FORM 10-Q - DRAFT
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITY EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED June 30, 2000
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, NC 28025
(Address of principal executive offices) (Zip Code)
(704)722-2500
(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.
18,850,650 shares of Common Stock outstanding as of August 1, 2000.
CT COMMUNICATIONS, INC.
INDEX
Page No.
PART I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets --
June 30, 2000 and December 31, 1999 3
Consolidated Statements of Income --
Three and Six Months Ended June 30, 2000 and
1999 5
Consolidated Statements of Cash Flows --
Six Months Ended June 30, 2000 and 6
1999
Consolidated Statements of Comprehensive Income --
Three and Six Months Ended June 30, 2000 and
1999 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 16
PART II. Other Information
Item 4 Submission of Matters To a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
2
PART I. FINANCIAL INFORMATION
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
2000 1999
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 4,953,435 $ 1,561,778
Accounts receivable, net of
allowance for doubtful
accounts of $107,500 16,567,806 14,859,359
Notes receivable 0 1,513,500
Other accounts receivable 995,465 2,260,038
Materials and supplies 3,202,509 2,551,724
Deferred income taxes 154,669 154,669
Prepaid expenses and
other assets 1,422,097 1,097,875
------------ ------------
Total current assets 27,295,981 23,998,943
------------ ------------
Investment securities 69,264,966 81,950,045
Other investments 484,363 9,363
Investments in affiliates 32,419,740 31,683,635
Property and equipment:
Land, buildings and general equipment 44,264,729 38,873,719
Central office equipment 102,731,128 83,054,096
Poles, wires, cables and conduit 100,570,642 95,335,716
Construction in progress 1,147,762 2,426,293
----------- ------------
248,714,261 219,689,824
Less accumulated depreciation 112,059,627 105,514,615
Net property and equipment 136,654,634 114,175,209
----------- ------------
Intangibles, net 6,978,020 5,878,015
------------ ------------
TOTAL ASSETS $273,097,704 $257,695,210
============ ============
See accompanying notes to consolidated financial statements.
-3-
CT COMMUNICATIONS, INC.
Consolidated Balance Sheets, (Continued)
(Unaudited)
June 30, December 31,
2000 1999
----- ----
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Redeemable Preferred Stock $ 12,500 $ 12,500
Accounts payable 14,281,010 6,955,346
Customer deposits and advance billings 2,432,536 2,094,334
Accrued payroll 1,175,646 2,450,067
Income taxes payable 2,387,637 1,019,221
Accrued pension cost 965,352 1,020,639
Other accrued liabilities 1,965,807 2,321,594
------------ -----------
Total current liabilities 23,220,488 15,873,701
------------ -----------
Long-term debt 33,000,000 20,000,000
------------ -----------
Deferred credits and other liabilities:
Deferred income taxes 29,666,814 34,507,475
Investment tax credits 631,868 689,310
Postretirement benefits other than pension 10,490,159 10,551,111
Other 632,794 795,011
------------ ----------
Total deferred credits and other liabilities 41,421,635 46,542,907
Redeemable Preferred Stock:
4.8% series, $100 par value; 5,000 shares
authorized; 1,250 shares issued and
outstanding in 2000 and 1999 112,500 112,500
------------ ----------
Total liabilities 97,754,623 82,529,108
Stockholders' equity:
Preferred Stock not subject to mandatory
redemption:
5% series, $100 par value; 3,356
shares outstanding in 2000 and 1999 335,600 335,600
4.5% series, $100 par value; 614
shares outstanding in 2000 and 1999 61,400 61,400
Common Stock
18,843,678 and 18,760,930 shares
outstanding in 2000 and 1999,
respectively 42,270,297 40,705,827
Other capital 298,083 298,083
Deferred compensation (1,513,218) (1,074,726)
Other accumulated comprehensive income 39,402,571 48,059,889
Retained earnings 94,488,348 86,780,029
------------ ----------
Total stockholders' equity 175,343,081 175,166,102
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $273,097,704 $257,695,210
============ ============
-4-
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
2000 1999 2000 1999
---- ---- ---- ----
Operating revenues: $ 28,867,848 $ 26,101,594 $ 56,810,155 $ 51,433,818
Operating expenses: 24,404,125 20,457,816 47,305,854 40,550,648
-------------- -------------- ------------ ------------
Operating income 4,463,723 5,643,778 9,504,301 10,883,170
Other income (expenses):
Equity in income of
