FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-19179
CT COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-1837282
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
68 Cabarrus Avenue, East
P.O. Box 227, Concord, N.C. 28025
(Address of principal executive offices) (Zip Code)
(704) 788-0241
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
1,485,024 shares of Common Stock, outstanding as of June 30,
1996.
Voting - 227,019
Non-Voting Class B - 1,258,005
CT COMMUNICATIONS, INC.
INDEX
Page No.
PART I. Financial Information
Balance Sheets --
June 30, 1996 and December 31, 1995 2-3
Statements of Income --
Three and Six Months Ended June 30, 1996 and 1995 4
Statements of Cash Flows --
Six Months Ended June 30, 1996 and 1995 5
Notes to Financial Statements 6-8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
PART II. Other Information 13-14
-1-
PART I. FINANCIAL INFORMATION
CT COMMUNICATIONS, INC.
Consolidated Balance Sheets
Unaudited
ASSETS
June 30, December 31,
1996 1995
Current assets:
Cash and cash equivalents $ 4,870,254 $ 4,751,204
Short-term investments 591,318 2,711,699
Accounts receivable, net of allowance
for doubtful accounts of $100,000
in 1996 and 1995 8,436,357 8,878,698
Refundable income taxes 1,408,895 176,228
Materials and supplies 2,150,327 1,803,419
Deferred income taxes 28,304 71,324
Prepaid expenses and other assets 296,798 533,385
Total current assets 17,782,253 18,925,957
Investments securities 6,296,855 9,074,888
Investments in affiliates 25,732,800 21,788,955
Property, plant & equipment:
Telephone plant in service:
Land, buildings, and general equipment 21,048,898 17,400,228
Central office equipment 49,146,088 47,037,535
Poles, wire, cables and conduit 67,772,647 65,849,055
Construction in progress 598,918 14,483
138,566,551 130,301,301
Less accumulated depreciation 76,288,719 72,325,624
Net property, plant, and equipment 62,277,832 57,975,677
TOTAL ASSETS $112,089,740 $107,765,477
(Continued)
See accompanying notes to consolidated financial statements.
-2-
Consolidated Balance Sheets, (Continued)
LIABILITIES & STOCKHOLDERS' EQUITY
Unaudited
June 30, December 31,
1996 1995
Current liabilities:
Current portion of long-term debt &
redeemable preferred stock $ 2,072,500 $ 652,500
Accounts payable 8,689,612 8,852,272
Customer deposits and advance billings 1,205,557 1,080,773
Accrued payroll 496,327 468,390
Accrued pension cost 1,084,520 1,143,033
Other accrued liabilities 1,062,833 500,654
Total current liabilities 14,611,349 12,697,622
Long-term debt 2,324,000 4,074,000
Deferred credits and other liabilities:
Deferred income taxes 1,780,717 1,568,455
Investment tax credits 1,091,408 1,148,850
Regulatory liability 2,570,159 2,633,285
Postretirement benefits other than pension 8,823,764 8,104,965
Other 1,103,098 1,103,098
15,369,146 14,558,653
Redeemable preferred stock, $100 par value:
4.8% series; authorized 5,000 shares;
issued and outstanding 1,750 shares
in 1996 and 1995 162,500 162,500
Total liabilities 32,466,995 31,492,775
STOCKHOLDERS' EQUITY:
Preferred Stock not subject to mandatory redemption:
5% series, $100 par value; 15,087 shares
outstanding 1,508,700 1,508,700
4.5% series, $100 par value; 2,000 shares
outstanding 200,000 200,000
Discount on 5% preferred stock (16,059) (16,059)
Common stock:
Voting, 227,019 shares outstanding 4,021,094 4,021,094
Nonvoting, outstanding 1,258,005
shares in 1996 and 1,256,001 in 1995 23,317,281 23,114,777
Other capital 298,083 298,083
Unearned compensation (198,497) (60,752)
Unrealized gain on securities available-
for-sale 1,148,497 1,196,766
Retained earnings 49,343,646 46,010,093
Total stockholders' equity 79,622,745 76,272,702
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $112,089,740 $107,765,477
See accompanying notes to consolidated financial statements.
-3-
CT COMMUNICATIONS, INC.
