1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to _________
Commission file number 0-19179
CT COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-1837282
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
68 Cabarrus Avenue, East
P.O. Box 227, Concord, NC 28025
(Address of principal executive offices) (Zip Code)
(704)722-2500
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No[ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
18,884,998 shares of Common Stock outstanding as of May 1, 2001.
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CT COMMUNICATIONS, INC.
INDEX
Page No.
PART I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets --
March 31, 2001 and December 31, 2000 3
Consolidated Statements of Income --
Three Months Ended March 31, 2001 and 2000 5
Consolidated Statements of Cash Flows --
Three Months Ended March 31, 2001 and 2000 6
Consolidated Statements of Comprehensive Income --
Three Months Ended March 31, 2001 and 2000 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 14
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 15
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PART I. FINANCIAL INFORMATION
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
2001 2000
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 5,883,198 $ 8,060,015
Accounts receivable, net of
allowance for doubtful
accounts of $239,732 19,626,023 18,987,133
Other accounts receivable 193,358 197,046
Materials and supplies 3,402,834 3,476,188
Deferred income taxes 134,875 134,875
Prepaid expenses and
other assets 1,180,152 1,139,921
------------ ------------
Total current assets 30,420,440 31,995,178
------------ ------------
Investment securities 21,287,839 23,900,094
Other investments 184,363 484,363
Investments in affiliates 39,251,828 38,310,831
Property and equipment:
Land, buildings and general equipment 51,481,864 49,007,911
Central office equipment 110,076,315 105,679,164
Poles, wires, cables and conduit 109,442,992 106,279,321
Construction in progress 15,074,834 10,058,370
------------ ------------
286,076,005 271,024,766
Less accumulated depreciation 121,265,910 119,241,009
------------ ------------
Net property and equipment 164,810,095 151,783,757
------------ ------------
Intangibles and other assets, net 15,201,371 13,048,058
------------ ------------
TOTAL ASSETS $271,155,936 $259,522,281
============ ============
See accompanying notes to consolidated financial statements.
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CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, (Continued)
(Unaudited)
March 31, December 31,
2001 2000
---- ----
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Redeemable Preferred Stock $ 12,500 $ 12,500
Accounts payable 10,828,097 11,232,108
Short-term borrowings 5,000,000 5,000,000
Customer deposits and advance billings 2,410,748 2,294,164
Accrued payroll 1,566,125 1,968,699
Income taxes payable 672,209 87,202
Accrued pension cost 2,071,862 1,000,933
Other accrued liabilities 1,704,998 2,724,648
------------- -------------
Total current liabilities 24,266,539 24,320,254
------------- -------------
Long-term debt 49,000,000 34,000,000
------------- -------------
Deferred credits and other liabilities:
Deferred income taxes 12,323,594 13,605,547
Investment tax credits 545,704 574,425
Postretirement benefits other than pension 10,659,604 10,612,354
Other 942,686 942,686
------------- -------------
Total deferred credits and other liabilities 24,471,588 25,735,012
------------- -------------
Redeemable Preferred Stock:
4.8% series, $100 par value; 5,000 shares
authorized; 1,125 shares issued and
outstanding in 2001 and 2000 100,000 100,000
------------- -------------
Total liabilities 97,838,127 84,155,266
------------- -------------
Stockholders' equity:
Preferred Stock not subject to mandatory
redemption:
5% series, $100 par value; 3,356
shares outstanding in 2001 and 2000 335,600 335,600
4.5% series, $100 par value; 614
shares outstanding in 2001 and 2000 61,400 61,400
Common Stock
18,867,468 and 18,846,541 shares
outstanding in 2001 and 2000,
respectively 42,860,975 42,574,584
Other capital 298,083 298,083
Deferred compensation (1,007,874) (836,005)
Other accumulated comprehensive income 8,005,888 10,298,820
