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 SEPTEMBER 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
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CT COMMUNICATIONS, INC.
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(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-1837282
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(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
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(Address of principal executive offices) (Zip Code)
(704) 722-2404
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(Registrant's telephone number, including area code)
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(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
September 30, 1996.
Voting - 227,019
Class B Non-Voting - 1,258,005
CT COMMUNICATIONS, INC.
INDEX
Page No.
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PART I. Financial Information
Balance Sheets --
Sept. 30, 1996 and December 31, 1995 2-3
Statements of Income --
Three and Nine Months Ended Sept. 30, 1996 and 1995 4
Statements of Cash Flows --
Nine Months Ended Sept. 30, 1996 and 1995 5
Notes to Financial Statements 6-8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-15
PART II. Other Information 16
PART I. FINANCIAL INFORMATION
CT COMMUNICATIONS, INC.
Consolidated Balance Sheets
Unaudited
ASSETS
September 30, December 31,
1996 1995
Current assets: ----------- ------------
Cash and cash equivalents $ 6,036,752 $4,751,204
Short-term investments 216,157 2,711,699
Accounts receivable, net of allowance
for doubtful accounts of $100,000
in 1996 and 1995 6,625,257 8,878,698
Refundable income taxes --- 176,228
Materials and supplies 2,659,244 1,803,419
Deferred income taxes --- 71,324
Prepaid expenses and other
assets 150,350 533,385
------------ ------------
Total current assets 15,687,760 18,925,957
Investments securities 5,475,126 9,074,888
Investments in affiliates 26,627,179 21,788,955
Property, plant & equipment:
Telephone plant in service:
Land, buildings, and general
equipment 22,510,661 17,400,228
Central office equipment 50,238,029 47,037,535
Poles, wire, cables and
conduit 69,318,206 65,849,055
Construction in progress 1,140,234 14,483
143,207,12 130,301,301
Less accumulated depreciation 78,401,089 72,325,624
------------ ------------
Net property, plant, and equipment 64,806,041 57,975,677
------------- ------------
TOTAL ASSETS $112,596,106 $107,765,477
============= ============
(Continued)
Consolidated Balance Sheets, (Continued)
LIABILITIES & STOCKHOLDERS' EQUITY
Unaudited
September 30, December 31,
1996 1995
Current liabilities: ------------ -----------
Current portion of long-term debt &
redeemable preferred stock $ 2,072,500 $ 652,500
Accounts payable 7,515,802 8,852,272
Customer deposits and advance billings 1,117,714 1,080,773
Accrued payroll 666,826 468,390
Accrued pension cost 1,064,246 1,143,033
Other accrued liabilities 1,489,491 500,654
Income taxes payable 457,270 ---
----------- -----------
Total current liabilities 14,383,849 12,697,622
------------ -----------
Long-term debt 2,169,000 4,074,000
------------ ----------
Deferred credits and other liabilities:
Deferred income taxes 1,130,006 1,568,455
Investment tax credits 1,062,686 1,148,850
Regulatory liability 2,570,157 2,633,285
Postretirement benefits other than
pension 9,129,958 8,104,965
----------- ------------
Other 1,103,098 1,103,098
14,995,905 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 31,711,254 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 893,048 1,196,766
Retained earnings 0,861,202 46,010,093
------------ -----------
Total stockholders' equity 80,884,852 76,272,702
------------ -----------
TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY $112,596,106 $107,765,477
=========== ===========
See Accompanying Notes To Financial Statements.
CT COMMUNICATIONS, INC.
