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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 September 30, 2002
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.)
1000 Progress Place NE
P.O. Box 227, Concord, NC 28026-0227
(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.
18,671,792 shares of Common Stock outstanding as of November 1, 2002.
CT COMMUNICATIONS, INC.
INDEX
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets--
September 30, 2002 and December 31, 2001 2
Consolidated Statements of Income (Loss)--
Three and Nine Months Ended September 30, 2002 and 2001 4
Consolidated Statements of Cash Flows--
Nine Months Ended September 30, 2002 and 2001 5
Consolidated Statements of Comprehensive Income (Loss)--
Three and Nine Months Ended September 30, 2002 and 2001 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 29
Item 4. Controls and Procedures 30
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 31
Signatures 32
Certifications 33
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
2002 2001
------------------ -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 8,416,395 $ 8,396,860
Accounts receivable, net of
allowance for doubtful
accounts of $710,000 and $744,682 22,031,019 21,102,252
Other accounts receivable 58,063 439,022
Materials and supplies 4,596,460 4,519,718
Income tax receivable 1,764,636 2,442,720
Deferred income taxes 293,103 293,103
Prepaid expenses and other assets 930,377 1,916,800
------------------ -----------------
Total current assets 38,090,053 39,110,475
------------------ -----------------
Investment securities 4,682,944 14,046,861
Other investments 284,363 184,363
Investments in unconsolidated companies 12,329,227 22,308,152
Property and equipment:
Land, buildings, and general equipment 85,000,083 55,493,878
Central office equipment 145,815,385 132,700,260
Poles, wires, cables and conduit 130,614,837 121,138,173
Construction in progress 8,152,775 26,812,559
------------------ -----------------
369,583,080 336,144,870
Less accumulated depreciation (157,357,679) (137,457,941)
------------------ -----------------
Net property and equipment 212,225,401 198,686,929
Goodwill, net 9,908,404 9,906,267
Other intangibles, net 53,215,885 22,264,535
Other assets 1,513,693 1,061,614
------------------ -----------------
TOTAL ASSETS $ 332,249,970 $ 307,569,196
================== =================
See accompanying notes to consolidated financial statements.
2
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
(Unaudited)
September 30, December 31,
2002 2001
---------------- ---------------
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Redeemable preferred stock $ - $ 12,500
Accounts payable 6,755,624 10,233,035
Short-term borrowings 2,999,785 -
Customer deposits and advance billings 1,695,644 2,185,338
Accrued payroll 2,905,322 3,068,221
Accrued pension cost 2,555,018 2,446,730
Other accrued liabilities 5,997,604 2,061,487
---------------- ---------------
Total current liabilities 22,908,997 20,007,311
---------------- ---------------
Long-term debt 127,696,562 100,000,000
---------------- ---------------
Deferred credits and other liabilities:
Deferred income taxes 10,728,943 11,746,554
Investment tax credits 373,376 459,540
Post-retirement benefits other than
pension 10,852,893 10,817,927
Other 1,848,651 896,388
---------------- ---------------
Total deferred credits and other liabilities: 23,803,863 23,920,409
---------------- ---------------
Redeemable Preferred Stock:
4.8% series, $100 par value; 5,000
shares authorized; 1,000 shares issued
and outstanding in 2001 - 87,500
---------------- ---------------
Total liabilities 174,409,422 144,015,220
---------------- ---------------
Stockholders' equity:
Preferred Stock not subject to
mandatory redemption:
5% series, $100 par value; 3,356
shares outstanding in 2002 and 2001 335,600 335,600
4.5% series, $100 par value; 614
shares outstanding in 2002 and 2001 61,400 61,400
Common Stock, 18,671,025 and 18,734,008
shares outstanding in 2002 and 2001,
respectively 39,856,908 40,846,672
Other capital 298,083 298,083
Unearned compensation (752,233) (653,693)
Other accumulated comprehensive income
(expense) (1,300,768) 4,786,104
Retained earnings 119,341,558 117,879,810
---------------- ---------------
Total stockholders' equity 157,840,548 163,553,976
---------------- ---------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 332,249,970 $ 307,569,196
================ ===============
See accompanying notes to consolidated financial statements.
3
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statement of Income (Loss)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Operating revenues $ 37,036,111 $ 35,710,089 $ 109,992,212 $ 98,520,034
Operating expenses 33,113,852 33,197,023 99,594,064 93,112,031
Restructuring charge 1,095,429 - 1,095,429 1,942,076
Asset impairment charge 3,282,136 - 3,282,136 -
-------------- -------------- --------------- --------------
Operating income (loss) (455,306) 2,513,066 6,020,583 3,465,927
-------------- -------------- --------------- --------------
Other income (expenses):
Equity in income of
unconsolidated companies, net 1,436,169 1,167,205 3,296,149 3,728,763
Interest, dividend income and gain
on sale of investments 12,884 2,494,300 4,800,572 9,647,647
Impairment of investments - (150,000) (704,299) (150,000)
Other expenses, principally interest (1,728,524) (1,238,713) (4,713,712) (3,332,956)
-------------- -------------- --------------- --------------
Total other income (expense) (279,471) 2,272,792 2,678,710 9,893,454
-------------- -------------- --------------- --------------
Income (loss) before income taxes (734,777) 4,785,858 8,699,293 13,359,381
Income taxes (293,691) 1,988,673 3,567,170 5,445,635
-------------- -------------- --------------- --------------
Net income (loss) (441,086) 2,797,185 5,132,123 7,913,746
Dividends on Preferred Stock 4,886 6,236 14,657 18,708
-------------- -------------- --------------- --------------
Earnings (loss) for Common Stock $ (445,972) 2,790,949 5,117,466 7,895,038
============== ============== =============== ==============
Basic earnings (loss) per common share:
Earnings per common share $ (0.02) $ 0.15 $ 0.27 $ 0.42
============== ============== =============== ==============
Diluted earnings (loss) per common share:
Earnings per common share $ (0.02) $ 0.15 $ 0.27 $ 0.42
============== ============== =============== ==============
Basic weighted average shares outstanding 18,670,834 18,797,855 18,721,329 18,834,216
============== ============== =============== ==============
Diluted weighted average shares outstanding 18,712,677 18,845,088 18,762,702 18,875,177
============== ============== =============== ==============
See accompanying notes to consolidated financial statements.
4
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
2002 2001
-------------- --------------
Cash flows from operating activities:
Net income $ 5,132,123 $ 7,913,746
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 21,359,014 17,794,889
Postretirement benefits 34,966 98,044
Gain on sales of investment securities (3,892,883) (8,530,173)
Gain on sales of investment in unconsolidated companies (656,679) -
Impairment of investments 704,299 150,000
Asset impairment charge 3,282,136 -
Undistributed income of unconsolidated companies (3,296,149) (3,728,763)
Deferred income taxes and tax credits 2,340,225 2,648,836
Changes in operating assets and
liabilities, net of effects of acquisitions:
Accounts receivable (270,763) (4,554,175)
Income taxes receivable 678,084 (228,178)
Materials and supplies (76,742) (792,555)
Other assets 719,087 (434,598)
Accounts payable (4,191,009) (296,533)
Customer deposits and advance billings (489,694) (97,173)
Accrued liabilities 3,246,687 1,755,555
------------ ------------
Net cash provided by operating activities 24,622,702 11,698,922
------------ ------------
Cash flows from investing activities:
Capital expenditures, net (36,825,168) (51,327,560)
Other investments (600,000) -
Purchase of investment securities (1,482,586) (2,110,512)
Proceeds from sale of investment securities 5,327,805 10,490,958
Sale of investment in unconsolidated companies 818,360 -
Capital distribution from unconsolidated companies 4,787,797 3,972,852
Purchase of wireless spectrum (760,000) (2,397,840)
Acquisitions, net of cash (3,212,503) (23,310,434)
------------ ------------
Net cash used in investing activities (31,946,295) (64,682,536)
------------ ------------
Cash flows from financing activities:
Net proceeds from credit facilities 12,999,785 96,000,000
Repayment of credit facility - (39,000,000)
Dividends paid (3,670,375) (3,665,972)
Repurchase of Common and Preferred Stock (2,394,787) (1,334,214)
Proceeds from Common Stock issuances 408,505 72,238
------------ ------------
Net cash provided by financing activities 7,343,128 52,072,052
------------ ------------
Net increase (decrease) in cash and cash equivalents 19,535 (911,562)
Cash and cash equivalents - beginning of period 8,396,860 8,060,015
------------ ------------
Cash and cash equivalents - end of period $ 8,416,395 $ 7,148,453
============ ============
Supplemental disclosure of non-cash investing and
financing activities:
Issuance of note payable in connection with
acquisition of wireless spectrum $ 17,696,562 $ -
See accompanying notes to consolidated financial statements.
