-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D5QFE8/4RqrokN6+u+c98vDXuBQHnvU8nKy3GaTCBUVrJTscpg1gX1re2MNjOdwS bQlNBjTV5gqXiL9IHQZIEQ== 0000950168-99-001486.txt : 19990514 0000950168-99-001486.hdr.sgml : 19990514 ACCESSION NUMBER: 0000950168-99-001486 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CT COMMUNICATIONS INC /NC CENTRAL INDEX KEY: 0000023259 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 561837282 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-19179 FILM NUMBER: 99619055 BUSINESS ADDRESS: STREET 1: 68 CABARRUS AVE EAST STREET 2: P O BOX 227 CITY: CONCORD STATE: NC ZIP: 28025 BUSINESS PHONE: 7047880244 MAIL ADDRESS: STREET 1: 68 CABARRUS AVE EAST STREET 2: PO BOX 227 CITY: CONCORD STATE: NC ZIP: 28025 FORMER COMPANY: FORMER CONFORMED NAME: CONCORD TELEPHONE CO DATE OF NAME CHANGE: 19920703 10-K/A 1 CT COMMUNICATIONS, INC. 10-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 AMENDMENT NO. 1 TO FORM 10-K (Mark one) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended: December 31, 1998 [ ] 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 Identification incorporation or organization Number) 68 CABARRUS AVENUE, EAST, CONCORD, NORTH CAROLINA 28025 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (704) 722-2500 Securities registered pursuant to Section 12(b) of the Act: Title of each class: Name of exchange on which registered: NONE NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK RIGHTS TO PURCHASE COMMON STOCK Indicate by check mark whether the Company (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 Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by nonaffiliates of the Company is approximately $343,544,640 (based on the March 12, 1999 closing price of the Common Stock of $40.00 per share). As of March 12, 1999, there were 9,381,049 shares of the Company's Common Stock outstanding. Documents Incorporated by Reference NONE ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. In Section (a)(3) of Item 14, the parenthetical is deleted and the financial statements of Palmetto MobileNet, L.P. are filed herewith. The financial statements of CT Communications, Inc. also are filed herewith, rather than incorporated by reference as with the Form 10-K previously filed. Item 14, as amended, is set forth below. In addition, Exhibit 23.1 has been added to include the consent of KPMG LLP. (a) Documents filed as part of this report (1) Financial Statements of CT Communications, Inc.: The following financial statements, together with the report thereon of independent auditors, are filed herewith:
Page o Consolidated balance sheets as of December 31, 1998 and 1997 F-1 o Consolidated statements of income for the years ended F-3 December 31, 1998, 1997, and 1996 o Consolidated statements of cash flows for the years ended F-4 December 31, 1998, 1997, and 1996 o Consolidated statements of stockholders' equity for the years F-5 ended December 31, 1998, 1997, and 1996 o Consolidated statements of comprehensive income for the F-7 years ended December 31, 1998, 1997 and 1996 o Notes to consolidated financial statements for the years ended F-8 December 31, 1998, 1997, and 1996 o Report of Independent Public Accountants F-23 (2) Consolidated Financial Statement Schedules: The following financial statement schedule, together with the report thereon of independent auditors, is filed herewith: o Schedule II - Valuation and Qualifying Accounts F-24 Other schedules are omitted because the required information is included in the financial statements or is not applicable. (3) Financial Statements of Palmetto MobileNet, L.P. (To be filed as an amendment to this Report on Form 10-K.)
2 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. By: /s/ MICHAEL R. COLTRANE ______________________________ Michael R. Coltrane President and Chief Executive Officer Date: May 12, 1999 /s/ BARRY R. RUBENS ______________________________ Barry R. Rubens Senior Vice President, Treasurer and Chief Financial Officer (Principal Financial and Principal Accounting Officer) Date: May 12, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Signature Title Date /s/ L.D. COLTRANE III - ------------------------- Chairman of the Board May 12, 1999 L.D. Coltrane, III and Director /s/ MICHAEL R. COLTRANE - ------------------------- President, Chief Executive May 12, 1999 Michael R. Coltrane Officer and Director (Principal Executive Officer) /s/ JOHN R. BOGER, JR. - ------------------------- Director May 12, 1999 John R. Boger, Jr. 3 Signature Title Date /s/ O. CHARLIE CHEWNING, JR. - ---------------------------- Director May 12, 1999 O. Charlie Chewning, Jr. /s/ WILLIAM A. COLEY - ------------------------- Director May 12, 1999 William A. Coley /s/ SAMUEL E. LEFTWICH - ------------------------- Director May 12, 1999 Samuel E. Leftwich /s/ JERRY H. MCCLELLAN - ------------------------- Director May 12, 1999 Jerry H. McClellan - ------------------------- Director _________, 1999 Ben F. Mynatt /s/ PHIL W. WIDENHOUSE - ------------------------- Director May 12, 1999 Phil W. Widenhouse
4 CT COMMUNICATIONS, INC. AND SUBSIDIARIES Consolidated Financial Statements and Schedules December 31, 1998, 1997 and 1996 (With Independent Auditors' Report Thereon) CT COMMUNICATIONS, INC. AND SUBSIDIARIES Consolidated Financial Statements Index December 31, 1998, 1997 and 1996 (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, 1998 and 1997 F - 3 and F - 4 o Consolidated statements of income for the years ended December 31, 1998, 1997, and 1996 F - 5 o Consolidated statements of comprehensive income for the years ended December 31, 1998, 1997 and 1996 F-6 o Consolidated statements of stockholders' equity for the years ended December 31, 1998, 1997, and 1996 F - 7 and F - 8 o Consolidated statements of cash flows for the years ended December 31, 1998, 1997, and 1996 F - 9 o Notes to consolidated financial statements for the years ended December 31, 1998, 1997, and 1996 F - 10 to F - 36 (2) Consolidated Financial Statement Schedules The following financial statement schedule is included: o Schedule II - Valuation and Qualifying Accounts F - 37
Other schedules are omitted because the required information is included in the financial statements or is not applicable. 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 generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the 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, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. 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. Charlotte, North Carolina March 5, 1999
CT COMMUNICATIONS, INC. AND SUBSIDIARIES Consolidated Balance Sheets December 31, 1998 and 1997 1998 1997 ------------------- ------------------- Assets Current assets: Cash and cash equivalents $ 2,807,887 -- Short-term investments 116,681 168,979 Accounts receivable, net of allowance for doubtful accounts of $107,500 and $100,000 in 1998 and 1997 12,210,952 8,842,922 Notes receivable 1,513,500 1,810,500 Other accounts receivable 1,067,163 -- Materials and supplies 2,331,957 2,696,432 Deferred income taxes 1,051,855 1,545,470 Prepaid expenses and other assets 1,583,232 950,254 ------------------- ------------------- Total current assets 22,683,227 16,014,557 ------------------- ------------------- Investment securities 24,666,211 14,624,757 Investments in affiliates 29,789,794 29,550,326 Property, plant, and equipment: Telephone plant in service: Land, buildings, and general equipment 35,676,763 28,730,045 Central office equipment 70,787,607 64,227,829 Poles, wires, cables and conduit 87,587,101 80,143,917 Construction in progress 449,946 277,070 ------------------- ------------------- 194,501,417 173,378,861 Less accumulated depreciation 94,329,834 86,229,072 ------------------- ------------------- Net property, plant, and equipment 100,171,583 87,149,789 ------------------- ------------------- Intangibles, net 6,323,543 -- Total Assets $ 183,634,358 147,339,429 =================== ===================