Consolidated Statements of Income
For 3 and 9 months ended September 30, 1996 and 1995
Unaudited
Three Months Ended
------------------
September 30,
-------------
OPERATING REVENUES: 1996 1995
---- ----
Local service $ 6,173,732 $5,375,407
Access and toll service 9,849,842 6,438,006
Other and unregulated 2,645,408 2,251,026
Less provision for uncollectible
accounts 38,034 (105,624)
------------ -----------
Total operating revenues 18,707,016 13,958,815
OPERATING EXPENSES:
Plant specific 7,565,899 3,405,436
Depreciation and amortization 3,009,958 3,615,590
Customer operations 1,780,148 1,415,186
Corporate operations 2,459,636 1,731,375
------------ -----------
Total operating expenses 14,815,641 10,167,587
------------ ----------
Net operating revenues 3,891,375 3,791,228
OTHER INCOME (EXPENSES):
Equity in income of affiliates 358,699 180,469
Interest, dividend income and
gain on sale 892,116 837,010
Other expenses, principally interest (441,269) (143,667)
------------ ---------
Total other income 809,546 873,812
------------ ---------
Income before income taxes 4,700,921 4,665,040
Income taxes 2,139,354 1,706,060
------------ ---------
Net income 2,561,567 2,958,980
DIVIDENDS ON PREFERRED STOCK 23,128 23,278
------------ -----------
EARNINGS FOR COMMON STOCK $ 2,538,439 $2,935,702
============ ============
EARNINGS PER COMMON SHARE* $ 1.71 $ 1.98
============ ============
DIVIDENDS PER COMMON SHARE* $ .70 $ .68
============ ===========
WEIGHTED AVERAGE SHARES OUTSTANDING* 1,485,024 1,480,806
*See accompanying notes to financial statements.
CT COMMUNICATIONS, INC.
Consolidated Statements of Income
For 3 and 9 months ended September 30, 1996 and 1995
Unaudited
Nine Months Ended
-----------------
September 30,
------------
OPERATING REVENUES: 1996 1995
Local service $17,556,408 $15,691,350
Access and toll service 22,213,474 18,980,097
Other and unregulated 7,621,748 6,690,654
Less provision for uncollectible
accounts (135,341) (208,436)
----------- ------------
Total operating revenues 47,256,289 41,153,665
OPERATING EXPENSES:
Plant specific 15,558,184 9,815,481
Depreciation and amortization 7,575,129 7,594,559
Customer operations 5,166,996 4,416,352
Corporate operations 7,761,107 5,720,225
---------- -----------
Total operating expenses 36,061,416 27,546,617
---------- -----------
Net operating revenues 11,194,873 13,607,048
OTHER INCOME (EXPENSES):
Equity in income of affiliates 2,345,333 1,790,812
Interest, dividend income and
gain on sale 1,123,902 1,321,177
Other expenses, principally interest (998,719) (835,176)
--------- ------------
Total other income 2,470,516 2,276,813
----------- -----------
Income before income taxes 13,665,389 15,883,861
Income taxes 5,683,810 5,824,596
------------ -----------
Net income 7,981,579 10,059,265
DIVIDENDS ON PREFERRED STOCK 69,382 69,832
------------- -----------
EARNINGS FOR COMMON STOCK $ 7,912,197 $ 9,989,433
============ ===========
EARNINGS PER COMMON SHARE* $ 5.33 $ 6.76
============ ===========
DIVIDENDS PER COMMON SHARE* $ 2.08 $ 2.02
============ ===========
WEIGHTED AVERAGE SHARES OUTSTANDING* 1,484,691 1,477,749
*See accompanying notes to financial statements.
CT COMMUNICATIONS, INC.
Statements of Cash Flows
For 9 months ended September 30, 1996 and 1995
Unaudited
1996 1995
------ ------
Cash flows from operating activities:
Net income $ 7,981,579 $10,059,265
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,575,129 7,594,559
Deferred income taxes and tax credits (453,289) (1,520,155)
Postretirement benefits 1,024,993 1,259,894
Loss on retirement of non-regulated
property 1,323 5,178
Loss (gain) on sale of investments 78,581 (148,680)
Undistributed income of affiliate (2,345,332) (1,790,812)
Decrease (increase) in accounts
receivable 2,253,441 (1,800,857)
(Increase) in materials and supplies (855,825) (370,092)
Unrealized loss recorded in investment
securities 497,996 ---
Decrease in other assets 383,035 137,680
(Decrease) increase in accounts
payable (1,336,470) 925,235
Increase in customer deposits and advance
billings 36,941 65,246
Increase in accrued liabilities 1,045,358 1,048,867
Increase in income taxes payable (633,498) (567,852)
Unearned compensation 137,745 ---
----------- -----------
Net cash provided by operating
activities 15,391,707 14,897,476
Cash flows from investing activities:
Capital expenditures in telephone
plant (13,631,677) (12,097,546)
Removal cost - telephone plant
retired (156,794) (136,779)
Purchase of investments in affiliates (3,637,492) (3,573,679)
Purchases of investment securities (1,033,359) (3,649,386)
Maturities of investment securities 1,328,126 ---
Partnership capital distribution 1,144,600 648,712
Sales of investment securities 5,223,960 2,634,747
----------- -----------
Net cash used in investing activities(10,762,636) (16,173,931)
------------ ------------
Cash flows from financing activities:
Repayment of long-term debt (485,000) (1,372,500)
Dividends paid (3,144,595) (3,032,225)
Proceeds from common stock issuance 186,955 500,449
Tax benefit from ESOP distribution 15,549 ---
Other 83,568 40,364
----------- -----------
Net cash used in financing activities(3,343,523) (3,863,912)
------------ ------------
Net increase (decrease) in cash and
cash equivalents 1,285,548 (5,140,367)
Cash and cash equivalents-beginning
of period 4,751,204 8,346,235
------------ -----------
Cash and cash equivalents-end of
period $ 6,036,752 $ 3,205,868
============ ===========
See Accompanying Notes To Financial Statements.
