SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For Quarter ended September 30, 1996.
Commission File Number 0-13627.
CTC COMMUNICATIONS CORP.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2731202
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
360 Second Avenue, Waltham, Massachusetts 02154
(Address of principal executive offices) (Zip Code)
(617) 466-8080
(Registrant's telephone number including area code)
Computer Telephone Corp.
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the Issuer's
classes of Common Stock, as of the latest practicable date:
As of November 6, 1996, 9,601,155 shares of Common Stock were
outstanding.
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CTC COMMUNICATIONS CORP.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Part I FINANCIAL STATEMENTS PAGE NO.
Item 1. Financial Statements
Condensed Balance Sheets
as of September 30 and March 31, 1996 3
Condensed Statements of Income
Three Months Ended September 30, 1996 and 1995 4
Condensed Statements of Income
Six Months Ended September 30, 1996 and 1995 5
Condensed Statements of Cash Flows
Six Months Ended September 30, 1996 and 1995 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
Part II OTHER INFORMATION
Item 1. Legal Proceedings Inapplicable
Item 2. Changes in Securities Inapplicable
Item 3. Default Upon Senior Securities Inapplicable
Item 4. Submission of Matters to a
Vote of Security Holders 11
Item 5. Other Information Inapplicable
Item 6. Exhibits and Reports on Form 8-K
The following exhibit is included herein:
(11) Statements Regarding Computation
of Per Share Earnings
Three Months and Six Months ended
September 30, 1996 and 1995
</TABLE>
The Company did not file any reports on Form 8-K during the
three months ended September 30, 1996.
2
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CTC COMMUNICATIONS CORP.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
--------------- --------------
ASSETS
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 3,633,957 $ 3,941,876
Accounts receivable, net 9,588,788 6,557,229
Inventories 19,193 25,190
Prepaid expenses and other current assets 590,803 365,699
------------- -------------
Total Current Assets $ 13,832,741 $ 10,889,994
Furniture, Fixtures and Equipment 6,379,794 6,046,493
Less accumulated depreciation (5,149,755) (4,822,755)
------------- -------------
Total Equipment 1,230,039 1,223,738
Deferred tax asset 277,000 277,000
Other assets 115,835 118,485
------------- -------------
Total Assets $ 15,455,615 $ 12,509,217
============= =============
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 1,576,383 $ 1,176,804
Accrued salaries and related taxes 2,081,062 1,828,288
Deferred revenue 13,495 9,302
------------- -------------
Total Current Liabilities 3,670,940 3,014,394
Stockholders' Equity
Common stock 96,011 95,841
Additional paid in capital 4,691,656 4,644,988
Retained-earnings 7,132,833 4,889,819
------------- -------------
11,920,500 9,630,648
Amounts due from stockholders (135,825) (135,825)
------------- -------------
Total Stockholders' Equity 11,784,675 9,494,823
------------- -------------
Total Liabilities and
Stockholders' Equity $ 15,455,615 $ 12,509,217
============= =============
</TABLE>
The accompanying notes are an integral part of
these financial statements.
3
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CTC COMMUNICATIONS CORP.
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
September 30, September 30,
1996 1995
------------- -------------
Revenue
<S> <C> <C>
Network service commission income $ 6,827,449 $ 6,899,380
Resale product usage income 2,789,619 1,296,139
------------- -------------
9,617,068 8,195,519
Costs and expenses
Cost of resale product 2,153,225 1,016,153
Selling, general and administrative expenses 5,719,936 5,629,471
------------- -------------
7,873,161 6,645,624
------------- -------------
Income from operations 1,743,907 1,549,895
Other
Interest income 43,878 35,548
Interest expense (5,781) (569)
Other 5,824 9,126
------------- -------------
43,921 44,105
------------- -------------
Income before income taxes 1,787,828 1,594,000
Provision for income taxes 739,000 645,500
------------- -------------
Net income $ 1,048,828 $ 948,500
============= =============
Net income per common share
Primary $ 0.10 $ 0.09
============= =============
Fully diluted $ 0.10 $ 0.09
============= =============
Weighted average number of common shares
Primary 10,821,505 10,521,070
============= =============
Fully diluted 10,867,983 10,575,546
============= =============
</TABLE>
The accompanying notes are an integral part of
these financial statements.