See accompanying notes to consolidated financial statements. F-3
1998 1997 ------------------- ------------------- Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt and redeemable preferred stock $ 12,500 632,500 Accounts payable 8,597,391 9,697,000 Customer deposits and advance billings 1,892,506 1,591,284 Accrued payroll 2,584,993 1,304,573 Income taxes payable 400,736 992,750 Accrued pension cost 1,411,430 1,970,956 Other accrued liabilities 1,795,533 1,428,372 ------------------- ------------------- Total current liabilities 16,695,089 17,617,435 ------------------- ------------------- Long-term debt 20,000,000 11,239,000 ------------------- ------------------- Deferred credits and other liabilities: Deferred income taxes 14,688,095 7,497,167 Investment tax credits 804,195 919,080 Postretirement benefits other than pension 10,549,204 10,026,128 Other 1,189,587 1,573,668 ------------------- ------------------- 27,231,081 20,016,043 ------------------- ------------------- Redeemable preferred stock: 4.8% series; authorized 5,000 shares; issued and outstanding 1,375 and 1,500 shares in 1998 and 1997, respectively 125,000 137,500 ------------------- ------------------- Total liabilities 64,051,170 49,009,978 ------------------- ------------------- Minority interest -- 1,360,998 Stockholders' equity: Preferred stock not subject to mandatory redemption: 5% series, $100 par value; 3,440 and 3,631 shares outstanding in 1998 and 1997, respectively 344,000 363,100 4.5% series, $100 par value; 628 and 1,218 shares outstanding in 1998 and 1997, respectively 62,800 121,800 Common stock: 9,300,769 and 9,090,531 shares outstanding in 1998 and 1997, respectively 35,748,327 29,040,745 Other capital 298,083 298,083 Deferred compensation (697,338) (817,903) Other accumulated comprehensive income 13,100,748 6,169,443 Retained earnings 70,726,568 61,793,185 ------------------- ------------------- Total stockholders' equity 119,583,188 96,968,453 Contingency ------------------- ------------------- Total Liabilities and Stockholders' Equity $ 183,634,358 147,339,429 =================== ===================
See accompanying notes to consolidated financial statements. F-4
CT COMMUNICATIONS, INC. AND SUBSIDIARIES Consolidated Statements of Income Years ended December 31, 1998, 1997, and 1996 1998 1997 1996 -------------------- -------------------- ----------------- Operating revenues: Local service $ 35,661,398 29,197,401 24,715,038 Access and toll service 36,633,993 34,877,748 31,653,259 Other and unregulated 19,863,750 14,790,122 11,008,784 Less: provision for uncollectible accounts (433,747) (381,757) (323,075) -------------------- -------------------- ----------------- Total operating revenues 91,725,394 78,483,514 67,054,006 -------------------- -------------------- ----------------- Operating expenses: Plant specific 28,524,416 25,087,883 20,026,094 Depreciation and amortization 12,840,561 9,612,085 10,104,802 Customer operations 12,974,115 10,041,876 11,224,067 Corporate operations 15,933,322 12,628,528 9,995,004 Expense related to early retirement plan -- 1,020,000 -- -------------------- -------------------- ----------------- Total operating expenses 70,272,414 58,390,372 51,349,967 -------------------- -------------------- ----------------- Net operating revenues 21,452,980 20,093,142 15,704,039 -------------------- -------------------- ----------------- Other income (expenses): Equity in income of affiliates, net 431,088 130,637 1,801,952 Interest, dividend income and gain on sale of investments 1,916,446 261,459 244,213 Other expenses, principally interest (1,491,635) (985,275) (705,112) -------------------- -------------------- ----------------- Total other income (expenses) 855,899 (593,179) 1,341,053 -------------------- -------------------- ----------------- Income before income taxes and extraordinary item 22,308,879 19,499,963 17,045,092 Income taxes 8,926,469 7,898,159 6,583,671 -------------------- -------------------- ----------------- Net income before extraordinary item 13,382,410 11,601,804 10,461,421 Extraordinary item - discontinuance of SFAS 71, net of income taxes of $1,493,312 -- 2,239,045 -- -------------------- -------------------- ----------------- Net income after extraordinary item 13,382,410 13,840,849 10,461,421 Dividends on preferred stock 28,457 73,073 92,535 -------------------- -------------------- ----------------- Earnings for common stock 13,353,953 13,767,776 10,368,886 ==================== ==================== ================= Basic earnings per common share: Earnings before extraordinary item 1.45 1.27 1.15 ==================== ==================== ================= Extraordinary item -- 0.25 -- ==================== ==================== ================= Earnings per common share 1.45 1.52 1.15 ==================== ==================== ================= Diluted earnings per common share: Earnings before extraordinary item 1.44 1.26 1.14 ==================== ==================== ================= Extraordinary item -- 0.25 -- ==================== ==================== ================= Earnings per common share $ 1.44 1.51 1.14 ==================== ==================== ================= Basic weighted average shares outstanding 9,227,016 9,076,211 9,051,731 ==================== ==================== ================= Diluted weighted average shares outstanding 9,276,504 9,111,439 9,078,385 ==================== ==================== =================
See accompanying notes to consolidated financial statements. F-5
CT COMMUNICATIONS, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income Years ended December 31, 1998, 1997, and 1996 1998 1997 1996 --------------- --------------- -------------- Net income after extraordinary item $ 13,382,410 13,840,849 10,461,421 Other comprehensive income, net of tax Unrealized holding gains (losses) on available-for-sale securities 6,931,305 5,974,024 (1,001,347) --------------- --------------- -------------- Comprehensive income $ 20,313,715 19,814,873 9,460,074 =============== =============== ==============
See accompanying notes to consolidated financial statements. F-6
CT COMMUNICATIONS, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity Years ended December 31, 1998, 1997 and 1996 5% Series 4.5% Series Discount Preferred Preferred of 5% Common Stock Stock Preferred Stock ----------------- --------------- ---------------- ---------------- Balances at December 31, 1995 $ 1,508,700 200,000 (16,059) 27,135,871 Net income -- -- -- -- Issuance of 14,136 shares of common stock -- -- -- 262,343 Dividends declared: 5% preferred -- -- -- -- 4.8% preferred -- -- -- -- 4.5% preferred -- -- -- -- Common -- -- -- -- Tax benefit from exercise of stock options -- -- -- -- Other comprehensive income -- -- -- -- Unearned compensation related to the granting of 8,548 shares of restricted common stock, net of $25,172 earned during the year -- -- -- -- ----------------- --------------- ---------------- ---------------- Balances at December 31, 1996 1,508,700 200,000 (16,059) 27,398,214 ----------------- --------------- ---------------- ---------------- Other Total Other Unearned Comprehensive Retained Stockholders' Capital Compensation Income Earnings Equity --------- ------------- --------------- -------------- -------------- Balances at December 31, 1995 298,083 (60,752) 1,196,766 46,010,093 76,272,702 Net income -- -- -- 10,461,421 10,461,421 Issuance of 14,136 shares of common stock -- -- -- -- 262,343 Dividends declared: 5% preferred -- -- -- (75,435) (75,435) 4.8% preferred -- -- -- (8,100) (8,100) 4.5% preferred -- -- -- (9,000) (9,000) Common -- -- -- (4,133,092) (4,133,092) Tax benefit from exercise of stock options -- -- -- 14,126 14,126 Other comprehensive income -- -- (1,001,347) -- (1,001,347) Unearned compensation related to the granting of 8,548 shares of restricted common stock, net of $25,172 earned during the year -- (127,303) -- -- (127,303) --------- ------------- ---------------- -------------- ---------------- Balances at December 31, 1996 298,083 (188,055) 195,419 52,260,013 81,656,315 --------- ------------- ---------------- -------------- ----------------