affiliates, net 2,032,406 12,324 3,002,985 79,576
Interest, dividend income
and gain on sale
of investments 2,585,716 10,318,467 5,890,503 12,322,316
Other expenses,
principally interest (864,280) (485,991) (1,405,175) (1,335,150)
------------- ------------- ------------ ------------
Total other income (expenses) 3,753,842 9,844,800 7,488,313 11,066,742
------------- ------------- ------------ -------------
Income before income taxes 8,217,565 15,488,578 16,992,614 21,949,912
Income taxes 3,348,901 6,345,777 6,822,943 8,937,063
------------- ------------- ------------ -------------
Net income 4,868,664 9,142,801 10,169,671 13,012,849
Dividends on preferred stock 6,386 6,577 12,772 13,154
------------- ------------- ------------ -------------
Earnings for common stock 4,862,278 9,136,224 10,156,899 21,949,912
============= ============= ============ =============
Basic earnings per common share $ 0.26 0.49 0.54 0.74
============= ============= =========== =============
Diluted earnings per common share $ 0.26 $ 0.49 $ 0.54 $ 0.70
============= ============= =========== =============
Basic weighted average shares
outstanding 18,839,766 18,688,414 18,813,244 18,663,854
============= ============= ============ =============
Diluted weighted average shares
outstanding 18,972,302 18,782,246 18,940,631 18,781,748
============= ============= ============ =============
See accompanying notes to consolidated financial statements.
-5-
CT COMMUNICATIONS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30,
2000 1999
---- ----
Cash flows from operating activities:
Net income $ 10,169,671 $ 13,012,849
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 8,626,799 7,359,563
Postretirement benefits (60,952) 59,810
Gain on sales of investment
securities (5,490,856) (11,178,155)
Undistributed income of affiliates (2,986,630) (79,576)
Deferred income taxes and tax credits (57,442) (57,442)
Changes in operating assets and
Liabilities, net of effects of
acquisitions:
Accounts receivable 1,106,154 (2,742,913)
Materials & supplies (650,785) (297,864)
Other current assets (510,250) 672,448
Accounts payable 6,551,938 3,475,269
Customer deposits and advance
billings 338,202 534,298
Accrued liabilities (1,580,555) 275,495
Income taxes payable 1,368,416 4,709,755
------------ -----------
Net cash provided by operating activities 16,823,710 15,743,537
------------ -----------
Cash flows from investing activities:
Capital expenditures, net (30,003,629) (12,518,658)
Purchase of investments in affiliates (248,495) (1,317,412)
Purchase of other investments (475,000) ---
Purchase of investment securities (5,921,694) (5,774,436)
Proceeds from sale of investment
securities 11,107,756 12,850,696
Partnership capital distribution 1,990,426 1,955,460
Acquisitions, net of cash (794,454) ---
Net cash used in investing activities (24,345,090) (4,804,350)
Cash flows from financing activities:
Proceeds from new debt 13,000,000 ---
Dividends paid (2,461,352) (2,447,311)
Repurchase of Common and Preferred Stock (6,447) (32,544)
Proceeds from Common Stock issuances 380,836 357,888
Net cash provided by (used in) financing activities 10,913,037 (2,121,967)
---------- -----------
Net increase in cash and cash equivalents 3,391,657 8,817,220
Cash and cash equivalents - beginning of period 1,561,778 2,807,887
----------- -----------
Cash and cash equivalents - end of period $ 4,953,435 $ 11,625,107
=========== ===========
See accompanying notes to consolidated financial statements.
-6-
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
------------------- -----------------
2000 1999 2000 1999
---- ---- ---- ----
Net income $ 4,868,664 $ 9,142,801 $ 10,169,671 $ 13,012,849
Other comprehensive
income, net of tax:
Unrealized holding
gains (losses) on
available-for-sale
securities (6,094,000) 2,278,372 (5,135,483) 12,242,721
Less reclassification
adjustment for gains
realized in net
income (1,533,400) (6,626,890) (3,521,835) (6,626,890)
------------ ----------- ----------- -----------
Comprehensive income $ (2,758,736) 4,794,283 $ 1,512,353 $ 18,628,680
============ =========== =========== ===========
See accompanying notes to consolidated financial statements.
-7-
CT COMMUNICATIONS, INC.
(Unaudited)
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, 2000 and 1999, and the results of operations for the three
and six months then ended and cash flows for the six months then ended.
These financial statements should be read with the Company's 1999
Annual Report on Form 10-K and do not include all disclosures
associated with annual financial statements.