Retained earnings 122,763,737 122,634,533
------------- -------------
Total stockholders' equity 173,317,809 175,367,015
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 271,155,936 $ 259,522,281
============= =============
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CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
Three Months Ended March 31,
2001 2000
---- ----
Operating revenues $ 31,085,558 $ 27,942,307
Operating expenses 29,709,213 22,901,729
Restructuring charge 1,942,076 --
------------ ------------
Net operating (expenses) revenues (565,731) 5,040,578
------------ ------------
Other income (expenses):
Equity in income of affiliates, net 940,997 970,579
Interest, dividend income and gain on
sale of investments 3,128,055 3,304,787
Other expenses, principally interest (1,236,086) (540,895)
------------ ------------
Total other income (expenses) 2,832,966 3,734,471
------------ ------------
Income before income taxes 2,267,235 8,775,049
Income taxes 911,486 3,474,042
------------ ------------
Net income 1,355,749 5,301,007
Dividends on Preferred Stock 6,236 6,386
------------ ------------
Earnings for Common Stock $ 1,349,513 $ 5,294,621
============ ============
Basic earnings per common share $ 0.07 $ 0.28
============ ============
Diluted earnings per common share $ 0.07 $ 0.28
============ ============
Basic weighted average shares outstanding 18,857,297 18,786,722
============ ============
Diluted weighted average shares outstanding 18,900,579 18,914,889
============ ============
See accompanying notes to consolidated financial statements.
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CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31,
------------------------------
2001 2000
---- ----
Cash flows from operating activities:
Net income $ 1,355,749 $ 5,301,007
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 5,530,724 4,042,284
Postretirement benefits 47,250 (60,573)
Gain on sales of investment securities (2,560,405) (3,100,148)
Undistributed income of affiliates (940,997) (970,579)
Deferred income taxes and tax credits (28,721) (28,721)
Changes in operating assets and liabilities:
Accounts receivable (635,202) 1,663,471
Materials & supplies 73,354 (325,364)
Other assets (142,495) (4,190,599)
Accounts payable (404,011) 112,227
Customer deposits and advance billings 116,584 396,416
Accrued liabilities (455,797) 1,972,625
Income taxes payable 585,007 1,792,031
------------ -----------
Net cash provided by operating activities 2,541,040 6,604,077
------------ -----------
Cash flows from investing activities:
Capital expenditures, net (17,981,351) (9,032,430)
Purchase of investments in affiliates -- (48,443)
Purchase of investment securities (943,018) (4,495,802)
Purchase of wireless spectrum (2,397,840) --
Proceeds from sale of investment securities 2,840,794 7,098,509
Partnership capital distribution -- 1,990,426
Acquisitions -- (794,454)
------------ -----------
Net cash used in investing activities (18,481,415) (5,282,194)
------------ -----------
Cash flows from financing activities:
Proceeds from new debt 15,000,000 5,000,000
Dividends paid (1,226,563) (1,225,207)
Repurchase of Common and Preferred Stock (9,879) --
Proceeds from Common Stock issuances -- 345,761
------------ -----------
Net cash provided by (used in) financing activities 13,763,558 4,120,554
------------ -----------
Net (decrease) increase in cash and cash equivalents (2,176,817) 5,442,437
Cash and cash equivalents - beginning of period 8,060,015 1,561,778
------------ -----------
Cash and cash equivalents - end of period $ 5,883,198 $ 7,004,215
============ ===========
See accompanying notes to consolidated financial statements.
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CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended March 31,
2001 2000
---- ----
Net income $ 1,355,749 $ 5,301,007
Other comprehensive income, net of tax
Unrealized holding gains (losses) on
available-for-sale securities (650,688) 958,517
Less reclassification adjustment, net of tax,
for gains realized in net income (1,642,244) (1,988,435)
----------- -----------
Comprehensive income (loss) $ (937,183) $ 4,271,089
=========== ===========
See accompanying notes to consolidated financial statements.