See accompanying notes to consolidated financial statements. F-7
CT COMMUNICATIONS, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity Years ended December 31, 1998, 1997 and 1996 5% Series 4.5% Series Discount Preferred Preferred of 5% Common Stock Stock Preferred Stock ----------------- --------------- ---------------- ----------------- Net income -- -- -- -- Issuance of 53,076 shares of common stock -- -- -- 1,412,339 Issuance of stock options -- -- -- 74,279 Repurchases of shares: 11,456 shares of 5% preferred (1,145,600) -- 16,059 362,039 782 shares of 4.5% preferred -- (78,200) -- 46,920 9,090 shares of common -- -- -- (253,046) Dividends declared: 5% preferred -- -- -- -- 4.8% preferred -- -- -- -- 4.5% preferred -- -- -- -- Common -- -- -- -- Other comprehensive income -- -- -- -- Unearned compensation related to the granting of 27,476 shares of restricted common stock, net of $140,931 earned during the year -- -- -- -- ----------------- --------------- ---------------- ----------------- Balances at December 31, 1997 363,100 121,800 -- 29,040,745 ----------------- --------------- ---------------- ----------------- Net income -- -- -- -- Issuance of 205,488 shares of common stock -- -- -- 6,559,335 Issuance of stock options -- -- -- 425,619 Repurchases of shares: 191 shares of 5% preferred (19,100) -- -- 3,079 590 shares of 4.5% preferred -- (59,000) -- 27,824 9,570 shares of common -- -- -- (308,275) Dividends declared: 5% preferred -- -- -- -- 4.8% preferred -- -- -- -- 4.5% preferred -- -- -- -- Common -- -- -- -- Other comprehensive income -- -- -- -- Unearned compensation related to the granting of 8,084 shares of restricted common stock, net of $385,316 earned during the year -- -- -- -- ----------------- --------------- ---------------- ----------------- Balances at December 31, 1998 $ 344,000 62,800 -- 35,748,327 ================= =============== ================ ================= Other Total Other Unearned Comprehensive Retained Stockholders' Capital Compensation Income Earnings Equity ------------- -------------- -------------- -------------- ---------------- Net income -- -- -- 13,840,849 13,840,849 Issuance of 53,076 shares of common stock -- -- -- -- 1,412,339 Issuance of stock options -- -- -- -- 74,279 Repurchases of shares: 11,456 shares of 5% preferred -- -- -- -- (767,502) 782 shares of 4.5% preferred -- -- -- -- (31,280) 9,090 shares of common -- -- -- -- (253,046) Dividends declared: 5% preferred -- -- -- (56,298) (56,298) 4.8% preferred -- -- -- (7,775) (7,775) 4.5% preferred -- -- -- (9,000) (9,000) Common -- -- -- (4,234,604) (4,234,604) Other comprehensive income -- -- 5,974,024 -- 5,974,024 Unearned compensation related to the granting of 27,476 shares of restricted common stock, net of $140,931 earned during the year -- (629,848) -- -- (629,848) ------------- -------------- -------------- -------------- ---------------- Balances at December 31, 1997 298,083 (817,903) 6,169,443 61,793,185 96,968,453 ------------- -------------- -------------- -------------- ---------------- Net income -- -- -- 13,382,410 13,382,410 Issuance of 205,488 shares of common stock -- -- -- -- 6,559,335 Issuance of stock options -- -- -- -- 425,619 Repurchases of shares: 191 shares of 5% preferred -- -- -- -- (16,021) 590 shares of 4.5% preferred -- -- -- -- (31,176) 9,570 shares of common -- -- -- -- (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 -- -- -- (4,420,570) (4,420,570) Other comprehensive income -- -- 6,931,305 -- 6,931,305 Unearned compensation related to the granting of 8,084 shares of restricted common stock, net of $385,316 earned during the year -- 120,565 -- -- 120,565 ------------- -------------- -------------- -------------- ---------------- Balances at December 31, 1998 298,083 (697,338) 13,100,748 70,726,568 119,583,188 ============= ============== ============== ============== ================
See accompanying notes to consolidated financial statements. F-8
CT COMMUNICATIONS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 1998, 1997, and 1996 1998 1997 1996 ------------ ----------- ------------ Cash flows from operating activities: Net income $ 13,382,410 13,840,849 10,461,421 Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary item -- (2,239,045) -- Depreciation and amortization 12,840,561 9,612,085 10,104,802 Postretirement benefits 523,076 603,555 1,317,608 Loss (gain) on sale of investment securities (1,113,546) 23,667 75,667 Undistributed income of affiliates (431,088) (130,637) (1,801,952) Deferred income taxes and tax credits 4,138,338 (589,093) 31,700 Changes in operating assets and liabilities, net of effects of acquisitions in 1998: Accounts and notes receivable (4,306,651) (1,228,185) 1,263,961 Materials and supplies 364,475 163,682 (1,056,695) Other current assets (402,502) (473,480) 56,611 Accounts payable (1,519,073) (1,565,023) 1,109,877 Customer deposits and advance billings 83,531 319,722 190,789 Accrued liabilities 703,974 1,878,013 525,529 Refundable income taxes -- 14,736 161,492 Income taxes payable (592,014) 992,750 -- ------------------------------------------------ Net cash provided by operating activities 23,671,491 21,223,596 22,440,810 ------------------------------------------------ Cash flows from investing activities: Capital expenditures, net (24,789,296) (21,573,658) (24,118,712) Purchases of investments in affiliates (4,375,949) (11,148,674) (4,263,200) Purchases of investment securities (100,919) (356,268) (1,067,060) Proceeds from sale of investment securities 1,473,727 2,306,812 4,606,652 Maturities of investment securities 216,240 476,487 2,751,739 Partnership capital distribution 3,609,252 4,229,675 1,965,792 Notes receivable collections, net (503,000) (1,810,500) -- ------------------------------------------------ Net cash used in investing activities (24,469,945) (27,876,126) (20,124,789) ------------------------------------------------ Cash flows from financing activities: Repayment of long-term debt (21,281,889) (2,215,000) (640,000) Proceeds from new debt 29,422,889 10,000,000 -- Redemption of preferred stock (12,500) (12,500) (12,500) Dividends paid (4,449,027) (4,307,677) (4,225,627) Repurchases of common and preferred stock (385,863) (1,067,468) -- Proceeds from common stock issuances 312,731 643,600 109,869 Minority interest -- 1,360,998 -- Other -- 87,879 (136,269) ------------------------------------------------ Net cash provided by (used in) financing activities 3,606,341 4,489,832 (4,904,527) ------------------------------------------------ Net (decrease) increase in cash and cash equivalents 2,807,887 (2,162,698) (2,588,506) Cash and cash equivalents - beginning of year -- 2,162,698 4,751,204 ------------------------------------------------ Cash and cash equivalents - end of year $ 2,807,887 -- 2,162,698 ================================================ Supplemental cash flow information: Cash paid for income taxes 4,827,202 7,912,449 6,474,267 Cash paid for interest 1,093,473 390,735 310,099
