634,358
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 5
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities:
Redeemable preferred stock $ 12,500 12,500
Accounts payable 6,955,346 8,597,391
Customer deposits and advance billings 2,094,334 1,892,506
Accrued payroll 2,450,067 2,584,993
Income taxes payable 1,019,221 400,736
Accrued pension cost 1,020,639 1,411,430
Other accrued liabilities 2,321,594 1,795,533
------------- -------------
Total current liabilities 15,873,701 16,695,089
------------- -------------
Long-term debt 20,000,000 20,000,000
------------- -------------
Deferred credits and other liabilities:
Deferred income taxes 34,507,475 14,688,095
Investment tax credits 689,310 804,195
Postretirement benefits other than pension 10,551,111 10,549,204
Other 795,011 1,189,587
------------- -------------
46,542,907 27,231,081
------------- -------------
Redeemable preferred stock: 4.8% series; authorized 5,000
shares; issued and outstanding 1,125 and 1,250 shares in
1999 and 1998, respectively 112,500 125,000
------------- -------------
Total liabilities 82,529,108 64,051,170
------------- -------------
Minority interest -- --
Stockholders' equity:
Preferred stock not subject to mandatory redemption:
5% series, $100 par value; 3,356 and 3,440 shares
outstanding in 1999 and 1998, respectively 335,600 344,000
4.5% series, $100 par value; 614 and 628 shares
outstanding in 1999 and 1998, respectively 61,400 62,800
Common stock:
9,380,465 and 9,300,769 shares outstanding in
1999 and 1998, respectively 38,584,516 35,748,327
Other capital 298,083 298,083
Deferred compensation (1,074,726) (697,338)
Other accumulated comprehensive income 48,059,889 13,100,748
Retained earnings 88,901,340 70,726,568
------------- -------------
Total stockholders' equity 175,166,102 119,583,188
Contingency -- --
------------- -------------
$ 257,695,210 183,634,358
============= =============
</TABLE>
F-4
<PAGE> 6
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Operating revenues $ 105,591,594 91,725,394 78,483,514
Operating expenses 83,223,191 70,272,414 58,390,372
------------- ------------- -------------
Net operating revenues 22,368,403 21,452,980 20,093,142
------------- ------------- -------------
Other income (expenses):
Equity in income of affiliates, net 1,149,234 431,088 130,637
Interest, dividend income and gain on sale
of investments 17,823,337 1,916,446 261,459
Other expenses, principally interest (2,575,048) (1,491,635) (985,275)
------------- ------------- -------------
Total other income (expenses) 16,397,523 855,899 (593,179)
------------- ------------- -------------
Income before income taxes and
extraordinary item 38,765,926 22,308,879 19,499,963
Income taxes 15,697,657 8,926,469 7,898,159
------------- ------------- -------------
Net income before extraordinary item 23,068,269 13,382,410 11,601,804
Extraordinary item - discontinuance of SFAS 71,
net of income taxes of $1,493,312 -- -- 2,239,045
------------- ------------- -------------
Net income after extraordinary item 23,068,269 13,382,410 13,840,849
Dividends on preferred stock 26,210 28,457 73,073
------------- ------------- -------------
Earnings for common stock $ 23,042,059 13,353,953 13,767,776
============= ============= =============
Basic earnings per common share:
Earnings before extraordinary item $ 2.46 1.45 1.27
============= ============= =============
Extraordinary item $ -- -- 0.25
============= ============= =============
Earnings per common share $ 2.46 1.45 1.52
============= ============= =============
Diluted earnings per common share:
Earnings before extraordinary item $ 2.44 1.44 1.26
============= ============= =============
Extraordinary item $ -- -- 0.25
============= ============= =============
Earnings per common share $ 2.44 1.44 1.51
============= ============= =============
Basic weighted average shares outstanding 9,352,943 9,227,016 9,076,211
============= ============= =============
Diluted weighted average shares outstanding 9,425,925 9,276,504 9,111,439
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 7
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net income after extraordinary item $ 23,068,269 13,382,410 13,840,849
Other comprehensive income, net of tax
Unrealized holding gains on
available-for-sale securities 45,097,588 6,931,305 5,974,024
Less reclassification adjustment, net of
tax, for gains realized in net income (10,138,447) -- --
------------ ------------ ------------
Comprehensive income $ 58,027,410 20,313,715 19,814,873
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 8
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
5% Series 4.5% Series Discount
Preferred Preferred of 5% Common Other
Stock Stock Preferred Stock Capital
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1996 $ 1,508,700 200,000 (16,059) 27,398,214 298,083
----------- ----------- ----------- ----------- -----------
Net income -- -- -- -- --
Issuance of 52,028 shares of
Common Stock -- -- -- 1,412,339 --
Issuance of 1,048 shares for exercise
of stock options -- -- -- 74,279 --
Repurchases of shares:
11,456 shares of 5% Preferred Stock (1,145,600) -- 16,059 362,039 --
