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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,
    2003                                            
|OR        
|[  ]       |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|           |  | For the transition period
    from                to                                        

Commission File Number: 0-19179

CT COMMUNICATIONS, INC.

(Exact name of registrant as specified in its
charter)


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

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

Registrants telephone number, including
area code: (704) 722-2500

Securities registered pursuant to
Section 12(b) of the Act:

None


Securities registered pursuant to
Section 12(g) of the Act:

Common Stock


Rights to Purchase Common Stock


Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.  Yes x  No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to
this
Form 10-K.  x

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Act).  Yes x  No o

The aggregate market value of the voting stock
held by nonaffiliates of the registrant as of June 30, 2003
(based on the closing price of $10.70 per share as quoted on The
Nasdaq Stock Market as of such date) was $187,132,000. As of
February 27, 2004, there were 18,875,635 shares of the
registrants Common Stock outstanding.

Documents Incorporated by Reference

|                                    |  |                             
|----------------------------------- |  | ----------------------------
|Document of the Company             |  | Form 10-K Reference Location
|                                    |  |                             
|2004 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, 2003

TABLE OF CONTENTS

|           |  |                                                                                                                          |  |   
|---------- |  | ------------------------------------------------------------------------------------------------------------------------ |  | --
|PART I    
|Item 1.    |  | Business                                                                                                                 |  | 2 
|Item 2.    |  | Properties                                                                                                               |  | 20
|Item 3.    |  | Legal Proceedings                                                                                                        |  | 20
|Item 4.    |  | Submission of Matters to a Vote of Security
    Holders                                                                  |  | 21
|PART II   
|Item 5.    |  | Market for the Registrants Common Equity,
    Related Shareholder Matters and Issuer Purchases of Equity
    Securities |  | 21
|Item 6.    |  | Selected Financial Data                                                                                                  |  | 22
|Item 7.    |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                                |  | 23
|Item 7A.   |  | Quantitative and Qualitative Disclosures about
    Market Risk                                                           |  | 38
|Item 8.    |  | Financial Statements and Supplementary Data                                                                              |  | 39
|Item 9.    |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure                                 |  | 39
|Item 9A.   |  | Controls and Procedures                                                                                                  |  | 39
|PART III  
|Item 10.   |  | Directors and Executive Officers of the Company                                                                          |  | 39
|Item 11.   |  | Executive Compensation                                                                                                   |  | 40
|Item 12.   |  | Security Ownership of Certain Beneficial Owners
    and Management and Related Shareholder Matters                       |  | 40
|Item 13.   |  | Certain Relationships and Related Transactions                                                                           |  | 40
|Item 14.   |  | Principal Accountant Fees and Services                                                                                   |  | 41
|PART IV   
|Item 15.   |  | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K                                                      |  | 41
|Signatures |  | 42                                                                                                                      





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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 our 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.

References in this Form 10-K to
we, us, our, the
Company, CTC, and
CT Communications mean
CT Communications, Inc. and our subsidiaries and
predecessors, unless the context suggests otherwise.

General

CT Communications, Inc. is a holding
company that, through its operating subsidiaries, provides a
broad range of telecommunications services to residential and
business customers located primarily in North Carolina. We offer
a comprehensive package of telecommunications and related
services, including local and long distance
telephone, Internet and data services and digital wireless
products and services.

We began operations in 1897 as The Concord
Telephone Company (Concord Telephone). Concord
Telephone continues to operate as an incumbent local exchange
carrier (ILEC) in a territory covering approximately
705 square miles in Cabarrus, Stanly and Rowan counties in
North Carolina. This area is located just northeast of
Charlotte, North Carolina along the Interstate 85 corridor, a
major north/south connector between Atlanta, Georgia and
Washington, D.C. We offer a full range of local telephone,
long distance and other enhanced services to our ILEC customers.