5
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- --------------------------------
2002 2001 2002 2001
---- ---- ---- ----
Net income (loss) $ (441,086) $ 2,797,185 $ 5,132,123 $ 7,913,746
Other comprehensive income, net of tax:
Unrealized holding gains (losses)
on available-for-sale securities (304,460) (519,656) (3,152,097) 1,162,780
Unrealized holding losses on
interest rate swaps (315,109) - (437,880) -
Less reclassification adjustment
for (gains) losses realized in net income 47,266 (1,397,732) (2,496,895) (5,375,043)
-------------- ------------- ------------- -------------
Comprehensive income (loss) $ (1,013,389) $ 879,797 $ (954,749) $ 3,701,483
============== ============= ============= =============
See accompanying notes to consolidated financial statements.
6
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 Company's financial position as of September 30,
2002 and 2001, and the results of its operations and cash flows for the
three and nine months then ended. These unaudited financial statements
should be read along with the Company's Annual Report on Form 10-K for
the year ended December 31, 2001 and do not include all disclosures
associated with the Company's annual financial statements.
2. In certain instances, amounts previously reported in the 2001
consolidated financial statements have been reclassified to conform
with the 2002 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 nine months ended September 30, 2002
and 2001 are not necessarily indicative of the results to be expected
for the full year.
4. The following is a summary of Common Stock transactions during the nine
months ended September 30, 2002.
Shares Amount
------ ------
Outstanding at December 31, 2001.. 18,734,008 $ 40,846,672
Purchase of Common Stock............ (180,782) (2,719,994)
Issuance of Common Stock............ 117,799 1,730,230
---------- ------------
Outstanding at September 30, 2002........ 18,671,025 $ 39,856,908
========== ============
Basic Diluted
----- -------
Weighted average shares outstanding for the
nine months ended September 30, 2002 18,721,329 18,762,702
Weighted average shares outstanding for the
nine months ended September 30, 2001 18,834,216 18,875,177
The Company began a stock repurchase program in March 2001 to
repurchase up to 1,000,000 shares of its outstanding Common Stock
periodically through March 2002. In April 2002, the Board of Directors
approved the continuation of the stock repurchase program through March
2003. As of September 30, 2002, 317,950 shares had been repurchased at
a cost of approximately $4.7 million, including 156,500 shares at a
cost of $2.3 million repurchased during the nine months ended September
30, 2002. Under the repurchase program, the Company is authorized to
repurchase up to 682,050 shares of Common Stock over the next six
months.
Outstanding options to purchase approximately 646,000 shares of Common
Stock for the three and nine months ended September 30, 2002 and
approximately 415,000 shares of Common Stock for the three and nine
months ended September 30, 2001 were not included in the computation of
diluted earnings per share and diluted weighted shares outstanding
because the exercise price of these
7
options was greater than the average market price of the Common Stock
during the respective periods.
In June 2002, the Company secured approval from the North Carolina
Utilities Commission and accelerated the redemption of the remaining
1,000 outstanding shares of 4.8% redeemable preferred stock of The
Concord Telephone Company, a subsidiary of the Company, for $95,000.
5. 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 September 30, 2002 and December 31, 2001 were as follows:
Equity Securities Amortized Gross Unrealized Gross Unrealized Fair
Available-for-Sale Cost Holding Gains Holding Losses Value
- ------------------ ---- ------------- -------------- -----
September 30, 2002 $5,627,970 $20,949 $(965,975) $4,682,944
========== ============== =============== =============
December 31, 2001 $6,184,604 $8,236,285 $(374,028) $14,046,861
========== ============== =============== =============
During the nine months ended September 30, 2002, the Company sold 218,092 shares
of VeriSign, Inc. ("VeriSign") common stock and 222,182 shares of ITC DeltaCom,
Inc. ("ITC DeltaCom") common stock. As of September 30, 2002, the Company has no
remaining shares of VeriSign common stock. During the nine months ended
September 30, 2002, the Company wrote down $0.7 million for impaired investment
securities, including $0.5 million related to shares of ITC DeltaCom common
stock.
6. INVESTMENTS IN UNCONSOLIDATED COMPANIES
September 30, 2002 December 31, 2001
------------------ -----------------
Equity Method:
Palmetto MobileNet, L.P. $ 8,281,631 $ 9,808,915
Wireless One of North Carolina, L.L.C. --- 8,762,090
Other 184,548 112,418
Cost Method:
ITC Holding Company 2,124,572 2,215,534
Maxcom
Telecomunicaciones, S.A. de C.V. 1,238,476 1,238,476
Other 500,000 170,719
------------- -------------
TOTAL $ 12,329,227 $ 22,308,152
============= =============
On September 14, 2001, the Company's wholly-owned subsidiary, CT Wireless Cable,
Inc. ("CTWC"), and Wireless One of North Carolina, L.L.C. ("WONC"), entered into
a Limited Liability Company Interest Purchase Agreement (the "Purchase
Agreement") with Wireless One, Inc., a subsidiary of WorldCom, Inc. ("Wireless
One"), and Worldcom Broadband Solutions, Inc. pursuant to which WONC would
purchase from Wireless One its entire 50% interest in WONC. The FCC approved
this transaction on March 28, 2002 and the transaction was closed on April 5,
2002, resulting in CTWC owning 100% of the equity interest in WONC. This
transaction has been accounted for using the purchase method of accounting. As a
result, the results of WONC have been consolidated with the Company's results
from the beginning of the second quarter 2002. Pro forma results for WONC are
not material to the Company's consolidated financial statements.
The total purchase price for Wireless One's interest in WONC was $20,696,562,
$3.0 million of which was paid in cash at the closing and the remainder of which
was
8
paid in the form of an interest bearing promissory note of WONC. The promissory
note is payable over the 10 year period following the closing, with a $7.0
million payment due by 12 months from the closing date (which payment may be
deferred for up to an additional two years) and the remainder payable in equal
annual installments beginning after six years. In the event the $7.0 million
payment is not made when due, either CTWC or Wireless One may cause WONC to
transfer certain of its licensed frequencies to Wireless One in payment of the
outstanding principal amount of the promissory note. The promissory note is
secured by a pledge of WONC's channel rights.
The total purchase price of $20.7 million was allocated as follows:
Current assets $ 277,957
Intangibles and licenses 20,725,918
Equipment 412,367
Accounts payable (719,680)
------------
Total purchase price $ 20,696,562
============
On July 19, 2002, the Company delivered a "Split-Up Notice" to Wireless One
pursuant to the Purchase Agreement. This "Split-Up Notice" sets into motion a
process under the Purchase Agreement pursuant to which WONC will transfer to
Wireless One certain of WONC's licensed frequencies and a payment of all accrued
interest in satisfaction of WONC's $17.7 million promissory note to Wireless
One. The dates on which these transactions will be effected have not yet been
determined, but are expected to occur no later than the second quarter of fiscal
year 2003.