Consolidated Statements of Income
For 3 and 6 months ended June 30, 1996 and 1995
Unaudited
Three Months Ended
------------------
June 30,
-------
OPERATING REVENUES: 1996 1995
---- ----
Local service $ 5,724,143 $ 5,217,216
Access and toll service 6,117,218 6,753,910
Other and unregulated 2,394,237 2,153,371
Less provision for uncollectible
accounts (101,138) (65,884)
Total operating revenues 14,134,460 14,058,613
OPERATING EXPENSES:
Plant specific 4,175,523 3,184,904
Depreciation and amortization 2,339,552 2,019,807
Customer operations 1,763,627 1,607,455
Corporate operations 3,188,371 2,293,230
--------- ---------
Total operating expenses 11,467,073 9,105,396
--------- ---------
Net operating revenues 2,667,387 4,953,217
OTHER INCOME (EXPENSES):
Equity in income of affiliates 1,195,275 1,107,010
Interest, dividend income and
gain on sale 67,327 254,097
Other expenses, principally
interest (434,942) (393,928)
--------- ---------
Total other income 827,660 967,179
Income before income taxes 3,495,047 5,920,396
Income taxes 1,407,635 2,063,258
--------- ---------
Net income 2,087,412 3,857,138
DIVIDENDS ON PREFERRED STOCK 23,146 23,296
--------- ---------
EARNINGS FOR COMMON STOCK $ 2,064,266 $ 3,833,842
=========== ============
EARNINGS PER COMMON SHARE $ 1.39 $ 2.60
=========== ============
DIVIDENDS PER COMMON SHARE $ .70 $ .67
=========== ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 1,484,979 1,476,399
Six Months Ended
-----------------
June 30,
-------
OPERATING REVENUES: 1996 1995
---- ----
Local service $11,382,676 $10,315,943
Access and toll service 12,363,632 12,542,091
Other and unregulated 4,976,340 4,439,628
Less provision for uncollectible
accounts (173,375) (102,812)
--------- ---------
Total operating revenues 28,549,273 27,194,850
OPERATING EXPENSES:
Plant specific 7,992,285 6,410,045
Depreciation and amortization 4,565,171 3,978,969
Customer operations 3,386,848 3,001,166
Corporate operations 5,301,471 3,988,850
--------- ---------
Total operating expenses 21,245,775 17,379,030
--------- ---------
Net operating revenues 7,303,498 9,815,820
OTHER INCOME (EXPENSES):
Equity in income of affiliates 1,986,634 1,568,019
Interest, dividend income and
gain on sale 231,786 519,746
Other expenses, principally
interest (557,450) (684,764)
--------- ---------
Total other income 1,660,970 1,403,001
--------- ---------
Income before income taxes 8,964,468 11,218,821
Income taxes 3,544,456 4,118,536
--------- ---------
Net income 5,420,012 7,100,285
DIVIDENDS ON PREFERRED STOCK 46,355 46,655
EARNINGS FOR COMMON STOCK $ 5,373,657 $ 7,053,630
=========== ============
EARNINGS PER COMMON SHARE $ 3.62 $ 4.78
=========== ============
DIVIDENDS PER COMMON SHARE $ 1.38 $ 1.33
=========== ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 1,484,523 1,476,198
See accompanying notes to financial statements.
CT COMMUNICATIONS, INC.
Statements of Cash Flows
For 6 months ended June 30, 1996 and 1995
Unaudited
1996 1995
Cash flows from operating activities:
Net income $ 5,420,012 $ 7,100,285
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,565,171 3,978,969
Deferred income taxes and tax credits (134,714) (848,984)
Postretirement benefits 718,799 87,668
Loss on sale of investments 73,708 4,785
Undistributed income of affiliates (1,986,634) (1,143,798)
Decrease in accounts receivable 442,341 337,649
(Increase) decrease in materials
and supplies (346,908) 172,155
(Decrease) increase in other assets 236,587 (15,290)
(Decrease) increase in accounts payable (162,660) 1,550,129
Increase in customer deposits and advance
billings 124,784 81,907
Increase in accrued liabilities 531,603 1,431,048
Decrease in income taxes payable (1,232,667) (611,039)
Net cash provided by operating activities 8,249,422 12,125,484
Cash flows from investing activities:
Capital expenditures in telephone plant (8,759,195) (8,248,496)
Removal cost - telephone plant retired (100,135) (37,538)
Purchase of investments in affiliates (2,282,867) (2,970,729)
Purchases of investment securities (811,149) (4,330,232)
Maturities of investment securities 1,143,071 ---
Partnership capital distribution 230,674 628,712
Sales of investment securities 4,694,500 ---
Net cash used in investing activities (5,885,101) (14,958,283)
Cash flows from financing activities:
Repayment of long-term debt (330,000) (330,000)
Dividends paid (2,100,587) (2,015,122)
Proceeds from common stock issuance 34,480 41,138
Other 150,836 15,312
Net cash used in financing activities (2,245,271) (2,288,672)
Net increase (decrease) in cash and
cash equivalents 119,050 (5,121,471)
Cash and cash equivalents-beginning of period 4,751,204 8,346,235
Cash and cash equivalents-end of period $ 4,870,254 $ 3,224,764
See accompanying notes to financial statements.
