UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
For the quarterly period ended September 30, 2003
OR
For the transition period from to
Commission file number 0-19179
CT COMMUNICATIONS, INC.
| 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 [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). 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.
18,767,050 shares of Common Stock outstanding as of November 3, 2003.
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX
| Page No. | ||||
PART I. Financial Information |
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Item 1. Financial Statements. |
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Condensed Consolidated Balance Sheets—
September 30, 2003 (Unaudited) and December 31, 2002 |
2 | |||
Condensed Consolidated Statements of Income (Loss) (Unaudited)—
Three and Nine Months Ended September 30, 2003 and 2002 |
3 | |||
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)—
Three and Nine Months Ended September 30, 2003 and 2002 |
4 | |||
Condensed Consolidated Statements of Cash Flows (Unaudited)—
Nine Months Ended September 30, 2003 and 2002 |
5 | |||
Notes to Condensed Consolidated Financial Statements (Unaudited) |
6 | |||
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations. |
16 | |||
Item 3. Quantitative and Qualitative Disclosures
About Market Risk. |
26 | |||
Item 4. Controls and Procedures. |
27 | |||
PART II. Other Information |
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Item 1. Legal Proceedings. |
27 | |||
Item 2. Changes in Securities and Use of Proceeds. |
27 | |||
Item 3. Defaults Upon Senior Securities. |
27 | |||
Item 4. Submission of Matters to a Vote of Security Holders. |
27 | |||
Item 5. Other Information. |
28 | |||
Item 6. Exhibits and Reports on Form 8-K. |
28 | |||
Signatures |
29 | |||
Exhibit Index |
30 | |||
1
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share data)
| (Unaudited) | ||||||||||
| September 30, | December 31, | |||||||||
| 2003 | 2002 | |||||||||
ASSETS |
||||||||||
Current assets: |
||||||||||
Cash and cash equivalents |
$ | 16,825 | $ | 7,652 | ||||||
Accounts receivable and unbilled revenue, net |
21,000 | 22,289 | ||||||||
Income tax receivable |
489 | 3,007 | ||||||||
Other |
5,457 | 5,696 | ||||||||
Total current assets |
43,771 | 38,644 | ||||||||
Investment securities |
5,387 | 4,521 | ||||||||
Other investments |
1,271 | 797 | ||||||||
Investments in unconsolidated companies |
14,630 | 14,587 | ||||||||
Property and equipment, net |
209,388 | 214,421 | ||||||||
Goodwill |
9,906 | 9,906 | ||||||||
Other intangibles, net |
35,294 | 53,070 | ||||||||
Other assets |
1,418 | 1,612 | ||||||||
Assets of discontinued operations |
— | 1,206 | ||||||||
Total assets |
$ | 321,065 | $ | 338,764 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||
Current liabilities: |
||||||||||
Accounts payable |
$ | 7,839 | $ | 8,632 | ||||||
Customer deposits and advance billings |
2,371 | 2,593 | ||||||||
Other accrued liabilities |
16,434 | 12,363 | ||||||||
Liabilities of discontinued operations |
1,213 | 1,645 | ||||||||
Total current liabilities |
27,857 | 25,233 | ||||||||
Long-term debt |
86,000 | 127,697 | ||||||||
Deferred credits and other liabilities: |
||||||||||
Deferred income taxes |
19,624 | 12,433 | ||||||||
Post-retirement benefits other than pension |
11,523 | 11,099 | ||||||||
Other |
2,022 | 2,101 | ||||||||
Total deferred credits and other liabilities |
33,169 | 25,633 | ||||||||
Total liabilities |
147,026 | 178,563 | ||||||||
Stockholders’ equity: |
||||||||||
Preferred stock not subject to mandatory redemption: |
||||||||||
5% series, $100 par value; 3,356 shares outstanding at September
30, 2003 and December 31, 2002 |
336 | 336 | ||||||||
4.5% series, $100 par value; 614 shares outstanding at September
30, 2003 and December 31, 2002 |
61 | 61 | ||||||||
Common stock, 18,767,146 and 18,686,740 shares outstanding at
September 30, 2003 and December 31, 2002, respectively |
40,772 | 39,962 | ||||||||
Other capital |
