UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1997.
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)
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock.
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
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
IV of this Form 10-K or any amendment to this Form 10-K. [ ]
Based on the closing sale price on June 17, 1997, the aggregate
market value of the voting stock held by non-affiliates of the
Registrant was approximately $55,690,000.
At June 17, 1997, 9,924,152 shares of the Registrant's Common
Stock were outstanding.
PART I
In addition to historical information, this Annual Report
contains forward-looking statements made in good faith by the
Company pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 including, but not
limited to, those statements regarding the Company's intent to
expand its non-facilities based reseller operations, its intent
to expand its sales force, its expectation that commission
payments under its agreement with NYNEX will not be materially
reduced over the remainder of the term of the agreement and the
Company's ability to meet its cash requirements for the next 12
months. The forward-looking statements contained herein 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 might cause such a
difference include, but are not limited to, those discussed in
the section entitled "Risk Factors that May Affect Future
Results" at the end of this Item 1. and in Management's
Discussion and Analysis of Financial Condition and Results of
Operations. Readers are cautioned not to place undue reliance on
these forward-looking statements, which reflect management's
analysis as of the date hereof. The Company undertakes no
obligation to publicly revise these forward-looking statements to
reflect events or circumstances that arise after the date hereof.
ITEM 1. BUSINESS
GENERAL OVERVIEW
CTC Communications Corp. (the "Company") was organized under the
laws of the Commonwealth of Massachusetts under the name
"Computer Telephone Corp." in 1980 and in September 1996, changed
its name to "CTC Communications Corp."
The Company is engaged in the sale of local communication
services under non-exclusive agency agreements with NYNEX (since
1984), Southern New England Telephone (1990), Pacific Bell
Telephone (1990), and Ameritech Corporation (1990), and long
distance services on the networks of Cable and Wireless
Communications, Inc. (1992), Wiltel, Inc. (1993), Frontier
Communications International, Inc. (1995), and IXC Communications
Inc. (1996). In addition, the Company markets Internet access on
behalf of NETCOM On-line Communications Services, Inc., wireless
communications services on the GEOTEK Communications network and
frame relay data services on the Intermedia Communications, Inc.
platform. The Company also markets a variety of specialized
products, including prepaid calling cards, broadcast fax and
conference calling, to its customer base.
Under its agency agreements, the Company acts as a distribution
channel for these companies and markets discount telephone
calling plans, 800 services, Centrex systems, data transport and
long distance services, and performs other management services on
a commission basis. The Company operates under written
2
agreements which are generally for terms of one to three years
and can be canceled by either party on 30 to 60 days notice. The
agreements generally provide for automatic one year renewals
provided certain minimum sales goals are satisfied. The
Company's primary market for the sale of such network services
consist of commercial customers with annual telephone billings
between $10,000 and $250,000.
The Company presently records as network service commission
income the commissions and fees it earns from the Regional Bell
Operating Companies ("RBOCs") and other carriers as an
independent sales agent. The agency agreements with the RBOCs
generally provide for payment of commissions based on unit
product sales, and in some cases, the commission is based on the
actual usage of the network by the customer. In addition, under
contracts with NYNEX and Southern New England Telephone, the
Company is paid residual fees to manage communication networks on
behalf of these carriers. Currently the Company performs account
management services for over 5,000 accounts that annually
generate more than $250 million in telecommunications revenues.
These contracts also provide for bonuses that are based on sales
volume levels or the achievement of certain quality levels.
Effective April 1, 1994, the Company began to record long
distance usage income earned under resale agreements as a
separate revenue category. This income first became significant
to the Company during the fiscal year ended March 31, 1995. In
October 1995, the Company entered into a non-exclusive agreement
with NETCOM On-line Communications, Inc. to resell NETCOM's
Internet access services. The Company offers these Internet
services to its current subscriber base, as well as new
customers, who are targeted as consumers of other
telecommunication services offered by the Company. The revenues
received by the Company from the resale of communications
services are recorded at their retail value with corresponding
expense items for the costs of the services, which include the
costs of billing and collections. It is the Company's strategy
to continue to add additional telecommunications services to this
platform, in which the Company purchases services at wholesale
price levels and markets them to its subscribers at competitive
marked up prices.
In November 1995, the Company initiated its own home page on the
World Wide Web (ctcnet.com) where visitors to the website can
obtain information about the Company and its products, and
general information about the telecommunications industry. The
website also contains an investor relations section which
provides financial information about the Company, as well as the
text of all press releases and the transcript of the Company's
most recent analyst conference call.
In February 1996, the Company entered into a new agency contract
with NYNEX covering the New England and New York marketplaces.
In addition, the Company and NYNEX continue to develop an
electronic bonding project which, upon completion, will provide
3
the Company with access to internal NYNEX databases and systems
associated with customer records, ordering, provisioning, and
repair. This project, when completed, will permit the Company to
provide customer service in a more efficient and cost effective
manner.
In March 1997, the Company entered into a non-exclusive agreement
with Intermedia Communications, Inc. ("ICI") to resell ICI's
frame relay data services, which is a more efficient, cost
effective means of connecting multiple locations. Frame relay is
an important addition to the Company's data network product line
and to the Company's existing extensive customer base of dial-up
and leased line networks.
For the fiscal year ended March 31, 1997, the Company had total
revenues of $40,290,000 of which NYNEX accounted for
approximately $25,193,000 (63%) and the resale of network
services accounted for approximately $11,095,000 (28%).
SALES OFFICES AND MARKETING
The Company maintains its corporate headquarters in Waltham,
Massachusetts, with sales offices strategically located in
Lexington, Springfield, North Attleboro, Marlboro and Braintree,
Massachusetts; Meriden and Fairfield, Connecticut; Bedford, New
Hampshire; Portland, Maine; Colchester, Vermont; New York City,
Long Island, Elmsford, Albany and Kings Park, New York; Columbus,
Ohio; and Los Angeles and Sacramento, California. The Company
believes that its present facilities are adequate for the
foreseeable future.
Sales offices are staffed by full-time Company sales personnel
and are supported by an administrative staff located at the
Company's corporate headquarters. The marketing force is divided
into two basic groups: account executives, who act as outside
sales personnel and are responsible for overall account
management, and the network coordinators, who expedite the
provisioning, service and billing issues for the accounts.
Sales efforts are directed to companies, professional
organizations and others requiring network services such as
discounted calling plans, 800 services, Centrex and data
circuits, long distance services, Internet access, frame relay
data services, and other secondary services. At present, the
Company does not market to residential customers. The typical
customer is a middle market commercial account with approximately
$50,000 in annual telecommunications expenses. This customer
usually does not employ a full time telecommunications manager on
its staff, and utilizes a full array of telecommunication
services.
It is the strategy of the Company to build long-term
relationships with its customers, in order to become the network
provider for as many of the customers' communication needs as
possible.
4
COMPETITION
The Company competes with many other companies selling the same
and similar services. The market for these services is highly
competitive and the Company competes with established companies
with substantially greater personnel, financial and other
resources than those of the Company. The Company's competitors
in the sale of network services include AT&T, MCI, Sprint, other
long line companies, numerous long-distance resellers, by-pass
companies, the Regional Bell Operating Companies, and other
agents. In addition, secondary services such as Internet access,
broadcast fax and conference calling are marketed directly by the
service providers. Although the Company may compete at a scope
and scale disadvantage with these companies, it has been
successful in its marketing efforts as a non-exclusive
independent agent for several of these competing companies in the
marketing of their products as well as a non facilities based
provider of both long distance services and other of its
customers' communication products, by developing long term
relationships with its commercial accounts and providing value
added customer service and support.
EMPLOYEES
At May 31, 1997, the Company employed 235 persons, including
seven senior management personnel, 205 sales personnel (including
managers and network coordinators), and 23 administrative
personnel. The employees are not represented by any labor union
and management believes that its relationships with its employees
are excellent.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
Development of Reseller Operations
A crucial component of the Company's strategy is its
continuing development as a non-facilities based provider, or
reseller, of local, long distance and Internet access services.
For the fiscal year ended March 31, 1997, network service resale
income constituted 28% of the Company's total revenues. The
success of the Company's reseller expansion plan is subject to a
number of risks including its ability to negotiate additional
reseller agreements on commercially reasonable terms, the
availability of adequate capital, the increasingly competitive
nature of the telecommunications industry, including the effect
of the development and introduction of new technologies and the
ability to attract additional personnel.
Historical Dependence on Agency Contract
Commission revenue derived under the Company's agency
agreement with NYNEX represented 63%, 69% and 63% of the
Company's total revenues for the fiscal years ended March 31,
1997, 1996 and 1995, respectively. The Company's agreement with
NYNEX expires on December 31, 1998. In addition, the commission
5
rates and fees payable to the Company under the NYNEX agreement
are adjusted annually which resulted, in 1996, in a material
reduction in commission rates. The loss of this agency
relationship with NYNEX, or a further material reduction in
commission rates under the NYNEX agreement, would have a material
adverse effect on the Company's operations.