In 1998, we began to operate as a competitive
local exchange carrier (CLEC) in
edge-out markets contiguous to our ILEC service
area. Our CLEC business focuses on small-to-medium-size
companies along the I-85 corridor, between Charlotte and
Greensboro, North Carolina. In late 2000, we expanded our
geographical focus with the opening of a CLEC office in the
Greensboro market. Our CLEC offers services substantially
similar to those offered by our ILEC.

Since 1999, we have pursued our Greenfield
operations in high growth communities, including those in the
Charlotte and Raleigh, North Carolina markets. We are working
with developers and builders to become the telecommunications
provider for their developments. Under agreements with these
developers, we provide the telecommunications infrastructure
within these developments. By clustering our projects, we are
able to gain capital and operating efficiencies.

We provide long distance telephone service in the
areas served by our ILEC, CLEC, and Greenfield business units.
We have agreements with several interexchange carriers to
terminate traffic that originates on our network, and our
switching platform enables us to route traffic to these
providers.

We offer Internet and data services to ILEC, CLEC
and Greenfield business and residential customers. These
services include dial-up and high speed dedicated Internet
access and digital subscriber line (DSL) services.
Between May 1998 and December 2000, we significantly expanded
this business through strategic acquisitions.

We offer our own branded digital wireless
services through our ongoing agreement with Cingular Wireless
(Cingular). In June 2001, we completed the
partitioning of our area of the Cingular digital

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network, including the acquisition of cell sites,
subscribers, and a license for spectrum. Cingular is a joint
venture that was formed by the combination of most of the former
domestic wireless operations of BellSouth Corporation
(BellSouth) and SBC Communications
(SBC). Roaming agreements with other wireless
carriers enable our customers to utilize their digital wireless
services throughout the United States and in a number of foreign
countries.


Additional business, financial and competitive
information about our operations is discussed below. For other
information regarding our business segments, see the Note
entitled Segment Information in the notes to
consolidated financial statements included elsewhere in this
report.

CT Communications, Inc. is incorporated
under the laws of North Carolina and was organized in 1993
pursuant to the corporate reorganization of Concord Telephone
into a holding company structure. Our principal executive
offices are located at 1000 Progress Place, Northeast, Concord,
North Carolina 28025 (telephone number: (704) 722-2500).

Operations



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

Concord Telephone offers integrated
telecommunications services as an ILEC to customers served by
over 115,000 access lines in Cabarrus, Stanly and Rowan counties
in North Carolina. Our ILEC network facilities include nearly
18,500 fiber optic conductor miles, serving nine exchanges in a
host-remote switch architecture.

The operations of Concord Telephone are our
primary business segment. Concord Telephone accounted for
approximately 60%, 64% and 70% of our operating revenue in the
years 2003, 2002 and 2001, respectively. This percentage has
decreased over the past three years as we have grown our
non-ILEC businesses into significant operations. Nevertheless,
we continue to expect Concord Telephone to account for a
significant portion of our revenue and earnings in 2004.

Concord Telephone ended 2003 with 115,538 access
lines in service, a 3.5% decrease from year-end 2002. Of those
lines, 84,714 selected Concord Telephone as their long distance
provider, compared with 84,591 lines at year-end 2002.

The Companys ILEC derives revenue from
providing local telephone services, network access services and
other related services. Local service revenue is derived from
the provision of local exchange telephone services in the
Companys service areas and includes primarily revenue from
local service charges and calling features.

Network access revenue primarily relates to
services provided by the Company to long distance carriers,
wireless carriers and other customers in connection with the use
of the Companys facilities to originate and terminate
interstate, intrastate and local telephone calls. Certain of the
Companys interstate network access revenue is based on
tariffed access charges prescribed by the Federal Communications
Commission (FCC). The remainder of such interstate
revenue is derived from revenue pooling arrangements with other
local exchange carriers (LECs) administered by the
National Exchange Carrier Association (NECA), a
quasi-governmental non-profit organization formed by the FCC in
1983 for such purpose. The Companys ILEC participates in
the NECA Carrier Common Line pool and is the recipient of
long-term support. In addition, the ILEC receives Interstate
Common Line Support (ICLS) funds, which are
administered by NECA. The ICLS support mechanism was established
in July 2003.

