##### 



________________________________________________________________________________


UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


FORM 10-K


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|[X]        |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|           |  | For the fiscal year ended: December 31, 2004                                                
|OR        
|[  ]       |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|           |  | For the transition period
    from                to                                        



CT COMMUNICATIONS, INC.




|                                                                   |  |                                            
|------------------------------------------------------------------ |  | -------------------------------------------
|North Carolina                                                     |  | 56-1837282                                 
|                                                                   |  |                                            
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer Identification
    Number)

|                                                           |  |           
|---------------------------------------------------------- |  | ----------
|1000 Progress Place, Northeast
    Concord, North Carolina |  | 28025     
|                                                           |  |           
|(Address of principal executive offices)                   |  | (Zip Code)









Common Stock


Rights to Purchase Common Stock


x o


x


x o






|                                    |  |                             
|----------------------------------- |  | ----------------------------
|Document of the Company             |  | Form 10-K Reference Location
|                                    |  |                             
|2005 Annual Meeting Proxy Statement |  | Part III                    









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##### 



CT COMMUNICATIONS, INC.


AND CONSOLIDATED SUBSIDIARIES


Form 10-K for the Fiscal Year ended December 31,
2004


TABLE OF CONTENTS


|           |  |                                                                                                                      |  |   
|---------- |  | -------------------------------------------------------------------------------------------------------------------- |  | --
|PART I    
|Item 1.    |  | Business                                                                                                             |  | 2 
|Item 2.    |  | Properties                                                                                                           |  | 25
|Item 3.    |  | Legal Proceedings                                                                                                    |  | 26
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                                  |  | 26
|          
|PART II   
|Item 5.    |  | Market for the Registrants Common Equity, Related
    Shareholder Matters and Issuer Purchases of Equity Securities |  | 27
|Item 6.    |  | Selected Financial Data                                                                                              |  | 28
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition
    and Results of Operations                            |  | 29
|Item 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                                                           |  | 48
|Item 8.    |  | Financial Statements and Supplementary Data                                                                          |  | 48
|Item 9.    |  | Changes in and Disagreements With Accountants on Accounting and
    Financial Disclosure                             |  | 48
|Item 9A.   |  | Controls and Procedures                                                                                              |  | 48
|Item 9B.   |  | Other Information                                                                                                    |  | 50
|          
|PART III  
|Item 10.   |  | Directors and Executive Officers of the Company                                                                      |  | 50
|Item 11.   |  | Executive Compensation                                                                                               |  | 51
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management
    and Related Shareholder Matters                   |  | 51
|Item 13.   |  | Certain Relationships and Related Transactions                                                                       |  | 51
|Item 14.   |  | Principal Accountant Fees and Services                                                                               |  | 52
|          
|PART IV   
|Item 15.   |  | Exhibits and Financial Statement Schedules                                                                           |  | 52
|Signatures |  | 53                                                                                                                  





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##### 



PART I




|        |         
|------- | --------
|Item 1. | Business

Some of the statements contained in this Form 10-K
discuss future expectations, contain projections of results of
operations or financial condition or state other forward-looking
information. These forward-looking statements are
subject to certain risks, uncertainties and assumptions that
could cause the actual results to differ materially from those
reflected in the forward-looking statements. The forward-looking
information is based on various factors and was derived using
numerous assumptions. In some cases, these so-called
forward-looking statements can be identified by the use of words
such as may, will, should,
expect, plan, anticipate,
believe, estimate, predict,
project, intend or potential
or the negative of those words and other comparable words. Those
statements however only reflect the Companys predictions.
Actual events or results may differ substantially. Important
factors that could cause actual events or results to be
materially different from the forward-looking statements include
those discussed under the heading Business 
Risk Factors and throughout this Form 10-K.




General














2



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Restatement












3



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Operations




| |              
| | -------------
| | ILEC Services







4



---



##### 





















5



---



##### 







Regulation.








6



---



##### 

















7



---



##### 

















8



---



##### 







Competition.




| |   |                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------
| |  | growing customer demand for alternative products and services
    including wireless and Internet services,                                     
|
| |  | technological advances in transmitting voice, data and video
    services such as cable telephony and VoIP services,                            
|
| |  | development of fiber optics and digital electronic technology,                                                                                  
|
| |  | the advent of competitors in the yellow pages market,                                                                                           
|
| |  | a decline in the level of access charges paid by interexchange
    carriers to local telephone companies to access their local
    networks, and
|
| |  | legislation and regulations designed to promote competition.                                                                                    







| |              
| | -------------
| | CLEC Services







9



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##### 









Regulation.






10



---



##### 











Competition.




| |                    
| | -------------------
| | Greenfield Services



11



---



##### 



,






Regulation.










12



---



##### 





Competition.




| |                  
| | -----------------
| | Wireless Services









Regulation.


13



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##### 







Competition.




| |                           
| | --------------------------
| | Internet and Data Services



Internet Access Service.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Dedicated Access. The Company offers a broad line of
    high-speed dedicated access utilizing frame relay and dedicated
    circuits, which provide business customers with direct access to
    a range of Internet applications.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | DSL Access. In late 1999, the Company began to offer
    high-speed Internet access service using DSL technology. DSL
    technology permits high speed digital transmission over the
    existing copper wiring of regular telephone lines. Broadband
    services utilizing DSL are available at speeds from
    256 Kbps up to 10 Mbps. DSL services are designed for
    residential users and small-to-medium sized businesses to
    provide high quality Internet access at speeds faster than an
    integrated services digital network (ISDN) and at
    flat-rate prices that are lower than traditional dedicated
    access charges. The Companys DSL lines increased from
    10,183 in 2003 to 13,887 in 2004. On September 1, 2004, the
    Company announced a plan to significantly enhance its broadband
    capabilities in its ILEC territory. The initiative involves an
    estimated $9.0 million capital investment that, upon
    completion, is expected to allow the Company to offer broadband
    service speeds of up to 10 megabits per second throughout much
    of its ILEC territory, a significant improvement over current
    DSL and cable modem speeds.

14



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##### 



| |   |                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | The initiative is planned for completion in late 2005, and
    higher-speed services were introduced by the Company in selected
    areas in 2004.                                                                                                                                                                                        
|
| |  | Dial-up Access. The Companys dial-up services
    provide access to the Internet through ordinary telephone lines
    at speeds up to 56 Kbps and through digital ISDN lines at
    speeds up to 64 Kbps. Dial-up customers declined 17% in
    2004 and 14% in 2003 as customers continue to demand higher
    speed broadband products.





Regulation.


Competition.




| |   |                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------
| |  | access and content providers, such as Time Warner and Microsoft,                                                                    
|
| |  | local, regional and national Internet service providers, such as
    EarthLink,                                                     
|
| |  | the Internet services of regional, national and international
    telecommunications companies, such as AT&T, BellSouth and
    MCI,
|
| |  | online services offered by direct broadcast satellite
    providers, and                                                            
|
| |  | online services offered by incumbent cable providers, such as
    Time Warner.                                                      



| |                       
| | ----------------------
| | Long Distance Services







15



---



##### 







| |        
| | -------
| | Wavetel







| |            
| | -----------
| | Investments



Palmetto MobileNet.


Wireless One.




16



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##### 







Passive Investments.








Legislative and Regulatory Developments


Legislative.


Federal Regulations.






17



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##### 

















18



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##### 











State and Local Regulation.




19



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##### 



Risk Factors






| |                                                                         
| | ------------------------------------------------------------------------
| | The Companys success depends upon its ability to manage
    its growth.





| |   |                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------
| |  | acquire necessary equipment, software, and facilities, and
    integrate them into the Companys systems,
|
| |  | evaluate markets,                                                                                        
|
| |  | monitor operations,                                                                                      
|
| |  | control costs,                                                                                           
|
| |  | maintain effective quality controls,                                                                     
|
| |  | hire, train, and retain key personnel,                                                                   
|
| |  | expand internal management,                                                                              
|
| |  | obtain sufficient capital funding to support the Companys
    business plan,                            
|
| |  | enhance operating and accounting systems, and                                                            
|
| |  | obtain any required government authorizations.                                                           







| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | The Companys success depends upon its ability to
    attract and retain key personnel.



20



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##### 







| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | The Company expects to continue to face significant
    competition in the telecommunications industry.





| |   |                                                                              
| | - | -----------------------------------------------------------------------------
| |  | incumbent local exchange carriers,                                           
|
| |  | competitive local exchange carriers,                                         
|
| |  | interexchange carriers,                                                      
|
| |  | Internet service providers,                                                  
|
| |  | wireless telecommunications providers,                                       
|
| |  | cable television companies,                                                  
|
| |  | VoIP providers,                                                              
|
| |  | local and regional system integrators, and                                   
|
| |  | resellers of telecommunications services and enhanced services
    providers.









| |                                                    
| | ---------------------------------------------------
| | The Company must secure unbundled network elements.



21



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##### 







| |                                                           
| | ----------------------------------------------------------
| | The Company is dependent on its operating support systems.





| |                                                      
| | -----------------------------------------------------
| | The Company must adapt to rapid technological change.





| |                                                                              
| | -----------------------------------------------------------------------------
| | The Company is subject to a complex and uncertain regulatory
    environment.





| |                                                                                       
| | --------------------------------------------------------------------------------------
| | The Company is dependent on interconnection agreements,
    permits and rights-of-way.





| |                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------
| | The Companys long distance services are affected by its
    ability to establish effective termination agreements.



22



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##### 







| |                                                                                 
| | --------------------------------------------------------------------------------
| | The market price of the Companys Common Stock has been
    and may be volatile.







| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | sales by the Companys current shareholders of large
    amounts of its Common Stock,                             
|
| |  | new legislation or regulation,                                                                                    
|
| |  | variations in its revenue, net income and cash flows,                                                             
|
| |  | the difference between its actual results and the results
    expected by investors and analysts,                 
|
| |  | announcements of unfavorable financial or operational
    performance for other telecommunications companies,     
|
| |  | announcements of new service offerings, marketing plans or price
    reductions by the Company or its competitors,
|
| |  | technological innovations, and                                                                                    
|
| |  | mergers, acquisitions or strategic alliances.                                                                     





| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | The Companys investments in marketable securities and
    unconsolidated companies may not be successful.







| |                                                                                              
| | ---------------------------------------------------------------------------------------------
| | The Companys acquisitions, joint ventures and strategic
    alliances may not be successful.



23



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##### 







| |   |                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------
| |  | difficulties assimilating acquired operations and personnel,                                           
|
| |  | disruptions of the Companys ongoing businesses,                                                       
|
| |  | diversion of resources and management time,                                                            
|
| |  | the possibility that uniform management and operating systems
    and procedures may not be maintained,
|
| |  | increased regulatory burdens,                                                                          
|
| |  | new markets in which the Company may have limited or no
    experience and                             
|
| |  | possible impairment of relationships with employees or customers.                                      







| |                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------
| | Anti-takeover provisions may limit the ability of
    shareholders to effect a change in control of the Company.





| |                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------
| | Evolving corporate governance and public disclosure
    regulations may result in additional expenses and
    uncertainty.



Employees




24



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##### 



Available Information


www.ctc.net


Executive Officers of the Registrant




Michael R. Coltrane


Matthew J. Dowd


James E. Hausman


Michael R. Nash


Ronald A. Marino




|        |           
|------- | ----------
|Item 2. | Properties





25



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##### 













|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings





|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders



26



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##### 



PART II




|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for the Registrants Common Equity, Related
    Shareholder Matters and Issuer Purchases of Equity Securities





|                             |                |      |   |       |     |           |   |          |  |  |   |       | 
|---------------------------- | -------------- | ---- | - | ----- | --- | --------- | - | -------- |  |  | - | ----- | 
|                             |                |      |   |       |     | Per Share |  
|                             |                |      |   |       |     | Dividend  |  
|                             |                | High |   |       | Low |           |   | Declared | 
|                             |                |      |   |       |     |           |   |          | 
|Year ended December 31, 2004 |                |      |   |       |     |           |   |          |  |  |   |      
|                             | First quarter  |      | $ | 14.25 |     |           | $ | 10.73    |  |  | $ | 0.065 | 
|                             | Second quarter |      |   | 15.05 |     |           |   | 12.06    |  |  |   | 0.065 | 
|                             | Third quarter  |      |   | 15.09 |     |           |   | 12.87    |  |  |   | 0.065 | 
|                             | Fourth quarter |      |   | 13.90 |     |           |   | 12.01    |  |  |   | 0.070 | 
|Year ended December 31, 2003 |                |      |   |       |     |           |   |          |  |  |   |      
|                             | First quarter  |      | $ | 12.10 |     |           | $ | 7.00     |  |  | $ | 0.065 | 
|                             | Second quarter |      |   | 11.36 |     |           |   | 8.70     |  |  |   | 0.065 | 
|                             | Third quarter  |      |   | 14.32 |     |           |   | 10.98    |  |  |   | 0.065 | 
|                             | Fourth quarter |      |   | 14.85 |     |           |   | 11.93    |  |  |   | 0.065 | 





27



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##### 





|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data



|                                                   |                                                           |                              |        |               |      |  |               |         |    |               |        |         |               |      |        |         |    |  |        |         |    | 
|-------------------------------------------------- | --------------------------------------------------------- | ---------------------------- | ------ | ------------- | ---- |  | ------------- | ------- | -- | ------------- | ------ | ------- | ------------- | ---- | ------ | ------- | -- |  | ------ | ------- | -- | 
|                                                   |                                                           | Years Ended December 31,     |       
|                                                   |                                                           |                              |       
|                                                   |                                                           |                              |        | (Restated)(1) |      |  | (Restated)(1) |         |    | (Restated)(1) |        |         | (Restated)(1) |     
|                                                   |                                                           | 2004                         |        |               | 2003 |  |               | 2002    |    |               | 2001   |         |               | 2000 |       
|                                                   |                                                           |                              |        |               |      |  |               |         |    |               |        |         |               |      |       
|Income Statement Data:                             |                                                           |                              |        |               |      |  |               |         |    |               |        |         |               |      |        |         |    |  |        |        
|                                                   | Operating revenue                                         |                              | $      | 163,680       |      |  | $             | 160,961 |    |               | $      | 147,975 |               |      | $      | 135,424 |    |  | $      | 114,727 |   
|                                                   | Operating expense                                         |                              |        | 140,126       |      |  |               | 139,636 |    |               |        | 128,927 |               |      |        | 121,321 |    |  |        | 100,521 |   
|                                                   |                                                           |                              |        |               |      |  |               |         |    |               |        |         |               |      |       
|                                                   | Operating income                                          |                              |        | 23,554        |      |  |               | 21,325  |    |               |        | 19,048  |               |      |        | 14,103  |    |  |        | 14,206  |   
|                                                   | Other income (expense)(2)                                 |                              |        | 594           |      |  |               | 13,911  |    |               |        | 3,325   |               |      |        | (3,666  | )  |  |        | 54,354  |   
|                                                   | Income taxes                                              |                              |        | 9,445         |      |  |               | 13,526  |    |               |        | 8,808   |               |      |        | 4,656   |    |  |        | 27,504  |   
|                                                   |                                                           |                              |        |               |      |  |               |         |    |               |        |         |               |      |       
|                                                   | Income from continuing operations                         |                              |        | 14,703        |      |  |               | 21,710  |    |               |        | 13,565  |               |      |        | 5,781   |    |  |        | 41,056  |   
|                                                   | Discontinued operations(3)                                |                              |        |              |      |  |               | (424    | )  |               |        | (5,657  | )             |      |        | (5,880  | )  |  |        | (1,205  | ) 
|                                                   |                                                           |                              |        |               |      |  |               |         |    |               |        |         |               |      |       
|                                                   | Net income (loss)                                         |                              |        | 14,703        |      |  |               | 21,286  |    |               |        | 7,908   |               |      |        | (99     | )  |  |        | 39,851  |   
|                                                   |                                                           | Dividends on preferred stock |        |               | 20   |  |               |         | 20 |               |        |         | 20            |      |        |         | 25 |  |        |         | 26 | 
|                                                   |                                                           |                              |        |               |      |  |               |         |    |               |        |         |               |      |       
|                                                   | Earnings (loss) for common stock                          |                              | $      | 14,683        |      |  | $             | 21,266  |    |               | $      | 7,888   |               |      | $      | (124    | )  |  | $      | 39,825  |   
|                                                   |                                                           |                              |        |               |      |  |               |         |    |               |        |         |               |      |       
|Basic weighted average common shares outstanding   |                                                           |                              | 18,867 |               |      |  | 18,747        |         |    |               | 18,710 |         |               |      | 18,816 |         |    |  | 18,834 |        
|Diluted weighted average common shares outstanding |                                                           |                              | 19,007 |               |      |  | 18,808        |         |    |               | 18,746 |         |               |      | 18,860 |         |    |  | 18,931 |        
|Per share data:                                    |                                                           |                              |        |               |      |  |               |         |    |               |        |         |               |      |        |         |    |  |        |        
|                                                   | Basic earnings per share                                  |                              | $      | 0.78          |      |  | $             | 1.13    |    |               | $      | 0.42    |               |      | $      | (0.01   | )  |  | $      | 2.11    |   
|                                                   | Diluted earnings per share                                |                              |        | 0.77          |      |  |               | 1.13    |    |               |        | 0.42    |               |      |        | (0.01   | )  |  |        | 2.10    |   
|                                                   | Dividends per share                                       |                              |        | 0.265         |      |  |               | 0.26    |    |               |        | 0.26    |               |      |        | 0.26    |    |  |        | 0.26    |   
|Balance Sheet Data:                                |                                                           |                              |        |               |      |  |               |         |    |               |        |         |               |      |        |         |    |  |        |        
|                                                   | Book value per share                                      |                              | $      | 9.97          |      |  | $             | 9.45    |    |               | $      | 8.53    |               |      | $      | 8.67    |    |  | $      | 9.29    |   
|                                                   | Total assets                                              |                              |        | 330,632       |      |  |               | 322,685 |    |               |        | 337,868 |               |      |        | 308,474 |    |  |        | 260,664 |   
|                                                   | Long-term debt (excluding current maturities)             |                              |        | 65,000        |      |  |               | 80,000  |    |               |        | 127,697 |               |      |        | 100,000 |    |  |        | 34,000  |   
|                                                   | Redeemable preferred stock (excluding current maturities) |                              |        |              |      |  |               |        |    |               |        |        |               |      |        | 88      |    |  |        | 100     |   
|                                                   | Shareholders equity                                      |                              |        | 188,228       |      |  |               | 177,394 |    |               |        | 159,341 |               |      |        | 162,210 |    |  |        | 174,212 |   






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | As more particularly described in Note 2 of the Notes to
    Consolidated Financial Statements included herein, the Company
    is restating in this Annual Report on Form 10-K certain
    historical financial statements as a result of errors relating
    to: (a) accounting for certain telephone system sales that
    occurred primarily in 1999, 2000 and 2001 and resulted in the
    overstatement of revenue and accounts receivable,
    (b) recording of depreciation expense, (c) accounting
    for a computer system acquired through a capital lease that also
    resulted in errors to certain accrual accounts, (d) the
    distribution of an equity security to the Company in connection
    with its investment portfolio (e) accounting related

28



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##### 



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | to three interest rate swap agreements entered into in 1999 and
    2001 and (f) accounting related to certain operating leases.                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(2) | Other income in 2003 includes a $15.2 million gain related
    to the sale of the Companys investment in ITC Holding
    Company. Other expense in 2001 includes $14.9 million in
    impairment charges related to the write-down of Maxcom
    Telecomunicaciones, S.A. de C.V. and other investment securities
    to their estimated net realizable value. Other income in 2000
    includes a $39.2 million gain related to the sale to
    BellSouth of the Companys limited partnership interest in
    BellSouth Carolinas PCS, L.P.
|   
|(3) | See Note 3  Discontinued Operations included in
    Item 8.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  



|                       |                                   |                              |   |         |               |  |   |         |    | 
|---------------------- | --------------------------------- | ---------------------------- | - | ------- | ------------- |  | - | ------- | -- | 
|                       |                                   | Years Ended December 31,     |  
|                       |                                   |                              |  
|                       |                                   | 2001                         |   |         | 2000          | 
|                       |                                   | As Previously                |   |         | As Previously | 
|                       |                                   | Reported                     |   |         | Reported      | 
|                       |                                   |                              |   |         |               | 
|Income Statement Data: |                                   |                              |   |         |               |  |   |        
|                       | Operating revenue                 |                              | $ | 135,803 |               |  | $ | 115,945 |   
|                       | Operating expense                 |                              |   | 121,222 |               |  |   | 100,521 |   
|                       |                                   |                              |   |         |               | 
|                       | Operating income                  |                              |   | 14,581  |               |  |   | 15,424  |   
|                       | Other income (expense)(2)         |                              |   | (3,242  | )             |  |   | 54,354  |   
|                       | Income taxes                      |                              |   | 4,993   |               |  |   | 27,843  |   
|                       |                                   |                              |   |         |               | 
|                       | Income from continuing operations |                              |   | 6,346   |               |  |   | 41,935  |   
|                       | Discontinued operations(3)        |                              |   | (5,880  | )             |  |   | (1,205  | ) 
|                       |                                   |                              |   |         |               | 
|                       | Net income                        |                              |   | 466     |               |  |   | 40,730  |   
|                       |                                   | Dividends on preferred stock |   |         | 25            |  |   |         | 26 | 
|                       |                                   |                              |   |         |               | 
|                       | Earnings for common stock         |                              | $ | 441     |               |  | $ | 40,704  |   
|                       |                                   |                              |   |         |               | 
|Per share data:        |                                   |                              |   |         |               |  |   |        
|                       | Basic earnings per share          |                              | $ | 0.02    |               |  | $ | 2.16    |   
|                       | Diluted earnings per share        |                              |   | 0.02    |               |  |   | 2.15    |   
|                       | Dividends per share               |                              |   | 0.26    |               |  |   | 0.26    |   
|Balance Sheet Data:    |                                   |                              |   |         |               |  |   |        
|                       | Book value per share              |                              | $ | 8.71    |               |  | $ | 9.27    |   
|                       | Total assets                      |                              |   | 310,048 |               |  |   | 261,882 |   
|                       | Shareholders equity              |                              |   | 163,575 |               |  |   | 175,091 |   



|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

The following discussion of the Companys financial
condition and results of operations should be read in
conjunction with the consolidated financial statements and
related notes and the selected financial data included elsewhere
in this report.


Restatement




29



---



##### 

















30



---



##### 





Introduction














Industry and Operating Trends




31



---



##### 



















32



---



##### 







Critical Accounting Policies and Estimates






| |                    
| | -------------------
| | Revenue Recognition







33



---



##### 











| |                      
| | ---------------------
| | Restructuring charges





| |                               
| | ------------------------------
| | Goodwill and intangible assets



34



---



##### 





| |                  
| | -----------------
| | Long-lived assets







| |            
| | -----------
| | Investments





| |                            
| | ---------------------------
| | Accounting for income taxes





35



---



##### 





| |                                     
| | ------------------------------------
| | Pension and post-retirement benefits









| |                                
| | -------------------------------
| | Allowance for doubtful accounts





| |                               
| | ------------------------------
| | Off-balance sheet arrangements



Results of Operations




36



---



##### 







| |                                                                                
| | -------------------------------------------------------------------------------
| | Consolidated Operating Results (in thousands, except
    lines and subscribers)

|                            |  |      |         |            |      |   |            |      |  |   |         | 
|--------------------------- |  | ---- | ------- | ---------- | ---- | - | ---------- | ---- |  | - | ------- | 
|                            |  |      |         | (Restated) |      |   | (Restated) |     
|                            |  | 2004 |         |            | 2003 |   |            | 2002 | 
|                            |  |      |         |            |      |   |            |      | 
|Total operating revenue     |  | $    | 163,680 |            |      | $ | 160,961    |      |  | $ | 147,975 | 
|Total operating expense     |  |      | 140,126 |            |      |   | 139,636    |      |  |   | 128,927 | 
|                            |  |      |         |            |      |   |            |      | 
|Operating income            |  | $    | 23,554  |            |      | $ | 21,325     |      |  | $ | 19,048  | 
|                            |  |      |         |            |      |   |            |      | 
|Depreciation                |  | $    | 30,770  |            |      | $ | 28,866     |      |  | $ | 26,287  | 
|Capital expenditures        |  |      | 27,197  |            |      |   | 23,762     |      |  |   | 44,283  | 
|Total assets                |  |      | 330,632 |            |      |   | 322,685    |      |  |   | 337,868 | 
|                           
|Ending wired access lines   |  |      | 157,609 |            |      |   | 155,123    |      |  |   | 153,414 | 
|Ending wireless subscribers |  |      | 43,213  |            |      |   | 38,458     |      |  |   | 33,293  | 



| |                      
| | ---------------------
| | 2004 compared to 2003











37



---



##### 





| |                      
| | ---------------------
| | 2003 compared to 2002













ILEC


|                                |  |      |         |            |      |   |            |      |  |   |         | 
|------------------------------- |  | ---- | ------- | ---------- | ---- | - | ---------- | ---- |  | - | ------- | 
|                                |  |      |         | (Restated) |      |   | (Restated) |     
|                                |  | 2004 |         |            | 2003 |   |            | 2002 | 
|                                |  |      |         |            |      |   |            |      | 
|Total operating revenue         |  | $    | 93,016  |            |      | $ | 96,079     |      |  | $ | 94,276  | 
|Total operating expense         |  |      | 65,856  |            |      |   | 65,830     |      |  |   | 63,882  | 
|                                |  |      |         |            |      |   |            |      | 
|Operating income                |  | $    | 27,160  |            |      | $ | 30,249     |      |  | $ | 30,394  | 
|                                |  |      |         |            |      |   |            |      | 
|Depreciation expense            |  | $    | 18,925  |            |      | $ | 19,157     |      |  | $ | 18,904  | 
|Capital expenditures            |  |      | 16,204  |            |      |   | 12,294     |      |  |   | 16,558  | 
|Total assets                    |  |      | 176,592 |            |      |   | 172,475    |      |  |   | 161,739 | 
|                               
|Ending business access lines    |  |      | 28,710  |            |      |   | 29,137     |      |  |   | 31,085  | 
|Ending residential access lines |  |      | 84,206  |            |      |   | 86,401     |      |  |   | 88,660  | 
|Ending total access lines       |  |      | 112,916 |            |      |   | 115,538    |      |  |   | 119,745 | 
|Ending long distance lines      |  |      | 84,773  |            |      |   | 84,714     |      |  |   | 84,591  | 

