1
EXHIBIT 13.1
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Financial Statements and Schedules
December 31, 2000, 1999 and 1998
(With Independent Auditors' Report Thereon)
2
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Financial Statements Index
December 31, 2000, 1999 and 1998
(1) Consolidated Financial Statements
The following financial statements, together with independent auditors'
report thereon, are included:
o Independent Auditors' Report F - 2
o Consolidated balance sheets as of December 31, 2000 and 1999 F - 3 and F - 4
o Consolidated statements of income for the years ended
December 31, 2000, 1999, and 1998 F - 5
o Consolidated statements of comprehensive income for the years
ended December 31, 2000, 1999 and 1998 F-6
o Consolidated statements of stockholders' equity for the years ended
December 31, 2000, 1999, and 1998 F - 7 and F - 8
o Consolidated statements of cash flows for the years ended
December 31, 2000, 1999, and 1998 F - 9
o Notes to consolidated financial statements for the years ended
December 31, 2000, 1999, and 1998 F - 10 to F - 33
(2) Consolidated Financial Statement Schedule
The following financial statement schedule is included:
o Schedule II - Valuation and Qualifying Accounts F - 34
Other schedules are omitted because the required information is included
in the financial statements or is not applicable.
3
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
CT Communications, Inc.:
We have audited the consolidated financial statements of CT Communications, Inc.
and subsidiaries as listed in the accompanying index. In connection with our
audits of these consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CT Communications,
Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related
financial statement schedule, when considered in relation to the consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ KPMG LLP
Charlotte, North Carolina
February 23, 2001
4
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2000 and 1999
ASSETS 2000 1999
----------------- ----------------
Current assets:
Cash and cash equivalents $ 8,060,015 1,561,778
Accounts receivable, net of allowance for doubtful
accounts of $239,732 in 2000 and $107,500 in 1999 18,987,133 14,859,359
Notes receivable -- 1,513,500
Other accounts receivable 197,046 2,260,038
Materials and supplies 3,476,188 2,551,724
Deferred income taxes 134,875 154,669
Prepaid expenses and other assets 1,139,921 1,097,875
----------------- ----------------
Total current assets 31,995,178 23,998,943
----------------- ----------------
Investment securities 23,900,094 81,950,045
Other investments 484,363 9,363
Investments in affiliates 38,310,831 31,683,635
Property and equipment:
Land, buildings, and general equipment 49,007,911 38,873,719
Central office equipment 105,679,164 83,054,096
Poles, wires, cables and conduit 106,279,321 95,335,716
Construction in progress 10,058,370 2,426,293
----------------- ----------------
271,024,766 219,689,824
Less accumulated depreciation (119,241,009) (105,514,615)
----------------- ----------------
Net property and equipment 151,783,757 114,175,209
----------------- ----------------
Intangible and other assets, net 13,048,058 5,878,015
$ 259,522,281 257,695,210
================= ================
See accompanying notes to consolidated financial statements.
F-3
5
2000 1999
---------------- ----------------
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt and redeemable
preferred stock $ 12,500 12,500
Accounts payable 11,232,108 6,955,346
Short-term borrowings 5,000,000 --
Customer deposits and advance billings 2,294,164 2,094,334
Accrued payroll 1,968,699 2,450,067
Income taxes payable 87,202 1,019,221
Accrued pension cost 1,000,933 1,020,639
Other accrued liabilities 2,724,648 2,321,594
---------------- ----------------
Total current liabilities 24,320,254 15,873,701
---------------- ----------------
Long-term debt 34,000,000 20,000,000
---------------- ----------------
Deferred credits and other liabilities:
Deferred income taxes 13,605,547 34,507,475
Investment tax credits 574,425 689,310
Postretirement benefits other than pension 10,612,354 10,551,111
Other 942,686 795,011
---------------- ----------------
25,735,012 46,542,907
---------------- ----------------
Redeemable preferred stock, 4.8% series; authorized 5,000
shares; issued and outstanding 1,125 and 1,250 shares in
2000 and 1999, respectively 100,000 112,500
---------------- ----------------
Total liabilities 84,155,266 82,529,108
---------------- ----------------
Stockholders' equity:
Preferred stock not subject to mandatory redemption:
5% series, $100 par value; 3,356 shares
outstanding in 2000 and 1999 335,600 335,600
4.5% series, $100 par value; 614 shares
outstanding in 2000 and 1999 61,400 61,400
Common stock,
18,846,541 and 18,760,930 shares outstanding in
2000 and 1999, respectively 42,574,584 40,705,827
Other capital 298,083 298,083
Unearned compensation (836,005) (1,074,726)
Other accumulated comprehensive income 10,298,820 48,059,889
Retained earnings 122,634,533 86,780,029
---------------- ----------------
Total stockholders' equity 175,367,015 175,166,102
---------------- ----------------
$ 259,522,281 257,695,210
================ ================
F-4
6
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 2000, 1999, and 1998
2000 1999 1998
---------------- ---------------- --------------
Operating revenues $ 115,655,333 105,591,594 91,725,394
Operating expenses 100,149,049 83,223,191 70,272,414
---------------- ---------------- --------------
Net operating revenues 15,506,284 22,368,403 21,452,980
---------------- ---------------- --------------
Other income (expenses):
Equity in income of affiliates, net 5,423,408 1,149,234 431,088
Interest, dividend income and gain on sale
of investments 51,668,402 17,823,337 1,916,446
Other expenses, principally interest (4,590,068) (2,575,048) (1,491,635)
---------------- ---------------- --------------
Total other income 52,501,742 16,397,523 855,899
---------------- ---------------- --------------
Income before income taxes 68,008,026 38,765,926 22,308,879
Income taxes 27,228,578 15,697,657 8,926,469
---------------- ---------------- --------------
Net income 40,779,448 23,068,269 13,382,410
Dividends on preferred stock 25,518 26,210 28,457
---------------- ---------------- --------------
Earnings for common stock $ 40,753,930 23,042,059 13,353,953
================ ================ ==============
Basic earnings per common share,
Earnings per common share $ 2.16 1.23 0.72
================ ================ ==============
Diluted earnings per common share,
Earnings per common share $ 2.15 1.22 0.72
================ ================ ==============
Basic weighted average shares outstanding 18,833,807 18,705,886 18,454,032
================ ================ ==============
Diluted weighted average shares outstanding 18,930,980 18,851,850 18,553,008
================ ================ ==============
See accompanying notes to consolidated financial statements.
F-5
7
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years ended December 31, 2000, 1999, and 1998
2000 1999 1998
---------------- ---------------- ---------------
Net income $ 40,779,448 23,068,269 13,382,410
Other comprehensive income:
Unrealized holding gains (losses) on
available-for-sale securities (30,464,737) 45,097,588 7,645,533
Less reclassification adjustment for gains
realized in net income (7,296,332) (10,138,447) (714,228)
---------------- ---------------- ---------------
Comprehensive income $ 3,018,379 58,027,410 20,313,715
================ ================ ===============
See accompanying notes to consolidated financial statements.