Other revenue includes revenue related to
leasing, selling, installing, maintaining and repairing customer
premise telecommunications equipment and wiring, and publication
of local directories.

The Company believes the decline in the number of
access lines is primarily due to declines in second lines, soft
general economic conditions in the Companys markets and
the displacement of traditional telephone services by other
competitive service providers.

3



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Continued high customer satisfaction remains a
top priority, and our efforts are directed accordingly. We have
implemented performance and satisfaction measures in our
operations and continue to survey customers monthly to gauge
loyalty and satisfaction. We hold all of our employees
accountable for service quality, and a portion of their
compensation depends upon customer survey results.

Our sales efforts in 2004 will focus on
increasing revenue per customer through continued development of
bundled service offerings and an emphasis on incremental calling
features. Eligible access lines with at least one calling
feature increased from 46.2% in 2002 to 48.3% in 2003. The
average number of calling features per line increased from 2.7
in 2002 to 3.6 in 2003.

Our ILEC sales team is structured to provide
maximum flexibility for our customers. Residential customers may
personally meet with a sales and service representative in one
of our four business offices or alternatively can take advantage
of the convenience of calling into our centralized customer care
center. Business customers are served by a specialized customer
care group that is trained to manage the products and services
unique to the business market. Customers with less complex needs
are supported by a specialized telephone customer care group,
which develops solutions to customer communications requirements
and schedules service installations. Major business customers
are assigned dedicated account executives that are familiar with
their complex applications and service requirements.

A centralized operations service center
coordinates provisioning and maintenance for all ILEC customers.
In addition to receiving maintenance requests, this center
dispatches field personnel and monitors the status of all
service orders and maintenance requests. To ensure continued
customer satisfaction, the centers operational performance
is measured against targeted customer response time intervals
and the ability to meet customer commitment dates.

Our core ILEC network is comprised of modern
digital switching equipment and fiber optic cable with
self-healing SONET ring topology. We continue to upgrade our
distribution network by moving fiber and electronics closer to
the customer through the use of remote switching units. The
customer care service center operations are supported by an
AS400-based service order, trouble-ticketing, billing and
collection system and a Mitel private branch exchange with
automated call distribution capabilities. We also have a network
operations center that identifies problems as they occur and
diagnoses potential network problems before customers are
impacted.

Telecommunications equipment providers have been
impacted by the economic slowdown and market conditions. While
we have some diversity among our suppliers, the difficult
financial conditions may affect their ability to provide product
enhancements and ongoing support.

Regulation.Our ILEC
is subject to regulation by various federal, state and local
governmental bodies. We voluntarily opened our markets to
competition for local dial tone in 1997, in exchange for rate
rebalancing, pricing flexibility and simplification of rate
plans in our price regulation plans. Federal regulations have
required us to permit interconnection with our network and have
established our obligations with respect to reciprocal
compensation for completion of calls, the resale of
telecommunications services, the provision of nondiscriminatory
access to unbundled network elements, number portability,
dialing parity and access to poles, ducts, conduits and
rights-of-way. As a general matter, this ongoing regulation
increases our ILECs business risks and may have a
substantial impact on our ILECs future operating results.
The FCC and North Carolina Utilities Commission
(NCUC) continue to modify various rules surrounding
local competition.

Our ILEC is subject to competition from a variety
of other companies such as competitive local exchange carriers,
wireless companies, cable television companies, Internet
service providers and newer Voice over Internet Protocol
(VoIP) companies.