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CT COMMUNICATIONS, INC. AND SUBSIDIARIES
(Unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
1. In the opinion of management of CT Communications, Inc. (the
"Company"), the accompanying unaudited financial statements contain all
adjustments consisting of only normal recurring accruals necessary to
present fairly the financial position as of March 31, 2001 and 2000,
and the results of operations and cash flows for the three months then
ended. These financial statements should be read with the Company's
Annual Report on Form 10-K for the year ended December 31, 2000 and do
not include all disclosures associated with annual financial
statements.
2. In certain instances, amounts previously reported in the 2000
consolidated financial statements have been reclassified to conform
with the 2001 consolidated financial statements presentation. Such
reclassifications have no effect on net income or retained earnings as
previously reported.
3. The results of operations for the three months ended March 31, 2001 and
2000 are not necessarily indicative of the results to be expected for
the full year.
4. All common stock share amounts have been adjusted to reflect the
conversion of each share of the Company's Voting Common Stock to 4.4
shares Common Stock and each share of the Company's Class B Nonvoting
Common Stock to 4.0 shares of the Company's Common Stock, effective
January 28, 1999, as well as a 2-for-1 stock dividend paid on April 5,
2000.
5. The following is a summary of common stock transactions during the
three months ended March 31, 2001.
Shares Value
------ -----
Outstanding at December 31, 2000 18,846,541 $ 42,574,584
Purchase of common stock (12,799) (210,150)
Issuance of common stock 33,726 496,541
----------- ------------
Outstanding at March 31, 2001 18,867,468 $ 42,860,975
=========== ============
Basic Diluted
----- -------
Weighted average shares outstanding for the
three months ended March 31, 2001 18,857,297 18,900,579
Weighted average shares outstanding for the
three months ended March 31, 2000 18,786,722 18,914,889
6. SECURITIES AVAILABLE-FOR-SALE
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 March 31, 2001 and December 31,
2000 were as follows:
March 31, 2001
--------------
Securities Amortized Gross Unrealized Gross Unrealized Fair
Available-for-Sale Cost Holding Gains Holding Losses Value
- ------------------ ---- ------------- -------------- -----
Equity securities $ 8,805,943 $ 13,543,012 $ (1,061,116) $21,287,839
=========== ============ ============= ===========
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December 31, 2000
-----------------
Securities Amortized Gross Unrealized Gross Unrealized Fair
Available-for-Sale Cost Holding Gains Holding Losses Value
- ------------------ ---- ------------- -------------- -----
Equity securities $ 7,843,313 $ 16,827,470 $ (770,689) $23,900,094
In the three months ended March 31, 2001, the Company sold 110,000 shares of
Illuminet Holdings, Inc. ("Illuminet") common stock for a pre-tax gain of $2.6
million. As of March 31, 2001, the Company owned over 530,000 shares of
Illuminet common stock with a market value of approximately $11.0 million and
over 800,000 shares of ITC-DeltaCom, Inc. common stock ("ITC-DeltaCom") with a
market value of approximately $4.7 million.
7. INVESTMENTS IN AFFILIATED COMPANIES
March 31, 2001 December 31, 2000
-------------- -----------------
Equity Method:
Palmetto MobileNet, L.P. $ 13,469,710 $ 12,472,551
Wireless One of North Carolina, L.L.C. 8,822,369 8,874,129
Other 105,738 110,140
Cost Method:
ITC Holding Company 2,215,534 2,215,534
Maxcom Telecomunicaciones, S.A. de C.V. 14,638,477 14,638,477
------------ ------------
TOTAL $ 39,251,828 $ 38,310,831
============ ============
8. RESTRUCTURING LIABILITY
In 2001, the Company recorded restructuring charges of $1,942,076 in connection
with an early retirement plan and the closing of Competitive Local Exchange
Carrier (CLEC) operations in Raleigh, North Carolina. The related liabilities
are included in other accrued liabilities and accrued pension cost in the
accompanying consolidated balance sheets and were established to accrue for
estimated retirement and severance costs related to 17 employees primarily
within the network department, lease termination costs, Raleigh transport costs,
and other costs associated with the restructuring action. A summary of
restructuring liability activity for the three months ended March 31, 2001 is as
follows:
Balance at December 31, 2000 $ --
Early retirement and severance costs 1,178,369
Lease termination costs 241,110
Raleigh transport costs 307,093
Other costs 215,504
--------------
Restructuring charge incurred 1,942,076
Cash payments:
Early retirement and severance costs (115,369)
Raleigh transport costs (303,289)
Other costs (215,504)
--------------
Balance at March 31, 2001 $ 1,307,914
==============
9. LONG-TERM DEBT
Long-term debt consists of the following:
The Company has a $60.0 million line of credit with interest at LIBOR plus a
spread based on the Company's ratio of debt to earnings before interest, taxes,
depreciation and amortization (EBITDA). The interest rate at March 31, 2001 was
6.87%. The credit facility provides for quarterly payments of interest until
maturity on December 31, 2003. The Company entered into an interest rate swap
transaction to fix $10.0 million of the outstanding principal at a rate of 5.9%
plus a spread, currently 0.5%. There was $49.0 million outstanding under this
line of credit at March 31, 2001. The Company also has two lines of credit for
$5.0 million each. As of March 31, 2001, the Company had $5.0 million
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in short-term debt outstanding under these credit lines.