2. In certain instances, amounts previously reported in the 1999
consolidated financial statements have been reclassified to conform
with the 2000 consolidated financial statements presentation. Such
reclassifications have no effect on net income or retained earnings as
previously reported.
3. The results of operations for the six months ended June 30, 2000 and
1999 are not necessarily indicative of the results to be expected for
the full year.
4. All common stock share amounts have been adjusted to reflect the
conversion of each share of the Registrant's Voting Common Stock to
4.4 shares Common Stock and each share of the Registrant's Class B
Nonvoting Common Stock to 4.0 shares of the Registrant's Common Stock,
effective January 28, 1999, as well as a 2-for-1 stock dividend paid
on April 5, 2000.
5. The following is a summary of common stock transactions during the
six months ended June 30, 2000.
Shares Value
------ -----
Outstanding at December 31, 1999.... 18,760,930 $40,705,827
Purchase of common stock.... (10,874) (233,472)
Issuance of common stock.... 93,622 1,797,942
---------- --------------
Outstanding at June 30, 2000.... 18,843,678 $42,270,297
========== ==============
Basic Diluted
Weighted average shares outstanding ----- -------
for the six months ended
June 30, 2000 18,813,244 18,940,631
6. SECURITIES AVAILABLE-FOR-SALE
The amortized cost, gross unrealized holding gains, gross unrealized
holding losses and fair value for the Registrant's investments by
major security type and class of security at June 30, 2000 and
December 31, 1999 were as follows:
June 30, 2000
-------------
Securities Amortized Gross Unrealized Gross Unrealized Fair
Available for Sale Cost Holding Gains Holding Losses Value
Certificate of Deposit $ 101,422 $ -- $ -- $ 101,422
Equity Securities 7,832,831 61,996,476 (564,341) 69,264,966
---------- ------------ ------------ -----------
Total $7,934,253 $ 61,996,476 $ (564,341) $69,366,388
========== ============ ============ ===========
December 31, 1999
-----------------
Securities Amortized Gross Unrealized Gross Unrealized Fair
Available for Sale Cost Holding Gains Holding Losses Value
Certificate of Deposit $ 124,208 $ -- $ -- $ 124,208
Equity Securities 7,019,143 75,152,748 (221,846) 81,950,045
---------- ------------ ------------ -----------
Total $7,143,351 $ 75,152,748 $ (221,846) $82,074,253
========== ============ ============ ===========
-8-
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In the six months ended June 30, 2000, the Registrant sold 125,000 shares of
ITC^Deltacom, Inc. ("ITC^DeltaCom") common stock and 45,000 shares of Illuminet
Holdings, Inc. ("Illuminet") common stock for a pre-tax gain of $5.6 million.
As of June 30, 2000, the Registrant owned approximately 830,000 shares of
ITC^DeltaCom common stock and over 880,000 shares of Illuminet common stock.
7. INVESTMENTS IN AFFILIATED COMPANIES
June 30, 2000 December 31, 1999
------------- -----------------
Equity Method:
Palmetto MobileNet, L.P. $12,848,421 $11,678,889
Wireless One of NC, LLC 8,731,963 8,613,074
Access On 13,545 41,016
BellSouth Carolinas PCS, LP - -
Cost Method:
ITC Holding Company 2,215,534 2,724,129
Maxcom
Telecomunicaciones, S.A. de C.V. 8,610,277 8,610,277
Other - 16,250
----------- -----------
TOTAL $32,419,740 $31,683,635
=========== ===========
8. LONG-TERM DEBT
Long-term debt consists of the following:
The Registrant has a $60.0 million line of credit with interest at LIBOR
plus a spread based on the Registrant's ratio of debt to EBITDA. The
interest rate on June 30, 2000 was 7.27%. The credit facility provides for
quarterly payments of interest until maturity on December 31, 2003. The
Registrant entered into an interest rate swap transaction to fix $10.0
million of the outstanding principal at a rate of 5.9% plus a spread,
currently 0.5%. There was $33.0 million outstanding under this line of
credit at June 30, 2000. The Registrant also has two lines of credit for
$5.0 million each. As of June 30, 2000, the Registrant had no amounts
outstanding under these credit lines.