See accompanying notes to consolidated financial statements. F-9 CT COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1998, 1997, and 1996 (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 "CT Wireless, Inc."), CT Wireless Cable, Inc., CTC Exchange Services, Inc., CT Global Telecommunications, Inc. ("CTGT"), CT Communications Northeast 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 two general partnerships which provide cellular mobile telephone services to various counties in North and South Carolina. CT Wireless, which began operations in 1996, 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, which was established in 1996, 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, which was established in 1997, was formed to provide competitive local telephone service in North Carolina. CT Global, which became a subsidiary in 1997, was formed to build telecommunications networks outside of the United States. CT Communications Northeast Trust was formed in 1998 to hold the Company's investment securities and investments in affiliates. CTC Internet Services, Inc., which was established in 1998 as a result of the Company's acquisition of G.A. Technologies, doing business as Vnet (note 5), was formed to provide internet services to customers in North Carolina. Effective April 1, 1997, the Company discontinued application of Statement of Financial Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation." See note 14 for further discussion of the impacts of discontinuance of SFAS No. 71. (B) RECLASSIFICATIONS In certain instances, amounts previously reported in the 1997 and 1996 consolidated financial statements have been reclassified to conform with the 1998 consolidated financial statement presentation. Such reclassifications have no effect on net income or retained earnings as previously reported. (Continued) F-10 CT COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1998, 1997, and 1996 (C) PROPERTY, PLANT 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, administrative, and general cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the respective assets. Prior to the Company's discontinued applications of SFAS No. 71 on April 1, 1997 (see note 14), depreciation on telephone plant in service was provided on a straight-line basis using composite rates acceptable to the regulatory authorities. During 1996, under authority of the North Carolina Utilities Commission (the Commission), the Company recorded additional amortization relating to certain telephone plant accounts. Such "special amortization", as approved by the Commission, increased the Company's total depreciation and amortization expense and related accumulated depreciation by $574,363 in 1996. Maintenance, repairs, and minor renewals are primarily charged to maintenance expense accounts. Additions, renewals, and betterments are charged to telephone plant accounts. 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 profit or loss is calculated on ordinary retirements of depreciable property. See note 14 for a discussion of SFAS No. 71 and its effect on property, plant and equipment. (D) INVESTMENT SECURITIES Investment securities at December 31, 1998 and 1997 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. (Continued) F-11 CT COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1998, 1997, and 1996 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, 1998 and 1997, all securities are classified as available-for-sale securities. (E) INVESTMENTS IN AFFILIATED COMPANIES The Company has interests in several partnerships and corporations which 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 valued principally at the lower of average cost (first-in, first-out method) 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 Local and toll service and access charges are recognized when earned regardless of the period in which they are billed. (Continued) F-12 CT COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1998, 1997, and 1996 (I) INTANGIBLES Intangibles consist primarily of goodwill representing the excess of the purchase price of Vnet and tarheel.net (note 5) over the fair value of the net assets acquired. Goodwill is amortized using the straight line method over 10 years. Amortization expense and accumulated amortization at December 31, 1998 amounted to $483,770. (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. (M) STOCK OPTION PLANS Statement of Financial Accounting Standards (SFAS) No. 123 allows entities to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. (Continued) F-13 CT COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1998, 1997, and 1996 (N) RECENT ACCOUNTING PRONOUNCEMENTS On January 1, 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130 "Reporting Comprehensive Income". SFAS No. 130 requires companies to display, with the same prominence as other financial statements, the components of comprehensive income. Items considered to be other comprehensive income include adjustments made for unrealized holding gains and losses on available-for-sale securities. During 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 131 "Disclosures about Segments of an Enterprise and Related Information". SFAS No. 131 establishes standards for the way public business enterprises are to report information about operating segments in annual financial statements and requires those enterprises to report selected financial information about operating segments in interim financial reports issued to shareholders. The Company has identified its primary operating segment as The Concord Telephone Company. During 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 132, "Employers' Disclosures About Pension and Other Postretirement Benefits" and has revised its disclosures for its pension and postretirement plans accordingly. (2) NOTES RECEIVABLE At December 31, 1998 and 1997, the Company had notes receivables of $1,513,500 and $1,810,500 due from US Telecom Holdings, Inc. ("USTH") with interest at 9.75%. The notes are secured by a first priority security interest in 4,950.50 shares of common stock of Telco Investors II, Inc. owned by USTH and are due April 1, 1999. Interest due to the Company as of December 31, 1998 and 1997 was $170,131 and $58,245, respectively. (Continued) F-14 CT COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1998, 1997, and 1996 (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, 1998 and 1997, were as follows:
Gross Gross Unrealized Unrealized Amortized Holding Holding Fair Cost Gains Losses Value --------------- ------------- ---------------- --------------- At December 31, 1998 Available-for-sale: State, county and municipal debt securities $ 116,681 -- -- 116,681 Equity securities 4,140,229 23,667,578 (3,141,596) 24,666,211 --------------- ------------- ---------------- --------------- $ 4,256,910 23,667,578 (3,141,596) 24,782,892 =============== ============= ================ =============== At December 31, 1997 Available-for-sale: Certificates of deposit 168,979 -- -- 168,979 Equity securities 4,290,011 13,165,751 (2,831,005) 14,624,757 --------------- ------------- ---------------- --------------- $ 4,458,990 13,165,751 (2,831,005) 14,793,736 =============== ============= ================ ===============
In 1998 and 1997, proceeds from the sale of investment securities available for sale were $1,473,727 and $2,306,812 and included in income were gross realized gains of $1,274,437 and $1,389 and gross realized losses of $160,891 and $25,162, respectively. (Continued) F-15 CT COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1998, 1997, and 1996 (4) INVESTMENTS IN AFFILIATED COMPANIES Investments in affiliated companies consist of the following:
1998 OWNERSHIP PERCENTAGE 1998 1997 ------------------ ------------------- ------------------- Equity Method: Palmetto Mobile Net, L.P. 19.54% $ 10,262,329 -- RSA 15 Partnership -- -- 7,478,888 Maxcom Telecomunicaciones, S.A. de C.V. 16.20 8,566,777 6,860,000 Wireless One of North Carolina, LLC 49.05 4,366,105 4,100,204 BellSouth Carolinas PCS, LP 1.95 1,896,667 3,752,556 U.S. Telecom Holdings 27.70 695,385 1,895,385 Ellerbe-Concord Partnership -- -- 1,268,571 Access On 19.58 118,476 186,919 Cost Method: Illuminet Holdings, Inc. 4.00 1,068,624 1,068,624 ITC Holding Company 4.40 2,724,129 2,724,129 Other various 91,302 215,050 ------------------- ------------------- $ 29,798,794 29,550,326 =================== ===================