38



---



##### 





| |                      
| | ---------------------
| | 2004 compared to 2003











| |                      
| | ---------------------
| | 2003 compared to 2002









39



---



##### 







| |                                 
| | --------------------------------
| | CLEC(in thousands, except lines)

|                           |  |      |        |            |      |   |            |      |  |   |        |  
|-------------------------- |  | ---- | ------ | ---------- | ---- | - | ---------- | ---- |  | - | ------ | -
|                           |  |      |        | (Restated) |      |   | (Restated) |     
|                           |  | 2004 |        |            | 2003 |   |            | 2002 | 
|                           |  |      |        |            |      |   |            |      | 
|Total operating revenue    |  | $    | 19,123 |            |      | $ | 19,681     |      |  | $ | 15,503 |  
|Total operating expense    |  |      | 19,969 |            |      |   | 21,354     |      |  |   | 21,362 |  
|                           |  |      |        |            |      |   |            |      | 
|Operating income (loss)    |  | $    | (846   | )          |      | $ | (1,673     | )    |  | $ | (5,859 | )
|                           |  |      |        |            |      |   |            |      | 
|Depreciation expense       |  | $    | 2,309  |            |      | $ | 2,550      |      |  | $ | 2,194  |  
|Capital expenditures       |  |      | 784    |            |      |   | 1,004      |      |  |   | 2,705  |  
|Total assets               |  |      | 14,570 |            |      |   | 12,776     |      |  |   | 14,500 |  
|                          
|Ending access lines        |  |      | 31,718 |            |      |   | 29,490     |      |  |   | 27,157 |  
|Ending long distance lines |  |      | 23,723 |            |      |   | 20,916     |      |  |   | 19,066 |  





| |                      
| | ---------------------
| | 2004 compared to 2003









| |                      
| | ---------------------
| | 2003 compared to 2002



40



---



##### 









| |                                                                          
| | -------------------------------------------------------------------------
| | Greenfield(in thousands, except lines and signed
    provider agreements)

|                                 |  |      |        |            |      |   |            |      |  |   |        |  
|-------------------------------- |  | ---- | ------ | ---------- | ---- | - | ---------- | ---- |  | - | ------ | -
|                                 |  |      |        | (Restated) |      |   | (Restated) |     
|                                 |  | 2004 |        |            | 2003 |   |            | 2002 | 
|                                 |  |      |        |            |      |   |            |      | 
|Total operating revenue          |  | $    | 8,108  |            |      | $ | 6,223      |      |  | $ | 4,107  |  
|Total operating expense          |  |      | 12,004 |            |      |   | 10,919     |      |  |   | 9,301  |  
|                                 |  |      |        |            |      |   |            |      | 
|Operating income (loss)          |  | $    | (3,896 | )          |      | $ | (4,696     | )    |  | $ | (5,194 | )
|                                 |  |      |        |            |      |   |            |      | 
|Depreciation expense             |  | $    | 3,274  |            |      | $ | 2,515      |      |  | $ | 2,007  |  
|Capital expenditures             |  |      | 5,315  |            |      |   | 4,680      |      |  |   | 10,099 |  
|Total assets                     |  |      | 26,762 |            |      |   | 24,717     |      |  |   | 22,412 |  
|                                
|Ending access lines              |  |      | 12,975 |            |      |   | 10,095     |      |  |   | 6,512  |  
|Ending long distance lines       |  |      | 6,877  |            |      |   | 4,806      |      |  |   | 2,577  |  
|Total signed provider agreements |  |      | 105    |            |      |   | 94         |      |  |   | 73     |  



| |                      
| | ---------------------
| | 2004 compared to 2003









41



---



##### 









| |                      
| | ---------------------
| | 2003 compared to 2002









| |                                           
| | ------------------------------------------
| | Wireless(in thousands, except subscribers)

|                            |  |      |        |            |      |   |            |      |  |   |        | 
|--------------------------- |  | ---- | ------ | ---------- | ---- | - | ---------- | ---- |  | - | ------ | 
|                            |  |      |        | (Restated) |      |   | (Restated) |     
|                            |  | 2004 |        |            | 2003 |   |            | 2002 | 
|                            |  |      |        |            |      |   |            |      | 
|Total operating revenue     |  | $    | 32,548 |            |      | $ | 28,517     |      |  | $ | 24,394 | 
|Total operating expense     |  |      | 28,561 |            |      |   | 26,535     |      |  |   | 20,924 | 
|                            |  |      |        |            |      |   |            |      | 
|Operating income            |  | $    | 3,987  |            |      | $ | 1,982      |      |  | $ | 3,470  | 
|                            |  |      |        |            |      |   |            |      | 
|Depreciation                |  | $    | 1,930  |            |      | $ | 1,689      |      |  | $ | 1,137  | 
|Capital expenditures        |  |      | 2,229  |            |      |   | 1,107      |      |  |   | 4,289  | 
|Total assets                |  |      | 33,676 |            |      |   | 30,509     |      |  |   | 30,488 | 
|                           
|Ending wireless subscribers |  |      | 43,213 |            |      |   | 38,458     |      |  |   | 33,293 | 



| |                      
| | ---------------------
| | 2004 compared to 2003



42



---



##### 













| |                      
| | ---------------------
| | 2003 compared to 2002









43



---



##### 





| |                                                                        
| | -----------------------------------------------------------------------
| | Internet and Data Services(in thousands, except lines
    and accounts)

|                           |  |      |        |            |      |   |            |      |  |   |        |  
|-------------------------- |  | ---- | ------ | ---------- | ---- | - | ---------- | ---- |  | - | ------ | -
|                           |  |      |        | (Restated) |      |   | (Restated) |     
|                           |  | 2004 |        |            | 2003 |   |            | 2002 | 
|                           |  |      |        |            |      |   |            |      | 
|Total operating revenue    |  | $    | 10,885 |            |      | $ | 10,461     |      |  | $ | 9,695  |  
|Total operating expense    |  |      | 11,288 |            |      |   | 11,302     |      |  |   | 11,082 |  
|                           |  |      |        |            |      |   |            |      | 
|Operating income (loss)    |  | $    | (403   | )          |      | $ | (841       | )    |  | $ | (1,387 | )
|                           |  |      |        |            |      |   |            |      | 
|Depreciation               |  | $    | 2,954  |            |      | $ | 1,551      |      |  | $ | 1,355  |  
|Capital expenditures       |  |      | 1,380  |            |      |   | 2,434      |      |  |   | 1,908  |  
|Total assets               |  |      | 13,806 |            |      |   | 15,961     |      |  |   | 14,951 |  
|                          
|Ending DSL lines           |  |      | 13,887 |            |      |   | 10,183     |      |  |   | 6,664  |  
|Ending dial-up accounts    |  |      | 9,041  |            |      |   | 10,838     |      |  |   | 12,554 |  
|Ending high-speed accounts |  |      | 606    |            |      |   | 545        |      |  |   | 586    |  



| |                      
| | ---------------------
| | 2004 compared to 2003











| |                      
| | ---------------------
| | 2003 compared to 2002









44



---



##### 





| |                                   
| | ----------------------------------
| | Other Business Units(in thousands)

|                        |  |      |        |            |      |   |            |      |  |   |        |  
|----------------------- |  | ---- | ------ | ---------- | ---- | - | ---------- | ---- |  | - | ------ | -
|                        |  |      |        | (Restated) |      |   | (Restated) |     
|                        |  | 2004 |        |            | 2003 |   |            | 2002 | 
|                        |  |      |        |            |      |   |            |      | 
|Total operating revenue |  | $    |       |            |      | $ |           |      |  | $ |       |  
|Total operating expense |  |      | 2,448  |            |      |   | 3,696      |      |  |   | 2,376  |  
|                        |  |      |        |            |      |   |            |      | 
|Operating income (loss) |  | $    | (2,448 | )          |      | $ | (3,696     | )    |  | $ | (2,376 | )
|                        |  |      |        |            |      |   |            |      | 
|Depreciation            |  | $    | 1,378  |            |      | $ | 1,404      |      |  | $ | 690    |  
|Capital expenditures    |  |      | 1,285  |            |      |   | 2,243      |      |  |   | 8,724  |  
|Total assets            |  |      | 49,224 |            |      |   | 53,213     |      |  |   | 80,200 |  



| |                      
| | ---------------------
| | 2004 compared to 2003





| |                      
| | ---------------------
| | 2003 compared to 2002







| |             
| | ------------
| | Other Income



| |                      
| | ---------------------
| | 2004 compared to 2003





| |                      
| | ---------------------
| | 2003 compared to 2002



Liquidity and Capital Resources


Net
cash provided by operating activities




45



---



##### 



Net
cash used in investing activities




Net
cash provided by financing activities








Anticipated
sources and uses of funds






|                                          |  |   |      | 
|----------------------------------------- |  | - | ---- | 
|ILEC network facilities and plant         |  | $ | 15.8 | 
|CLEC network expansion                    |  |   | 1.4  | 
|Greenfield projects                       |  |   | 7.2  | 
|Internet infrastructure                   |  |   | 1.0  | 
|Wireless coverage and capacity cell sites |  |   | 2.9  | 
|Other                                     |  |   | 3.1  | 
|                                          |  |   |     
|                                          |  | $ | 31.4 | 
|                                          |  |   |     



46



---



##### 



|                         |                            |                      |         |           |          |   |        |           |  |   |           |        |  |               |        |        |  |   |        |        | 
|------------------------ | -------------------------- | -------------------- | ------- | --------- | -------- | - | ------ | --------- |  | - | --------- | ------ |  | ------------- | ------ | ------ |  | - | ------ | ------ | 
|                         |                            | Payments Due by Year |        
|                         |                            |                      |        
|                         |                            |                      |         | Less than |          |   |       
|                         |                            | Total                |         |           | one Year |   |        | 1-3 Years |  |   | 4-5 Years |        |  | After 5 Years |       
|(in thousands)           |                            |                      |         |           |          |   |        |           |  |   |           |        |  |               |       
|Contractual obligations: |                            |                      |         |           |          |   |        |           |  |   |           |        |  |               |        |        |  |   |        |       
|                         | Revolving credit facility  |                      | $       | 20,000    |          |   | $      |          |  |   | $         | 20,000 |  |               | $      |       |  |   | $      |       | 
|                         | Term loan                  |                      |         | 50,000    |          |   |        | 5,000     |  |   |           | 15,000 |  |               |        | 10,000 |  |   |        | 20,000 | 
|                         | Variable interest payments |                      |         | 875       |          |   |        | 700       |  |   |           | 175    |  |               |        |        |  |   |        |        | 
|                         | Fixed interest payments    |                      |         | 18,758    |          |   |        | 3,523     |  |   |           | 8,372  |  |               |        | 3,752  |  |   |        | 3,111  | 
|                         | Operating leases           |                      |         | 12,495    |          |   |        | 3,108     |  |   |           | 5,412  |  |               |        | 2,410  |  |   |        | 1,565  | 
|                         | Capital leases             |                      |         | 1,039     |          |   |        | 485       |  |   |           | 554    |  |               |        |       |  |   |        |       | 
|                         |                            |                      |         |           |          |   |        |           |  |   |           |        |  |               |       
|                         |                            | $                    | 103,167 |           |          | $ | 12,816 |           |  | $ | 49,513    |        |  | $             | 16,162 |        |  | $ | 24,676 |       
|                         |                            |                      |         |           |          |   |        |           |  |   |           |        |  |               |       

Accounting Considerations




Cautionary Note Regarding Forward-Looking Statements






| |   |                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the Companys ability to respond effectively to the issues
    surrounding the telecommunications industry caused by state and
    federal legislation and regulations,                                               
|
| |  | the impact of economic conditions related to the financial
    performance of customers, business partners, competitors and
    peers within the telecommunications industry,                                         
|
| |  | the Companys ability to recover the substantial costs
    incurred over the past few years in connection with the
    expansion into new businesses,                                                                 
|
| |  | the Companys ability to attract and retain key personnel,                                                                                                                                                            
|
| |  | the Companys ability to retain its existing customer base
    against wireless competition and cable telephony in all areas of
    the business including local and long distance and Internet and
    data services,
|
| |  | the Companys ability to maintain its margins in a highly
    competitive industry,                                                                                                                                   
|
| |  | the performance of the Companys investments,                                                                                                                                                                         
|
| |  | the Companys ability to effectively manage rapid changes
    in technology and control capital expenditures related to those
    technologies, and                                                                   
|
| |  | the impact of economic and political events on the
    Companys business, operating regions and customers,
    including terrorist attacks.                                                                          

47



---



##### 







| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| |  | Item 1. Business and                                                                              
|
| |  | Item 7. Managements Discussion and Analysis of
    Financial Condition and Results of Operations.



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. All forward-looking
statements should be viewed with caution.




|         |                                                           
|-------- | ----------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market Risk







|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data





|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements With Accountants on Accounting
    and Financial Disclosure





|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures



|    |                                   
|--- | ----------------------------------
|(a) | Disclosure Controls and Procedures



48



---



##### 









|    |                                          
|--- | -----------------------------------------
|(b) | Internal Control Over Financial Reporting

Order Under Section 36 of the Securities Exchange Act of
1934 Granting an Exemption from Specified Provisions of Exchange
Act Rules 13a-1 and 15d-1 (Release No. 34-50754)






| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company identified a deficiency related to accounting for
    its phone system sales. The deficiency resulted from the lack of
    a subsidiary ledger for phone system sales, which prevented the
    Companys finance personnel from performing, on a timely
    basis, the reconciliation of accounts receivable for phone
    system sales to detail records. This deficiency resulted in an
    adjustment to correct an overstatement of accounts receivable
    for phone system sales.                                                                                                                                                                                                                                                                                                           
|
| |  | The Company identified a deficiency related to calculating
    depreciation expense. The deficiency resulted from a lack of
    controls over the preparation and review of electronic
    spreadsheets designed to ensure depreciation expense is
    accurately calculated. This deficiency resulted in an adjustment
    to correct an overstatement of depreciation expense.                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | The Company identified a deficiency related to accounting for
    derivative financial instruments under Statement of Financial
    Accounting Standards No. 133, Accounting for
    Derivative Instruments and Hedging Activities (SFAS
    No. 133). The deficiency resulted from a lack of controls
    designed to ensure that the documentation required by generally
    accepted accounting principles at the inception of a derivative
    transaction is properly maintained for the term of the
    respective derivative instrument. This deficiency resulted in
    adjustments that were required to properly reflect changes in
    the estimated fair value of certain derivative financial
    instruments as a component of earnings in the period of change
    in estimated fair value.





49



---



##### 







|    |                                                     
|--- | ----------------------------------------------------
|(c) | Changes in Internal Control Over Financial Reporting







| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company is in the process of implementing additional
    policies and procedures associated with the Companys
    accounting for phone system sales, including the utilization of
    a subledger that provides details of accounts receivable
    associated with such arrangements. The Company believes that
    these changes will provide adequate controls in future periods
    over the reporting of accounts receivable for phone system sales.                                                                 
|
| |  | The Company completed the installation of a new fixed asset
    reporting system in the fourth quarter of 2004 and, as of
    January 1, 2005, implemented this new system to track and
    report fixed assets and accumulated depreciation, and to
    calculate depreciation expense. The Company believes its new
    policies and procedures relating to fixed assets will provide
    adequate controls over the reporting of fixed assets,
    accumulated depreciation and depreciation expense in future
    periods.
|
| |  | The Company is in the process of implementing additional
    policies and procedures to ensure proper accounting for its
    derivative financial instruments under SFAS No. 133,
    including controls over the maintenance of documentation
    required at each reporting period.                                                                                                                                                                                                                                         



|         |                  
|-------- | -----------------
|Item 9B. | Other Information



PART III




|         |                                                
|-------- | -----------------------------------------------
|Item 10. | Directors and Executive Officers of the Company





50



---



##### 





|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation





|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Shareholder Matters

Security
Ownership of Certain Beneficial Owners and Management




Equity
Compensation Plan Information




|                                                           |  |                   |             |   |                  |           |       |                 |  |  |             |  
|---------------------------------------------------------- |  | ----------------- | ----------- | - | ---------------- | --------- | ----- | --------------- |  |  | ----------- | -
|                                                           |  |                   |             |   |                  | Number of |      
|                                                           |  | Number of         |             |   | Weighted-        |           |       | Securities      | 
|                                                           |  | Securities to be  |             |   | Average Exercise |           |       | Remaining       | 
|                                                           |  | Issued Upon       |             |   | Price of         |           |       | Available for   | 
|                                                           |  | Exercise of       |             |   | Outstanding      |           |       | Future Issuance | 
|                                                           |  | Outstanding       |             |   | Options,         |           |       | Under Equity    | 
|                                                           |  | Options, Warrants |             |   | Warrants and     |           |       | Compensation    | 
|Plan Category                                              |  | and Rights        |             |   | Rights           |           |       | Plans           | 
|                                                           |  |                   |             |   |                  |           |       |                 | 
|Equity compensation plans approved by security holders     |  |                   | 1,328,420(1 | ) |                  | $         | 14.41 |                 |  |  | 1,781,697(2 | )
|Equity compensation plans not approved by security holders |  |                   |            |   |                  |           |      |                 |  |  |            |  






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes 326,386 options to purchase shares of common stock
    under the Omnibus Stock Compensation Plan, 945,498 options to
    purchase shares of common stock under the Amended and Restated
    2001 Stock Incentive Plan and 56,536 options to purchase shares
    of common stock under the Comprehensive Stock Option plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(2) | Includes 400,344 shares originally authorized for issuance
    under the Omnibus Stock Compensation Plan that were transferred
    to the Amended and Restated 2001 Stock Incentive Plan in
    accordance with that plan. Also includes an additional
    1,373,247 shares authorized under the Amended and Restated
    2001 Stock Incentive Plan, 480 shares authorized under the
    Comprehensive Stock Option Plan and 8,076 shares authorized
    under the 1996 Director Compensation Plan. Available shares
    shown above for the Omnibus Stock Compensation Plan and the
    Amended and Restated 2001 Stock Incentive Plan include shares
    that have been become available due to forfeitures or have been
    reacquired by the Company for any reason without delivery of the
    stock, as allowed under the terms of the plans.



|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions



51



---



##### 





|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services



PART IV




|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules





| |                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) Financial Statements: The following financial
    statements, together with the report thereon of independent
    auditors, are included in this report as set forth in
    Item 8:



| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | Report of Independent Registered Public Accounting Firm,                                                    
|
| |  | Consolidated balance sheets as of December 31, 2004 and
    2003,                                           
|
| |  | Consolidated statements of income for the years ended
    December 31, 2004, 2003 and 2002,                 
|
| |  | Consolidated statements of cash flows for the years ended
    December 31, 2004, 2003 and 2002,             
|
| |  | Consolidated statements of shareholders equity for the
    years ended December 31, 2004, 2003 and 2002,   
|
| |  | Consolidated statements of comprehensive income for the years
    ended December 31, 2004, 2003 and 2002 and
|
| |  | Notes to consolidated financial statements for the years ended
    December 31, 2004, 2003 and 2002.        



| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) Consolidated Financial Statement Schedules:
    Schedule II is included. All other financial statement
    schedules are not applicable.                              
|
| | (3) Financial Statements of Palmetto MobileNet, L.P. are
    set forth on pages F-47 through F-59 of this report.                                                         
|
| | (4) The exhibits filed as part of this report and exhibits
    incorporated herein by reference to other documents are listed
    in the Index to Exhibits to this report.





| |                   
| | ------------------
| | See (a)(4), above.





| |                   
| | ------------------
| | See (a)(2), above.

52



---



##### 



SIGNATURES






| |                        
| | -----------------------
| | CT COMMUNICATIONS, INC.



| |     |                        
| | --- | -----------------------
| | By: | /s/ MICHAEL R. COLTRANE

| |                                      
| | -------------------------------------
| |                                      
| | Michael R. Coltrane                  
| | Chairman of the Board of Directors,  
| | President and Chief Executive Officer
|
| | Date: March 31, 2005                 





| |     |                        
| | --- | -----------------------
| | By: | /s/ MICHAEL R. COLTRANE

| |                                      
| | -------------------------------------
| |                                      
| | Michael R. Coltrane                  
| | Chairman of the Board of Directors,  
| | President and Chief Executive Officer
| | (Principal Executive Officer)        



| |     |                                 
| | --- | --------------------------------
| | By: | /s/ O. CHARLIE CHEWNING,
    JR.

| |                         
| | ------------------------
| |                         
| | O. Charlie Chewning, Jr.
| | Director                



| |     |                     
| | --- | --------------------
| | By: | /s/ WILLIAM A. COLEY

| |                 
| | ----------------
| |                 
| | William A. Coley
| | Director        



| |     |                     
| | --- | --------------------
| | By: | /s/ BARRY W. EVELAND

| |                 
| | ----------------
| |                 
| | Barry W. Eveland
| | Director        



| |     |                     
| | --- | --------------------
| | By: | /s/ RAYMOND C. GROTH

| |                 
| | ----------------
| |                 
| | Raymond C. Groth
| | Director        



| |     |                       
| | --- | ----------------------
| | By: | /s/ SAMUEL E. LEFTWICH

| |                   
| | ------------------
| |                   
| | Samuel E. Leftwich
| | Director          

53



---



##### 





| |     |                        
| | --- | -----------------------
| | By: | /s/ JAMES L. MOORE, JR.

| |                    
| | -------------------
| |                    
| | James L. Moore, Jr.
| | Director           



| |     |                      
| | --- | ---------------------
| | By: | /s/ CYNTHIA L. MYNATT

| |                  
| | -----------------
| |                  
| | Cynthia L. Mynatt
| | Director         



| |     |                 
| | --- | ----------------
| | By: | /s/ TOM E. SMITH

| |             
| | ------------
| |             
| | Tom E. Smith
| | Director    



| |     |                     
| | --- | --------------------
| | By: | /s/ JAMES E. HAUSMAN

| |                              
| | -----------------------------
| |                              
| | James E. Hausman             
| | Senior Vice President and    
| | Chief Financial Officer      
| | (Principal Financial Officer)



| |     |                     
| | --- | --------------------
| | By: | /s/ RONALD A. MARINO

| |                               
| | ------------------------------
| |                               
| | Ronald A. Marino              
| | Vice President Finance and    
| | Chief Accounting Officer      
| | (Principal Accounting Officer)

54



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


CONSOLIDATED FINANCIAL STATEMENTS INDEX


December 31, 2004, 2003 and 2002


INDEX


|    |  |                                                                                                                                             |  |            
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------
|(1) |  | Consolidated Financial Statements                                                                                                           |  |            
|    |  | The following financial statements, together with independent
    auditors report thereon, are included:                                  
|    |  |  Independent Auditors Report                                                                                                              |  | F-2        
|    |  |  Consolidated balance sheets as of December 31,
    2004 and 2003 (Restated)                                                               |  | F-3        
|    |  |  Consolidated statements of income for the years
    ended December 31, 2004, 2003 (Restated) and 2002 (Restated)                          |  | F-4        
|    |  |  Consolidated statements of comprehensive income
    (loss) for the years ended December 31, 2004, 2003
    (Restated) and 2002 (Restated) |  | F-5        
|    |  |  Consolidated statements of stockholders equity
    for the years ended December 31, 2004, 2003 (Restated) and
    2002 (Restated)        |  | F-6 and F-7
|    |  |  Consolidated statements of cash flows for the years
    ended December 31, 2004, 2003 (Restated) and 2002 (Restated)                      |  | F-8        
|    |  |  Notes to consolidated financial statements for the
    years ended December 31, 2004, 2003 and 2002                                       |  | F-9 to F-45
|   
|(2) |  | Consolidated Financial Statement Schedule                                                                                                   |  |            
|    |  | The following financial statement schedule is included:                                                                                     |  |            
|    |  |  Schedule II  Valuation and
    Qualifying Accounts                                                                                       |  | F-46       



| |                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------
| | Other schedules are omitted because the required information is
    included in the financial statements or is not applicable.

F-1



---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


















| |             
| | ------------
| | /s/ KPMG LLP





F-2



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS


December 31, 2004 and 2003


(in thousands, except share data)


|                                        |                                                                                                                       |                                                                          |                                            |                                              |      |         |         |         |     |         |         | 
|--------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | ------------------------------------------ | -------------------------------------------- | ---- | ------- | ------- | ------- | --- | ------- | ------- | 
|                                        |                                                                                                                       |                                                                          |                                            | (Restated)                                   |     
|                                        |                                                                                                                       | 2004                                                                     |                                            |                                              | 2003 |        
|                                        |                                                                                                                       |                                                                          |                                            |                                              |      |        
|ASSETS                                 
|Current assets:                         |                                                                                                                       |                                                                          |                                            |                                              |      |         |         |        
|                                        | Cash and cash equivalents                                                                                             |                                                                          | $                                          | 28,358                                       |      |         | $       | 16,957  |    
|                                        | Accounts receivable and unbilled revenue, net of allowance for
    doubtful accounts of $313 at 2004 and $567 at 2003 |                                                                          |                                            | 17,371                                       |      |         |         | 19,533  |    
|                                        | Other accounts receivable                                                                                             |                                                                          |                                            | 1,147                                        |      |         |         | 1,512   |    
|                                        | Materials and supplies                                                                                                |                                                                          |                                            | 875                                          |      |         |         | 1,569   |    
|                                        | Deferred income taxes                                                                                                 |                                                                          |                                            | 510                                          |      |         |         | 279     |    
|                                        | Other                                                                                                                 |                                                                          |                                            | 3,712                                        |      |         |         | 2,012   |    
|                                        |                                                                                                                       |                                                                          |                                            |                                              |      |        
|                                        |                                                                                                                       |                                                                          | Total current assets                       |                                              |      | 51,973  |         |         |     | 41,862  |        
|                                        |                                                                                                                       |                                                                          |                                            |                                              |      |        
|Investment securities                   |                                                                                                                       |                                                                          | 5,190                                      |                                              |      |         | 7,518   |        
|Other investments                       |                                                                                                                       |                                                                          | 1,500                                      |                                              |      |         | 1,078   |        
|Investments in unconsolidated companies |                                                                                                                       |                                                                          | 16,002                                     |                                              |      |         | 13,034  |        
|Property and equipment, net             |                                                                                                                       |                                                                          | 207,072                                    |                                              |      |         | 211,521 |        
|Goodwill                                |                                                                                                                       |                                                                          | 9,906                                      |                                              |      |         | 9,906   |        
|Other intangibles, net                  |                                                                                                                       |                                                                          | 35,401                                     |                                              |      |         | 35,201  |        
|Other assets                            |                                                                                                                       |                                                                          | 3,588                                      |                                              |      |         | 2,565   |        
|                                        |                                                                                                                       |                                                                          |                                            |                                              |      |        
|                                        |                                                                                                                       |                                                                          | Total assets                               |                                              | $    | 330,632 |         |         | $   | 322,685 |        
|                                        |                                                                                                                       |                                                                          |                                            |                                              |      |        
|                                       
|LIABILITIES AND STOCKHOLDERS EQUITY   
|Current Liabilities:                    |                                                                                                                       |                                                                          |                                            |                                              |      |         |         |        
|                                        | Current portion of long-term debt                                                                                     |                                                                          | $                                          | 5,000                                        |      |         | $       |        |    
|                                        | Accounts payable                                                                                                      |                                                                          |                                            | 6,822                                        |      |         |         | 6,250   |    
|                                        | Customer deposits and advance billings                                                                                |                                                                          |                                            | 3,307                                        |      |         |         | 2,840   |    
|                                        | Accrued payroll                                                                                                       |                                                                          |                                            | 7,231                                        |      |         |         | 6,553   |    
|                                        | Income taxes payable                                                                                                  |                                                                          |                                            | 3,210                                        |      |         |         | 2,546   |    
|                                        | Accrued pension cost                                                                                                  |                                                                          |                                            | 4,780                                        |      |         |         | 3,542   |    
|                                        | Other accrued liabilities                                                                                             |                                                                          |                                            | 3,254                                        |      |         |         | 4,948   |    
|                                        | Liabilities of discontinued operations                                                                                |                                                                          |                                            | 604                                          |      |         |         | 1,072   |    
|                                        |                                                                                                                       |                                                                          |                                            |                                              |      |        
|                                        |                                                                                                                       |                                                                          |                                            | Total current liabilities                    |      |         | 34,208  |         |     |         | 27,751  | 
|                                        |                                                                                                                       |                                                                          |                                            |                                              |      |        
|Long-term debt                          |                                                                                                                       |                                                                          | 65,000                                     |                                              |      |         | 80,000  |        
|Deferred credits and other liabilities: |                                                                                                                       |                                                                          |                                            |                                              |      |         |         |        
|                                        | Deferred income taxes                                                                                                 |                                                                          |                                            | 28,739                                       |      |         |         | 23,171  |    
|                                        | Investment tax credits                                                                                                |                                                                          |                                            | 115                                          |      |         |         | 230     |    
|                                        | Post-retirement benefits other than pension                                                                           |                                                                          |                                            | 11,044                                       |      |         |         | 11,246  |    
|                                        | Other                                                                                                                 |                                                                          |                                            | 3,298                                        |      |         |         | 2,893   |    
|                                        |                                                                                                                       |                                                                          |                                            |                                              |      |        
|                                        |                                                                                                                       |                                                                          |                                            | Total deferred credits and other liabilities |      |         | 43,196  |         |     |         | 37,540  | 
|                                        |                                                                                                                       |                                                                          |                                            |                                              |      |        
|                                        |                                                                                                                       |                                                                          |                                            | Total liabilities                            |      |         | 142,404 |         |     |         | 145,291 | 
|                                        |                                                                                                                       |                                                                          |                                            |                                              |      |        
|Stockholders equity:                   |                                                                                                                       |                                                                          |                                            |                                              |      |         |         |        
|                                        | Preferred stock not subject to mandatory redemption:                                                                  |                                                                          |                                            |                                              |      |         |         |         |    
|                                        |                                                                                                                       | 5% series, $100 par value; 3,356 shares outstanding at
    2004 and 2003 |                                            |                                              | 336  |         |         |         | 336 |        
|                                        |                                                                                                                       | 4.5% series, $100 par value; 614 shares outstanding at
    2004 and 2003 |                                            |                                              | 61   |         |         |         | 61  |        
|                                        | Common stock, 18,883,825 at 2004 and 18,769,187 at
    2003 shares outstanding                                        |                                                                          |                                            | 42,222                                       |      |         |         | 40,800  |    
|                                        | Other capital                                                                                                         |                                                                          |                                            | 298                                          |      |         |         | 298     |    
|                                        | Unearned compensation                                                                                                 |                                                                          |                                            | (268                                         | )    |         |         | (264    | )  
|                                        | Accumulated other comprehensive income (loss)                                                                         |                                                                          |                                            | 215                                          |      |         |         | 492     |    
|                                        | Retained earnings                                                                                                     |                                                                          |                                            | 145,364                                      |      |         |         | 135,671 |    
|                                        |                                                                                                                       |                                                                          |                                            |                                              |      |        
|                                        |                                                                                                                       |                                                                          | Total stockholders equity                 |                                              |      | 188,228 |         |         |     | 177,394 |        
|                                        |                                                                                                                       |                                                                          |                                            |                                              |      |        
|                                        |                                                                                                                       |                                                                          | Total liabilities and stockholders equity |                                              | $    | 330,632 |         |         | $   | 322,685 |        
|                                        |                                                                                                                       |                                                                          |                                            |                                              |      |        



