FORM 10-Q
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 September 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.
18,857,713 shares of Common Stock outstanding as of November 1, 2000.
CT COMMUNICATIONS, INC.
INDEX
Page No.
PART I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets --
September 30, 2000 and December 31, 1999 3
Consolidated Statements of Income --
Three and Nine Months Ended September 30, 2000 and
1999 5
Consolidated Statements of Cash Flows --
Nine Months Ended September 30, 2000 and 6
1999
Consolidated Statements of Comprehensive Income --
Three and Nine Months Ended September 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 6. Exhibits and Reports on Form 8-K 17
-2-
PART I. FINANCIAL INFORMATION
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
2000 1999
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 34,175,250 $ 1,561,778
Accounts receivable, net of
allowance for doubtful
accounts of $107,500 17,143,010 14,859,359
Notes receivable --- 1,513,500
Other accounts receivable 465,895 2,260,038
Materials and supplies 3,176,464 2,551,724
Deferred income taxes 154,669 154,669
Prepaid expenses and
other assets 1,181,167 1,097,875
------------ ------------
Total current assets 56,296,455 23,998,943
------------ ------------
Investment securities 36,998,971 81,950,045
Other investments 484,363 9,363
Investments in affiliates 38,132,816 31,683,635
Property and equipment:
Land, buildings and general equipment 46,410,071 38,873,719
Central office equipment 102,432,096 83,054,096
Poles, wires, cables and conduit 102,448,992 95,335,716
Construction in progress 6,672,581 2,426,293
------------ ------------
257,963,740 219,689,824
Less accumulated depreciation 114,880,456 105,514,615
------------ ------------
Net property and equipment 143,083,284 114,175,209
------------ ------------
Intangibles, net 6,769,327 5,878,015
------------ ------------
TOTAL ASSETS $281,765,216 $257,695,210
============ ===========
See accompanying notes to consolidated financial statements.
-3-
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, (Continued)
(Unaudited)
September 30, December 31,
2000 1999
---- -----
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Redeemable Preferred Stock $ 12,500 $ 12,500
Accounts payable 9,063,785 6,955,346
Customer deposits and advance billings 2,014,254 2,094,334
Accrued payroll 1,772,655 2,450,067
Income taxes payable 15,816,875 1,019,221
Accrued pension cost 1,019,339 1,020,639
Other accrued liabilities 2,339,497 2,321,594
------------ ------------
Total current liabilities 32,038,905 15,873,701
------------ ------------
Long-term debt 39,000,000 20,000,000
------------ ------------
Deferred credits and other liabilities:
Deferred income taxes 17,967,708 34,507,475
Investment tax credits 603,146 689,310
Postretirement benefits other than pension 10,475,689 10,551,111
Other 551,686 795,011
------------ ------------
Total deferred credits and other liabilities 29,598,229 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 100,749,634 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
18,857,597 and 18,760,930 shares
outstanding in 2000 and 1999,
respectively 42,472,662 40,705,827
Other capital 298,083 298,083
Deferred compensation (1,224,552) (1,074,726)
Other accumulated comprehensive income 18,477,286 48,059,889
Retained earnings 120,595,103 86,780,029
------------ ------------
Total stockholders' equity 181,015,582 175,166,102
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $281,765,216 $257,695,210
============ ============
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CT COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
2000 1999 2000 1999
---- ---- ---- ----
Operating revenues: $28,640,072 $26,594,439 $85,450,227 $78,028,257
Operating expenses: 25,393,133 20,743,281 72,698,987 61,293,929
----------- ----------- ----------- -----------
Operating income 3,246,939 5,851,158 12,751,240 16,734,328
Other income (expenses):
Equity in income of
affiliates, net 1,557,920 709,034 4,560,905 788,610
Interest, dividend
income and gain on
sale of investments 42,329,635 2,533,344 48,220,138 14,855,660
Other expenses,
principally interest (1,653,017) (593,460) (3,058,192) (1,928,610)
Total other income (expenses) 42,234,538 2,648,918 49,722,851 13,715,660
---------- ---------- ------------ -----------
Income before income taxes 45,481,477 8,500,076 62,474,091 30,449,988
Income taxes 18,147,704 3,485,265 24,970,647 12,422,328
---------- ---------- ----------- -----------
Net income 27,333,773 5,014,811 37,503,444 18,027,660
Dividends on preferred stock 6,386 6,548 19,158 19,702
---------- --------- ---------- -----------
Earnings for common stock 27,327,387 5,008,263 37,484,286 18,007,958
=========== ========= ========== ===========
Basic earnings per
common share $ 1.45 $ 0.27 $ 1.99 $ 0.96
=========== ========== ========== ===========
Diluted earnings per
common share $ 1.44 $ 0.27 $ 1.98 $ 0.96
=========== ========== ========== ===========
Basic weighted average
shares outstanding 18,853,398 18,737,444 18,826,726 18,688,742
=========== ========== ========== ===========
Diluted weighted average
shares outstanding 18,942,032 18,854,438 18,942,034 18,800,938
=========== ========== ========== ===========
See accompanying notes to consolidated financial statements.