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 September 30, 1996, and the
results of operations for the three months and nine months
then ended and cash flows for the nine months then ended.
2. The results of operations for the three months and nine
months ended September 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 nine months ended September 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 51,346 ---
------- ----------
Outstanding at September 30, 1996......227,019 $4,021,094
======= ==========
Weighted average shares outstanding
for the nine months ended
September 30, 1996..................227,019
Class B Non-Voting
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 exercise of options --- 15,549
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Outstanding at September 30, 1996 1,258,005 $23,317,281
========= ===========
Weighted average shares outstanding
for nine months ended
September 30, 1996................1,257,672
On April 26, 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 Class B non-voting shares. These amounts are reflected in all
share data presented herein.
4. SECURITIES AVAILABLE-FOR-SALE
September 30, 1996
------------------------------
Gross Unrealized
------------------
Securities Amortized Fair
Available-for-Sale Cost Gains Losses Value
------------------ ---- ----- ------ -----
State, county and municipal
debt securities $3,388,549 $ 6,042 $ 13,508 $3,381,083
Equity Securities 843,505 2,394,207 927,512 2,310,200
---------- ---------- -------- ----------
Total $4,232,054 $2,400,249 $941,020 $5,691,283
========== ========== ======== ==========
Amortized Cost Fair Value
-------------- ----------
Current $ 245,147 $ 216,157
Due after one through five years 2,016,602 2,015,375
Due after five through ten years 1,126,800 1,149,551
Equity securities 843,505 2,310,200
---------- ----------
Total $4,232,054 $5,691,283
========== ==========
5. INVESTMENTS IN AFFILIATED COMPANIES
9/30/96 12/31/95
--------- ----------
ITC Associates Partnership (equity method) $ 5,519,832 $ 5,519,832
RSA 15 Partnership (equity method) 6,412,433 4,844,472
BellSouth Carolinas PCS, LP (equity method) 6,459,257 4,597,756
U.S. Telecom Holdings (equity method) 3,520,833 3,520,833
Wireless 1 - Carolinas (equity method) 1,322,403 240,000
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) 1,159,826 898,959
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 110,835 105,343
------------ ------------
TOTAL $ 26,627,179 $ 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.
6. LONG-TERM DEBT:
Long-term debt excluding annual maturities comprised the following:
First Mortgage Bonds: September 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 2,169,000 2,634,000
----------- -----------
TOTAL $ 2,169,000 $ 4,074,000
=========== ===========
Annual maturities and sinking fund requirements of the long-term debt
outstanding for the five year period subsequent to September 30, 1996 are
as follows: $155,000 in 1996; $2,060,000 in 1997; $620,000 in 1998, 1999
and 2000; and $154,000 thereafter.
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 nine month
period ending September 30, 1996. Current assets exceeded current
liabilities by $1,303,911 at September 30, 1996. In comparison,
current assets exceeded current liabilities by $6,228,335 at
December 31, 1995.