7. RESTRUCTURING LIABILITY
In September 2002, the Company recorded restructuring charges of $1,095,429 in
connection with ceasing its wireless broadband commercial trial operations in
Fayetteville, North Carolina. These operations were provided by the Company's
wholly-owned subsidiary, WaveTel, LLC ("WaveTel"). The related liabilities are
included in other liabilities in the accompanying consolidated balance sheets
and were established to accrue for estimated severance costs, lease termination
costs, and other exit costs associated with the discontinuance of operations in
accordance with Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in Restructuring)." Once operations
cease, the net cost of exiting these operations will be presented as
discontinued operations in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." See Note 8 for further discussion. A summary of
restructuring liability activity for the nine months ended September 30, 2002 is
as follows:
Balance at December 31, 2001 $ ---
Lease termination costs 830,882
Severance 167,000
Other exit costs 97,547
------------
Restructuring cost incurred $ 1,095,429
============
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 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
9
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. The remaining liability at September 30, 2002 relates
primarily to pension obligations of approximately $1.0 million and the remaining
Raleigh lease liability. A summary of restructuring liability activity for the
nine months ended September 30, 2002 is as follows:
Balance at December 31, 2001 $ 1,210,181
Raleigh lease payments (95,911)
---------------
Balance at September 30, 2002 $ 1,114,270
===============
In November 2001, the Company recorded restructuring charges of $1,521,511 in
connection with ceasing the expansion of the operations of WaveTel into the
Raleigh, Durham, and Charlotte, North Carolina markets. The related liabilities
are included in other accrued liabilities in the accompanying consolidated
balance sheets and were established to accrue for remaining severance costs
related to 10 WaveTel employees, cell site lease termination costs, design and
engineering costs, and other costs associated with the restructuring action. A
summary of restructuring liability activity related to the WaveTel restructuring
for the nine months ended September 30, 2002 is as follows:
Balance at December 31, 2001 $ 222,509
Severance costs (7,509)
Cell-site lease termination costs (24,000)
-------------
Balance at September 30, 2002 $ 191,000
=============
8. ASSET IMPAIRMENT
In September 2002 the Company recognized an asset impairment charge of
$3,282,136 in accordance with SFAS No. 144, associated with the decision to
cease operations of WaveTel's wireless broadband trial market in Fayetteville,
North Carolina. WaveTel had $4.6 million in property and equipment at September
30, 2002 prior to the impairment charge. Management has assessed the potential
use of the assets through redeployment within other business units of the
Company, as well as the fair value of these assets. Based on this analysis, the
net realizable value of assets, less costs to dispose, either through
anticipated sale or redeployment, amounted to $1,291,094. The remaining
$3,282,136 of book value has been recorded as the impairment of assets under
SFAS No. 144.
In accordance with SFAS No. 144, the asset impairment, as well as the related
restructuring charge, have been recorded in current operations during the three
months ended September 30, 2002. Operations will cease in December 2002. At that
time, the costs associated with discontinuing these operations will be presented
as a "discontinued operation" within the income statement and presented net of
tax below net income from continuing operations.
9. LONG-TERM DEBT
Long-term debt consists of the following:
The Company has a $90.0 million revolving five year line of credit with interest
at three month LIBOR plus a spread based on various financial ratios, currently
1.50%. The interest rate on September 30, 2002 was 3.07%. The credit facility
provides for quarterly payments of interest until maturity on March 31, 2006. As
of September 30, 2002, $60.0 million was outstanding under the revolving credit
agreement. The Company also has a 7.32% fixed rate $50.0 million term loan that
matures on December 31, 2014. All $50.0 million was outstanding as of September
10
30, 2002. The Company also has an additional line of credit for $10.0 million at
one month LIBOR plus 1.25%. As of September 30, 2002, the Company had $3.0
million outstanding under this credit line at an interest rate of 3.07%.
The Company has a $17.7 million note payable to Wireless One that bears interest
at 9% annually with principal payments due over the 10 year period ending March
2012. A $7.0 million principal payment is due by March 2003 (which payment may
be deferred until March 2005 with the payment of accrued interest) and the
remainder payable in equal annual installments beginning in March 2008. As
discussed in Note 6, the Company delivered a "Split-Up Notice" to Wireless One
that, upon acceptance, would fully satisfy the $17.7 million note payable. The
Company has capitalized $0.7 million of interest incurred during the nine months
ended September 30, 2002 in connection with the construction of certain
wireless spectrum assets.
The Company has three interest rate swap transactions to fix $10.0 million, $5.0
million, and $5.0 million of the amounts outstanding under the $90.0 million
revolving line of credit at rates of 5.9%, 4.53%, and 3.81%, respectively, plus
a current spread of 1.25%. The fair value of each of the swaps as of September
30, 2002 was ($615,063), ($339,922), and ($192,876), respectively.
10. PARTITIONING
The Company effected the partitioning of its portion of the Cingular DCS Network
on June 1, 2001. As a result, the Company acquired 47 cell sites, approximately
13,000 additional subscribers and spectrum licenses for Cabarrus, Rowan and
Stanly Counties in North Carolina and the southern portion of Iredell County,
North Carolina. This transaction has been accounted for under the purchase
method of accounting. The total purchase price was $23.2 million. The Company
paid $19.3 million in June 2001 and $3.9 million in September 2001. Allocation
of the purchase price is summarized below:
Property and equipment $ 4,635,875
Intangible assets 18,724,559
Liabilities (150,000)
-------------
Total purchase price $ 23,210,434
=============
While the Company has ownership of the assets and customer accounts within its
partitioned area, the Company will continue to purchase pre-defined services
from Cingular Wireless, 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.
11. GOODWILL
On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." In accordance with SFAS No. 142, the Company discontinued
goodwill amortization and tested goodwill for impairment as of January 1, 2002,
determining that the recognition of an impairment loss was not necessary. The
Company will continue to test goodwill for impairment at least annually.
Goodwill was $9.9 million as of September 30, 2002, and was unchanged for the
quarter then ended. As a result of the decision to downsize its Web programming
and development business, the Company assessed the goodwill related to the
internet and data services business unit for impairment. No impairment was
required based on the test performed in accordance with SFAS No. 142.
11
The following table presents net income on a comparable basis, after adjustment
for goodwill amortization:
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Net income (loss):
As reported $ (441,086) $ 2,797,185 $ 5,132,123 $ 7,913,746
Goodwill amortization
(net of tax) --- 621,389 --- 1,316,564
------------- --------------- --------------- ---------------
Adjusted net income (loss) $ (441,086) $ 3,418,574 $ 5,132,123 $ 9,230,310
============= =============== =============== ===============
Basic earnings per share:
As reported $ (0.02) $ 0.15 $ 0.27 $ 0.42
============= =============== =============== ===============
As adjusted $ (0.02) $ 0.18 $ 0.27 $ 0.49
============= =============== =============== ===============
Diluted earnings per share:
As reported $ (0.02) $ 0.15 $ 0.27 $ 0.42
============= =============== =============== ===============
As adjusted $ (0.02) $ 0.18 $ 0.27 $ 0.49
============= =============== =============== ===============
12. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities." This
statement addresses financial accounting and reporting for costs associated with
exit or disposal activities and supercedes EITF 94-3." EITF 94-3 required
accrual of liabilities related to exit and disposal activities at a plan
(commitment) date. SFAS No. 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is incurred.
The provisions of this statement are effective for exit or disposal activities
that are initiated after December 31, 2002.
Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement addresses
accounting and reporting of all long-lived assets, except goodwill, that are
either held and used or disposed of through sale or other means. The Company has
accounted for the discontinuance of WaveTel's wireless broadband trial market in
accordance with SFAS No. 144. Adoption of SFAS No. 144 did not have a material
effect on the Company's financial position, results of operations or cash flows.
The FASB issued SFAS No. 143, "Accounting For Asset Retirement Obligations,"
which is effective January 1, 2003. This statement requires, among other things,
the accounting and reporting of legal obligations associated with the retirement
of long-lived assets that result from the acquisition, construction, development
or normal operation of a long-lived asset. The Company has not yet determined
the impact of the adoption of this standard on its financial position, results
of operations and cash flows.
13. CLAIMS
In August and September 2002, the Company made claims for recovery of certain
amounts from other telecommunications carriers for approximately $3.3 million.
These claims relate to access charges on certain minutes of use terminated by
the
12
Company on behalf of other carriers and use of facilities that have not been
accepted by the other carriers. Management believes these claims have merit and
there will be a resolution in the future regarding these claims. However,
management is unable to estimate the recovery and is not reasonably assured of
collection. As a result of this uncertainty, the Company has not recorded
revenue for these items. Upon assurance of collectibility, the Company will
recognize revenue in the period that assurance or collection occurs.