-5-
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
2000 1999
---- ----
Cash flows from operating activities:
Net income $ 37,503,444 $ 18,027,660
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 13,464,412 11,517,009
Postretirement benefits (75,422) 50,915
Gain on sales of investment
securities (8,206,690) (13,450,074)
Gain on sale of investments in
affiliate (39,214,000) ---
Undistributed income of affiliates (4,581,672) (788,609)
Deferred income taxes and tax credits (86,164) (86,164)
Changes in operating assets and
Liabilities, net of effects of
acquisitions:
Accounts receivable 1,061,400 (3,173,594)
Materials & supplies (624,740) (334,901)
Other current assets (269,341) 501,849
Accounts payable 1,334,713 (947,401)
Customer deposits and advance
billings (80,080) 481,523
Accrued liabilities (685,028) 1,815,351
Income taxes payable 14,797,654 2,354,691
----------- -----------
Net cash provided by operating activities 14,338,486 15,968,255
----------- -----------
Cash flows from investing activities:
Capital expenditures, net (40,682,659) (20,299,978)
Purchase of investments in affiliates (6,352,956) (1,615,173)
Purchase of other investments (475,000) ---
Purchase of investment securities (6,872,313) (5,754,943)
Proceeds from sale of investment
in affiliate 39,214,000 ---
Proceeds from sale of investment securities 14,415,815 16,954,454
Partnership capital distribution 3,976,852 1,955,460
Acquisitions, net of cash (794,454) ---
----------- ------------
Net cash provided by(used in) investing
activities 2,429,285 (8,760,180)
----------- ------------
Cash flows from financing activities:
Proceeds from credit facility 19,000,000 ---
Dividends paid (3,688,349) (3,667,613)
Repurchase of Common and Preferred Stock (11,561) (42,917)
Proceeds from Common Stock issuances 545,611 652,240
----------- -----------
Net cash provided by (used in) financing
activities 15,845,701 (3,058,290)
----------- -----------
Net increase in cash and cash equivalents 32,613,472 4,149,785
Cash and cash equivalents - beginning of period 1,561,778 2,807,887
----------- -----------
Cash and cash equivalents - end of period $34,175,250 $ 6,957,672
=========== ===========
See accompanying notes to consolidated financial statements.
-6-
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
------------------- -----------------
2000 1999 2000 1999
---- ---- ---- ----
Net income $27,333,773 $5,014,811 $37,503,444 $18,027,660
Other comprehensive income,
net of tax:
Unrealized holding
gains (losses) on
available-for-sale
securities (19,183,349) (124,699) (24,318,832) 12,118,022
Less reclassification
adjustment for gains
realized in net
income (1,741,936) (1,457,927) (5,263,771) (8,084,817)
------------ ---------- ----------- ----------
Comprehensive income $ 6,408,488 $3,432,185 $7,920,841 $22,060,865
=========== ========== ========== ===========
See accompanying notes to consolidated financial statements.
