SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For Quarter ended December 31, 1996.
Commission File Number 0-13627.
CTC COMMUNICATIONS CORP.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2731202
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
360 Second Avenue, Waltham, Massachusetts 02154
(Address of principal executive offices) (Zip Code)
(617) 466-8080
(Registrant's telephone number including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the Issuer's
classes of Common Stock, as of the latest practicable date:
As of February 4, 1997, 9,611,429 shares of Common Stock,
par value $.01 per share, were outstanding.
CTC COMMUNICATIONS CORP.
FORM 10-Q
INDEX
Part I FINANCIAL STATEMENTS PAGE NO.
Item 1. Financial Statements
Condensed Balance Sheets
as of December 31 and March 31, 1996 3
Condensed Statements of Income
Three Months Ended December 31, 1996 and 1995 4
Condensed Statements of Income
Nine Months Ended December 31, 1996 and 1995 5
Condensed Statements of Cash Flows
Nine Months Ended December 31, 1996 and 1995 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
Part II OTHER INFORMATION
Item 1. Legal Proceedings Inapplicable
Item 2. Changes in Securities 10
Item 3. Default Upon Senior Securities Inapplicable
Item 4. Submission of Matters to a
Vote of Security Holders Inapplicable
Item 5. Other Information Inapplicable
Item 6. Exhibits and Reports on Form 8-K
The following exhibits are included herein:
(3.1) Restated Articles of Organization,
as amended
(11) Statements Regarding Computation
of Per Share Earnings
Three Months and Nine Months ended
December 31, 1996 and 1995
The Company did not file any reports on Form 8-K during the
three months ended December 31, 1996.
2
CTC COMMUNICATIONS CORP.
CONDENSED BALANCE SHEETS
December 31, March 31,
1996 1996
--------------- --------------
ASSETS
Current Assets
Cash and cash equivalents $ 4,661,663 $ 3,941,876
Accounts receivable, net 9,382,002 6,557,229
Inventories 1,600 25,190
Prepaid expenses and other current assets 692,785 365,699
------------- -------------
Total Current Assets $ 14,738,050 $ 10,889,994
Furniture, Fixtures and Equipment 6,706,987 6,046,493
Less accumulated depreciation (5,329,755) (4,822,755)
------------- -------------
Total Equipment 1,377,232 1,223,738
Deferred tax asset 277,000 277,000
Other assets 114,635 118,485
------------- -------------
Total Assets $ 16,506,917 $ 12,509,217
============= =============
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 1,378,874 $ 1,176,804
Accrued salaries and related taxes 2,163,466 1,828,288
Deferred revenue 6,352 9,302
Customer deposits 2,220 0
------------- -------------
Total Current Liabilities 3,550,912 3,014,394
Stockholders' Equity
Common stock 96,109 95,841
Additional paid in capital 4,703,888 4,644,988
Retained-earnings 8,291,833 4,889,819
------------- -------------
13,091,830 9,630,648
Amounts due from stockholders (135,825) (135,825)
------------- -------------
Total Stockholders' Equity 12,956,005 9,494,823
------------- -------------
Total Liabilities and
Stockholders' Equity $ 16,506,917 $ 12,509,217
============= =============
The accompanying notes are an integral part of
these financial statements.
3
CTC COMMUNICATIONS CORP.
CONDENSED STATEMENTS OF INCOME
Three Months Ended
December 31, December 31,
1996 1995
------------- -------------
Revenue
Network service commission income $ 7,265,608 $ 7,003,197
Resale product usage income 2,928,179 1,323,601
------------- -------------
10,193,787 8,326,798
Costs and expenses
Cost of resale product 2,261,625 1,049,858
Selling, general and administrative expenses 6,000,420 5,334,676
------------- -------------
8,262,045 6,384,534
------------- -------------
Income from operations 1,931,742 1,942,264
Other
Interest income 48,126 49,727
Interest expense (3,237) (34)
Other 2,369 43
------------- -------------
47,258 49,736
------------- -------------
Income before income taxes 1,979,000 1,992,000
Provision for income taxes 820,000 817,000
------------- -------------
Net income $ 1,159,000 $ 1,175,000
============= =============
Net income per common share
Primary $ 0.11 $ 0.11
============= =============
Fully diluted $ 0.11 $ 0.11
============= =============
Weighted average number of common shares
Primary 10,705,803 10,672,928
============= =============
Fully diluted 10,705,803 10,672,928
============= =============
The accompanying notes are an integral part of
these financial statements.
4
CTC COMMUNICATIONS CORP.