Current assets decreased by $3,238,197 when compared to
December 31, 1995. This decrease is primarily due to a decrease in
short-term investments of $2,495,542, which were applied to
investments in affiliates; a decrease in accounts receivable of
$2,253,441 due to an adjustment to reconcile customer accounts
receivable and accelerated collection; a decrease in deferred income
taxes of $71,324; a decrease in refundable income taxes of $176,228;
and a decrease in prepaid expenses of $383,035, primarily prepaid
directory expense and prepaid insurance. The decreases were offset
in part by an increase in materials and supplies of $855,825 and an
increase in cash and cash equivalents of $1,285,548.
Current liabilities increased by $1,686,227 during the nine
months ending September 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 $1,336,470 due to payments
made to creditors and other accrued liabilities increased $988,837
primarily due to an increase in accrued property taxes of $495,000
and an accrual for anticipated over earnings of $600,000. This
accrual was made to address a North Carolina Utilities Commission
notice identifying the Registrant as having earnings in excess of
the maximum rate of return authorized by the Utilities Commission.
The Company's primary source of liquidity is funds provided by
operations. During the nine months ended September 30, 1996, cash
provided by operations totaled $15,391,707.
The primary use of cash during this period was for normal
additions to telephone plant - $13,631,677, purchase of investments
in affiliates - $3,637,492, payment of dividends - $3,144,595 and
purchase of investment securities - $1,033,359. BellSouth Carolinas
PCS LP received $2,489,600 of the cash expended for investments in
affiliates. Funds needed in excess of those generated by operations
were generated by the sale or maturity of investments available for
sale and partnership capital distributions. Sales and maturities of
these investments totaled $6,552,086 during the nine months ending
September 30, 1996.
At September 30, 1996, the Company's investment portfolio
totaled $5.7 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
September 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.
RESULTS OF OPERATIONS
3 MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
Operating revenues increased $4,748,201 or 34% for the three
months ended September 30, 1996 compared to same period of 1995.
Local service revenues increased $798,325 or 14.85% 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.
On November 1, 1996, the Registrant asked the North Carolina
Utilities Commission (NCUC) to approve a new rate plan which will
substantially expand the area in which customers can call without
paying long distance charges. If approved, this plan will initially
reduce revenues by about $722,000 the first year; however, it will
allow the Registrant to prepare for competition in the local area of
operations. A more detailed discussion is below.
Access and toll revenues increased $3,411,836 or 53% for the
three months ended September 30, 1996 when compared to the same
period of 1995. This increase is primarily a result of the
reclassification of access and settlement charges from an offsetting
revenue account to an expense category. This amount is $2,382,954
for 1996 or 70% of the increase. This represents charges for the
entire year of 1996. Amounts for 1995 are not reclassified. The
remaining increase, $1,028,882, is generated by increased marketing
and sales efforts and increased calling volumes by the interexchange
carriers.
Other and unregulated income increased $394,382 or 17.5% for
this period. This increase results primarily from an increase of
$206,423 in non-regulated income, net. This increased amount is a
result of increased sales efforts in customer premise equipment and
increased billing and collection charges. 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 decreased for this period
due to increased collections of amounts previously written off.
Operating expenses, exclusive of depreciation, increased
$5,253,686 or 80.2%. Plant specific expenditures increased
$4,160,463 or 122% for this period when compared to the same period
of 1995. This increase results from the reclassification of access
and toll settlement charges from an offsetting revenue account to an
expense account in the amount of $2,382,954; increased maintenance
expenditures in the outside plant operations of $699,172 due to
extensive construction work on cable and pole line facilities; and
increased access expense of $885,754 due to increased toll volumes
generated by long distance sales. Also non-regulated expense
increased by $124,916 due to increased activity in the non-regulated
area of operation.
RESULTS OF OPERATIONS (CON'T.)
3 MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995 (Con't.)
Corporate and customer operations expense increased $1,093,223
or 34.7% for this period when compared to the same period of 1995.
Approximately $457,027 of this amount relates to product management
and advertising. General and administrative expense constitute
$458,835 of this increase. The Registrant is placing more emphasis
on development of product identity through increased advertising and
has committed considerable expenditures in work process re-engineering
and advanced internal information processing.