782 shares of 4.5% Preferred Stock -- (78,200) -- 46,920 --
9,090 shares of Common Stock -- -- -- (253,046) --
Dividends declared:
5% Preferred Stock -- -- -- -- --
4.8% Preferred Stock -- -- -- -- --
4.5% Preferred Stock -- -- -- -- --
Common Stock -- -- -- -- --
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 -- 29,040,745 298,083
----------- ----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
Other Total
Unearned Comprehensive Retained Stockholders'
Compensation Income Earnings Equity
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balances at December 31, 1996 (188,055) 195,419 52,260,013 81,656,315
----------- ----------- ----------- -----------
Net income -- -- 13,840,849 13,840,849
Issuance of 52,028 shares of
Common Stock -- -- -- 1,412,339
Issuance of 1,048 shares for exercise
of stock options -- -- -- 74,279
Repurchases of shares:
11,456 shares of 5% Preferred Stock -- -- -- (767,502)
782 shares of 4.5% Preferred Stock -- -- -- (31,280)
9,090 shares of Common Stock -- -- -- (253,046)
Dividends declared:
5% Preferred Stock -- -- (56,298) (56,298)
4.8% Preferred Stock -- -- (7,775) (7,775)
4.5% Preferred Stock -- -- (9,000) (9,000)
Common Stock -- -- (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 (817,903) 6,169,443 61,793,185 96,968,453
----------- ----------- ----------- -----------
</TABLE>
F-7
<PAGE> 9
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
5% Series 4.5% Series Discount
Preferred Preferred of 5% Common Other
Stock Stock Preferred Stock Capital
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net income $ -- -- -- -- --
Issuance of 219,818 shares of Common Stock -- -- -- 6,559,335 --
Issuance of 11,114 shares for exercise
of stock options -- -- -- 425,619 --
Repurchases of shares:
191 shares of 5% Preferred Stock (19,100) -- -- 3,079 --
590 shares of 4.5% Preferred Stock -- (59,000) -- 27,824 --
9,570 shares of Common Stock -- -- -- (308,275) --
Dividends declared:
5% Preferred Stock -- -- -- -- --
4.8% Preferred Stock -- -- -- -- --
4.5% Preferred Stock -- -- -- -- --
Common Stock -- -- -- -- --
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 -- 35,748,327 298,083
------------ ------------ ------------ ------------ ------------
Net income -- -- -- -- --
Issuance of 55,185 shares of Common Stock -- -- -- 2,157,170 --
Issuance of 25,228 shares for exercise
of stock options -- -- -- 411,888 --
Repurchases of shares:
84 shares of 5% Preferred Stock (8,400) -- -- 2,772 --
14 shares of 4.5% Preferred Stock -- (1,400) -- 560 --
717 shares of Common Stock -- -- -- (40,308) --
Dividends declared:
5% Preferred Stock -- -- -- -- --
4.8% Preferred Stock -- -- -- -- --
4.5% Preferred Stock -- -- -- -- --
Common Stock -- -- -- -- --
Tax benefit from exercise of stock options -- -- -- 304,107 --
Other comprehensive income -- -- -- -- --
Unearned compensation related to the
granting of 24,218 shares of restricted
Common Stock, net of $607,247
earned during the year -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balances at December 31, 1999 $ 335,600 61,400 -- 38,584,516 298,083
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Other Total
Unearned Comprehensive Retained Stockholders'
Compensation Income Earnings Equity
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income -- -- 13,382,410 13,382,410
Issuance of 219,818 shares of Common Stock -- -- -- 6,559,335
Issuance of 11,114 shares for exercise
of stock options -- -- -- 425,619
Repurchases of shares:
191 shares of 5% Preferred Stock -- -- -- (16,021)
590 shares of 4.5% Preferred Stock -- -- -- (31,176)
9,570 shares of Common Stock -- -- -- (308,275)
Dividends declared:
5% Preferred Stock -- -- (19,398) (19,398)
4.8% Preferred Stock -- -- (5,382) (5,382)
4.5% Preferred Stock -- -- (3,677) (3,677)
Common Stock -- -- (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 (697,338) 13,100,748 70,726,568 119,583,188
------------ ------------ ------------ ------------
Net income -- -- 23,068,269 23,068,269
Issuance of 55,185 shares of Common Stock -- -- -- 2,157,170
Issuance of 25,228 shares for exercise
of stock options -- -- -- 411,888
Repurchases of shares:
84 shares of 5% Preferred Stock -- -- -- (5,628)
14 shares of 4.5% Preferred Stock -- -- -- (840)
717 shares of Common Stock -- -- -- (40,308)
Dividends declared:
5% Preferred Stock -- -- (16,843) (16,843)
4.8% Preferred Stock -- -- (6,575) (6,575)
4.5% Preferred Stock -- -- (2,792) (2,792)
Common Stock -- -- (4,867,287) (4,867,287)
Tax benefit from exercise of stock options -- -- -- 304,107
Other comprehensive income -- 34,959,141 -- 34,959,141
Unearned compensation related to the
granting of 24,218 shares of restricted
Common Stock, net of $607,247
earned during the year (377,388) -- -- (377,388)
------------ ------------ ------------ ------------
Balances at December 31, 1999 (1,074,726) 48,059,889 88,901,340 175,166,102
============ ============ ============ ============
</TABLE>
F-8
<PAGE> 10
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 23,068,269 13,382,410 13,840,849
Adjustments to reconcile net income to
net cash provided by operating activities:
Extraordinary item -- -- (2,239,045)
Depreciation and amortization 15,124,263 12,840,561 9,612,085