-7-
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
(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 September 30, 2000 and 1999, and the results of
operations for the three and nine months then ended and cash flows
for the nine 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 nine months ended September 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
nine months ended September 30, 2000.
Shares Value
------ -----
Outstanding at December 31, 1999.... 18,760,930 $40,705,827
Purchase of common stock.... (12,095) (286,639)
Issuance of common stock.... 108,762 2,053,474
----------- ------------
Outstanding at September 30, 2000.... 18,857,597 $42,472,662
=========== ============
Basic Diluted
----- -------
Weighted average shares outstanding for the
Nine months ended September 30, 2000 18,826,726 18,942,034
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 September 30, 2000 and
December 31, 1999 were as follows:
September 30, 2000
------------------
Securities Amortized Gross Unrealized Gross Unrealized Fair
Available for Sale Cost Holding Gains Holding Losses Value
- ------------------ ---- ------------- ---------------- -----
Equity Securities $ 8,191,228 $ 29,415,540 $ (607,797) $36,998,971
=========== ============ =========== ===========
December 31, 1999
-----------------
Securities Amortized Gross Unrealized Gross Unrealized Fair
Available for Sale Cost Holding Gains Holding Losses Value
- ------------------ ---- ------------- ----------------- -----
Equity Securities $7,019,143 $ 75,152,748 $ (221,846) $81,950,045
========== ============ ============ ==========
-8-
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------
In the nine months ended September 30, 2000, the Registrant sold 140,000
shares of ITC^Deltacom, Inc. ("ITC^DeltaCom") common stock and 130,000
shares of Illuminet Holdings, Inc. ("Illuminet") common stock for a pre-tax
gain of $5.6 million. As of September 30, 2000, the Registrant owned
approximately 800,000 shares of ITC^DeltaCom common stock and approximately
780,000 shares of Illuminet common stock.
7. INVESTMENTS IN AFFILIATED COMPANIES
September 30, 2000 December 31, 1999
------------------ -----------------
Equity Method:
Palmetto MobileNet, L.P. $12,503,990 $11,678,889
Wireless One of NC, LLC 8,658,289 8,613,074
Other 116,647 41,016
Cost Method:
ITC Holding Company 2,215,534 2,724,129
Maxcom
Telecomunicaciones, S.A. de C.V. 14,638,356 8,610,277
Other - 16,250
----------- -----------
TOTAL $38,132,816 31,683,635
============ ===========
In September 2000, the Registrant sold its 1.96% interest in the BellSouth
Carolinas PCS, L.P., which had zero net book value, for a gain of
$39.2 million.
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 September 30, 2000 was 7.31%. 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 $39.0 million outstanding under this line of
credit at September 30, 2000. The Registrant also has two lines of credit
for $5.0 million each. As of September 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 the Company no later than January 1, 2001. The
Company anticipates that, due to limited use of derivative instruments, the
adoption of SFAS No. 133 will not have a material impact on the
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. The guidelines in SAB No. 101 must be
adopted during the fourth quarter of 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 ("ILEC"), 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 nine months ended September 30, 2000 and 1999, is as follows:
Three Months ended September 30, 2000 ILEC CLEC LD ISP DCS OTHER TOTAL rptd in 3Q
External revenues 20,144,466 938,329 3,478,852 1,874,518 2,091,407 112,500 28,640,072 28,640,072
Intersegment revenues 1,440,662 - - - 14,298 - 1,454,960
External expenses 10,266,811 3,502,971 1,988,977 2,256,729 2,457,140 162,732 20,635,360 20,635,360
Intersegment expenses 92,380 27,305 795,875 518,039 21,361 - 1,454,960
Depreciation and amortization 3,758,344 322,093 303,773 354,636 13,632 5,295 4,757,773 4,757,773
Segment operating proft/(loss) 6,119,311 (2,886,735) 1,186,102 (736,847) (379,365) (55,527) 3,246,939 3,246,939
Segment Assets 141,542,777 13,672,669 5,481,404 8,263,665 810,640 111,994,061 281,765,216 281,765,216
