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 June 30, 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)
(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 August 11, 1997, 9,894,613 shares of Common Stock were outstanding.
COMPUTER TELEPHONE CORP.
FORM 10-Q
INDEX
Part I FINANCIAL STATEMENTS PAGE NO.
Item 1. Financial Statements
Condensed Balance Sheets
as of June 30 and March 31, 1997 3
Condensed Statements of Income
Three Months Ended June 30, 1997 and 1996 4
Condensed Statements of Cash Flows
Three Months Ended June 30, 1997 and 1996 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-8
Item 3. Quantitative and Qualitative Inapplicable
Disclosures About Market Risk
Part II OTHER INFORMATION
Item 1. Legal Proceedings Inapplicable
Item 2. Changes in Securities 9
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:
(11) Statements Regarding Computation
of Per Share Earnings
Three Months ended
June 30, 1997 and 1996
(27) Financial Data Schedule
The Company did not file any reports on Form 8-K during the
three months ended June 30, 1997.
2
CTC COMMUNICATIONS CORP.
CONDENSED BALANCE SHEETS
June 30, March 31,
1997 1997
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,409,485 $ 6,405,670
Accounts receivable, net 14,070,505 10,904,820
Prepaid expenses and other current assets 508,688 493,553
------------- -------------
Total Current Assets 17,988,678 17,804,043
Furniture, Fixtures and Equipment 7,924,963 7,268,372
Less accumulated depreciation (5,751,650) (5,565,650)
------------- -------------
Total Equipment 2,173,313 1,702,722
Deferred tax asset 566,000 566,000
Other assets 112,485 113,685
------------- -------------
Total Assets $ 20,840,476 $ 20,186,450
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,807,659 $ 3,238,416
Accrued income taxes 0 225,948
Accrued salaries and related taxes 2,357,718 2,423,825
Deferred revenue 0 6,588
------------- -------------
Total Current Liabilities 5,165,377 5,894,777
Stockholders' equity:
Common Stock 98,892 96,294
Additional paid in capital 4,765,282 4,758,454
Retained earnings 10,946,750 9,572,750
------------- -------------
15,810,924 14,427,498
Amounts due from stockholders (135,825) (135,825)
------------- -------------
Total Stockholders' Equity 15,675,099 14,291,673
------------- -------------
Total Liabilities and
Stockholders' Equity $ 20,840,476 $ 20,186,450
============= =============
The accompanying notes are an integral part of these financial statements.
3
CTC COMMUNICATIONS CORP.
CONDENSED STATEMENTS OF INCOME
Three Months Ended
June 30, June 30,
1997 1996
------------- -------------
Revenue
Commissions $ 8,604,852 $ 6,755,680
Resale 3,054,102 2,251,781
------------- -------------
11,658,954 9,007,461
Costs and expenses
Cost of resale revenue 2,442,836 1,681,855
Selling, general and administrative expenses 6,935,100 5,334,803
------------- -------------
9,377,936 7,016,658
------------- -------------
Income from operations 2,281,018 1,990,803
Other
Interest income 57,586 41,627
Interest expense (4,455) (625)
Other 3,851 2,581
------------- -------------
56,982 43,583
------------- -------------
Income before income taxes 2,338,000 2,034,386
Provision for income taxes 964,000 840,200
------------- -------------
Net income $ 1,374,000 $ 1,194,186
============= =============
Net income per common share:
Primary $ 0.13 $ 0.11
============= =============
Fully diluted $ 0.13 $ 0.11
============= =============
Weighted average number of common shares:
Primary 10,710,764 10,981,028
============= =============
Fully diluted 10,812,658 10,981,028
============= =============
The accompanying notes are an integral part of these financial statements.
4
CTC COMMUNICATIONS CORP.
CONDENSED STATEMENTS OF CASH FLOWS
Three Months Ended
June 30, June 30,
1997 1996
------------- -------------
OPERATING ACTIVITIES
Net Income $ 1,374,000 $ 1,194,186
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation and amortization 186,000 159,000
Changes in noncash working capital items:
Accounts receivable (3,165,685) (1,596,399)
Inventories 0 (642)
Other current assets (15,135) (56,234)
Other assets 1,200 1,200
Accounts payable (430,757) 91,288
Accrued liabilities (66,107) 247,019
Accrued taxes (225,948) 149,400
Deferred revenue (6,588) 1,527
------------- -------------
Net cash provided (used) by operating activities (2,349,020) 190,345
INVESTING ACTIVITIES
Additions to equipment (656,591) (118,232)
------------- -------------
Net cash used in investing activities (656,591) (118,232)
FINANCING ACTIVITIES
Proceeds from the issuance of common stock 9,426 830
------------- -------------
Net cash provided by financing activities 9,426 830
Increase (decrease) in cash (2,996,185) 72,943
Cash at beginning of year 6,405,670 3,941,876
------------- -------------
Cash and cash equivalents at end of period $ 3,409,485 $ 4,014,819
============= =============
The accompanying notes are an integral part of these financial statements.