F-3



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF INCOME


Years ended December 31, 2004, 2003 and 2002


(in thousands, except per share data)


|                                            |                                                                                                                                                                      |                                                       |        |            |         |  |            |         |         |  |        |         |         | 
|------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------- | ------ | ---------- | ------- |  | ---------- | ------- | ------- |  | ------ | ------- | ------- | 
|                                            |                                                                                                                                                                      |                                                       |        | (Restated) |         |  | (Restated) |        
|                                            |                                                                                                                                                                      | 2004                                                  |        |            | 2003    |  |            | 2002    |        
|                                            |                                                                                                                                                                      |                                                       |        |            |         |  |            |         |        
|Operating revenue:                          |                                                                                                                                                                      |                                                       |        |            |         |  |            |         |         |  |        |        
|                                            | Telephone                                                                                                                                                            |                                                       | $      | 120,248    |         |  | $          | 121,983 |         |  | $      | 113,886 |        
|                                            | Wireless and internet                                                                                                                                                |                                                       |        | 43,432     |         |  |            | 38,978  |         |  |        | 34,089  |        
|                                            |                                                                                                                                                                      |                                                       |        |            |         |  |            |         |        
|                                            |                                                                                                                                                                      | Total operating revenue                               |        |            | 163,680 |  |            |         | 160,961 |  |        |         | 147,975 | 
|                                            |                                                                                                                                                                      |                                                       |        |            |         |  |            |         |        
|Operating expense:                          |                                                                                                                                                                      |                                                       |        |            |         |  |            |         |         |  |        |        
|                                            | Telephone cost of service(1)                                                                                                                                         |                                                       |        | 35,312     |         |  |            | 35,614  |         |  |        | 34,395  |        
|                                            | Wireless and internet cost of service(2)                                                                                                                             |                                                       |        | 19,178     |         |  |            | 18,668  |         |  |        | 17,566  |        
|                                            | Selling, general and administrative(3)                                                                                                                               |                                                       |        | 54,866     |         |  |            | 56,488  |         |  |        | 50,679  |        
|                                            | Depreciation                                                                                                                                                         |                                                       |        | 30,770     |         |  |            | 28,866  |         |  |        | 26,287  |        
|                                            |                                                                                                                                                                      |                                                       |        |            |         |  |            |         |        
|                                            |                                                                                                                                                                      | Total operating expense                               |        |            | 140,126 |  |            |         | 139,636 |  |        |         | 128,927 | 
|                                            |                                                                                                                                                                      |                                                       |        |            |         |  |            |         |        
|                                            |                                                                                                                                                                      | Operating income                                      |        |            | 23,554  |  |            |         | 21,325  |  |        |         | 19,048  | 
|                                            |                                                                                                                                                                      |                                                       |        |            |         |  |            |         |        
|Other income (expense):                     |                                                                                                                                                                      |                                                       |        |            |         |  |            |         |         |  |        |        
|                                            | Equity in income of unconsolidated companies, net                                                                                                                    |                                                       |        | 5,771      |         |  |            | 5,829   |         |  |        | 4,862   |        
|                                            | Interest, dividend income and gain on sale of investments                                                                                                            |                                                       |        | 1,463      |         |  |            | 16,269  |         |  |        | 6,572   |        
|                                            | Impairment of investments                                                                                                                                            |                                                       |        | (1,834     | )       |  |            | (1,744  | )       |  |        | (1,058  | )      
|                                            | Other expense, principally interest                                                                                                                                  |                                                       |        | (4,806     | )       |  |            | (6,443  | )       |  |        | (7,051  | )      
|                                            |                                                                                                                                                                      |                                                       |        |            |         |  |            |         |        
|                                            |                                                                                                                                                                      | Total other income (expense)                          |        |            | 594     |  |            |         | 13,911  |  |        |         | 3,325   | 
|                                            |                                                                                                                                                                      |                                                       |        |            |         |  |            |         |        
|                                            |                                                                                                                                                                      | Income from continuing operations before income taxes |        |            | 24,148  |  |            |         | 35,236  |  |        |         | 22,373  | 
|Income taxes                                |                                                                                                                                                                      |                                                       | 9,445  |            |         |  | 13,526     |         |         |  | 8,808  |        
|                                            |                                                                                                                                                                      |                                                       |        |            |         |  |            |         |        
|                                            |                                                                                                                                                                      | Income from continuing operations                     |        |            | 14,703  |  |            |         | 21,710  |  |        |         | 13,565  | 
|Discontinued operations:                    |                                                                                                                                                                      |                                                       |        |            |         |  |            |         |         |  |        |        
|                                            | Loss from operations of discontinued business, net of income tax
    benefits of $276 in 2003 and $3,278 in 2002, including a loss on
    disposal of $4,378 in 2002 |                                                       |        |           |         |  |            | (424    | )       |  |        | (5,657  | )      
|                                            |                                                                                                                                                                      |                                                       |        |            |         |  |            |         |        
|                                            |                                                                                                                                                                      | Net income                                            |        |            | 14,703  |  |            |         | 21,286  |  |        |         | 7,908   | 
|Dividends on preferred stock                |                                                                                                                                                                      |                                                       | 20     |            |         |  | 20         |         |         |  | 20     |        
|                                            |                                                                                                                                                                      |                                                       |        |            |         |  |            |         |        
|                                            |                                                                                                                                                                      | Earnings for common stock                             |        | $          | 14,683  |  |            | $       | 21,266  |  |        | $       | 7,888   | 
|                                            |                                                                                                                                                                      |                                                       |        |            |         |  |            |         |        
|Basic earnings (loss) per share:            |                                                                                                                                                                      |                                                       |        |            |         |  |            |         |         |  |        |        
|                                            | Continuing operations                                                                                                                                                |                                                       | $      | 0.78       |         |  | $          | 1.16    |         |  | $      | 0.72    |        
|                                            | Discontinued operations                                                                                                                                              |                                                       |        |           |         |  |            | (0.02   | )       |  |        | (0.30   | )      
|                                            | Net income                                                                                                                                                           |                                                       |        | 0.78       |         |  |            | 1.13    |         |  |        | 0.42    |        
|Diluted earnings (loss) per share:          |                                                                                                                                                                      |                                                       |        |            |         |  |            |         |         |  |        |        
|                                            | Continuing operations                                                                                                                                                |                                                       | $      | 0.77       |         |  | $          | 1.15    |         |  | $      | 0.72    |        
|                                            | Discontinued operations                                                                                                                                              |                                                       |        |           |         |  |            | (0.02   | )       |  |        | (0.30   | )      
|                                            | Net income                                                                                                                                                           |                                                       |        | 0.77       |         |  |            | 1.13    |         |  |        | 0.42    |        
|Basic weighted average shares outstanding   |                                                                                                                                                                      |                                                       | 18,867 |            |         |  | 18,747     |         |         |  | 18,710 |        
|Diluted weighted average shares outstanding |                                                                                                                                                                      |                                                       | 19,007 |            |         |  | 18,808     |         |         |  | 18,746 |        






|    |                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------
|(1) | Excludes depreciation expense of $21.2 million,
    $21.5 million and $19.6 million in 2004, 2003 and
    2002, respectively.
|   
|(2) | Excludes depreciation expense of $4.7 million,
    $3.0 million and $2.0 million in 2004, 2003 and 2002,
    respectively.   
|   
|(3) | Excludes depreciation expense of $4.9 million,
    $4.4 million and $4.7 million in 2004, 2003 and 2002,
    respectively.   



F-4



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)


Years ended December 31, 2004, 2003 and 2002


(in thousands)


|                            |                                                                                                                                                                                 |      |        |            |      |   |            |      |   |   |       |        |  
|--------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | ------ | ---------- | ---- | - | ---------- | ---- | - | - | ----- | ------ | -
|                            |                                                                                                                                                                                 |      |        | (Restated) |      |   | (Restated) |     
|                            |                                                                                                                                                                                 | 2004 |        |            | 2003 |   |            | 2002 |  
|                            |                                                                                                                                                                                 |      |        |            |      |   |            |      |  
|Net income                  |                                                                                                                                                                                 | $    | 14,703 |            |      | $ | 21,286     |      |   | $ | 7,908 |       
|Other comprehensive income: |                                                                                                                                                                                 |      |        |            |      |   |            |      |   |   |       |       
|                            | Unrealized holding gains (losses) on available-for-sale
    securities, net of tax expense (benefit) of $(481), $376, and
    ($1,996) in 2004, 2003 and 2002, respectively     |      |        | (861       | )    |   |            | 673  |   |   |       | (3,570 | )
|                            | Reclassification adjustment for gains (losses) on investments
    realized in net income, net of tax benefit of $326, ($23) and
    ($902) in 2004, 2003 and 2002, respectively |      |        | 584        |      |   |            | (41  | ) |   |       | (1,613 | )
|                            |                                                                                                                                                                                 |      |        |            |      |   |            |      |  
|Comprehensive income        |                                                                                                                                                                                 | $    | 14,426 |            |      | $ | 21,918     |      |   | $ | 2,725 |       
|                            |                                                                                                                                                                                 |      |        |            |      |   |            |      |  



F-5



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY


Years ended December 31, 2004, 2003 and 2002


(in thousands, except share data)


|                                                                    |  |           |     |  |             |   |    |        |  |   |         |            |       |              |     |            |               |   |       |          |  |   |               |   |  |   |         |   |  |   |         |  
|------------------------------------------------------------------- |  | --------- | --- |  | ----------- | - | -- | ------ |  | - | ------- | ---------- | ----- | ------------ | --- | ---------- | ------------- | - | ----- | -------- |  | - | ------------- | - |  | - | ------- | - |  | - | ------- | -
|                                                                    |  |           |     |  |             |   |    |        |  |   |         | (Restated) |       |              |     |            |              
|                                                                    |  |           |     |  |             |   |    |        |  |   |         | Accum.     |       |              |     |            | (Restated)    |  
|                                                                    |  | 5% Series |     |  |             |   |    |        |  |   |         |            | Other |              |     | (Restated) |               |   | Total |         
|                                                                    |  | Pref.     |     |  | 4.5% Series |   |    | Common |  |   | Other   |            |       | Unearned     |     |            | Comprehensive |   |       | Retained |  |   | Stockholders |  
|                                                                    |  | Stock     |     |  | Pref. Stock |   |    | Stock  |  |   | Capital |            |       | Compensation |     |            | Income (Loss) |   |       | Earnings |  |   | Equity        |  
|                                                                    |  |           |     |  |             |   |    |        |  |   |         |            |       |              |     |            |               |   |       |          |  |   |               |  
|Balances at December 31, 2001 (as previously reported)              |  | $         | 336 |  |             | $ | 61 |        |  | $ | 40,847  |            |       | $            | 298 |            |               | $ | (654  | )        |  | $ | 4,786         |   |  | $ | 117,901 |   |  | $ | 163,575 |  
|Restatement (see Note 2)                                            |  |           |    |  |             |   |   |        |  |   |        |            |       |              |    |            |               |   |      |          |  |   | 257           |   |  |   | (1,622  | ) |  |   | (1,365  | )
|                                                                    |  |           |     |  |             |   |    |        |  |   |         |            |       |              |     |            |               |   |       |          |  |   |               |  
|Balances at December 31, 2001 (as Restated)                         |  |           | 336 |  |             |   | 61 |        |  |   | 40,847  |            |       |              | 298 |            |               |   | (654  | )        |  |   | 5,043         |   |  |   | 116,279 |   |  |   | 162,210 |  
|Net income (Restated)                                               |  |           |    |  |             |   |   |        |  |   |        |            |       |              |    |            |               |   |      |          |  |   |              |   |  |   | 7,908   |   |  |   | 7,908   |  
|Issuance of 118,823 shares of stock                                 |  |           |    |  |             |   |   |        |  |   | 1,608   |            |       |              |    |            |               |   |      |          |  |   |              |   |  |   |        |   |  |   | 1,608   |  
|Issuance of 16,488 shares for exercise of stock options             |  |           |    |  |             |   |   |        |  |   | 164     |            |       |              |    |            |               |   |      |          |  |   |              |   |  |   |        |   |  |   | 164     |  
|Repurchase of 182,579 shares of common, including
    cancellations |  |           |    |  |             |   |   |        |  |   | (2,662  | )          |       |              |    |            |               |   |      |          |  |   |              |   |  |   |        |   |  |   | (2,662  | )
|Redemption of 4.8% preferred stock                                  |  |           |    |  |             |   |   |        |  |   | 5       |            |       |              |    |            |               |   |      |          |  |   |              |   |  |   |        |   |  |   | 5       |  
|Dividends declared:                                                 |  |           |     |  |             |   |    |        |  |   |         |            |       |              |     |            |               |   |       |          |  |   |               |   |  |   |         |   |  |   |         |  
|5% preferred                                                        |  |           |    |  |             |   |   |        |  |   |        |            |       |              |    |            |               |   |      |          |  |   |              |   |  |   | (17     | ) |  |   | (17     | )
|4.8% preferred                                                      |  |           |    |  |             |   |   |        |  |   |        |            |       |              |    |            |               |   |      |          |  |   |              |   |  |   | (3      | ) |  |   | (3      | )
|4.5% preferred                                                      |  |           |    |  |             |   |   |        |  |   |        |            |       |              |    |            |               |   |      |          |  |   |              |   |  |   | (3      | ) |  |   | (3      | )
|Common stock                                                        |  |           |    |  |             |   |   |        |  |   |        |            |       |              |    |            |               |   |      |          |  |   |              |   |  |   | (4,869  | ) |  |   | (4,869  | )
|Other comprehensive Loss (Restated)                                 |  |           |    |  |             |   |   |        |  |   |        |            |       |              |    |            |               |   |      |          |  |   | (5,183        | ) |  |   |        |   |  |   | (5,183  | )
|Restricted stock compensation, net of $1,129 earned in 2002         |  |           |    |  |             |   |   |        |  |   |        |            |       |              |    |            |               |   | 184   |          |  |   |              |   |  |   |        |   |  |   | 184     |  
|                                                                    |  |           |     |  |             |   |    |        |  |   |         |            |       |              |     |            |               |   |       |          |  |   |               |  
|Balances at December 31, 2002 (Restated)                            |  | $         | 336 |  |             | $ | 61 |        |  | $ | 39,962  |            |       | $            | 298 |            |               | $ | (470  | )        |  | $ | (140          | ) |  | $ | 119,295 |   |  | $ | 159,342 |  
|                                                                    |  |           |     |  |             |   |    |        |  |   |         |            |       |              |     |            |               |   |       |          |  |   |               |  
|Net income (Restated)                                               |  |           |    |  |             |   |   |        |  |   |        |            |       |              |    |            |               |   |      |          |  |   |              |   |  |   | 21,286  |   |  |   | 21,286  |  
|Issuance of 97,282 shares of common stock                           |  |           |    |  |             |   |   |        |  |   | 1,047   |            |       |              |    |            |               |   |      |          |  |   |              |   |  |   |        |   |  |   | 1,047   |  
|Issuance of 28,248 shares for exercise of stock options             |  |           |    |  |             |   |   |        |  |   | 252     |            |       |              |    |            |               |   |      |          |  |   |              |   |  |   |        |   |  |   | 252     |  
|Repurchase of 43,083 shares of common, including
    cancellations  |  |           |    |  |             |   |   |        |  |   | (461    | )          |       |              |    |            |               |   |      |          |  |   |              |   |  |   |        |   |  |   | (461    | )
|Dividends declared:                                                 |  |           |     |  |             |   |    |        |  |   |         |            |       |              |     |            |               |   |       |          |  |   |               |   |  |   |         |   |  |   |         |  
|5% preferred                                                        |  |           |    |  |             |   |   |        |  |   |        |            |       |              |    |            |               |   |      |          |  |   |              |   |  |   | (17     | ) |  |   | (17     | )
|4.5% preferred                                                      |  |           |    |  |             |   |   |        |  |   |        |            |       |              |    |            |               |   |      |          |  |   |              |   |  |   | (3      | ) |  |   | (3      | )
|Common stock                                                        |  |           |    |  |             |   |   |        |  |   |        |            |       |              |    |            |               |   |      |          |  |   |              |   |  |   | (4,890  | ) |  |   | (4,890  | )
|Other comprehensive Income (Restated)                               |  |           |    |  |             |   |   |        |  |   |        |            |       |              |    |            |               |   |      |          |  |   | 632           |   |  |   |        |   |  |   | 632     |  
|Restricted stock compensation, net of $774 earned in 2003           |  |           |    |  |             |   |   |        |  |   |        |            |       |              |    |            |               |   | 206   |          |  |   |              |   |  |   |        |   |  |   | 206     |  
|                                                                    |  |           |     |  |             |   |    |        |  |   |         |            |       |              |     |            |               |   |       |          |  |   |               |  
|Balances at December 31, 2003 (Restated)                            |  | $         | 336 |  |             | $ | 61 |        |  | $ | 40,800  |            |       | $            | 298 |            |               | $ | (264  | )        |  | $ | 492           |   |  | $ | 135,671 |   |  | $ | 177,394 |  
|                                                                    |  |           |     |  |             |   |    |        |  |   |         |            |       |              |     |            |               |   |       |          |  |   |               |  



F-6



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY  (Continued)


Years ended December 31, 2004, 2003 and 2002


(in thousands, except share data)


|                                                                   |  |           |     |  |             |   |    |        |  |   |         |              |               |              |     |            |            |   |       |          |  |   |               |   |  |   |         |   |  |   |         |  
|------------------------------------------------------------------ |  | --------- | --- |  | ----------- | - | -- | ------ |  | - | ------- | ------------ | ------------- | ------------ | --- | ---------- | ---------- | - | ----- | -------- |  | - | ------------- | - |  | - | ------- | - |  | - | ------- | -
|                                                                   |  |           |     |  |             |   |    |        |  |   |         | (Restated)   |               |              |     |            |           
|                                                                   |  |           |     |  |             |   |    |        |  |   |         | Accum. Other |               |              |     |            | (Restated) |  
|                                                                   |  | 5% Series |     |  |             |   |    |        |  |   |         |              | Comprehensive |              |     | (Restated) |            |   | Total |         
|                                                                   |  | Pref.     |     |  | 4.5% Series |   |    | Common |  |   | Other   |              |               | Unearned     |     |            | Income     |   |       | Retained |  |   | Stockholders |  
|                                                                   |  | Stock     |     |  | Pref. Stock |   |    | Stock  |  |   | Capital |              |               | Compensation |     |            | (Loss)     |   |       | Earnings |  |   | Equity        |  
|                                                                   |  |           |     |  |             |   |    |        |  |   |         |              |               |              |     |            |            |   |       |          |  |   |               |  
|Balances at December 31, 2003 (Restated)                           |  | $         | 336 |  |             | $ | 61 |        |  | $ | 40,800  |              |               | $            | 298 |            |            | $ | (264  | )        |  | $ | 492           |   |  | $ | 135,671 |   |  | $ | 177,394 |  
|                                                                   |  |           |     |  |             |   |    |        |  |   |         |              |               |              |     |            |            |   |       |          |  |   |               |  
|Net income                                                         |  |           |    |  |             |   |   |        |  |   |        |              |               |              |    |            |            |   |      |          |  |   |              |   |  |   | 14,703  |   |  |   | 14,703  |  
|Issuance of 141,302 shares of common stock                         |  |           |    |  |             |   |   |        |  |   | 1,752   |              |               |              |    |            |            |   |      |          |  |   |              |   |  |   |        |   |  |   | 1,752   |  
|Issuance of 2,974 shares for exercise of stock options             |  |           |    |  |             |   |   |        |  |   | 25      |              |               |              |    |            |            |   |      |          |  |   |              |   |  |   |        |   |  |   | 25      |  
|Repurchase of 29,638 shares of common, including
    cancellations |  |           |    |  |             |   |   |        |  |   | (355    | )            |               |              |    |            |            |   |      |          |  |   |              |   |  |   |        |   |  |   | (355    | )
|Dividends declared:                                                |  |           |     |  |             |   |    |        |  |   |         |              |               |              |     |            |            |   |       |          |  |   |               |   |  |   |         |   |  |   |         |  
|5% preferred                                                       |  |           |    |  |             |   |   |        |  |   |        |              |               |              |    |            |            |   |      |          |  |   |              |   |  |   | (17     | ) |  |   | (17     | )
|4.5% preferred                                                     |  |           |    |  |             |   |   |        |  |   |        |              |               |              |    |            |            |   |      |          |  |   |              |   |  |   | (3      | ) |  |   | (3      | )
|Common stock                                                       |  |           |    |  |             |   |   |        |  |   |        |              |               |              |    |            |            |   |      |          |  |   |              |   |  |   | (4,990  | ) |  |   | (4,990  | )
|Other comprehensive Income (loss)                                  |  |           |    |  |             |   |   |        |  |   |        |              |               |              |    |            |            |   |      |          |  |   | (277          | ) |  |   |        |   |  |   | (277    | )
|Restricted stock compensation, net of $812 earned in 2004          |  |           |    |  |             |   |   |        |  |   |        |              |               |              |    |            |            |   | (4    | )        |  |   |              |   |  |   |        |   |  |   | (4      | )
|                                                                   |  |           |     |  |             |   |    |        |  |   |         |              |               |              |     |            |            |   |       |          |  |   |               |  
|Balances at December 31, 2004                                      |  | $         | 336 |  |             | $ | 61 |        |  | $ | 42,222  |              |               | $            | 298 |            |            | $ | (268  | )        |  | $ | 215           |   |  | $ | 145,364 |   |  | $ | 188,228 |  
|                                                                   |  |           |     |  |             |   |    |        |  |   |         |              |               |              |     |            |            |   |       |          |  |   |               |  



F-7



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS


Years ended December 31, 2004, 2003 and 2002


(in thousands)


|                                                                            |                                                                                                                         |                                                         |                                        |                                                     |        |        |            |         |         |        |         |         |        |        |         |  
|--------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------- | -------------------------------------- | --------------------------------------------------- | ------ | ------ | ---------- | ------- | ------- | ------ | ------- | ------- | ------ | ------ | ------- | -
|                                                                            |                                                                                                                         |                                                         |                                        | (Restated)                                          |        |        | (Restated) |        
|                                                                            |                                                                                                                         | 2004                                                    |                                        |                                                     | 2003   |        |            | 2002    |        
|                                                                            |                                                                                                                         |                                                         |                                        |                                                     |        |        |            |         |        
|Cash flows from operating activities:                                       |                                                                                                                         |                                                         |                                        |                                                     |        |        |            |         |         |        |         |        
|                                                                            | Net income                                                                                                              |                                                         | $                                      | 14,703                                              |        |        | $          | 21,286  |         |        | $       | 7,908   |       
|                                                                            | Adjustments to reconcile net income to net cash provided by
    operating activities:                                   |                                                         |                                        |                                                     |        |        |            |         |         |        |         |         |       
|                                                                            |                                                                                                                         | Loss from discontinued operations                       |                                        |                                                     |       |        |            |         | 424     |        |         |         | 5,657  |       
|                                                                            |                                                                                                                         | Depreciation                                            |                                        |                                                     | 30,770 |        |            |         | 28,866  |        |         |         | 26,287 |       
|                                                                            |                                                                                                                         | Post-retirement benefits                                |                                        |                                                     | (201   | )      |            |         | 146     |        |         |         | 282    |       
|                                                                            |                                                                                                                         | Gain on sale of investment securities                   |                                        |                                                     | (466   | )      |            |         | (64     | )      |         |         | (3,573 | )     
|                                                                            |                                                                                                                         | Impairment of investments                               |                                        |                                                     | 1,834  |        |            |         | 1,744   |        |         |         | 1,058  |       
|                                                                            |                                                                                                                         | Amortization of restricted stock                        |                                        |                                                     | 812    |        |            |         | 774     |        |         |         | 1,129  |       
|                                                                            |                                                                                                                         | Gain on sale of investments in unconsolidated companies |                                        |                                                     |       |        |            |         | (15,063 | )      |         |         | (1,704 | )     
|                                                                            |                                                                                                                         | Undistributed income of unconsolidated companies        |                                        |                                                     | (5,771 | )      |            |         | (5,829  | )      |         |         | (4,862 | )     
|                                                                            |                                                                                                                         | Undistributed patronage dividends                       |                                        |                                                     | (422   | )      |            |         | (380    | )      |         |         | (698   | )     
|                                                                            |                                                                                                                         | Provision for loss on accounts receivable               |                                        |                                                     | 1,399  |        |            |         | 1,439   |        |         |         | 1,685  |       
|                                                                            |                                                                                                                         | Deferred income taxes and tax credits                   |                                        |                                                     | 5,331  |        |            |         | 10,363  |        |         |         | 2,804  |       
|                                                                            |                                                                                                                         | Changes in operating assets and liabilities:            |                                        |                                                     |        |        |            |         |         |        |         |         |        |       
|                                                                            |                                                                                                                         |                                                         | Accounts receivable                    |                                                     |        | 763    |            |         |         | (1,572 | )       |         |        | (1,027 | )      
|                                                                            |                                                                                                                         |                                                         | Materials and supplies                 |                                                     |        | 694    |            |         |         | (304   | )       |         |        | 731    |        
|                                                                            |                                                                                                                         |                                                         | Other assets                           |                                                     |        | (1,498 | )          |         |         | 740    |         |         |        | (864   | )      
|                                                                            |                                                                                                                         |                                                         | Accounts payable                       |                                                     |        | 572    |            |         |         | (2,410 | )       |         |        | (1,732 | )      
|                                                                            |                                                                                                                         |                                                         | Customer deposits and advance billings |                                                     |        | 467    |            |         |         | 54     |         |         |        | 389    |        
|                                                                            |                                                                                                                         |                                                         | Accrued liabilities                    |                                                     |        | 1,040  |            |         |         | 3,282  |         |         |        | 1,500  |        
|                                                                            |                                                                                                                         |                                                         | Income taxes                           |                                                     |        | 664    |            |         |         | 6,151  |         |         |        | 526    |        
|                                                                            |                                                                                                                         |                                                         |                                        |                                                     |        |        |            |         |        
|                                                                            |                                                                                                                         |                                                         |                                        | Net cash provided by operating activities           |        |        | 50,691     |         |         |        | 49,647  |         |        |        | 35,496  |  
|                                                                            |                                                                                                                         |                                                         |                                        |                                                     |        |        |            |         |        
|Cash flows from investing activities:                                       |                                                                                                                         |                                                         |                                        |                                                     |        |        |            |         |         |        |         |        
|                                                                            | Capital expenditures, net                                                                                               |                                                         |                                        | (27,197                                             | )      |        |            | (23,762 | )       |        |         | (44,283 | )     
|                                                                            | Purchases of investments in unconsolidated companies                                                                    |                                                         |                                        | (1,391                                              | )      |        |            | (3,849  | )       |        |         | (750    | )     
|                                                                            | Purchases of investment securities                                                                                      |                                                         |                                        | (1,498                                              | )      |        |            | (396    | )       |        |         | (3,240  | )     
|                                                                            | Proceeds from sale of investment in unconsolidated companies                                                            |                                                         |                                        |                                                    |        |        |            | 17,052  |         |        |         | 2,011   |       
|                                                                            | Purchase of wireless spectrum                                                                                           |                                                         |                                        | (200                                                | )      |        |            |        |         |        |         | (238    | )     
|                                                                            | Proceeds from sale of investment securities                                                                             |                                                         |                                        | 2,530                                               |        |        |            | 458     |         |        |         | 5,442   |       
|                                                                            | Capital distribution from unconsolidated companies                                                                      |                                                         |                                        | 3,744                                               |        |        |            | 5,679   |         |        |         | 5,959   |       
|                                                                            | Acquisitions, net of cash                                                                                               |                                                         |                                        |                                                    |        |        |            |        |         |        |         | (3,212  | )     
|                                                                            |                                                                                                                         |                                                         |                                        |                                                     |        |        |            |         |        
|                                                                            |                                                                                                                         |                                                         |                                        | Net cash used in investing activities               |        |        | (24,012    | )       |         |        | (4,818  | )       |        |        | (38,311 | )
|                                                                            |                                                                                                                         |                                                         |                                        |                                                     |        |        |            |         |        
|Cash flows from financing activities:                                       |                                                                                                                         |                                                         |                                        |                                                     |        |        |            |         |         |        |         |        
|                                                                            | Repayment of long-term debt                                                                                             |                                                         |                                        | (10,000                                             | )      |        |            | (30,000 | )       |        |         |        |       
|                                                                            | Proceeds from credit facility, net of repayments                                                                        |                                                         |                                        |                                                    |        |        |            |        |         |        |         | 10,000  |       
|                                                                            | Redemption of preferred stock                                                                                           |                                                         |                                        |                                                    |        |        |            |        |         |        |         | (95     | )     
|                                                                            | Dividends paid                                                                                                          |                                                         |                                        | (5,010                                              | )      |        |            | (4,909  | )       |        |         | (4,892  | )     
|                                                                            | Repurchases of common stock                                                                                             |                                                         |                                        |                                                    |        |        |            |        |         |        |         | (2,371  | )     
|                                                                            | Proceeds from common stock issuances                                                                                    |                                                         |                                        | 200                                                 |        |        |            | 428     |         |        |         | 610     |       
|                                                                            |                                                                                                                         |                                                         |                                        |                                                     |        |        |            |         |        
|                                                                            |                                                                                                                         |                                                         |                                        | Net cash (used in) provided by financing activities |        |        | (14,810    | )       |         |        | (34,481 | )       |        |        | 3,252   |  
|                                                                            |                                                                                                                         |                                                         |                                        |                                                     |        |        |            |         |        
|Net cash used in discontinued operations                                    |                                                                                                                         |                                                         | (468                                   | )                                                   |        |        | (1,043     | )       |         |        | (1,182  | )      
|Net increase (decrease) in cash and cash equivalents                        |                                                                                                                         |                                                         | 11,401                                 |                                                     |        |        | 9,305      |         |         |        | (745    | )      
|Cash and cash equivalents at beginning of year                              |                                                                                                                         |                                                         | 16,957                                 |                                                     |        |        | 7,652      |         |         |        | 8,397   |        
|                                                                            |                                                                                                                         |                                                         |                                        |                                                     |        |        |            |         |        
|Cash and cash equivalents at end of year                                    |                                                                                                                         | $                                                       | 28,358                                 |                                                     |        | $      | 16,957     |         |         | $      | 7,652   |        
|                                                                            |                                                                                                                         |                                                         |                                        |                                                     |        |        |            |         |        
|Supplemental cash flow information:                                         |                                                                                                                         |                                                         |                                        |                                                     |        |        |            |         |         |        |         |        
|                                                                            | Cash paid for income taxes                                                                                              |                                                         | $                                      | 3,443                                               |        |        | $          | 2,271   |         |        | $       | 3,579   |       
|                                                                            | Cash paid for interest                                                                                                  |                                                         |                                        | 5,177                                               |        |        |            | 8,137   |         |        |         | 6,474   |       
|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  |       