F-6
8
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 2000, 1999, and 1998
5% Series 4.5% Series Other Total
Preferred Preferred Common Other Unearned Comprehensive Retained Stockholders'
Stock Stock Stock Capital Compensation Income Earnings Equity
--------- ----------- ---------- ------- ------------ ------------- ---------- -------------
Balances at December 31, 1997 $ 363,100 121,800 31,162,056 298,083 (817,903) 6,169,443 59,671,874 96,968,453
Net income -- -- -- -- -- -- 13,382,410 13,382,410
Issuance of 219,818 shares of
common stock -- -- 6,559,335 -- -- -- -- 6,559,335
Issuance of 111,114 shares for
exercise of stock options -- -- 425,619 -- -- -- -- 425,619
Repurchases of shares:
191 shares of 5% preferred (19,100) -- 3,079 -- -- -- -- (16,021)
590 shares of 4.5% preferred -- (59,000) 27,824 -- -- -- -- (31,176)
9,570 shares of common -- -- (308,275) -- -- -- -- (308,275)
Dividends declared:
5% preferred -- -- -- -- -- -- (19,398) (19,398)
4.8% preferred -- -- -- -- -- -- (5,382) (5,382)
4.5% preferred -- -- -- -- -- -- (3,677) (3,677)
Common stock -- -- -- -- -- -- (4,420,570) (4,420,570)
Other comprehensive income -- -- -- -- -- 6,931,305 -- 6,931,305
Restricted stock compensation,
net of $385,316 earned
during the year -- -- -- -- 120,565 -- -- 120,565
--------- ----------- ---------- ------- ------------ ------------- ---------- -------------
Balances at December 31, 1998 344,000 62,800 37,869,638 298,083 (697,338) 13,100,748 68,605,257 119,583,188
--------- ----------- ---------- ------- ------------ ------------- ---------- -------------
Net income -- -- -- -- -- -- 23,068,269 23,068,269
Issuance of 55,185 shares of
common stock -- -- 2,157,170 -- -- -- -- 2,157,170
Issuance of 25,228 for exercise of
stock options -- -- 411,888 -- -- -- -- 411,888
Repurchases of shares:
84 shares of 5% preferred (8,400) -- 2,772 -- -- -- -- (5,628)
14 shares of 4.5% preferred -- (1,400) 560 -- -- -- -- (840)
717 shares of common -- -- (40,308) -- -- -- -- (40,308)
Dividends declared:
5% preferred -- -- -- -- -- -- (16,843) (16,843)
4.8% preferred -- -- -- -- -- -- (6,575) (6,575)
4.5% preferred -- -- -- -- -- -- (2,792) (2,792)
Common stock -- -- -- -- -- -- (4,867,287) (4,867,287)
Tax benefit from exercise of stock
options -- -- 304,107 -- -- -- -- 304,107
Other comprehensive income -- -- -- -- -- 34,959,141 -- 34,959,141
Restricted stock compensation,
net of $607,247 earned
during the year -- -- -- -- (377,388) -- -- (377,388)
--------- ----------- ---------- ------- ------------ ------------- ---------- -------------
Balances at December 31, 1999 $ 335,600 61,400 40,705,827 298,083 (1,074,726) 48,059,889 86,780,029 175,166,102
--------- ----------- ---------- ------- ------------ ------------- ---------- -------------
See accompanying notes to consolidated financial statements.
F-7
9
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 2000, 1999, and 1998
5% Series 4.5% Series Other Total
Preferred Preferred Common Other Unearned Comprehensive Retained Stockholders'
Stock Stock Stock Capital Compensation Income Earnings Equity
--------- ----------- ---------- ------- ------------ ------------- ---------- -------------
Net income -- -- -- -- -- -- 40,779,448 40,779,448
Issuance of 63,490 shares of
common stock -- -- 1,576,013 -- -- -- -- 1,576,013
Issuance of 45,998 shares for
exercise of stock options -- -- 491,980 -- -- -- -- 491,980
Repurchases of shares:
23,877 shares of common -- -- (527,802) -- -- -- -- (527,802)
Dividends declared:
5% preferred -- -- -- -- -- -- (16,780) (16,780)
4.8% preferred -- -- -- -- -- -- (5,975) (5,975)
4.5% preferred -- -- -- -- -- -- (2,763) (2,763)
Common stock -- -- -- -- -- -- (4,899,426) (4,899,426)
Tax benefit from exercise of stock
options -- -- 328,566 -- -- -- -- 328,566
Other comprehensive income (loss) -- -- -- -- -- (37,761,069) -- (37,761,069)
Restricted stock compensation,
net of $1,247,670 earned
during the year -- -- -- -- 238,721 -- -- 238,721
--------- ----------- ---------- ------- ------------ ------------ ----------- -------------
Balances at December 31, 2000 $ 335,600 61,400 42,574,584 298,083 (836,005) 10,298,820 122,634,533 175,367,015
========= =========== ========== ======= ============ ============ =========== =============
F-8
10
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2000, 1999, and 1998
2000 1999 1998
------------- ------------- -------------
Cash flows from operating activities:
Net income $ 40,779,448 $ 23,068,269 $ 13,382,410
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 18,710,700 15,124,263 12,840,561
Postretirement benefits 61,243 1,907 523,076
Gain on sale of investment securities (11,364,204) (15,806,746) (1,113,546)
Gain on sale of investment in affiliate (39,214,000) -- --
Undistributed income of affiliates (5,423,408) (1,149,234) (431,088)
Deferred income taxes and tax credits 115,244 1,446,326 4,138,338
Changes in operating assets and liabilities, net of effects
of acquisitions in 2000 and 1999:
Accounts and notes receivable (256,262) (3,715,640) (4,306,651)
Materials and supplies (924,464) (219,767) 364,475
Other current assets (920,567) 313,167 (402,502)
Accounts payable 3,865,444 (1,642,045) (1,519,073)
Customer deposits and advance billings 199,830 201,828 83,531
Accrued liabilities (321,981) (148,487) 703,974
Income taxes payable (603,453) 618,485 (592,014)
------------- ------------- -------------
Net cash provided by operating activities 4,703,570 18,092,326 23,671,491
------------- ------------- -------------
Cash flows from investing activities:
Capital expenditures, net (54,089,521) (27,584,002) (24,789,296)
Purchases of investments in affiliates (6,682,448) (5,331,115) (4,375,949)
Purchases of investment securities (8,664,541) (11,883,346) (100,919)
Proceeds from sale of investment in affiliates 39,214,000 -- --
Proceeds from sale of investment securities 19,238,469 25,949,049 1,806,648
Partnership capital distribution 4,970,065 3,442,882 3,609,252
Notes receivable collections, net -- -- (503,000)
Acquisitions, net of cash (6,765,425) (255,000) --
------------- ------------- -------------
Net cash used in investing activities (12,779,401) (15,661,532) (24,353,264)
------------- ------------- -------------
Cash flows from financing activities:
Repayment of long-term debt -- -- (21,281,889)
Proceeds from new debt -- -- 29,422,889
Proceeds from short-term revolving credit facility 5,000,000 -- --
Net proceeds from credit facility 14,000,000 -- --
Redemption of preferred stock (12,500) (12,500) (12,500)
Dividends paid (4,924,944) (4,893,497) (4,449,027)
Repurchases of common and preferred stock (34,100) (46,776) (385,863)
Proceeds from common stock issuances 545,612 1,159,189 312,731
------------- ------------- -------------
Net cash provided by (used in) financing activities 14,574,068 (3,793,584) 3,606,341
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 6,498,237 (1,362,790) 2,924,568
Cash and cash equivalents - beginning of year 1,561,778 2,924,568 --
------------- ------------- -------------
Cash and cash equivalents - end of year $ 8,060,015 1,561,778 2,924,568
============= ============= =============
Supplemental cash flow information:
Cash paid for income taxes $ 28,253,130 $ 13,545,442 $ 4,827,202
Cash paid for interest $ 1,981,391 $ 1,100,899 $ 1,093,473
See accompanying notes to consolidated financial statements.