9 RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 requires that
all derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period in
current operations or other comprehensive income, depending upon whether a
derivative is designated as part of a hedge transaction and, if it is, the
type of hedge transaction. The effective date for SFAS No. 133 is for
fiscal years beginning after June 15, 2000, though earlier adoption is
encouraged and retroactive application is prohibited. This means that the
standard must be adopted by us no later than January 1, 2001. We anticipate
that, due to limited use of derivative instruments, the adoption of SFAS
No. 133 will not have a material impact on our consolidated financial
statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements" which sets forth guidelines for accounting and disclosures
related to revenue recognition. SAB No. 101 does not require registrants
that have not applied this accounting to restate prior financial
statements, provided they report a change in accounting principle in
accordance with Accounting Principles Board Opinion No. 20, "Accounting
Changes," no later than the first fiscal quarter of the fiscal year
beginning after December 15, 1999. In March 2000, the Securities and
Exchange Commission issued Staff Accounting Bulletin No. 101A, "Amendment:
Revenue Recognition in Financial Statements" ("SAB 101A"). SAB 101A delays
the implementation of SAB 101 by one quarter ending June 30, 2000 for
registrants with fiscal years that begin between December 16, 1999 and
March 15, 2000. We anticipate that the adoption of SAB No. 101 will not
have a material impact on our consolidated financial statements.
-9-
10. SEGMENT INFORMATION
The Registrant has defined and reports five segments as follows: the
incumbent local exchange carrier ("CLEC"), the competitive local exchange
carrier ("CLEC), long distance services ("LD"), the internet service
provider ("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 Registrant evaluates performance based
on operating profit before other income/(expenses) and income taxes.
Intersegment revenues and expenses are excluded for purposes of calculating
earnings before interest, taxes, depreciation, and amortization ("EBITDA")
and segment operating profit/(loss). Selected data by business segment for
the three and six months ended June 30, 2000 and 1999, is as follows:
Three Months ended June 30, 2000 ILEC CLEC LD ISP DCS OTHER TOTAL
-------------------------------------------------------------------------------------------------
External revenues $ 20,390,780 $ 1,429,098 $ 3,458,020 $ 1,692,445 $ 1,785,005 $ 112,500 $ 28,867,848
Intersegment revenues 1,386,835 - - - 14,749 - 1,401,584
External expenses 10,428,784 3,238,342 1,978,716 1,805,211 2,201,059 167,498 19,819,610
Intersegment expeenses 93,932 28,927 715,688 542,477 20,560 - 1,401,584
Depreciation and amortization 3,679,856 265,012 263,027 357,690 13,634 5,296 4,584,515
--------------------------------------------------------------------------------------------------
Segment operating proft/(loss) $ 7 ,575,043 $ (2,103,183) $ 500,589 $(1,012,933) $ (435,499) $ (60,294) $ 4,463,723
--------------------------------------------------------------------------------------------------
Segment Assets $ 138,895,998 $ 11,745,442 $ 5,729,010 $ 8,332,406 $ 796,774 $ 107,598,074 $ 273,097,704
Three Months ended June 30, 1999 ILEC CLEC LD ISP DCS OTHER TOTAL
--------------------------------------------------------------------------------------------------
External revenues $ 18,799,856 $ 680,289 $ 3,610,982 $ 1,427,674 $1,245,293 $ 337,500 26,101,594
Intersegment revenue 1,008,855 - - - 10,708 - 1,019,563
External expenses 10,536,862 802,330 2,179,189 1,335,514 1,626,499 154,253 16,634,647
Intersegment expenses 76,547 9,740 703,857 213,517 15,902 - 1,019,563
Depreciation and amortization 3,278,839 65,524 196,886 230,108 14,955 36,857 3,823,169
--------------------------------------------------------------------------------------------------
Segment operating proft/(loss) $ 5,916,463 $ (197,305) $ 531,050 $ (351,465) $ (401,355) $ 146,390 $ 5,643,778
--------------------------------------------------------------------------------------------------
Segment Assets $ 120,486,039 $ 2,095,570 $ 4,034,807 $ 7,404,041 $ 866,908 $ 77,709,254 $ 212,596,619
Six Months ended June 30, 2000 ILEC CLEC LD ISP DCS OTHER TOTAL
--------------------------------------------------------------------------------------------------
External revenues $ 40,651,235 $ 2,333,816 $ 6,986,091 $ 3,193,016 $ 3,420,997 $ 225,000 $ 56,810,155
Intersegment revenue 2,451,134 - - - 25,623 - 2,476,757
External expenses 21,025,866 5,894,042 3,885,545 3,382,280 4,185,377 305,945 38,679,055