Dependence on Facilities Based Carriers and Internet Access
Providers
The Company is dependent upon certain long distance
carriers, Internet access providers, and regional and local
telephone companies to provide access to long distance telephone
and Internet service on a cost-effective basis. The Company has
entered into agreements with long distance carriers and Internet
access providers to provide access to telephone lines and
transmission facilities necessary to transmit customer calls.
Although the Company believes that it currently has access to
transmission facilities and long distance networks on favorable
terms and believes that its relationships with its carriers and
Internet access providers are satisfactory, any increase in the
rates charged by such carriers or providers could have a material
adverse effect on the Company's operations. Failure to obtain
continuing access to such facilities and networks would also have
a material adverse effect on the Company.
In addition, the Company's operations require that its
carrier switching facilities and long distance networks operate
on a continuous basis. Although these networks are designed to
be redundant and incorporate disaster recovery plans, there can
be no assurance that third-party switching facilities and long
distance networks will not from time to time experience service
interruptions or equipment failure, which could have a material
adverse effect on the Company's reseller business.
Dependence on Supplier Provided Timely and Accurate Call Data
Records; Billing and Invoicing Disputes
In its reseller business, the Company is dependent upon the
timely receipt and accuracy of call data records provided to it
by its suppliers. There can be no assurance that accurate
information will consistently be provided by suppliers or that
such information will be provided on a timely basis. Failure by
suppliers to provide timely and accurate detail would increase
the length of the Company's billing and collection cycles and
adversely effect its operating results. The Company pays its
suppliers according to the Company's calculation of the charges
applicable to the Company based on supplier invoices and computer
tape records of all such calls provided by suppliers which may
not always reflect current rates and volumes. Accordingly, a
supplier may consider the Company to be in arrears in its
payments until the amount in dispute is resolved. There can be
no assurance that disputes with suppliers will not arise or that
such disputes will be resolved in a manner favorable to the
Company. In addition, the Company is required to maintain
6
sophisticated billing and reporting systems to service the large
volume of services placed over its networks. As resale volumes
increase, there can be no assurance that the Company's billing
and management systems will be sufficient to provide the Company
with accurate and efficient billing and order processing
capabilities.
Customer Attrition
The Company's operating results may be significantly
affected by its reseller customer attrition rates. There can be
no assurance that customers will continue to purchase long
distance or other services through the Company in the future or
that the Company will not be subject to increased customer
attrition rates. The Company believes that the high level of
customer attrition in the industry is primarily a result of
national advertising campaigns, telemarketing programs and
customer incentives provided by major competitors. There can be
no assurance that customer attrition rates will not increase in
the future, which could have a material adverse effect on the
Company's operating results.
Competition, Evolving Industry Standards, Technological Trends
and Changing Regulation.
The Company faces intense competition in the marketing and
sale of its services and products. The Company's local access,
long distance, prepaid long distance calling cards, Internet and
other services and products compete for consumer recognition with
other firms offering similar or like products which have achieved
significant international, national and regional consumer
recognition. Many of these services and products are marketed by
companies which are well established, have reputations for
success in the development and sale of services and products and
have significantly greater financial, marketing, distribution,
personnel and other resources than the Company. These resources
permit such companies to implement extensive advertising and
promotional campaigns, both generally and in response to efforts
by additional competitors to enter into new markets and introduce
new services and products. Certain of these competitors,
including AT&T, MCI Telecommunications Corporation ("MCI") and
Sprint Corporation ("Sprint"), dominate segments of the industry
and have the financial resources to enable them to withstand
substantial price competition which is continuing. These and
other large telephone companies have also entered or have
announced their intention to enter into the prepaid phone card
and Internet segments of the telecommunications industry.
Because there are minimal barriers to entry, competition from
smaller resellers in the Company's target markets is also
expected to continue to increase significantly. These markets
for telecommunications services and products are also
characterized by rapidly changing technology and evolving
industry standards, often resulting in product obsolescence or
short product life cycles. The proliferation of new
telecommunications technologies, including personal communication
7
services, cellular telephone services and products and prepaid
phone cards employing alternative "smart" card technologies, may
reduce demand for traditional land-line telephone services. The
Company's success will depend on the Company's ability to
anticipate and respond to these and other factors affecting the
industry, including changes in technology, customer preferences,
business and demographic trends, unfavorable general economic
conditions and discount pricing strategies by competitors.
Recent regulatory changes may also result in significantly
increased competition. The Telecommunications Act of 1996 is
designed to introduce increased competition in domestic
telecommunications markets by facilitating the entry of any
entity (including cable television companies and utilities) into
both the long distance and local telecommunications markets.
Consequently, such act increases the potential for increased
competition by permitting long distance and regional carriers to
compete in local markets and well-established and well-
capitalized Regional Bell Operating Companies and local exchange
carriers to compete in the long distance markets. There can be
no assurance that the Company will be able to continue to compete
successfully, particularly as it seeks to enter into new markets
and market new services and products.
Dependence on Key Personnel
The Company's future success will depend in significant part
upon the continued service of certain key personnel (including
Robert J. Fabbricatore, the Company's Chairman and Chief
Executive Officer), and the ability of the Company to attract and
retain highly qualified managerial and sales and marketing
personnel in the telecommunications field. Competition for such
personnel is intense, and there can be no assurance that the
Company can retain its existing key managerial, technical and
other personnel or that it can attract and retain such employees
in the future. The loss of key personnel or the inability to
hire or retain qualified personnel in the future could have a
material adverse effect upon the Company's results of operations.
The Company does not have employment agreements with its key
personnel.
Possible Volatility of Stock Price
In recent years, the stock market in general, and the market
for shares of small capitalization companies (such as the
Company) in particular, have experienced extreme price
fluctuations which have been unrelated to changes in the
operating performance of the affected companies. Such
fluctuations could adversely affect the market price of the
Company's Common Stock.
ITEM 2. PROPERTIES
The Company's executive offices are located at 360 Second Avenue,
Waltham, Massachusetts 02154, in approximately 20,000 square feet
8
of leased space from an unaffiliated lessor, under a lease
expiring in 1999 at a net annual rent of approximately $161,000
(before sublease income), including taxes and insurance.
The Company rents office space in each of the locations where it
maintains branch sales offices. The aggregate annual lease
rentals for these locations approximated $840,000 for the year
ended March 31, 1997. Certain facilities are leased from
affiliates of the Chairman of the Company. See Item 13. Certain
Relationships and Related Transactions.
ITEM 3. LEGAL PROCEEDINGS
(a) Pending Legal Proceedings.
The Company is party to suits arising in the normal course
of business which management believes are either individually or
in the aggregate not material.
(b) Legal Proceedings Terminated in the Fourth Quarter.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY SECURITIES AND
RELATED STOCKHOLDER MATTERS.
The Company's Common Stock trades on the Nasdaq National Market
under the symbol "CPTL". The following tables set forth the
ranges of the high and low sale prices for the Company's
outstanding Common Stock for the periods indicated.
Three Months Ended High Sale Low Sale
- ------------------ --------- --------
June 30, 1995 $ 5.21 $ 2.96
September 30, 1995 $10.00 $ 4.59
December 31, 1995 $19.50 $ 9.75
March 31, 1996 $15.50 $ 8.50
June 30, 1996 $18.00 $ 9.75
September 30, 1996 $13.75 $ 8.00
December 31, 1996 $11.75 $ 6.38
March 31, 1997 $ 9.13 $ 6.38
The above stock prices have been adjusted to give retroactive
effect to the stock dividends and stock splits described below.
As of June 17, 1997, there were 339 holders of record of the
Company's Common Stock. The Company believes there were in
9
excess of 1,500 beneficial holders of the Common Stock as of such
date.
The Company has never paid a cash dividend on its Common Stock
and management has no present intention of paying dividends in
the foreseeable future. The policy of the Company is to retain
earnings and utilize the funds for Company operations and
expansion. Any change to the dividend policy will be determined
by the Board of Directors based on the Company's earnings,
financial condition, capital requirements and other existing
conditions.
On January 18, 1995, the Company declared a twenty-five percent
(25%) stock split, effected in the form of a dividend, payable to
shareholders of record on March 1, 1995. A total of 623,359
shares of Common Stock were issued in connection with the split.
On July 13, 1995, the Company declared a three-for-two stock
split, payable to shareholders of record on July 25, 1995. A
total of 1,560,742 shares of Common Stock were issued in
connection with the split.