March 31, 2001 December 31, 2000
-------------- -----------------
Total long term debt: $49,000,000 $34,000,000
On May 3, 2001, the Company entered into a new credit facility agreement with
CoBank that provides $140 million of available funds. The agreement consists of
a 7.32% fixed rate $50.0 million senior unsecured 14-year term loan and a $90.0
million 5-year revolving credit facility with interest variable based on LIBOR
and Prime.
10. RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2001, we adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133 requires the recognition of all derivative
financial instruments as either assets or liabilities in the statement of
financial condition and measurement of those instruments at fair value. Changes
in the fair value of those derivatives will be reported in earnings or other
comprehensive income depending on the use of the derivative and whether it
qualifies for hedge accounting. We have identified the interest rate swap
agreement as our only derivative instrument and have determined that the fair
value of the instrument is not significant to the Company's financial reporting.
11. SEGMENT INFORMATION
Effective December 31, 1998, the Company adopted SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information." As a result of the
reorganization of internal reporting, the Company has defined and reports six
segments as follows: the incumbent local exchange carrier ("ILEC"), the
competitive local exchange carrier ("CLEC"), the satellite local exchange
carrier ("Greenfield"), long distance services ("LD"), the internet service
provider ("ISP") and the digital wireless group ("DCS"). Prior to January 2001
the results of the Greenfield segment were included within the CLEC and
separation of results in prior years would not be reliable. Accounting policies
of the segments are the same as those described in the summary of significant
accounting policies included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2000. The Company evaluates performance based on
operating profit before other income/(expenses) and income taxes. Intersegment
revenues and expenses are excluded for purposes of calculating operating
earnings before interest, taxes, depreciation, and amortization ("Operating
EBITDA") and segment operating profit/(loss). Selected data by business segment
for the three months ended March 31, 2001 and 2000, is as follows:
Three Months ended March 31, 2001
ILEC CLEC Greenfield LD ISP DCS OTHER TOTAL
---- ---- ---------- -- --- --- ----- -----
External revenues 21,011,519 1,688,435 280,654 3,342,407 2,313,425 2,449,118 -- 31,085,558
Intersegment revenues 1,650,829 -- -- -- -- 20,274 -- 1,671,103
External expenses 11,887,790 4,301,445 1,115,332 1,791,905 2,144,035 3,232,507 1,647,551 26,120,565
Intersegment expenses 80,893 62,793 -- 801,108 684,161 34,779 7,369 1,671,103
Operating EBITDA 9,123,729 (2,613,010) (834,678) 1,550,502 169,390 (783,389) (1,647,551) 4,964,993
Depreciation and amortization 4,081,128 427,205 113,710 293,364 522,767 16,370 76,180 5,530,724
Segment operating profit/(loss) 5,042,601 (3,040,215) (948,388) 1,257,138 (353,377) (799,759) (1,723,731) (565,731)
Segment Assets 156,295,719 21,654,258 -- 4,883,492 15,517,889 770,376 72,034,202 271,155,936
Three Months ended March 31, 2000
ILEC CLEC LD ISP DCS OTHER TOTAL
---- ---- -- --- --- ----- -----
External revenues 20,260,455 904,718 3,528,071 1,500,571 1,635,992 112,500 27,942,307
Intersegment revenues 1,064,299 -- -- -- 10,874 -- 1,075,173
External expenses 10,597,082 2,655,700 1,906,829 1,577,069 1,984,318 138,447 18,859,445
Intersegment expenses 64,388 15,378 699,124 280,149 16,134 -- 1,075,173