5
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 months ended June 30, 1997 are not necessarily indicative of
the results that may be expected for the fiscal year ending March 31, 1998.
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 fiscal year ended March 31, 1997.
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 MARCH 31, 1997
On July 8, 1997, the CTC Communications Corp. Employee Stock Purchase Plan
purchased 5,438 shares of Common Stock from the Company at $6.4813 for the
purchase period ended June 30, 1997.
Through August 6, 1997, 295,745 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.
6
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 ENDED JUNE 30, 1997 AS
COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1996.
Total revenues for the first quarter of Fiscal 1998 increased 29% to
approximately $11,659,000 from $9,007,000 for the same period of the
preceding year (Fiscal 1997). 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 27% to
$8,605,000 for the three months ended June 30, 1997, from $6,756,000 for
the first quarter of Fiscal 1997. 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 36%
to $3,054,000 from $2,252,000 for the same period of the preceding fiscal
year. These increases can be attributed to a better trained and supported
account executive group who developed additional customer contracts, and
increased sales to the Company's existing customers by offering additional
telecommunication products, including long distance, Internet access and
frame relay services. In addition, increased unit sales under the NYNEX
contract, together with stable commission rates over the past year,
contributed to the overall growth in revenues.
Cost of resale revenues increased to $2,443,000 for the first quarter of
Fiscal 1998 from $1,682,000 for the first quarter of Fiscal 1997. As a
percentage of resale revenues, cost of resale revenues increased to 80% in
the Fiscal 1998 quarter from 75% in the Fiscal 1997 quarter as certain
resale services, including Internet access and frame relay services, which
have somewhat lower margins than other resale services, were introduced by
the Company. The Company anticipates that its overall resale margins will
stabilize at or near Fiscal 1998 first quarter levels in future periods.
Selling, general, and administrative expenses increased 30% to $6,935,000
for the first quarter of Fiscal 1998 as compared to $5,335,000 for the
first quarter of Fiscal 1997. This increase is primarily attributable to
the increase in the variable sales commission and 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 continued to hire additional account executives. 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 expects to incur increased
recruiting expenses in subsequent quarters to accomplish this goal.
The Company also made significant capital investments in the quarter ended
June 30, 1997. Investments were made in the Company's information systems
to expand their effectiveness and enable the systems to incorporate
additional products, including local telecommunication services, onto the
Company's resale platform. During the quarter, the Company entered into an
agreement to purchase a tandem switch to be deployed in the New York City
area. This investment is expected to lower the Company's costs on existing
long distance business and make competitive international calling rates
more available to the Company's customer base. The switch is expected to
commence operation during the fall of 1997.
7
Net income for the first quarter of Fiscal 1998 increased to $1,374,000
from $1,194,000 for the same period of Fiscal 1997. The Company estimates
that it will utilize an effective tax rate of approximately 41% for the
balance of Fiscal 1998.
The period ended June 30, 1997 marks the sixteenth consecutive profitable
quarter 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 1998.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 1997 was $12,823,000, as compared to
$11,909,000 at March 31, 1996, an increase of 8%. Cash balances at June
30, 1997 totaled $3,409,000, a decrease of almost $3,000,000 from March 31,
1997, due to a $3,166,000 increase in accounts receivable during the first
quarter. The increase in accounts receivable resulted from a delay in
payment by NYNEX, the Company's largest customer, of agency commissions to
NYNEX agents, including the Company, caused by problems experienced by
NYNEX in its efforts to automate its agent payment process. The Company
has been advised by NYNEX that it is committed to expeditiously resolving
these problems and, accordingly, the Company does not anticipate
experiencing further significant delays in receiving these agency
commissions.
The Company's revolving line of credit agreement with Fleet Bank, which is
available under certain conditions, provides for a credit line of
$5,000,000 at the prime rate of interest, with LIBOR rates available at the
Company's election.
The Company presently has no bank debt (other than the $300,000 outstanding
as of June 30, 1997 under the Fleet 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.
The foregoing statements in Part I Item 2 regarding the Company's intent to
expand its sales force, its expectations of continued profitability
throughout the remainder of Fiscal 1998, improved long distance margins and
stable overall resale margins, its expectation that NYNEX will resolve its
payment process problems, 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, unforeseen delays in receiving NYNEX
commissions on a timely basis, delays in bringing its tandem switch on line
or operational problems with the switch, and increased competitive
pressures from current and additional suppliers of local and long-distance
telephone services and other telecommunications services.
8
PART II
Item 2
During the quarter ended June 30, 1997, the registrant issued a total of
294,745 shares of Common Stock for an aggregate consideration of
$280,497.50 pursuant to the exercise of employee incentive stock options by
three 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 affixed 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.
9
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: August 11, 1997 /S/ ROBERT FABBRICATORE
-------------------------
Robert Fabbricatore
Chairman and CEO
Date: August 11, 1997 /S/ JOHN D. PITTENGER
-----------------------
John D. Pittenger
Treasurer
10