-5-
CT COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. In the opinion of Management, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of June
30, 1996, and the results of operations for the three and six months
then ended and cash flows for the six months then ended.
2. The results of operations for the three and six months ended June 30,
1996 and 1995 are not necessarily indicative of the results to be
expected for the full year.
3. The following is a summary of common stock transactions during the six
months ended June 30, 1996.
.....Voting.....
Shares Value
Outstanding at December 31, 1995.......... 75,673 $4,021,094
Issued for stock split distributed
5/30/96 to holders of record 5/03/96... 151,346 ---
Outstanding at June 30, 1996.............. 227,019 $4,021,094
Weighted average shares outstanding
for the six months ending
June 30, 1996.......................... 227,019
.....Non-Voting Class B.....
Shares Value
Outstanding at December 31, 1995.......... 418,667 $23,114,777
Issuance of common stock.................. 668 186,955
Issued for stock split distributed 5/30/96
to holders of record 5/03/96........... 838,670 ---
Tax benefit from the exercise of options.. --- 15,549
Outstanding at June 30, 1996.............. 1,258,005 $23,317,281
Weighted average shares outstanding
for six months ending
June 30, 1996.......................... 1,257,504
On April 25, 1996, the Board of Directors declared a three for one
stock split (two new shares for each share held) payable May 30, 1996 to
shareholders of record May 3, 1996. This created an additional 151,346
shares of common voting and 838,670 shares of non-voting Class B shares.
These amounts are reflected in all share data presented herein.
-6-
4. SECURITIES AVAILABLE-FOR-SALE
June 30, 1996
Gross Unrealized
Securities Amortized Fair
Available-for-Sale Cost Gains Losses Value
State, county and municipal
debt securities $4,172,972 2,196 56,787 4,118,381
Equity Securities 843,505 2,394,207 467,920 2,769,792
$5,016,477 2,396,403 524,707 6,888,173
Amortized Cost Fair Value
Current $ 591,318 $ 591,318
Due after one through five years 2,426,713 2,401,843
Due after five through ten years 1,154,941 1,125,220
Equity securities 843,505 2,769,792
Total $5,016,477 $6,888,173
5. INVESTMENTS IN AFFILIATED COMPANIES
6/30/96 12/31/95
ITC Associates Partnership (equity method) $ 5,519,832 $ 5,519,832
RSA 15 Partnership (equity method) 6,404,523 4,844,472
BellSouth Carolinas PCS, LP (equity method) 5,964,255 4,597,756
U.S. Telecom Holdings (equity method) 3,520,833 3,520,833
Wireless 1 - Carolinas (equity method) 998,400 240,000
ITC Holdings (equity method) 658,354 658,354
ITN Charter (cost method) 789,347 789,347
U.S. Intelco (cost method) 279,277 279,277
Ellerbe Partnership (equity method) 1,094,867 898,959
Access On (equity method) 271,035 271,035
Embion of North Carolina (equity method) --- 63,747
Data Base Network Services, Ltd. (cost method)* 123,747 ---
Other, at cost which approximates market 108,330 105,343
TOTAL $ 25,732,800 $ 21,788,955
* The Registrant's interest in Embion of North Carolina was exchanged
April 26, 1996 for 15,000 shares of Data Base Network Services, Ltd.
-7-
6. LONG-TERM DEBT:
Long-term debt excluding current maturities comprised the following:
First Mortgage Bonds: June 30, 1996 December 31, 1995
6 1/4% Series F, due 3/1/97 $ --- $ 1,440,000
Note payable to a bank @ 7.25%
due in installments until 2001 2,324,000 2,634,000
TOTAL $ 2,324,000 $ 4,074,000
Annual maturities and sinking fund requirements of the long-term debt
outstanding for the five year periods subsequent to June 30, 1996 are as
follows: $330,000 in 1996; $2,040,000 in 1997; $620,000 in 1998 and 1999
and 2000; and $154,000 thereafter.
-8-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The liquidity of the Company decreased during the six-month period
ending June 30, 1996. Current assets exceeded current liabilities by
$3,170,904 at June 30, 1996. In comparison, current assets exceeded
current liabilities by $6,228,335 at December 31, 1995.