Intersegment expenses 158,320 44,305 1,414,812 822,626 36,694 - 2,476,757
Depreciation and amortization 7,056,331 356,377 516,207 658,941 28,349 10,594 8,626,799
--------------------------------------------------------------------------------------------------
Segment operating proft/(loss) $ 14,861,852 $ (3,960,908) $ 1,169,527 $ (1,670,831) $ (803,800) $ (91,539) $ 9,504,301
--------------------------------------------------------------------------------------------------
Segment Assets $ 138,895,998 $ 11,745,442 $ 5,729,010 $ 8,332,406 $ 796,774 $ 107,598,074 $ 273,097,704
Six Months ended June 30, 1999 ILEC CLEC LD ISP DCS OTHER TOTAL
--------------------------------------------------------------------------------------------------
External revenues $ 37,604,100 $ 1,168,585 $ 7,165,719 $ 2,734,195 $ 2,311,219 $ 450,000 $ 51,433,818
Intersegment revenues 1,929,869 - - - 17,534 - 1,947,403
External expenses 20,769,023 2,124,524 4,241,856 2,570,558 3,085,946 306,371 33,098,278
Intersegment expenses 157,830 9,843 1,373,935 378,072 27,723 - 1,947,403
Depreciation and amortization 6,397,046 112,338 385,228 454,485 29,562 73,711 7,452,370
----------------------------------------------------------------------------------------------------
Segment operating proft/(loss) $ 12,210,070 $ (1,078,120) $ 1,164,700 $ (668,920) $ (814,478) $ 69,918 $ 10,883,170
--------------------------------------------------------------------------------------------------
Segment Assets $ 120,486,039 $ 2,095,570 $ 4,034,807 $ 7,404,041 $ 866,908 $ 77,709,254 $ 212,596,619
-10-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
- ---------------------
Three months ended June 30, 2000 and June 30, 1999
- --------------------------------------------------
Operating revenues increased $2.8 million or 10.6% to $28.9 million
for the three months ended June 30, 2000 when compared to the same period
of 1999.
Excluding intersegment revenues, ILEC revenue was $20.4 million, a
$1.6 million or 8% increase over the same period last year. This increase
was driven by increased demand for local service, increased custom call
feature revenue as a result of telemarketing and sales efforts, and
increased access revenue. Over 7,800 new access lines were connected to the
network since June 30, 1999, bringing the total number of local access
lines in the ILEC's three-county service area to over 120,000. The
Registrant is currently a party to three interconnection agreements that
give other CLEC's access to the Registrant's local telephone service
market. The Registrant has received additional interconnection requests from
eight other CLEC's in 2000. Some or all of these new agreements may be
finalized in 2000. If so, they are expected to provide additional
competition to the ILEC.
CLEC revenue was $1.4 million, a $0.7 million or 110% increase over
the same period last year. This increase was driven by the addition of over
3,800 access lines since June 30, 1999, bringing the total lines in service
to over 6,000. Approximately 1,000 of these lines are located at Concord
Mills Mall in Concord, North Carolina, which opened in late September,
1999. On April 20, 2000 the Board of Directors of the Registrant approved a
recommendation from the Registrant's management to expand the competitive
footprint of the CLEC to include the Greensboro and Raleigh markets. In
addition to these two markets, the CLEC will seek to negotiate "preferred
provider" agreements, similar to the agreement with the Mills Corp. for its
Concord Mills Mall, with developers in other attractive markets within the
Carolinas. Expansion into these markets is projected to begin late in 2000.
The Registrant does not expect to receive significant revenues from this
expansion in 2000. The Registrant is currently party to five
interconnection agreements with other ILEC's to gain access to their local
telephone service market and has requested interconnection agreements with
two other ILEC's in 2000. In July, the Registrant entered into an agreement
with River Park LLC to become the preferred provider of telecommunications
service for the River Park development. River Park is a mixed use
development being built in Mooresville, North Carolina scheduled to be
completed in 3-5 years.
LD revenue was $3.5 million, which is comparable to revenue for the
same period last year. Despite a 12% increase in the number of
pre-subscribed access lines and a corresponding increase in minutes,
revenue has remained flat due to the introduction of new, more competitive
LD price plans in the fourth quarter of 1999. These plans have resulted in
a decline in the average revenue per minute. The Registrant expects LD
revenue to begin to increase gradually as usage by existing customers and
the number of customers increase.