F-8



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|    |                                           
|--- | ------------------------------------------
|(1) | Summary of Significant Accounting Policies



(a) Principles
of Consolidation and Organization








| |                      
| | ---------------------
| | (b) Reclassifications





| |                           
| | --------------------------
| | (c) Property and Equipment





F-9



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)






|                                 |  |  |                 | 
|-------------------------------- |  |  | --------------- | 
|Buildings                        |  |  | 30 to 40  years | 
|Equipment                        |  |  | 3 to 7 years    | 
|Central office equipment         |  |  | 7 to 14 years   | 
|Poles, wires, cables and conduit |  |  | 10 to 30  years | 



| |                          
| | -------------------------
| | (d) Investment Securities







| |                      
| | ---------------------
| | (e) Other Investments







| |                                            
| | -------------------------------------------
| | (f) Investments in Unconsolidated Companies





| |                           
| | --------------------------
| | (g) Materials and Supplies



F-10



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




| |                 
| | ----------------
| | (h) Income Taxes







| |                        
| | -----------------------
| | (i) Revenue Recognition













F-11



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)






| |                             
| | ----------------------------
| | (j) Goodwill and Intangibles











| |                     
| | --------------------
| | (k) Cash Equivalents





| |                     
| | --------------------
| | (l) Use of Estimates



F-12



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




| |                                    
| | -----------------------------------
| | (m) Impairment of Long-Lived Assets





| |                       
| | ----------------------
| | (n) Stock Option Plans











F-13



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                                                                                                                                            |                                         |      |        |            |      |   |            |         |  |   |       |         | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------- | ---- | ------ | ---------- | ---- | - | ---------- | ------- |  | - | ----- | ------- | 
|                                                                                                                                                            |                                         |      |        | (Restated) |      |   | (Restated) |        
|                                                                                                                                                            |                                         | 2004 |        |            | 2003 |   |            | 2002    | 
|                                                                                                                                                            |                                         |      |        |            |      |   |            |         | 
|Assumptions used in Black Scholes pricing model:                                                                                                            |                                         |      |        |            |      |   |            |         |  |   |       |        
|                                                                                                                                                            | Expected dividend yield                 |      |        | 1.92%      |      |   |            | 3.1%    |  |   |       | 1.5%    | 
|                                                                                                                                                            | Risk-free interest rate                 |      |        | 3.3%       |      |   |            | 3.5%    |  |   |       | 4.5%    | 
|                                                                                                                                                            | Weighted average expected life          |      |        | 5 years    |      |   |            | 6 years |  |   |       | 6 years | 
|                                                                                                                                                            | Expected volatility                     |      |        | 52%        |      |   |            | 52%     |  |   |       | 53%     | 
|                                                                                                                                                            | Fair value per share of options granted |      | $      | 5.65       |      |   | $          | 4.74    |  |   | $     | 8.22    | 
|                                                                                                                                                           
|Net income as reported (restated)                                                                                                                           |                                         | $    | 14,703 |            |      | $ | 21,286     |         |  | $ | 7,908 |        
|Earnings per share as reported  basic                                                                                                                      |                                         |      | 0.78   |            |      |   | 1.13       |         |  |   | 0.42  |        
|Earnings per share as reported  diluted                                                                                                                    |                                         |      | 0.77   |            |      |   | 1.13       |         |  |   | 0.42  |        
|Stock based compensation costs, net of income tax, included in
    net income as reported                                                                   |                                         |      | 812    |            |      |   | 774        |         |  |   | 1,129 |        
|                                                                                                                                                           
|Additional stock based compensation costs, net of income tax,
    that would have been included in net income if the fair value
    method had been applied |                                         |      | 1,086  |            |      |   | 807        |         |  |   | 1,075 |        
|Pro-forma net income                                                                                                                                        |                                         |      | 13,617 |            |      |   | 20,479     |         |  |   | 6,833 |        
|Pro-forma earnings (loss) per share  basic                                                                                                                 |                                         |      | 0.72   |            |      |   | 1.09       |         |  |   | 0.37  |        
|Pro-forma earnings (loss) per share  diluted                                                                                                               |                                         |      | 0.72   |            |      |   | 1.09       |         |  |   | 0.36  |        



| |                       
| | ----------------------
| | (o) Earnings Per Share







| |                                                  
| | -------------------------------------------------
| | (p) Derivative Instruments and Hedging Activities





F-14



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




| |                                     
| | ------------------------------------
| | (q) Recent Accounting Pronouncements





Employers
Disclosures about Pensions and Other Postretirement Benefits,




|    |                                                      
|--- | -----------------------------------------------------
|(2) | Restatement of Previously Issued Financial Statements







F-15



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)












F-16



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)






Selected Consolidated Balance Sheet Data


December 31, 2003


(in thousands)


|                                              |  |               |         |  |             |   |        |          |  |   |         | 
|--------------------------------------------- |  | ------------- | ------- |  | ----------- | - | ------ | -------- |  | - | ------- | 
|                                              |  | 2003          |         |  |             |   | 2003   |         
|                                              |  | As Previously |         |  | Restatement |   |        | As       | 
|                                              |  | Reported      |         |  | Adjustment  |   |        | Restated | 
|                                              |  |               |         |  |             |   |        |          | 
|Balance Sheet                                 |  |               |         |  |             |   |        |          |  |   |         | 
|Accounts receivable                           |  | $             | 22,301  |  |             | $ | (2,768 | )        |  | $ | 19,533  | 
|Total current assets                          |  |               | 44,630  |  |             |   | (2,768 | )        |  |   | 41,862  | 
|Investment securities                         |  |               | 7,120   |  |             |   | 398    |          |  |   | 7,518   | 
|Other investments                             |  |               | 1,353   |  |             |   | (275   | )        |  |   | 1,078   | 
|Investments in unconsolidated companies       |  |               | 13,652  |  |             |   | (618   | )        |  |   | 13,034  | 
|Property and equipment, net                   |  |               | 208,370 |  |             |   | 3,151  |          |  |   | 211,521 | 
|Other assets                                  |  |               | 1,436   |  |             |   | 1,129  |          |  |   | 2,565   | 
|Total assets                                  |  |               | 321,668 |  |             |   | 1,017  |          |  |   | 322,685 | 
|Accounts payable                              |  |               | 6,414   |  |             |   | (164   | )        |  |   | 6,250   | 
|Customer deposits                             |  |               | 2,665   |  |             |   | 175    |          |  |   | 2,840   | 
|Accrued payroll                               |  |               | 6,505   |  |             |   | 48     |          |  |   | 6,553   | 
|Income taxes payable                          |  |               | 2,821   |  |             |   | (275   | )        |  |   | 2,546   | 
|Other accrued liabilities                     |  |               | 4,446   |  |             |   | 502    |          |  |   | 4,948   | 
|Total current liabilities                     |  |               | 27,465  |  |             |   | 286    |          |  |   | 27,751  | 
|Other liabilities                             |  |               | 2,579   |  |             |   | 314    |          |  |   | 2,893   | 
|Deferred income taxes                         |  |               | 22,618  |  |             |   | 553    |          |  |   | 23,171  | 
|Total deferred credits and other liabilities  |  |               | 36,673  |  |             |   | 867    |          |  |   | 37,540  | 
|Total liabilities                             |  |               | 144,138 |  |             |   | 1,153  |          |  |   | 145,291 | 
|Other accumulated comprehensive income (loss) |  |               | 558     |  |             |   | (66    | )        |  |   | 492     | 
|Retained earnings                             |  |               | 135,741 |  |             |   | (70    | )        |  |   | 135,671 | 
|Total stockholders equity                    |  |               | 177,530 |  |             |   | (136   | )        |  |   | 177,394 | 
|Total liabilities and stockholders equity    |  |               | 321,668 |  |             |   | 1,017  |          |  |   | 322,685 | 

F-17



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




Selected Consolidated Statement of Income Data


Year ended December 31, 2003


(in thousands, except per share data)


|                                                          |                       |               |         |      |             |   |        |          |  |   |         |      | 
|--------------------------------------------------------- | --------------------- | ------------- | ------- | ---- | ----------- | - | ------ | -------- |  | - | ------- | ---- | 
|                                                          |                       | 2003          |         |      |             |   | 2003   |         
|                                                          |                       | As Previously |         |      | Restatement |   |        | As       | 
|                                                          |                       | Reported      |         |      | Adjustment  |   |        | Restated | 
|                                                          |                       |               |         |      |             |   |        |          | 
|Income Statement                                          |                       |               |         |      |             |   |        |          |  |   |         |     
|Telephone revenue                                         |                       | $             | 121,979 |      |             | $ | 4      |          |  | $ | 121,983 |     
|Wireless and Internet revenue                             |                       |               | 38,929  |      |             |   | 49     |          |  |   | 38,978  |     
|Total operating revenue                                   |                       |               | 160,908 |      |             |   | 53     |          |  |   | 160,961 |     
|Telephone cost of service                                 |                       |               | 35,673  |      |             |   | (59    | )        |  |   | 35,614  |     
|Wireless and Internet cost of service                     |                       |               | 18,661  |      |             |   | 7      |          |  |   | 18,668  |     
|Selling, general and administrative                       |                       |               | 56,175  |      |             |   | 313    |          |  |   | 56,488  |     
|Depreciation                                              |                       |               | 30,848  |      |             |   | (1,982 | )        |  |   | 28,866  |     
|Total operating expense                                   |                       |               | 141,357 |      |             |   | (1,721 | )        |  |   | 139,636 |     
|Operating income                                          |                       |               | 19,551  |      |             |   | 1,774  |          |  |   | 21,325  |     
|Equity in income of affiliates, net                       |                       |               | 5,664   |      |             |   | 165    |          |  |   | 5,829   |     
|Interest, dividend income and gain on sale of investments |                       |               | 16,513  |      |             |   | (244   | )        |  |   | 16,269  |     
|Other expenses, principally interest                      |                       |               | (7,121  | )    |             |   | 678    |          |  |   | (6,443  | )   
|Total other income (expense)                              |                       |               | 13,312  |      |             |   | 599    |          |  |   | 13,911  |     
|Income from continuing operations before income taxes     |                       |               | 32,863  |      |             |   | 2,373  |          |  |   | 35,236  |     
|Income taxes                                              |                       |               | 12,620  |      |             |   | 906    |          |  |   | 13,526  |     
|Income from continuing operations                         |                       |               | 20,243  |      |             |   | 1,467  |          |  |   | 21,710  |     
|Net income                                                |                       |               | 19,819  |      |             |   | 1,467  |          |  |   | 21,286  |     
|Earnings for common stock                                 |                       |               | 19,799  |      |             |   | 1,467  |          |  |   | 21,266  |     
|Basic earnings per common share:                          |                       |               |         |      |             |   |        |          |  |   |         |     
|                                                          | Continuing operations |               | $       | 1.08 |             |   | $      | 0.08     |  |   | $       | 1.16 | 
|                                                          | Net income            |               |         | 1.06 |             |   |        | 0.08     |  |   |         | 1.13 | 
|Diluted earnings per common share:                        |                       |               |         |      |             |   |        |          |  |   |         |     
|                                                          | Continuing operations |               | $       | 1.08 |             |   | $      | 0.08     |  |   | $       | 1.15 | 
|                                                          | Net income            |               |         | 1.05 |             |   |        | 0.08     |  |   |         | 1.13 | 

F-18



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


Selected Consolidated Statement of Income Data


Year ended December 31, 2002


(in thousands, except per share data)


|                                                          |                       |               |         |      |             |   |      |          |  |   |         |      | 
|--------------------------------------------------------- | --------------------- | ------------- | ------- | ---- | ----------- | - | ---- | -------- |  | - | ------- | ---- | 
|                                                          |                       | 2002          |         |      |             |   | 2002 |         
|                                                          |                       | As Previously |         |      | Restatement |   |      | As       | 
|                                                          |                       | Reported      |         |      | Adjustment  |   |      | Restated | 
|                                                          |                       |               |         |      |             |   |      |          | 
|Income Statement                                          |                       |               |         |      |             |   |      |          |  |   |         |     
|Telephone revenue                                         |                       | $             | 113,918 |      |             | $ | (32  | )        |  | $ | 113,886 |     
|Wireless and Internet revenue                             |                       |               | 34,138  |      |             |   | (49  | )        |  |   | 34,089  |     
|Total operating revenue                                   |                       |               | 148,056 |      |             |   | (81  | )        |  |   | 147,975 |     
|Wireless and Internet cost of service                     |                       |               | 17,463  |      |             |   | 103  |          |  |   | 17,566  |     
|Selling, general and administrative                       |                       |               | 50,976  |      |             |   | (297 | )        |  |   | 50,679  |     
|Depreciation                                              |                       |               | 26,821  |      |             |   | (534 | )        |  |   | 26,287  |     
|Total operating expense                                   |                       |               | 129,655 |      |             |   | (728 | )        |  |   | 128,927 |     
|Operating income                                          |                       |               | 18,401  |      |             |   | 647  |          |  |   | 19,048  |     
|Interest, dividend income and gain on sale of investments |                       |               | 6,328   |      |             |   | 244  |          |  |   | 6,572   |     
|Other expenses, principally interest                      |                       |               | (6,358  | )    |             |   | (693 | )        |  |   | (7,051  | )   
|Total other income (expense)                              |                       |               | 3,774   |      |             |   | (449 | )        |  |   | 3,325   |     
|Income from continuing operations before income taxes     |                       |               | 22,175  |      |             |   | 198  |          |  |   | 22,373  |     
|Income taxes                                              |                       |               | 8,696   |      |             |   | 112  |          |  |   | 8,808   |     
|Income from continuing operations                         |                       |               | 13,479  |      |             |   | 86   |          |  |   | 13,565  |     
|Net income                                                |                       |               | 7,822   |      |             |   | 86   |          |  |   | 7,908   |     
|Earnings for common stock                                 |                       |               | 7,802   |      |             |   | 86   |          |  |   | 7,888   |     
|Basic earnings per common share:                          |                       |               |         |      |             |   |      |          |  |   |         |     
|                                                          | Continuing operations |               | $       | 0.72 |             |   | $    | 0.00     |  |   | $       | 0.72 | 
|                                                          | Net income            |               |         | 0.42 |             |   |      | 0.00     |  |   |         | 0.42 | 
|Diluted earnings per common share:                        |                       |               |         |      |             |   |      |          |  |   |         |     
|                                                          | Continuing operations |               | $       | 0.72 |             |   | $    | 0.00     |  |   | $       | 0.72 | 
|                                                          | Net income            |               |         | 0.42 |             |   |      | 0.00     |  |   |         | 0.42 | 



Selected Consolidated Statement of Comprehensive Income
(Loss) Data


Year ended December 31, 2003


(in thousands)


|                                                                       |  |               |        |  |             |   |       |          |  |   |        | 
|---------------------------------------------------------------------- |  | ------------- | ------ |  | ----------- | - | ----- | -------- |  | - | ------ | 
|                                                                       |  | 2003          |        |  |             |   | 2003  |         
|                                                                       |  | As Previously |        |  | Restatement |   |       | As       | 
|                                                                       |  | Reported      |        |  | Adjustment  |   |       | Restated | 
|                                                                       |  |               |        |  |             |   |       |          | 
|Net income                                                             |  | $             | 19,819 |  |             | $ | 1,467 |          |  | $ | 21,286 | 
|Unrealized holding gains (losses) on available for sale
    securities |  |               | 1,069  |  |             |   | (396  | )        |  |   | 673    | 
|Net realized holding gains (losses) on interest rate swaps             |  |               | 347    |  |             |   | (347  | )        |  |   |       | 
|Comprehensive income (loss)                                            |  |               | 21,194 |  |             |   | 724   |          |  |   | 21,918 | 

F-19



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


Selected Consolidated Statement of Comprehensive Income
(Loss) Data


Year ended December 31, 2002


(in thousands)


|                                                                          |  |               |        |   |             |   |      |          |  |   |        |  
|------------------------------------------------------------------------- |  | ------------- | ------ | - | ----------- | - | ---- | -------- |  | - | ------ | -
|                                                                          |  | 2002          |        |   |             |   | 2002 |         
|                                                                          |  | As Previously |        |   | Restatement |   |      | As       | 
|                                                                          |  | Reported      |        |   | Adjustment  |   |      | Restated | 
|                                                                          |  |               |        |   |             |   |      |          | 
|Net income                                                                |  | $             | 7,822  |   |             | $ | 86   |          |  | $ | 7,908  |  
|Unrealized holding gains (losses) on available for sale
    securities    |  |               | (2,891 | ) |             |   | (679 | )        |  |   | (3,570 | )
|Net realized holding gains (losses) on interest rate swaps                |  |               | (420   | ) |             |   | 420  |          |  |   |       |  
|Reclassification adjustment for gains (losses) realized in net
    income |  |               | (2,292 | ) |             |   | 679  |          |  |   | (1,613 | )
|Comprehensive income (loss)                                               |  |               | 2,219  |   |             |   | 506  |          |  |   | 2,725  |  



Selected Consolidated Statement of Cash Flows Data


Year ended December 31, 2003


(in thousands)


|                                                 |  |               |        |   |             |   |        |          |  |   |        |  
|------------------------------------------------ |  | ------------- | ------ | - | ----------- | - | ------ | -------- |  | - | ------ | -
|                                                 |  | 2003          |        |   |             |   | 2003   |         
|                                                 |  | As Previously |        |   | Restatement |   |        | As       | 
|                                                 |  | Reported      |        |   | Adjustment  |   |        | Restated | 
|                                                 |  |               |        |   |             |   |        |          | 
|Net income                                       |  | $             | 19,819 |   |             | $ | 1,467  |          |  | $ | 21,286 |  
|Depreciation                                     |  |               | 30,848 |   |             |   | (1,982 | )        |  |   | 28,866 |  
|Undistributed income of unconsolidated companies |  |               | (5,664 | ) |             |   | (165   | )        |  |   | (5,829 | )
|Undistributed patronage dividends                |  |               | (565   | ) |             |   | 185    |          |  |   | (380   | )
|Deferred income taxes and tax credits            |  |               | 9,504  |   |             |   | 859    |          |  |   | 10,363 |  
|Accounts receivable                              |  |               | (1,135 | ) |             |   | (437   | )        |  |   | (1,572 | )
|Other assets                                     |  |               | 279    |   |             |   | 461    |          |  |   | 740    |  
|Accounts payable                                 |  |               | (2,246 | ) |             |   | (164   | )        |  |   | (2,410 | )
|Customer deposits                                |  |               | 72     |   |             |   | (18    | )        |  |   | 54     |  
|Accrued liabilities                              |  |               | 3,534  |   |             |   | (252   | )        |  |   | 3,282  |  
|Income taxes                                     |  |               | 6,105  |   |             |   | 46     |          |  |   | 6,151  |  
|Net cash provided by operating activities        |  |               | 49,647 |   |             |   |       |          |  |   | 49,647 |  

F-20



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


Selected Consolidated Statement of Cash Flows Data


Year ended December 31, 2002


(in thousands)


|                                          |  |               |        |   |             |   |      |          |  |   |        |  
|----------------------------------------- |  | ------------- | ------ | - | ----------- | - | ---- | -------- |  | - | ------ | -
|                                          |  | 2002          |        |   |             |   | 2002 |         
|                                          |  | As Previously |        |   | Restatement |   |      | As       | 
|                                          |  | Reported      |        |   | Adjustment  |   |      | Restated | 
|                                          |  |               |        |   |             |   |      |          | 
|Net income                                |  | $             | 7,822  |   |             | $ | 86   |          |  | $ | 7,908  |  
|Depreciation                              |  |               | 26,821 |   |             |   | (534 | )        |  |   | 26,287 |  
|Undistributed patronage dividends         |  |               | (513   | ) |             |   | (185 | )        |  |   | (698   | )
|Deferred income taxes and tax credits     |  |               | 2,513  |   |             |   | 291  |          |  |   | 2,804  |  
|Accounts receivable                       |  |               | (1,729 | ) |             |   | 702  |          |  |   | (1,027 | )
|Other assets                              |  |               | (203   | ) |             |   | (661 | )        |  |   | (864   | )
|Customer deposits                         |  |               | 407    |   |             |   | (18  | )        |  |   | 389    |  
|Accrued liabilities                       |  |               | 1,275  |   |             |   | 225  |          |  |   | 1,500  |  
|Income taxes                              |  |               | 432    |   |             |   | 94   |          |  |   | 526    |  
|Net cash provided by operating activities |  |               | 35,496 |   |             |   |     |          |  |   | 35,496 |  



|    |                        
|--- | -----------------------
|(3) | Discontinued Operations





F-21



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|    |                       
|--- | ----------------------
|(4) | Property and Equipment



|                                      |  |      |          |            |      |   |          |  
|------------------------------------- |  | ---- | -------- | ---------- | ---- | - | -------- | -
|                                      |  |      |          | (Restated) |     
|                                      |  | 2004 |          |            | 2003 |  
|                                      |  |      |          |            |      |  
|Land, buildings and general equipment |  | $    | 91,705   |            |      | $ | 90,915   |  
|Central office equipment              |  |      | 177,455  |            |      |   | 164,210  |  
|Poles, wires, cables and conduit      |  |      | 155,049  |            |      |   | 143,805  |  
|Construction in progress              |  |      | 5,559    |            |      |   | 5,438    |  
|                                      |  |      |          |            |      |  
|                                      |  |      | 429,768  |            |      |   | 404,368  |  
|Accumulated depreciation              |  |      | (222,696 | )          |      |   | (192,847 | )
|                                      |  |      |          |            |      |  
|Property and equipment, net           |  | $    | 207,072  |            |      | $ | 211,521  |  
|                                      |  |      |          |            |      |  



|    |                      
|--- | ---------------------
|(5) | Investment Securities



|                                     |  |                |       |            |       |   |            |        |  |      |       |   |  |   |       | 
|------------------------------------ |  | -------------- | ----- | ---------- | ----- | - | ---------- | ------ |  | ---- | ----- | - |  | - | ----- | 
|                                     |  |                |       | Gross      |       |   | Gross      |        |  |     
|                                     |  |                |       | Unrealized |       |   | Unrealized |        |  |     
|                                     |  |                |       | Holding    |       |   | Holding    |        |  | Fair |      
|Equity Securities Available-for-sale |  | Amortized Cost |       |            | Gains |   |            | Losses |  |      | Value |  
|                                     |  |                |       |            |       |   |            |        |  |      |       |  
|At December 31, 2004                 |  | $              | 4,855 |            |       | $ | 384        |        |  | $    | (49   | ) |  | $ | 5,190 | 
|                                     |  |                |       |            |       |   |            |        |  |      |       |  
|At December 31, 2003 (Restated)      |  | $              | 6,798 |            |       | $ | 815        |        |  | $    | (95   | ) |  | $ | 7,518 | 
|                                     |  |                |       |            |       |   |            |        |  |      |       |  





|                                      |  |              |     |  |                   |   |    |       |  |   |            |  |  |       |    |  |            |   |       |  |  |   |    | 
|------------------------------------- |  | ------------ | --- |  | ----------------- | - | -- | ----- |  | - | ---------- |  |  | ----- | -- |  | ---------- | - | ----- |  |  | - | -- | 
|                                      |  | Less than 12 |     |  |                   |   |   
|                                      |  | Months       |     |  | 12 months or more |   |    | Total | 
|                                      |  |              |     |  |                   |   |    |       | 
|                                      |  | Fair         |     |  | Unrealized        |   |    | Fair  |  |   | Unrealized |  |  | Fair  |    |  | Unrealized |  
|Description of Securities             |  | Value        |     |  | Losses            |   |    | Value |  |   | Losses     |  |  | Value |    |  | Losses     |  
|                                      |  |              |     |  |                   |   |    |       |  |   |            |  |  |       |    |  |            |  
|Common stock                          |  | $            | 682 |  |                   | $ | 14 |       |  | $ | 777        |  |  | $     | 35 |  |            | $ | 1,459 |  |  | $ | 49 | 
|                                      |  |              |     |  |                   |   |    |       |  |   |            |  |  |       |    |  |            |  
|Total temporarily impaired securities |  | $            | 682 |  |                   | $ | 14 |       |  | $ | 777        |  |  | $     | 35 |  |            | $ | 1,459 |  |  | $ | 49 | 
|                                      |  |              |     |  |                   |   |    |       |  |   |            |  |  |       |    |  |            |  