Depreciation expense decreased $605,632 or 17% for this period
when compared to 1995. An additional accrual of $600,000 has been
recorded in this expense category for this period in expectation of
earnings in excess of the maximum rate of return authorized by the
North Carolina Utilities Commission. Also during the comparable
period of 1995, a special amortization charge was recorded in the
amount of $1,500,000. Without this amortization and accrual,
depreciation and amortization would have been increased $294,368,
which is a result of an increased depreciable base and higher rates
in effect for this period.
Other income decreased $64,101 or 7.3% for this period. This
amount results from an increase in equity in income of affiliates of
$178,230 during 1996 and an increase in interest income, dividend
income and gain on sale of $55,106 which was offset in part by an
increase in other expense, principally interest, of $297,602.
Income taxes increased approximately $433,294 or 25% for this
period due to increased taxable income for this period.
The PCS network became operational during this period. It
incurred losses due to start up costs of approximately $108,000.
Losses related to start up costs are expected to occur over the next
three years but are not expected to be material to overall
operations.
RESULTS OF OPERATIONS
9 MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
Operating revenues increased $6,102,624 or 15% for the nine
months ended September 30, 1996, over the nine months ended
September 30, 1995.
Local service revenues increased $1,865,058 or 11.9% 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 growth in this classification
of revenues will continue throughout this year.
RESULTS OF OPERATIONS (Con't.)
9 MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995 (Con't.)
Access toll and revenues increased $3,233,377 or 17.0% during
the nine months ended September 30, 1996 when compared to the nine
months ended September 30, 1995. This increase is primarily a
result of the reclassification of access and settlement charges from
an offsetting revenue account to an expense category. This amount,
$2,382,954, is for the entire year of 1996 and is 73.7% of the total
increase for the period. Amounts for 1995 are not reclassified.
The remaining increase is a result of increased marketing and sales
efforts and increased calling volumes by the interexchange carriers.
Other and unregulated operating revenues increased $931,094 or
13.9% 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 and increased billing and collection 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 nine
month period ended September 30, 1996 increased $8,534,229 or 42.8%.
Plant specific expenditures increased $5,742,703. This increase
results from the reclassification of access and toll settlement
charges from an offsetting revenue account to an expense account in
the amount of $2,382,954; increased maintenance expenditures in the
outside plant operations of $1,422,925 due to extensive construction
work on cable and pole line facilities; and increased access expense
of $1,335,909 due to increased toll volumes generated by long
distance sales. Also non-regulated expense increased by $600,915
due to increased activity in the non-regulated area of operations.
The remainder primarily relates to the development of an internal
management information network.
Corporate and customer operations expense increased $2,791,526
or 28% for this period when compared to the same period of 1995.
Approximately $599,681 of this amount relates to product management
and advertising. $603,057 relates to additional efforts being
placed in customer service operations and $815,929 relates to
consulting fees for work process re-engineering and software for a
new accounting system. The remainder primarily relates to an
adjustment to reconcile customer accounts receivable.
Depreciation expense decreased $19,430 for the nine month
period when compared to the same period of 1995. An additional
accrual of $600,000 was recorded to this expense in anticipation of
earnings in excess of the maximum rate of return authorized by the
North Carolina Utilities Commission. Also during the comparable
period of 1995, a special amortization was recorded in the amount of
$1,500,000. Without this accrual and previous special amortization,
depreciation and amortization would have increased $880,570 which is
a result of an increased depreciable base and increased rates.
RESULTS OF OPERATIONS (Con't.)
9 MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995 (Con't.)
Other income increased $193,703 for this period. This
increased amount in other income is primarily the recognition of
additional income in earnings of affiliates of $554,521 over amounts
accrued in 1995. The additional income was offset by decreased
interest income, dividend income, and gain on sale of $197,275 and
an increase in other expenses of $163,378. Interest income
decreased due to smaller amounts invested in interest earning assets
and lower earning rates.
Income taxes decreased approximately 2.4% as a result of lower
taxable income during this period.
The PCS network became operational during this period. It
incurred losses due to start up costs of approximately $108,000.
Subsequent losses are not expected to be material to overall
operations. Losses related to start up costs are expected to occur
over the next three years but are not expected to be material to
overall operations.
REQUEST FOR NEW RATE PLAN
The Registrant has asked the North Carolina Utilities
Commission (NCUC) to approve a new rate plan that will substantially
expand the area in which customers can call without paying long
distance charges.