Postretirement benefits 1,907 523,076 603,555
Loss (gain) on sale of investment securities (15,806,746) (1,113,546) 23,667
Undistributed income of affiliates (1,149,234) (431,088) (130,637)
Deferred income taxes and tax credits 1,446,326 4,138,338 (589,093)
Changes in operating assets and liabilities, net of effects
of acquisitions in 1998:
Accounts and notes receivable (3,715,640) (4,306,651) (1,228,185)
Materials and supplies (219,767) 364,475 163,682
Other current assets 313,167 (402,502) (473,480)
Accounts payable (1,642,045) (1,519,073) (1,565,023)
Customer deposits and advance billings 201,828 83,531 319,722
Accrued liabilities (148,487) 703,974 1,878,013
Refundable income taxes -- -- 14,736
Income taxes payable 618,485 (592,014) 992,750
------------ ------------ ------------
Net cash provided by operating activities 18,092,326 23,671,491 21,223,596
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures, net (27,584,002) (24,789,296) (21,573,658)
Purchases of investments in affiliates (5,331,115) (4,375,949) (11,148,674)
Purchases of investment securities (11,883,346) (100,919) (356,268)
Proceeds from sale of investment securities 25,949,049 1,806,648 2,783,299
Partnership capital distribution 3,442,882 3,609,252 4,229,675
Notes receivable collections, net -- (503,000) (1,810,500)
Acquisition of business (255,000) -- --
------------ ------------ ------------
Net cash used in investing activities (15,661,532) (24,353,264) (27,876,126)
------------ ------------ ------------
Cash flows from financing activities:
Repayment of long-term debt -- (21,281,889) (2,215,000)
Proceeds from new debt -- 29,422,889 10,000,000
Redemption of preferred stock (12,500) (12,500) (12,500)
Dividends paid (4,893,497) (4,449,027) (4,307,677)
Repurchases of common and preferred stock (46,776) (385,863) (1,067,468)
Proceeds from common stock issuances 1,159,189 312,731 643,600
Minority interest -- -- 1,360,998
Other -- -- 87,879
------------ ------------ ------------
Net cash provided by (used in) financing activities (3,793,584) 3,606,341 4,489,832
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (1,362,790) 2,924,568 (2,162,698)
Cash and cash equivalents - beginning of year 2,924,568 -- 2,162,698
------------ ------------ ------------
Cash and cash equivalents - end of year $ 1,561,778 2,924,568 --
============ ============ ============
Supplemental cash flow information:
Cash paid for income taxes $ 13,545,442 $ 4,827,202 $ 7,912,449
Cash paid for interest $ 1,100,899 $ 1,093,473 $ 390,735
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 11
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(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 "CTC Wireless"), CT
Wireless Cable, Inc., CTC Exchange Services, Inc., CT Global
Telecommunications, Inc. ("CTGT"), CT Communications Northeast
Trust, CT Communications Northeast, Inc., CTC Internet Services,
Inc., and CT Communications Northeast Wireless Trust. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
CT Communications, Inc. and subsidiaries operate entirely in the
communications industry. CTC, 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 a limited partnership which
provides cellular mobile telephone services to various counties in
North and South Carolina. CTC Wireless 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
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 was formed to provide
competitive local telephone service in North Carolina. CTGT was
formed to build telecommunications networks outside of the United
States. CT Communications Northeast Trust and CT Communications
Northeast, Inc. were 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. CT Communications Northeast Wireless Trust was
formed in 1999 to hold the Company's investment in CT Wireless
Cable, Inc.
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 1998 and
1997 consolidated financial statements have been reclassified to
conform with the 1999 consolidated financial statement
presentation. Such reclassifications have no effect on net income
or retained earnings as previously reported.
F-10
<PAGE> 12
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(c) PROPERTY AND EQUIPMENT
Property and equipment 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.
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.
(d) INVESTMENT SECURITIES
Investment securities at December 31, 1999 and 1998 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.
F-11
<PAGE> 13
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
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, 1999 and 1998, 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
recognized 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.
F-12
<PAGE> 14
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(i) INTANGIBLES
Intangibles consist primarily of goodwill representing the excess
of the purchase price of Catawba Valley Internet, 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 to 15 years. Amortization expense for the years ended
December 31, 1999 and 1998 amounted to $679,340 and $432,359,
respectively Accumulated amortization at December 31, 1999 and
1998 was $1,113,029 and $433,689, respectively.