F-22



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)








|    |                                        
|--- | ---------------------------------------
|(6) | Investments in Unconsolidated Companies



|               |                                                           |            |  |         |      |   |            |        |  |   |        |       | 
|-------------- | --------------------------------------------------------- | ---------- |  | ------- | ---- | - | ---------- | ------ |  | - | ------ | ----- | 
|               |                                                           | Ownership  |  |         |      |   |           
|               |                                                           | Percentage |  |         |      |   | (Restated) |       
|               |                                                           | 2004       |  |         | 2004 |   |            | 2003   | 
|               |                                                           |            |  |         |      |   |            |        | 
|Equity Method: |                                                           |            |  |         |      |   |            |        |  |   |        |      
|               | Palmetto MobileNet, L.P.                                  |            |  | 22.4    | %    |   | $          | 10,933 |  |   | $      | 8,902 | 
|               | Other                                                     |            |  | Various |      |   |            | 40     |  |   |        | 100   | 
|Cost Method:   |                                                           |            |  |         |      |   |            |        |  |   |        |      
|               | Magnolia Holding Company                                  |            |  | 4.6     | %    |   |            | 1,680  |  |   |        | 1,680 | 
|               | PRE Holdings, Inc. (formerly ITC Financial Services, LLC) |            |  | 1.55    | %    |   |            | 2,100  |  |   |        | 840   | 
|               | Other                                                     |            |  | Various |      |   |            | 1,249  |  |   |        | 1,512 | 
|               |                                                           |            |  |         |      |   |            |        | 
|Total          |                                                           |            |  |         |      | $ | 16,002     |        |  | $ | 13,034 |      
|               |                                                           |            |  |         |      |   |            |        | 









F-23



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)










|                                                |  |      |         |  |      |   |        |      |  |   |        | 
|----------------------------------------------- |  | ---- | ------- |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                                |  | 2004 |         |  | 2003 |   |        | 2002 | 
|                                                |  |      |         |  |      |   |        |      | 
|Current assets                                  |  | $    | 3,125   |  |      | $ | 6,201  |      |  | $ | 9,739  | 
|Property and other non-current assets           |  |      | 104,730 |  |      |   | 94,811 |      |  |   | 85,173 | 
|Current liabilities                             |  |      | 398     |  |      |   | 2,767  |      |  |   | 269    | 
|Long-term debt                                  |  |      | 13,582  |  |      |   | 13,436 |      |  |   |       | 
|Partners capital                               |  |      | 93,876  |  |      |   | 84,810 |      |  |   | 94,643 | 
|Equity in earnings of RSA partnership interests |  |      | 26,563  |  |      |   | 28,258 |      |  |   | 24,825 | 
|Operating income                                |  |      | 26,009  |  |      |   | 27,788 |      |  |   | 24,424 | 
|Net income                                      |  |      | 25,793  |  |      |   | 27,895 |      |  |   | 24,650 | 

(7) Acquisitions






|                       |  |   |        |  
|---------------------- |  | - | ------ | -
|Current assets         |  | $ | 278    |  
|Wireless licenses      |  |   | 20,726 |  
|Property and equipment |  |   | 412    |  
|Accounts payable       |  |   | (720   | )
|                       |  |   |       
|Total purchase price   |  | $ | 20,696 |  
|                       |  |   |       



F-24



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)






(8) Fair Value of Financial Instruments






| |                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Cash and Cash Equivalents, Accounts Receivable,
    Notes Receivable, Other Assets, and Accounts
    Payable  the carrying amount approximates fair
    value because of the short maturity of these instruments.               
|
| | Investment Securities  debt and equity
    securities are carried at fair value based on quoted market
    value.                                                                                                               
|
| | Debt Instruments  the fair value of the
    Companys long-term debt is estimated by discounting the
    scheduled payment streams to present value based on current
    rates for similar instruments of comparable maturities.
|
| | Derivative Financial Instruments  the fair
    value is based on the estimated amount the Company would receive
    or pay to terminate the agreements.                                                                         







|    |                 
|--- | ----------------
|(9) | Debt Instruments



|                                                                                  |  |      |        |  |      |   |        | 
|--------------------------------------------------------------------------------- |  | ---- | ------ |  | ---- | - | ------ | 
|                                                                                  |  | 2004 |        |  | 2003 |  
|                                                                                  |  |      |        |  |      |  
|Line of credit with interest at LIBOR plus 1.25% (3.50% at
    December 31, 2004) |  | $    | 20,000 |  |      | $ | 30,000 | 
|Term loan with interest at 7.32%                                                  |  |      | 50,000 |  |      |   | 50,000 | 
|                                                                                  |  |      |        |  |      |  
|                                                                                  |  |      | 70,000 |  |      |   | 80,000 | 
|Less: Current portion of long-term debt                                           |  |      | 5,000  |  |      |   |       | 
|                                                                                  |  |      |        |  |      |  
|Long-term debt                                                                    |  | $    | 65,000 |  |      | $ | 80,000 | 
|                                                                                  |  |      |        |  |      |  

F-25



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)






|           |  |   |        | 
|---------- |  | - | ------ | 
|2005       |  | $ | 5,000  | 
|2006       |  |   | 25,000 | 
|2007       |  |   | 5,000  | 
|2008       |  |   | 5,000  | 
|2009       |  |   | 5,000  | 
|Thereafter |  |   | 25,000 | 
|           |  |   |       
|Total debt |  | $ | 70,000 | 
|           |  |   |       



|     |                  
|---- | -----------------
|(10) | Lease Obligations



F-26



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                                                 |               |                              |      |     |                  |  |   |       |        | 
|---------------------------------------------------------------- | ------------- | ---------------------------- | ---- | --- | ---------------- |  | - | ----- | ------ | 
|                                                                 |               | Capital leases               |      |     | Operating leases | 
|                                                                 |               |                              |      |     |                  | 
|Year ending December 31:                                         |               |                              |      |     |                  |  |   |      
|                                                                 | 2005          |                              | $    | 485 |                  |  | $ | 3,108 |       
|                                                                 | 2006          |                              |      | 485 |                  |  |   | 2,113 |       
|                                                                 | 2007          |                              |      | 69  |                  |  |   | 1,670 |       
|                                                                 | 2008          |                              |      |    |                  |  |   | 1,629 |       
|                                                                 | 2009          |                              |      |    |                  |  |   | 1,341 |       
|                                                                 | After 5 years |                              |      |    |                  |  |   | 2,634 |       
|                                                                 |               |                              |      |     |                  | 
|                                                                 |               | Total minimum lease payments |      |     | 1,039            |  |   | $     | 12,495 | 
|                                                                 |               |                              |      |     |                  | 
|Less amount representing interest (at rates from 4% to 6%)       |               |                              | (54  | )   |                  |  |   |      
|                                                                 |               |                              |      |     |                  | 
|Present value of net minimum capital lease payments              |               |                              | 985  |     |                  |  |   |      
|Less current installments of obligations under capital leases    |               |                              | (445 | )   |                  |  |   |      
|                                                                 |               |                              |      |     |                  | 
|Obligations under capital leases, excluding current installments |               | $                            | 540  |     |                  |  |   |      
|                                                                 |               |                              |      |     |                  | 





|     |                                 
|---- | --------------------------------
|(11) | Derivative Financial Instruments









|     |                                                                         
|---- | ------------------------------------------------------------------------
|(12) | Common Stock and Preferred Stock Not Subject to Mandatory
    Redemption





F-27



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)








|     |                         
|---- | ------------------------
|(13) | Stock Compensation Plans



Comprehensive Stock Option Plan






|                                                         |                   |           |        |         |                  |   |   |   | 
|-------------------------------------------------------- | ----------------- | --------- | ------ | ------- | ---------------- | - | - | - | 
|                                                         |                   | Number of |        |         | Weighted Average |  
|                                                         |                   | Options   |        |         | Exercise Price   |  
|                                                         |                   |           |        |         |                  |  
|Options outstanding and exercisable at December 31, 2001 |                   |           | 90,832 |         |                  | $ | 9 |  
|                                                         | Options granted   |           |        |        |                  |   |   |  | 
|                                                         | Options exercised |           |        | (6,048  | )                |   |   | 9 | 
|                                                         | Options forfeited |           |        |        |                  |   |   |  | 
|                                                         |                   |           |        |         |                  |  
|Options outstanding and exercisable at December 31, 2002 |                   |           | 84,784 |         |                  |   | 9 |  
|                                                         | Options granted   |           |        |        |                  |   |   |  | 
|                                                         | Options exercised |           |        | (28,248 | )                |   |   | 9 | 
|                                                         | Options forfeited |           |        |        |                  |   |   |  | 
|                                                         |                   |           |        |         |                  |  
|Options outstanding and exercisable at December 31, 2003 |                   |           | 56,536 |         |                  |   | 9 |  
|                                                         | Options granted   |           |        |        |                  |   |   |  | 
|                                                         | Options exercised |           |        |        |                  |   |   |  | 
|                                                         | Options forfeited |           |        |        |                  |   |   |  | 
|                                                         |                   |           |        |         |                  |  
|Options outstanding and exercisable at December 31, 2004 |                   |           | 56,536 |         |                  | $ | 9 |  
|                                                         |                   |           |        |         |                  |  



Restricted Stock Award Program




F-28



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




Director Compensation Plan




Omnibus Stock Compensation Plan






|                                         |                   |           |         |         |                  |   |    |    | 
|---------------------------------------- | ----------------- | --------- | ------- | ------- | ---------------- | - | -- | -- | 
|                                         |                   | Number of |         |         | Weighted Average |  
|                                         |                   | Options   |         |         | Exercise Price   |  
|                                         |                   |           |         |         |                  |  
|Options outstanding at December 31, 2001 |                   |           | 460,125 |         |                  | $ | 21 |   
|                                         | Options granted   |           |         |        |                  |   |    |   | 
|                                         | Options exercised |           |         | (10,440 | )                |   |    | 11 | 
|                                         | Options forfeited |           |         | (43,452 | )                |   |    | 24 | 
|                                         |                   |           |         |         |                  |  
|Options outstanding at December 31, 2002 |                   |           | 406,233 |         |                  |   | 24 |   
|                                         | Options granted   |           |         |        |                  |   |    |   | 
|                                         | Options exercised |           |         |        |                  |   |    |   | 
|                                         | Options forfeited |           |         | (55,407 | )                |   |    | 22 | 
|                                         |                   |           |         |         |                  |  
|Options outstanding at December 31, 2003 |                   |           | 350,826 |         |                  |   | 23 |   
|                                         | Options granted   |           |         |        |                  |   |    |   | 
|                                         | Options exercised |           |         |        |                  |   |    |   | 
|                                         | Options forfeited |           |         | (24,440 | )                |   |    | 23 | 
|                                         |                   |           |         |         |                  |  
|Options outstanding at December 31, 2004 |                   |           | 326,386 |         |                  | $ | 23 |   
|                                         |                   |           |         |         |                  |  



F-29



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




Amended and Restated 2001 Stock Incentive Plan










|                                         |                   |           |         |         |                  |   |    |    | 
|---------------------------------------- | ----------------- | --------- | ------- | ------- | ---------------- | - | -- | -- | 
|                                         |                   | Number of |         |         | Weighted Average |  
|                                         |                   | Options   |         |         | Exercise Price   |  
|                                         |                   |           |         |         |                  |  
|Options outstanding at December 31, 2001 |                   |           |        |         |                  | $ |   |   
|                                         | Options granted   |           |         | 269,203 |                  |   |    | 15 | 
|                                         | Options exercised |           |         |        |                  |   |    |   | 
|                                         | Options forfeited |           |         | (21,322 | )                |   |    | 15 | 
|                                         |                   |           |         |         |                  |  
|Options outstanding at December 31, 2002 |                   |           | 247,881 |         |                  |   | 15 |   
|                                         | Options granted   |           |         | 210,134 |                  |   |    | 9  | 
|                                         | Options exercised |           |         |        |                  |   |    |   | 
|                                         | Options forfeited |           |         | (23,507 | )                |   |    | 12 | 
|                                         |                   |           |         |         |                  |  
|Options outstanding at December 31, 2003 |                   |           | 434,508 |         |                  |   | 12 |   
|                                         | Options granted   |           |         | 563,068 |                  |   |    | 12 | 
|                                         | Options exercised |           |         | (2,974  | )                |   |    | 9  | 
|                                         | Options forfeited |           |         | (49,104 | )                |   |    | 12 | 
|                                         |                   |           |         |         |                  |  
|Options outstanding at December 31, 2004 |                   |           | 945,498 |         |                  | $ | 12 |   
|                                         |                   |           |         |         |                  |  



F-30



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|     |                             
|---- | ----------------------------
|(14) | Employee Stock Purchase Plan





|     |                       
|---- | ----------------------
|(15) | Employee Benefit Plans



| |                                  
| | ---------------------------------
| | (a) Pension Plan and Savings Plan





|                                 |                                                |      |   |         |      |  |   |         |  
|-------------------------------- | ---------------------------------------------- | ---- | - | ------- | ---- |  | - | ------- | -
|                                 |                                                | 2004 |   |         | 2003 | 
|                                 |                                                |      |   |         |      | 
|Change in Benefit Obligation:    |                                                |      |   |         |      |  |   |        
|                                 | Benefit obligation at end of prior plan year   |      | $ | (43,008 | )    |  | $ | (37,038 | )
|                                 | Service cost                                   |      |   | (1,995  | )    |  |   | (1,852  | )
|                                 | Interest cost                                  |      |   | (2,577  | )    |  |   | (2,503  | )
|                                 | Actuarial gain/(loss)                          |      |   | (961    | )    |  |   | (3,823  | )
|                                 | Actual distributions                           |      |   | 2,085   |      |  |   | 2,208   |  
|                                 |                                                |      |   |         |      | 
|                                 | Benefit obligation at end of year              |      | $ | (46,456 | )    |  | $ | (43,008 | )
|                                 |                                                |      |   |         |      | 
|Change in Plan Assets:           |                                                |      |   |         |      |  |   |        
|                                 | Plan assets at fair value at beginning of year |      | $ | 43,205  |      |  | $ | 35,781  |  
|                                 | Actual return on plan assets                   |      |   | 4,411   |      |  |   | 8,595   |  
|                                 | Actual employer contributions                  |      |   |        |      |  |   | 1,037   |  
|                                 | Actual distributions                           |      |   | (2,085  | )    |  |   | (2,208  | )
|                                 |                                                |      |   |         |      | 
|                                 | Plan assets at fair value at end of year       |      | $ | 45,531  |      |  | $ | 43,205  |  
|                                 |                                                |      |   |         |      | 
|(Accrued)/ Prepaid Pension Cost: |                                                |      |   |         |      |  |   |        
|                                 | Funded status                                  |      | $ | (925    | )    |  | $ | 197     |  
|                                 | Unrecognized net actuarial gain                |      |   | (3,342  | )    |  |   | (3,263  | )
|                                 | Unrecognized prior service                     |      |   | 57      |      |  |   | 59      |  
|                                 |                                                |      |   |         |      | 
|                                 | Net amount recognized                          |      | $ | (4,210  | )    |  | $ | (3,007  | )
|                                 |                                                |      |   |         |      | 

F-31



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


|                        |                    |               |  |       |      |  |  |       | 
|----------------------- | ------------------ | ------------- |  | ----- | ---- |  |  | ----- | 
|                        |                    | Percentage of | 
|                        |                    | total assets  | 
|                        |                    |               | 
|                        |                    | 2004          |  |       | 2003 | 
|                        |                    |               |  |       |      | 
|Summary of Plan Assets: |                    |               |  |       |      |  |  |      
|                        | Company stock      |               |  | 3.5%  |      |  |  | 4.0%  | 
|                        | Equity funds       |               |  | 74.7% |      |  |  | 71.6% | 
|                        | Fixed income funds |               |  | 21.8% |      |  |  | 24.4% | 





|                            |  |   |        | 
|--------------------------- |  | - | ------ | 
|December 31, 2005           |  | $ | 2,194  | 
|December 31, 2006           |  |   | 2,198  | 
|December 31, 2007           |  |   | 2,132  | 
|December 31, 2008           |  |   | 2,187  | 
|December 31, 2009           |  |   | 2,292  | 
|December 31, 2010 thru 2014 |  |   | 13,437 | 



|                                                |  |      |        |   |      |   |        |      |  |   |        |  
|----------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                |  | 2004 |        |   | 2003 |   |        | 2002 | 
|                                                |  |      |        |   |      |   |        |      | 
|Service cost, benefits earned during the period |  | $    | 1,995  |   |      | $ | 1,852  |      |  | $ | 1,533  |  
|Interest cost on projected benefit obligation   |  |      | 2,577  |   |      |   | 2,503  |      |  |   | 2,354  |  
|Expected return on plan assets                  |  |      | (3,371 | ) |      |   | (2,653 | )    |  |   | (2,950 | )
|Net amortization and deferral                   |  |      | 2      |   |      |   | 2      |      |  |   | (345   | )
|                                                |  |      |        |   |      |   |        |      | 
|Net periodic pension expense                    |  | $    | 1,203  |   |      | $ | 1,704  |      |  | $ | 592    |  
|                                                |  |      |        |   |      |   |        |      | 

|                      |                                       |      |              |      |              |      |           
|--------------------- | ------------------------------------- | ---- | ------------ | ---- | ------------ | ---- | ----------
|                      |                                       | 2004 |              | 2003 |              | 2002
|                      |                                       |      |              |      |              |     
|Key assumptions used: |                                       |      |              |      |              |     
|                      |                                       |      |              |      |              |     
|                      | Weighted average discount rate        |      | 6.00%        |      | 6.25%        |      | 6.75%     
|                      | Average rate of compensation increase |      | 3.5% to 6.5% |      | 3.5% to 6.5% |      | 3% to 9.5%
|                      | Expected long-term rates of return    |      | 8.00%        |      | 7.50%        |      | 7.50%     







F-32



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




| |                          
| | -------------------------
| | (b) Employee Savings Plan





| |                             
| | ----------------------------
| | (c) Post-retirement Benefits









|                                        |                                              |      |   |         |      |  |   |         |  
|--------------------------------------- | -------------------------------------------- | ---- | - | ------- | ---- |  | - | ------- | -
|                                        |                                              | 2004 |   |         | 2003 | 
|                                        |                                              |      |   |         |      | 
|Change in Benefit Obligation:           |                                              |      |   |         |      |  |   |        
|                                        | Benefit obligation at end of prior plan year |      | $ | (8,378  | )    |  | $ | (11,723 | )
|                                        | Service cost                                 |      |   | (68     | )    |  |   | (51     | )
|                                        | Interest cost                                |      |   | (499    | )    |  |   | (512    | )
|                                        | Amendments                                   |      |   | 519     |      |  |   |        |  
|                                        | Actuarial gain/(loss)                        |      |   | (640    | )    |  |   | 3,429   |  
|                                        | Other                                        |      |   | 508     |      |  |   | 479     |  
|                                        |                                              |      |   |         |      | 
|                                        | Benefit obligation at end of year            |      | $ | (8,558  | )    |  | $ | (8,378  | )
|                                        |                                              |      |   |         |      | 
|(Accrued)/Prepaid Post-retirement Cost: |                                              |      |   |         |      |  |   |        
|                                        | Funded status                                |      | $ | (8,558  | )    |  | $ | (8,378  | )
|                                        | Unrecognized net actuarial gain              |      |   | (2,503  | )    |  |   | (3,421  | )
|                                        | Unrecognized prior service cost              |      |   | (335    | )    |  |   | (671    | )
|                                        | Unrecognized transition obligation           |      |   | 352     |      |  |   | 1,224   |  
|                                        |                                              |      |   |         |      | 
|                                        | Net amount recognized                        |      | $ | (11,044 | )    |  | $ | (11,246 | )
|                                        |                                              |      |   |         |      | 

F-33



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                                    |  |      |      |   |      |   |      |      |  |   |      |  
|--------------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                                    |  | 2004 |      |   | 2003 |   |      | 2002 | 
|                                                    |  |      |      |   |      |   |      |      | 
|Service cost                                        |  | $    | 68   |   |      | $ | 51   |      |  | $ | 188  |  
|Interest cost                                       |  |      | 499  |   |      |   | 512  |      |  |   | 673  |  
|Amortization of transition obligation over 15 years |  |      | 352  |   |      |   | 612  |      |  |   | 612  |  
|Amortization of gain                                |  |      | (154 | ) |      |   | (223 | )    |  |   | (98  | )
|Amortization of prior service cost                  |  |      | (335 | ) |      |   | (336 | )    |  |   | (503 | )
|                                                    |  |      |      |   |      |   |      |      | 
|Net periodic post-retirement benefit cost           |  | $    | 430  |   |      | $ | 616  |      |  | $ | 872  |  
|                                                    |  |      |      |   |      |   |      |      | 

|                      |                                         |                              |  |                   |        |  |  |                   |        | 
|--------------------- | --------------------------------------- | ---------------------------- |  | ----------------- | ------ |  |  | ----------------- | ------ | 
|Key assumptions used: |                                         |                              |  |                   |        |  |  |                  
|                      | Measurement date                        |                              |  | December 31, 2004 |        |  |  | December 31, 2003 |       
|                      | Discount rate                           |                              |  | 6.00%             |        |  |  | 6.25%             |       
|                      | Rate of increase in compensation levels |                              |  | 4.00%             |        |  |  | 4.00%             |       
|                      | Assumed medical trend:                  |                              |  |                   |        |  |  |                   |       
|                      |                                         | Current trend rate           |  |                   | 12.00% |  |  |                   | 15.00% | 
|                      |                                         | Ultimate trend rate          |  |                   | 6.00%  |  |  |                   | 6.00%  | 
|                      |                                         | Years to ultimate trend rate |  |                   | 2      |  |  |                   | 2      | 



|                                                         |  |                |     |  |                |   |      |  
|-------------------------------------------------------- |  | -------------- | --- |  | -------------- | - | ---- | -
|                                                         |  | One-percentage |     |  | One-percentage |  
|                                                         |  | point increase |     |  | point decrease |  
|                                                         |  |                |     |  |                |  
|Effect on total service and interest cost                |  | $              | 8   |  |                | $ | (12  | )
|Effect on accumulated post-retirement benefit obligation |  |                | 145 |  |                |   | (200 | )



|     |             
|---- | ------------
|(16) | Income Taxes



|                                                                                                                                                                                           |  |      |       |            |      |   |            |      |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ----- | ---------- | ---- | - | ---------- | ---- |  | - | ------ | -
|                                                                                                                                                                                           |  |      |       | (Restated) |      |   | (Restated) |     
|                                                                                                                                                                                           |  | 2004 |       |            | 2003 |   |            | 2002 | 
|                                                                                                                                                                                           |  |      |       |            |      |   |            |      | 
|Income from continuing operations                                                                                                                                                          |  | $    | 9,445 |            |      | $ | 13,526     |      |  | $ | 8,808  |  
|Discontinued operations                                                                                                                                                                    |  |      |      |            |      |   | (276       | )    |  |   | (3,278 | )
|Stockholders equity, for unrealized holding gains and
    losses on debt and equity securities recognized for financial
    reporting purposes and benefit from exercise of stock options |  |      | (155  | )          |      |   | 353        |      |  |   | (2,898 | )

F-34



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|          |                                                    |       |       |            |       |  |            |       |        |  |       |       |       | 
|--------- | -------------------------------------------------- | ----- | ----- | ---------- | ----- |  | ---------- | ----- | ------ |  | ----- | ----- | ----- | 
|          |                                                    |       |       | (Restated) |       |  | (Restated) |      
|          |                                                    | 2004  |       |            | 2003  |  |            | 2002  |       
|          |                                                    |       |       |            |       |  |            |       |       
|Current:  |                                                    |       |       |            |       |  |            |       |        |  |       |      
|          | Federal                                            |       | $     | 1,701      |       |  | $          | 2,162 |        |  | $     | 1,764 |      
|          | State                                              |       |       | 1,872      |       |  |            | 1,111 |        |  |       | 1,616 |      
|          | Foreign                                            |       |       |           |       |  |            | 8     |        |  |       |      |      
|          |                                                    |       |       |            |       |  |            |       |       
|          |                                                    |       | 3,573 |            |       |  | 3,281      |       |        |  | 3,380 |      
|          |                                                    |       |       |            |       |  |            |       |       
|Deferred: |                                                    |       |       |            |       |  |            |       |        |  |       |      
|          | Federal, net of investment tax credit amortization |       |       | 6,463      |       |  |            | 9,416 |        |  |       | 4,721 |      
|          | State                                              |       |       | (591       | )     |  |            | 829   |        |  |       | 707   |      
|          | Foreign                                            |       |       |           |       |  |            |      |        |  |       |      |      
|          |                                                    |       |       |            |       |  |            |       |       
|          |                                                    |       | 5,872 |            |       |  | 10,245     |       |        |  | 5,428 |      
|          |                                                    |       |       |            |       |  |            |       |       
|          |                                                    | Total |       | $          | 9,445 |  |            | $     | 13,526 |  |       | $     | 8,808 | 
|          |                                                    |       |       |            |       |  |            |       |       



|                                                  |  |      |        |            |      |   |            |      |  |   |       |  
|------------------------------------------------- |  | ---- | ------ | ---------- | ---- | - | ---------- | ---- |  | - | ----- | -
|                                                  |  |      |        | (Restated) |      |   | (Restated) |     
|                                                  |  | 2004 |        |            | 2003 |   |            | 2002 | 
|                                                  |  |      |        |            |      |   |            |      | 
|Amount computed at statutory rate                 |  | $    | 8,452  |            |      | $ | 12,333     |      |  | $ | 7,831 |  
|State income taxes, net of federal income tax     |  |      | 721    |            |      |   | 876        |      |  |   | 784   |  
|Increase (decrease) in valuation allowance        |  |      | (248   | )          |      |   | 386        |      |  |   | 532   |  
|Amortization of federal investment tax credit     |  |      | (115   | )          |      |   | (115       | )    |  |   | (115  | )
|Research and development credits                  |  |      |       |            |      |   |           |      |  |   | (35   | )
|Worthless stock deduction                         |  |      | (2,100 | )          |      |   |           |      |  |   |      |  
|State audit settlement, net of federal income tax |  |      | 2,605  |            |      |   |           |      |  |   |       |  
|Other, net                                        |  |      | 130    |            |      |   | 46         |      |  |   | (189  | )
|                                                  |  |      |        |            |      |   |            |      | 
|Income tax expense from continuing operations     |  | $    | 9,445  |            |      | $ | 13,526     |      |  | $ | 8,808 |  
|                                                  |  |      |        |            |      |   |            |      | 

F-35



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                         |              |                                                                           |                                              |            |        |        |  |   |        |        | 
|------------------------ | ------------ | ------------------------------------------------------------------------- | -------------------------------------------- | ---------- | ------ | ------ |  | - | ------ | ------ | 
|                         |              |                                                                           |                                              | (Restated) |       
|                         |              | 2004                                                                      |                                              |            | 2003   |       
|                         |              |                                                                           |                                              |            |        |       
|Deferred tax assets      |              |                                                                           |                                              |            |        |        |  |  
|                         | Current:     |                                                                           |                                              |            |        |        |  |   |       
|                         |              | Other accrued expenses and allowances                                     |                                              | $          | 1,132  |        |  | $ | 191    |       
|                         |              |                                                                           |                                              |            |        |       
|                         |              |                                                                           | Total gross current deferred tax assets      |            |        | 1,132  |  |   |        | 191    | 
|                         | Non-current: |                                                                           |                                              |            |        |        |  |   |       
|                         |              | Accrued post-retirement and pension benefits                              |                                              |            | 6,040  |        |  |   | 5,675  |       
|                         |              | Accrued incentive                                                         |                                              |            | 1,269  |        |  |   | 1,457  |       
|                         |              | Amortization of start-up costs                                            |                                              |            | 1,783  |        |  |   | 1,625  |       
|                         |              | State net operating loss carryforwards                                    |                                              |            | 4,038  |        |  |   | 4,279  |       
|                         |              | Other accrued expenses and allowances                                     |                                              |            | 2,725  |        |  |   | 971    |       
|                         |              |                                                                           |                                              |            |        |       
|                         |              |                                                                           | Total gross non-current deferred tax assets  |            |        | 15,855 |  |   |        | 14,007 | 
|                         |              | Total gross deferred tax assets                                           |                                              |            | 16,987 |        |  |   | 14,198 |       
|                         |              | Total valuation allowance                                                 |                                              |            | (3,031 | )      |  |   | (3,291 | )     
|                         |              |                                                                           |                                              |            |        |       
|                         |              | Total net deferred tax assets                                             |                                              |            | 13,956 |        |  |   | 10,907 |       
|Deferred tax liabilities |              |                                                                           |                                              |            |        |        |  |  
|                         | Current:     |                                                                           |                                              |            |        |        |  |   |       
|                         |              | Other accrued expenses and allowances                                     |                                              |            | 592    |        |  |   | 273    |       
|                         |              |                                                                           |                                              |            |        |       
|                         |              |                                                                           | Total gross current deferred tax liabilities |            |        | 592    |  |   |        | 273    | 
|                         | Non-current: |                                                                           |                                              |            |        |        |  |   |       
|                         |              | Property and equipment, primarily related to depreciation
    differences |                                              |            | 41,079 |        |  |   | 33,488 |       
|                         |              | Other                                                                     |                                              |            | 514    |        |  |   | 38     |       
|                         |              |                                                                           |                                              |            |        |       
|                         |              | Total gross non-current deferred tax liabilities                          |                                              |            | 41,593 |        |  |   | 33,526 |       
|                         |              |                                                                           |                                              |            |        |       
|                         |              | Total gross deferred tax liabilities                                      |                                              |            | 42,185 |        |  |   | 33,799 |       
|                         |              |                                                                           |                                              |            |        |       
|                         |              | Net deferred tax liabilities                                              |                                              | $          | 28,229 |        |  | $ | 22,892 |       
|                         |              |                                                                           |                                              |            |        |       