EBITDA 9,663,373 (1,750,982) 1,621,242 (76,498) (348,326) (25,947) 9,082,862
Depreciation and amortization 3,376,475 91,365 253,180 301,251 14,715 5,298 4,042,284
Segment operating profit/(loss) 6,286,898 (1,842,347) 1,368,062 (377,749) (363,041) (31,245) 5,040,578
Segment Assets 114,198,548 1,822,089 3,822,983 7,448,620 876,988 70,681,871 198,851,099
Reconciliation to Net Income Before Tax
March 31, 2001 March 31, 2000
-------------- --------------
Segment operating profit (loss) $ (565,731) $5,040,578
Total other income 2,832,966 3,734,471
----------- ----------
Income before income taxes $ 2,267,235 $8,775,049
=========== ==========
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
- ---------------------
Three Months Ended March 31, 2001 Compared with Three Months Ended
March 31, 2000
- ------------------------------------------------------------------
Operating revenues increased $3.1 million or 11.2% to $31.1 million for
the three months ended March 31, 2001 when compared to the three months ended
March 31, 2000.
Excluding intersegment revenues, ILEC revenue was $21.0 million for the
three months ended March 31, 2001, a $0.8 million or 3.7% increase over the same
period last year. This increase was primarily caused by an increased number of
customers and increased custom call feature and pay per use revenue, as well as
increased access revenue. 4,000 new access lines were connected to the network
since March 31, 2000, bringing the total number of local access lines in the
ILEC's three-county service area to over 123,000. The Company is currently a
party to two interconnection agreements and one resale agreement that give other
CLEC's access to the Company's local telephone service market. The Company has
received additional interconnection requests from several other CLEC's. Some or
all of these agreements may be finalized during 2001. If so, they are expected
to provide additional competition to the ILEC.
CLEC revenue was $1.7 million for the three months ended March 31,
2001, a $0.8 million or 86.6% increase over the three months ended March 31,
2000. This increase was primarily caused by the addition of 10,071 access lines
since March 31, 2000, bringing the total lines in service to 13,347. This
increase reflects growth in facilities based services for the northern
Charlotte, North Carolina market in addition to expansion of service into the
Greensboro, North Carolina region.
On January 1, 2001, the Company began tracking results of its Satellite
Local Exchange Carrier (SLEC)("Greenfield") separately. Prior to January 1,
2001, the results were included within the CLEC operating segment. Greenfield
revenue for the three months ended March 31, 2001 was $0.3 million associated
with approximately 1,000 lines located at Concord Mills Mall in Concord, North
Carolina. The Greenfield unit entered into preferred provider agreements with
five new residential and business developments located in Charlotte and Raleigh,
North Carolina. This brings the number of preferred provider agreements to 24 as
of March 31, 2001. The Company does not expect to receive significant revenues
from these agreements until late 2001.
LD revenue was $3.3 million for the three months ended March 31, 2001,
which is comparable to revenue for the three months ended March 31, 2000.
Despite the increase in the number of pre-subscribed access lines and a
corresponding increase in minutes, revenue has remained flat due to the
introduction of new, more competitive LD price plans. These plans have resulted
in a decline in the average revenue per minute. The Company expects LD revenue
to remain steady.