(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 exceeds 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 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.
F-13
<PAGE> 15
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(n) RECENT ACCOUNTING PRONOUNCEMENTS
During 1999, 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, 1999 and 1998, the Company had notes receivables of
$1,513,500 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, 2000. Interest due to the Company as of December 31,
1999 and 1998 was $325,223 and $170,131, respectively.
(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, 1999 and 1998, 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, 1999
Available-for-sale:
Certificate of deposit $ 124,208 -- -- 124,208
Equity securities 7,019,143 75,152,748 (221,846) 81,950,045
----------- ----------- ----------- -----------
$ 7,143,351 75,152,748 (221,846) 82,074,253
=========== =========== =========== ===========
At December 31, 1998
Available-for-sale:
Certificate of deposit $ 117,975 -- -- 117,975
Equity securities 4,140,229 23,667,578 (3,141,596) 24,666,211
----------- ----------- ----------- -----------
$ 4,258,204 23,667,578 (3,141,596) 24,784,186
=========== =========== =========== ===========
</TABLE>
In 1999 and 1998, proceeds from the sale of investment securities
available for sale were $25,949,049 and $1,806,648 and included in income
were gross realized gains of $16,189,174 and $1,274,437 and gross
realized losses of $382,428 and $160,891, respectively.
F-14
<PAGE> 16
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(4) INVESTMENTS IN AFFILIATED COMPANIES
Investments in affiliated companies consist of the following:
<TABLE>
<CAPTION>
1999
OWNERSHIP
PERCENTAGE 1999 1998
----------- ----------- ----------
<S> <C> <C> <C>
Equity Method:
Palmetto Mobile Net, L.P. 19.84% 11,678,889 10,262,329
Wireless One of North
Carolina, LLC 49.50% 8,613,074 4,366,105
BellSouth Carolinas PCS, LP 1.96% -- 1,896,667
U.S. Telecom Holdings -- -- 695,385
Access On 19.58% 41,016 118,476
Cost Method:
Illuminet Holdings, Inc. -- -- 1,068,624
ITC Holding Company 3.80% 2,724,129 2,724,129
Maxcom Telecomunicaciones,
S.A. de C.V. 16.20% 8,610,277 8,566,777
Other Various 16,250 91,302
----------- ----------
$31,683,635 29,789,794
=========== ==========
</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.
The purpose of Wireless One of North Carolina, LLC is to develop and
deploy wireless cable in North Carolina.
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. The Company has fully reserved the
investment at December 31, 1999.
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.
F-15
<PAGE> 17
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
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.
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.
Illuminet Holdings, Inc., formerly USTN Holdings, Inc., provides network
services such as seamless routing for wireless services and database and
billing support. During 1999 the Company's interest in Illuminet was
converted into equity securities and is included within Investment
Securities in the financial statements.
Included in the Company's share of earnings from affiliates accounted for
under the equity method for 1999 were total losses of $3,710,209 and
total income of $4,859,443. 100% of the income was attributable to
Palmetto Mobile Net.
Summarized unaudited financial position information for Palmetto Mobile
Net as of December 31, 1999 is as follows: current assets - $20,217,143;
property and other non-current assets - $95,822,892; current liabilities
- $7,160,000; partners' capital - $108,880,035. Summarized unaudited
combined results of operations for this entity for the year ended
December 31, 1999, is as follows: revenues - $81,325,406; operating
income - $31,695,237 and net income $28,438,113.
(5) ACQUISITIONS
On September 30, 1999, the Company acquired Catawba Valley Internet
Services, an internet provider based in Cherryville, NC for $255,000. The
total purchase price has been allocated to assets acquired as follows:
Property and equipment $ 25,000
Goodwill 230,000
-------------
Total purchase price $ 255,000
=============
F-16
<PAGE> 18
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
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 and 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 and 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 entities as if they
had been acquired at the beginning of the period 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, 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.
F-17
<PAGE> 19
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
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 approximate carrying
amounts at December 31, 1999 and 1998 due to the variability in interest
rates of the underlying instruments.
(7) LONG-TERM DEBT
Long-term debt at December 31 consists of the following:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Line of credit with interest at LIBOR plus .5%
(6.63% at December 31, 1999) due December
31, 2000, renewable for two separate two-year
extensions through December 31, 2004 $20,000,000 20,000,000
=========== ==========
</TABLE>
The Company has an available line of credit totaling $60,000,000, of
which $20,000,000 was outstanding at December 31, 1999.
The Company currently maintains an interest rate swap to minimize the
risk of rising interest rates on floating rate debt. The agreement is
dated March 5, 1999 and is a floating to fixed swap which means that the
interest payable on $10 million of our floating rate debt is payable at a
fixed rate of the sum of 5.90% plus the applicable percentage as
determined under the terms of our credit agreement.
(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, 1999, other than the annual sinking fund
requirement of $12,500.