On October 10, 1995, the Company declared a two-for-one stock
split, payable to shareholders of record on October 23, 1995. A
total of 4,718,172 shares of Common Stock were issued in
connection with the split.
From April 5, 1996 through March 28, 1997, the Company issued
36,571 shares of unregistered Common Stock in the aggregate to 22
non-executive employees upon the exercise of stock options at
exercise prices ranging from $.53 to $2.71 per share, pursuant to
the exemption from registration provided by Section 4(2) of the
Securities Act of 1933, as amended.
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA OF THE COMPANY.
The following selected financial data have been derived from the
Company's financial statements which have been audited by Ernst &
Young LLP, independent auditors. The following data should be
read in conjunction with the Company's financial statements and
related notes appearing elsewhere in this Report on Form 10-K.
All earnings per share and weighted average share information
included in the accompanying financial statements have been
restated to reflect the 25% stock split effected in Fiscal 1995,
and the three-for-two stock split and the two-for-one stock split
effected in Fiscal 1996.
STATEMENT OF INCOME DATA:
Year Ended March 31,
1997 1996 1995 1994 1993
(in Thousands Except Per Share)
Revenues $40,290 $30,876 $21,936 $14,945 $15,952
Net Income (Loss) 4,683 4,094 1,472 75 545
Earnings (Loss) Per Share
Primary $ 0.43 $ 0.38 $ 0.17 $ 0.01 $ 0.07
Fully Diluted $ 0.43 $ 0.38 $ 0.16 $ 0.01 $ 0.07
10
BALANCE SHEET DATA:
At March 31,
1997 1996 1995 1994 1993
(in Thousands)
Current Assets $17,804 $10,890 $ 6,420 $ 4,063 $ 3,871
Current Liabilities 5,895 3,014 2,200 1,528 1,957
Working Capital 11,909 7,876 4,220 2,535 1,914
Total Assets 20,186 12,509 7,726 5,399 5,710
Total Long-Term Debt 0 0 0 0 0
Total Liabilities 5,895 3,014 2,200 1,528 1,957
Stockholders' Equity 14,292 9,495 5,526 3,871 3,753
Item 7. 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 - FISCAL YEAR ENDED MARCH 31, 1997 AS
COMPARED TO FISCAL YEAR ENDED MARCH 31, 1996.
Total revenues for the fiscal year ended March 31, 1997 ("Fiscal
1997") increased 30% to $40,290,000 as compared to $30,876,000
for the fiscal year ended March 31, 1996 ("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 15% to $29,195,000
as compared to $25,493,000 for Fiscal 1996 due to the addition of
new customers, increased sales to existing customers and the
addition of new products to the Company's portfolio. Effective
January 1996, NYNEX reduced certain fees and commissions payable
under its 1996 agency agreement with the Company. As a result,
although unit sales of Centrex and Data Products, two flagship
NYNEX products, increased 30% and 66%, respectively, revenues
increased only 15% as stated above. Although there can be no
assurance, the Company believes that there will be no further
material reductions in commission rates and fees payable under
the NYNEX agreement, which extends through December 1998.
Network service resale income, which represents the gross
billings to mid-sized commercial accounts for the Company's long
distance and Internet access network services, increased 106% to
$11,095,000 for Fiscal 1997 from $5,383,000 for Fiscal 1996.
This increase can be attributed to the addition of new customers
to the service, as well as the introduction of new products,
primarily Internet access. It is the Company's strategy to
continue to add new services to this platform to further leverage
these long term customer relationships.
Selling, general, and administrative expenses increased 19% to
$23,820,000 for Fiscal 1997 from $20,009,000 for Fiscal 1996.
As a percentage of revenues, these expenses were 59% for Fiscal
1997, as compared to 65% for Fiscal 1996. This increase is
attributable to the increase in variable sales commission and
11
bonus expenses incurred in connection with the substantial
increase in revenues. In addition, the Company 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 March 31, 1998, from its current sales force of 125.
The Company also made additional investments in its information
systems in Fiscal 1997.
Net income increased to $4,683,000 in Fiscal 1997 from $4,094,000
in Fiscal 1996, as a result of revenue growth primarily in the
Northeast, combined with a continuing effort to control operating
expenses.
RESULTS OF OPERATIONS - FISCAL YEAR ENDED MARCH 31, 1996 AS
COMPARED TO FISCAL YEAR ENDED MARCH 31, 1995.
Total revenues for Fiscal 1996 increased 41% to $30,876,000 from
$21,936,000 for the fiscal year ended March 31, 1995 ("Fiscal
1995"). Network service commission income increased 35% to
$25,493,000 from $18,898,000 for Fiscal 1995. Network service
resale income increased 77% to $5,383,000 for Fiscal 1996 from
$3,038,000 for Fiscal 1995.
The increase in revenues is attributable to an increase in the
business in the Northeastern United States, which is a direct
result of the additional account executives hired by the Company
in Fiscal 1996, as well as increased penetration into the
Company's existing customer base by the introduction of new
products, including both local and long distance services.
Selling, general, and administrative expenses increased 16% to
$20,009,000 for Fiscal 1996 from $17,319,000 for Fiscal 1995.
As a percentage of revenues, selling, general, and administrative
expenses were 65% for Fiscal 1996, as compared to 79% for Fiscal
1995. This decrease in expenses as a percentage of revenues
reflects the continuing efforts by the Company to control
operating expenses as well as the increased profitability of
multiple sales to the Company's existing customer base. The
overall increase in selling, general, and administrative expenses
is the direct result of the increase in variable sales commission
and bonus expenses due to the sharp increase in revenues.
Net income increased to $4,094,000 in Fiscal 1996 from $1,472,000
in Fiscal 1995, an increase of $2,622,000. The increase is a
result of revenue growth primarily in the Northeast, combined
with a continuing effort to control operating expenses and
leverage customer opportunities.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 31, 1997 was $11,909,000 as compared to
$7,876,000 at March 31, 1996, an increase of $4,033,000 or 51%.
12
At March 31, 1997, the Company had cash and cash equivalents
totalling $6,406,000.
Accounts receivable increased to $10,905,000 at March 31, 1997
from $6,557,000 at March 31, 1996. This increase reflects a 30%
increase in revenues from Fiscal 1996 to Fiscal 1997, as well as
increased long distance revenues, which are recorded at the gross
retail value.
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
LIBOR rates available at the Company's election.
The Company presently has no bank debt (other than $300,000
outstanding as of March 31, 1997 under the Fleet Bank line of
credit to finance certain letters of credit) 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 under its current operating plan.
However, any substantial increase in reselling operations and
related asset investment may require additional financing.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Reference is made to pages F-1 through F-21 comprising a
portion of this Annual Report on Form 10-K.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
Part III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors
Other Capacities
Period Served in Which
Age as Director Currently Serving
--- -------------- ------------------
Robert J. Fabbricatore 54 Since 1980 Chairman and
Chief Executive
Officer
Philip J. Richer 61 Since 1989 None
Richard J. Santagati 53 Since 1991 None
J. Richard Murphy 53 Since 1995 None
Henry Hermann 55 Since 1996 Consultant
13
Mr. Fabbricatore, a founder of the Company and a Director
since its inception in 1980, became Chairman of the Board of
Directors in March 1983 and served as President from October 1993
to August 1995. Mr. Fabbricatore also served as Treasurer of the
Company from April 1987 until May 1988. Prior to April 1, 1986,
Mr. Fabbricatore did not devote a substantial portion of his time
to the Company's business.
Mr. Richer joined the Company as Vice President-Sales in
July 1989 and became a Director and Vice Chairman in August 1989.
Mr. Richer retired as an officer and employee of the Company
effective December 31, 1995. Prior to joining the Company, Mr.
Richer served as director of Sales Channel Management for New
England Telephone. During his career with New England Telephone,
Mr. Richer served in a variety of other management positions. In
addition, Mr. Richer was formerly Data Communications
Superintendent for New England Telephone and performed numerous
sales and sales management functions.
Mr. Santagati became a director of the Company in September
1991. He has been the President of Merrimack College in North
Andover, Massachusetts since 1994. Mr. Santagati was a partner
of Lighthouse Management, Inc., a private investment firm located
in Boston, Massachusetts from 1991 to 1993 and, from 1991 to
February 1994, the Chairman of the Board, Chief Executive Officer
and President of Artel Communications Corp., a publicly held data
communications firm located in Hudson, Massachusetts. From 1986
to 1991, Mr. Santagati was the Chief Executive Officer and a
member of the Executive Committee of Gaston & Snow, a Boston,
Massachusetts based law firm. From 1983 to 1986, Mr. Santagati
was employed by NYNEX Corp., first as Vice President of
Marketing, and then as President and Chairman of NYNEX Business
Information Systems Co. From 1977 to 1983, Mr. Santagati held a
number of executive level positions with New England Telephone,
including Vice President of Marketing and Assistant Vice
President of Sales. Mr. Santagati is a member of the Board of
Trustees of Lawrence General Hospital. He is also a director of
ESP, Inc., a privately held communications company located in
Hingham, Massachusetts.