F-36



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)








(17)     Segment Information




ILEC




Wireless




CLEC




Greenfield




Internet
and Data Services (IDS)




Palmetto




Other






F-37



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


|                        |            |       |   |            |         |  |            |         |         |  |   |         |         | 
|----------------------- | ---------- | ----- | - | ---------- | ------- |  | ---------- | ------- | ------- |  | - | ------- | ------- | 
|                        |            |       |   | (Restated) |         |  | (Restated) |        
|                        |            | 2004  |   |            | 2003    |  |            | 2002    |        
|(in thousands)          |            |       |   |            |         |  |            |         |        
|Operating revenue       |            |       |   |            |         |  |            |         |         |  |   |        
|                        | ILEC       |       | $ | 93,016     |         |  | $          | 96,079  |         |  | $ | 94,276  |        
|                        | Wireless   |       |   | 32,548     |         |  |            | 28,517  |         |  |   | 24,394  |        
|                        | CLEC       |       |   | 19,123     |         |  |            | 19,681  |         |  |   | 15,503  |        
|                        | Greenfield |       |   | 8,108      |         |  |            | 6,223   |         |  |   | 4,107   |        
|                        | IDS        |       |   | 10,885     |         |  |            | 10,461  |         |  |   | 9,695   |        
|                        | Palmetto   |       |   | 26,563     |         |  |            | 28,258  |         |  |   | 24,825  |        
|                        | Other      |       |   |           |         |  |            |        |         |  |   |        |        
|                        |            |       |   |            |         |  |            |         |        
|                        |            | Total |   | $          | 190,243 |  |            | $       | 189,219 |  |   | $       | 172,800 | 
|                        |            |       |   |            |         |  |            |         |        
|Operating income (loss) |            |       |   |            |         |  |            |         |         |  |   |        
|                        | ILEC       |       | $ | 27,160     |         |  | $          | 30,249  |         |  | $ | 30,394  |        
|                        | Wireless   |       |   | 3,987      |         |  |            | 1,982   |         |  |   | 3,470   |        
|                        | CLEC       |       |   | (846       | )       |  |            | (1,673  | )       |  |   | (5,859  | )      
|                        | Greenfield |       |   | (3,896     | )       |  |            | (4,696  | )       |  |   | (5,194  | )      
|                        | IDS        |       |   | (403       | )       |  |            | (841    | )       |  |   | (1,387  | )      
|                        | Palmetto   |       |   | 26,009     |         |  |            | 27,788  |         |  |   | 24,424  |        
|                        | Other      |       |   | (2,448     | )       |  |            | (3,696  | )       |  |   | (2,376  | )      
|                        |            |       |   |            |         |  |            |         |        
|                        |            | Total |   | $          | 49,563  |  |            | $       | 49,113  |  |   | $       | 43,472  | 
|                        |            |       |   |            |         |  |            |         |        
|Depreciation            |            |       |   |            |         |  |            |         |         |  |   |        
|                        | ILEC       |       | $ | 18,925     |         |  | $          | 19,157  |         |  | $ | 18,904  |        
|                        | Wireless   |       |   | 1,930      |         |  |            | 1,689   |         |  |   | 1,137   |        
|                        | CLEC       |       |   | 2,309      |         |  |            | 2,550   |         |  |   | 2,194   |        
|                        | Greenfield |       |   | 3,274      |         |  |            | 2,515   |         |  |   | 2,007   |        
|                        | IDS        |       |   | 2,954      |         |  |            | 1,551   |         |  |   | 1,355   |        
|                        | Palmetto   |       |   | 178        |         |  |            | 151     |         |  |   | 137     |        
|                        | Other      |       |   | 1,378      |         |  |            | 1,404   |         |  |   | 690     |        
|                        |            |       |   |            |         |  |            |         |        
|                        |            | Total |   | $          | 30,948  |  |            | $       | 29,017  |  |   | $       | 26,424  | 
|                        |            |       |   |            |         |  |            |         |        
|Assets                  |            |       |   |            |         |  |            |         |         |  |   |        
|                        | ILEC       |       | $ | 176,592    |         |  | $          | 172,475 |         |  | $ | 161,739 |        
|                        | Wireless   |       |   | 33,676     |         |  |            | 30,509  |         |  |   | 30,488  |        
|                        | CLEC       |       |   | 14,570     |         |  |            | 12,776  |         |  |   | 14,500  |        
|                        | Greenfield |       |   | 26,762     |         |  |            | 24,717  |         |  |   | 22,412  |        
|                        | IDS        |       |   | 13,806     |         |  |            | 15,961  |         |  |   | 14,951  |        
|                        | Palmetto   |       |   | 107,855    |         |  |            | 101,012 |         |  |   | 94,912  |        
|                        | Other      |       |   | 49,224     |         |  |            | 53,213  |         |  |   | 80,200  |        
|                        |            |       |   |            |         |  |            |         |        
|                        |            | Total |   | $          | 422,485 |  |            | $       | 410,663 |  |   | $       | 419,202 | 
|                        |            |       |   |            |         |  |            |         |        

|                     |            |       |   |        |        |  |   |        |        |  |   |        |        | 
|-------------------- | ---------- | ----- | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                     |            | 2004  |   |        | 2003   |  |   | 2002   |       
|                     |            |       |   |        |        |  |   |        |       
|Capital expenditures |            |       |   |        |        |  |   |        |        |  |   |       
|                     | ILEC       |       | $ | 16,204 |        |  | $ | 12,294 |        |  | $ | 16,558 |       
|                     | Wireless   |       |   | 2,229  |        |  |   | 1,107  |        |  |   | 4,289  |       
|                     | CLEC       |       |   | 784    |        |  |   | 1,004  |        |  |   | 2,705  |       
|                     | Greenfield |       |   | 5,315  |        |  |   | 4,680  |        |  |   | 10,099 |       
|                     | IDS        |       |   | 1,380  |        |  |   | 2,434  |        |  |   | 1,908  |       
|                     | Palmetto   |       |   | 1,251  |        |  |   | 688    |        |  |   | 300    |       
|                     | Other      |       |   | 1,285  |        |  |   | 2,243  |        |  |   | 8,724  |       
|                     |            |       |   |        |        |  |   |        |       
|                     |            | Total |   | $      | 28,448 |  |   | $      | 24,450 |  |   | $      | 44,583 | 
|                     |            |       |   |        |        |  |   |        |       

F-38



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


|                                                                          |  |      |         |            |      |   |            |      |  |   |         |  
|------------------------------------------------------------------------- |  | ---- | ------- | ---------- | ---- | - | ---------- | ---- |  | - | ------- | -
|                                                                          |  |      |         | (Restated) |      |   | (Restated) |     
|                                                                          |  | 2004 |         |            | 2003 |   |            | 2002 | 
|(in thousands)                                                            |  |      |         |            |      |   |            |      | 
|Reconciliation to net income before tax:                                  |  |      |         |            |      |   |            |      |  |   |         |  
|Segment operating profit                                                  |  | $    | 49,563  |            |      | $ | 49,113     |      |  | $ | 43,472  |  
|Palmetto MobileNet, L.P.                                                  |  |      | (26,009 | )          |      |   | (27,788    | )    |  |   | (24,424 | )
|Total other income (expense)                                              |  |      | 594     |            |      |   | 13,911     |      |  |   | 3,325   |  
|                                                                          |  |      |         |            |      |   |            |      | 
|Income from continuing operations before income taxes                     |  | $    | 24,148  |            |      | $ | 35,236     |      |  | $ | 22,373  |  
|                                                                          |  |      |         |            |      |   |            |      | 
|                                                                         
|Reconciliation to total revenues:                                         |  |      |         |            |      |   |            |      |  |   |         |  
|Segment revenues                                                          |  | $    | 190,243 |            |      | $ | 189,219    |      |  | $ | 172,800 |  
|Palmetto MobileNet, L.P.                                                  |  |      | (26,563 | )          |      |   | (28,258    | )    |  |   | (24,825 | )
|                                                                          |  |      |         |            |      |   |            |      | 
|Total revenues                                                            |  | $    | 163,680 |            |      | $ | 160,961    |      |  | $ | 147,975 |  
|                                                                          |  |      |         |            |      |   |            |      | 
|                                                                         
|Reconciliation to total depreciation:                                     |  |      |         |            |      |   |            |      |  |   |         |  
|Segment depreciation                                                      |  | $    | 30,948  |            |      | $ | 29,017     |      |  | $ | 26,424  |  
|Palmetto MobileNet, L.P.                                                  |  |      | (178    | )          |      |   | (151       | )    |  |   | (137    | )
|                                                                          |  |      |         |            |      |   |            |      | 
|Total depreciation                                                        |  | $    | 30,770  |            |      | $ | 28,866     |      |  | $ | 26,287  |  
|                                                                          |  |      |         |            |      |   |            |      | 
|                                                                         
|Reconciliation to total equity in income of unconsolidated
    companies: |  |      |         |            |      |   |            |      |  |   |         |  
|Segment equity in income of unconsolidated companies                      |  | $    | (2      | )          |      | $ | (13        | )    |  | $ | (29     | )
|Equity in income of Palmetto MobileNet, L.P.                              |  |      | 5,773   |            |      |   | 5,842      |      |  |   | 4,891   |  
|                                                                          |  |      |         |            |      |   |            |      | 
|Total equity in income of unconsolidated companies                        |  | $    | 5,771   |            |      | $ | 5,829      |      |  | $ | 4,862   |  
|                                                                          |  |      |         |            |      |   |            |      | 

|                                                                |  |      |        |            |      |   |        |      |  |   |        | 
|--------------------------------------------------------------- |  | ---- | ------ | ---------- | ---- | - | ------ | ---- |  | - | ------ | 
|                                                                |  |      |        | (Restated) |      |   |       
|                                                                |  | 2004 |        |            | 2003 |   |        | 2002 | 
|                                                                |  |      |        |            |      |   |        |      | 
|Reconciliation to total investment in unconsolidated companies: |  |      |        |            |      |   |        |      |  |   |        | 
|Segment investment in unconsolidated companies                  |  | $    | 5,069  |            |      | $ | 4,132  |      |  | $ | 4,838  | 
|Investment in Palmetto MobileNet, L.P.                          |  |      | 10,933 |            |      |   | 8,902  |      |  |   | 8,740  | 
|                                                                |  |      |        |            |      |   |        |      | 
|Total investment in unconsolidated companies                    |  | $    | 16,002 |            |      | $ | 13,034 |      |  | $ | 13,578 | 
|                                                                |  |      |        |            |      |   |        |      | 

|                                       |  |      |          |            |      |   |            |      |  |   |         |  
|-------------------------------------- |  | ---- | -------- | ---------- | ---- | - | ---------- | ---- |  | - | ------- | -
|                                       |  |      |          | (Restated) |      |   | (Restated) |     
|                                       |  | 2004 |          |            | 2003 |   |            | 2002 | 
|                                       |  |      |          |            |      |   |            |      | 
|Reconciliation to total assets:        |  |      |          |            |      |   |            |      |  |   |         |  
|Segment assets                         |  | $    | 422,485  |            |      | $ | 410,663    |      |  | $ | 419,202 |  
|Investment in unconsolidated companies |  |      | 16,002   |            |      |   | 13,034     |      |  |   | 13,578  |  
|Palmetto MobileNet, L.P.               |  |      | (107,855 | )          |      |   | (101,012   | )    |  |   | (94,912 | )
|                                       |  |      |          |            |      |   |            |      | 
|Total assets                           |  | $    | 330,632  |            |      | $ | 322,685    |      |  | $ | 337,868 |  
|                                       |  |      |          |            |      |   |            |      | 

F-39



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|     |                                                                            
|---- | ---------------------------------------------------------------------------
|(18) | Reconciliation of Basic and Diluted Weighted Average Shares
    Outstanding

|                                            |               |      |            |         |      |  |            |        |  |  |            |        | 
|------------------------------------------- | ------------- | ---- | ---------- | ------- | ---- |  | ---------- | ------ |  |  | ---------- | ------ | 
|                                            |               | 2004 |            |         | 2003 |  |            | 2002   | 
|                                            |               |      |            |         |      |  |            |        | 
|Basic weighted average shares outstanding   |               |      | 18,867,000 |         |      |  | 18,747,000 |        |  |  | 18,710,382 |       
|Effect of dilutive securities:              |               |      |            |         |      |  |            |        |  |  |            |       
|                                            | Stock options |      |            | 140,000 |      |  |            | 61,000 |  |  |            | 35,260 | 
|                                            |               |      |            |         |      |  |            |        | 
|Diluted weighted average shares outstanding |               |      | 19,007,000 |         |      |  | 18,808,000 |        |  |  | 18,745,642 |       
|                                            |               |      |            |         |      |  |            |        | 



|     |                                                    
|---- | ---------------------------------------------------
|(19) | Summary of Income Statement Information (Unaudited)





|                                             |  |            |         |   |          |   |         |            |  |   |          |    |  |            |         |   |          |   |         |  |  |   |         | 
|-------------------------------------------- |  | ---------- | ------- | - | -------- | - | ------- | ---------- |  | - | -------- | -- |  | ---------- | ------- | - | -------- | - | ------- |  |  | - | ------- | 
|                                             |  | As         |         |   |          |   | As      |            |  |   |          | As |  |            |        
|                                             |  | Previously |         |   | As       |   |         | Previously |  |   | As       |    |  | Previously |         |   | As       |  
|                                             |  | Reported   |         |   | Restated |   |         | Reported   |  |   | Restated |    |  | Reported   |         |   | Restated |  
|                                             |  | March 31   |         |   | March 31 |   |         | June 30    |  |   | June 30  |    |  | Sept. 30   |         |   | Sept. 30 |  
|                                             |  |            |         |   |          |   |         |            |  |   |          |    |  |            |         |   |          |  
|Balance Sheet                                |  |            |         |   |          |   |         |            |  |   |          |    |  |            |         |   |          |   |         |  |  |   |         | 
|Accounts receivable                          |  | $          | 20,538  |   |          | $ | 17,857  |            |  | $ | 20,694   |    |  | $          | 18,058  |   |          | $ | 20,116  |  |  | $ | 17,674  | 
|Total current assets                         |  |            | 45,562  |   |          |   | 42,881  |            |  |   | 50,687   |    |  |            | 48,051  |   |          |   | 49,494  |  |  |   | 47,052  | 
|Investments in uncons. companies             |  |            | 13,772  |   |          |   | 13,938  |            |  |   | 14,359   |    |  |            | 14,359  |   |          |   | 15,641  |  |  |   | 15,641  | 
|Property and equipment, net                  |  |            | 204,141 |   |          |   | 208,010 |            |  |   | 202,586  |    |  |            | 206,437 |   |          |   | 202,430 |  |  |   | 205,718 | 
|Other assets                                 |  |            | 1,633   |   |          |   | 2,736   |            |  |   | 1,638    |    |  |            | 2,763   |   |          |   | 1,823   |  |  |   | 2,952   | 
|Total assets                                 |  |            | 318,939 |   |          |   | 321,396 |            |  |   | 322,008  |    |  |            | 324,348 |   |          |   | 322,384 |  |  |   | 324,359 | 
|Customer deposits                            |  |            | 2,687   |   |          |   | 2,878   |            |  |   | 2,591    |    |  |            | 2,765   |   |          |   | 2,476   |  |  |   | 2,659   | 
|Other accrued liabilities                    |  |            | 12,509  |   |          |   | 13,612  |            |  |   | 14,616   |    |  |            | 14,760  |   |          |   | 19,097  |  |  |   | 19,093  | 
|Total current liabilities                    |  |            | 24,688  |   |          |   | 25,982  |            |  |   | 28,530   |    |  |            | 28,848  |   |          |   | 33,151  |  |  |   | 33,330  | 
|Deferred income taxes                        |  |            | 24,073  |   |          |   | 23,934  |            |  |   | 24,678   |    |  |            | 25,462  |   |          |   | 24,599  |  |  |   | 25,374  | 
|Other                                        |  |            | 2,868   |   |          |   | 3,204   |            |  |   | 2,585    |    |  |            | 2,943   |   |          |   | 2,552   |  |  |   | 2,932   | 
|Total deferred credits and other liabilities |  |            | 38,120  |   |          |   | 38,317  |            |  |   | 38,355   |    |  |            | 39,497  |   |          |   | 38,238  |  |  |   | 39,393  | 
|Total liabilities                            |  |            | 139,058 |   |          |   | 140,549 |            |  |   | 139,385  |    |  |            | 140,845 |   |          |   | 137,639 |  |  |   | 138,973 | 
|Other accumulated comp. income (loss)        |  |            | (56     | ) |          |   | (120    | )          |  |   | (451     | )  |  |            | (304    | ) |          |   | 182     |  |  |   | 317     | 
|Retained earnings                            |  |            | 138,008 |   |          |   | 139,038 |            |  |   | 140,890  |    |  |            | 141,623 |   |          |   | 142,128 |  |  |   | 142,634 | 
|Total stockholders equity                   |  |            | 179,881 |   |          |   | 180,847 |            |  |   | 182,623  |    |  |            | 183,503 |   |          |   | 184,745 |  |  |   | 185,386 | 
|Total liabilities and stockholders equity   |  |            | 318,939 |   |          |   | 321,396 |            |  |   | 322,008  |    |  |            | 324,348 |   |          |   | 322,384 |  |  |   | 324,359 | 

F-40



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                             |                                                     |                     |        |        |          |   |        |            |   |   |          |        |   |   |        |        |  
|---------------------------- | --------------------------------------------------- | ------------------- | ------ | ------ | -------- | - | ------ | ---------- | - | - | -------- | ------ | - | - | ------ | ------ | -
|                             |                                                     | 2004 Quarters Ended |       
|                             |                                                     |                     |       
|                             |                                                     | As                  |        |        |          |   | As     |            |   |  
|                             |                                                     | Previously          |        |        | As       |   |        | Previously |   |   | As       |       
|                             |                                                     | Reported            |        |        | Restated |   |        | Reported   |   |   | Restated |       
|                             |                                                     | March 31            |        |        | March 31 |   |        | June 30    |   |   | June 30  |       
|                             |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Operating revenue:           |                                                     |                     |        |        |          |   |        |            |   |   |          |        |   |   |        |       
|                             | Telephone                                           |                     | $      | 30,637 |          |   | $      | 30,682     |   |   | $        | 29,658 |   |   | $      | 29,742 |  
|                             | Wireless and internet                               |                     |        | 9,882  |          |   |        | 9,882      |   |   |          | 11,007 |   |   |        | 11,007 |  
|                             |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Total operating revenue      |                                                     |                     | 40,519 |        |          |   | 40,564 |            |   |   | 40,665   |        |   |   | 40,749 |       
|Operating expense:           |                                                     |                     |        |        |          |   |        |            |   |   |          |        |   |   |        |       
|                             | Telephone cost of service                           |                     |        | 8,596  |          |   |        | 8,558      |   |   |          | 8,732  |   |   |        | 8,732  |  
|                             | Wireless and internet cost of service               |                     |        | 4,724  |          |   |        | 4,847      |   |   |          | 4,715  |   |   |        | 4,737  |  
|                             | Selling, general and admin.                         |                     |        | 13,245 |          |   |        | 12,803     |   |   |          | 13,677 |   |   |        | 13,677 |  
|                             | Depreciation                                        |                     |        | 8,143  |          |   |        | 7,425      |   |   |          | 7,405  |   |   |        | 7,423  |  
|                             |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Total operating expense      |                                                     |                     | 34,708 |        |          |   | 33,633 |            |   |   | 34,529   |        |   |   | 34,569 |       
|                             |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Operating income             |                                                     |                     | 5,811  |        |          |   | 6,931  |            |   |   | 6,136    |        |   |   | 6,180  |       
|                             |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Other income (expense):      |                                                     |                     |        |        |          |   |        |            |   |   |          |        |   |   |        |       
|                             | Equity in income of unconsolidated comp.            |                     |        | 1,391  |          |   |        | 1,391      |   |   |          | 1,504  |   |   |        | 1,338  |  
|                             | Interest, dividends and gain on sale of investments |                     |        | 255    |          |   |        | 255        |   |   |          | 495    |   |   |        | 495    |  
|                             | Impairment of investments                           |                     |        | (19    | )        |   |        | (19        | ) |   |          | (21    | ) |   |        | (21    | )
|                             | Other expense                                       |                     |        | (1,540 | )        |   |        | (1,432     | ) |   |          | (1,219 | ) |   |        | (1,020 | )
|                             |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Total other income (expense) |                                                     |                     | 87     |        |          |   | 195    |            |   |   | 759      |        |   |   | 792    |       
|                             |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Income before income taxes   |                                                     |                     | 5,898  |        |          |   | 7,126  |            |   |   | 6,895    |        |   |   | 6,972  |       
|Income taxes                 |                                                     |                     | 2,406  |        |          |   | 2,887  |            |   |   | 2,785    |        |   |   | 2,807  |       
|                             |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Net income                   |                                                     |                     | 3,492  |        |          |   | 4,239  |            |   |   | 4,110    |        |   |   | 4,165  |       
|Dividends on preferred stock |                                                     |                     | 5      |        |          |   | 5      |            |   |   | 5        |        |   |   | 5      |       
|                             |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Earnings for commons stock   |                                                     | $                   | 3,487  |        |          | $ | 4,234  |            |   | $ | 4,105    |        |   | $ | 4,160  |       
|                             |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Earnings per common share:   |                                                     |                     |        |        |          |   |        |            |   |   |          |        |   |   |        |       
|                             | Basic                                               |                     | $      | 0.19   |          |   | $      | 0.23       |   |   | $        | 0.22   |   |   | $      | 0.22   |  
|                             | Diluted                                             |                     |        | 0.18   |          |   |        | 0.22       |   |   |          | 0.22   |   |   |        | 0.22   |  

F-41



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


|                             |                                                     |                     |        |        |          |   |        |         |   |   |        |        |  
|---------------------------- | --------------------------------------------------- | ------------------- | ------ | ------ | -------- | - | ------ | ------- | - | - | ------ | ------ | -
|                             |                                                     | 2004 Quarters Ended |       
|                             |                                                     |                     |       
|                             |                                                     | As                  |        |        |         
|                             |                                                     | Previously          |        |        | As       |   |        |        
|                             |                                                     | Reported            |        |        | Restated |   |        |        
|                             |                                                     | Sept. 30            |        |        | Sept. 30 |   |        | Dec. 31 |  
|                             |                                                     |                     |        |        |          |   |        |         |  
|Operating revenue:           |                                                     |                     |        |        |          |   |        |         |   |   |        |       
|                             | Telephone                                           |                     | $      | 29,796 |          |   | $      | 29,985  |   |   | $      | 29,839 |  
|                             | Wireless and internet                               |                     |        | 10,863 |          |   |        | 10,863  |   |   |        | 11,680 |  
|                             |                                                     |                     |        |        |          |   |        |         |  
|Total operating revenue      |                                                     |                     | 40,659 |        |          |   | 40,848 |         |   |   | 41,519 |       
|Operating expense:           |                                                     |                     |        |        |          |   |        |         |   |   |        |       
|                             | Telephone cost of service                           |                     |        | 9,415  |          |   |        | 9,415   |   |   |        | 8,607  |  
|                             | Wireless and internet cost of service               |                     |        | 4,396  |          |   |        | 4,418   |   |   |        | 5,176  |  
|                             | Selling, general and admin.                         |                     |        | 14,235 |          |   |        | 14,235  |   |   |        | 14,151 |  
|                             | Depreciation                                        |                     |        | 7,687  |          |   |        | 8,250   |   |   |        | 7,672  |  
|                             |                                                     |                     |        |        |          |   |        |         |  
|Total operating expense      |                                                     |                     | 35,733 |        |          |   | 36,318 |         |   |   | 35,606 |       
|                             |                                                     |                     |        |        |          |   |        |         |  
|Operating income             |                                                     |                     | 4,926  |        |          |   | 4,530  |         |   |   | 5,913  |       
|                             |                                                     |                     |        |        |          |   |        |         |  
|Other income (expense):      |                                                     |                     |        |        |          |   |        |         |   |   |        |       
|                             | Equity in income of unconsolidated comp.            |                     |        | 1,820  |          |   |        | 1,820   |   |   |        | 1,222  |  
|                             | Interest, dividends and gain on sale of investments |                     |        | 184    |          |   |        | 184     |   |   |        | 529    |  
|                             | Impairment of investments                           |                     |        | (1,454 | )        |   |        | (1,454  | ) |   |        | (340   | )
|                             | Other expense                                       |                     |        | (1,225 | )        |   |        | (1,205  | ) |   |        | (1,149 | )
|                             |                                                     |                     |        |        |          |   |        |         |  
|Total other income (expense) |                                                     |                     | (675   | )      |          |   | (655   | )       |   |   | 262    |       
|                             |                                                     |                     |        |        |          |   |        |         |  
|Income before income taxes   |                                                     |                     | 4,251  |        |          |   | 3,875  |         |   |   | 6,175  |       
|Income taxes                 |                                                     |                     | 1,780  |        |          |   | 1,631  |         |   |   | 2,120  |       
|                             |                                                     |                     |        |        |          |   |        |         |  
|Net income                   |                                                     |                     | 2,471  |        |          |   | 2,244  |         |   |   | 4,055  |       
|Dividends on preferred stock |                                                     |                     | 5      |        |          |   | 5      |         |   |   | 5      |       
|                             |                                                     |                     |        |        |          |   |        |         |  
|Earnings for commons stock   |                                                     | $                   | 2,466  |        |          | $ | 2,239  |         |   | $ | 4,050  |       
|                             |                                                     |                     |        |        |          |   |        |         |  
|Earnings per common share:   |                                                     |                     |        |        |          |   |        |         |   |   |        |       
|                             | Basic                                               |                     | $      | 0.13   |          |   | $      | 0.12    |   |   | $      | 0.21   |  
|                             | Diluted                                             |                     |        | 0.13   |          |   |        | 0.12    |   |   |        | 0.21   |  