ISP revenue was $2.3 million for the three months ended March 31, 2001,
a $0.8 million or 54.2% increase over the same period last year. This increase
was primarily caused by an increase in the number of web hosting, dedicated high
speed, and digital subscriber line (DSL) customers, as well as the integration
of WebServe, Inc. which was acquired in December 2000. While traditional dial-up
customers have decreased by approximately 2,000 in the last 12 months, over
1,500 DSL subscribers and 130 dedicated high speed customers have been added
since March 31, 2000.
DCS revenue was $2.4 million for the three months ended March 31, 2001,
a $0.8 million or 49.7% increase over the three months ended March 31, 2000.
This increase was primarily due to the addition of approximately 8,000
subscribers since March 31, 2000, bringing the total number of subscribers to
approximately 19,600.
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Operating expenses, exclusive of depreciation and amortization,
increased $7.3 million or 38.5% to $26.1 million for the three months ended
March 31, 2001 when compared to the three months ended March 31, 2000. $1.9
million of this increase is attributable to a restructuring charge incurred.
Exclusive of the restructuring charge, operating expenses increased $5.3 million
or 28.2%.
Excluding intersegment expenses, ILEC operating expenses were $11.9
million for the three months ended March 31, 2001, a $1.3 million or 12.2%
increase over the three months ended March 31, 2000. This increase was mainly
due to $1.2 million of restructuring costs incurred during 2001 associated with
an early retirement plan offered to 22 employees in specific departments. Costs
associated with rent and leases of work equipment and buildings as well as
utilities increased during the three months ended March 31, 2001. These
increases were offset by decreases in interconnection expenses.
CLEC operating expenses were $4.3 million for the three months ended
March 31, 2001, a $1.6 million or 62.0% increase over the three months ended
March 31, 2000. Approximately one-half of this increase, or $0.7 million, is
attributable to a restructuring charge incurred during 2001 based on the
decision to slow expansion of the CLEC into Raleigh. The remainder of the
increase is a result of the expanding operations in the Charlotte and
Greensboro, North Carolina markets and related transport and inter-connection
costs. CLEC operating expenses are expected to continue increasing in 2001,
although at a slower pace than the growth experienced during 2000.
Greenfield expenses were $1.1 million for the three months ended March
31, 2001. These expenses are associated with the existing approximately 1,000
lines located at Concord Mills Mall as well as the growth of the business unit
due to work on new developer agreements discussed above.
LD operating expenses were $1.8 million for the three months ended
March 31, 2001, a $0.1 million or 6.0% decrease over the same period last year.
This decrease was mainly due to a continuing decline in access expense due to
lower rates on negotiated carrier termination contracts.
ISP operating expenses were $2.1 million for the three months ended
March 31, 2001, a $0.6 million or 36.0% increase over the same period last year.
This increase was mainly due to the inclusion of $0.6 million of WebServe
operating expenses for the three months ended March 31, 2001.
DCS operating expenses were $3.2 million for the three months ended
March 31, 2001, a $1.2 million or 62.9% increase over the three months ended
March 31, 2000. This increase was mainly due to the increase in DCS subscribers
and the costs associated with customer acquisition.
Other operating expenses were $1.6 million for the three months ended
March 31, 2001 due to $1.4 million related to the development of a broadband
wireless trial market.
Depreciation and amortization expense increased $1.5 million or 36.8%
to $5.5 million for the three months ended March 31, 2001 when compared to the
three months ended March 31, 2000. This increase reflects the significant
increase in depreciable assets over the last 12 months.
Other income (expenses) decreased $0.9 million for the three months
ended March 31, 2001 when compared to the three months ended March 31, 2000.
This decrease was primarily due to:
o Higher interest expense associated with the increase in
long-term debt since March 31, 2000; and
o a $0.2 million decrease in pre-tax gain from the sale of
Illuminet stock during the three months ended March 31, 2001
compared with the sale of Illuminet and ITC-DeltaCom stock
during the three months ended March 31, 2000.