14. SEGMENT INFORMATION
The Company has five reportable segments as follows: the incumbent local
exchange carrier ("ILEC"), which provides local telephone service, the digital
wireless group ("Wireless"), which provides wireless phone services, the
competitive local exchange carrier ("CLEC"), which provides competitive local
telephone services to customers outside the ILEC's operating area, the
Greenfield business segment ("Greenfield"), which provides telecommunications
services to new single family, mixed-use, and commercial developments outside
the ILEC's operating area, and the internet and data service provider ("Internet
and Data Services"), which provides dial-up and high-speed internet access, web
hosting and other data related services. Effective January 1, 2002, the Company
stopped managing results of the long distance services unit as a separate
business unit and began reporting long distance as a product offering within the
remaining business segments. Results for previous quarters have been restated
for comparability. 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, 2001. 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, income
taxes, depreciation, and amortization ("Operating EBITDA") and segment operating
profit/(loss). Selected data by business segment for the three and nine months
ended September 30, 2002 and 2001, is as follows:
13
THREE MONTHS ENDED SEPTEMBER 30, 2002 INTERNET AND
ILEC WIRELESS CLEC GREENFIELD DATA SERVICES OTHER TOTAL
---- -------- ---- ---------- ------------- ----- -----
External revenues $ 23,440,138 5,971,436 4,040,718 1,154,801 2,376,596 52,422 37,036,111
Intersegment revenues 1,532,396 37,191 271,473 37,708 5,756 2,566,469 4,450,993
External expenses * 10,561,808 4,999,821 4,564,080 1,948,794 2,245,957 5,619,016 29,939,476
Intersegment expenses 1,779,739 342,805 735,756 436,340 1,078,231 78,122 4,450,993
Operating EBITDA ** 12,878,330 971,615 (523,362) (793,993) 130,639 (5,566,594) 7,096,635
Depreciation and amortization 5,163,010 332,905 567,824 530,669 430,996 526,537 7,551,941
--------------------------------------------------------------------------------------------
Segment operating profit (loss) 7,715,320 638,710 (1,091,186) (1,324,662) (300,357) (6,093,131) (455,306)
--------------------------------------------------------------------------------------------
Segment Assets 162,840,478 30,548,897 14,446,360 20,768,120 14,663,253 88,982,862 332,249,970
THREE MONTHS ENDED SEPTEMBER 30, 2001 INTERNET AND
ILEC WIRELESS CLEC GREENFIELD DATA SERVICES OTHER TOTAL
---- -------- ---- ---------- ------------- ----- -----
External revenues $ 23,988,544 5,900,429 2,846,273 436,036 2,533,842 4,965 35,710,089
Intersegment revenues 1,391,570 24,637 - - - - 1,416,207
External expenses * 11,818,697 4,435,246 4,166,571 1,206,540 2,703,960 2,399,580 26,730,594
Intersegment expenses 748,507 48,677 169,752 55,780 397,223 (3,732) 1,416,207
Operating EBITDA ** 12,169,847 1,465,183 (1,320,298) (770,504) (170,118) (2,394,615) 8,979,495
Depreciation and amortization 4,584,661 297,028 544,909 204,632 580,237 254,962 6,466,429
--------------------------------------------------------------------------------------------
Segment operating profit (loss) 7,585,186 1,168,155 (1,865,207) (975,136) (750,355) (2,649,577) 2,513,066
--------------------------------------------------------------------------------------------
Segment Assets 179,023,365 27,046,178 14,944,412 11,802,873 15,615,951 68,972,428 317,405,207
NINE MONTHS ENDED SEPTEMBER 30, 2002 INTERNET AND
ILEC WIRELESS CLEC GREENFIELD DATA SERVICES OTHER TOTAL
---- -------- ---- ---------- ------------- ----- -----
External revenues $ 70,673,893 17,860,046 11,302,227 2,858,808 7,163,229 134,009 109,992,212
Intersegment revenues 4,875,700 93,845 741,514 55,894 5,986 5,553,299 11,326,238
External expenses * 32,612,691 14,732,154 14,052,108 5,307,323 7,530,244 8,378,095 82,612,615
Intersegment expenses 4,852,567 739,147 1,725,316 891,767 2,953,203 164,238 11,326,238
Operating EBITDA ** 38,061,202 3,127,892 (2,749,881) (2,448,515) (367,015) (8,244,086) 27,379,597
Depreciation and amortization 15,010,364 810,526 1,629,810 1,429,157 1,222,431 1,256,726 21,359,014
--------------------------------------------------------------------------------------------
Segment operating profit (loss) 23,050,838 2,317,366 (4,379,691) (3,877,672) (1,589,446) (9,500,812) 6,020,583
--------------------------------------------------------------------------------------------
Segment Assets 162,840,478 30,548,897 14,446,360 20,768,120 14,663,253 88,982,862 332,249,970
NINE MONTHS ENDED SEPTEMBER 30, 2001 INTERNET AND
ILEC WIRELESS CLEC GREENFIELD DATA SERVICES OTHER TOTAL
---- -------- ---- ---------- ------------- ----- -----
External revenues $ 71,443,487 11,627,550 7,270,350 1,085,586 7,087,835 5,226 98,520,034
Intersegment revenues 4,835,470 63,823 - - - - 4,899,293
External expenses * 37,236,348 10,296,617 12,842,655 3,491,717 7,317,701 6,074,180 77,259,218
Intersegment expenses 2,457,166 106,691 409,886 60,252 1,812,647 52,651 4,899,293
Operating EBITDA ** 34,207,139 1,330,933 (5,572,305) (2,406,131) (229,866) (6,068,954) 21,260,816
Depreciation and amortization 13,380,996 334,555 1,467,778 525,097 1,670,376 416,087 17,794,889
--------------------------------------------------------------------------------------------
Segment operating profit (loss) 20,826,143 996,378 (7,040,083) (2,931,228) (1,900,242) (6,485,041) 3,465,927
--------------------------------------------------------------------------------------------
Segment Assets 179,023,365 27,046,178 14,944,412 11,802,873 15,615,951 68,972,428 317,405,207
* Asset impairment and restructuring charges are included within the category
"external expenses."
14
** Management believes that investors may use this data to analyze and compare
other communications companies with the Company in terms of operating
performance and liquidity. Operating EBITDA is not a measure of financial
performance under generally accepted accounting principles and should not be
construed as a substitute for consolidated net income as a measure of
performance, or for cash flow as a measure of liquidity. Operating EBITDA, as
calculated by the Company, is not necessarily comparable to similarly captioned
amounts of other companies.
Reconciliation to Net Income Before Tax
Three Months Ended Three Months Ended
September 30, 2002 September 30, 2001
------------------ ------------------
Segment operating profit (loss) $ (455,306) $ 2,513,066
Total other income (expense) (279,471) 2,272,792
------------------ ------------------
Income (loss) before income taxes $ (734,777) $ 4,785,858
================== ==================
Nine Months Ended Nine Months Ended
September 30, 2002 September 30, 2001
------------------ ------------------
Segment operating profit $ 6,020,583 $ 3,465,927
Total other income 2,678,710 9,893,454
------------------ ------------------
Income before income taxes $ 8,699,293 $ 13,359,381
================== ==================
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW AND SEGMENTS
The Company has multiple business units in the telecommunications industry. The
Company's ILEC, The Concord Telephone Company, offers integrated
telecommunications services to the Company's customers within Cabarrus, Stanly
and Rowan Counties in North Carolina and has been in existence since 1897. The
ILEC offered its service to nearly 123,000 access lines as of September 30,
2002. In 1997, the Company began offering service outside of its ILEC territory
by offering integrated telecommunications services through its CLEC that, as of
September 30, 2002, offered service in select markets within North Carolina
through more than 26,000 access lines. In addition to the edge-out strategy
employed by the CLEC, the Company's Greenfield business unit provides integrated
telecommunication services to new commercial and residential developments
primarily in North Carolina and Georgia, and had over 5,700 lines in service at
September 30, 2002. All three of these local exchange carrier business units
also offer long distance services marketed as CTC Long Distance as part of their
product offerings.
In addition to the local exchange carrier business units, the Company's
wholly-owned subsidiary, Carolina Personal Communications, Inc. (Wireless),
provides digital wireless services to more than 32,000 customers in Cabarrus,
Stanly, Rowan and Iredell Counties in North Carolina through 7 retail outlets.
Also, the Company has provided internet and data services through CTC Internet
Services, Inc. (Internet and Data Services) since 1995 and currently provides
digital subscriber line ("DSL"), dial-up and high speed service to over 19,000
customers in North Carolina. In September 2002 the Company decided to downsize
its Web programming and development business within the internet and data
services unit.
Grouped within "other" segments are several small companies involved in various
telecommunications services and investments, as well as the Company's WaveTel
subsidiary. WaveTel began a commercial trial of wireless broadband service in
15
Fayetteville, North Carolina during July 2001. In September 2002, the Company
decided to discontinue WaveTel's commercial trial to be effective on December 9,
2002.