298 | 298 | ||||||||
Unearned compensation |
(452 | ) | (470 | ) | ||||||
Other accumulated comprehensive loss |
(131 | ) | (817 | ) | ||||||
Retained earnings |
133,155 | 120,831 | ||||||||
Total stockholders’ equity |
174,039 | 160,201 | ||||||||
Total liabilities and stockholders’ equity |
$ | 321,065 | $ | 338,764 | ||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
2
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Loss) (Unaudited)
(in thousands, except share and per share data)
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| (Restated) | (Restated) | |||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
Operating revenue |
$ | 40,603 | $ | 36,969 | $ | 119,252 | $ | 109,750 | ||||||||||
Operating expense |
36,222 | 32,014 | 105,393 | 96,120 | ||||||||||||||
Operating income |
4,381 | 4,955 | 13,859 | 13,630 | ||||||||||||||
Other income (expense): |
||||||||||||||||||
Equity in income of unconsolidated companies, net |
1,787 | 1,436 | 4,235 | 3,296 | ||||||||||||||
Interest, dividend income and gain on sale of
investments |
858 | 13 | 16,122 | 4,801 | ||||||||||||||
Impairment of investments |
(460 | ) | — | (1,744 | ) | (704 | ) | |||||||||||
Other expenses, principally interest |
(1,682 | ) | (1,730 | ) | (5,558 | ) | (4,627 | ) | ||||||||||
Total other income (expense) |
503 | (281 | ) | 13,055 | 2,766 | |||||||||||||
Income from continuing operations before income
taxes |
4,884 | 4,674 | 26,914 | 16,396 | ||||||||||||||
Income taxes |
1,735 | 1,776 | 10,501 | 6,396 | ||||||||||||||
Income from continuing operations |
3,149 | 2,898 | 16,413 | 10,000 | ||||||||||||||
Discontinued operations: |
||||||||||||||||||
Loss from operations of discontinued business, net of
income tax benefits of $276 for the nine months ended
September 30, 2003 and $2,124 and $2,993 for the
three
and nine months ended September 30, 2002, respectively |
— | (3,416 | ) | (424 | ) | (5,104 | ) | |||||||||||
Net income (loss) |
3,149 | (518 | ) | 15,989 | 4,896 | |||||||||||||
Dividends on preferred stock |
5 | 5 | 15 | 15 | ||||||||||||||
Earnings (loss) for common stock |
$ | 3,144 | $ | (523 | ) | $ | 15,974 | $ | 4,881 | |||||||||
Basic earnings (loss) per share: |
||||||||||||||||||
Continuing operations |
$ | 0.17 | $ | 0.16 | $ | 0.88 | $ | 0.53 | ||||||||||
Discontinued operations |
— | (0.18 | ) | (0.02 | ) | (0.27 | ) | |||||||||||
Net income (loss) |
0.17 | (0.03 | ) | 0.85 | 0.26 | |||||||||||||
Diluted earnings (loss) per share: |
||||||||||||||||||
Continuing operations |
0.17 | 0.15 | 0.87 | 0.53 | ||||||||||||||
Discontinued operations |
— | (0.18 | ) | (0.02 | ) | (0.27 | ) | |||||||||||
Net income (loss) |
0.17 | (0.03 | ) | 0.85 | 0.26 | |||||||||||||
Basic weighted average shares outstanding |
18,764,576 | 18,670,834 | 18,740,288 | 18,721,329 | ||||||||||||||
Diluted weighted average shares outstanding |
18,852,536 | 18,712,677 | 18,791,492 | 18,762,702 | ||||||||||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
3
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(in thousands)
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| (Restated) | (Restated) | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Net income (loss) |
$ | 3,149 | $ | (518 | ) | $ | 15,989 | $ | 4,896 | ||||||||
Other comprehensive income (loss), net of tax: |
|||||||||||||||||
Unrealized holding gains (losses) on available-for-sale
securities |
94 | (666 | ) | 470 | (3,152 | ) | |||||||||||
Unrealized holding gains (losses) on interest rate swaps |
136 | (375 | ) | 212 | (438 | ) | |||||||||||
Less reclassification adjustment for losses (gains)
realized
in net income |
(4 | ) | 468 | 4 | (2,497 | ) | |||||||||||
Comprehensive income (loss) |
$ | 3,375 | $ | (1,091 | ) | $ | 16,675 | $ | (1,191 | ) | |||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
4
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
| Nine Months Ended September 30, | ||||||||||||
| (Restated) | ||||||||||||
| 2003 | 2002 | |||||||||||
Cash flows from operating activities: |