CT Cellular, Inc. and Ellerbe Telephone entered into agreements to exchange their respective interests in RSA 4/5 and RSA 15 for interests in Palmetto MobileNet, L.P., a South Carolina limited partnership. In April 1998, the Federal Communications Commission approved the transaction which was deemed effective as of January 1, 1998. 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. The purpose of Wireless One of North Carolina, LLC is to develop and deploy wireless cable in North Carolina. (Continued) F-16 CT COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1998, 1997, and 1996 BellSouth Carolinas PCS, L.P. is in the business of providing digital personal communications services that competes with cellular phone service. U.S. Telecom Holdings is in the business of investing directly or indirectly in regional operating telephone companies in Hungary, Mexico and other developing countries. Access On, in cooperation with the Company and thirteen other North Carolina independent telephone companies, was formed to build and operate a broadband backbone telecommunications network throughout much of North Carolina. As a result of the Company's significant influence over this company's operating and financial policies, this investment is accounted for under the equity method. ITC Holding Company structurally separated ITC Deltacom, Inc. ("Deltacom") (a publicly held company) and its subsidiaries from ITC Holding Company. ITC Holding Company created the "New ITC Holding Company", of which the Company received one share of stock for each share of "Old ITC Holding Company" stock. The Company also received 2.3 shares of Deltacom stock for each share of "Old ITC Holding Company" stock. The investment in Deltacom is included in available-for-sale equity securities in note 3. Illuminet Holdings, Inc., formerly USTN Holdings, Inc., provides network services such as seamless routing for wireless services and database and billing support. Included in the Company's share of earnings from affiliates accounted for under the equity method for 1998 were total losses of $4,693,034 and total income of $5,124,122. 100% of the income was attributable to Palmetto Mobile Net. Summarized unaudited financial position information for Palmetto Mobile Net as of December 31, 1998 is as follows: current assets - $26,402,498; property and other non-current assets - $82,963,255; current liabilities - $8,667,110; partners' capital - $100,698,643. Summarized unaudited combined results of operations for this entity for the year ended December 31, 1998, is as follows: revenues - $136,662,613; operating income - $51,266,827 and net income $51,612,899. (Continued) F-17 CT COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1998, 1997, and 1996 (5) ACQUISITIONS On May 8, 1998, the Company acquired G.A. Technologies, Inc., an internet provider based in Charlotte, North Carolina doing business as Vnet, for $6,449,134. This transaction was structured as a merger of Vnet into the Company's subsidiary, CTC Internet Services, Inc. Pursuant to the merger, the shareholders of Vnet exchanged their Vnet shares for shares of the Company's common stock. 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: Cash $ 27,216 Accounts receivable 123,829 Deferred taxes 35,037 Prepaid expenses 45,558 Property, plant & equipment 407,929 Goodwill 6,354,910 Other intangibles 38,772 Accounts payable (366,426) Customer deposits (217,691) --------------- Total purchase price $ 6,449,134 =============== On December 23, 1998, the Company acquired tarheel.net, an internet provider based in Hickory, North Carolina, for $110,000. The total purchase price has been allocated to assets acquired as follows: Accounts receivable $ 4,713 Property, plant & equipment 11,500 Goodwill 93,787 --------------- Total purchase price $ 110,000 =============== Results of operations for the acquired entities have been included from the date of acquisition. Pro forma results for these two entities are not material to the consolidated financial statements. (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, short-term investments, 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 market value. (Continued) F-18 CT COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1998, 1997, and 1996 Long-term debt - 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 and carrying amounts at December 31 are as follows:
1998 1997 --------------------------------- --------------------------------- ESTIMATED ESTIMATED CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------------- -------------- -------------- -------------- Financial liabilities: Long-term debt and redeemable preferred stock, including current maturities $ 20,137,500 20,137,500 12,009,000 12,009,000 ============== ============== ============== ==============
(7) LONG-TERM DEBT Long-term debt at December 31 consists of the following:
1998 1997 ------------------ ----------------- Line of credit with interest at LIBOR plus .5% (5.57% at December 31, 1998) due December 31, 2000, renewable for two separate two-year extensions through December 31, 2004 $ 20,000,000 -- Line of credit (at 7.25%), paid in 1998 -- 10,000,000 Note payable to a bank (at 7.25%), paid in 1998 -- 1,859,000 ------------------ ----------------- Total long-term debt 20,000,000 11,859,000 Less: current installments -- 620,000 ------------------ ----------------- Long-term debt, excluding current installments $ 20,000,000 11,239,000 ================== =================
The Company has an available line of credit totaling $60,000,000, of which $20,000,000 was outstanding at December 31, 1998. (Continued) F-19 CT COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1998, 1997, and 1996 (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, 1998, 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. In August 1997, the company effected a three-for-two stock split in the form of a one-for-two stock distribution to stockholders of record at August 1, 1997. In January 1999, the Company effected a recapitalization plan creating one class of common stock (see note 18). Earnings per share, dividends per share and weighted average shares outstanding have been retroactively restated for all years presented. Cash dividends per share of common stock are as follows: $.48 in 1998, $.47 in 1997; and $.46 in 1996. 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. (Continued) F-20 CT COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1998, 1997, and 1996 (10) STOCK COMPENSATION PLANS At December 31, 1998, 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:
1998 1997 ------------------- ---------- Net income As Reported $ 13,382,410 13,840,849 Pro forma $ 13,322,783 13,814,363 Basic earnings per common share As Reported $ 1.45 1.52 Pro forma $ 1.44 1.46 Diluted earnings per common share As Reported $ 1.44 1.51 Pro Forma $ 1.43 1.46
(Continued) F-21 CT COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1998, 1997, and 1996 The Company has an Executive Stock Option Plan (the Plan) to allow key employees to increase their holdings of the Company's common stock. 45,000 shares of common stock were reserved for issuance under the Plan. At December 31, 1998, 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, 1998, is as follows:
WEIGHTED AVERAGE NUMBER EXERCISE OF OPTIONS PRICE ----------------- ---------------- Options outstanding and exercisable at December 31, 1995 24,840 $ 13 Options granted -- -- Options exercised (3,476) 10 ----------------- ---------------- Options outstanding and exercisable at December 31, 1996 21,364 13 Options granted -- -- Options exercised (448) 12 Options forfeited (24) 12 ----------------- ---------------- Options outstanding and exercisable at December 31, 1997 20,892 13 Options granted -- -- Options exercised (8,468) 11 ----------------- ---------------- Options outstanding and exercisable at December 31, 1998 12,424 $ 14 ================= ================
As of December 31, 1998 and 1997, the 12,424 and 20,892 options outstanding and exercisable have exercise prices between $11 and $14 and a weighted-average remaining contractual life of 6 months and 1.3 years, respectively. The Company has a comprehensive 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 have been reserved for issuance under the Plan. At December 31, 1998, the number of common stock reserved for issuance but ungranted was 240 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. (Continued) F-22 CT COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1998, 1997, and 1996 Activity under the Plan for each of the years in the three-year period ended December 31, 1998 is as follows:
WEIGHTED AVERAGE NUMBER EXERCISE OF OPTIONS PRICE ---------------- ---------------- Options outstanding at December 31, 1995 55,800 $ 18 Options granted -- -- Options exercised -- -- ---------------- ---------------- Options outstanding at December 31, 1996 55,800 18 Options granted 33,956 18 Options exercised (600) 18 Options forfeited (3,000) 18 ---------------- ---------------- Options outstanding at December 31, 1997 86,156 18 Options granted -- -- Options exercised (2,656) 18 Options forfeited (5,308) 18 ---------------- ---------------- Options outstanding at December 31, 1998 78,192 $ 18 ================ ================ Options exercisable at December 31, 1998 55,456 $ 18 ================ ================
As of December 31, 1998 and 1997, the 78,192 and 86,156 options outstanding have exercise prices between $15 and $18 and a weighted-average remaining contractual life of 7.5 and 8.5 years, respectively. The per share fair value of stock options granted in 1997 was $6 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: 1997 - Dividend yield of 2.7%, expected volatility of 20%; risk-free interest rate of 6%; and expected lives of 10 years. (Continued) F-23 CT COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1998, 1997, and 1996 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 90,000 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 4 to 10 years. In 1998, 1997 and 1996, respectively, the Company granted 3,856, 27,476 and 8,548 shares to participants with a weighted-average fair value of $33, $19, and $18. Deferred compensation at December 31, 1998 and 1997, respectively was $697,338 and $817,903, which is disclosed net of accumulated amortization of $385,316 and $170,359, 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 45,000 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 1998, 1997 and 1996, the Company granted 2,608, 3,132 and 2,112 shares, respectively, with an average fair market value of $33, $29 and $22, respectively. During 1997, the CT Communications, Inc. Omnibus Stock Compensation Plan (the Plan) was approved. 400,000 shares of common stock have been reserved for issuance under the Plan. The Plan provides for awards of stock, stock options and stock appreciation rights. At December 31, 1998, the number of common stock reserved for issuance but ungranted was 379,248 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. (Continued) F-24 CT COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1998, 1997 and 1996 Activity under the Plan for the year ended December 31, 1998 is as follows:
WEIGHTED AVERAGE NUMBER EXERCISE OF OPTIONS PRICE ---------------- ---------------- Options outstanding at December 31, 1997 -- $ -- Options granted 20,752 33 Options exercised -- -- Options forfeited -- -- ---------------- ---------------- Options outstanding at December 31, 1998 20,752 $ 33 ================ ================ Options exercisable at December 31, 1998 -- $ -- ================ ================
As of December 31, 1998, the 20,752 options outstanding have exercise prices of $33 and a weighted-average remaining contractual life of 9.2 years. The per share fair value of stock options granted in 1998 was $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: 1998 - dividend yield of 1.5%; expected volatility of 20%; risk-free interest rate of 6%, and expected lives of 10 years. (11) EMPLOYEE STOCK PURCHASE PLAN The Company approved Employee Stock Purchase Plans in 1997 (the Plan) which authorized 48,000 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. 2,344 and 21,420 shares were issued under the Plan at a purchase price of $33 and $30 per share in 1998 and 1997, 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 1998 or 1997. Plan assets are invested primarily in common stocks, long-term bonds and U.S. treasury notes. (Continued) F-25 CT COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1998, 1997 and 1996 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, 1998 and 1997.
DECEMBER 31, DECEMBER 31, CHANGE IN BENEFIT OBLIGATION 1998 1997 ------------------ ------------------ Benefit Obligation at end of prior plan year (28,633,948) (26,375,271) Service Cost (776,031) (666,447) Interest Cost (1,961,462) (1,893,377) Actuarial Gain/(Loss) (258,303) (1,527,066) Actual Distributions 1,583,191 1,828,213 ------------------ ------------------ BENEFIT OBLIGATION AT END OF YEAR $ (30,046,553) (28,633,948) ================== ================== CHANGE IN PLAN ASSETS Plan Assets at Fair Value at Beginning of Year 40,472,587 32,848,100 Actual Return on plan assets 3,539,124 9,452,700 Actual Distributions (1,583,191) (1,828,213) ------------------ ------------------ PLAN ASSETS AT FAIR VALUE AT END OF YEAR $ 42,428,520 40,472,587 ================== ================== (ACCRUED)/PREPAID PENSION COST Funded Status 12,381,967 11,838,639 Unrecognized net actuarial (Gain)/Loss (13,214,157) (13,440,795) Unrecognized Prior Service Cost (34,991) (38,490) Unrecognized Transition Obligation/(Asset) (264,249) (330,310) ------------------ ------------------ NET AMOUNT RECOGNIZED $ (1,131,430) (1,970,956) ================== ==================
The Company also has an unqualified Supplemental Executive Retirement Plan. Accrued costs related to this plan were $280,000 at December 31, 1998. Net pension cost for 1998, 1997, and 1996 included the following:
1998 1997 1996 ---------------- ------------------ ----------------- Service cost, benefits earned during the period $ 776,031 666,447 651,591 Interest cost on projected benefit obligation 1,961,462 1,893,377 1,724,700 Actual return on plan assets (3,539,124) (9,452,700) (3,784,646) Net amortization and deferral (37,895) 6,776,734 1,309,296 ---------------- ------------------ ----------------- Net periodic pension credit $ (839,526) (116,142) (99,059) ================ ================== =================
(Continued) F-26 CT COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1998, 1997 and 1996 The weighted average discount rate of 7% in 1998, 1997 and 1996 and the rate of increase in future compensation levels of 5% in 1998, 1997 and 1996 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 1998, 1997 and 1996. (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 $560,311, $265,746 and $229,500 in 1998, 1997, and 1996, 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. (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. (Continued) F-27 CT COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1998, 1997 and 1996 The following table presents the plan's accumulated postretirement benefit obligation reconciled with amounts recognized in the Company's balance sheets at December 31, 1998 and 1997:
DECEMBER 31, DECEMBER 31, CHANGE IN BENEFIT OBLIGATION 1998 1997 ------------------ ------------------ Benefit Obligation at end of prior plan year (9,532,566) (12,789,710) Service Cost (180,087) (216,693) Interest Cost (608,299) (631,910) Amendments -- 4,022,722 Actuarial Gain/(Loss) 437,227 83,025 Other 594,826 -- ------------------ ------------------ BENEFIT OBLIGATION AT END OF YEAR $ (9,288,899) (9,532,566) ================== ================== (ACCRUED)/PREPAID POSTRETIREMENT COST Funded Status (9,288,899) (9,532,566) Unrecognized net actuarial (Gain)/Loss (2,525,808) (1,868,016) Unrecognized Prior Service Cost (3,017,078) (3,519,925) Unrecognized Transition Obligation/(Asset) 4,282,581 4,894,379 ------------------ ------------------ NET AMOUNT RECOGNIZED $ (10,549,204) (10,026,128) ================== ==================
During 1997, Plan benefits were expanded to include Medicare supplements and additional medical benefits resulting in increased postretirement benefit costs. Net periodic postretirement benefit cost for 1998, 1997 and 1996 includes the following components:
1998 1997 1996 -------------------- ------------------- ------------------- Service cost $ 180,087 216,693 321,990 Interest cost 608,299 631,910 828,192 Amortization of transition obligation over 15 years 611,798 611,798 611,798 Amortization of gain (101,181) (74,769) (72,216) Amortization of prior service cost (502,847) (502,847) -- -------------------- ------------------- ------------------- Net periodic postretirement benefit cost $ 796,156 882,785 1,689,764 ==================== =================== ===================
(Continued) F-28 CT COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1998, 1997 and 1996 For measurement purposes, a 10.0% percent annual rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) was assumed for 1998 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 rate by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1998, to approximately $10,489,025 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended December 31, 1998 to approximately $904,415. Decreasing the assumed health care cost trend rate by one percentage point in each year would decrease the accumulated postretirement benefit obligation as of December 31, 1998, to approximately $8,396,311 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended December 31, 1998 to approximately $707,349. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7% in 1998, 1997 and 1996. (13) INCOME TAXES Total income taxes for the years ended December 31, 1998, 1997 and 1996 were allocated as follows:
1998 1997 1996 ------------------ -------------------- ------------------ Income before extraordinary item $ 8,926,469 7,898,159 6,583,671 Extraordinary item -- 1,493,312 -- ------------------ -------------------- ------------------ $ 8,926,469 9,391,471 6,583,671 ================== ==================== ================== Stockholders' equity, for unrealized holding gain on debt and equity securities recognized for financial reporting purposes $ 3,605,700 3,929,182 (640,204) ================== ==================== ==================
(Continued) F-29 CT COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1998, 1997 and 1996 Income tax expense (benefit) attributable to income before extraordinary item for the years ended December 31, 1998, 1997, and 1996, consists of:
1998 1997 1996 -------------------- ------------------- ------------------- Current: Federal $ 3,896,673 6,694,381 5,385,969 North Carolina 1,104,868 1,965,013 1,292,799 -------------------- ------------------- ------------------- 5,001,541 8,659,394 6,678,768 -------------------- ------------------- ------------------- Deferred: Federal, net of investment tax credit amortization 3,284,653 (651,140) (111,920) North Carolina 640,275 (110,095) 16,823 -------------------- ------------------- ------------------- 3,924,928 (761,235) (95,097) -------------------- ------------------- ------------------- Total $ 8,926,469 7,898,159 6,583,671 ==================== =================== =================== Income tax expense attributable to income before extraordinary item 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: 1998 1997 1996 ----------------- ------------------- ------------------- Amount computed at statutory rate $ 7,808,108 6,824,987 5,965,782 State income taxes, net of federal income tax benefit 1,134,343 1,205,697 851,254 Nontaxable interest income (2,166) (12,133) (104,315) Amortization of federal investment tax credit (114,885) (114,885) (114,885) Amortization of deferred regulatory liability -- -- (126,256) Other, net 101,069 (5,507) 112,091 ----------------- ------------------- ------------------- Income tax expense $ 8,926,469 7,898,159 6,583,671 ================= =================== ===================
(Continued) F-30 CT COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1998, 1997 and 1996 The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities as of December 31, 1998 and 1997 were as follows:
1998 1997 ----------------- ----------------- Deferred tax assets: Accrued postretirement and pension benefits 4,638,380 4,804,705 Deferred investment tax credits 98,514 321,678 Environmental remediation costs 21,097 142,280 Accrued incentive 466,546 492,558 Intangibles 70,725 99,750 Net operating loss carryforwards 554,000 394,000 Other accrued expenses and allowances 484,610 529,439 Other -- 371,174 ----------------- ----------------- Total gross deferred tax assets 6,333,872 7,155,584 ----------------- ----------------- Less valuation allowance (554,000) (394,000) ----------------- ----------------- Net deferred tax assets 5,779,872 6,761,584 ----------------- ----------------- Deferred tax liabilities: Property, plant and equipment, primarily related to depreciation differences 10,915,270 8,659,278 Unrealized gain on securities 7,698,734 4,054,003 Other 802,108 -- ----------------- ----------------- Total gross deferred tax liabilities 19,416,112 12,713,281 ----------------- ----------------- Net deferred tax liability $ 13,636,240 5,951,697 ================= =================
The valuation allowance for deferred tax assets as of January 1, 1998 was $394,000. The net change in the total valuation allowance for the year ended December 31, 1998 was an increase of $160,000. 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, 1998. 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. Subsequently recognized tax benefits relating to the valuation allowance for deferred tax assets as of December 31, 1998, will be allocated to income tax expense. At December 31, 1998, the Company has net operating loss carryforwards for state income tax purposes of approximately $8,200,000 which will expire in the years 2001-2013. (Continued) F-31 CT COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1998, 1997 and 1996 (14) ACCOUNTING FOR THE EFFECTS OF REGULATION Prior to April 1, 1997 the Company's regulated operations were subject to the provisions of SFAS 71. Actions of a regulator could provide reasonable assurance of the existence of an asset, reduce or eliminate the value of an asset and impose a liability on a regulated enterprise. Therefore, regulatory assets and liabilities established by the actions of a regulator were required to be recorded, and, accordingly, reflected in the balance sheet of an entity subject to SFAS 71. As the result of changes in the manner in which the Company is regulated and the heightened competitive environment, the Company determined that it no longer met the criteria for following SFAS No. 71. As of April 1, 1997, the Company discontinued applying SFAS No. 71. The accounting impact was an extraordinary non-cash gain of $2,239,045, net of applicable income taxes of $1,493,212. Although estimated economic useful lives are shorter than previously used for regulatory approved asset lives, the change has resulted in an increase in net telephone plant due to the Company recording additional depreciation charges totaling $15,414,156 over the prior five years. The effect on future charges for depreciation is not expected to differ materially from what would have been recorded under SFAS No. 71. The components of the gain, pretax, are as follows:
Change in recorded value of long lived telephone plant $ 1,757,824 Elimination of regulatory liabilities 1,974,433 -------------------- Total $ 3,732,257 ====================
The increase in net telephone plant, $1,757,824 pretax, was recorded as a decrease to the related accumulated depreciation accounts. Such change was the result of changing from regulator-approved asset lives, and additional depreciation charges, to estimated economic asset lives. The average depreciable lives of affected categories of long-lived telephone plant have been changed to more closely reflect the economic and technological lives. Differences between regulator-approved asset lives and the current economic asset lives are as follows:
COMPOSITE OF ESTIMATED ECONOMIC REGULATOR-APPROVED ASSET ASSET LIVES LIVES Digital switching 14 10 Circuit equipment 10 7 Aerial cable 19 17 Buried cable 16 17