Results of Operations
Three Months Ended September 30, 2002 and September 30, 2001
CONSOLIDATED
Operating revenues increased $1.3 million or 3.7% to $37.0 million for
the three months ended September 30, 2002 when compared to the three months
ended September 30, 2001. The increase in revenues is due to increases in the
revenues of CLEC, Greenfield, and Wireless, offset by decreases in the revenues
of ILEC and Internet and Data Services. See the discussions by business unit
below for additional details and analysis.
Operating expenses, exclusive of depreciation and amortization,
increased $3.2 million or 12.0% to $29.9 million for the three months ended
September 30, 2002 when compared to the three months ended September 30, 2001.
Substantially all of this increase is a result of restructuring charges and
asset impairment related to the discontinuance of WaveTel's wireless broadband
commercial trial in September 2002.
Depreciation and amortization expense increased $1.1 million or 16.8%
to $7.6 million for the three months ended September 30, 2002 when compared to
the three months ended September 30, 2001. This increase reflects the
significant increase in depreciable assets over the last 12 months, including
additions in Wireless assets from the new cell-site construction, Greenfield
assets from continued growth and construction of facilities, and certain other
business unit assets such as WaveTel's wireless broadband trial market and the
new corporate center. This increase also reflects $0.6 million in reduced
amortization due to a change in accounting rules for goodwill and other
intangibles.
Other income decreased $2.6 million for the three months ended
September 30, 2002 when compared to the three months ended September 30, 2001.
Equity in income of unconsolidated companies increased $0.3 million due to
higher income from the equity interest in Palmetto MobileNet, L.P. Interest,
dividends and gain on sale of investments reflected $2.5 million lower gains on
marketable security sales during the three months ended September 30, 2002 when
compared to the three months ended September 30, 2001. Interest expense
increased $0.4 million as a result of the Company's increased level of
indebtedness. During the three months ended September 30, 2001, the Company
wrote down the carrying value of security investments by $0.2 million for
impairment.
Income tax benefit was $0.3 million for the three months ended
September 30, 2002 compared with income tax expense of $2.0 million for the
three months ended September 30, 2001 due primarily to the impact of the
restructuring and asset impairment charges on income before taxes.
Net income decreased $3.2 million to a net loss of $0.4 million for the
three months ended September 30, 2002 compared to net income of $2.8 million for
the three months ended September 30, 2001.
16
ILEC
Three Months Ended
September 30,
2002 2001
---- ----
Revenues $ 23,440,138 $ 23,988,544
Operating Expense 10,561,808 11,818,697
------------ ------------
Operating EBITDA 12,878,330 12,169,847
Depreciation & Amortization 5,163,010 4,584,661
------------ ------------
Operating Income $ 7,715,320 $ 7,585,186
============ ============
Access Lines:
Residential 90,323 91,403
Business 32,368 32,373
------------ ------------
Total Access Lines 122,691 123,776
============ ============
ILEC Long Distance Lines 86,174 85,103
Excluding intersegment revenues, ILEC revenues were $23.4 million for
the three months ended September 30, 2002, a $0.5 million or 2.3% decrease from
the three months ended September 30, 2001. The primary decrease in revenues is a
decrease in long distance revenue from ILEC customers. Despite an increase in
long distance customers, the number of minutes and the rate per minute have
decreased, resulting in a $0.8 million decrease in long distance revenue for the
ILEC. One reason for the decrease in minutes is a consolidation of accounts
previously serviced by multiple business units to improve customer service. This
consolidation resulted in CLEC recognizing an increase in long distance minutes
that previously were recorded as part of the ILEC. Other decreases include the
realization of $0.2 million lower equipment sales. These decreases are partially
offset by an increase of $0.7 million in income from participation in cost
sharing arrangements with other telephone companies. At September 30, 2002, the
total number of local access lines in the ILEC's three-county service area
equaled approximately 122,691. The Company is currently a party to eight
interconnection agreements that provide CLECs access to the Company's local
telephone service market. Additional CLECs may request interconnection
agreements in the future. These interconnection agreements would be expected to
provide increased competition to the ILEC.
Excluding intersegment expenses, ILEC operating expenses were $10.6
million for the three months ended September 30, 2002, which is $1.3 million
less than operating expenses for the three months ended September 30, 2001. Such
decreased operating expenses were primarily attributable to lower
interconnection expense of $0.2 million, lower settlement expense of $0.2
million, decreased office expense of $0.1 million, decreased franchise taxes of
$0.3 million due to changes in North Carolina tax laws, and a $0.1 million
reduction in marketing expense.
The decrease in ILEC access lines is a trend that is expected to
continue for the forseeable future. Wireless substitution, elimination of
additional telephone lines for internet dial-up and increased customer access to
cable telephony may all have a continued negative effect on ILEC access lines.
In addition, the Company receives significant revenues from settlements for
access and interconnection charges. There is no guarantee that these revenue
sources will continue at current amounts in
17
future years. In particular, access and interconnection revenues received from
wireless companies may reduce ILEC revenues beginning in 2003.
WIRELESS
Three Months Ended
September 30,
2002 2001
---- ----
Revenues $ 5,971,436 $ 5,900,429
Operating Expense 4,999,821 4,435,246
----------- -----------
Operating EBITDA 971,615 1,465,183
Depreciation & Amortization 332,905 297,028
----------- -----------
Operating Income $ 638,710 $ 1,168,155
=========== ===========
Customers
Post Pay Subscribers 32,668 29,527
Wireless revenues were $6.0 million for the three months ended
September 30, 2002, consistent with the three months ended September 30, 2001.
The total number of post-pay subscribers was 32,668 at September 30, 2002. The
Wireless business unit began showing an operating profit during the third
quarter of 2001 due to an increase in the number of customers. Settlement
revenue increased by $0.2 million and recurring revenue increased $0.4 million
as a result of an increase in customers. Prepaid card sales decreased $0.2
million, and uncollectible revenues increased $0.1 million partially offsetting
the revenue increases.
Wireless operating expenses were $5.0 million for the three months
ended September 30, 2002, a $0.6 million or 12.7% increase over the three months
ended September 30, 2001. This increase was primarily due to the increase in
Wireless subscribers and the costs associated with subscriber acquisition.
Additionally, Wireless incurred increased employee and rent expense of
$0.2 million and $0.1 million, respectively, from the opening of two new
wireless stores, as well as a $0.1 million increase in marketing expense.
Wireless also recognized $0.1 million in commissions related to the addition of
approximately 20 indirect distributors beginning in the third quarter 2002.
18
CLEC
Three Months Ended
September 30,
2002 2001
---- ----
Revenues $ 4,040,718 $ 2,846,273
Operating Expense 4,564,080 4,166,571
----------- -----------
Operating EBITDA (523,362) (1,320,298)
Depreciation & Amortization 567,824 544,909
----------- -----------
Operating Loss $(1,091,186) $(1,865,207)
=========== ===========
Access Lines
CLEC Lines in Service 26,202 17,852
CLEC Long Distance Lines 11,049 8,894
CLEC revenues were $4.0 million for the three months ended September
30, 2002, a $1.2 million or 42.0% increase over the three months ended September
30, 2001. This increase was primarily due to an increase in local revenues of
$1.0 million associated with the customer increase and local interconnection
revenue of $0.1 million. In addition, long distance revenues increased by $0.3
million due to customer growth and the resulting increase in minutes. A portion
of the increase in minutes is due to the consolidation of accounts previously
serviced by multiple business units as discussed under "ILEC" above. As of
September 30, 2002, CLEC had 26,202 total lines in service. This increase
reflects growth in facilities-based services for the Charlotte and Greensboro,
North Carolina markets.
CLEC operating expenses were $4.6 million for the three months ended
September 30, 2002, a $0.4 million or 9.5% increase over the three months ended
September 30, 2001. Costs of providing services, including transport and access
expense, increased $0.1 million due to the increase in access lines. In
addition, general and administrative costs associated with CLEC services
increased by $0.3 million.
The Federal Communications Commission is considering the effects of
UNE-P pricing and availability as part of its first triennial review of its
policies on unbundled network elements, but no decisions are expected in the
short term. The Company expects the impact of these decisions to have no
material effect on the CLEC or Greenfield business.