F-9
11
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION AND ORGANIZATION
These consolidated financial statements include the accounts of CT
Communications, Inc. (the Company), a holding company, and its
wholly-owned subsidiaries, The Concord Telephone Company ("CTC"),
CTC Long Distance Services, Inc. ("CTC LDS"), CT Cellular, Inc.,
Carolina Personal Communications, Inc. (dba "CTC Wireless, Inc."),
CT Wireless Cable, Inc., CTC Exchange Services, Inc., CT Global
Telecommunications, Inc. ("CTGT"), CT Communications Northeast
Trust, CT Communications Northeast, Inc., CT Communications
Northeast Wireless Trust and CTC Internet Services, Inc. All
significant intercompany accounts and transactions have been
eliminated in consolidation.
CT Communications, Inc. and subsidiaries operate entirely in the
communications industry. Concord Telephone, the Company's
principal subsidiary, provides local telephone service as well as
telephone and equipment rental to customers who are primarily
residents of Cabarrus, Stanly and Rowan counties in North
Carolina. The Company also provides long distance service via CTC
LDS. CT Cellular owns and accounts for investments in a limited
partnership which provides cellular mobile telephone services to
various counties in North and South Carolina. CTC Wireless
accounts for the retail operations and services provided in
relation to personal communications services, a new wireless
telecommunications system which includes voice, data interface and
paging. CT wireless Cable accounts for an investment in Wireless
One of North Carolina, LLC, which participates in the wireless
cable television market in North Carolina. CTC Exchange Services
provides competitive local telephone service in North Carolina.
CTGT was formed to build telecommunications networks outside of
the United States. CT Communications Northeast Trust and CT
Communications Northeast, Inc. hold the Company's investment
securities and investments in affiliates. CTC Internet Services,
Inc. provides internet services to customers in North Carolina.
(B) RECLASSIFICATIONS
In certain instances, amounts previously reported in the 1999 and
1998 consolidated financial statements have been reclassified to
conform with the 2000 consolidated financial statement
presentation. Such reclassifications have no effect on net income
or retained earnings as previously reported.
F-10
12
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(C) PROPERTY AND EQUIPMENT
Telephone plant in service is stated at original cost and includes
certain indirect costs consisting of payroll taxes, pension and
other fringe benefits.
Maintenance, repairs, and minor renewals are primarily charged to
maintenance expense accounts. Additions, renewals, and betterments
are charged to telephone plant accounts. Within Concord Telephone
Company, the original cost of depreciable property retired is
removed from telephone plant accounts and charged to accumulated
depreciation, which is credited with the salvage less removal
cost. Under this method, no gain or loss is calculated on ordinary
retirements of depreciable property. For all other companies, the
original cost and accumulated depreciation are removed from the
accounts and any gain or loss included in the results of
operations.
Depreciation is calculated using the straight-line method over the
estimated useful lives of the respective assets.
(D) INVESTMENT SECURITIES
Investment securities at December 31, 2000 and 1999 consist of
state, county and municipal debt securities, and corporate equity
securities. The Company classifies its debt and equity securities
in one of three categories: trading, available-for-sale, or
held-to-maturity. Trading securities are bought and held
principally for the purpose of selling them in the near term.
Held-to-maturity securities are those securities in which the
Company has the ability and intent to hold until maturity. All
other securities not included in trading or held-to-maturity are
classified as available-for-sale.
Trading and available-for-sale securities are recorded at fair
value. Held-to-maturity securities are recorded at amortized cost,
adjusted for the amortization or accretion of premiums or
discounts. Unrealized holding gains and losses on trading
securities are included in earnings. Unrealized holding gains and
losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and are reported as a
separate component of other comprehensive income until realized.
Realized gains and losses from the sale of available-for-sale
securities are determined on a specific identification basis.
F-11
13
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
A decline in the market value of any available-for-sale or
held-to-maturity security below cost that is deemed to be other
than temporary results in a reduction in carrying amount to fair
value. The impairment is charged to earnings and a new cost basis
for the security is established. Premiums and discounts are
amortized or accreted over the life of the related
held-to-maturity security as an adjustment to yield using the
effective interest method. Dividend and interest income are
recognized when earned.
At December 31, 2000 and 1999, all securities are classified as
available-for-sale securities.
(E) INVESTMENTS IN AFFILIATED COMPANIES
The Company has interests in several partnerships and corporations
that operate in the communications industry. Investments in
affiliates over which the Company has the ability to exercise
significant influence are accounted for by the equity method.
(F) MATERIALS AND SUPPLIES
Materials and supplies are carried principally at the lower of
average cost or market.
(G) INCOME TAXES
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Investment tax credits related to telephone plant have been
deferred and amortized as a reduction of federal income tax
expense over the estimated useful lives of the assets giving rise
to the credits. Unamortized deferred investment tax credits are
treated as temporary differences.
(H) REVENUE RECOGNITION
Revenues are recognized when services are provided regardless of
the period in which they are billed.
Installation fees and the related costs are capitalized and
amortized over the estimated life of the customer.
F-12
14
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(I) INTANGIBLES
Intangibles consist primarily of goodwill representing the excess
of the purchase price of acquisitions over the fair value of the
net assets acquired. Goodwill is amortized using the straight line
method over 10 to 15 years. The Company assesses the
recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can
be recovered through undiscounted future operating cash flows of
the acquired operation. Amortization expense for the years ended
December 31, 2000, 1999 and 1998 amounted to $809,823, $679,340
and $432,359, respectively. Accumulated amortization at December
31, 2000 and 1999 was $1,901,491 and $1,091,668, respectively.
(J) CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers
all short-term investments with original maturities at the date of
purchase of three months or less to be cash equivalents.
(K) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make 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. Actual results could differ from those estimates.
(L) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF
The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount
of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
F-13
15
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(M) STOCK OPTION PLANS
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related
interpretations including FASB Interpretation No. 44, "Accounting
for Certain Transactions involving Stock Compensation an
interpretation of APB Opinion No. 25" issued in March 2000 to
account for its fixed plan stock options. Under this method,
compensation expense is recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise
price. Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," established accounting
and disclosure requirements using a fair value-based method of
accounting for stock-based employee compensation plans. As allowed
by SFAS 123, the Company has elected to continue to apply the
intrinsic value-based method of accounting described above, and
has adopted the disclosure requirements of SFAS 123.