CONDENSED STATEMENTS OF INCOME
Nine Months Ended
December 31, December 31,
1996 1995
------------- -------------
Revenue
Network service commission income $ 20,841,300 $ 19,759,276
Resale product usage income 7,977,015 3,668,316
------------- -------------
28,818,315 23,427,592
Costs and expenses
Cost of resale product 6,094,038 2,893,855
Selling, general and administrative expenses 17,057,826 15,920,994
------------- -------------
23,151,864 18,814,849
------------- -------------
Income from operations 5,666,451 4,612,743
Other
Interest income 133,632 117,299
Interest expense (9,643) (604)
Other 10,774 9,162
------------- -------------
134,763 125,857
------------- -------------
Income before income taxes 5,801,214 4,738,600
Provision for income taxes 2,399,200 1,925,850
------------- -------------
Net income $ 3,402,014 $ 2,812,750
============= =============
Net income per common share
Primary $ 0.31 $ 0.27
============= =============
Fully diluted $ 0.31 $ 0.27
============= =============
Weighted average number of common shares
Primary 10,836,112 10,487,978
============= =============
Fully diluted 10,851,605 10,529,669
============= =============
The accompanying notes are an integral part of
these financial statements.
5
CTC COMMUNICATIONS CORP.
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended
December 31, December 31,
1996 1995
------------- -------------
OPERATING ACTIVITIES
Net Income $ 3,412,014 $ 2,812,750
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 507,000 439,000
Changes in noncash working capital items:
Accounts receivable (2,824,773) (2,375,672)
Inventories 23,590 10,322
Other current assets (327,086) (161,045)
Other assets 3,850 3,600
Accounts payable 202,070 434,980
Accrued liabilities 335,178 843,352
Accrued taxes 0 (372,494)
Deferred revenue (2,950) 0
Customer deposits 2,220 0
------------- -------------
Net cash provided by operating activities 1,321,113 1,634,793
INVESTING ACTIVITIES
Additions to equipment (660,494) (377,810)
------------- -------------
Net cash used in investing activities (660,494) (377,810)
FINANCING ACTIVITIES
Proceeds from the issuance of common stock 59,168 71,217
Dividends Paid 0 (840)
------------- -------------
Net cash used by financing activities 59,168 70,377
Increase in cash 719,787 1,327,360
Cash at beginning of year 3,941,876 2,390,546
------------- -------------
Cash and cash equivalents at end of period $ 4,661,663 $ 3,717,906
============= =============
The accompanying notes are an integral part
of these financial statements.
6
CTC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying condensed financial statements have been prepared
in accordance with the instructions to Form 10-Q and do not include
all the information and footnote disclosures required by generally
accepted accounting principles for complete financial statements.
In the opinion of management all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation have been
included. Operating results for the three and nine months ended
December 31, 1996 are not necessarily indicative of the results
that may be expected for the year ending March 31, 1997. These
statements should be read in conjunction with the financial
statements and related notes included in the Company's Annual
Report on Form 10-K for the year ended March 31, 1996.
NOTE 2: CASH DIVIDENDS
The Company has not paid cash dividends during the period
presented.
NOTE 3: COMMITMENTS AND CONTINGENCIES
The Company is party to suits arising in the normal course of
business which either individually or in the aggregate are not
material.
NOTE 4. COMMON STOCK TRANSACTIONS SUBSEQUENT TO SEPTEMBER 30, 1996
Through February 4, 1997, 10,274 shares of Common Stock were issued
as a result of employees exercising outstanding stock options.
NOTE 5. NET INCOME PER SHARE
Net income per share is computed based on the weighted average
number of shares of common stock and, if dilutive, common stock
equivalent shares outstanding during the period. Common stock
shares result from the assumed exercise of common stock options
using the treasury stock method.
7
Part I
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Financial Statements and Notes set forth elsewhere in this
Report.
RESULTS OF OPERATIONS - THREE MONTHS AND NINE MONTHS ENDED
DECEMBER, 31 1996 AS COMPARED TO THE THREE MONTHS AND NINE MONTHS
ENDED DECEMBER 31, 1995.
Total revenues for the third quarter of Fiscal 1997 increased 22%
to $10,194,000 from $8,327,000 for the same period for the
preceding year (Fiscal 1996). Network service commission income,
which represents fees earned by the Company in its capacity as an
agent for various local and long distance telephone companies,
increased 4% to $7,266,000 for the three months ended December
31, 1996 from $7,003,000 for the third quarter of Fiscal 1996.
Resale product usage income, which represents the gross billings
to commercial accounts on the Company's long distance and
Internet access networks, increased 121% to $2,928,000 from
$1,324,000 for the same period of the preceding fiscal year.