19
GREENFIELD
Three Months Ended
September 30,
2002 2001
---- ----
Revenues $ 1,154,801 $ 436,036
Operating Expense 1,948,794 1,206,540
----------- -----------
Operating EBITDA (793,993) (770,504)
Depreciation & Amortization 530,669 204,632
----------- -----------
Operating Loss $(1,324,662) $ (975,136)
=========== ===========
Access Lines
Greenfield Access Lines 5,757 2,601
Greenfield Long Distance Lines 2,108 546
Greenfield revenues for the three months ended September 30, 2002 were
$1.2 million, a $0.7 million or 164.8% increase over the three months ended
September 30, 2001. Revenue growth is primarily associated with lines located at
malls served by the Greenfield unit, as well as single family and multi-dwelling
unit developments. Line revenue increased $0.4 million and access revenue
increased $0.3 million in the three months ended September 30, 2002 compared to
the three months ended September 30, 2001. In total, 5,757 access lines were in
service in 45 developments as of September 30, 2002. The Greenfield unit has
entered into preferred provider agreements with a total of 68 residential and
business developments and projects located primarily in the Charlotte and
Raleigh, North Carolina markets as of September 30, 2002. Revenues from these
projects are expected to grow as access lines are placed in service.
Greenfield expenses were $1.9 million for the three months ended
September 30, 2002, a $0.7 million or 61.5% increase over the three months ended
September 30, 2001. These expenses are associated with the existing 5,757 lines
in service, as well as the growth of the business unit due to continued work on
new developer agreements. Access expense increased $0.1 million with the
additional lines. Also, commissions paid to developers related to customer
additions increased $0.2 million. The remainder of the increase is related to
higher general and administrative costs associated with these services of
$0.4 million.
20
INTERNET AND DATA SERVICES
Three Months Ended
September 30,
2002 2001
---- ----
Revenues $ 2,376,596 $ 2,533,842
Operating Expense 2,245,957 2,703,960
----------- -----------
Operating EBITDA 130,639 (170,118)
Depreciation & Amortization 430,996 580,237
----------- -----------
Operating Loss $ (300,357) $ (750,355)
=========== ===========
Customers
Dial-Up 12,887 13,925
DSL Lines 5,874 2,601
High Speed 599 513
Internet and Data Services revenues were $2.4 million for the three
months ended September 30, 2002, a $0.2 million or 6.2% decrease over the three
months ended September 30, 2001. Revenues from dial-up accounts decreased by
$0.1 million and web development and programming were lower than last year. DSL
revenues increased $0.3 million. While traditional dial-up customers have
decreased in number by approximately 1,100 during the last 12 months, over 3,300
DSL subscribers and dedicated high speed customers have been added since
September 30, 2001.
Internet and Data Services operating expenses were $2.2 million for the
three months ended September 30, 2002, a $0.5 million or 16.9% decrease over the
three months ended September 30, 2001. Increases in network expenses were offset
by decreases in various selling, general and administrative expenses as the unit
continues to focus on cost control.
OTHER UNITS
Other operating unit expenses were $5.6 million for the three months
ended September 30, 2002 compared to $2.4 million for the three months ended
September 30, 2001. This increase is primarily attributable to the $4.4 million
in restructuring and asset impairment charges incurred in the third quarter of
2002 related to the discontinuance of WaveTel's wireless broadband commercial
trial. Excluding the effect of the restructuring and impairment charges,
operating expenses decreased $1.2 million due to lower WaveTel expenses compared
to the three months ended September 30, 2001.
Nine Months Ended September 30, 2002 and September 30, 2001
CONSOLIDATED
Operating revenues increased $ 11.5 million or 11.6% to $110.0 million
for the nine months ended September 30, 2002 when compared to the nine months
ended September 30, 2001. The increase in revenues is due to increases in the
revenues of Wireless, CLEC and Greenfield. See the discussions by business unit
below for additional detail and analysis.
Operating expenses, exclusive of depreciation and amortization,
increased $5.4 million or 6.9% to $82.6 million for the nine months ended
September 30, 2002 when compared to the nine months ended September 30, 2001.
This increase includes $4.4 million of restructuring and asset impairment
charges related to the discontinuance of WaveTel's wireless broadband commercial
trial. The nine months ended September 30, 2001, included $1.9 million of
restructuring charges related to
21
CLEC reorganization. In addition, increased access lines in several business
units, including Wireless, Greenfield and CLEC have resulted in greater
operating expenses.
Depreciation and amortization expense increased $3.6 million or 20.0%
to $21.4 million for the nine months ended September 30, 2002 when compared to
the nine months ended September 30, 2001. This increase reflects the significant
increase in depreciable assets over the last 12 months, including additions in
Wireless assets from the partitioning of the Cingular DCS partnership, the new
corporate center and Greenfield assets from continued growth and construction of
facilities. This increase also reflects $1.3 million in reduced amortization due
to a change in accounting rules for goodwill and other intangibles.
Other income, net, decreased $7.2 million for the nine months ended
September 30, 2002 when compared to the nine months ended September 30, 2001.
Equity in income of unconsolidated companies decreased $0.4 million due to lower
income from the equity interest in Palmetto MobileNet, L.P. Interest, dividends
and gain on sale of investments reflected $4.8 million lower gains on marketable
security sales during the nine months ended September 30, 2002 when compared to
the nine months ended September 30, 2001. Interest expense increased $1.1
million as a result of the Company's increased level of indebtedness. During the
nine months ended September 30, 2002, the Company wrote down the carrying value
of security investments by $0.7 million for impairment compared with a
write-down of $0.2 million during the nine months ended September 30, 2001.
Income taxes decreased $1.9 million or 34.5% to $3.6 million for the
nine months ended September 30, 2002 compared with the nine months ended
September 30, 2001 due primarily to the decrease in taxable income of $4.7
million.
Net income decreased $2.8 million or 35.1% to $5.1 million for the nine
months ended September 30, 2002 compared to the nine months ended September 30,
2001.
22
ILEC
Nine Months Ended
September 30,
2002 2001
---- ----
Revenues $ 70,673,893 $ 71,443,487
Operating Expense 32,612,691 37,236,348
------------ ------------
Operating EBITDA 38,061,202 34,207,139
Depreciation & Amortization 15,010,364 13,380,996
------------ ------------
Operating Income $ 23,050,838 $ 20,826,143
============ ============
Access Lines:
Residential 90,323 91,403
Business 32,368 32,373
------------ ------------
Total Access Lines 122,691 123,776
============ ============
ILEC Long Distance Lines 86,174 85,103
Excluding intersegment revenues, ILEC revenues were $70.7 million for
the nine months ended September 30, 2002, a $0.8 million or 1.1% decrease from
the nine months ended September 30, 2001. This decrease is primarily due to
lower long distance revenue of $1.8 million associated with a 12% decrease in
minutes of use. Local access revenue increased by $0.4 million and intralata
access revenue increased 0.9 million. In addition, custom call and pay per use
features revenue increased $0.1 million due to increased usage and cellular
interconnection revenue increased by $0.2 million. During the period, the
Company realized lower equipment sales revenue of $0.2 million. Amounts received
from revenue sharing arrangements in which the Company participates with other
telephone companies increased $0.9 million but was offset by a decrease in
interstate access revenue of $0.9 million and intrastate access revenue of $0.2
million. During the nine months ended September 30, 2002, the Company recorded a
$0.3 million provision for bad debts related to WorldCom's bankruptcy filing. At
September 30, 2002, the total number of local access lines in the ILEC's
three-county service area equaled approximately 122,691. The Company is
currently a party to eight interconnection agreements that provide other CLECs
access to the Company's local telephone service market. Additional CLECs may
request interconnection agreements in the future. These interconnection
agreements would be expected to provide increased competition to the ILEC.
Excluding intersegment expenses, ILEC operating expenses were $32.6
million for the nine months ended September 30, 2002, which is $4.6 million less
than operating expenses for the nine months ended September 30, 2001. $1.2
million of this decrease is attributable to restructuring charges incurred for
an early retirement plan in the first quarter of 2001. Other specific decreases
in operating expenses included $0.3 million for the cost of materials associated
with lower equipment sales, $0.3 million in lower contracted services, decreased
settlement expense of $0.4 million, decreased franchise taxes of $0.6 million
due to changes in North Carolina tax laws, and a $0.2 million reduction in
marketing expense. The remaining decrease is associated with lower general and
administrative costs associated with ILEC services of $1.2 million.