F-18
<PAGE> 20
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(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. 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 paid cash for these
shares. The Company's common stock trades on The Nasdaq Stock Market
under the symbol "CTCI". The foregoing financial statements and footnotes
have been adjusted to reflect the recapitalization. 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: $.52 in 1999,
$.48 in 1998; and $.47 in 1997.
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.
(10) STOCK COMPENSATION PLANS
At December 31, 1999, 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:
1999 1998
----------- ----------
Net income for common
stock
As Reported $23,042,059 13,353,953
Pro forma $22,808,536 13,322,783
Basic earnings per
common share As Reported $ 2.46 1.45
Pro forma $ 2.44 1.44
Diluted earnings per
common share As Reported $ 2.44 1.44
Pro Forma $ 2.42 1.44
F-19
<PAGE> 21
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
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, 1999, 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, 1999, is as follows:
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF OPTIONS PRICE
---------- --------
Options outstanding and exercisable at
December 31, 1996 21,364 $ 13
Options granted -- --
Options exercised (448) 12
Options forfeited (20) 12
------- -------
Options outstanding and exercisable at
December 31, 1997 20,896 13
Options granted -- --
Options exercised (8,468) 11
------- -------
Options outstanding and exercisable at
December 31, 1998 12,428 14
Options granted -- --
Options exercised (8,828) 13
------- -------
Options outstanding and exercisable at
December 31, 1999 3,600 $ 14
======= =======
As of December 31, 1999 and 1998, the 3,600 and 12,428 options
outstanding and exercisable have exercise prices between $11 and $14 and
a weighted-average remaining contractual life of 1 year and 6 months,
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, 1999, 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.
F-20
<PAGE> 22
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
Activity under the Plan for each of the years in the three-year period
ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF OPTIONS PRICE
---------- --------
<S> <C> <C>
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 granted -- --
Options exercised (15,064) 18
Options forfeited (3,992) 18
------- -------
Options outstanding at December 31, 1999 59,136 $ 18
======= =======
Options exercisable at December 31, 1999 40,284 $ 18
======= =======
</TABLE>
As of December 31, 1999 and 1998, the 59,136 and 78,192 options
outstanding have exercise prices between $15 and $18 and a
weighted-average remaining contractual life of 6.0 and 7.5 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.
F-21
<PAGE> 23
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
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 1 to 10 years.
In 1999, 1998 and 1997, respectively, the Company granted 24,218, 8,084
and 27,476 shares to participants with a weighted-average fair value of
$39, $33, and $19. Deferred compensation at December 31, 1999 and 1998,
respectively was $1,074,726 and $697,338, which is disclosed net of
accumulated amortization of $607,247 and $385,316, 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 1999, 1998 and 1997, the Company granted 4,528,
2,608 and 3,132 shares, respectively, with an average fair market value
of $37, $33 and $29, 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, 1999,
the number of common stock reserved for issuance but ungranted was
317,561 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.
F-22
<PAGE> 24
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
Activity under the Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF OPTIONS PRICE
---------- --------
<S> <C> <C>
Options outstanding at December 31, 1997 -- --
Options granted 32,232 $ 33
Options exercised -- --
Options forfeited -- --
------- -------
Options outstanding at December 31, 1998 32,232 33
Options granted 54,323 40
Options exercised (1,336) 27
Options forfeited (4,752) 40
------- -------
Options outstanding at December 31, 1999 80,467 $ 37
======= =======
Options exercisable at December 31, 1999 14,701 $ 21
======= =======
</TABLE>
As of December 31, 1999 and 1998, the 80,467 and 32,232 options
outstanding have exercise prices between $21 and $43 and a
weighted-average remaining contractual life of 9.2 and 8.3 years,
respectively.
The per share fair value of stock options granted in 1998 was $33 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: 1999 and 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. 19,501
and 2,344 shares were issued under the Plan at a purchase price of $43
and $33 per share in 1999 and 1998, respectively.
F-23
<PAGE> 25
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(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 1999
or 1998. Plan assets are invested primarily in common stocks,
long-term bonds and U.S. treasury notes.
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, 1999 and 1998.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
CHANGE IN BENEFIT OBLIGATION 1999 1998
------------ ------------
<S> <C> <C>
Benefit obligation at end of prior plan year $(30,046,553) (28,633,948)
Service cost (983,130) (776,031)
Interest cost (2,130,187) (1,961,462)
Actuarial loss 1,194,249 (258,303)
Actual distributions 1,520,375 1,583,191
------------ ------------
Benefit Obligation at end of year $(30,445,246) (30,046,553)
============ ============
Change in Plan Assets
Plan assets at fair value at beginning of year 42,428,520 40,472,587
Actual return on plan assets 875,932 3,539,124
Actual distributions (1,520,375) (1,583,191)
------------ ------------
Plan Assets at Fair Value at End of Year $ 41,784,077 42,428,520
============ ============
(Accrued)/Prepaid Pension Cost
Funded status 11,338,831 12,381,967
Unrecognized net actuarial (gain)/loss (11,739,787) (13,214,157)
Unrecognized prior service cost (31,492) (34,991)
Unrecognized transition obligation/(asset) (198,188) (264,249)
------------ ------------
Net Amount Recognized $ (630,636) (1,131,430)
============ ============
</TABLE>
The Company also has an unqualified Supplemental Executive
Retirement Plan. Accrued costs related to this plan were $390,000
at December 31, 1999.