Current assets decreased by $1,143,704 when compared to December
31, 1995. This decrease is primarily due to decreases in short-term
investments of $2,120,381, accounts receivable of $442,341, deferred
income taxes of $43,020 and prepaid expenses of $236,587. The
decreases were offset in part by an increase in refundable income taxes
of $1,232,667, due to an over deposit of taxes payable, an increase in
materials and supplies of $346,908 and an increase in cash and cash
equivalents of $119,050.
Current liabilities increased by $1,913,727 during the six months
ending June 30, 1996. This increase is primarily from the
reclassification of long-term debt to current liabilities for the March
1, 1997 maturity of First Mortgage bonds in the amount of $1,420,000.
Accounts payable decreased $162,660 due to payments made to creditors
and other accrued liabilities increased $562,179 primarily due to an
increase in accrued property taxes of $330,000.
The Company's primary source of liquidity is funds provided by
operations. During this six months ended June 30, 1996, cash provided
by operations totaled $8,249,422.
The primary use of cash during this period was for normal
additions to telephone plant - $8,759,195, purchase of investments in
affiliates - $2,282,867, and payment of dividends - $2,100,587.
Carolina Personal Communications received $1,692,150 of the cash
expended for investments in affiliates. Funds needed in excess of
those generated by operations were generated by the sale of investments
available for sale. Sales and maturities of these investments totaled
$5,837,571 during the six months ending June 30, 1996.
The Company has ordered a switch to be used in the long distance
area of operations. This switch, costing about $2.2 million, will be
purchased in the third quarter out of the cash and cash equivalents
available.
At June 30, 1996, the Company's investment portfolio totaled
6.9 million, all of which could be pledged to secure additional
borrowing, or sold, if needed for liquidity purposes. There are no
plans to borrow additional funds at this time. At June 30, 1996, the
Company had available lines of credit totaling $13,500,000, none of
which was outstanding. Management believes the liquidity is adequate
to meet the operational needs of the Company.
-9-
Results of Operations
3 months ended June 30, 1996 and June 30, 1995
Operating revenues increased $75,847 or .01% for the three months
ended June 30, 1996 compared to same period of 1995.
Local service revenues increased $506,927 or 9.7% during this
period. This growth is a result of improved demand for service and the
metro calling plan which allocates more revenues to local service. It
is expected that growth in this classification of revenues will
continue throughout this year.
Access and toll revenues decreased $636,692 or 9.4% for the three
months ended June 30, 1996 when compared to the same period of 1995.
Most of this decrease is a result of a one time settlement received
during 1995, which was related to a prior period, from the National
Exchange Carrier Association (NECA) in the amount of approximately $1.5
million. This settlement amount was a result of the additional
expenses generated by amortization of telephone plant as ordered by the
North Carolina Utilities Commission during the last half of 1994.
Without this settlement, access and toll revenues would have increased
approximately $863,000 or 12.7% for this same period.
Other and unregulated income increased $240,866 or 11.2% for this
period. This increase results primarily from an increase of $273,894
in non-regulated income, net. This increased amount is a result of
increased sales efforts in customer premise equipment. The Company is
placing more emphasis on the non-regulated area of operations and it
is expected that non-regulated income will continue to increase.
Provision for uncollectible accounts has increased for this period
due to increased write-offs. These increased write-offs are due in
part to increased business activity.
Operating expenses, exclusive of depreciation, increased
$2,041,932 or 28.8%. Plant specific expenditures increased $990,619
or 31.0% due to an increased amount of maintenance in outside plant and
remodeling and repair of buildings.
Customer and corporate operations increased by $1,051,313 or 45.8%
when compared to the previous year amount. Approximately 15% of this
amount is a result of accruals in the other post employment benefits,
or medical costs for retirees and pension cost, with the balance due
to a one time reconciliation of customer accounts receivable. Since
adoption of SFAS 106, the Company has been recovering the full accrual
amount of other employment expenses and benefit costs in its rates with
the various jurisdictions.
Depreciation expense increased $319,745 or 16% for this period.
This increased amount is due to a larger depreciable base and increased
rates as authorized by the North Carolina Utilities Commission.
-10-
Results of Operations (Con't.)
3 months ended June 30, 1996 and June 30, 1995 (Con't.)
Other income decreased $139,519 or 14.4% for this period. This
amount results from an increase in equity in income of affiliates of
$88,265 during 1996 and a reduction in interest income, dividend income
and gain on sale of $187,770. Interest income decreased due to smaller
amounts invested in interest earning assets and lower earning rates.
Income taxes decreased approximately 31% as a result of lower
taxable income for this period.
In addition, as the PCS network begins operation the Company
expects to incur losses in these operations. These losses are not
quantifiable at this time but the amounts are not expected to be
material to overall operations.