The FCC governs our ILECs rates for
interstate access services under a rate-of-return form of
regulation at the interstate level. The FCC has been studying
intercarrier compensation since 2001. There are certain parties
that are advocating elimination of switched access charges and
other access charges that have traditionally been imposed on
other carriers that use the ILEC network for call completion.
Some current proposals appear to encourage a revenue neutral
impact of the elimination of these charges for

4



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rural companies by replacing such charges with
higher monthly service rates and compensation through an access
recovery mechanism. Currently, our ILEC receives revenue from
the long-term support and ICLS components of the Universal
Service Fund. In addition, certain companies have been deploying
VoIP technology in an effort to avoid the payment of access
charges. This issue is currently before the FCC. It is expected
that these issues will receive significant attention at the FCC
in 2004. On February 12, 2004, the FCC announced a decision
on Pulver.coms petition that companies offering VoIP
telephony services that were strictly computer-to-computer and
did not utilize the public switched telephone network would
remain free of regulation. On the same date, the FCC also
announced a rulemaking to examine what aspects of regulation
should be applicable to VoIP services such as 911 services,
universal service, disability access and access charges.


In August 2003, the FCC released its Triennial
Review Order addressing unbundled network elements. State
commissions are required to address several issues regarding the
level of competition in the state and the need for ILECs to
continue providing certain unbundled network elements. In
addition, numerous lawsuits and petitions contesting various
aspects of the Triennial Review Order have been filed in various
forums, including the FCC. While many of these proceedings are
now underway, the impact of these issues on our business cannot
yet be determined. We believe that the impact to our ILEC will
be minimal.

State laws and regulations require us to comply
with North Carolina pricing regulations, file periodic reports,
pay various fees and comply with rules governing quality of
service, consumer protection and similar matters. Local
regulations require us to obtain municipal franchises and to
comply with various building codes and business license
requirements. These federal, state and local regulations are
discussed in more detail under Legislative and Regulatory
Developments under this Item 1.

Since September 1997, our ILECs rates for
local exchange services have been established under a price
regulation plan approved by the NCUC. Under the price regulation
plan, our charges are no longer subject to rate-base,
rate-of-return regulation. Instead, the revenues for most of our
local exchange services may be adjusted to reflect changes in
inflation reduced by a 2% assumed productivity offset. The price
regulation plan also allows flexibility for adjustments based on
certain external events outside of our control, such as
jurisdictional cost shifts or legislative mandates. In previous
years, we have rebalanced certain rates under the price
regulation plan. The price rebalancing arrangement allows us to
continue adjusting revenues to keep them in line with related
costs. The primary result has been an increase in the monthly
basic service charges paid by residential customers, a decrease
in access charges paid by interexchange carriers and a decrease
in rates paid by end users for an expanded local calling scope.
Previously, we believed the NCUC would review our price
regulation on or about the fifth anniversary (2002) as
required by the plan. The review has been delayed and we are
uncertain as to when the NCUC will conduct such a review. In the
meantime, state legislation was enacted in North Carolina in May
2003 that removed the ability of the NCUC to consider past or
present rates of return in evaluating whether a price regulation
plan is in the public interest.

The FCC required wireline companies in the top
100 metropolitan statistical areas (MSAs) to begin
intermodal porting (from wireline to wireless) beginning
November 24, 2003. In areas of the country below the top
100 MSAs, wireline to wireless porting is scheduled to begin
May 24, 2004. Local number portability (LNP)
could result in increased customer churn over time, but has not
yet had any significant impact on our business.

Competition.Several
factors have resulted in rapid change and increased competition
in the local telephone market, including:



| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | 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,                                                      

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| |   |                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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.                                                                                

We agreed to open our traditional service area to
competition for local dial tone service in 1997, in exchange for
rate rebalancing, pricing flexibility and simplification of rate
plans in our price regulation plans. We have entered into eight
interconnection agreements with companies such as Time Warner
Telecom of North Carolina, L.P. (Time Warner), US
LEC of North Carolina, L.L.C., Cat Communications, Inc. and
North Carolina Telcom, L.L.C. to provide access to our local
telephone service market.

Cable operators are also entering the local
exchange and high speed Internet markets. Time Warner plans to
offer telephony services in its major markets and cable and
high-speed Internet service in our core service area. Another
major source of competition is wireless service providers
serving our traditional service area.