F-42



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                             |  |            |         |   |          |   |         |            |  |   |          |    |  |            |         |   |          |   |         |   |  |   |         |  
|-------------------------------------------- |  | ---------- | ------- | - | -------- | - | ------- | ---------- |  | - | -------- | -- |  | ---------- | ------- | - | -------- | - | ------- | - |  | - | ------- | -
|                                             |  | As         |         |   |          |   | As      |            |  |   |          | As |  |            |        
|                                             |  | Previously |         |   | As       |   |         | Previously |  |   | As       |    |  | Previously |         |   | As       |  
|                                             |  | Reported   |         |   | Restated |   |         | Reported   |  |   | Restated |    |  | Reported   |         |   | Restated |  
|                                             |  | March 31   |         |   | March 31 |   |         | June 30    |  |   | June 30  |    |  | Sept. 30   |         |   | Sept. 30 |  
|                                             |  |            |         |   |          |   |         |            |  |   |          |    |  |            |         |   |          |  
|Balance Sheet                                |  |            |         |   |          |   |         |            |  |   |          |    |  |            |         |   |          |   |         |   |  |   |         |  
|Accounts receivable                          |  | $          | 22,305  |   |          | $ | 19,468  |            |  | $ | 20,556   |    |  | $          | 17,743  |   |          | $ | 21,000  |   |  | $ | 18,012  |  
|Total current assets                         |  |            | 41,210  |   |          |   | 38,373  |            |  |   | 38,348   |    |  |            | 35,535  |   |          |   | 43,771  |   |  |   | 40,783  |  
|Property and equipment, net                  |  |            | 210,302 |   |          |   | 212,516 |            |  |   | 208,606  |    |  |            | 211,127 |   |          |   | 209,388 |   |  |   | 212,382 |  
|Other assets                                 |  |            | 1,660   |   |          |   | 2,880   |            |  |   | 1,354    |    |  |            | 2,561   |   |          |   | 1,418   |   |  |   | 2,728   |  
|Total assets                                 |  |            | 337,691 |   |          |   | 338,288 |            |  |   | 315,484  |    |  |            | 316,399 |   |          |   | 321,065 |   |  |   | 322,381 |  
|Customer deposits                            |  |            | 2,377   |   |          |   | 2,544   |            |  |   | 2,467    |    |  |            | 2,632   |   |          |   | 2,371   |   |  |   | 2,548   |  
|Other accrued liabilities                    |  |            | 13,071  |   |          |   | 13,867  |            |  |   | 14,131   |    |  |            | 15,052  |   |          |   | 16,434  |   |  |   | 17,508  |  
|Total current liabilities                    |  |            | 21,909  |   |          |   | 22,872  |            |  |   | 23,103   |    |  |            | 24,189  |   |          |   | 27,857  |   |  |   | 29,108  |  
|Deferred income taxes                        |  |            | 13,180  |   |          |   | 13,087  |            |  |   | 17,136   |    |  |            | 17,032  |   |          |   | 19,624  |   |  |   | 19,501  |  
|Other                                        |  |            | 1,686   |   |          |   | 1,916   |            |  |   | 2,218    |    |  |            | 2,476   |   |          |   | 2,022   |   |  |   | 2,308   |  
|Total deferred credits and other liabilities |  |            | 26,433  |   |          |   | 26,570  |            |  |   | 30,737   |    |  |            | 30,891  |   |          |   | 33,169  |   |  |   | 33,332  |  
|Total liabilities                            |  |            | 176,039 |   |          |   | 177,138 |            |  |   | 143,840  |    |  |            | 145,080 |   |          |   | 147,026 |   |  |   | 148,440 |  
|Other accumulated comp. income (loss)        |  |            | (771    | ) |          |   | (814    | )          |  |   | (357     | )  |  |            | (391    | ) |          |   | (131    | ) |  |   | (267    | )
|Retained earnings                            |  |            | 122,092 |   |          |   | 121,633 |            |  |   | 131,225  |    |  |            | 130,934 |   |          |   | 133,155 |   |  |   | 133,193 |  
|Total stockholders equity                   |  |            | 161,652 |   |          |   | 161,150 |            |  |   | 171,644  |    |  |            | 171,319 |   |          |   | 174,039 |   |  |   | 173,941 |  
|Total liabilities and stockholders equity   |  |            | 337,691 |   |          |   | 338,288 |            |  |   | 315,484  |    |  |            | 316,399 |   |          |   | 321,065 |   |  |   | 322,381 |  

F-43



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)




|                                                   |                                                     |                     |        |        |          |   |        |            |   |   |          |        |   |   |        |        |  
|-------------------------------------------------- | --------------------------------------------------- | ------------------- | ------ | ------ | -------- | - | ------ | ---------- | - | - | -------- | ------ | - | - | ------ | ------ | -
|                                                   |                                                     | 2003 Quarters Ended |       
|                                                   |                                                     |                     |       
|                                                   |                                                     | As                  |        |        |          |   | As     |            |   |  
|                                                   |                                                     | Previously          |        |        | As       |   |        | Previously |   |   | As       |       
|                                                   |                                                     | Reported            |        |        | Restated |   |        | Reported   |   |   | Restated |       
|                                                   |                                                     | March 31            |        |        | March 31 |   |        | June 30    |   |   | June 30  |       
|                                                   |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Operating revenue:                                 |                                                     |                     |        |        |          |   |        |            |   |   |          |        |   |   |        |       
|                                                   | Telephone                                           |                     | $      | 29,315 |          |   | $      | 29,349     |   |   | $        | 30,510 |   |   | $      | 30,523 |  
|                                                   | Wireless and internet                               |                     |        | 9,381  |          |   |        | 9,430      |   |   |          | 9,443  |   |   |        | 9,443  |  
|                                                   |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Total operating revenue                            |                                                     |                     | 38,696 |        |          |   | 38,779 |            |   |   | 39,953   |        |   |   | 39,966 |       
|Operating expense:                                 |                                                     |                     |        |        |          |   |        |            |   |   |          |        |   |   |        |       
|                                                   | Telephone cost of service                           |                     |        | 8,545  |          |   |        | 8,545      |   |   |          | 8,916  |   |   |        | 8,916  |  
|                                                   | Wireless and internet cost of service               |                     |        | 4,511  |          |   |        | 4,539      |   |   |          | 4,420  |   |   |        | 4,448  |  
|                                                   | Selling, general and admin.                         |                     |        | 13,723 |          |   |        | 13,723     |   |   |          | 13,872 |   |   |        | 13,872 |  
|                                                   | Depreciation                                        |                     |        | 7,585  |          |   |        | 6,891      |   |   |          | 7,599  |   |   |        | 7,292  |  
|                                                   |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Total operating expense                            |                                                     |                     | 34,364 |        |          |   | 33,698 |            |   |   | 34,807   |        |   |   | 34,528 |       
|                                                   |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Operating income                                   |                                                     |                     | 4,332  |        |          |   | 5,081  |            |   |   | 5,146    |        |   |   | 5,438  |       
|                                                   |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Other income (expense):                            |                                                     |                     |        |        |          |   |        |            |   |   |          |        |   |   |        |       
|                                                   | Equity in income of unconsolidated comp.            |                     |        | 1,049  |          |   |        | 1,049      |   |   |          | 1,398  |   |   |        | 1,398  |  
|                                                   | Interest, dividends and gain on sale of investments |                     |        | 517    |          |   |        | 273        |   |   |          | 14,747 |   |   |        | 14,747 |  
|                                                   | Impairment of investments                           |                     |        | (11    | )        |   |        | (11        | ) |   |          | (1,273 | ) |   |        | (1,273 | )
|                                                   | Other expense                                       |                     |        | (1,640 | )        |   |        | (1,570     | ) |   |          | (2,236 | ) |   |        | (2,180 | )
|                                                   |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Total other income (expense)                       |                                                     |                     | (85    | )      |          |   | (259   | )          |   |   | 12,636   |        |   |   | 12,692 |       
|                                                   |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Income from continuing operations b/f income taxes |                                                     |                     | 4,247  |        |          |   | 4,822  |            |   |   | 17,782   |        |   |   | 18,130 |       
|Income taxes                                       |                                                     |                     | 1,766  |        |          |   | 1,990  |            |   |   | 7,000    |        |   |   | 7,134  |       
|                                                   |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Income from continuing operations                  |                                                     |                     | 2,481  |        |          |   | 2,832  |            |   |   | 10,782   |        |   |   | 10,996 |       
|Discontinued operations                            |                                                     |                     |       |        |          |   |       |            |   |   | (424     | )      |   |   | (424   | )     
|                                                   |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Net income                                         |                                                     |                     | 2,481  |        |          |   | 2,832  |            |   |   | 10,358   |        |   |   | 10,572 |       
|Dividends on preferred stock                       |                                                     |                     | 5      |        |          |   | 5      |            |   |   | 5        |        |   |   | 5      |       
|                                                   |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Earnings for commons stock                         |                                                     | $                   | 2,476  |        |          | $ | 2,827  |            |   | $ | 10,353   |        |   | $ | 10,567 |       
|                                                   |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Basic earnings per common share:                   |                                                     |                     |        |        |          |   |        |            |   |   |          |        |   |   |        |       
|                                                   | Continuing operations                               |                     | $      | 0.13   |          |   | $      | 0.15       |   |   | $        | 0.58   |   |   | $      | 0.59   |  
|                                                   | Loss from disc. operations                          |                     |        |       |          |   |        |           |   |   |          | (0.02  | ) |   |        | (0.02  | )
|                                                   | Net income                                          |                     |        | 0.13   |          |   |        | 0.15       |   |   |          | 0.55   |   |   |        | 0.56   |  
|Diluted earnings per common share:                 |                                                     |                     |        |        |          |   |        |            |   |   |          |        |   |   |        |       
|                                                   | Continuing operations                               |                     | $      | 0.13   |          |   | $      | 0.15       |   |   | $        | 0.57   |   |   | $      | 0.59   |  
|                                                   | Loss from disc. operations                          |                     |        |       |          |   |        |           |   |   |          | (0.02  | ) |   |        | (0.02  | )
|                                                   | Net income                                          |                     |        | 0.13   |          |   |        | 0.15       |   |   |          | 0.55   |   |   |        | 0.56   |  

F-44



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Continued)


|                                                   |                                                     |                     |        |        |          |   |        |            |   |   |          |        |   |   |        |        |  
|-------------------------------------------------- | --------------------------------------------------- | ------------------- | ------ | ------ | -------- | - | ------ | ---------- | - | - | -------- | ------ | - | - | ------ | ------ | -
|                                                   |                                                     | 2003 Quarters Ended |       
|                                                   |                                                     |                     |       
|                                                   |                                                     | As                  |        |        |          |   | As     |            |   |  
|                                                   |                                                     | Previously          |        |        | As       |   |        | Previously |   |   | As       |       
|                                                   |                                                     | Reported            |        |        | Restated |   |        | Reported   |   |   | Restated |       
|                                                   |                                                     | Sept. 30            |        |        | Sept. 30 |   |        | Dec. 31    |   |   | Dec. 31  |       
|                                                   |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Operating revenue:                                 |                                                     |                     |        |        |          |   |        |            |   |   |          |        |   |   |        |       
|                                                   | Telephone                                           |                     | $      | 30,583 |          |   | $      | 30,499     |   |   | $        | 31,571 |   |   | $      | 31,612 |  
|                                                   | Wireless and internet                               |                     |        | 10,020 |          |   |        | 10,020     |   |   |          | 10,085 |   |   |        | 10,085 |  
|                                                   |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Total operating revenue                            |                                                     |                     | 40,603 |        |          |   | 40,519 |            |   |   | 41,656   |        |   |   | 41,697 |       
|Operating expense:                                 |                                                     |                     |        |        |          |   |        |            |   |   |          |        |   |   |        |       
|                                                   | Telephone cost of service                           |                     |        | 9,280  |          |   |        | 9,280      |   |   |          | 8,932  |   |   |        | 8,873  |  
|                                                   | Wireless and internet cost of service               |                     |        | 4,968  |          |   |        | 4,996      |   |   |          | 4,762  |   |   |        | 4,685  |  
|                                                   | Selling, general and admin.                         |                     |        | 14,167 |          |   |        | 14,167     |   |   |          | 14,413 |   |   |        | 14,726 |  
|                                                   | Depreciation                                        |                     |        | 7,807  |          |   |        | 7,334      |   |   |          | 7,856  |   |   |        | 7,349  |  
|                                                   |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Total operating expense                            |                                                     |                     | 36,222 |        |          |   | 35,777 |            |   |   | 35,963   |        |   |   | 35,633 |       
|                                                   |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Operating income                                   |                                                     |                     | 4,381  |        |          |   | 4,742  |            |   |   | 5,693    |        |   |   | 6,064  |       
|                                                   |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Other income (expense):                            |                                                     |                     |        |        |          |   |        |            |   |   |          |        |   |   |        |       
|                                                   | Equity in income of unconsolidated comp.            |                     |        | 1,787  |          |   |        | 1,787      |   |   |          | 1,429  |   |   |        | 1,595  |  
|                                                   | Interest, dividends and gain on sale of investments |                     |        | 858    |          |   |        | 858        |   |   |          | 391    |   |   |        | 391    |  
|                                                   | Impairment of investments                           |                     |        | (460   | )        |   |        | (460       | ) |   |          |       |   |   |        |       |  
|                                                   | Other expense                                       |                     |        | (1,682 | )        |   |        | (1,458     | ) |   |          | (1,562 | ) |   |        | (1,235 | )
|                                                   |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Total other income (expense)                       |                                                     |                     | 503    |        |          |   | 727    |            |   |   | 258      |        |   |   | 751    |       
|                                                   |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Income from continuing operations b/f income taxes |                                                     |                     | 4,884  |        |          |   | 5,469  |            |   |   | 5,951    |        |   |   | 6,815  |       
|Income taxes                                       |                                                     |                     | 1,735  |        |          |   | 1,955  |            |   |   | 2,119    |        |   |   | 2,447  |       
|                                                   |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Income from continuing operations                  |                                                     |                     | 3,149  |        |          |   | 3,514  |            |   |   | 3,832    |        |   |   | 4,368  |       
|Discontinued operations                            |                                                     |                     |       |        |          |   |       |            |   |   |         |        |   |   |       |       
|                                                   |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Net income                                         |                                                     |                     | 3,149  |        |          |   | 3,514  |            |   |   | 3,832    |        |   |   | 4,368  |       
|Dividends on preferred stock                       |                                                     |                     | 5      |        |          |   | 5      |            |   |   | 5        |        |   |   | 5      |       
|                                                   |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Earnings for commons stock                         |                                                     | $                   | 3,144  |        |          | $ | 3,509  |            |   | $ | 3,827    |        |   | $ | 4,363  |       
|                                                   |                                                     |                     |        |        |          |   |        |            |   |   |          |       
|Basic earnings per common share:                   |                                                     |                     |        |        |          |   |        |            |   |   |          |        |   |   |        |       
|                                                   | Continuing operations                               |                     | $      | 0.17   |          |   | $      | 0.19       |   |   | $        | 0.20   |   |   | $      | 0.23   |  
|                                                   | Loss from disc. operations                          |                     |        |       |          |   |        |           |   |   |          |       |   |   |        |       |  
|                                                   | Net income                                          |                     |        | 0.17   |          |   |        | 0.19       |   |   |          | 0.20   |   |   |        | 0.23   |  
|Diluted earnings per common share:                 |                                                     |                     |        |        |          |   |        |            |   |   |          |        |   |   |        |       
|                                                   | Continuing operations                               |                     | $      | 0.17   |          |   | $      | 0.19       |   |   | $        | 0.20   |   |   | $      | 0.23   |  
|                                                   | Loss from disc. operations                          |                     |        |       |          |   |        |           |   |   |          |       |   |   |        |       |  
|                                                   | Net income                                          |                     |        | 0.17   |          |   |        | 0.19       |   |   |          | 0.20   |   |   |        | 0.23   |  

F-45



---



##### 



SCHEDULE II


CT COMMUNICATIONS, INC. AND SUBSIDIARIES


VALUATION AND QUALIFYING ACCOUNTS


Years Ended December 31, 2004, 2003 and 2002




|                                                                                |  |           |       |  |           |            |       |            |  |   |             |  |  |   |       | 
|------------------------------------------------------------------------------- |  | --------- | ----- |  | --------- | ---------- | ----- | ---------- |  | - | ----------- |  |  | - | ----- | 
|Column A                                                                        |  | Column B  |       |  | Column C  |            |       | Column D   |  |   | Column E    | 
|                                                                                |  |           |       |  |           |            |       |            |  |   |             | 
|                                                                                |  |           |       |  |           | Deductions |       |            | 
|                                                                                |  | Balance,  |       |  | Additions |            |       | From       |  |   | Balance,    | 
|                                                                                |  | Beginning |       |  | Charged   |            |       | Reserves   |  |   | End of Year | 
|Description                                                                     |  | of Year   |       |  | to Income |            |       | (See Note) |  |   | (See Note)  | 
|                                                                                |  |           |       |  |           |            |       |            |  |   |             | 
|Valuation and qualifying accounts deducted from
    assets to which they apply: |  |           |       |  |           |            |       |            |  |   |             |  |  |   |       | 
|Allowance for uncollectible accounts:                                           |  |           |       |  |           |            |       |            |  |   |             |  |  |   |       | 
|Year ended December 31, 2004                                                    |  | $         | 567   |  |           | $          | 1,399 |            |  | $ | 1,653       |  |  | $ | 313   | 
|Year ended December 31, 2003                                                    |  |           | 1,174 |  |           |            | 1,439 |            |  |   | 2,046       |  |  |   | 567   | 
|Year ended December 31, 2002                                                    |  |           | 745   |  |           |            | 1,685 |            |  |   | 1,256       |  |  |   | 1,174 | 






F-46



---



##### 









For the Years Ended


December 31, 2004, 2003 and 2002


F-47



---



##### 





Contents


|                                                    |                                                        |      |             |      | 
|--------------------------------------------------- | ------------------------------------------------------ | ---- | ----------- | ---- | 
|                                                    |                                                        | Page |            
|                                                    |                                                        |      |            
|REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS |                                                        |      |             |     
|                                                    | Elliott Davis, LLC                                     |      |             | F-49 | 
|                                                    | Bauknight Pietras & Stormer, P.A.                      |      |             | F-50 | 
|                                                   
|FINANCIAL STATEMENTS                                |                                                        |      |             |     
|                                                    | Consolidated balance sheets                            |      |             | F-51 | 
|                                                    | Consolidated statements of income and partners equity |      |             | F-52 | 
|                                                    | Consolidated statements of cash flows                  |      |             | F-53 | 
|                                                   
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS          |                                                        |      | F-54 - F-59 |     

F-48



---



##### 



REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
















| |                       
| | ----------------------
| | /s/ Elliott Davis, LLC



F-49



---



##### 



Report of Independent Auditors














| |                                      
| | -------------------------------------
| | /s/ Bauknight Pietras & Stormer, P.A.





F-50



---



##### 







|                                       |                                       |              |             |           |      |   |             |           | 
|-------------------------------------- | ------------------------------------- | ------------ | ----------- | --------- | ---- | - | ----------- | --------- | 
|                                       |                                       | December 31, |            
|                                       |                                       |              |            
|                                       |                                       | 2004         |             |           | 2003 |  
|                                       |                                       |              |             |           |      |  
|Assets                                 |                                       |              |             |           |      |   |             |          
|Current Assets                         |                                       |              |             |           |      |   |             |          
|                                       | Cash and cash equivalents             |              | $           | 3,123,392 |      |   | $           | 6,170,772 | 
|                                       | Accounts receivable                   |              |             | 1,298     |      |   |             |          | 
|                                       | Deposits                              |              |             |          |      |   |             | 30,350    | 
|                                       |                                       |              |             |           |      |  
|Total current assets                   |                                       |              | 3,124,690   |           |      |   | 6,201,122   |          
|Land, building and improvements, Net   |                                       |              | 7,685,573   |           |      |   | 6,612,306   |          
|Interests in RSA partnerships          |                                       |              | 91,466,638  |           |      |   | 82,633,982  |          
|Goodwill                               |                                       |              | 5,334,236   |           |      |   | 5,334,236   |          
|Other assets                           |                                       |              | 243,746     |           |      |   | 230,448     |          
|                                       |                                       |              |             |           |      |  
|                                       |                                       | $            | 107,854,883 |           |      | $ | 101,012,094 |          
|                                       |                                       |              |             |           |      |  
|                                      
|Liabilities and partners equity      
|Current liabilities                    |                                       |              |             |           |      |   |             |          
|                                       | Accounts payable  PMN, Inc.          |              | $           | 129,334   |      |   | $           | 136,975   | 
|                                       | Accounts payable and accrued expenses |              |             | 268,335   |      |   |             | 186,687   | 
|                                       | Current portion of long-term debt     |              |             |          |      |   |             | 2,442,857 | 
|                                       |                                       |              |             |           |      |  
|Total current liabilities              |                                       |              | 397,669     |           |      |   | 2,776,519   |          
|Long-term debt, net of current portion |                                       |              | 13,581,512  |           |      |   | 13,435,714  |          
|Commitments and contingencies (Note 7) |                                       |              |             |           |      |   |             |          
|Partners equity                       |                                       |              | 93,875,702  |           |      |   | 84,809,861  |          
|                                       |                                       |              |             |           |      |  
|Total liabilities and partners equity |                                       | $            | 107,854,883 |           |      | $ | 101,012,094 |          
|                                       |                                       |              |             |           |      |  

See notes to consolidated financial statements which are an
integral part of these statements.


F-51



---



##### 







|                                                |                   |                          |             |          |      |   |             |          |   |   |             |          |  
|----------------------------------------------- | ----------------- | ------------------------ | ----------- | -------- | ---- | - | ----------- | -------- | - | - | ----------- | -------- | -
|                                                |                   | Years Ended December 31, |            
|                                                |                   |                          |            
|                                                |                   | 2004                     |             |          | 2003 |   |             | 2002     |  
|                                                |                   |                          |             |          |      |   |             |          |  
|Equity in earnings of RSA partnership interests |                   | $                        | 26,562,695  |          |      | $ | 28,258,064  |          |   | $ | 24,825,098  |         
|Management fee                                  |                   |                          | (553,256    | )        |      |   | (470,005    | )        |   |   | (401,235    | )       
|                                                |                   |                          |             |          |      |   |             |          |  
|Income from operations                          |                   |                          | 26,009,439  |          |      |   | 27,788,059  |          |   |   | 24,423,863  |         
|                                                |                   |                          |             |          |      |   |             |          |  
|Revenue from real estate rentals                |                   |                          | 1,157,877   |          |      |   | 1,055,976   |          |   |   | 974,097     |         
|Cost of rental revenues                         |                   |                          | (596,905    | )        |      |   | (619,787    | )        |   |   | (523,072    | )       
|                                                |                   |                          |             |          |      |   |             |          |  
|Income from real estate rentals                 |                   |                          | 560,972     |          |      |   | 436,189     |          |   |   | 451,025     |         
|                                                |                   |                          |             |          |      |   |             |          |  
|Other income (expense)                          |                   |                          |             |          |      |   |             |          |   |   |             |         
|                                                | Interest expense  |                          |             | (442,243 | )    |   |             | (234,064 | ) |   |             | (48,486  | )
|                                                | Investment income |                          |             | 5,432    |      |   |             | 62,885   |   |   |             | 331,645  |  
|                                                | Other             |                          |             | (340,332 | )    |   |             | (158,019 | ) |   |             | (507,780 | )
|                                                |                   |                          |             |          |      |   |             |          |  
|                                                |                   |                          | (777,143    | )        |      |   | (329,198    | )        |   |   | (224,621    | )       
|                                                |                   |                          |             |          |      |   |             |          |  
|Net income                                      |                   |                          | 25,793,268  |          |      |   | 27,895,050  |          |   |   | 24,650,267  |         
|Partners equity, beginning of year             |                   |                          | 84,809,861  |          |      |   | 94,643,217  |          |   |   | 100,024,510 |         
|Repurchase of partners interest                |                   |                          |            |          |      |   | (11,669,034 | )        |   |   |            |         
|Distributions to partners                       |                   |                          | (16,727,427 | )        |      |   | (26,059,372 | )        |   |   | (30,031,560 | )       
|                                                |                   |                          |             |          |      |   |             |          |  
|Partners equity, end of year                   |                   | $                        | 93,875,702  |          |      | $ | 84,809,861  |          |   | $ | 94,643,217  |         
|                                                |                   |                          |             |          |      |   |             |          |  

See notes to consolidated financial statements which are an
integral part of these statements.


F-52



---



##### 







|                                                                                  |                                                 |                                       |             |             |        |   |             |             |         |   |             |             |         |  
|--------------------------------------------------------------------------------- | ----------------------------------------------- | ------------------------------------- | ----------- | ----------- | ------ | - | ----------- | ----------- | ------- | - | ----------- | ----------- | ------- | -
|                                                                                  |                                                 | Years Ended December 31,              |            
|                                                                                  |                                                 |                                       |            
|                                                                                  |                                                 | 2004                                  |             |             | 2003   |   |             | 2002        |        
|                                                                                  |                                                 |                                       |             |             |        |   |             |             |        
|Operating activities                                                              |                                                 |                                       |             |             |        |   |             |             |         |   |             |            
|Net income                                                                        |                                                 | $                                     | 25,793,268  |             |        | $ | 27,895,050  |             |         | $ | 24,650,267  |            
|Adjustments to reconcile net income to net cash used for
    operating activities |                                                 |                                       |             |             |        |   |             |             |         |   |             |            
|                                                                                  | Equity in earnings of RSA partnership interests |                                       |             | (26,562,695 | )      |   |             | (28,258,064 | )       |   |             | (24,825,098 | )      
|                                                                                  | Depreciation                                    |                                       |             | 177,529     |        |   |             | 150,622     |         |   |             | 136,999     |        
|                                                                                  | Amortization of loan costs                      |                                       |             | 75,962      |        |   |             | 5,790       |         |   |             |            |        
|                                                                                  | Changes in operating assets and liabilities     |                                       |             |             |        |   |             |             |         |   |             |             |        
|                                                                                  |                                                 | Accounts receivable                   |             |             | (1,298 | ) |             |             | 69      |   |             |             | 33,121  |  
|                                                                                  |                                                 | Deposits                              |             |             | 30,350 |   |             |             | (30,350 | ) |             |             |        |  
|                                                                                  |                                                 | Accounts payable and accrued expenses |             |             | 74,007 |   |             |             | 54,195  |   |             |             | (83,115 | )
|                                                                                  |                                                 |                                       |             |             |        |   |             |             |        
|Net cash used for operations                                                      |                                                 |                                       | (412,877    | )           |        |   | (182,688    | )           |         |   | (87,826     | )          
|                                                                                  |                                                 |                                       |             |             |        |   |             |             |        
|                                                                                 
|Investing activities                                                              |                                                 |                                       |             |             |        |   |             |             |         |   |             |            
|Proceeds from RSA partnership distributions                                       |                                                 |                                       | 19,730,039  |             |        |   | 24,333,188  |             |         |   | 23,599,268  |            
|RSA capital contributions                                                         |                                                 |                                       | (2,000,000  | )           |        |   |            |             |         |   |            |            
|Proceeds from other assets                                                        |                                                 |                                       |            |             |        |   | 233,739     |             |         |   |            |            
|Purchase of land, building and improvements                                       |                                                 |                                       | (1,250,796  | )           |        |   | (687,561    | )           |         |   | (300,719    | )          
|                                                                                  |                                                 |                                       |             |             |        |   |             |             |        
|Net cash provided by investing activities                                         |                                                 |                                       | 16,479,243  |             |        |   | 23,879,366  |             |         |   | 23,298,549  |            
|                                                                                  |                                                 |                                       |             |             |        |   |             |             |        
|                                                                                 
|Financing activities                                                              |                                                 |                                       |             |             |        |   |             |             |         |   |             |            
|Proceeds from long-term debt                                                      |                                                 |                                       | 13,581,512  |             |        |   | 17,100,000  |             |         |   |            |            
|Repayments of long-term debt                                                      |                                                 |                                       | (15,878,571 | )           |        |   | (1,221,429  | )           |         |   | (4,413,789  | )          
|Payments for loan costs                                                           |                                                 |                                       | (89,260     | )           |        |   | (81,008     | )           |         |   |            |            
|Purchase of partners interest                                                    |                                                 |                                       |            |             |        |   | (17,003,270 | )           |         |   |            |            
|Partnership distributions                                                         |                                                 |                                       | (16,727,427 | )           |        |   | (26,059,372 | )           |         |   | (30,031,560 | )          
|                                                                                  |                                                 |                                       |             |             |        |   |             |             |        
|Net cash used for financing activities                                            |                                                 |                                       | (19,113,746 | )           |        |   | (27,265,079 | )           |         |   | (34,445,349 | )          
|                                                                                  |                                                 |                                       |             |             |        |   |             |             |        
|                                                                                 
|Net change in cash and cash equivalents                                           |                                                 |                                       | (3,047,380  | )           |        |   | (3,568,401  | )           |         |   | (11,234,626 | )          
|Cash and cash equivalents, beginning of year                                      |                                                 |                                       | 6,170,772   |             |        |   | 9,739,173   |             |         |   | 20,973,799  |            
|                                                                                  |                                                 |                                       |             |             |        |   |             |             |        
|Cash and cash equivalents, end of year                                            |                                                 | $                                     | 3,123,392   |             |        | $ | 6,170,772   |             |         | $ | 9,739,173   |            
|                                                                                  |                                                 |                                       |             |             |        |   |             |             |        
|Supplemental cash flow information                                                |                                                 |                                       |             |             |        |   |             |             |         |   |             |            
|                                                                                  | Cash paid for interest                          |                                       | $           | 503,431     |        |   | $           | 159,394     |         |   | $           | 137,702     |        
|                                                                                  |                                                 |                                       |             |             |        |   |             |             |        

See notes to consolidated financial statements which are an
integral part of these statements.


F-53



---



##### 







Note 1  Description of Business and Summary
of Significant Accounting Policies








Consolidation




Estimates




Cash and Cash Equivalents






Interests in RSA Partnerships




Land, Building and Improvements




Loan Costs




F-54



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##### 







Goodwill


Goodwill and Other Intangible Assets.