(O) RECENT ACCOUNTING PRONOUNCEMENTS
During 2000, the Company adopted the Securities and Exchange
Commission Staff Accounting Bulletin (SAB) No. 101, "Revenue
Recognition in Financial Statements" which sets forth guidelines
for accounting and disclosures related to revenue recognition.
Adoption of SAB No. 101 had no material impact on the Company's
financial statements.
(2) NOTES RECEIVABLE
At December 31, 1999, the Company had notes receivable of $1,513,500 due
from US Telecom Holdings, Inc. ("USTH") with interest at 9.75%. The notes
and interest were collected in 2000.
F-14
16
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(3) INVESTMENT SECURITIES
The amortized cost, gross unrealized holding gains, gross unrealized
holding losses and fair value for the Company's investments by major
security type and class of security at December 31, 2000 and 1999, were
as follows:
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
------------- -------------- ---------------- ---------------
At December 31, 2000
Available-for-sale:
Equity securities $ 7,843,313 16,827,470 (770,689) 23,900,094
============== ============== ================ ===============
At December 31, 1999
Available-for-sale:
Equity securities $ 7,019,143 75,152,748 (221,846) 81,950,045
============== ============== ================ ===============
In 2000, 1999, and 1998 proceeds from the sale of investment securities
available for sale were $19,238,469, $25,949,049, and $1,806,648 and
included in income were gross realized gains of $12,164,249, $16,189,174,
and $1,274,437 and gross realized losses of $800,045, $382,428, and
$160,981, respectively.
(4) INVESTMENTS IN AFFILIATED COMPANIES
Investments in affiliated companies consist of the following:
2000
OWNERSHIP
PERCENTAGE 2000 1999
------------------ ------------------- -------------------
Equity Method:
Palmetto Mobile Net, L.P. 19.84% 12,472,551 11,678,889
Wireless One of North
Carolina, LLC 49.64% 8,874,129 8,613,074
BellSouth Carolinas PCS, LP -- -- --
Other Various 110,140 41,016
Cost Method:
ITC Holding Company 3.80% 2,215,534 2,724,129
Maxcom Telecomunicaciones,
S.A. de C.V. 16.20% 14,638,477 8,610,277
Other Various -- 16,250
------------------- -------------------
$ 38,310,831 31,683,635
=================== ===================
F-15
17
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
Palmetto MobileNet, L.P. is a partnership that holds interests in 10
cellular rural service areas (RSA's) in North and South Carolina. The
Company's investment in Palmetto MobileNet is accounted for within its CT
Cellular, Inc. subsidiary. Alltel Mobile is the managing partner of the
10 RSA's.
The purpose of Wireless One of North Carolina, LLC is to develop and
deploy broadband wireless services in North Carolina.
BellSouth Carolinas PCS, L.P. is in the business of providing digital
personal communications services that competes with cellular phone
service. During 2000, the Company sold its interest in this partnership
and recognized a gain of $39,214,000 before income taxes. Also during
2000, the Company elected to exercise its right to partition its
predefined area of BellSouth Carolinas PCS, L.P. This partitioning is
planned during 2001 with an estimated cost of $20-$25 million.
ITC Holding Company has participated in the formation of several
telecommunications companies. During 2000, ITC Holding reorganized and as
a result we received 1,600,000 shares of Knology, Inc. Under the
reorganization agreement we have agreed not to sell or transfer the
shares for two years. During 1997 ITC Holding restructured and as a
result the Company received shares in ITC-DeltaCom. The investment in
ITC-DeltaCom is included in available-for-sale equity securities in note
3.
Maxcom Telecomunicaciones, S.A. de C.V. ("Maxcom", formerly known as
Amaritel, S.A. de C.V.) is creating a competitive telecommunications
company offering local, long distance, and network telecommunications
services in Mexico. The Company's investment in Maxcom is through its
subsidiary, CTGT. During 2000, the Company contributed an additional
$6,028,200 in connection with a Capital Contribution Agreement between
Maxcom and its shareholders.
Included in the Company's share of earnings from affiliates accounted for
under the equity method for 2000 were total losses of $340,319 and total
income of $5,763,727. 100% of the income was attributable to Palmetto
MobileNet, L.P.
Summarized unaudited financial position information for Palmetto
MobileNet, L.P. as of December 31, 2000 is as follows: current assets -
$13,150,741; property and other non-current assets - $104,965,258;
current liabilities - $6,019,962; partners' capital - $112,096,036.
Summarized unaudited combined results of operations for this entity for
the year ended December 31, 2000, is as follows: revenues - $90,966,823;
operating income - $33,038,715 and net income - $29,051,042.
Summarized unaudited financial position information for Palmetto Mobile
Net, L.P. as of December 31, 1999 is as follows: current assets -
$20,217,143; property and other non-current assets - $95,822,892; current
liabilities - $7,160,000; partners' capital - $108,880,035. Summarized
unaudited combined results of operations for this entity for the year
ended December 31, 1999, is as follows: revenues - $81,325,406; operating
income - $31,695,237 and net income - $28,438,113.
F-16
18
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(5) ACQUISITIONS
On December 13, 2000, the Company acquired WebServe, Inc. (WebServe) a
regional web services company based in Charlotte, North Carolina for
$5,971,000. This transaction was structured as a stock purchase and
WebServe will operate as part of the Company's subsidiary, CTC Internet
Services, Inc. Pursuant to the purchase, the Company has acquired all of
the outstanding shares of WebServe. This transaction was accounted for
under the purchase method of accounting and the total purchase has been
allocated to assets and liabilities assumed as follows:
Accounts receivable $ 258,000
Prepaid expenses 13,000
Property, plant and equipment 37,000
Goodwill 5,969,000
Other intangibles 17,000
Accounts payable (319,000)
Other liabilities (4,000)
----------------
Total purchase price $ 5,971,000
================
The purchase agreement includes contingent purchase payments of up to
$5,000,000, based on 2001 performance levels. Goodwill from the
acquisition is being amortized over 10 years.
In February 2000, the Company acquired Internet of Concord, an internet
provider based in Concord, NC for $795,000. Goodwill from the acquisition
is being amortized over 10 years. The total purchase price has been
allocated to assets acquired as follows:
Accounts receivable $ 33,000
Property, plant and equipment 223,000
Goodwill 631,000
Accounts payable (92,000)
----------------
$ 795,000
================
On September 30, 1999, the Company acquired Catawba Valley Internet
Services, an internet provider based in Cherryville, NC for $255,000. The
total purchase price has been allocated to assets acquired as follows:
Property, plant and equipment $ 25,000
Goodwill 230,000
----------------
$ 255,000
================
Results of operations for the acquired entities have been included from
the date of acquisition. Pro forma results for these entities are not
material to the consolidated financial statements.
F-17
19
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of the company's financial instruments:
Cash and cash equivalents, accounts receivable, notes receivable,
other assets, accounts payable and accrued expenses - the carrying
amount approximates fair value because of the short maturity of
these instruments.
Investment Securities - debt and equity securities are carried at
quoted market value.
Debt Instruments - the fair value of the Company's long-term debt
is estimated by discounting the scheduled payment streams to
present value based on current rates for similar instruments of
comparable maturities.