ISP revenue was $1.7 million, a $0.3 million or 19% increase over the
same period last year. This increase was driven by an increase in the
number of dial-up, web hosting, dedicated high speed, and digital
subscriber line (DSL) customers. There were approximately 18,800 ISP
customers at June 30, 2000, compared to approximately 14,500 at June 30,
1999.
DCS revenue was $1.8 million, a $0.5 million or 43% increase over the
same period last year. This increase was driven by the addition of
approximately 3,700 subscribers since June 30, 1999, bringing the total
number of subscribers to approximately 12,800.
-11-
Operating expenses, exclusive of depreciation and amortization,
increased $3.2 million or 19% to $19.8 million for the three months ended
June 30, 2000 when compared to the same period of 1999.
Excluding intersegment expenses, ILEC operating expenses were $10.4
million, which is comparable to expenses for the same period last year.
CLEC operating expenses were $3.2 million, a $2.4 million or 304%
increase over the same period last year. This increase was mainly due to
the CLEC expansion program described above. These expenses are being funded
primarily through cash flows from operations, existing cash, cash
equivalents and short-term investments, sales of investment securities, and
the available lines of credit.
LD operating expenses were $2.0 million, a $0.2 million or 9% decrease
over the same period last year. This decrease was mainly due to a decline
in carrier transport and termination expense due to lower rates on
negotiated contracts.
ISP operating expenses were $1.8 million, a $0.5 million or 35%
increase over the same period last year. This increase was mainly due to
the increase in ISP customers and additional personnel.
DCS operating expenses were $2.2 million, a $0.6 million or 35%
increase over the same period last year. This increase was mainly due to
the increase in DCS subscribers.
Depreciation and amortization expense increased $0.8 million or 20% to
$4.6 million for the three months ended June 30, 2000 when compared to the
same period of 1999. This increase reflects an increase in depreciable
assets.
Other income (expenses) decreased $6.1 million when compared to the
same period last year. This decrease was primarily due to:
o a $2.7 million pre-tax gain from the sale of 30,000 shares of
ITC^DeltaCom stock and 45,000 shares of Illuminet stock. This
represents a decrease of $7.7 million in pre-tax gains when
compared to the same period last year. At June 30, 2000, the
Company owned over 830,000 shares of ITC^DeltaCom and over
880,000 shares of Illuminet,
o a $0.4 million increase in other expenses primarily due to
higher interest expense in the period,
Partially offset by
o An increase in income from affiliates of $2.0 million due to
higher Palmetto MobileNet cellular partnership
earnings.
Income taxes decreased $3.0 million or 47% to $3.3 million over the
same period last year due primarily to the decrease in taxable income of
$7.3 million attributable to the lower sales of investment securities
during the three months ended June 30, 2000 when compared to the same
period last year.
-12-
Six months ended June 30, 2000 and June 30, 1999
- ------------------------------------------------
Operating revenues increased $5.4 million or 11% for the six months
ended June 30, 2000 when compared to the same period of 1999.
Excluding intersegment revenues, ILEC revenue was $40.7 million, a
$3.0 million or 8% increase over the comparable period ending on June 30,
1999, primarily resulting from increased access revenue. The two primary
factors behind increased access revenue are an increase in minutes and an
increase in local revenue based on access line growth of 7% from June 30,
1999 to June 30, 2000. Custom call features revenue increased 27% due to
increased telemarketing and sales efforts. Higher equipment sales also
contributed to the increase.
CLEC operating revenues were $2.3 million, representing a $1.2 million
or 100% increase over the same period last year. The increase is due to the
additional CLEC access lines placed in service during the past twelve
months
LD revenue was $7.0 million, which is comparable to revenue for the
same period last year. Despite the increase in the number of pre-subscribed
access lines and a corresponding increase in minutes, revenue has remained
flat due to the introduction of new, more competitive LD price plans in the
fourth quarter of 1999. These plans have resulted in a decline in the
average revenue per minute. The Registrant expects LD revenue to begin
increasing gradually as usage by existing customers and the number of
customers increases.
ISP contributed $3.2 million to the six months ended June 30, 2000, an
increase of $0.5 million or 17% over the same period last year. This
increase was driven by an increase in customers across all service
offerings within the segment. 1,845 customers were added in February 2000
through the acquisition of Internet of Concord and approximately 900
customers were added in September 1999 through the acquisition of Catawba
Valley Internet Partnership.
DCS contributed $3.4 million to revenue, a $1.1 million or 48%
increase over last year due to the increased number of customers.