F-24
<PAGE> 26
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
Net pension cost for 1999, 1998, and 1997 included the following:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Service cost, benefits earned during
the period $ 983,130 776,031 666,447
Interest cost on projected benefit
obligation 2,130,187 1,961,462 1,893,377
Actual return on plan assets (3,116,292) (3,539,124) (9,452,700)
Net amortization and deferral (497,819) (37,895) 6,776,734
----------- ----------- -----------
Net periodic pension credit $ (500,794) (839,526) (116,142)
=========== =========== ===========
</TABLE>
The weighted average discount rate of 7.5% in 1999 and 7.0% in
1998 and 1997 and the rate of increase in future compensation
levels of 5% in 1999, 1998 and 1997 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 1999, 1998 and 1997.
(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 $336,208, $256,960 and $265,746 in
1999, 1998, and 1997, 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.
F-25
<PAGE> 27
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
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.
The following table presents the plan's accumulated postretirement
benefit obligation reconciled with amounts recognized in the
Company's balance sheets at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
CHANGE IN BENEFIT OBLIGATION 1999 1998
------------ ------------
<S> <C> <C>
Benefit obligation at end of prior plan year $ (9,288,899) (9,532,566)
Service cost (168,832) (180,087)
Interest cost (629,421) (608,299)
Benefits paid 491,581 419,246
Actuarial gain 270,763 437,227
Other (20,389) 175,580
------------ ------------
BENEFIT OBLIGATION AT END OF YEAR $ (9,345,197) (9,288,899)
============ ============
(ACCRUED)/PREPAID POSTRETIREMENT COST
Funded status (9,345,197) (9,288,899)
Unrecognized net actuarial gain (2,362,466) (2,525,808)
Unrecognized prior service cost (2,514,231) (3,017,078)
Unrecognized transition obligation 3,670,783 4,282,581
------------ ------------
NET AMOUNT RECOGNIZED $(10,551,111) (10,549,204)
============ ============
</TABLE>
During 1997, Plan benefits were expanded to include Medicare
supplements and additional medical benefits resulting in increased
postretirement benefit costs.
F-26
<PAGE> 28
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
Net periodic postretirement benefit cost for 1999, 1998 and 1997
includes the following components:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Service cost $ 168,832 180,087 216,693
Interest cost 629,421 608,299 631,910
Amortization of transition
obligation over 15 years 611,798 611,798 611,798
Amortization of gain (112,358) (101,181) (74,769)
Amortization of prior service
cost (502,847) (502,847) (502,847)
--------- --------- ---------
Net periodic postretirement
benefit cost $ 794,846 796,156 882,785
========= ========= =========
</TABLE>
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 1999 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
rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1999, to
approximately $10,560,073 and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for the year
ended December 31, 1999 to approximately $914,970. Decreasing the assumed
health care cost trend rates by one percentage point in each year would
decrease the accumulated postretirement benefit obligation as of December
31, 1999, to approximately $8,286,799 and the aggregate of the service
and interest cost components of net periodic postretirement benefit cost
for the year ended December 31, 1999 to approximately $695,663.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7% in 1999, 1998 and 1997.