The new plan also provides customers with 30 minutes of free
calling each month into the metro area, which includes Charlotte;
simplifies pricing for long distance calls into the western North
Carolina area; reduces overall telephone costs for customers; and
paves the way for competition to emerge for local dial tone service
in the Registrant's franchise area.
Under the proposed rate structure, the Registrant's residential
customers, except those in the Harrisburg exchange, will pay $10.50
per month for basic local service, including touch-calling, which is
currently a separate charge of 50 cents per month. Harrisburg
customers will pay a slightly higher charge -- $12 per month --
because they can call more customers under that community's basic
plan.
Although these new prices reflect an increase for basic
service, other changes in the plan will offset these increases for
many customers, and overall the plan will initially reduce the
Registrant's revenues by about $722,000 a year.
The Registrant proposes opening up all local exchange lines to
toll-free calling, making it possible to call throughout areas of
Cabarrus, Rowan and Stanly counties served by the Registrant without
incurring a long distance charge.
In addition to offering 30 minutes of free calling each month
in the metro area, the Registrant is also proposing to expand the
metro area to include Matthews, Huntersville, Davidson and other
surrounding communities.
Metro calling rates are being simplified, with plans tailored
to individual calling needs. Customers may select a pre-set number
of minutes for a flat monthly rate based on their needs and purchase
additional minutes for as low as seven cents each. For very heavy
callers, the Registrant is offering an unlimited metro calling
package for residential customers only.
Other significant elements of the plan include elimination of a
separate charge for touch-calling and reductions in charges for long
distance calls into a broader calling zone that extends into western
North Carolina.
A driving force behind the Registrant's new rate plan is
customer demand for expanded calling options to areas beyond their
home communities. A new state law that took effect in July (HB161)
is helping to make it possible for the Registrant to meet this type
of customer demand.
Under this new legislation, telephone companies are given
greater flexibility in setting their price structures, which is a
key element in the Registrant's ability to offer expanded services.
In exchange for greater flexibility in setting prices, however,
local telephone companies must agree to open their markets to
competition for local dial tone service -- the last area of
telecommunications services to be deregulated.
Under its "Price Regulation" filing, the Registrant is agreeing
to open up its markets to competition for local dial tone service,
provided it is allowed to "rebalance" or adjust its rates at the
same time. By rebalancing rates, Management believes the Registrant
can compete in emerging markets and still sustain local rates that
are affordable.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The foregoing discussion contains forward-looking statements
about the Registrant's financial condition and results of
operations, which are subject to certain risks and uncertainties
that could cause actual results to differ materially from those
reflected in the forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements,
which reflect management's judgment only as of the date hereof. The
Registrant undertakes no obligation to publicly revise these
forward-looking statements to reflect events and circumstances that
arise after the date hereof.
Factors that may cause actual results to differ materially from
these forward-looking statements are (1) the Registrant's ability to
respond effectively to the sweeping changes in industry conditions
created by the Telecommunications Act of 1996, and related state and
federal legislation and regulations, (2) whether the North Carolina
Utilities Commission grants the Registrant's proposed rate plan and,
if granted, the Registrant's ability to implement the plan, (3) the
Registrant's ability to recover the substantial costs to be incurred
in connection with the implementation of its PCS business, and (4)
the Registrant's ability to retain its existing customer base
against local and long distance service competition, and to market
such services to new customers.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The registrant is not involved in any material legal proceedings at
September 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
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
EXHIBIT NO. DESCRIPTION OF EXHIBIT
3.1 Articles of Incorporation of
the Registrant, as amended.
3.2 By-laws of the Registrant,
as amended.
27 Financial Data Schedules.
b) Reports on Form 8-K
There were no current reports on Form 8-K filed during the
third quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CT COMMUNICATIONS, INC.
---------------------------------
(Registrant)
/s/ BARRY R. RUBENS
---------------------------------
Barry R. Rubens
Senior Vice President,
Secretary and Treasurer
November 12, 1996
- ----------------------------
Date
(The above signatory has dual responsibility as duly authorized
officer and principal financial and accounting officer of the
registrant.)
EXHIBIT INDEX
Sequential
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
3.1 Articles of Incorporation of
the Registrant, as amended
3.2 By-laws of the Registrant,
as amended.
27 Financial Data Schedules.