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Income taxes decreased $2.6 million or 73.8% to $0.9 million for the
three months ended March 31, 2001 compared with the three months ended March 31,
2000 due primarily to the decrease in taxable income of $6.5 million.
Net income decreased $3.9 million or 74.4% to $1.4 million for the
three months ended March 31, 2001 compared to the three months ended March 31,
2000.
Liquidity and Capital Resources
- -------------------------------
The liquidity of the Company decreased during the three-month period
ended March 31, 2001. Current assets exceeded current liabilities by $6.2
million at March 31, 2001. In comparison, current assets exceeded current
liabilities by $7.7 million at December 31, 2000.
Current assets decreased by $1.6 million when compared to December 31,
2000. This decrease is primarily due to a decrease in cash and cash equivalents
of $2.2 million due to capital expenditures, purchase of wireless spectrum, and
expenditures made on the broadband wireless trial market. The decrease in cash
is partially offset by an increase in accounts receivable associated with
increasing revenues.
Current liabilities decreased by $0.1 million from December 31, 2000 to
March 31, 2001. This decrease is primarily attributable to decreases in accounts
payable due to timing of payments, accrued payroll due to bonus payouts, and
other accrued liabilities due to payment of other taxes such as property,
franchise and sales and use taxes. These decreases are offset by increases in
income taxes payable caused by sales of Illuminet stock and accrued pension cost
associated with the early-retirement plan.
The Company's principal sources of liquidity were cash from operations
or $2.5 million, proceeds from the sale of investment securities of $2.8 million
and $15.0 million in proceeds from increased long-term debt.
Uses of cash during the three months ended March 31, 2001 included net
capital expenditures of $18.0 million, purchase of investment securities of $0.9
million, $2.4 million related to acquiring wireless spectrum for the wireless
broadband network, and payment of dividends of $1.2 million.
At March 31, 2001, the fair market value of the Company's investment
securities was $21.3 million, all of which could be pledged to secure additional
borrowing or sold, if needed for liquidity purposes. The Company has an
unsecured revolving credit facility with a syndicate of banks for $60.0 million,
of which $49.0 million was outstanding on March 31, 2001. The interest rate on
the credit facility is variable based on LIBOR plus a spread based on the
Company's ratio of debt to EBITDA. The interest rate on March 31, 2001 was
6.87%. In addition, the Company has a $5.0 million revolving credit facility
with First Charter National Bank at a variable interest rate based on LIBOR plus
1.25%. The interest rate under this facility was 5.683% at March 31, 2001. At
March 31, 2001 the Company had borrowed $5.0 million under this facility. The
Company also has a $5.0 million revolving credit facility with Rural Telephone
Finance Corporation at an interest rate not to exceed a specified base rate
plus 1.5%. At March 31, 2001, there were no amounts outstanding under this
facility.
Effective May 3, 2001 the Company entered into a new credit facility
agreement with CoBank that provides $140 million of available funds. The
agreement consists of a 7.32% fixed rate $50.0 million senior unsecured 14-year
term loan and a $90.0 million 5-year revolving credit facility with interest
variable based on LIBOR and Prime. Utilizing this new facility, the Company
repaid and terminated the existing $60 million credit facility and repaid the $5
million short-term facility with First Charter National Bank described above.
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14
Partition of BellSouth Carolinas PCS, L.P.
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In July 2000 we elected to exercise our right to partition our
predefined area of BellSouth Carolinas PCS, L.P. Once the partitioning is
effected, which will likely occur in the second quarter of 2001, we will acquire
47 cell sites, approximately 14,000 additional subscribers and a license for
spectrum for Cabarrus, Rowan, and Stanly Counties and the southern portion of
Iredell County. This partitioned area contains a population of approximately
440,000 people. The cost of partitioning is estimated to be $22 million to $25
million at the effective time of partitioning. We expect to finance the costs
associated with partitioning through additional borrowings. While we will have
ownership of the assets and customers within our partitioned area, we will
continue to purchase pre-defined services from the DCS Partnership, such as
switching, and will remain subject to certain conditions including certain
branding requirements, offering partnership service plans and adherence to
partnership technical and customer care standards.