Operating expenses, exclusive of depreciation and amortization,
increased $5.6 million or 17% for the six months ended June 30, 2000 when
compared to the same period of 1998.
Excluding intersegment expenses, ILEC expenses were $21.0 million, a
$.2 million or 1% increase over the comparable period ending on June 30,
1999. This increase was mainly due to increased headcount.
CLEC operating expenses were $5.9 million compared with $2.1 million
during the same period last year. CLEC operating expenses have risen
significantly in 2000 due to the CLEC expansion program described above.
These expenses are expected to be funded primarily through cash flows from
operations, existing cash, cash equivalents and short-term investments,
sales of investment securities, and the available lines of credit.
LD operating expenses were $3.9 million, a $0.4 million or 8% decrease
over the same period last year. This decrease was mainly due to a decline
in carrier transport and termination expense due to lower rates on negotiated
contracts.
ISP operating expenses were $3.4 million, a $0.8 million or 32%
increase over the same period last year. This increase was mainly due to
the increase in ISP customers and additional personnel.
-13-
DCS operating expenses were $4.2 million, a $1.1 million or 36%
increase over the same period last year. This increase was mainly due to
the increase in DCS subscribers.
Depreciation expense increased $1.2 million or 16% to $8.6 million for
the six months ended June 30, 2000 when compared to the same period of
1999. This increase reflects an increase in the depreciable assets.
Other income (expenses) decreased $3.6 million when compared to the
same period in the prior year. This decrease results from the following:
o $5.6 pretax income from sales of ITC^DeltaCom and Illuminet stock in
2000 compared with $11.5 pretax income from sales of
ITC^DeltaCom in 1999,
o Higher other expenses, primarily due to higher interest expense
in 2000,
partially offset by
An increase in income from affiliates due to higher Palmetto MobileNet
cellular partnership earnings, $3.2 million for the six months
ended June 3, 2000, partially offset by small losses from the other
equity investments.
Liquidity and Capital Resources
- -------------------------------
The liquidity of the Registrant decreased during the six-month period
ended June 30, 2000. Current assets exceeded current liabilities by $4.1
million at June 30, 2000. In comparison, current assets exceeded current
liabilities by $8.1 million at December 31, 1999.
Current assets increased by $3.3 million when compared to December 31,
1999. This increase is primarily due to increased cash and cash equivalents
of $3.4 million due to sales of ITC^DeltaCom and Illuminet stock and
increased accounts receivable of $1.7 million attributable to increased
revenues. These increases were offset in part by a decrease in other
accounts receivable of $1.3 million due to the collection of outstanding
receivables from Maxcom Telecomunicaciones, S.A. de C.V. ("Maxcom") and
$1.5 million due to collection of outstanding notes receivable.
Current liabilities increased by $7.3 million from December 31, 1999
to June 30, 2000. This increase is primarily attributable to increases in
accounts payable of $7.3 million due to timing of capital expenditures and
increased income taxes payable of $1.4 million due to taxes accrued on the
sale of ITC^DeltaCom and Illuminet shares. These increases were offset in
part by a decrease in accrued payroll of $1.3 million due to bonus payouts.
The Registrant's principal sources of liquidity were cash provided by
operations of $16.8 million, proceeds from the sale of investment
securities of $11.1 million, and proceeds from an increase in long-term
debt of $13.0 million. Other sources of liquidity were proceeds from
partnership capital distributions of $2.0 million and proceeds from
issuances of common stock of $0.4 million.
Uses of cash during the period included capital expenditures primarily
for the expansion of CLEC operations of $30.0 million, purchase of
investment securities of $5.9 million, purchase of investments in
affiliates and other investments of $.7 million, payment of dividends of
$2.5 million, and the acquisition of Internet of Concord for $0.8 million.
14
At June 30, 2000, the fair market value of the Registrant's investment
securities was $69.3 million, all of which could be pledged to secure
additional borrowing or sold, if needed for liquidity purposes. The
Registrant has an unsecured revolving credit facility with a syndicate of
banks for $60.0 million, of which $33.0 million was outstanding on June 30,
2000. The interest rate on the credit facility is variable based on LIBOR
plus a spread based on the Registrant's ratio of debt to EBITDA. The
interest rate on June 30, 2000 was 7.27%. In addition, the Registrant has a
$5.0 million revolving credit facility with First Charter National Bank at
a variable interest rate based on LIBOR plus 1.25%. At June 30, 2000, there
were no amounts outstanding under this facility.