Based on the methods and assumptions noted above, the estimated fair
values of the Company's financial instruments approximate carrying
amounts at December 31, 2000 and 1999 due to the variability in interest
rates of the underlying instruments not subject to an interest rate swap
agreement.
(7) DEBT INSTRUMENTS
Long-term debt at December 31 consists of the following:
2000 1999
------------------ ------------------
Line of credit with interest at LIBOR plus .5% (7.31% at
December 31, 2000) due December 31, 2003 $ 34,000,000 20,000,000
============ ============
The Company has an available line of credit totaling $60,000,000, of
which $34,000,000 was outstanding at December 31, 2000. The Company is in
compliance with all debt covenants or has obtained a waiver as of
December 31, 2000.
The Company has an interest rate swap agreement with a financial
institution to hedge $10,000,000 of the outstanding credit line. Under
the agreement, the Company pays interest on the $10,000,000 at a fixed
rate of 5.9% plus an applicable spread (.5% at December 31, 2000), in
return for receiving interest at LIBOR plus .5%.
In addition, the Company has two $5.0 million revolving credit facilities
with Rural Telephone Finance Corporation (RTFC) and First Charter
National Bank. As of December 31, 2000, we had $5 million outstanding
under the First Charter facility and no amounts outstanding under the
RTFC facility. The First Charter facility bears interest at LIBOR plus
1.25% (7.87% at December 31, 2000).
Interest expense recognized in 2000, 1999, and 1998 was $2,157,360,
$1,404,359, and $1,228,381. During 2000, interest capitalized into
construction in progress was $85,044.
F-18
20
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(8) REDEEMABLE PREFERRED STOCK
The 4.8% redeemable preferred stock is callable at a redemption price of
$100 a share plus accumulated dividends. Sinking fund requirements in the
next five years are $12,500 annually.
There have been no changes in the 4.8% series preferred stock in the
three years ended December 31, 2000, other than the annual sinking fund
requirement of $12,500.
(9) COMMON STOCK AND PREFERRED STOCK NOT SUBJECT TO MANDATORY REDEMPTION
There are 100,000,000 shares of voting common stock, no par value,
authorized.
On April 5, 2000 the Company effected a two-for-one stock dividend to
stockholders of record at March 15, 2000. All share amounts have been
retroactively restated for all years presented.
On January 28, 1999, the Company's shareholders approved a plan of
recapitalization for its common stock. On that date, the Company's
Articles of Incorporation were amended to provide for one class of common
stock, rather than the two existing classes of Voting Common Stock and
Class B Nonvoting Common Stock. Each outstanding share of Voting Common
Stock has been automatically converted into 4.4 shares of common stock,
and each outstanding share of Class B Nonvoting Common Stock has been
automatically converted into 4.0 shares of common stock. The foregoing
financial statements and footnotes have been adjusted to reflect the
recapitalization. Earnings per share, dividends per share and weighted
average shares outstanding have been retroactively restated for all years
presented.
The Company has a stockholders' rights plan that entitles each
stockholder the right to purchase additional shares of common stock at a
specified price upon the occurrence of certain events related to a
potential change in control.
Cash dividends per share of common stock are as follows: $.26 in 2000,
$.26 in 1999; and $.24 in 1998.
Preferred stock is comprised of cumulative $100 par value 5% and 4.5%
series stock. There are 17,000 shares of the 5% series stock authorized.
There are 2,000 shares of the 4.5% series stock authorized.
(10) STOCK COMPENSATION PLANS
At December 31, 2000, the Company has five stock-based compensation
plans, which are described below. The Company applies APB Opinion No. 25
and related Interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its fixed stock option plans
and its stock purchase plan. Had compensation cost for the Company's
stock-based compensation plans been determined consistent with SFAS No.
123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
F-19
21
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
2000 1999
-------------- --------------
Net income As Reported $ 40,753,930 23,042,059
Pro forma $ 39,940,808 22,808,536
Basic earnings per common
share As Reported $ 2.16 1.23
Pro forma $ 2.12 1.22
Diluted earnings per common
share As Reported $ 2.15 1.22
Pro Forma $ 2.11 1.21
The Company has an Executive Stock Option Plan (the Plan) to allow key
employees to increase their holdings of the Company's common stock.
90,000 shares of common stock were reserved for issuance under the Plan.
At December 31, 2000, all shares reserved for issuance have been granted.
Options are granted at prices determined by the Board of Directors,
generally the most recent sales price at the date of grant, and must be
exercised within five years of the date of grant. Options are exercisable
immediately when granted. Activity under the Plan for each of the years
in the three-year period ended December 31, 2000, is as follows:
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF OPTIONS PRICE
------------------ ----------------
Options outstanding and exercisable at
December 31, 1997 41,792 $ 7
Options granted -- --
Options exercised (16,936) 6
------------------ ----------------
Options outstanding and exercisable at
December 31, 1998 24,856 7
Options granted -- --
Options exercised (17,656) 7
------------------ ----------------
Options outstanding and exercisable at
December 31, 1999, 7,200 7
Options granted -- --
Options exercised 7,200 7
------------------ ----------------
Options outstanding and exercisable at
December 31, 2000 -- $ --
================== ================
F-20
22
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
The Company has a comprehensive Stock option plan (the Plan) to allow key
employees to increase their holdings of the Company's common stock. Under
the Plan, 180,000 shares of common stock have been reserved for issuance.
At December 31, 2000, the number of common stock reserved for issuance
but ungranted was 480 shares. Options are granted at prices determined by
the Board of Directors, generally the most recent sales price at the date
of grant, and must be exercised within ten years of the date of grant.
Options become exercisable over periods from six months to four years
after the grant date.
Activity under the Plan for each of the years in the three-year period
ended December 31, 2000 is as follows:
WEIGHTED
NUMBER AVERAGE EXERCISE
OF OPTIONS PRICE
---------------- -----------------
Options outstanding and exercisable at
December 31, 1997 172,312 $ 9
Options granted -- 9
Options exercised (5,312) 9
Options forfeited (10,616) 9
---------------- -----------------
Options outstanding and exercisable at
December 31, 1998 156,384 9
Options granted -- --
Options exercised (30,128) 9
Options forfeited (7,984) 9
---------------- -----------------
Options outstanding and exercisable at
December 31, 1999 118,272 $ 9
---------------- -----------------
Options granted -- --
Options exercised (27,632) 9
Options forfeited (1,768) 9
---------------- -----------------
Options outstanding and exercisable at
December 31, 2000 88,872 $ 9
================ =================
As of December 31, 2000 and 1999, the 88,872 and 118,272 options
outstanding have exercise prices between $8 and $9 and a weighted-average
remaining contractual life of 5.0 and 6.5 years, respectively.
F-21
23
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
The Company has a Restricted Stock Award Program (the Program) to provide
deferred compensation and additional equity participation to certain
executive management and key employees. The aggregate amount of common
stock that may be awarded to participants under the Program is 180,000
shares. The Company records deferred compensation in the amount of the
fair market value of the stock granted and amortizes this amount on a
straight line basis over the restricted period, generally 1 to 10 years.