The Company anticipates that all of the capital requirements in 2001
associated with its construction program, expansion of its CLEC operations, PCS
partitioning, payments associated with long-term debt and investments as
summarized above will be provided by cash flows from operations, existing cash,
cash equivalents and short-term investments, sales of investment securities, and
the existing and new available lines of credit.
Cautionary Note Regarding Forward-Looking Statements
- ----------------------------------------------------
The foregoing discussion contains "forward-looking statements," as
defined in Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, that are based on the beliefs of management, as
well as assumptions made by, and information currently available to management.
Management has based these forward-looking statements on its current
expectations and projections about future events and trends affecting the
financial condition and operations of the Company's business. These
forward-looking statements are subject to certain risks, uncertainties, and
assumptions about us that could cause actual results to differ materially from
those reflected in the forward-looking statements.
Factors that may cause actual results to differ materially from these
forward-looking statements are (1) the Company's ability to respond effectively
to the sweeping changes in industry conditions creased by the Telecommunications
Act of 1996, and related state and federal legislation and regulations, (2) the
Company's ability to recover the substantial costs to be incurred in connection
with the implementation of its various new businesses, (3) the Company's ability
to retain its existing customer base against local and long distance service
competition, and to market such services to new customers, (4) the Company's
ability to effectively manage rapid changes in technology, and (5) the Company's
ability to effectively respond to the actions of its competitors.
In some cases, these forward-looking statements can be identified by
the use of words such as "may," "will," "should," "expect," "intend," "plan,"
"anticipate," "believe," "estimate," "predict," "project" or "potential" or the
negative of these words or other comparable words. In making forward-looking
statements, the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995. The Company undertakes no obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. Readers are also directed to consider the risks,
uncertainties and other factors discussed in documents filed by us with the
Securities and Exchange Commission, including those matters summarized under the
caption "Risk Factors" in the Company's Annual Report on Form 10-K for the year
ended December 31, 2000. All forward-looking statements should be viewed with
caution.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has an unsecured revolving credit facility with a syndicate
of banks for $60.0 million of which $49.0 million was outstanding on March 31,
2001. The interest rate on the credit facility is variable based on LIBOR plus a
spread based on the Company's ratio of debt to EBITDA. The interest rate was
6.87% on March 31, 2001. The Company entered into an interest rate swap
transaction to fix $10.0 million of the outstanding principal at a rate of 5.9%
plus a spread, currently 0.5%. The interest rate swap will protect the Company
against an upward movement in interest rates, but subjects the Company to above
market interest costs if interest rates decline. The Company had $5.0 million
outstanding on an unsecured revolving credit loan with First Charter National
Bank on March 31, 2001. The interest rate on this credit facility is variable
based on LIBOR plus 1.25%. The interest rate was 5.683% on March 31, 2001. On My
3, 2001 the Company entered into a new credit facility agreement with CoBank as
described in "Liquidity and Capital Resources." Management believes that
reasonably foreseeable movements in interest rates will not have a material
adverse effect on the Company's financial condition or operations.
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15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description of Exhibit
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10.1 CT Communications, Inc. 2001 Stock Incentive Plan
10.2 CT Communications, Inc. 2001 Employee Stock Purchase Plan
11 Computation of Earnings per Share
(b) Reports on Form 8-K
On March 28, 2001, the Company filed a Current Report on Form
8-K announcing the Company's stock repurchase plan.
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16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CT COMMUNICATIONS, INC.
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(Company)
/s/ Amy M. Justis
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Amy M. Justis
Vice President and
Chief Accounting Officer
May 15, 2001
- -------------------------------
Date
(The above signatory has dual responsibility as a duly authorized officer and
principal accounting officer of the Registrant.)
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17
EXHIBIT INDEX
Exhibit No. Description
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10.1 CT Communications, Inc. 2001 Stock Incentive Plan
10.2 CT Communications, Inc. 2001 Employee Stock Purchase Plan
11 Computation of Earnings per Share
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