Total revenues for the nine month period ended December 31, 1996
increased 23% to $28,818,000 from $23,428,000 for the same period
of Fiscal 1996. Network service commission income increased 5%
to $20,841,000 from $19,759,000 for the same period of the
preceding fiscal year. For the nine month period, the Company
recognized resale product usage income of $7,977,000 as compared
to $3,668,000 for the same period of Fiscal 1996, an increase of
117%.
Network service commission income increased 4% and 5%,
respectively, for the three and nine months ended December 31,
1996, as compared to the same periods of the prior fiscal year.
In both periods there was a sharp increase in the development of
new customer relationships, as well as substantial growth in unit
sales. These increases were mitigated substantial decreases in
certain fees and commissions payable under the Company's 1996
NYNEX Sales Agency Contract, which is adjusted annually. The
recently negotiated 1997 Sales Agency Contract resulted in no
significant changes in overall commission rates from 1996 levels.
Accordingly, anticipated increases in unit sales are expected to
result in increases in revenue during calendar 1997.
8
For the quarter ended December 31, 1996, resale product usage
income included revenues derived from the reselling of Internet
access charges, as well as long distance services. The Company
intends to further leverage its customer relationships by
offering additional telecommunications products, including frame
relay, wireless services and pagers in subsequent quarters.
Selling, general, and administrative expenses increased 12% to
$6,000,000 for the third quarter of Fiscal 1997 as compared to
$5,335,000 for the third quarter of Fiscal 1996. For the nine
month period ended December 31, 1996, selling, general and
administrative expenses increased 7% to $17,058,000, as compared
to $15,921,000 for the same period of the preceding fiscal year.
These increases are primarily attributable to the increases in
the variable sales commission and bonus expenses incurred in
connection with the increases in revenues. In addition, the
Comany has increased the number of sales offices, particularly in
the Northeast, and hired additional account executives. The
Company also expanded the facilities at several of its existing
sales branches. The Company currently has the office space
capacity to expand its sales force to its goal of approximately
170 account executives by the end of 1997, from its current sales
force of 125. During the same periods, the Company also made
additional investments in its information systems.
Operating income for the third quarter of Fiscal 1997 decreased
to $1,932,000 from $1,942,000 for the same period of Fiscal 1996.
For the nine months ended December 31, 1996, operating income
increased to $5,666,000 from $4,613,000 for the same nine month
period of Fiscal 1996. The Company estimates that it will
utilize an effective tax rate of approximately 41% for the
balance of Fiscal 1997.
The period ended December 31, 1996 marks the fourteenth
consecutive quarter of profits for the Company. Management
believes that its strategy of building long term relationships
and offering additional products to these same customers, when
combined with continuing efforts to control costs, should result
in continued profitability throughout the balance of Fiscal 1997.
9
LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 1996 amounted to $11,187,000, as
compared to $7,876,000 at March 31, 1996, an increase of 42%.
Cash balances at December 31, 1996 totaled $4,662,000.
On September 26, 1996, the Company amended its revolving line of
credit agreement with Fleet Bank, which is available under
certain conditions, to provide for an increase in the credit line
to $5,000,000 from $3,000,000 at the prime rate of interest, with
additional LIBOR pricing options.
The Company presently has no bank debt and expects that the
revolving credit line, together with cash flows from operations,
will be sufficient to meet the cash requirements of the Company
for the next twelve months.
The foregoing statements in Part I Item 2 regarding the Company's
intent to further leverage its customer relationships, its intent
to expand its sales force, its expectation of continued
profitability throughout the remainder of Fiscal 1997, its
expectation of increased network service commission income in
1997 and its ability to meet its cash requirements for the next
12 months are forward looking statements made in good faith
pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. There are several
factors that could cause actual results to differ materially from
those contained in such forward looking statements, including the
Company's inability to hire and retain experienced account
executives and increased competitive pressures from current and
additional suppliers of local and long-distance telephone
services.
Part II
Item 2
(c) During the quarter ended December 31, 1996, the registrant
issued a total of 9,787 shares of common stock for an aggregate
consideration of $12,330.70 pursuant to the exercise of employee
incentive stock options by five employees of the registrant. The
shares were issued in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act of
1933, as amended, as transactions by an issuer not involving a
public offering. The recipients of the securities represented
their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any
distribution thereof and appropriate legends were attached to the
share certificates and stop transfer orders given to the
registrant's transfer agent. All recipients had adequate access
to information regarding the registrant.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
behalf by the undersigned thereunto duly authorized.
CTC COMMUNICATIONS CORP.
Date: February 12, 1997 /s/ ROBERT J. FABBRICATORE
----------------------------
Robert J. Fabbricatore
Chief Executive
Officer
Date: February 12, 1997 /s/ JOHN D. PITTENGER
-----------------------------
John D. Pittenger
Chief Financial
Officer
11