Mr. Murphy became a Director of the Company in August 1995.
Mr. Murphy has been the Director of the Financial Consulting
Group of Moody, Cavanaugh and Company, LLP, a North Andover,
Massachusetts public accounting firm, since April 1996. Since
1992, Mr. Murphy has also been President and sole stockholder of
Bradford Capital Corporation, an investment banking and corporate
finance firm located in North Andover, Massachusetts. Mr. Murphy
was an officer, director and principal stockholder from 1990 to
1995 of Arlington Data Corporation, a systems integration company
located in Haverill, Massachusetts; since 1992 of Arlington Data
Consultants, Inc., a company engaged in the installation and
maintenance of computer systems and hardware; and, since 1994 of
Computer Emporium, Inc., a company engaged in processing parking
violations for municipalities. These three companies are
privately-held affiliated companies and are located in Haverill,
14
Massachusetts. From 1989 to 1991 Mr. Murphy was an officer,
director and principal stockholder of Financial Perspectives
Incorporated, an investment banking and corporate finance firm
located in North Andover, Massachusetts. Mr. Murphy was President
and Chief Executive Officer of Shawmut Arlington Trust Company in
Lawrence, Massachusetts, from 1988 to 1989 and from 1968 to 1988
held a variety of management positions, the most recent being
President and Chief Executive Officer with the Arlington Trust
Company, also in Lawrence, Massachusetts. From 1987 to 1995, Mr.
Murphy was a trustee of Merrimack College in North Andover,
Massachusetts and from 1994 to 1995 served as Chairman of the
Board of Trustees. Mr. Murphy is a trustee of Holy Family
Hospital, a director and Clerk of Mary Immaculate Health Care
Services, located in Lawrence, Massachusetts, and a member of
Covenant Health Systems, Inc., a Lexington, Massachusetts based
network of religious sponsored providers of long term care and
geriatric services. He is also a director of Stickney & Poor
Spice Company, Inc., a privately held food manufacturing and
distributing company located in Chelmsford, Massachusetts.
Mr. Hermann became a director of the Company in September
1996. Since May 1997, he has been employed by Kuhns Brothers &
Company, Inc., as a principal and Executive Vice President. For
the previous nine years, he was employed by WR Lazard, Laidlaw
and Luther, Inc., a securities brokerage firm, as Vice President,
Securities Analyst and Portfolio Manager. Mr. Hermann has been
an NASD Board of Arbitrators Member since 1991. Mr. Hermann is a
Chartered Financial Analyst with over 30 years experience as an
investment professional. Mr. Hermann has provided financial
consulting services to the Company since 1993.
All directors are elected to hold office until the next
Annual Meeting of Stockholders and until their successors are
elected and qualified. There are no arrangements or
understandings between any directors of the Company and any other
person pursuant to which such person was selected as a Director
of the Company.
(b) Identification of Executive Officers
Name Age Current Office Held
- ------------- --- -------------------
Robert J. Fabbricatore 54 Chairman, Chief Executive
Officer
Steven P. Milton 43 President, Chief Operating
Officer
John D. Pittenger 43 Vice President-Finance,
Chief Financial Officer,
Treasurer and Clerk
David E. Mahan 55 Vice President-Market
Planning and Development
15
Currently, there is no fixed term of office for any
executive officer and all officers serve at the discretion of the
Board of Directors. Each person selected to become an executive
officer has consented to act as such and there are no
arrangements or understandings between the executive officers or
any other persons pursuant to which he was or is to be selected
as an officer.
Mr. Milton has been employed by the Company since 1984 and
has served as President and Chief Operating Officer since August
1995. Prior to that, he held various positions within the
Company including Branch Manager, District Manager, Regional
Manager and, most recently, Vice President-Sales and Marketing.
Mr. Pittenger has served as Treasurer, Chief Financial
Officer and Clerk of the Company since August 1989 and as Vice
President-Finance since September 1991. Since 1980, Mr.
Pittenger has been Treasurer and a director of Comm-Tract Corp.,
a company which installs and services voice and data
communications systems.
Mr. Mahan joined the Company in October 1995 as Vice
President-Market Planning and Development and in June 1996 Mr.
Mahan became an executive officer of the Company. From 1982 to
1995, Mr. Mahan held a number of senior management level
positions with NYNEX, most recently Vice President-Sales Channel
Management.
For a description of the business background of Mr.
Fabbricatore see "Identification for Directors".
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Philip J. Richer, a director of the Company, failed to file
a Form 4 on a timely basis on one occasion with respect to the
January 28, 1997 sale of 5,500 shares of the Company's Common
Stock at a selling price of $8.00 per share. The required Form 4
with respect to said transaction was filed with the Securities
and Exchange Commission on March 6, 1997.
Item 11. EXECUTIVE COMPENSATION
The following table provides certain summary information
concerning the compensation paid or accrued by the Company to or
on behalf of the Company's Chief Executive Officer and each
executive officer of the Company whose remuneration exceeded
$100,000 ("named executive officers") during the fiscal year
ended March 31, 1997.
16
SUMMARY COMPENSATION TABLE
Long-Term Compensation
----------------------------------------
Annual Compensation Awards Payouts
---------------------------- ----------------------- -------
Other Restricted Securities All
Annual Stock Underlying LTIP Other
Name and Principal Salary Bonus Compen- Awards Options/ Payouts Compen-
Position Year ($)(1) ($)(2) sation($) ($) SARs(#) ($) sation(3)
- ------------------ ---- -------- -------- --------- --------- ---------- ------- ---------
Robert J. Fabbricatore, 1997 240,000 60,000 - - 0 - 18,075
Chairman and Chief 1996 240,000 60,000 - - 0 - 16,100
Executive Officer 1995 240,000 60,000 1,500 - 124,306 - 11,636
Steven P. Milton, 1997 100,000 40,000 5,200 - 0 - 4,075
President and Chief 1996 100,000 40,000 5,200 - 0 - 4,200
Operating Officer 1995 100,000 52,000 5,200 - 126,750 - 4,440
David E. Mahan, Vice 1997 100,000 40,000 5,004 - 0 - 4,075
President - Market 1996(4) 50,000 20,000 2,500 - 100,000 - 0
Planning & Development
John D. Pittenger, 1997 86,100 34,000 - - 0 - 3,437
Vice President - Finance 1996 84,800 32,000 - - 0 - 3,504
Chief Financial Officer, 1995 83,600 26,000 1,200 - 54,750 - 3,228
Treasurer and Clerk
<FN>
(1) For the fiscal year ended March 31, 1997, Messrs. Fabbricatore, Milton, Mahan and Pittenger's salaries
included pre-tax contributions made by such officers to the CTC Communications Corp. 401(k) Savings Plan.
(2) Includes bonuses accrued for Messrs. Fabbricatore, Milton, Mahan and Pittenger for the fiscal year
ended March 31, 1997 in the amounts of $15,000, $10,000, $10,000 and $10,000 respectively, which were paid
during the first quarter of Fiscal 1998.
(3) All Other Compensation includes 50% matching contributions in the amounts of $4,500, $4,075, $4,075 and
$3,437 accrued on behalf of Messrs. Fabbricatore, Milton, Mahan and Pittenger, respectively, to the CTC
Communications Corp. 401(k) Savings Plan. Also included is the actuarial benefit in the amount of
approximately $13,575 on the "split-dollar" life insurance policy for the benefit of Mr. Fabbricatore.
(4) Mr. Mahan commenced employment with the Company on October 1, 1995.
</FN>
During the fiscal year ended March 31, 1997 the Company did
not grant options or stock appreciation rights to any named
executive officer.
The following table sets forth information concerning option
exercises and option holdings for the fiscal year ended March 31,
1997 with respect to the named executive officers.
17
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Value
Realized
(Market
price at Value of Unexercised in-
exercise the-money options at FY-
Shares less Number of Securities End (Market price of
acquired on exercise Underlying Unexercised shares at FY-End ($7.25)
exercise(#) price ($) Options at FY-End (1) less exercise price) (1)
----------- ---------- -------------------------- ---------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Robert J. Fabbricatore - - 16,778 16,778 $71,642 $71,642
Steven P. Milton - - 18,000 18,000 $81,738 $81,738
David E. Mahan - - 25,000 75,000 - -
John D. Pittenger - - 18,000 18,000 $81,738 $81,738
<FN>
(1) All shares and amounts, as necessary, have been adjusted to reflect the 25% Common Stock dividend
effected in March 1995, the three-for-two stock split effected in July 1995 and the two-for-one stock split
effected in October 1995.