||||||||||||
Net income |
$ | 15,989 | $ | 4,896 | ||||||||
Adjustments to reconcile net income to net cash provided
by operating activities: |
||||||||||||
Loss from discontinued operations |
424 | 5,104 | ||||||||||
Depreciation and amortization |
22,991 | 20,546 | ||||||||||
Post-retirement benefits |
424 | 35 | ||||||||||
Loss (gain) on sale of investment securities |
7 | (3,893 | ) | |||||||||
Gain on sale of investments in unconsolidated companies |
(15,063 | ) | (657 | ) | ||||||||
Impairment of investments |
1,744 | 704 | ||||||||||
Undistributed income of unconsolidated companies |
(4,235 | ) | (3,296 | ) | ||||||||
Undistributed patronage dividends |
(483 | ) | — | |||||||||
Deferred income taxes and tax credits |
6,730 | 2,176 | ||||||||||
Changes in operating assets and liabilities, net of effects of
acquisitions |
8,394 | 96 | ||||||||||
Net cash provided by operating activities |
36,922 | 25,711 | ||||||||||
Cash flows from investing activities: |
||||||||||||
Capital expenditures |
(16,923 | ) | (36,209 | ) | ||||||||
Purchases of investments in unconsolidated companies |
(2,959 | ) | (500 | ) | ||||||||
Purchases of investment securities |
(353 | ) | (1,583 | ) | ||||||||
Purchases of wireless spectrum |
— | (760 | ) | |||||||||
Proceeds from sale of investment in unconsolidated companies |
17,052 | 818 | ||||||||||
Proceeds from sale of investment securities |
208 | 5,328 | ||||||||||
Partnership capital distribution |
3,438 | 4,788 | ||||||||||
Acquisitions, net of cash |
— | (3,213 | ) | |||||||||
Net cash provided by (used in) investing activities |
463 | (31,331 | ) | |||||||||
Cash flows from financing activities: |
||||||||||||
Proceeds from credit facility |
— | 13,000 | ||||||||||
Repayment of long-term debt |
(24,000 | ) | — | |||||||||
Dividends paid |
(3,665 | ) | (3,670 | ) | ||||||||
Repurchases of common stock |
— | (2,395 | ) | |||||||||
Proceeds from common stock issuances |
383 | 408 | ||||||||||
Net cash (used in) provided by financing activities |
(27,282 | ) | 7,343 | |||||||||
Net cash used in discontinued operations |
(930 | ) | (1,703 | ) | ||||||||
Net increase in cash and cash equivalents |
9,173 | 20 | ||||||||||
Cash and cash equivalents at beginning of period |
7,652 | 8,397 | ||||||||||
Cash and cash equivalents at end of period |
$ | 16,825 | $ | 8,417 | ||||||||
Supplemental disclosure of non-cash investing and financing activities: |
||||||||||||
Cancellation of note payable and reduction in other intangibles in connection with disposition of wireless spectrum |
$ | (17,697 | ) | $ | — | |||||||
Issuance of note payable in connection with acquisition of
wireless spectrum |
— | 17,697 | ||||||||||
See accompanying notes to condensed consolidated financial statements (unaudited).
5
CT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
| 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, 2003 and December 31, 2002 and the results of its operations for the three and nine months ended September 30, 2003 and September 30, 2002 and the statements of cash flows for the nine months ended September 30, 2003 and September 30, 2002. These unaudited financial statements should be read along with the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 and do not include all disclosures associated with the Company’s annual financial statements. | |
| 2. | In certain instances, amounts previously reported in the 2002 consolidated financial statements have been reclassified to conform to the 2003 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, 2003 and 2002 are not necessarily indicative of the results to be expected for the full year. | |
| 4. | PROPERTY AND EQUIPMENT | |
| Property and equipment is composed of the following (in thousands): |
| September 30, 2003 | December 31, 2002 | |||||||
Land, buildings and general equipment |
$ | 88,813 | $ | 85,716 | ||||
Central office equipment |
161,351 | 148,484 | ||||||
Poles, wires, cables and conduit |
141,136 | 133,645 | ||||||
Construction in progress |
5,681 | 10,846 | ||||||