Three Months ended September 30, 1999 ILEC CLEC LD ISP DCS OTHER TOTAL rptd in 3Q
External revenues 19,318,018 650,810 3,658,851 1,490,861 1,363,398 112,501 26,594,439 26,594,439
Intersegment revenues 965,264 - - - 13,176 - 978,440
External expenses 10,087,135 1,364,675 2,080,672 1,347,210 1,627,770 171,180 16,678,642 16,678,642
Intersegment expenses 125,058 24,349 578,433 233,489 17,111 - 978,440
Depreciation and amortization 3,459,019 79,669 216,536 226,505 15,778 67,132 4,064,639 4,064,639
Segment operating proft/(loss) 5,771,864 (793,534) 1,361,643 (82,854) (280,150) (125,811) 5,851,158 5,851,158
Segment Assets 117,592,429 2,999,512 4,277,747 7,679,299 1,144,552 75,765,711 209,459,250 209,459,250
Nine Months ended September 30, 2000 ILEC CLEC LD ISP DCS OTHER TOTAL rptd in 3Q
External revenues 60,795,700 3,272,145 10,464,943 5,067,534 5,512,405 337,500 85,450,227 85,450,227
Intersegment revenues 3,891,796 - - - 39,921 - 3,931,717
External expenses 31,292,678 9,397,013 5,874,522 5,639,009 6,642,517 468,676 59,314,415 59,314,415
Intersegment expenses 250,700 71,610 2,210,687 1,340,665 58,055 - 3,931,717
Depreciation and amortization 10,814,675 678,470 819,980 1,013,577 41,981 15,889 13,384,572 13,384,572
Segment operating proft/(loss) 18,688,347 (6,803,338) 3,770,441 (1,585,052) (1,172,093) (147,065) 12,751,240 12,751,240
Segment Assets 141,542,777 13,672,669 5,481,404 8,263,665 810,640 111,994,061 281,765,216 281,765,216
Nine Months ended September 30, 1999 ILEC CLEC LD ISP DCS OTHER TOTAL rptd in 3Q
External revenues 56,922,118 1,819,395 10,824,570 4,225,056 3,674,617 562,501 78,028,257 78,028,257
Intersegment revenues 2,895,133 - - - 30,710 - 2,925,843
External expenses 30,856,158 3,489,199 6,322,528 3,917,768 4,713,716 477,551 49,776,920 49,776,920
Intersegment expenses 282,888 34,192 1,952,368 611,561 44,834 - 2,925,843
Depreciation and amortization 9,856,065 192,007 601,764 680,990 45,340 140,843 11,517,009 11,517,009
Segment operating proft/(loss) 16,209,895 (1,861,811) 3,900,278 (373,702) (1,084,439) (55,893) 16,734,328 16,734,328
Segment Assets 117,592,429 2,999,512 4,277,747 7,679,299 1,144,552 75,765,711 209,459,250 209,459,250
-10-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
- ---------------------
Three months ended September 30, 2000 and September 30, 1999
- ------------------------------------------------------------
Operating revenues increased $2.0 million or 7.7% to $28.6 million
for the three months ended September 30, 2000 when compared to the same period
of 1999.
Excluding intersegment revenues, ILEC revenue was $20.1 million, a
$0.8 million or 4% 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. Revenues were negatively impacted by
approximately $0.6 million in the quarter by a one-time switching
translation error and an estimated regulatory true up. Over 6,800 new
access lines were connected to the network since September 30, 1999,
bringing the total number of local access lines in the ILEC's three-county
service area to over 122,000. 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 $0.9 million, a $0.3 million or 44% increase over
the same period last year. This increase was driven by the addition of over
4,600 access lines since September 30, 1999, bringing the total lines in
service to over 7,900. Approximately 1,000 of these lines are located at
Concord Mills Mall in Concord, North Carolina, which opened in late
September, 1999. CLEC revenues were negatively impacted in the quarter by
approximately $0.3 million as the Registrant adopted a more conservative
stance by recognizing only 70% of reciprocal compensation revenues. At
September 30, 2000 the Registrant accrued $0.6 million for reciprocal
compensation. 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 market. In
addition to this market, 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 in the 4th
quarter of 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. As of September 30, 2000 the Registrant has signed 10
agreements to become the preferred telecommunications provider for
developments scheduled to be completed over the next 3-5 years amounting to
nearly 7,500 access lines.