Income Taxes




Reclassifications




Note 2  Acquisitions




Intangible Assets






Note 3  Interests in RSA Partnerships






| |   |                                                                      
| | - | ---------------------------------------------------------------------
| |  | South Carolina RSA No. 2 Cellular General Partnership (50%
    owned)
|
| |  | South Carolina RSA No. 3 Cellular General Partnership (50%
    owned)
|
| |  | South Carolina RSA No. 4 Cellular General Partnership (50%
    owned)
|
| |  | South Carolina RSA No. 5 Cellular General Partnership (50%
    owned)
|
| |  | South Carolina RSA No. 6 Cellular General Partnership (50%
    owned)
|
| |  | South Carolina RSA No. 7 Cellular General Partnership (50%
    owned)

F-55



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##### 









| |   |                                                                      
| | - | ---------------------------------------------------------------------
| |  | South Carolina RSA No. 8 Cellular General Partnership (50%
    owned)
|
| |  | South Carolina RSA No. 9 Cellular General Partnership (50%
    owned)
|
| |  | North Carolina RSA 5 Cellular Partnership (50% owned)                
|
| |  | North Carolina RSA 15 Cellular Partnership (50% owned)               



|                           |                                        |      |             |             |      |   |             |             | 
|-------------------------- | -------------------------------------- | ---- | ----------- | ----------- | ---- | - | ----------- | ----------- | 
|                           |                                        | 2004 |             |             | 2003 |  
|                           |                                        |      |             |             |      |  
|Current assets             |                                        | $    | 24,472,949  |             |      | $ | 20,585,369  |            
|Net property and equipment |                                        |      | 128,578,925 |             |      |   | 117,896,819 |            
|Other assets               |                                        |      | 1,413,984   |             |      |   | 1,830,391   |            
|                           |                                        |      |             |             |      |  
|                           | Total assets                           |      | $           | 154,465,858 |      |   | $           | 140,312,579 | 
|                           |                                        |      |             |             |      |  
|Current liabilities        |                                        | $    | 18,549,388  |             |      | $ | 19,781,410  |            
|Non-current liabilities    |                                        |      | 24,226,652  |             |      |   | 26,506,661  |            
|Partners equity           |                                        |      | 111,689,818 |             |      |   | 94,024,508  |            
|                           |                                        |      |             |             |      |  
|                           | Total liabilities and partners equity |      | $           | 154,465,858 |      |   | $           | 140,312,579 | 
|                           |                                        |      |             |             |      |  



|                       |                               |                          |             |             |             |   |             |             |             |   |             |             |             | 
|---------------------- | ----------------------------- | ------------------------ | ----------- | ----------- | ----------- | - | ----------- | ----------- | ----------- | - | ----------- | ----------- | ----------- | 
|                       |                               | 2004                     |             |             | 2003        |   |             | 2002        |            
|                       |                               |                          |             |             |             |   |             |             |            
|Net sales              |                               | $                        | 268,543,185 |             |             | $ | 239,089,648 |             |             | $ | 230,770,665 |            
|Operating expenses:    |                               |                          |             |             |             |   |             |             |             |   |             |            
|                       | System and operations         |                          |             | 125,376,898 |             |   |             | 102,769,749 |             |   |             | 107,936,892 |            
|                       | Cost of products sold         |                          |             | 23,543,975  |             |   |             | 19,337,760  |             |   |             | 16,859,390  |            
|                       | Depreciation and amortization |                          |             | 19,445,141  |             |   |             | 16,401,642  |             |   |             | 15,233,800  |            
|                       | Selling and marketing         |                          |             | 26,176,695  |             |   |             | 21,361,829  |             |   |             | 18,855,067  |            
|                       | General and administrative    |                          |             | 23,229,878  |             |   |             | 22,693,155  |             |   |             | 22,470,385  |            
|                       |                               |                          |             |             |             |   |             |             |            
|                       |                               | Total operating expenses |             |             | 217,772,587 |   |             |             | 182,564,135 |   |             |             | 181,355,534 | 
|Other income (expense) |                               |                          | 2,257,172   |             |             |   | 438,330     |             |             |   | (99,460     | )          
|Interest income        |                               |                          | 97,617      |             |             |   | 91,523      |             |             |   | 102,615     |            
|                       |                               |                          |             |             |             |   |             |             |            
|                       |                               | Net income               |             | $           | 53,125,387  |   |             | $           | 57,055,366  |   |             | $           | 49,418,286  | 
|                       |                               |                          |             |             |             |   |             |             |            

F-56



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##### 









|                                      |                                                                                   |                                                           |                                           |             |             |            |        |             |             |            |        |             |             |            | 
|------------------------------------- | --------------------------------------------------------------------------------- | --------------------------------------------------------- | ----------------------------------------- | ----------- | ----------- | ---------- | ------ | ----------- | ----------- | ---------- | ------ | ----------- | ----------- | ---------- | 
|                                      |                                                                                   | 2004                                                      |                                           |             | 2003        |            |        | 2002        |            
|                                      |                                                                                   |                                                           |                                           |             |             |            |        |             |            
|Cash flows from operating activities: |                                                                                   |                                                           |                                           |             |             |            |        |             |             |            |        |            
|                                      | Net income                                                                        |                                                           | $                                         | 53,125,387  |             |            | $      | 57,055,366  |             |            | $      | 49,418,286  |            
|                                      | Adjustments to reconcile net income to cash provided by
    operating activities: |                                                           |                                           |             |             |            |        |             |             |            |        |             |            
|                                      |                                                                                   | Depreciation                                              |                                           |             | 19,445,141  |            |        |             | 16,401,642  |            |        |             | 15,233,800  |           
|                                      |                                                                                   | Provision for doubtful accounts                           |                                           |             | 7,676,612   |            |        |             | 7,179,962   |            |        |             | 9,616,740   |           
|                                      |                                                                                   | Amortization of deferred rental revenue and related costs |                                           |             | (2,176,992  | )          |        |             | (2,194,948  | )          |        |             | (2,541,041  | )         
|                                      |                                                                                   | Loss on disposal of assets                                |                                           |             | 101,582     |            |        |             | 23,371      |            |        |             | 2,861       |           
|                                      | Changes in operating assets and liabilities                                       |                                                           |                                           | (8,797,160  | )           |            |        | (1,577,349  | )           |            |        | (13,859,900 | )          
|                                      |                                                                                   |                                                           |                                           |             |             |            |        |             |            
|                                      |                                                                                   |                                                           | Net cash provided by operating activities |             |             | 69,374,570 |        |             |             | 76,888,044 |        |             |             | 57,870,746 | 
|                                      |                                                                                   |                                                           |                                           |             |             |            |        |             |            
|Cash flows from investing activities: |                                                                                   |                                                           |                                           |             |             |            |        |             |             |            |        |            
|                                      | Capital expenditures                                                              |                                                           |                                           | (29,626,965 | )           |            |        | (30,376,298 | )           |            |        | (12,044,842 | )          
|                                      | Proceeds from sale/lease of equipment                                             |                                                           |                                           |            |             |            |        | 2,493       |             |            |        | 600,000     |            
|                                      |                                                                                   |                                                           |                                           |             |             |            |        |             |            
|                                      |                                                                                   | Net cash used for investing activities                    |                                           |             | (29,626,965 | )          |        |             | (30,373,805 | )          |        |             | (11,444,842 | )         
|                                      |                                                                                   |                                                           |                                           |             |             |            |        |             |            
|Cash flows from financing activities: |                                                                                   |                                                           |                                           |             |             |            |        |             |             |            |        |            
|                                      | Distributions to partners                                                         |                                                           |                                           | (39,460,077 | )           |            |        | (48,666,368 | )           |            |        | (47,198,503 | )          
|                                      | Capital contribution from partners                                                |                                                           |                                           | 4,000,000   |             |            |        |            |             |            |        |            |            
|                                      | Change in affiliate payable, net                                                  |                                                           |                                           | (4,286,294  | )           |            |        | 2,152,419   |             |            |        | 772,920     |            
|                                      |                                                                                   |                                                           |                                           |             |             |            |        |             |            
|                                      |                                                                                   | Net cash used for financing activities                    |                                           |             | (39,746,371 | )          |        |             | (46,513,949 | )          |        |             | (46,425,583 | )         
|                                      |                                                                                   |                                                           |                                           |             |             |            |        |             |            
|                                      |                                                                                   | Net change in cash                                        |                                           |             | 1,234       |            |        |             | 290         |            |        |             | 321         |           
|Cash, beginning of year               |                                                                                   |                                                           | 17,750                                    |             |             |            | 17,460 |             |             |            | 17,139 |            
|                                      |                                                                                   |                                                           |                                           |             |             |            |        |             |            
|Cash, end of year                     |                                                                                   | $                                                         | 18,984                                    |             |             | $          | 17,750 |             |             | $          | 17,460 |            
|                                      |                                                                                   |                                                           |                                           |             |             |            |        |             |            



Note 4  Land, Building and Improvements,
Net




|                               |  |      |           |   |      |   |           |  
|------------------------------ |  | ---- | --------- | - | ---- | - | --------- | -
|                               |  | 2004 |           |   | 2003 |  
|                               |  |      |           |   |      |  
|Land                           |  | $    | 2,077,338 |   |      | $ | 1,000,000 |  
|Land improvements              |  |      | 50,000    |   |      |   | 50,000    |  
|Building                       |  |      | 4,997,020 |   |      |   | 4,997,020 |  
|Building improvements          |  |      | 1,229,256 |   |      |   | 1,048,868 |  
|Construction in progress       |  |      |          |   |      |   | 6,930     |  
|                               |  |      |           |   |      |  
|                               |  |      | 8,353,614 |   |      |   | 7,102,818 |  
|Less, accumulated depreciation |  |      | (668,041  | ) |      |   | (490,512  | )
|                               |  |      |           |   |      |  
|                               |  | $    | 7,685,573 |   |      | $ | 6,612,306 |  
|                               |  |      |           |   |      |  

F-57



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|           |  |         |           |  |        |   |           |       |  |   |           | 
|---------- |  | ------- | --------- |  | ------ | - | --------- | ----- |  | - | --------- | 
|           |  | Related |           |  |        |   |          
|           |  | Party   |           |  | Others |   |           | Total | 
|           |  |         |           |  |        |   |           |       | 
|2005       |  | $       | 835,803   |  |        | $ | 379,670   |       |  | $ | 1,215,473 | 
|2006       |  |         | 848,395   |  |        |   | 203,830   |       |  |   | 1,052,225 | 
|2007       |  |         | 848,395   |  |        |   | 203,830   |       |  |   | 1,052,225 | 
|2008       |  |         | 848,395   |  |        |   | 203,830   |       |  |   | 1,052,225 | 
|2009       |  |         | 848,395   |  |        |   | 203,830   |       |  |   | 1,052,225 | 
|Thereafter |  |         | 1,749,993 |  |        |   | 127,395   |       |  |   | 1,877,388 | 
|           |  |         |           |  |        |   |           |       | 
|           |  | $       | 5,979,376 |  |        | $ | 1,322,385 |       |  | $ | 7,301,761 | 
|           |  |         |           |  |        |   |           |       | 

Note 5  Long-Term Debt




|                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |      |            |  |      |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- |  | ---- | - | ---------- | -
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | 2004 |            |  | 2003 |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |      |            |  |      |  
|Term note with a bank requiring quarterly principal payments of
    $610,714 plus interest at the 30-day LIBOR rate (1.12% at
    December 31, 2003) plus 1.6%. This note was collateralized
    by an assignment of RSA partnership distributions. This note was
    refinanced during December 2004.                                                                                                                                                                        |  | $    |           |  |      | $ | 15,878,571 |  
|Line of credit agreement with a bank for $20,000,000 requiring
    quarterly interest payments at the 90-day LIBOR rate (2.56% at
    December 31, 2004) plus 2% and required minimum deposits
    with the bank of $1,000,000. The amount of available credit on
    this line is reduced by $500,000 each quarter until the
    agreement matures on December 21, 2014. This line of credit
    is secured by a mortgage on the real property owned by
    HamptonNet, LLC. |  |      | 13,581,512 |  |      |   |           |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |      |            |  |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |      | 13,581,512 |  |      |   | 15,878,571 |  
|Less current portion                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |      |           |  |      |   | (2,442,857 | )
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |      |            |  |      |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | $    | 13,581,512 |  |      | $ | 13,435,714 |  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |      |            |  |      |  





F-58



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Note 6  Related Party Transactions




Note 7  Commitments and Contingencies








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F-69



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INDEX TO EXHIBITS


|            |       |  |             |                                                                                                                                                                                                                                                                                                                                                                                                                                           
|----------- | ----- |  | ----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |       |  | Description
|            |       |  |            
|            | 3.1   |  |             | Articles of Incorporation of CT Communications, as amended.
    (Incorporated by reference to Exhibit 3.1 of CT
    Communications Registration Statement on Form 8-A filed on
    January 28, 1999.)                                                                                                                                                                                                                                    
|            | 3.2   |  |             | Bylaws of CT Communications, as amended. (Incorporated by
    reference to Exhibit 3.2 to CT Communications Annual
    Report on Form 10-K filed with the Securities and Exchange
    Commission on March 29, 1999.)                                                                                                                                                                                                                     
|            | 4.1   |  |             | Amended and Restated Rights Agreement, dated as of
    January 28, 1999 and effective as of August 27, 1998,
    between CT Communications and First Union National Bank,
    including the Rights Certificate attached as an exhibit thereto.
    (Incorporated by reference to Exhibit 4.2 of CT
    Communications Registration Statement on Form 8-A, filed
    with the Securities and Exchange Commission on January 28,
    1999).
|            | 4.2   |  |             | Specimen of Common Stock Certificate. (Incorporated by reference
    to Exhibit 4.1 of CT Communications Registration
    Statement on Form 8-A, filed with the Securities and Exchange
    Commission on January 28, 1999.)                                                                                                                                                                                                             
|            | 10.1  |  |             | BellSouth Carolinas PCS Limited Partnership Agreement dated
    December 8, 1994. (Incorporated by reference to
    Exhibit 10(h) of CT Communications Amendment
    No. 1 to Annual Report on Form 10-K/A, filed with the
    Securities and Exchange Commission on July 14, 1995.)                                                                                                                                                     
|            | 10.2  |  |             | Limited Liability Company Agreement of WONC dated
    October 10, 1995 by and among CT Wireless, Wireless One,
    Inc. and O. Gene Gabbard. (Incorporated by reference to
    Exhibit 10.4 to CT Communications Annual Report on
    Form 10-K, filed with the Securities and Exchange Commission on
    March 31, 1997.)                                                                                                               
|            | 10.3  |  |             | 1989 Executive Stock Option Plan dated April 26, 1989.
    (Incorporated by reference to Exhibit 10(d) to CT
    Communications Annual Report Form 10-K, filed with the
    Securities and Exchange Commission on March 29, 1994.)                                                                                                                                                                                                       
|            | 10.4  |  |             | Comprehensive Stock Option Plan dated April 27, 1995.
    (Incorporated by reference to Exhibit 99.1 to CT
    Communications Registration Statement on Form S-8
    (No. 33-59645), filed with the Securities and Exchange
    Commission on May 26, 1995.)                                                                                                                                                                             
|            | 10.5  |  |             | Employee Stock Purchase Plan dated April 27, 1995.
    (Incorporated by reference to Exhibit 99.1 to CT
    Communications Registration Statement on Form S-8
    (No. 33-59643), filed with the Securities and Exchange
    Commission on May 26, 1995.)                                                                                                                                                                                
|            | 10.6  |  |             | Restricted Stock Award Program dated April 27, 1995.
    (Incorporated by reference to Exhibit 99.1 to CT
    Communications Registration Statement on Form S-8
    (No. 33-59641), filed with the Securities and Exchange
    Commission on May 26, 1995.)                                                                                                                                                                              
|            | 10.7  |  |             | Omnibus Stock Compensation Plan dated April 24, 1997.
    (Incorporated by reference to Exhibit 10.10 to CT
    Communications Annual Report on Form 10-K, filed with the
    Securities and Exchange Commission on April 9, 1998.)                                                                                                                                                                                                      
|            | 10.8  |  |             | 1997 Employee Stock Purchase Plan dated April 24, 1997.
    (Incorporated by reference to Exhibit 10.11 to CT
    Communications Annual Report on Form 10-K, filed with the
    Securities and Exchange Commission on April 9, 1998.)                                                                                                                                                                                                    
|            | 10.9  |  |             | Change in Control Agreement, dated October 1, 1997, between
    CT Communications and Michael R. Coltrane. (Incorporated by
    reference to Exhibit 10.12 to CT Communications
    Annual Report on Form 10-K, filed with the Securities and
    Exchange Commission on April 9, 1998.)                                                                                                                                                 
|            | 10.11 |  |             | Change in Control Agreement, dated as of June 22, 1998,
    between CT Communications and Richard L. Garner, Jr.
    (Incorporated by reference to Exhibit 10.14 to CT
    Communications Annual Report on Form 10-K, filed with the
    Securities and Exchange Commission on March 29, 1999.)                                                                                                                                          



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##### 



|            |       |  |             |                                                                                                                                                                                                                                                                                                                                                                                                                  
|----------- | ----- |  | ----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |       |  | Description
|            |       |  |            
|            | 10.12 |  |             | Change in Control Agreement, dated as of December 12, 1998,
    between CT Communications and Michael R. Nash. (Incorporated by
    reference to Exhibit 10.14 to CT Communications
    Annual Report on Form 10-K, filed with the Securities and
    Exchange Commission on March 29, 1999.)                                                                                                                   
|            | 10.13 |  |             | Change in Control Agreement, dated as of December 30, 1998,
    between CT Communications and Charlotte S. Walsh. (Incorporated
    by reference to Exhibit 10.14 to CT Communications
    Annual Report on Form 10-K, filed with the Securities and
    Exchange Commission on March 29, 1999.)                                                                                                                
|            | 10.14 |  |             | Form of Supplemental Executive Retirement Plan, dated
    June 27, 1997. (Incorporated by reference to
    Exhibit 10.17 to CT Communications Annual Report on
    Form 10-K, filed with the Securities and Exchange Commission on
    April 9, 1998.)                                                                                                                                                          
|            | 10.15 |  |             | Contribution Agreement by and among Palmetto MobileNet, L.P.,
    PMN, Inc., CT Communications and Ellerbe Telephone Co., dated as
    of January 1, 1998. (Incorporated by reference to
    Exhibit 10.18 to CT Communications Annual Report on
    Form 10-K, filed with the Securities and Exchange Commission on
    April 9, 1998.)                                                                        
|            | 10.16 |  |             | Change in Control Agreement, dated September 27, 1999,
    between CT Communications and Amy M. Justis. (Incorporated by
    reference to Exhibit 10.21 to CT Communications
    Annual Report on Form 10-K, filed with the Securities and
    Exchange Commission on March 28, 2000.)                                                                                                                          
|            | 10.18 |  |             | Amendment to the CT Communications, Inc. Omnibus Stock
    Compensation Plan, originally effective as of April 24,
    1997, dated as of February 22, 2001. (Incorporated by
    reference to Exhibit 10.26 on CT Communications
    Annual Report on Form 10-K, filed with the Securities and
    Exchange Commission on March 30, 2001.)                                                                      
|            | 10.19 |  |             | Amendment to the CT Communications, Inc. 1995 Comprehensive
    Stock Option Plan dated as of February 22, 2001.
    (Incorporated by reference to Exhibit 10.27 to CT
    Communications Annual Report on Form 10-K, filed with the
    Securities and Exchange Commission on March 30, 2001.)                                                                                                                 
|            | 10.20 |  |             | CT Communications, Inc. 1996 Director Compensation Plan.
    (Incorporated by reference to Exhibit 99.1 to CT
    Communications Registration Statement on Form S-8
    (No. 333-15537), filed with the Securities and Exchange
    Commission on November 5, 1996.)                                                                                                                                            
|            | 10.21 |  |             | Credit Agreement, dated as of May 4, 2001, by and among CT
    Communications, the Subsidiary Borrowers referred to therein,
    the Lenders referred to therein and CoBank ACB, as
    administrative agent. (Incorporated by reference to
    Exhibit 10.1 of CT Communications Quarterly Report on
    Form 10-Q, filed with the Securities and Exchange Commission on
    August 14, 2001.)                 
|            | 10.22 |  |             | CT Communications, Inc. 2001 Employee Stock Purchase Plan, dated
    April 26, 2001. (Incorporated by reference to
    Exhibit 10.2 to CT Communications Quarterly Report on
    Form 10-Q, filed with the Securities and Exchange Commission on
    May 15, 2001.)                                                                                                                                             
|            | 10.23 |  |             | Limited Liability Company Interest Purchase Agreement, dated
    September 14, 2001, among Wireless One of North Carolina,
    L.L.C., CT Wireless Cable, Inc., Wireless One, Inc., and
    WorldCom Broadband Solutions, Inc. (Incorporated by reference to
    Exhibit 99.1 to CT Communications Current Report on
    Form 8-K, filed with the Securities and Exchange Commission
    on September 28, 2001.)
|            | 10.24 |  |             | Executive Nonqualified Excess Plan, as amended, dated
    December 1, 2001. (Incorporated by reference to
    Exhibit 10.1 to CT Communications Quarterly Report on
    Form 10-Q, filed with the Securities and Exchange Commission on
    May 14, 2003.)                                                                                                                                                      



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|            |       |  |             |                                                                                                                                                                                                                                                                                                                       
|----------- | ----- |  | ----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |       |  | Description
|            |       |  |            
|            | 10.25 |  |             | Employment Agreement, dated as of April 15, 2002, between
    CT Communications and James E. Hausman. (Incorporated by
    reference to Exhibit 10.1 to CT Communications
    Quarterly Report on Form 10-Q, filed with the Securities and
    Exchange Commission on August 14, 2002.)                              
|            | 10.26 |  |             | Employment Agreement, dated as of May 15, 2002, between CT
    Communications and Matthew J. Dowd. (Incorporated by reference
    to Exhibit 10.2 to CT Communications Quarterly Report
    on Form 10-Q, filed with the Securities and Exchange Commission
    on August 14, 2002.)                                 
|            | 10.27 |  |             | Change in Control Agreement, dated as of May 20, 2002,
    between CT Communications and James E. Hausman. (Incorporated by
    reference to Exhibit 10.3 to CT Communications
    Quarterly Report on Form 10-Q, filed with the Securities and
    Exchange Commission on August 14, 2002.)                         
|            | 10.28 |  |             | Change in Control Agreement, dated as of March 10, 2003,
    between CT Communications and Matthew J. Dowd. (Incorporated by
    reference to Exhibit 10.28 to CT Communications
    Annual Report on Form 10-K, filed with the Securities and
    Exchange Commission on March 28, 2003.)                           
|            | 10.29 |  |             | Change in Control Agreement, dated as of March 7, 2003,
    between CT Communications and Ronald A. Marino. (Incorporated by
    reference to Exhibit 10.29 to CT Communications
    Annual Report on Form 10-K, filed with the Securities and
    Exchange Commission on March 28, 2003.)                           
|            | 10.30 |  |             | CT Communications, Inc. Amended and Restated 2001 Stock
    Incentive Plan. (Incorporated by reference to Exhibit 10 to
    CT Communications Quarterly Report on Form 10-Q, filed
    with the Securities and Exchange Commission on May 5, 2004.)                                                                  
|            | 10.31 |  |             | CT Communications, Inc. Amended and Restated 2001 Stock
    Incentive Plan: Form of Non-Qualified Stock Option Agreement.
    (Incorporated by reference to Exhibit 10.1 to CT
    Communications Quarterly Report on Form 10-Q, filed with
    the Securities and Exchange Commission on November 5, 2004.)         
|            | 10.32 |  |             | CT Communications, Inc. Amended and Restated 2001 Stock
    Incentive Plan: Form of Incentive Stock Option Agreement.
    (Incorporated by reference to Exhibit 10.2 to CT
    Communications Quarterly Report on Form 10-Q, filed with
    the Securities and Exchange Commission on November 5, 2004.)             
|            | 10.33 |  |             | CT Communications, Inc. Amended and Restated 2001 Stock
    Incentive Plan: Form of Restricted Stock Agreement.
    (Incorporated by reference to Exhibit 10.3 to CT
    Communications Quarterly Report on Form 10-Q, filed with
    the Securities and Exchange Commission on November 5, 2004.)                   
|            | 10.34 |  |             | CT Communications, Inc. Amended and Restated 2001 Stock
    Incentive Plan: Form of Director Non-Qualified Stock Option
    Agreement. (Incorporated by reference to Exhibit 10.4 to CT
    Communications Quarterly Report on Form 10-Q, filed with
    the Securities and Exchange Commission on November 5, 2004.)
|            | 10.35 |  |             | Description of Annual Incentive and Long-Term Incentive Bonus
    Awards. (Incorporated by reference to Exhibit 10.1 to CT
    Communications Current Report on Form 8-K, filed with the
    Securities and Exchange Commission on January 20, 2005.)                                                                
|            | 10.36 |  |             | Description of 2004 Compensation of Directors. (Incorporated by
    reference to Exhibit 10.2 to CT Communications
    Current Report on Form 8-K, filed with the Securities and
    Exchange Commission on January 20, 2005.)                                                                                       
|            | 10.37 |  |             | Description of Annual Incentive and Long-Term Incentive Bonus
    Awards. (Incorporated by reference to Exhibit 10.1 to CT
    Communications Current Report on Form 8-K, filed with the
    Securities and Exchange Commission on February 14, 2005.)                                                               



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##### 



|            |       |  |             |                                                                                                                                                                                                                                                                                                        
|----------- | ----- |  | ----------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |       |  | Description
|            |       |  |            
|            | 10.38 |  |             | Description of 2005 Compensation of Directors. (Incorporated by
    reference to Exhibit 10.2 to CT Communications
    Current Report on Form 8-K, filed with the Securities and
    Exchange Commission on February 14, 2005.)                                                                       
|            | 10.39 |  |             | Description of Director Stock Unit Program. (Incorporated by
    reference to Exhibit 10 to CT Communications Current
    Report on Form 8-K, filed with the Securities and Exchange
    Commission on March 2, 2005.)                                                                                
|            | 10.40 |  |             | Resolution Agreement, dated January 31, 2005, between CT
    Communications, Inc. and North Carolina Department of Revenue
    (Incorporated by reference to Exhibit 10 to CT
    Communications Current Report on Form 8-K, filed with the
    Securities and Exchange Commission on March 23, 2005.)
|            | 10.41 |  |             | Amended and Restated Agreement of Limited Partnership of
    Palmetto MobileNet, L.P., dated as of September 1, 1998.                                                                                                                                                                                  
|            | 10.42 |  |             | First Amendment to the Agreement of Limited Partnership of
    Palmetto MobileNet, L.P., dated as of January 1, 1999.                                                                                                                                                                                  
|            | 10.43 |  |             | Second Amendment to the Agreement of Limited Partnership of
    Palmetto MobileNet, L.P., dated as of October 8, 2003.                                                                                                                                                                                 
|            | 10.44 |  |             | Amendment to CT Communications, Inc. 1996 Director
    Compensation Plan, dated as of August 1, 2004.                                                                                                                                                                                                  
|            | 21.1  |  |             | Subsidiaries of CT Communications.                                                                                                                                                                                                                                                                     
|            | 23.1  |  |             | Consent of KPMG LLP.                                                                                                                                                                                                                                                                                   
|            | 23.2  |  |             | Consent of Bauknight Pietras & Stormer, P.A.                                                                                                                                                                                                                                                           
|            | 23.3  |  |             | Consent of PricewaterhouseCoopers, LLP.                                                                                                                                                                                                                                                                
|            | 23.4  |  |             | Consent of Elliott Davis, LLC                                                                                                                                                                                                                                                                          
|            | 31.1  |  |             | Certification of Chief Executive Officer pursuant to
    Rule 13a-14(a) under the Securities Exchange Act of 1934.                                                                                                                                                                                     
|            | 31.2  |  |             | Certification of Chief Financial Officer pursuant to
    Rule 13a-14(a) under the Securities Exchange Act of 1934.                                                                                                                                                                                     
|            | 32.1  |  |             | Certification of Chief Executive Officer and Chief Financial
    Officer pursuant to Rule 13a-14(b) under the Securities
    Exchange Act of 1934 and 18 U.S.C. 1350.