In 2000, 1999 and 1998, respectively, the Company granted 41,039, 48,436
and 16,168 shares to participants with a weighted-average fair value of
$25, $20 and $17. Deferred compensation at December 31, 2000 and 1999,
respectively was $836,005 and $1,074,726, which is disclosed net of
accumulated amortization of $1,247,670 and $607,247, in the consolidated
statements of stockholders' equity.
In 1996, a Director Compensation Plan (the Plan) was approved to provide
each member of the Board of Directors the right to receive the Director's
compensation in shares of common stock or cash, at the Director's
discretion. An aggregate of 90,000 shares have been reserved for issuance
under the Plan. All compensation for a Director who elects to receive
shares of stock in lieu of cash will be converted to shares of stock
based upon the fair market value of the common stock on the grant date.
The initial grant date is the first day that is six months and one day
following the Directors election. All subsequent compensation shall be
converted to shares of common stock based upon the fair market value of
the common stock on the date such compensation is paid or made available
to the Director. During 2000, 1999 and 1998, the Company granted 6,810,
9,056 and 5,216 shares, respectively, with an average fair market value
of $27, $19 and $17, respectively.
During 1997, the CT Communications, Inc. Omnibus Stock Compensation Plan
(the Plan) was approved. Under the Plan, 800,000 shares of common stock
have been reserved for issuance. The Plan provides for awards of stock,
stock options and stock appreciation rights. At December 31, 2000, the
number of shares of common stock reserved for issuance but ungranted was
428,997 shares. Options are granted at prices determined by the Board of
Directors, generally the most recent sales price at the date of grant,
and must be exercised within ten years of the date of grant.
F-22
24
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
Activity under the Plan for the year ended December 31, 2000 is as
follows:
WEIGHTED
AVERAGE EXERCISE
NUMBER PRICE
OF OPTIONS
---------------- -----------------
Options outstanding and exercisable at
December 31, 1997 -- $ --
Options granted 64,464 17
Options exercised -- --
Options forfeited -- --
---------------- -----------------
Options outstanding and exercisable at
December 31, 1998 64,464 17
Options granted 108,646 20
Options exercised (2,672) 9
Options forfeited (9,504) 18
---------------- -----------------
Options outstanding and exercisable at
December 31, 1999 160,934 19
Options granted 220,703 29
Options exercised (11,066) 18
Options forfeited (13,306) 27
---------------- -----------------
Options outstanding and exercisable at
December 31, 2000 357,265 $ 24
================ =================
As of December 31, 2000 and 1999, the 357,265 and 160,934 options
outstanding have exercise prices of between $9 and $31 and a
weighted-average remaining contractual life of 8.6 and 9.2 years,
respectively.
The per share fair value of stock options granted in 2000, 1999, and 1998
was $12, $16, and $13 at the date of grant. The fair value of each option
grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
1999 and 1998 - dividend yield of 1.5%; expected volatility of 20%;
risk-free interest rate of 6%, and expected lives of 10 years; 2000 -
dividend yield of 2.0%; expected volatility of 40%; risk-free interest
rate of 7%, and expected lives of 6 years.
F-23
25
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(11) EMPLOYEE STOCK PURCHASE PLAN
The Company approved the Employee Stock Purchase Plan in 1997 (the Plan)
which authorized 96,000 shares of common stock to be offered to all
employees eligible to buy shares. Purchase price of shares is 100% of
fair market value with the option to finance up to 100% of purchase by
payroll deduction over a period of up to 24 months at 6% interest. Under
the Plan, 2,294 and 39,002 shares were issued at a purchase price of $25
and $22 per share in 2000 and 1999, respectively.
(12) EMPLOYEE BENEFIT PLANS
(A) PENSION PLAN AND SAVINGS PLAN
The Company has a trusteed, defined benefit, noncontributory
pension plan covering substantially all of its employees. The
benefits are based on years of service and the employee's highest
five consecutive plan years of compensation. Contributions to the
plan are based upon the Entry Age Normal Method with Frozen
Initial Liability and comply with the funding requirements of the
Employee Retirement Income Security Act. Since the plan is
adequately funded, there have been no contributions made in 2000
or 1999. Plan assets are invested primarily in common stocks,
long-term bonds and U.S. treasury notes.
The following table sets forth the funded status of the Company's
pension plan and amounts recognized in the Company's financial
statements at December 31, 2000 and 1999.
DECEMBER 31, DECEMBER 31,
CHANGE IN BENEFIT OBLIGATION 2000 1999
------------------ ------------------
Benefit obligation at end of prior plan year $ (30,445,246) $ (30,046,553)
Service cost (1,154,426) (983,130)
Interest cost (2,298,923) (2,130,187)
Actuarial gain/(loss) (1,040,006) 1,194,249
Actual distributions 1,672,629 1,520,375
------------------ ------------------
BENEFIT OBLIGATION AT END OF YEAR $ (33,265,972) $ (30,445,246)
================== ==================
CHANGE IN PLAN ASSETS
Plan assets at fair value at beginning of year $ 41,784,077 $ 42,428,520
Actual return on plan assets 2,378,668 875,932
Actual distributions (1,672,629) (1,520,375)
------------------ ------------------
PLAN ASSETS AT FAIR VALUE AT END OF YEAR $ 42,490,116 $ 41,784,077
================== ==================
(ACCRUED)/PREPAID PENSION COST
Funded status $ 9,224,144 $ 11,338,831
Unrecognized net actuarial gain (9,645,469) (11,739,787)
Unrecognized prior service cost (27,993) (31,492)
Unrecognized transition asset (132,125) (198,191)
------------------ ------------------
NET AMOUNT RECOGNIZED $ (581,443) $ (630,639)
================== ==================
F-24
26
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
The Company also has an unqualified Supplemental Executive
Retirement Plan. Accrued costs related to this plan were $419,490
and $390,000 at December 31, 2000 and 1999, respectively.
Net pension cost for 2000, 1999, and 1998 included the following:
2000 1999 1998
--------------- ------------------- ------------------
Service cost, benefits earned during
the period $ 1,154,426 983,130 776,031
Interest cost on projected benefit
obligation 2,298,923 2,130,187 1,961,462
Expected return on plan assets (3,073,583) (3,116,292) (3,539,124)
Net amortization and deferral (428,967) (497,819) (37,895)
--------------- ------------------- ------------------
Net periodic pension credit $ (49,201) (500,794) (839,526)
=============== =================== ==================
The weighted average discount rate of 7.5% in 2000, 1999 and 1998
and the rate of increase in future compensation levels of 5% in
2000, 1999 and 1998 were used in determining the actuarial present
value of the projected benefit obligations at the end of the year.
The assumed long-term rate of return on pension plan assets was
7.5% in 2000, 1999 and 1998.
(B) EMPLOYEE SAVINGS PLAN
The Company has a 401(k) salary savings plan which provides that
employees may contribute a portion of their salary to the plan on
a tax deferred basis. The Company's match of a portion of the
employee's contribution totaled $516,452, $336,208 and $256,960 in
2000, 1999, and 1998, respectively.