Results of Operations
6 months ended June 30, 1996 and June 30, 1995
Operating revenues increased $1,354,423 or 5% for the six months
ended June 30, 1996, over the six months ended June 30, 1995. This
increase is a result of higher local and other and unregulated revenue
but was offset in part by lower access and toll service revenues.
Local service revenues increased $1,066,733 or 10.3% during this
period. This growth is a result of improving growth in demand for
service and a metro calling plan which allocates more revenues to local
service. It is expected that this growth will continue as long as the
current business activity is sustained.
Access toll and revenues decreased $178,459 or 1.4% during the six
months ended June 30, 1996, when compared to the six months ended June
30, 1995. This decrease is due primarily to the prior period
settlement recovered from NECA during the second quarter 1995. Without
this $1.5 million settlement, toll and access revenues would have
increased by approximately $1.3 million or 10.5%.
Other and unregulated operating revenues increased $536,712 or
12.1% during this period in comparison to the same period of the
previous year. This increase is a result of larger amounts of non-
regulated revenues. The Company is placing more emphasis on the non-
regulated area of operations and it is expected that non-regulated
income will continue to increase.
Operating expenses, exclusive of depreciation, for the six month
period ended June 30, 1996 increased $3,280,543 or 24.5%. This
increase arises in part from an increase in plant specific expenditures
in the amount of $1,582,240, which is a result of increased maintenance
and construction in the outside plant operations and building
remodeling and repair.
-11-
Results of Operations (Con't.)
6 months ended June 30, 1996 and June 30, 1995
Corporate and customer operation expense increased $1,698,303 or
24.3% when compared to the same period of 1995. Approximately 53% of
this amount is a result of accruals in the other post employment
benefits, or medical costs for retirees and pension cost, with the
balance due to a one time reconciliation of customer accounts
receivable.
Depreciation expense increased $568,202 or 14.7% for the six month
period ended June 30, 1996 as compared to the same period of 1995.
This increased amount is due to a larger depreciable base and increased
rates as authorized by the North Carolina Utilities Commission during
1995 and in effect for all of 1996.
Other income increased $257,969 for this period. This increased
amount in other income is primarily from the recognition of additional
income in earnings of affiliates of $417,615 over amounts accrued in
1995. This additional income was offset by decreased interest income,
dividend income, and gain on sale of $287,960. Interest income
decreased due to smaller amounts invested in interest earning assets
and lower earning rates.
Income taxes decreased approximately 14% as a result of lower
taxable income during this period.
In addition, as the PCS network begins operation the Company
expects to incur losses in these operations. These losses are not
quantifiable at this time but the amounts are not expected to be
material to overall operations.
-12-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The registrant is not involved in any material legal proceedings at
June 30, 1996, except as previously disclosed in Item 3 of its annual
report on Form 10-K for year ended December 31, 1995 and in Note 9 to
the registrant's financial statements included therein.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
Annual Meeting was held April 25, 1996.
All directors were reelected.
Proxies were solicited for the following matters:
(1) To elect seven directors for terms designated.
Betty Gay Bivens
John R. Boger, Jr.
L. D. Coltrane, III
Michael R. Coltrane
Ben F. Mynatt
Jerry H. McClellan
Phil W. Widenhouse
For 68,156 Authority Withheld 0 Broker Non-Vote 0
(Each nominee received the same number of votes)
(2) Approval of the 1996 Directors Compensation Plan
For 64,012 Against 1489 Abstain 2655 Broker Non-Vote 0
(3) Approval of proposal to amend the Corporation's Articles of
Incorporation to increase the number of shares of Voting Common
Stock authorized for issuance from 100,000 to 3,000,000
For 63,703 Against 1476 Abstain 2978 Broker Non-Vote 0
(4) Approval of proposal to amend the Corporation's Articles of
Incorporation to increase the number of shares of Class B
Non-voting Common Stock authorized for issuance from 700,000
to 15,000,000
For 371,199 Against 2394 Abstain 3960 Broker Non-Vote 598
-13-
PART II. OTHER INFORMATION (Con't.)
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
There were no current reports on Form 8-K filed during the second
quarter.
-14-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CT COMMUNICATIONS, INC.
(Registrant)
/s/ BARRY R. RUBENS
Senior Vice President,
Secretary and Treasurer
August 12, 1996
Date
(The above signatory has dual responsibility as duly authorized
officer and principal financial and accounting officer of the
registrant.)
-15-
INDEX TO EXHIBITS
Exhibit No.
(per Item 601 Description Sequential
of Reg. S-K of Exhibits Page No.
27. Financial Data Schedule E-1