4
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CTC COMMUNICATIONS CORP.
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Six Months Ended
September 30, September 30,
1996 1995
------------- -------------
Revenue
<S> <C> <C>
Network service commission income $ 13,575,690 $ 12,756,080
Resale product usage income 5,048,838 2,344,715
------------- -------------
18,624,528 15,100,795
Costs and expenses
Cost of resale product 3,832,413 1,843,997
Selling, general and administrative expenses 11,057,406 10,586,320
------------- -------------
14,889,819 12,430,317
------------- -------------
Income from operations 3,734,709 2,670,478
Other
Interest income 85,506 67,572
Interest expense (6,406) (569)
Other 8,405 9,119
------------- -------------
87,505 76,122
------------- -------------
Income before income taxes 3,822,214 2,746,600
Provision for income taxes 1,579,200 1,108,850
------------- -------------
Net income $ 2,243,014 $ 1,637,750
============= =============
Net income per common share
Primary $ 0.21 $ 0.16
============= =============
Fully diluted $ 0.21 $ 0.16
============= =============
Weighted average number of common shares
Primary 10,901,267 10,395,570
============= =============
Fully diluted 10,924,506 10,460,146
============= =============
</TABLE>
The accompanying notes are an integral part of
these financial statements.
5
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CTC COMMUNICATIONS CORP.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
September 30, September 30,
1996 1995
------------- -------------
OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 2,243,014 $ 1,637,750
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 327,000 286,000
Changes in noncash working capital items:
Accounts receivable (3,031,559) (1,532,633)
Inventories 5,997 10,041
Other current assets (225,104) (64,694)
Other assets 2,650 2,400
Accounts payable 399,579 359,445
Accrued liabilities 252,774 733,596
Accrued taxes 0 (241,350)
Deferred revenue 4,193 0
------------- -------------
Net cash provided by operating activities (21,456) 1,190,555
INVESTING ACTIVITIES
Additions to equipment (333,301) (315,830)
------------- -------------
Net cash used in investing activities (333,301) (315,830)
FINANCING ACTIVITIES
Proceeds from the issuance of common stock 46,838 56,782
Dividends Paid 0 (840)
------------- -------------
Net cash used by financing activities 46,838 55,942
Increase (decrease) in cash (307,919) 930,637
Cash at beginning of year 3,941,876 2,390,546
------------- -------------
Cash and cash equivalents at end of period $ 3,633,957 $ 3,321,183
============= =============
</TABLE>
The accompanying notes are an integral part of
these financial statements.
6
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CTC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying condensed financial statements have been prepared
in accordance with the instructions to Form 10-Q and do not include
all the information and footnote disclosures required by generally
accepted accounting principles for complete financial statements.
In the opinion of management all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation have been
included. Operating results for the three and six months ended
September 30, 1996 are not necessarily indicative of the results
that may be expected for the year ending March 31, 1997. These
statements should be read in conjunction with the financial
statements and related notes included in the Company's Annual Report
on Form 10-K for the year ended March 31, 1996.
NOTE 2: CASH DIVIDENDS
The Company has not paid cash dividends during the period
presented.
NOTE 3: COMMITMENTS AND CONTINGENCIES
The Company is party to suits arising in the normal course of
business which either individually or in the aggregate are not
material.
NOTE 4. COMMON STOCK TRANSACTIONS SUBSEQUENT TO JUNE 30, 1996
On July 8, 1996, the Computer Telephone Corp. Employee Stock
Purchase Plan purchased 2,998 shares of Common Stock from
the Company at $11.05 for the purchase period ended June 30, 1996.
Through October 25, 1996, 13,268 shares of Common Stock were
issued as a result of employees exercising outstanding stock
options.
NOTE 5. NET INCOME PER SHARE
Net income per share is computed based on the weighted average
number of common stock and, if dilutive, common stock equivalent
shares outstanding during the period. Common stock shares
result from the assumed exercise of common stock options using the
treasury stock method. All income per share and weighted average
share information have been restated to reflect the 2-for-1 stock
split effective October 23, 1995.
7
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Part I
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Financial Statements and Notes set forth elsewhere in this Report.
RESULTS OF OPERATIONS - THREE MONTHS AND SIX MONTHS ENDED SEPTEMBER 30,
1996 AS COMPARED TO THE THREE MONTHS AND SIX MONTHS ENDED SEPTEMBER 30,
1995.