(C) EMPLOYEE STOCK OWNERSHIP PLAN
The Employee Stock Ownership Plan of The Concord Telephone Company
(the Plan) was originally a defined contribution plan sponsored by
the Company. The Company was responsible for all contributions to
the Plan. Contributions were in the form of Company stock or cash
used to purchase Company stock. Prior to the Tax Reform Act of
1986 (the Act), the Company was eligible for certain tax credits
as a result of the Plan contributions. Subsequent to the Act,
these tax credits were no longer available. As a result, the plan
has been frozen. As of January 1, 1987, no more contributions can
be made into the plan and no employee may become eligible to
participate.
F-25
27
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(D) POSTRETIREMENT BENEFITS
In addition to the Company's defined benefit pension plan, the
Company sponsors a health care plan that provides postretirement
medical benefits and life insurance coverage to full-time
employees who meet minimum age and service requirements. The plan
is contributory with respect to coverage for beneficiaries. The
Company's policy is to fund the cost of medical benefits on a cash
basis.
The Company has adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," and has elected to amortize the
transition liability over 15 years. The Statement requires the
accrual, during the years that an employee renders the necessary
service, of the expected cost of providing those benefits to the
employee and employee's beneficiaries and covered dependents.
The following table presents the plan's accumulated postretirement
benefit obligation reconciled with amounts recognized in the
Company's balance sheets at December 31, 2000 and 1999:
DECEMBER 31, DECEMBER 31,
CHANGE IN BENEFIT OBLIGATION 2000 1999
------------------ ------------------
Benefit obligation at end of prior plan year (8,772,120) (9,288,899)
Service cost (154,217) (180,650)
Interest cost (671,537) (617,603)
Amendments -- 455,422
Actuarial gain/(loss) (309,097) 843,840
Other 134,342 15,770
------------------ ------------------
BENEFIT OBLIGATION AT END OF YEAR $ (9,772,629) (8,772,120)
================== ==================
(ACCRUED)/PREPAID POSTRETIREMENT COST
Funded status (9,772,629) (8,772,120)
Unrecognized net actuarial gain (1,887,326) (2,935,543)
Unrecognized prior service cost (2,011,385) (2,514,231)
Unrecognized transition obligation 3,058,986 3,670,783
------------------ ------------------
NET AMOUNT RECOGNIZED $ (10,612,354) (10,551,111)
================== ==================
F-26
28
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
Net periodic postretirement benefit cost for 2000, 1999 and 1998 includes
the following components:
2000 1999 1998
------------------- ------------------- -------------------
Service cost $ 154,217 180,650 180,087
Interest cost 671,537 617,603 608,299
Amortization of transition
obligation over 15 years 611,797 611,798 611,798
Amortization of gain (126,924) (112,358) (101,181)
Amortization of prior service
cost (502,846) (502,847) (502,847)
------------------- ------------------- -------------------
Net periodic postretirement
benefit cost $ 807,781 794,846 796,156
=================== =================== ===================
For measurement purposes, a 9.0% percent annual rate of increase in the
per capita cost of covered benefits (i.e., health care cost trend rate)
was assumed for 2000 and the rate was assumed to decrease annually to
5.5% by the year 2003 and to remain level thereafter. The health care
cost trend rate assumption has a significant effect on the amounts
reported. For example, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 2000, to
approximately $10,514,553 and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for the year
ended December 31, 2000 to approximately $969,576. Decreasing the assumed
health care cost trend rates by one percentage point in each year would
decrease the accumulated postretirement benefit obligation as of December
31, 2000, to approximately $8,024,261 and the aggregate of the service
and interest cost components of net periodic postretirement benefit cost
for the year ended December 31, 2000 to approximately $710,621.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% in 2000, 1999, and 1998.
F-27
29
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(13) INCOME TAXES
Total income taxes for the years ended December 31, 2000, 1999, and 1998
were allocated as follows:
2000 1999 1998
------------------ -------------------- ------------------
Income from continuing operations $ 27,228,578 15,697,657 8,926,469
================== ==================== ==================
Stockholders' equity, for unrealized
holding gain on debt and equity
securities recognized for financial
reporting purposes
$ (21,112,259) 19,459,133 3,605,700
================== ==================== ==================
Income tax expense (benefit) attributable to income from continuing
operations for the years ended December 31, 2000, 1999, and 1998,
consists of:
2000 1999 1998
-------------------- ------------------- -------------------
Current:
Federal $ 21,696,356 11,360,031 3,896,673
State 4,943,018 2,860,578 1,104,868
Foreign 475,206 328,290 --
-------------------- ------------------- -------------------
27,114,580 14,548,899 5,001,541
-------------------- ------------------- -------------------
Deferred:
Federal, net of investment tax
credit amortization 732,676 1,653,076 3,284,653
State (143,472) (504,318) 640,275
Foreign (475,206) -- --
-------------------- ------------------- -------------------
113,998 1,148,758 3,924,928
-------------------- ------------------- -------------------
Total $ 27,228,578 15,697,657 8,926,469
==================== =================== ===================
F-28
30
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
Income tax expense attributable to income from continuing operations
differs from the amounts computed by applying the U.S. federal income tax
rate of 35 percent to pretax income from continuing operations as a
result of the following:
2000 1999 1998
----------------- ------------------- -------------------
Amount computed at statutory rate $ 23,802,809 13,568,077 7,808,108
State income taxes, net of federal
income tax benefit 2,233,351 880,998 974,343
Increase in valuation allowance 859,553 650,571 160,000
Nontaxable interest income (17,071) (2,823) (2,166)
Amortization of federal investment
tax credit (114,885) (114,885) (114,885)
Goodwill 501,074 454,636 --
Other, net (36,252) 261,083 101,069
----------------- ------------------- -------------------
Income tax expense $ 27,228,578 15,697,657 8,926,469
================= =================== ===================
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities as of
December 31, 2000 and 1999 were as follows:
2000 1999
------------------ -----------------
Deferred tax assets:
Accrued postretirement and pension benefits 4,505,018 4,633,699
Accrued incentive 421,028 461,652
Intangibles 59,067 59,382
State net operating loss carryforwards 2,060,124 1,200,571
Other accrued expenses and allowances 134,875 123,562
Deferred revenue 262,323 415,130
Foreign tax credit 475,206 --
Other/investments 767,244 1,959
------------------ -----------------
Total gross deferred tax assets 8,684,885 6,895,955
------------------ -----------------
Less valuation allowance (2,060,124) (1,200,571)
------------------ -----------------
Net deferred tax assets 6,624,761 5,695,384
------------------ -----------------
Deferred tax liabilities:
Property and equipment, primarily related to
depreciation differences 14,337,471 12,811,864
Unrealized gain on securities 5,757,962 26,870,221
Other -- 366,105
------------------ -----------------
Total gross deferred tax liabilities 20,095,433 40,048,190
------------------ -----------------
Net deferred tax liability $ 13,470,672 34,352,806
================== =================
F-29
31
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
The valuation allowance for deferred tax assets as of January 1, 2000 and
1999 was $2,060,124 and $1,200,571, respectively. The net change in the
total valuation allowance for the years ended December 31, 2000 and 1999
was an increase of $859,553 and $646,571, respectively. In assessing the
realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods
in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and
projections for future taxable income over the periods which the deferred
tax assets are deductible, management believes it is more like than not
the Company will realize the benefits of these deductible differences,
net of the existing valuation allowances at December 31, 2000. The amount
of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
period are reduced.