</FN>
The Company made no Long-Term Incentive Plan Awards during
the fiscal year ended March 31, 1997.
The Company has no defined benefit or actuarial plan.
The Company did not adjust or amend the exercise price of
options previously awarded to the named executive officers.
The Company has no compensation committee interlocks or
insider participation.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth certain information as of June 23,
1997 with respect to each stockholder known by the Company to
beneficially own more than 5% of the outstanding shares of the
Company's Common Stock, the beneficial ownership of the Company's
Common Stock by each director and named executive officer of the
Company, and by all of the directors and officers of the Company
as a group. Based on the information furnished by the
beneficial owners of the Common Stock listed below, the Company
believes that each such stockholder exercises sole voting and
investment power with respect to the shares beneficially owned.
18
Number of Shares
Beneficially Percent
Name of Beneficial Owner Owned of Class
- ------------------------------------------------------------
Robert J. Fabbricatore (1)(2) 2,732,750 27.5%
Van Wagoner Capital Management, Inc.(3) 545,350 5.5%
Philip J. Richer 362,773 3.7%
Henry Hermann (4) 206,588 2.1%
Richard J. Santagati (5) 78,000 *
J. Richard Murphy (6) 11,000 *
Steven P. Milton (7) 408,932 4.1%
John D. Pittenger (8) 216,588 2.2%
David E. Mahan (9) 61,000 *
All Officers and Directors
as a Group (eight persons)(10) 4,077,631 40.7%
- ------------------------------
* = Less than 1%.
(1) Mr. Fabbricatore's address is c/o CTC Communications Corp.,
360 Second Avenue, Waltham, MA 02154.
(2) Includes 62,498 shares owned by Mr. Fabbricatore as trustee
of a trust for his children and 1,133,239 shares as a
general partner of a family partnership; also includes
16,776 shares issuable upon exercise of the vested portions
of stock options at an option price of $2.98 per share.
(3) Van Wagoner Capital Management, Inc.'s address is One Bush
Street, Suite 1150, San Francisco, CA 94104.
(4) Includes 9,750 shares held by Mr. Hermann's spouse and 3,000
shares issuable upon the exercise of currently exercisable
options at $2.708 per share.
(5) Includes 3,000 shares issuable upon the exercise of
currently exercisable options at $2.708 per share.
(6) Includes 1,000 shares owned by Mr. Murphy as trustee of a
trust for his spouse and 10,000 shares issuable upon the
exercise of currently exercisable options at $6.125 per
share.
(7) Includes 4,500 shares owned by Mr. Milton as trustee of a
trust for his children and 18,000 shares issuable upon the
exercise of currently exercisable options at $2.708 per
share.
(8) Includes 18,000 shares issuable upon the exercise of
currently exercisable options at $2.708 per share.
(9) Includes 25,000 shares issuable upon the exercise of
currently exercisable options at $10.125 per share.
(10) Includes the shares described in footnotes (2) through (9)
above.
19
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases from trusts, of which Robert J.
Fabbricatore, the Company's Chairman and Chief Executive Officer,
is a beneficiary, office space in Springfield, Massachusetts and
southern New Hampshire. Rental payments under the leases
totalled approximately $133,000 in Fiscal 1997. The Company
subleases part of its Waltham facility at its cost to Comm-Tract
Corp., a company in which Mr. Fabbricatore is a principal
stockholder. Sublease income totalled $80,416 for Fiscal 1997.
The Company also contracts with Comm-Tract Corp. for the
installation of telephone lines and for the service and
maintenance of equipment marketed by the Company. During Fiscal
1997, Comm-Tract Corp. provided the Company with services,
inventory and equipment aggregating $97,190. The Company
believes that the payments to Mr. Fabbricatore and Comm-Tract
Corp. are comparable to the costs for such services, inventory
and equipment, and for rentals of similar facilities, which the
Company would be required to pay to unaffiliated individuals in
arms-length transactions.
In connection with the exercise of Company stock options in
Fiscal 1995, Steven P. Milton was advanced the sum of $135,825 by
the Company, which remained outstanding at March 31, 1997. The
loan is payable on demand and bears interest at 8.0% per annum.
20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 10-K.
(a)(1) The Following financial statements are included in Part
II, Item 8:
Balance Sheets
March 31, 1997 and 1996
Statements of Income
Years Ended March 31, 1997, 1996 and 1995
Statements of Stockholders' Equity
Years Ended March 31, 1997, 1996 and 1995
Statements of Cash Flows
Years Ended March 31, 1997, 1996 and 1995
Notes to Financial Statements
(a)(2) The following financial statement schedule for the years
ended March 31, 1997, 1996 and 1995 is submitted
herewith:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or notes thereto.
(b) REPORTS ON FORM 8-K.
The Company did not file any reports on Form 8-K during the
fourth quarter of the fiscal year ended March 31, 1997.
(c) EXHIBITS.
NUMBER DESCRIPTION OF EXHIBIT
3.1 Restated Articles of Organization, as amended (1)
3.2 By-Laws of Registrant (2)
4.1 Form of Common Stock Certificate (5)
10.1 1996 Stock Option Plan (3)
10.1A 1993 Stock Option Plan (5)
10.1B Employee Stock Purchase Plan (4)
10.2 Lease for premises at 360 Second Ave., Waltham MA (5)
10.3 Sublease for premises at 360 Second Ave., Waltham MA (5)
10.4 Lease for premises at 110 Hartwell Ave., Lexington MA (5)
10.5 Lease for premises at 120 Broadway, New York, NY (5)
10.6 Agreement dated February 1, 1996 between NYNEX and the
Company (5)
21
10.7 Agreement dated May 1, 1997 between Pacific Bell and
the Company (5)
10.8 Agreement dated January 1, 1996 between SNET America,
Inc. and the Company (5)
10.9 Agreement dated June 23, 1995 between IXC Long
Distance, Inc. and the Company, as amended (5)
10.10 Agreement dated August 19, 1996 between Innovative
Telecom Corp. and the Company (5)
10.11 Agreement dated October 20, 1994 between Frontier
Communications International, Inc. and the Company, as
amended (5)
10.12 Agreement dated January 21, 1997 between Intermedia
Communications Inc. and the Company (5)
11 Statement re: Computation of Per Share Earnings (5)
23.1 Consent of Ernst & Young LLP (5)
27 Financial Data Schedule (5)
- ----------------------------
(1) Incorporated by reference to an Exhibit filed as part of the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1996.
(2) Incorporated by reference to an Exhibit filed as part of the
Registrant's Registration Statement on Form S-18 (Reg. No.
2-96419-B).
(3) Incorporated by reference to an Exhibit filed as part of the
Registrant's Registration Statement on Form S-8 (File No.
333-17613).
(4) Incorporated by reference to an Exhibit filed as part of the
Registrant's Registration Statement on Form S-8 (File No.
33-44337).
(5) Filed herewith.
22
Audited Financial Statements and Schedule
CTC Communications Corp.
Years ended March 31, 1997 and 1996
F-1
CTC Communications Corp.
Audited Financial Statements and Schedule
Years ended March 31, 1997 and 1996
Contents
Report of Independent Auditors.............................. F-3
Audited Financial Statements
Balance Sheets.............................................. F-4
Statements of Income........................................ F-5
Statements of Stockholders' Equity.......................... F-6
Statements of Cash Flows.................................... F-7
Notes to Financial Statements............................... F-8
Schedule.................................................... F-21
F-2
Report of Independent Auditors
Board of Directors
CTC Communications Corp.
We have audited the accompanying financial statements of CTC
Communications Corp., formerly Computer Telephone Corp., as of
March 31, 1997 and 1996, and the related statements of income,
stockholders' equity, and cash flows for each of the three years
in the period ended March 31, 1997. Our audits also included the
financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of CTC Communications Corp. at March 31, 1997 and 1996, and the
results of its operations and its cash flows for each of the
three years in the period ended March 31, 1997, in conformity
with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the
information set forth therein.
ERNST & YOUNG LLP
May 12, 1997
F-3
CTC COMMUNICATIONS CORP.