Total revenues for the second quarter of Fiscal 1997 increased 17% to
$9,617,000 from $8,196,000 for the same period for the preceding year
(Fiscal 1996). Network service commission income, which represents fees
earned by the Company in its capacity as an agent for various local and
long distance telephone companies, decreased 1% to $6,827,000 for the
three months ended September 30, 1996, from $6,899,000 for the second
quarter of Fiscal 1996. Resale product usage income, which represents
the gross billings to commercial accounts on the Company's long distance
and Internet access networks, increased 115% to $2,790,000 from
$1,296,000 for the same period of the preceding fiscal year.
Total revenues for the six month period ended September 30, 1996
increased 23% to $18,625,000 from $15,101,000 for the same period of
Fiscal 1996. Network service commission income increased 6% to
$13,576,000 from $12,756,000 for the same period of the preceding fiscal
year. For the six month period, the Company recognized resale product
usage income of $5,049,000 as compared to $2,345,000 for the same period
of Fiscal 1996, an increase of 115%.
Network service commission income experienced a 2% decrease and 6%
increase, respectively, for the three and six months ended September 30,
1996, as compared to the same periods of the prior fiscal year. In both
periods there was a sharp increase in the development of new customer
relationships, as well as substantial growth in unit sales. These
increases were offset by substantial decreases in certain fees and
commissions payable under the Company's 1996 NYNEX Sales Agency
Contract, which is adjusted annually.
For the quarter ended September 30, 1996, resale product usage income
included revenues derived from the reselling of Internet access charges.
The Company intends to further leverage its customer relationships by
offering additional telecommunications products, including wireless
services and pagers, in subsequent quarters.
8
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Selling, general, and administrative expenses increased 2% to $5,720,000
for the second quarter of Fiscal 1997 as compared to $5,629,000 for the
second quarter of Fiscal 1996. For the six month period ended September
30, 1996, selling, general and administrative expenses increased 4% to
$11,057,000, as compared to $10,586,000 for the same period of the
preceding fiscal year.
These increases are directly attributable to the increases in the
variable sales commission and bonus expenses incurred in connection with
the increases in revenues. As a percentage of revenues, these selling,
general and administrative expenses were 60% and 59%, respectively, for
the three and six month periods of Fiscal 1997, as compared to 69% and
70%, respectively, for the corresponding periods of Fiscal 1996. These
relative reductions reflect the continuing efforts by the Company to
control operating expenses, as well as the positive financial impact of
increased sales to the same customer base.
During the quarter ended September 30, 1996, the Company expanded its
operations and entered into a lease for larger office space in New York
City, and opened new branches in Albany, NY and Braintree and
Marlborough, Massachusetts. The Company currently has the office space
capacity to expand its sale force to its goal of approximately 170
account executives by the spring of 1997, from its current sales force
of 125.
Operating income for the second quarter of Fiscal 1997 increased to
$1,744,000 from $1,550,000 for the same period of Fiscal 1996. For the
six months ended September 30, 1996, operating income increased to
$3,735,000 from $2,670,000 for the same six month period of Fiscal 1996.
The Company estimates that it will utilize an effective tax rate of
approximately 41% for the balance of Fiscal 1997.
On October 10, 1995, the Company announced a 2-for-1 stock split,
effective October 23, 1995.
The period ended September 30, 1996 marks the thirteenth consecutive
quarter of profits for the Company. Management believes that its
strategy of building long term relationships and offering additional
products to these same customers, when combined with continuing efforts
to control costs, should result in continued profitability throughout
the balance of Fiscal 1997.
9
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LIQUIDITY AND CAPITAL RESOURCES
Working capital at September 30, 1996 amounted to $10,162,000, as
compared to $7,876,000 at March 31, 1996, an increase of 29%. Cash
balances at September 30, 1996 totaled $3,634,000.
On September 26, 1996, the Company amended its revolving line of credit
agreement with Fleet Bank, which is available under certain conditions,
to provide for an increase in the credit line to $5,000,000 from
$3,000,000 at the prime rate of interest, with additional LIBOR pricing
options.
The Company presently has no bank debt and expects that the revolving
credit line, together with cash flows from operations, will be
sufficient to meet the cash requirements of the Company for the next
twelve months.