At December 31, 2000, the Company has net operating loss carryforwards
for state income tax purposes of approximately $31,965,000 which will
expire in the years 2001-2015.
(14) SEGMENT INFORMATION
Effective December 31, 1998, the Company adopted FAS 131, "Disclosures
about Segments of an Enterprise and Related Information." The Company has
five reportable segments, the incumbent local exchange carrier (ILEC),
the competitive local exchange carrier (CLEC), the long distance company
(LD), the internet and data services company (ISP), and the wireless
company (DCS). Accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates performance based on operating profit before other income
(expenses) and income taxes. Intersegment sales are accounted for as if
the transactions were to third parties.
F-30
32
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
December 31, 2000 INTER- DEPRECIATION SEGMENT
EXTERNAL SEGMENT & OPERATING SEGMENT CAPITAL
REVENUES REVENUES AMORTIZATION PROFIT (LOSS) ASSETS EXPENDITURES
-------- -------- ------------ ------------- ------- ------------
ILEC $ 82,352,804 5,399,829 14,994,870 25,149,019 148,503,440 35,635,113
CLEC 4,447,138 - 1,150,320 (10,750,245) 18,429,275 14,830,214
LD 13,832,201 - 1,123,599 4,812,255 5,364,772 1,504,087
ISP 6,899,436 - 1,365,215 (1,690,928) 8,211,079 1,386,013
DCS 7,673,754 60,370 55,615 (1,822,464) 1,059,111 15,442
Other 450,000 - 21,081 (191,353) 77,954,604 718,652
---------------------------------------------------------------------------------------------------
Total $ 115,655,333 5,460,199 18,710,700 15,506,284 259,522,281 54,089,521
===================================================================================================
December 31, 1999 INTER- DEPRECIATION SEGMENT
EXTERNAL SEGMENT & OPERATING SEGMENT CAPITAL
REVENUES REVENUES AMORTIZATION PROFIT (LOSS) ASSETS EXPENDITURES
-------- -------- ------------ ------------- ------- ------------
ILEC $ 76,653,009 3,930,503 12,850,014 21,871,878 120,460,989 22,338,130
CLEC 2,613,320 - 240,887 (2,497,748) 4,781,745 3,271,801
LD 14,291,053 - 835,554 4,836,605 4,883,247 434,400
ISP 5,716,709 - 926,913 (530,236) 7,651,954 1,144,353
DCS 5,192,503 46,139 63,022 (1,736,895) 825,416 82,166
Other 1,125,000 - 207,873 424,799 119,091,859 313,152
---------------------------------------------------------------------------------------------------
Total $ 105,591,594 3,976,642 15,124,263 22,368,403 257,695,210 27,584,002
===================================================================================================
December 31, 1998 INTER- DEPRECIATION SEGMENT
EXTERNAL SEGMENT & OPERATING SEGMENT CAPITAL
REVENUES REVENUES AMORTIZATION PROFIT (LOSS) ASSETS EXPENDITURES
-------- -------- ------------ ------------- ------- ------------
ILEC $ 70,646,748 5,017,641 11,530,611 20,657,610 112,606,447 21,248,732
CLEC 492,522 - 55,082 (1,625,567) 907,993 693,211
LD 13,391,033 - 588,888 3,700,801 4,199,439 1,977,488
ISP 3,369,305 - 553,765 (92,089) 7,329,775 852,368
DCS 3,150,786 - 55,196 (1,100,312) 645,805 11,910
Other 675,000 - 57,019 (87,463) 57,944,899 5,587
---------------------------------------------------------------------------------------------------
Total $ 91,725,394 5,017,641 12,840,561 21,452,980 183,634,358 24,789,296
===================================================================================================
Reconciliation to net income before tax:
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
---- ---- ----
Segment operating profit $ 15,506,284 22,368,403 21,452,980
Total other income 52,501,742 16,397,523 855,899
-------------------------------------------------------------
Income before income taxes $ 68,008,026 38,765,926 22,308,879
=============================================================
F-31
33
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(15) RECONCILIATION OF BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING
2000:
Basic weighted average shares outstanding 18,833,807
Effect of dilutive securities:
Stock options 97,173
--------------------
Diluted weighted average shares outstanding 18,930,980
====================
1999:
Basic weighted average shares outstanding 18,705,886
Effect of dilutive securities:
Stock options 145,964
--------------------
Diluted weighted average shares outstanding 18,851,850
====================
1998:
Basic weighted average shares outstanding 18,454,032
Effect of dilutive securities:
Stock options 98,976
--------------------
Diluted weighted average shares outstanding 18,553,008
====================
(16) SUMMARY OF INCOME STATEMENT INFORMATION (UNAUDITED)
A summary of quarterly income statement information for the years ended
December 31, 2000 and 1999, follows:
2000 QUARTERS ENDED
-----------------------------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
------------- -------------- -------------- -------------
Operating revenues $ 27,942,307 28,867,848 28,640,072 30,205,106
Income before other income
(expenses) and income
taxes 5,040,578 4,463,723 3,246,939 2,755,044
Net income 5,301,007 4,868,664 27,333,773 3,276,004
Basic earnings per common
share $ .28 .26 1.45 .17
============= ============== ============== =============
Diluted earnings per common
share $ .28 .26 1.44 .17
============= ============== ============== =============
F-32
34
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
1999 QUARTERS ENDED
-----------------------------------------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
------------- -------------- -------------- -------------
Operating revenues $ 25,332,224 26,101,594 26,594,439 27,563,337
Income before other income
(expenses) and income
taxes 5,239,392 5,643,778 5,851,158 5,634,075
Net income 3,870,048 9,142,801 5,014,811 5,040,609
Basic earnings per common
share $ .21 .49 .27 .27
============= ============== ============== =============
Diluted earnings per common
share $ .21 .49 .27 .27
============= ============== ============== =============
F-33
35
Schedule II
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years Ended December 31, 2000, 1999, and 1998
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------- ------------ ------------- --------------- ----------------
DEDUCTIONS
BALANCE, ADDITIONS FROM BALANCE,
BEGINNING CHARGED RESERVES END OF YEAR
DESCRIPTION OF YEAR TO INCOME (SEE NOTE) (SEE NOTE B)
- ------------------------------------------- ------------ ------------- --------------- ----------------
Valuation and qualifying accounts
deducted from assets to which
they apply:
Allowance for uncollectible accounts:
Year ended December 31, 2000 $ 107,500 690,834 638,602 239,732
============= ============= =============== ================
Year ended December 31, 1999 $ 107,500 603,458 603,458 107,500
============= ============= =============== ================
Year ended December 31, 1998 $ 100,000 433,747 426,247 107,500
============= ============= =============== ================
Note: Represents balances written-off as uncollectible less collections
on balances previously written off of $188,399, $170,132 and
$202,512 for 2000, 1999, and 1998, respectively. Balance at
December 31, 2000 includes $80,000 assumed in the acquisition of
WebServe accounted for as a purchase in 2000.
F-34