LD revenue was $3.5 million, which is comparable to revenue for
the same period last year. Despite a 7% increase in the number of
pre-subscribed access lines and the resulting 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
remain steady.
ISP revenue was $1.9 million, a $0.4 million or 26% 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 18,400 ISP
customers at September 30, 2000, compared to approximately 15,200 at
September 30, 1999.
-11-
DCS revenue was $2.1 million, a $0.7 million or 53% increase over
the same period last year. This increase was driven by the addition of
approximately 4,500 subscribers since September 30, 1999, bringing the
total number of subscribers to approximately 14,200.
Operating expenses, exclusive of depreciation and amortization,
increased $4.0 million or 24% to $20.6 million for the three months ended
September 30, 2000 when compared to the same period of 1999.
Excluding intersegment expenses, ILEC operating expenses were
$10.3 million, which is comparable to $10.1 million for the same period
last year.
CLEC operating expenses were $3.5 million, a $2.1 million or 157%
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 operaticash, 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 4%
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 $2.3 million, a $0.9 million or 68%
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 $2.5 million, a $0.8 million or 51%
increase over the same period last year. This increase was mainly due to
the increase in DCS subscribers.
Depreciation and amortization expense increased $0.7 million or
17% to $4.8 million for the three months ended September 30, 2000 when
compared to the same period of 1999. This increase reflects an increase in
depreciable assets.
Other income (expenses) increased $39.6 million when compared to
the same period of last year. This increase was primarily due to:
o A $39.2 million pre-tax gain from the sale of the Registrant's 1.96%
interest in the BellSouth Carolinas PCS, L.P.,
o a $2.7 million pre-tax gain from the sale of 85,000 shares of Illuminet
stock and 15,000 shares of ITC^DeltaCom compared to $2.3 million
pre-tax gain during the same period of 1999. At September 30, 2000, the
Company owned over 780,000 shares of Illuminet and over 800,000 shares
of ITC^DeltaCom,
o an increase in income from affiliates of $0.8 million due to higher
Palmetto MobileNet cellular partnership earnings,
o offset by higher interest expense due to an increase in outstanding
debt and rising interest rates.
Income taxes increased $14.7 million to $18.1 million due
primarily to the taxes relating to the gain on the sale of the BellSouth
Carolinas PCS, L.P. investment.
-12-
Nine months ended September 30, 2000 and September 30, 1999
Operating revenues increased $7.4 million or 10% for the nine
months ended September 30, 2000 when compared to the same period of 1999.
Excluding intersegment revenues, ILEC revenue was $60.8 million, a
$3.9 million or 7% increase over the comparable period ended on September
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 6% from
September 30, 1999 to September 30, 2000. Custom call features revenue
increased 18% due to increased telemarketing and sales efforts. Higher
equipment sales also contributed to the increase.
CLEC operating revenues were $3.3 million, representing a $1.5
million or 80% 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 $10.5 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 remain steady.
ISP contributed $5.1 million to the nine months ended September
30, 2000, an increase of $0.8 million or 20% 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 $5.5 million to revenue, a $1.8 million or 50%
increase over last year due to the increased number of customers.
Operating expenses, exclusive of depreciation and amortization,
increased $9.5 million or 19% for the nine months ended September 30, 2000
when compared to the same period of 1999.
Excluding intersegment expenses, ILEC expenses were $31.3 million,
a $.4 million or 1% increase over the comparable period ending on
September 30, 1999. This increase was mainly due to increased headcount.
CLEC operating expenses were $9.4 million compared with $3.5
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 $5.9 million, a $0.4 million or 7%
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 $5.6 million, a $1.7 million or 44%
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 $6.6 million, a $1.9 million or 41%
increase over the same period last year. This increase was mainly due to
the increase in DCS subscribers.