(Continued) F-32 CT COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1998, 1997 and 1996 The remaining components of the extraordinary charge, $1,974,433 pretax, was the result of the removal of regulatory liabilities that were recorded as a result of previous actions by regulators. Virtually all of these regulatory liabilities arose in connection with the incorporation of new accounting standards into the ratemaking process and were transitory in nature. During 1996, the Company filed a price regulation plan with its state regulators seeking permission to become regulated based on prices rather than traditional rate base rate of return regulation. During 1997, the Company's plan was approved. Under the plan, the Company "rebalanced" its rates, lowering or eliminating many toll rates while bringing the price of monthly local services closer to its underlying costs and significantly expanding it's local and discounted toll calling areas. In exchange for the greater flexibility in setting prices, the Company agreed to open up its markets for competition for local dial-tone services. By rebalancing rates, management believes the Company can compete in emerging markets and still sustain local rates that are affordable. (15) SEGMENT INFORMATION Effective December 31, 1998, the Company adopted FAS 131, "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION." The Company's only reportable segment, The Concord Telephone Company (CTC), provides local telephone and other services primarily to residential and business customers located in North Carolina. 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. December 31, 1998: ------------------
CTC ALL OTHER TOTAL -------------------- ------------------- ------------------- External revenues $ 70,646,749 21,078,645 91,725,394 Intersegment revenues 5,017,641 -- 5,017,641 Depreciation and amortization 11,530,611 1,309,950 12,840,561 Segment operating profit 20,140,552 1,312,428 21,452,980 Segment assets 127,673,177 55,961,181 183,634,358 December 31, 1997: CTC ALL OTHER TOTAL -------------------- ------------------- ------------------- External revenues $ 64,952,387 13,531,127 78,483,514 Intersegment revenues 3,629,556 -- 3,629,556 Depreciation and amortization 9,021,245 590,840 9,612,085 Segment operating profit 18,101,086 1,992,056 20,093,142 Segment assets 107,244,263 40,095,166 147,339,429
(Continued) F-33 CT COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1998, 1997 and 1996 December 31, 1996: ------------------
CTC ALL OTHER TOTAL -------------------- ------------------- ------------------- External revenues $ 56,675,193 10,378,813 67,054,006 Intersegment revenues 2,387,185 -- 2,387,185 Depreciation and amortization 10,050,370 54,432 10,104,802 Segment operating profit 15,169,084 534,955 15,704,039 Segment assets 90,855,542 24,208,421 115,063,963 Capital expenditures
(16) RECONCILIATION OF BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING
1998: Basic weighted average shares outstanding 9,227,016 Effect of dilutive securities: Stock options 49,488 -------------------- Diluted weighted average shares outstanding 9,276,504 ==================== 1997: Basic weighted average shares outstanding 9,076,211 Effect of dilutive securities: Stock options 35,228 -------------------- Diluted weighted average shares outstanding 9,111,439 ==================== 1996: Basic weighted average shares outstanding 9,051,731 Effect of dilutive securities: Stock options 26,654 -------------------- Diluted weighted average shares outstanding 9,078,385 ====================
(Continued) F-34 CT COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1998, 1997 and 1996 (17) SUMMARY OF INCOME STATEMENT INFORMATION (UNAUDITED) A summary of quarterly income statement information for the years ended December 31, 1998 and 1997, follows:
1998 QUARTERS ENDED ------------------------------------------------------------------------ MARCH 31 JUNE 30 SEPT. 30 DEC. 31 -------------- -------------- -------------- -------------- Operating revenues $ 21,015,585 22,408,193 23,760,610 24,541,006 Income before other income (expenses) and income taxes 5,558,343 5,690,767 5,512,696 4,691,174 Net income 3,137,453 3,195,198 3,202,872 3,846,887 Basic earnings per common share $ .34 .35 .34 .42 ============== ============== ============== ============== Diluted earnings per common share $ .34 .34 .34 .42 ============== ============== ============== ============== 1997 QUARTERS ENDED ------------------------------------------------------------------------ MARCH 31 JUNE 30 SEPT. 30 DEC. 31 -------------- -------------- -------------- -------------- Operating revenues $ 17,852,229 19,465,534 20,200,736 20,965,015 Income before other income (expenses) and income taxes 5,272,271 4,675,029 4,547,808 5,598,034 Net income 2,649,392 5,315,069 3,008,584 2,867,804 Basic earnings per common share $ .29 .58 .33 .32 ============== ============== ============== ============== Diluted earnings per common share $ .29 .58 .33 .31 ============== ============== ============== ==============
Earnings for the second quarter of 1997 reflect an extraordinary gain from the discontinuance of FAS 71 of $2,239,045, net of income taxes of $1,493,312, as mentioned in note 14. Amounts have also been adjusted for the effects of implementing SFAS No. 128. (Continued) F-35 CT COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1998, 1997 and 1996 (18) SUBSEQUENT EVENTS 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. In lieu of issuing fractional shares, the Company intends to pay cash for these shares. The Company's common stock has been approved for trading on The Nasdaq Stock Market under the symbol "CTCI". The foregoing financial statements and footnotes have been adjusted to reflect the recapitalization. On March 5, 1999, the Company entered into an interest rate swap transaction with First Union Capital Markets to establish a fixed rate of interest on $10,000,000 of the outstanding line of credit at December 31, 1998. (Continued) F-36 Schedule II CT COMMUNICATIONS, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts Years Ended December 31, 1998, 1997 and 1996
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E ------------------------------------------- -------------- ---------------- -------------- DEDUCTIONS ------------- ADDITIONS FROM BALANCE, BALANCE, CHARGED RESERVES AT END DESCRIPTION BEGINNING TO INCOME (SEE NOTE) OF YEAR OF YEAR ------------------------------------------- ------------- -------------- ---------------- -------------- Valuation and qualifying accounts deducted from assets to which they apply: Allowance for uncollectible accounts: Year ended December 31, 1998 $ 100,000 433,747 426,247 107,500 ============== ============== ================ ============== Year ended December 31, 1997 $ 100,000 381,757 381,757 100,000 ============== ============== ================ ============== Year ended December 31, 1996 $ 100,000 323,075 323,075 100,000 ============== ============== ================ ==============
Note: Represents balances written-off as uncollectible less collections on balances previously written off of $202,512, $436,511 and $508,391 for 1998, 1997, and 1996, respectively. F-37 EX-23 2 INDEPENDENT AUDITORS' CONSENT Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors CT Communications, Inc.: We consent to incorporation by reference in the Registration Statements on Form S-8 (Registration Nos. 33-59641, 33-59643, 33-59645, 333-15537, 333-30125, and 333-38895) of CT Communications, Inc. of our report dated March 5, 1999, relating to the consolidated balance sheets of CT Communications, Inc. and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1998, and related schedule, which report is included in the December 31, 1998 Annual Report on Form 10-K of CT Communications, Inc. /s/ KPMG LLP ------------------------- KPMG LLP Charlotte, North Carolina May 12, 1999 -----END PRIVACY-ENHANCED MESSAGE-----