F-27
<PAGE> 29
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(13) INCOME TAXES
Total income taxes for the years ended December 31, 1999, 1998 and 1997
were allocated as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Income before extraordinary item $15,697,657 8,926,469 7,898,159
Extraordinary item -- -- 1,493,312
----------- ----------- -----------
$15,697,657 8,926,469 9,391,471
=========== =========== ===========
Stockholders' equity, for
unrealized holding gain on
debt and equity securities
recognized for financial
reporting purposes $19,459,133 3,605,700 3,929,182
=========== =========== ===========
</TABLE>
Income tax expense (benefit) attributable to income before extraordinary
item for the years ended December 31, 1999, 1998, and 1997, consists of:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal $ 11,360,031 3,896,673 6,694,381
State 2,860,578 1,104,868 1,965,013
Foreign 328,290 -- --
------------ ------------ ------------
14,548,899 5,001,541 8,659,394
------------ ------------ ------------
Deferred:
Federal, net of investment tax
credit amortization 1,653,076 3,284,653 (651,140)
State (504,318) 640,275 (110,095)
------------ ------------ ------------
1,148,758 3,924,928 (761,235)
------------ ------------ ------------
Total $ 15,697,657 8,926,469 7,898,159
============ ============ ============
</TABLE>
F-28
<PAGE> 30
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
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:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Amount computed at statutory rate $ 13,568,077 7,808,108 6,824,987
State income taxes, net of federal
income tax benefit 1,531,569 1,134,343 1,205,697
Nontaxable interest income (2,823) (2,166) (12,133)
Amortization of federal investment
tax credit (114,885) (114,885) (114,885)
Goodwill 454,636 -- --
Other, net 261,083 101,069 (5,507)
------------ ------------ ------------
Income tax expense $ 15,697,657 8,926,469 7,898,159
============ ============ ============
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities as of
December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Deferred tax assets:
Accrued postretirement and pension benefits 4,633,699 4,638,380
Deferred investment tax credits -- 98,514
Environmental remediation costs -- 21,097
Accrued incentive 461,652 466,546
Intangibles 59,382 70,725
Net operating loss carryforwards 668,266 554,000
Other accrued expenses and allowances 123,562 484,610
Deferred revenue 415,130 --
Deferred state taxes 515,285 --
Other 1,959 --
------------ ------------
Total gross deferred tax assets 6,878,935 6,333,872
------------ ------------
Less valuation allowance (1,200,571) (554,000)
------------ ------------
Net deferred tax assets 5,678,364 5,779,872
------------ ------------
Deferred tax liabilities:
Property and equipment, primarily related to
depreciation differences 12,811,864 10,915,270
Unrealized gain on securities 26,870,221 7,698,734
Other 349,085 802,108
------------ ------------
Total gross deferred tax liabilities 40,031,170 19,416,112
------------ ------------
Net deferred tax liability $ 34,352,806 13,636,240
============ ============
</TABLE>
F-29
<PAGE> 31
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
The valuation allowance for deferred tax assets as of January 1, 1999 was
$554,000. The net change in the total valuation allowance for the year
ended December 31, 1999 was an increase of $646,571. 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, 1999. 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, 1999, will be allocated to
income tax expense.
At December 31, 1999, the Company has net operating loss carryforwards
for state income tax purposes of approximately $13,251,000 which will
expire in the years 2001-2014.
(14) ACCOUNTING FOR THE EFFECTS OF REGULATION
Prior to April 1, 1997 the Company's regulated operations were subject to
the provisions of SFAS No. 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 No. 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:
Change in recorded value of long lived property and equipment $ 1,757,824
Elimination of regulatory liabilities 1,974,433
-----------
Total $ 3,732,257
===========
F-30
<PAGE> 32
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
The increase in net property and equipment, $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:
COMPOSITE OF ESTIMATED ECONOMIC
REGULATOR-APPROVED ASSET
ASSET LIVES LIVES
------------------ ------------------
Digital switching 14 10
Circuit equipment 10 7
Aerial cable 19 17
Buried cable 16 17
The remaining components of the extraordinary charge, $1,974,433 pretax,
were 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.
(15) SEGMENT INFORMATION
Effective December 31, 1998, the Company adopted FAS 131, "Disclosures
about segments of an Enterprise and Related Information." The Company has
four reportable segments, the incumbent local exchange carrier (ILEC),
the competitive local exchange carrier and long distance services
(CLEC/LD), internet and data services (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 Company
evaluates performance based on operating profit before other income
(expenses) and income taxes. Intersegment revenues and expenses are
excluded for purposes of calculating operating profit. Selected data by
business segment for each of the three years in the three-year period
ended December 31, 1999, is as follows:
<TABLE>
<CAPTION>
ILEC CLEC/LD ISP DCS OTHER TOTAL
------------ ---------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1999:
External revenues $ 76,653,009 16,904,373 5,716,709 5,192,503 1,125,000 105,591,594
Intersegment revenues 3,930,503 -- -- 46,139 -- 3,976,642
Depreciation and
amortization 12,850,014 1,076,441 926,913 63,022 207,873 15,124,263
Segment operating
profit 21,871,878 2,338,857 (530,236) (1,736,895) 424,799 22,368,403