BALANCE SHEETS
March 31,
1997 1996
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 6,405,670 $ 3,941,876
Accounts receivable, less allowance for
doubtful accounts of $377,000 in 1997
and $190,215 in 1996 10,904,820 6,557,229
Prepaid expenses and other current assets 447,441 344,958
Amounts due from officers and employees 46,112 24,806
Income tax receivable 21,125
------------- -------------
Total current assets 17,804,043 10,889,994
Equipment:
Equipment 7,268,372 6,046,493
Accumulated depreciation (5,565,650) (4,822,755)
------------- -------------
1,702,722 1,223,738
Deferred income taxes 566,000 277,000
Other assets 113,685 118,485
------------- -------------
Total assets $ 20,186,450 $ 12,509,217
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 3,238,416 $ 1,176,804
Accrued income taxes 225,948
Accrued salaries and related taxes 2,423,825 1,828,288
Deferred revenue 6,588 9,302
------------- -------------
Total current liabilities 5,894,777 3,014,394
Stockholders' equity:
Series Preferred Stock--par value $1.00
per share; authorized 1,000,000 shares,
none outstanding
Common Stock, par value $.01 per share;
authorized 25,000,000 shares, issued
9,629,407 and 9,584,122 shares in
1997 and 1996, respectively 96,294 95,841
Additional paid in capital 4,758,454 4,644,988
Retained earnings 9,572,750 4,889,819
------------- -------------
14,427,498 9,630,648
Amounts due from stockholders (135,825) (135,825)
------------- -------------
Total stockholders' equity 14,291,673 9,494,823
------------- -------------
Total liabilities and
stockholders' equity $ 20,186,450 $ 12,509,217
============= =============
See accompanying notes.
F-4
CTC COMMUNICATIONS CORP.
STATEMENTS OF INCOME
Year ended March 31
1997 1996 1995
------------- ------------ ------------
Network service revenues:
Commissions $29,195,261 $25,492,511 $18,898,539
Resale 11,094,838 5,383,414 3,037,661
------------ ------------ ------------
40,290,099 30,875,925 21,936,200
Costs and expenses:
Cost of resale revenue 8,709,122 4,241,575 2,451,256
Selling, general and
administrative expenses 23,819,714 20,009,432 17,318,883
------------ ------------ ------------
32,528,836 24,251,007 19,770,139
------------ ------------ ------------
Income from operations 7,761,263 6,624,918 2,166,061
Other:
Interest income 201,369 195,979 53,935
Interest expense (17,753) (604) (7,330)
Other 15,052 9,631 109,803
------------ ------------ ------------
198,668 205,006 156,408
------------ ------------ ------------
Income before income taxes 7,959,931 6,829,924 2,322,469
Provision for income taxes 3,277,000 2,736,000 850,000
------------ ------------ ------------
Net income $ 4,682,931 $ 4,093,924 $ 1,472,469
============ ============ ============
Net income per common share:
Primary $ .43 $ .38 $ .17
============ ============ ============
Fully diluted $ .43 $ .38 $ .16
============ ============ ============
Weighted average number of
common shares:
Primary 10,773,563 10,712,425 8,764,518
============ ============ ============
Fully diluted 10,789,980 10,727,641 9,361,485
============ ============ ============
See accompanying notes.
F-5
CTC COMMUNICATIONS CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Additional Retained- Amounts
----------------- Paid-in Earnings Treasury Due from
Shares Par Value Capital (Deficit) Stock Stockholders Total
----------------------------------------------------------------------------------------
Balance at March 31, 1994 2,007,608 $20,076 $4,536,046 $(668,961) $(15,751) $3,871,410
Issuance of stock 11,939 119 29,025 29,144
Exercise of employee stock options 576,925 5,769 1,581,546 $(159,825) 1,427,490
Acquisition of treasury stock (1,274,378) (1,274,378)
Retirement of treasury stock (95,394) (954) (1,275,315) 1,276,269
Stock split effected in the form of a
25% stock dividend 623,359 6,234 (6,774) (540)
Net income 1,472,469 1,472,469
----------------------------------------------------------------------------------------
Balance at March 31, 1995 3,124,437 31,244 4,871,302 796,734 (13,860) (159,825) 5,525,595
Issuance of stock 9,082 91 58,153 58,244
Exercise of employee stock options 197,143 1,971 121,053 123,024
Acquisition of treasury stock (329,125) (329,125)
Retirement of treasury stock (25,454) (254) (342,731) 342,985
Settlement of amounts due from
stockholders 24,000 24,000
Issuance of stock upon 3 for 2 stock
split 1,560,742 15,607 (15,607) (839) (839)
Issuance of stock upon 2 for 1 stock
split 4,718,172 47,182 (47,182)
Net income 4,093,924 4,093,924
----------------------------------------------------------------------------------------
Balance at March 31, 1996 9,584,122 95,841 4,644,988 4,889,819 0 (135,825) 9,494,823
Issuance of stock 8,714 87 70,088 70,175
Exercise of employee stock options 36,571 366 43,378 43,744
Net income 4,682,931 4,682,931
----------------------------------------------------------------------------------------
Balance at March 31, 1997 9,629,407 $96,294 $4,758,454 $9,572,750 $ 0 $(135,825) $14,291,673
========================================================================================
See accompanying notes.
F-6
CTC COMMUNICATIONS CORP.
STATEMENTS OF CASH FLOWS
Year ended March 31
1997 1996 1995
------------ ------------ ------------
OPERATING ACTIVITIES
Net income $4,682,931 $4,093,924 $1,472,469
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 742,895 660,338 655,617
Provision for doubtful accounts 316,669 61,763 80,000
Deferred income taxes (289,000) (124,000) (30,000)
Changes in operating assets and liabilities:
Accounts receivable (4,664,260) (2,979,772) (1,502,326)
Other current assets (123,789) (231,642) 167,103
Income tax receivable 21,125 (21,125) 50,000
Other assets 4,800 (90,200) 4,000
Accounts payable, accrued expenses,
accrued salaries and related taxes 2,657,149 1,103,061 538,893
Accrued income taxes 225,948 (281,569) 150,956
Deferred revenue and other (2,714) 1,128 (6,959)
------------ ------------ ------------
Net cash provided by operating activities 3,571,754 2,191,906 1,579,753
INVESTING ACTIVITIES
Additions to equipment, net (1,221,879) (759,204) (599,474)
------------ ------------ ------------
Net cash used in investing activities (1,221,879) (759,204) (599,474)
FINANCING ACTIVITIES
Proceeds from issuance of common stock 113,919 119,467 182,256
Repayment of notes payable and capital lease
obligations (10,260)
Cash paid for fractional shares in connection
with stock splits (839) (540)
------------ ------------ ------------
Net cash provided by financing activities 113,919 118,628 171,456
------------ ------------ ------------
Increase in cash and cash equivalents 2,463,794 1,551,330 1,151,735
Cash and cash equivalents at beginning of year 3,941,876 2,390,546 1,238,811
------------ ------------ ------------
Cash and cash equivalents at end of year $6,405,670 $3,941,876 $2,390,546
============ ============ ============
See accompanying notes.
F-7
CTC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
1. Summary of Significant Accounting Policies
The Company's Business
CTC Communications Corp., formerly Computer Telephone Corp., (the
Company) is primarily engaged in selling network services of the
Regional Bell Operating Companies and other telephone operating
companies on a commission basis and the resale of long distance
and other network services to customers in the United States.
The significant expense associated with selling network services
on a commission basis is compensation to sales personnel whereas
the significant costs related to the resale of long distance and
other network services are obligations under network service
resale agreements (see Note 5).
Revenues derived from two customers in 1997, 1996 and 1995
represented, respectively, 65%, 78% and 77% of the Company's
total revenues. Accounts receivable from these significant
customers amounted to 77% and 72% of total accounts receivable at
March 31, 1997 and 1996, respectively.
Cash and Cash Equivalents
The Company considers highly liquid investments with maturities
of less than three months at the date of acquisition as cash
equivalents.
Equipment
Equipment is stated on the basis of cost. Depreciation,
including amortization of capitalized leases, is computed using
the straight-line method. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are
removed from the accounts, and any resulting gain or loss is
recognized in income for the period. The cost of maintenance and
repairs is charged to expense as incurred; significant renewals
and betterments are capitalized.
F-8
CTC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies (continued)
Revenue Recognition
Commissions from the sale of network services are recognized when
ordered and, if commissions are based on usage, revenues are
recognized as earned. Provisions for cancellations are made at
the time revenue is recognized and actual experience has
consistently been within management's estimates. Network service
resale revenue is recognized as the usage accrues on the network.
Income Taxes
The Company provides for income taxes under the liability method
prescribed by Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." Under this method, deferred
income taxes are recognized for the future tax consequences of
differences between the tax and financial accounting bases of
assets and liabilities at each year end. Deferred income taxes
are based on enacted tax laws and statutory tax rates applicable
to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected
to be realized. Income tax expense is the tax payable for the
period and the change during the period in deferred tax assets
and liabilities.
Net Income Per Share
Net income per share is computed based on the weighted-average
number of common and, if dilutive, common equivalent shares
outstanding each year. Common equivalent shares result from the
assumed exercise of common stock options using the treasury stock
method. All income per share and weighted average share
information included in the accompanying financial statements has
been restated to reflect the common stock splits disclosed in
Note 6.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share", which is required to be
adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings
per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded.