-14-
The Registrant also has a $5.0 million revolving credit facility with
Rural Telephone Finance Corporation at an interest rate not to exceed a
specified base rate plus 1.5%. At June 30, 2000, there were no amounts
outstanding under this facility.
The Registrant anticipates that all of the capital requirements in
2000 associated with its construction program, expansion of its CLEC
operations, payments associated with long-term debt and investments as
summarized above will be provided by cash flows from operations, existing
cash, cash equivalents and short-term investments, sales of investment
securities, and the available lines of credit.
In July the Registrant announced its intention to partition its
predefined area of the BellSouth Mobility DCS Partnership. In this
agreement, which will likely take effect in the first quarter of 2001, the
Registrant will acquire 47 cell sites, approximately 9,000 subscribers and
a license for spectrum for three and a half counties north of Charlotte,
NC. This partitioned area contains a population of approximately 440,000
people. The cost of partitioning is estimated to be approximately $20
million at the effective time of partitioning. The Registrant currently
plans to fund this purchase through a combination of borrowings under
existing or new credit facilities and the sale of investment securities.
While the Registrant will have ownership of the assets and customers within
its partitioned area, it will remain part of the BellSouth partnership and
will remain subject to certain conditions of the BellSouth partnership.
These conditions include certain branding requirements, offering
partnership service plans and adherence to partnership technical and
customer care standards.
Cautionary Note Regarding Forward-Looking Statements
- ----------------------------------------------------
The foregoing discussion contains "forward-looking statements," as
defined in Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, about the Registrant that are based on the
beliefs of management, as well as assumptions made by, and information
currently available to management. Management has based these
forward-looking statements on its current expectations and projections
about future events and trends affecting the financial condition and
operations of the Registrant's business. These forward-looking statements
are subject to certain risks and uncertainties that could cause actual
results to differ materially from those reflected in the forward-looking
statements.
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 creased by the
Telecommunications Act of 1996, and related state and federal legislation
and regulations, (2) the Registrant's ability to recover the substantial
costs to be incurred in connection with the implementation of its various
new businesses, (3) 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, (4) the Registrant's ability to
effectively manage rapid changes in technology, and (5) the Registrant's
ability to effectively respond to the actions of its competitors.
The words and phrases such as "expects," "estimates," "intends,"
"plans," "believes," "projection," "will continue" and "is anticipated" are
intended to identify forward-looking statements. In making forward-looking
statements, the Registrant claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995. The Registrant undertakes 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.
-15-
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Registrant has an unsecured revolving credit facility with a
syndicate of banks for $60.0 million of which $33.0 million was outstanding
on June 30, 2000. The interest rate on the credit facility is variable
based on LIBOR plus a spread based on the Registrant's ratio of debt to
EBITDA. The interest rate was 7.27% on June 30, 2000. The Registrant
entered into an interest rate swap transaction to fix $10.0 million of the
outstanding principal at a rate of 5.9% plus a spread, currently 0.5%. The
interest rate swap will protect the Registrant against an upward movement
in interest rates, but subjects the Registrant to above market interest
costs if interest rates decline. Management believes that reasonably
foreseeable movements in interest rates will not have a material adverse
effect on the Registrant's financial condition or operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
An Annual Meeting of Shareholders was held on April 20, 2000.
All directors were re-elected for the terms set forth below.
Proxies were solicited for the following matters:
(1) To elect a Board of Directors
Three Directors for a three-year term expiring in 2003
For Abstain
Michael R. Coltrane 7,860,478 2,832
Samuel E. Leftwich 7,848,646 14,664
Jerry H. McClellan 7,848,646 14,664
(2) To ratify the action of the Board of Directors in selecting
KPMG LLP as independent public accountants to audit the books
of the Corporation for the year.
For Abstain
7,833,659 29,651
Item 5. Other Information
None
-16-
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
Exhibit No. Description of Exhibit
---------- ----------------------
11 Computation of Earnings per Share
27 Financial Data Schedule
(B) Reports on Form 8-K
None
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/ Amy M. Justis
- ----------------------------------
Amy M. Justis
Vice President and
Chief Accounting Officer
August 14, 2000
- -----------------------------------
Date
(The above signatory has dual responsibility as duly authorized officer and
principal accounting officer of the Registrant.)
-17-
EXHIBIT INDEX
Exhibit No. Description
- ----------- ------------
11 Computation of Earnings per Share
27 Financial Data Schedule
-18-