The foregoing statements in Part I Item 2 regarding the Company's intent
to further leverage its customer relationships, its intent to expand its
sales force, its expectation of continued profitability throughout the
remainder of Fiscal 1997 and its ability to meet its cash requirements
for the next 12 months are forward looking statements made in good faith
pursuant to the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. There are several factors that could
cause actual results to differ materially from those contained in such
forward looking statements, including the Company's inability to hire
and retain experienced account executives, unfavorable changes for 1997
in the commissions payable to the Company under its NYNEX Sales Agency
Agreement, and increased competitive pressures from current and
additional resellers of local and long-distance telephone services.
10
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PART II
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The 1996 Annual Meeting of Stockholders of the Company was held
on September 26, 1996.
(b) Not applicable.
(c) Each nominee for director received the following votes:
<TABLE>
<CAPTION>
Withhold
Name For Authority
- ---------------------------------------------------------------
<S> <C> <C>
Robert J. Fabbricatore 5,035,735 1,052
Philip J. Richer 5,035,835 952
Richard J. Santagati 5,035,735 1,052
J. Richard Murphy 5,035,735 1,052
Henry Hermann 5,035,735 1,052
</TABLE>
The following table sets forth the other matters voted upon and the
respective number of votes cast for, against, number of absentions and
broker nonvotes.
<TABLE>
<CAPTION>
Matter Votes Votes Delivered
Voted Upon For Against Abstentions No Vote
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Amendment to Articles of
Organization to change the
name of Company to
"CTC Communications Corp." 5,016,485 1,128 18,174 1,000
To approve adoption of the
Company's 1996 Stock
Option Plan 4,793,505 233,108 9,174 1,000
To approve selection of
Ernst & Young as
accountants for the
Company for the fiscal
year ending 3/31/97 5,033,561 3,126 100 0
</TABLE>
(d) Not applicable.
11<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
behalf by the undersigned thereunto duly authorized.
CTC COMMUNICATIONS CORP.
Date: November 11, 1996 /S/ ROBERT FABBRICATORE
-------------------------
Robert Fabbricatore
Chief Executive
Officer
Date: November 11, 1996 /S/ JOHN D. PITTENGER
-----------------------
John D. Pittenger
Chief Financial
Officer
12
Exhibit 11
CTC COMMUNICATIONS CORP.
STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
PRIMARY
<S> <C> <C> <C> <C>
Average shares outstanding 9,601 9,368 9,593 9,359
Net effect of stock options, if dilutive,
based on the treasury stock method
using the average market price 1,221 1,153 1,308 1,037
---------- ---------- ---------- ----------
Total 10,822 10,521 10,901 10,396
Net income $ 1,049 $ 949 $ 2,243 $ 1,638
---------- ---------- ---------- ----------
Net income per share $ 0.10 $ 0.09 $ 0.21 $ 0.16
---------- ---------- ---------- ----------
FULLY DILUTED
Average shares outstanding 9,601 9,368 9,593 9,359
Net effect of stock options, if dilutive,
based on the treasury stock method
using the period-end market price 1,267 1,208 1,332 1,101
---------- ---------- ---------- ----------
Total 10,868 10,576 10,925 10,460
Net income $ 1,049 $ 949 $ 2,243 $ 1,638
---------- ---------- ---------- ----------
Net income per share $ 0.10 $ 0.09 $ 0.21 $ 0.16
---------- ---------- ---------- ----------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> SEP-30-1996
<CASH> 3,634
<SECURITIES> 0
<RECEIVABLES> 9,589
<ALLOWANCES> 190
<INVENTORY> 19
<CURRENT-ASSETS> 591
<PP&E> 6,380
<DEPRECIATION> 5,150
<TOTAL-ASSETS> 15,456
<CURRENT-LIABILITIES> 3,671
<BONDS> 0
0
0
<COMMON> 96
<OTHER-SE> 11,824
<TOTAL-LIABILITY-AND-EQUITY> 15,456
<SALES> 18,625
<TOTAL-REVENUES> 18,718
<CGS> 3,832
<TOTAL-COSTS> 14,890
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6
<INCOME-PRETAX> 3,822
<INCOME-TAX> 1,579
<INCOME-CONTINUING> 2,243
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,243
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