F-9
CTC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies (continued)
Risks and Uncertainties
Concentration of Credit Risk
Financial instruments which potentially subject the Company to a
concentration of credit risk principally consist of cash and cash
equivalents and trade receivables. The carrying amount of cash
and cash equivalents approximates fair value due to the short
maturity of these instruments.
Significant Estimates and Assumptions
The financial statements have been prepared in conformity with
generally accepted accounting principles. The preparation of
financial statements in conformity with generally accepted
accounting principles requires management to make significant
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Significant estimates and assumptions made by management
affect the Company's provision for doubtful accounts,
cancellation of orders and certain accrued expenses. Actual
results could differ from those estimates.
Accounting for the Impairment of Long-Lived Assets
Effective April 1, 1996, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of", which requires impairment losses
to be recognized for long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash
flows are not sufficient to recover the assets' carrying amount.
The impairment loss is measured by comparing the fair value of
the asset to its carrying amount. The adoption of SFAS No. 121
did not have any effect on the carrying value of long-lived
assets.
F-10
CTC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies (continued)
Accounting for Stock Issued to Employees
The Company grants stock options for a fixed number of shares to
employees with an exercise price equal to the fair value of the
shares at the date of the grant. The Company has elected to
follow Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options
because, as discussed below, the alternative fair value
accounting provided for under SFAS No. 123, "Accounting for
Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is
recognized.
Reclassifications
Certain amounts in the financial statements for the years ended
March 31, 1996 and 1995 have been reclassified to conform with
1997 classifications.
2. Related-Party Transactions
The installation of telephone systems is generally subcontracted
to a company controlled by the Chairman of the Company. Amounts
paid to this subcontractor which are based on fair market value
amounted to $28,217, $1,089 and $868 in 1997, 1996 and 1995,
respectively. Additionally, inventory and equipment purchased
from this subcontractor at fair market value amounted to $68,973,
$39,791 and $67,753 in 1997, 1996 and 1995, respectively.
The Company leases office space from companies in which the
Chairman is a principal. Rent expense for these facilities
aggregated $132,656, $133,949 and $213,105 in 1997, 1996 and
1995, respectively. These office space leases expire in
fiscal 1998.
Effective July 1, 1994, the Company began subleasing a part
of its Waltham facility to a company controlled by the
Chairman of the Company. Terms of the sublease are
identical with those included in the Company's lease.
Sublease income totaled $80,416, $73,417 and $55,181 in
1997, 1996 and 1995, respectively.
F-11
CTC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS
3. Note Payable
The Company has a revolving line of credit agreement with a bank
which provides for borrowings and standby letters of credit with
an aggregate principal or available stated amount at one time not
to exceed $5,000,000. This revolving credit agreement, as
amended, expires on August 31, 1998 and bears interest at the
prime rate of interest, with LIBOR rates available at the
Company's election. The agreement provides for compliance with
certain covenants, including the maintenance of specified
financial ratios. Borrowings are secured by substantially all
the assets of the Company. During the years ended March 31, 1997,
1996 and 1995 there were no borrowings under the line of credit
and standby letters of credit of $300,000 are outstanding at
March 31, 1997.
Interest paid for the years ended March 31, 1997, 1996 and 1995
approximates interest expense.
4. Leases
The Company leases office facilities under long-term lease
agreements classified as operating leases. The following is a
schedule of future minimum lease payments, net of sublease
income, for operating leases as of March 31, 1997:
Operating Sublease
Leases Income Net
-------------------------------------
Year ending March 31:
1998 $984,291 $(96,437) $887,854
1999 904,776 (96,437) 808,339
2000 510,839 (43,266) 467,573
2001 381,738 (25,542) 356,196
2002 352,592 (25,542) 327,050
Thereafter 331,100 (57,470) 273,630
Net future minimum -------------------------------------
lease payments $3,465,336 $(344,694) $3,120,642
=====================================
Rental expense for operating leases amounted to $1,001,919,
$673,321 and $697,787 in 1997, 1996 and 1995, respectively.
Sublease income amounted to $90,016, $82,217 and $55,181 in 1997,
1996 and 1995, respectively.
F-12
CTC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS
5. Network Service Resale Agreements
On January 15, 1996, the Company entered into a four year non-
exclusive agreement with a long-distance service provider for the
right to provide long distance service to its customers at prices
affected by volume attainment levels during the term of the
agreement. The Company is not obligated to purchase any minimum
levels of usage over the term of the agreement, but rates may be
adjusted if there is a failure to achieve certain volume
commitments. These provisions had no effect on the financial
statements for the year ended March 31, 1997.
On October 20, 1994, the Company entered into a three-year non-
exclusive agreement with a long-distance service provider for the
right to provide long distance service to its customers at fixed
prices by service during the term of the agreement. On October
11, 1996, the Company entered into an amendment to the agreement
which extended the term of the agreement by 5 years from the date
of the amendment. Over such extension period, the Company shall
be liable for a minimum aggregate usage commitment of $25
million. Furthermore, the rates set forth under the
aforementioned amendment may be adjusted if there is a failure to
meet certain periodic volume commitments. Due to existing and
expected usage, these provisions had no effect on the financial
statements for the year ended March 31, 1997.
Prior to the execution of the agreements described above, and
through March 31, 1997, the Company also provided long distance
service to customers under an informal non-exclusive arrangement
with another long distance service provider. The Company is not
obligated to purchase any minimum level of usage on the network,
and there are no other performance obligations.
6. Stockholders' Equity
Common Stock
The Board of Directors approved a 25% stock dividend, declared as
of January 18, 1995, payable to shareholders of record on March
1, 1995. For financial reporting purposes, this transaction has
been accounted for as a stock split, effected in the form of a
dividend. A total of 623,359 shares of common stock were issued
and $540 in cash was paid for fractional share amounts in
connection with the split.
F-13
CTC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS
6. Stockholders' Equity (continued)
On July 13, 1995, the Board of Directors approved a 3 for 2 stock
split to shareholders of record on July 25, 1995. A total of
1,560,742 shares of common stock were issued and $839 in cash was
paid for fractional share amounts in connection with the split.
On October 10, 1995, the Board of Directors approved a 2 for
1 stock split to shareholders of record on October 23, 1995.
A total of 4,718,172 shares of common stock were issued in
connection with the split.
Preferred Stock
The dividends, liquidation preference, voting rights and other
rights of each series of preferred stock, when issued, are to be
designated by the Board of Directors prior to issuance.
7. Benefit Plans
Defined Contribution Plan
In September 1993, the Company established a defined contribution
plan (401(k) plan) covering all employees who meet certain
eligibility requirements. Participants may make contributions to
the plan up to 15% of their compensation (as defined) up to the
maximum established by law. The Company may make a matching
contribution of an amount to be determined by the Board of
Directors, but subject to a maximum of 6% of compensation
contributed by each participant. Company contributions vest
ratably over three years. Company contributions to the plan were
$230,079, $210,063 and $154,748 in 1997, 1996 and 1995,
respectively. Administrative costs paid by the Company were
$1,275, $7,982 and $2,377 in 1997, 1996 and 1995, respectively.
F-14
CTC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS
7. Benefit Plans (continued)
The Company has an employee stock purchase plan (the "ESPP")
which enables participating employees to purchase Company shares
at 85% of the lower of the market prices prevailing on the
valuation dates as defined in the ESPP. Individuals can
contribute up to 5% of their base salary. The Company made no
contributions to the ESPP during the three years in the period
ended March 31, 1997. Indicated below is a summary of shares of
common stock purchased by the ESPP. All share and per share
amounts indicated below have been presented to reflect the stock
dividend and stock splits described above.
In July 1996 and February 1997, the ESPP purchased 2,998 shares
at $11.05 per share and 5,716 shares at $6.48 per share,
respectively.
In July 1995 and January 1996, the ESPP purchased 7,011 shares at
$3.26 per share and 2,345 shares at $11.05 per share,
respectively.
In July 1994 and January 1995, the ESPP purchased 25,324 shares
at $0.55 per share and 19,448 shares at $0.78 per share,
respectively.