23
WIRELESS
Nine Months Ended
September 30,
2002 2001
---- ----
Revenues $ 17,860,046 $ 11,627,550
Operating Expense 14,732,154 10,296,617
------------ ------------
Operating EBITDA 3,127,892 1,330,933
Depreciation & Amortization 810,526 334,555
------------ ------------
Operating Income $ 2,317,366 $ 996,378
============ ============
Customers
Post Pay Subscribers 32,668 29,527
Wireless revenues were $17.9 million for the nine months ended
September 30, 2002, a $6.2 million or 53.6% increase over the nine months ended
September 30, 2001. This increase was primarily attributable to monthly
recurring revenue due to the addition of the approximately 13,000 subscribers
acquired from Cingular Wireless in the partitioning since September 30, 2001 and
the approximately 3,000 net customers added since September 30, 2001. The
Wireless business unit began showing an operating profit during the last half of
2001 due to an increase in the number of customers. Recurring monthly revenue
increased $4.0 million and settlement revenue increased $3.2 million due to the
customer increase. Offsetting these revenues were decreases in prepaid phone
sales of $0.6 million and paging revenues of $0.1 million and an increase in bad
debts of $0.4 million primarily due to customers obtained in the partitioning.
Wireless operating expenses were $14.7 million for the nine months
ended September 30, 2002, a $4.4 million or 43.1% increase over the nine months
ended September 30, 2001. This increase was primarily due to an increase in
costs of revenues of $2.5 million due to the increase in Wireless subscribers
and the costs associated with subscriber acquisition. Additionally, Wireless
recognized increased employee expenses of $0.5 million, rents of $0.2 million,
and utilities of $0.1 million from the opening of two new wireless stores,
higher marketing expense of $0.2 million and higher property taxes of $0.1
million attributable to assets acquired in the partitioning. Wireless also
recognized $0.1 million in commissions related to the addition of approximately
20 indirect distributors beginning in the third quarter 2002.
24
CLEC
Nine Months Ended
September 30,
2002 2001
---- ----
Revenues $ 11,302,227 $ 7,270,350
Operating Expense 14,052,108 12,842,655
------------ ------------
Operating EBITDA (2,749,881) (5,572,305)
Depreciation & Amortization 1,629,810 1,467,778
------------ ------------
Operating Loss $ (4,379,691) $ (7,040,083)
============ ============
Access Lines
CLEC Access Lines 26,202 17,852
CLEC Long Distance Lines 11,049 8,894
CLEC revenues were $11.3 million for the nine months ended September
30, 2002, a $4.0 million or 55.5% increase over the nine months ended September
30, 2001. This increase was primarily due to increases in local revenues of $2.5
million and access revenues of $0.5 million based on the addition of 8,350
access lines since September 30, 2001. In addition, long distance revenues
increased by $1.1 million due to customer growth and the resulting increase in
minutes of use. As of September 30, 2002, the CLEC had 26,202 total lines in
service. This increase reflects growth in facilities-based services for the
Charlotte and Greensboro, North Carolina markets.
CLEC operating expenses were $14.1 million for the nine months ended
September 30, 2002, a $1.2 million or 9.4% increase over the nine months ended
September 30, 2001. Costs associated with providing long distance increased by
approximately $1.3 million with the increased minutes and customers. Costs of
providing services increased $0.5 million with the increase in access lines. The
increased cost of service was offset by a $0.3 million decrease in marketing
expense and a $0.7 million decrease as a result of restructuring charges
expensed during the nine months ended September 30, 2001. The remainder of the
increase is associated with increased general and administrative costs
associated with these services.
25
GREENFIELD
Nine Months Ended
September 30,
2002 2001
---- ----
Revenues $ 2,858,808 $ 1,085,586
Operating Expense 5,307,323 3,491,717
------------ ------------
Operating EBITDA (2,448,515) (2,406,131)
Depreciation & Amortization 1,429,157 525,097
------------ ------------
Operating Loss $ (3,877,672) $ (2,931,228)
============ ============
Access Lines
Greenfield Access Lines 5,757 2,601
Greenfield Long Distance Lines 2,108 546
Greenfield revenues for the nine months ended September 30, 2002 were
$2.9 million, a $1.8 million or 163.3% increase over the nine months ended
September 30, 2001. Local revenues increased $0.9 million, access revenues
increased $0.6 million and long distance revenues increased $0.2 million over
the nine months ended September 30, 2001. In total, 5,757 access lines were in
service as of September 30, 2002. The Greenfield unit has entered into preferred
provider agreements with a total of 68 residential and business developments and
projects located primarily in the Charlotte and Raleigh, North Carolina markets
as of September 30, 2002. Revenues from these projects are expected to grow as
access lines are placed in service.
Greenfield expenses were $5.3 million for the nine months ended
September 30, 2002, a $1.8 million or 52.0% increase over the nine months ended
September 30, 2001. Cost of providing services to the existing 5,757 lines in
service increased $0.4 million. Commissions paid to developers increased $0.3
million and salaries increased $0.1 million to support the business. The
remaining increase relates to higher general and administrative costs associated
with these services.
INTERNET AND DATA SERVICES
Nine Months Ended
September 30,
2002 2001
---- ----
Revenues $ 7,163,229 $ 7,087,835
Operating Expense 7,530,244 7,317,701
----------- -----------
Operating EBITDA (367,015) (229,866)
Depreciation & Amortization 1,222,431 1,670,376
----------- -----------
Operating Loss $(1,589,446) $(1,900,242)
=========== ===========
Customers
Dial-Up 12,887 13,925
DSL Lines 5,874 2,601
High Speed 599 513
26
Internet and data services revenues were $7.2 million for the nine
months ended September 30, 2002, a $0.1 million or 1.1% increase over the nine
months ended September 30, 2001. Revenues from dial-up accounts decreased by
$0.3 million and web development and programming were lower than last year. DSL
revenues have increased $0.5 million. While traditional dial-up customers have
decreased in number by approximately 1,100 during the last 12 months, over 3,300
DSL subscribers and dedicated high speed customers have been added since
September 30, 2001.
Internet and data services operating expenses were $7.5 million for the
nine months ended September 30, 2002, a $0.2 million or 2.9% increase over the
nine months ended September 30, 2001. The majority of the increase is associated
with increased costs of operating the DSL network due to the increase in DSL
customers.
OTHER UNITS
Other operating unit expenses were $8.4 million for the nine months
ended September 30, 2002 compared to $6.1 million for the nine months ended
September 30, 2001. This increase is primarily related to the discontinuance of
WaveTel's wireless broadband commercial trial and the related $4.4 million
restructuring and asset impairment charges. Excluding the impairment and
restructuring charges, expenses decreased $2.1 million due to lower WaveTel
operating expenses in the period.
Liquidity and Capital Resources
The liquidity of the Company decreased during the nine-month period
ended September 30, 2002. Current assets exceeded current liabilities by $15.2
million at September 30, 2002. In comparison, current assets exceeded current
liabilities by $19.1 million at December 31, 2001.
Current assets decreased by $1.0 million when compared to December 31,
2001. This decrease is primarily the result of a decrease in income tax
receivable of $0.7 million caused by recording the current year tax liability,
payments and receipt of prior refunds and a decrease in prepaid and other assets
of $1.0 million due to timing of payments and deposits on directory, insurance,
and rents. In addition, other accounts receivable decreased $0.4 million related
to amounts eliminated due to the consolidation of WONC with the Company's
results beginning in the second quarter of 2002 as a result of the WONC purchase
from Wireless One of its entire 50% interest in WONC.
Current liabilities increased by $2.9 million from December 31, 2001 to
September 30, 2002. This increase is attributable to increased short-term
borrowings of $3.0 million, and increased other accrued liabilities of $3.9
million primarily related to the restructuring charges for the discontinuance of
WaveTel's wireless broadband commercial trial and higher property, franchise and
other taxes. These increases were offset by decreases in accounts payable of
$3.5 million caused by timing of expenditures including lower capital
expenditures and advance billings of $0.5 million due to timing of directory
revenues.
The Company's principal sources of liquidity were cash provided by
operations of $24.6 million, proceeds from the sale of investment securities of
$5.3 million, partnership capital distributions of $4.8 million, and proceeds
from credit facilities of $13.0 million.
Uses of cash during the nine months ended September 30, 2002 included
net capital expenditures of $36.8 million, acquisition of additional ownership
interest in WONC of $3.2 million, purchases of investment securities of $1.5
million, investment in unconsolidated companies of $0.6 million, payment of
dividends of
27
$3.7 million, and the repurchase of Common Stock of the Company and redemption
of 4.8% preferred stock of the Concord Telephone Company of $2.4 million. During
March 2002, the Company completed construction of its new corporate headquarters
in Concord, North Carolina.