Segment assets 119,584,134 9,852,582 7,651,954 1,524,461 119,082,079 257,695,210
</TABLE>
(Continued)
F-31
<PAGE> 33
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
ILEC CLEC/LD ISP DCS OTHER TOTAL
------------ ---------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1998:
External revenues $ 70,646,748 13,883,555 3,369,305 3,150,786 675,000 91,725,394
Intersegment revenues 5,017,641 -- -- -- -- 5,017,641
Depreciation and
amortization 11,530,611 643,970 553,765 55,196 57,019 12,840,561
Segment operating
profit 20,657,610 2,075,234 (92,089) (1,100,312) (87,463) 21,452,980
Segment assets 112,606,447 5,107,432 7,329,775 645,805 57,944,899 183,634,358
ILEC CLEC/LD ISP DCS OTHER TOTAL
------------ ---------- --------- ---------- ----------- -----------
December 31, 1997:
External revenues $ 64,417,269 11,881,063 580,217 1,604,965 -- 78,483,514
Intersegment revenues 3,629,556 -- -- -- -- 3,629,556
Depreciation and
amortization 9,130,090 411,732 32,088 38,175 -- 9,612,085
Segment operating
profit 19,184,180 4,313,272 (93,090) (2,176,795) (1,134,425) 20,093,142
Segment assets 107,059,374 4,331,091 206,629 163,262 35,579,073 147,339,429
</TABLE>
F-32
<PAGE> 34
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(16) RECONCILIATION OF BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING
1999:
Basic weighted average shares outstanding 9,352,943
Effect of dilutive securities:
Stock options 72,982
---------
Diluted weighted average shares outstanding 9,425,925
=========
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
=========
(17) SUMMARY OF INCOME STATEMENT INFORMATION (UNAUDITED)
A summary of quarterly income statement information for the years ended
December 31, 1999 and 1998, follows:
<TABLE>
<CAPTION>
1999 QUARTERS ENDED
--------------------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating revenues $25,332,224 26,101,594 26,594,439 27,563,337
Income before other income
(expenses) and income
taxes 5,239,392 5,643,778 5,851,158 5,634,075
Net income 3,870,048 9,142,801 5,014,811 5,040,609
Basic earnings per common
share $ .41 .98 .53 .54
=========== =========== =========== ===========
Diluted earnings per common
share $ .41 .97 .53 .53
=========== =========== =========== ===========
</TABLE>
F-33
<PAGE> 35
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
<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
=========== =========== =========== ===========
</TABLE>
(18) Subsequent Event
Effective February 28, 2000 the Company purchased essentially all assets
of Internet of Concord for approximately $883,000. Internet of Concord is
an internet service provider based in Concord, North Carolina which
operates in 6 surrounding counties within North Carolina.
F-34
<PAGE> 36
Schedule II
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
------------------------------------------- ------------- -------------- ---------------- --------------
DEDUCTIONS
BALANCE, ADDITIONS FROM BALANCE,
BEGINNING CHARGED RESERVES AT END
DESCRIPTION OF YEAR TO INCOME (SEE NOTE) OF YEAR
------------------------------------------- ------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C>
Valuation and qualifying accounts
deducted from assets to which
they apply:
Allowance for uncollectible accounts:
Year ended December 31, 1999 $ 107,500 603,458 603,458 107,500
============== ============== ================ ==============
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
============== ============== ================ ==============
</TABLE>
Note: Represents balances written-off as uncollectible less collections on
balances previously written off of $170,132, $202,512 and $436,511 for
1999, 1998, and 1997, respectively.
F-35
<PAGE> 1
EXHIBIT 21
CT COMMUNICATIONS, INC.
AND SUBSIDIARIES
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION
---- ----------------------
<S> <C>
The Concord Telephone Company North Carolina
CTC Long Distance Services, Inc. North Carolina
CT Cellular, Inc. North Carolina
Carolina Personal Communications, Inc North Carolina
CT Wireless Cable, Inc. North Carolina
CTC Exchange Services, Inc. North Carolina
CT Global Telecommunications, Inc. Delaware
CTC Internet, Inc. North Carolina
CT Communications Northeast Trust Massachusetts
CT Communications Northeast, Inc. Massachusetts
CT Communications Northeast Wireless Trust Massachusetts
</TABLE>
<PAGE> 1
EXHIBIT 23
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 February 25, 2000,
relating to the consolidated balance sheets of CT Communications, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity, cash flows and comprehensive income
for each of the years in the three-year period ended December 31, 1999, and
related schedule, which report is incorporated by reference in the December 31,
1999 Annual Report on Form 10-K of CT Communications, Inc.
Charlotte, North Carolina
March 22, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 1,438,992 2,807,887
<SECURITIES> 122,786 116,681
<RECEIVABLES> 18,380,274 14,899,115
<ALLOWANCES> 107,500 107,500
<INVENTORY> 2,551,724 2,331,957
<CURRENT-ASSETS> 24,008,306 22,683,227
<PP&E> 219,689,824 194,501,417
<DEPRECIATION> 105,514,615 94,329,834
<TOTAL-ASSETS> 257,695,210 183,634,358
<CURRENT-LIABILITIES> 15,873,701 16,695,089
<BONDS> 20,000,000 20,000,000
112,500 125,000
397,000 406,800
<COMMON> 38,584,516 35,748,327
<OTHER-SE> 136,184,586 83,428,061
<TOTAL-LIABILITY-AND-EQUITY> 257,695,210 183,634,358
<SALES> 0 0
<TOTAL-REVENUES> 105,591,594 91,725,394
<CGS> 0 0
<TOTAL-COSTS> 83,223,191 70,272,414
<OTHER-EXPENSES> 16,397,523 855,899
<LOSS-PROVISION> 603,458 433,747
<INTEREST-EXPENSE> 2,575,048 1,491,635
<INCOME-PRETAX> 38,765,926 22,308,879
<INCOME-TAX> 15,697,657 8,926,469
<INCOME-CONTINUING> 23,068,259 13,382,410
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 23,068,269 13,382,410
<EPS-BASIC> 2.46 1.45
<EPS-DILUTED> 2.44 1.44
</TABLE>