Stock Option Plans
Under the terms of its Employees Incentive Stock Option Plan, as
amended, the 1985 Stock Option Plan, the 1993 Incentive Stock
Option Plan and the 1996 Stock Option Plan, the Company may grant
qualified incentive stock options for the purchase of Common
Stock to employees, officers and directors who are employees of
the Company for a minimum of six months. In addition, under the
terms of its 1985 Stock Option Plan, the Company may grant non-
qualified incentive stock options for the purchase of Common
Stock to non-employees of the Company. The Plans generally
provide that the option price will be fixed by a committee of the
Board of Directors but will not be less than 100% (110% for 10%
stockholders) of the fair market value per share on the date of
grant. Nonqualified options may also be granted under the plan
to directors, consultants or agents who are not employees and to
employees who own more than 10% of the Company's voting
securities. Nonqualified options are granted at no less than 85%
(110% for 10% stockholders) of the fair market value per share on
the date of grant. No options have a term of more than ten years
and options to 10% stockholders may not have a term of more than
five years.
F-15
CTC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS
7. Benefit Plans (continued)
In the event of termination of employment, other than by reason
of death, disability or with the written consent of the Company,
all options granted to employees are terminated. Vesting is
determined by the Board of Directors.
On October 11, 1994, unvested options for the purchase of 949,131
shares, which were initially exercisable in annual installments,
were made exercisable in full.
Stock Based Compensation
Pro forma information regarding net income and earnings per share
is required by SFAS No. 123, and has been determined as if the
Company had accounted for its employee stock options and shares
issued pursuant to the ESPP using the fair value method
prescribed by that Statement. The fair value for these options
and shares issued pursuant to the ESPP were estimated at the date
of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions:
Options ESPP
------------- ----------------
1997 1996 1997 1996
---- ---- ---- ----
Expected life (years) 3.98 3.49 0.50 0.50
Interest rate 6.28% 6.12% 5.40% 6.48%
Volatility 87.88% 87.88% 93.03% 80.93%
Dividend yield 0.00% 0.00% 0.00% 0.00%
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective
assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those traded options, and because
changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
F-16
CTC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS
7. Benefit Plans (continued)
For purposes of pro forma disclosures, the estimated fair value
of the options is amortized to expense over the options' vesting
period. The Company's pro forma net income and net income per
share is as follows:
1997 1996
Pro forma net income $4,094,000 $3,550,000
Pro forma net income per share $ 0.39 $ 0.34
The effects on 1997 and 1996 pro forma net income and net income
per share of expensing the estimated fair value of stock options
and shares issued pursuant to the ESPP are not necessarily
representative of the effects on reporting the results of
operations for future years as the periods presented include only
one and two years of option grants under the Company's plans.
A summary of the Company's stock option activity, and related
information for the years ended March 31 follows:
1997 1996 1995
------------------- ------------------ ------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
-----------------------------------------------------------
Outstanding at
beginning of year 1,995,878 $4.01 1,526,850 $1.45 2,456,814 $0.64
Options granted 280,539 9.67 1,000,250 8.06 1,305,693 1.74
Options terminated (286,734) 7.54 (290,689) 2.37 (72,189) 0.53
Options exercised (36,571) 1.20 (240,533) 0.51 (2,163,468) 0.73
---------- ---------- -----------
Outstanding at end
of year 1,953,112 $4.36 1,995,878 $4.01 1,526,850 $1.45
========== ========== ===========
Exercisable at end
of year 772,282 613,824 512,793
========== ========== ===========
Weighted-Average fair
value of options
granted during the
year $6.43 $5.09
========== ==========
F-17
CTC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS
7. Benefit Plans (continued)
The following table presents weighted-average price and life
information about significant option groups outstanding at March
31, 1997:
Options Outstanding Options Exercisable
------------------------------------------- -----------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- ------------------ ------------ ----------------- -------------- ------------- ---------------
$0.25 187,500 1.1 years $ 0.25 187,500 $ 0.25
0.53 181,618 6.5 years 0.53 87,376 0.53
0.90 - 1.10 488,688 6.1 years 1.04 322,666 1.01
2.70 - 2.98 269,056 7.9 years 2.74 131,528 2.74
6.00 - 8.25 417,500 4.7 years 6.50 5,000 6.13
9.12 - 13.00 399,750 4.4 years 10.65 38,212 10.32
$16.25 9,000 5.1 years $16.25 0 $ 0.00
--------- -------
1,953,112 772,282
========= =======
8. Income Taxes
The provision for income tax expense consisted of the following:
1997 1996
----------------------------
Current payable:
Federal $2,660,000 $2,135,000
State 906,000 725,000
----------------------------
3,566,000 2,860,000
Deferred tax benefit (289,000) (124,000)
----------------------------
$3,277,000 $2,736,000
============================
F-18
CTC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS
8. Income Taxes (continued)
Significant components of the Company's deferred tax liabilities
and assets as of March 31, are as follows:
1997 1996
----------------------
Deferred tax assets:
Depreciation $191,000 $107,000
Accruals and allowances 445,000 220,000
----------------------
Total deferred tax asset 636,000 327,000
Deferred tax liability:
Prepaid expenses (31,000) (11,000)
Cash surrender value of life
insurance policy (39,000) (39,000)
----------------------
Total deferred tax liability (70,000) (50,000)
----------------------
Net deferred tax asset $566,000 $277,000
======================
The income tax expense is different from that which would be
obtained by applying the statutory federal income tax rate to
income before income taxes. The items causing this difference
are as follows:
1997 1996 1995
----------------------------------
Tax at U.S. statutory rate $2,706,000 $2,322,000 $790,000
State income taxes, net of
federal benefit 552,000 466,000 151,000
Tax benefit of the utilization
of NOL carryforwards and
alternative minimum tax
credits (107,000)
Other 19,000 (52,000) 16,000
----------------------------------
$3,277,000 $2,736,000 $850,000
==================================
Income taxes paid in 1997, 1996 and 1995 amounted to $3,319,000,
$3,163,000 and $679,000, respectively.
F-19
CTC COMMUNICATIONS CORP.
NOTES TO FINANCIAL STATEMENTS
9. Supplemental Cash Flow Information
On March 22, 1996, the Company received shares of common stock
with an aggregate fair market value of $251,771 in lieu of cash
for settlement of amounts due from an officer. These shares and
the related amount were accounted for as treasury stock and were
subsequently retired.
On September 15, 1995, the Company received shares of common
stock with an aggregate fair market value of $25,039 in lieu of
cash for settlement of amount due from a non-employee of $24,000
plus accrued interest of $1,039. These shares and the related
amount were accounted for as treasury stock and were subsequently
retired.
During the year ended March 31, 1996 and in connection with the
exercise of employee stock options, the Company received shares
of common stock with an aggregate fair market value of $52,315 in
lieu of cash upon the exercise of these options. These shares
and the related amount were accounted for as treasury stock and
were subsequently retired.
During the year ended March 31, 1995, the Company loaned an
aggregate of $159,285 to certain stockholders who utilized the
funds to exercise stock options. Also, in connection with the
exercise of employee stock options, the Company received shares
of common stock with an aggregate fair market value of $1,274,378
in lieu of cash upon the exercise of these options. These shares
and the related amount were accounted for as treasury stock and
were subsequently retired.
These non-cash transactions have been excluded from the
statements of cash flows for the years ended March 31, 1996 and
1995.
F-20
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
CTC COMMUNICATIONS CORP.
- ---------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ---------------------------------------------------------------------------------------
ADDITIONS
--------------------
(1) (2)
Charged to
Balance at Charged to Other Balance
Beginning Costs and Accounts- Deductions- at End
DESCRIPTION of Period Expenses Describe Describe of Period
- ---------------------------------------------------------------------------------------
Year ended March 31, 1997:
Allowance for doubtful accounts $190,215 $316,669(b) $129,884(a) $377,000
Year ended March 31, 1996:
Allowance for doubtful accounts $128,452 $ 61,763 $190,215
Year ended March 31, 1995:
Allowance for doubtful accounts $ 70,401 $ 80,000 $ 21,949(a) $128,452
<FN>
(a) = Bad debts written off net of collections.
(b) Increase in provision in 1997 compared to 1996 and 1995 attributable to a
significant increase in network service resale income for which bad debt write-offs are
significantly higher than commission income.
</FN>
F-21
FORM 10-K FOR THE PERIOD ENDED MARCH 31, 1997
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.
/S/ ROBERT J. FABBRICATORE
---------------------------
Robert J. Fabbricatore,
Chairman and CEO
/S/ JOHN D. PITTENGER
---------------------------
John D. Pittenger,
Vice President, Finance,
Treasurer, and Chief
Financial Officer
Date: June 25, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the date
indicated.
/S/ ROBERT J. FABBRICATORE
--------------------------------
Robert J. Fabbricatore, Chairman
/S/ PHILIP J. RICHER
--------------------------------
Philip J. Richer, Director
/S/ RICHARD J. SANTAGATI
-------------------------------
Richard J. Santagati, Director
/S/ J. RICHARD MURPHY
-------------------------------
J. Richard Murphy, Director
/S/ HENRY HERMANN
-------------------------------
Henry Hermann, Director
Date: June 25, 1997