At September 30, 2002, the fair market value of the Company's
marketable investment securities was $4.7 million, all of which could be pledged
to secure additional borrowing, or sold, if needed for liquidity purposes. The
Company has a $90.0 million revolving five year line of credit with interest at
three month LIBOR plus a spread based on various financial ratios, currently
1.50%. The interest rate on September 30, 2002 was 3.07%. The credit facility
provides for quarterly payments of interest until maturity on March 31, 2006. As
of September 30, 2002, $60.0 million was outstanding under the revolving credit
agreement. The Company also has a 7.32% fixed rate $50.0 million term loan that
matures on December 31, 2014. All $50.0 million was outstanding as of September
30, 2002. The Company also has an additional line of credit for $10.0 million at
one month LIBOR plus 1.25%. As of September 30, 2002, the Company had $3.0
million outstanding under this credit line at an interest rate of 3.07%.
Payments Due by Year
--------------------
Remainder 2003 to 2006 to 2008 and
Total of 2002 2005 2007 after
----- ------- ---- ---- -----
Contractual Obligations
Short-term debt $ 2,999,785 - $ 2,999,785 - -
Long-term debt 127,696,562 - 7,000,000 $60,000,000 $60,696,562
Operating leases 5,721,534 $901,239 4,232,793 539,934 47,568
--------------------------------------------------------------
$136,417,881 $901,239 $14,232,578 $60,539,934 $60,744,130
==============================================================
The Company anticipates that it has adequate resources to meet its
currently foreseeable obligations and capital requirements associated with
continued growth in the CLEC, Greenfield, Wireless and Internet and Data Service
units, as well as its operations, payments associated with long-term debt and
investments as summarized above.
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 include:
1. The Company's ability to respond to the issues surrounding the industry
caused by state and federal legislation and regulations,
2. The impact of economic conditions related to financial performance of
customers, business partners, competitors and peers within the
telecommunications industry,
3. The Company's ability to recover the substantial costs incurred in
connection with the businesses in which it has expanded over the past few
years,
28
4. The Company's ability to retain its existing customer base against
competition in all areas of the business including Local, wireless,
long-distance, and Internet and data services, including significant
threats from wireless substitution and cable telephony,
5. The Company's ability to control pricing and product offerings in a highly
competitive industry,
6. The performance of the Company's investments,
7. The Company's ability to effectively manage rapid changes in technology and
control capital expenditures related to those technologies,
8. The impact of economic and political events on the Company's business,
operating regions, and customers, including the impact of terrorist attacks.
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, 2001. All forward-looking statements should be viewed with
caution.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has a $90.0 million revolving five year line of credit with
interest at three month LIBOR plus a spread that is currently 1.50%, based on
various financial ratios. The interest rate on September 30, 2002 was 3.07%. The
credit facility provides for quarterly payments of interest until maturity on
March 31, 2006. As of September 30, 2002, $60.0 million was outstanding under
the revolving credit agreement. The Company also has a 7.32% fixed rate $50.0
million term loan that matures on December 31, 2014. All $50.0 million was
outstanding as of September 30, 2002. In addition, the Company has another line
of credit for $10.0 million at one month LIBOR plus 1.25%. As of September 30,
2002, the Company had $3.0 million outstanding under this credit line at an
interest rate of 3.07%.
The Company has a $17.7 million note payable to Wireless One that bears
interest at 9% annually with principal payments due over the 10 year period
ending March 2012. A $7.0 million principal payment is due by March 2003 (which
payment may be deferred until March 2005 with the payment of accrued interest)
and the remainder payable in equal annual installments beginning in March 2008.
As discussed in Note 6, the Company delivered a "Split-Up Notice" to Wireless
One that, upon acceptance, would fully satisfy the $17.7 million note payable.
The Company has three interest rate swap transactions to fix $10.0
million, $5.0 million and $5.0 million of the amounts outstanding under the
$90.0 million revolving line of credit at rates of 5.9%, 4.53%, and 3.81%,
respectively, plus a spread. The fair value of each swap as of September 30,
2002 was ($615,063), ($339,922), and ($192,876), respectively. The interest rate
swaps are intended to protect the Company against an upward movement in interest
rates, but subject the Company to above market interest costs if interest rates
decline.
29
Management believes that reasonably foreseeable movements in interest
rates will not have a material adverse effect on the Company's financial
condition or operations.
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed by the Company in
the reports it files under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. These disclosure controls
and procedures are designed to insure that appropriate information is
accumulated and communicated to the Company's management, including its chief
executive officer and chief financial officer, as appropriate to allow for
timely decisions regarding disclosure.
Within 90 days prior to the date of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the Company's chief executive officer and chief
financial officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as required by SEC rules. In
designing and evaluating the disclosure controls and procedures, management
necessarily was required to apply its judgment in evaluating the costs and
benefits of possible controls and procedures. In addition, management recognizes
that disclosure controls and procedures by their nature can provide only
reasonable assurance that management's information flow objectives are met.
Also, the Company has investments in certain unconsolidated entities, including
Palmetto MobileNet, L.P. As the Company neither controls nor manages these
entities, its disclosure controls and procedures with respect to these entities
are necessarily substantially more limited than those it maintains with respect
to its consolidated subsidiaries.
We presented the results of our most recent evaluation to our
independent auditors, KPMG LLP, and the Audit Committee of the Board of
Directors. Based upon the evaluation, the Company's chief executive officer and
chief financial officer concluded that the Company's disclosure controls and
procedures are effective in all material respects in timely alerting them to
material information relating to the Company, including its consolidated
subsidiaries, required to be included in the Company's Exchange Act reports.
While performing a review of the Company's disclosure controls and
procedures, a number of areas were identified in which the Company's internal
controls could be strengthened. In that regard, the Company plans to take the
following steps with regard to its internal controls:
- review the experience and technical accounting knowledge of certain key
accounting personnel with regard to their responsibilities and make any
changes the Company considers appropriate; and
- direct that steps be taken to ensure that certain policies, objectives,
procedures, roles and responsibilities are well defined, understood and
followed.
The Company expects to initiate these improvements during the fourth
quarter of 2002. The Company will continue to evaluate the effectiveness of its
actions as well as the Company's overall disclosure controls and procedures and
internal controls and may take further actions as appropriate.
Since the date the Company carried out its evaluation, there have been
no significant changes in the Company's internal controls or in other factors
which
30
could significantly affect internal controls, other than the Company's plans to
make the changes discussed above.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description of Exhibit
11 Computation of Earnings per Share
99.1 Written statement of Chief Executive Officer
and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
On July 26, 2002, the Company filed a Current Report on Form
8-K announcing that CT Wireless Cable, Inc. ("CTWC"), a
wholly-owned subsidiary of the Company, delivered a "Split-Up
Notice" dated July 19, 2002 to Wireless One, Inc. ("Wireless
One"), a subsidiary of WorldCom, Inc. in accordance with the
Limited Liability Company Interest Purchase Agreement dated
September 14, 2001 ("Purchase Agreement") by and among Wireless
One of North Carolina, L.L.C., which is wholly-owned by CTWC,
CTWC, Wireless One, and WorldCom Broadband Solutions, Inc.
31
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.
- -----------------------------------
(Registrant)
/S/ Amy M. Justis
- -----------------------------------
Amy M. Justis
Vice President and
Chief Accounting Officer
November 14, 2002
- -----------------------------------
Date
(The above signatory has dual responsibility as a duly authorized officer and
chief accounting officer of the Registrant.)
32
CERTIFICATIONS
I, Michael R. Coltrane, President and Chief Executive Officer of CT
Communications, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of CT Communications,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
By: /S/Michael R. Coltrane
------------------------------------
Michael R. Coltrane
President and Chief Executive Officer
(principal executive officer)
33
CERTIFICATIONS
I, James E. Hausman, Senior Vice President and Chief Financial Officer of
CT Communications, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of CT Communications,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
By: /S/ James E. Hausman
-------------------------------------------------
James E. Hausman
Senior Vice President and Chief Financial Officer
(principal financial officer)
34
EXHIBIT INDEX
Exhibit No. Description of Exhibit
11 Computation of Earnings per Share
99.1 Written statement of Chief Executive Officer and
Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
35