Depreciation expense increased $1.9 million or 16% to $13.4
million for the nine months ended September 30, 2000 when compared to the
same period of 1999. This increase reflects an increase in the depreciable
assets.
Other income (expenses) increased $36 million when compared to the
same period in the prior year. This increase results from the following:
o A $39.2 million pre-tax gain from the sale of the Registrant's 1.96%
interest in the BellSouth Carolinas PCS, L.P.,
o $8.3 million pretax income from sales of ITC^DeltaCom and Illuminet
stock in 2000 compared with $13.8 million pretax income from sales
of ITC^DeltaCom in 1999,
o Income from the Palmetto MobileNet cellular partnership of $4.8
million for the nine months ended September 30, 2000 compared with
$3.7 million for the same period in the prior year, and
o Higher other expenses, primarily due to a $0.8 increase in interest
expense during 2000.
Liquidity and Capital Resources
The liquidity of the Registrant increased during the nine-month
period ended September 30, 2000. Current assets exceeded current
liabilities by $24.3 million at September 30, 2000. In comparison, current
assets exceeded current liabilities by $8.1 million at December 31, 1999.
Current assets increased by $32.3 million when compared to
December 31, 1999. This increase is primarily due to a $32.6 million
increase in cash and cash equivalents due primarily to the sale of the
BellSouth Carolinas PCS, L.P. investment and proceeds from sales of
ITC^DeltaCom and Illuminet stock. Accounts receivable increased $2.3
million due to increasing revenues. These increases were offset in part by
a decrease in other accounts receivable of $1.8 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 $16.2 million from December 31,
1999 to September 30, 2000. This increase is primarily attributable to a
$14.8 million increase in income taxes payable caused primarily by the gain
on sale of the BellSouth Carolinas PCS, L.P. investment and an increase in
accounts payable of $2.1 million due to timing of capital expenditures.
These increases were offset in part by a decrease in accrued payroll of
$0.7 million due to bonus payouts.
The Registrant's principal sources of liquidity were cash provided
by operations of $15.0 million, proceeds from sale of the BellSouth
Carolinas PCS, L.P. investment of $39.2 million, proceeds from the
sale of investment securities of $14.4 million, and proceeds from an
increase in long-term debt of $19.0 million. Other sources of liquidity
were proceeds from partnership capital distributions of $3.3 million and
proceeds from issuances of common stock of $0.5 million.
-14-
Uses of cash during the period included capital expenditures
primarily for the expansion of competitive operations of $40.7 million,
purchase of investment securities of $6.9 million, purchase of investments
in affiliates and other investments of $6.8 million, payment of dividends
of $3.7 million, and the acquisition of Internet of Concord for $0.8
million.
At September 30, 2000, the fair market value of the Registrant's
investment securities was $37.0 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 $39.0 million was outstanding on
September 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 September 30, 2000 was 7.31%. 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
September 30, 2000, there were no amounts outstanding under this facility.
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 September 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.
Partition of BellSouth Carolinas PCS, L.P.
In July 2000 the Registrant announced its intention to partition
its predefined area of the BellSouth Carolinas PCS, L.P. In this agreement,
which will likely take effect in the first quarter of 2001, the Registrant
will acquire 47 cell sites, approximately 6,000 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 $18 million to $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 Carolinas PCS, L.P. partnership and will
remain subject to certain conditions of the BellSouth Carolinas PCS, L.P.
partnership. These conditions include certain branding requirements,
offering partnership service plans and adherence to partnership technical
and customer care standards.
-15-
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 caused
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.
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 $39.0 million was outstanding
on September 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 7.31% on September 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.
-16-
PART II. OTHER INFORMATION
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
Current report on Form 8-K filed on September 19, 2000.
-17-
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
November 14, 2000
- --------------------------------
Date
(The above signatory has dual responsibility as duly authorized officer and
principal accounting officer of the Registrant.)
-18-
EXHIBIT INDEX
Exhibit No. Description
---------- -----------
11 Computation of Earnings per Share
27 Financial Data Schedule
-19-