CLEC
Services

Our CLEC business was certified by the NCUC in
1997, the South Carolina Public Service Commission in 2000, and
the Georgia Public Service Commission (GPSC) in
2001. Operation began late in 1997 in Salisbury and northern
Charlotte, North Carolina, through an interconnection agreement
with BellSouth. Since 1998, we have entered into interconnection
agreements with Verizon Communications, Inc.
(Verizon), Sprint Corporation (Sprint),
Alltel Corporation (Alltel) and The Concord
Telephone Company, our ILEC affiliate.

At December 31, 2003,we were
providing competitive local access to customers served by more
than 29,000 access lines in select markets in North Carolina. We
will maintain our focus in 2004 on achieving increased market
penetration and higher revenue per customer in the markets where
we currently provide service. The CLEC accounted for 12%, 10%
and 8% of our operating revenue in the years 2003, 2002 and
2001, respectively.

Our CLEC business employs the same sales strategy
as our ILEC business, using locally based account executives
that meet face-to-face with business customers. Our CLEC offers
an integrated combination of communications services, including
local service, long distance service and enhanced voice
services, and Internet and data services. Our CLEC uses the same
billing platform as our ILEC.

Our CLEC manages its own network elements and
elements leased from the incumbent local carrier, utilizing the
MetaSolv ordering and provisioning system. We are highly
dependent upon these local carriers because of the coordination
required to transfer customers and for the reliability of the
network elements that we lease. The CLECs customer care
group has received specialized training specific to
interconnection ordering and provisioning processes. These
employees are held to the same high standards for service
quality as our ILEC customer care group.

We deploy a facilities-based network in our
expansion markets, collocating our own remote switching
equipment with the incumbent telephone company in key geographic
areas. The local remote switches in each of our expansion
markets are connected using a variety of fiber optic links. We
typically lease appropriate network elements from the incumbent
or alternate carriers to give us greater control over the
service quality and to provide a platform for future expansion.
We will continue to evaluate the economics of building our own
outside plant network in locations where there exists a
significant concentration of customers that are not currently on
our network. In 2002, we identified three opportunities that met
these criteria and constructed facilities that allowed us to
transfer the associated customers to our own outside plant
network facilities. We utilize a Nortel DMS 500 switch in
Charlotte that permits us to switch local traffic from our CLEC
and all of our long distance traffic.

6



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Regulation.In
general, our CLEC establishes its own rates and charges for
local services and is subject to less regulation as compared to
our ILEC. However, like our ILEC, our CLEC must comply with
various rules of the NCUC and the GPSC governing quality of
service, consumer protection and similar matters. The FCC has
jurisdiction over our CLEC interstate services, such as access
service. In 2001, the FCC adopted rules that set interstate
switched access charges at declining rates. The next rate
reduction is scheduled to be effective June 20, 2004, at
which time the rate will be reduced from $0.012 to the
prevailing ILEC rate. Although the switched access rates will
decline, there is an expected certainty of payment by
interexchange carriers; however, certain interexchange carriers,
such as AT&T, have been deploying VoIP technology in an
effort to avoid payment of access charges. This issue is
currently before the FCC. It is expected that this issue will
receive significant attention at the FCC in 2004.

In August 2003, the FCC released its Triennial
Review Order addressing unbundled network elements
(UNE). State commissions are required to address
several issues regarding the level of competition in the state
and the need for ILECs to continue providing certain unbundled
network elements. In addition, numerous lawsuits and petitions
contesting various aspects of the Triennial Review Order have
been filed with courts and the FCC. While many of these
proceedings are now underway, the impact of these issues on our
business cannot yet be determined.

Currently, many state commissions approve UNE
rates charged by ILECs based on a Total Element Long-Run
Incremental Cost (TELRIC) costing methodology
established by the FCC in 1996. There have been numerous legal
and regulatory battles over the use of TELRIC, which is based on
forward looking costs versus historical costs. The Triennial
Review potentially allows ILECs to increase their cost of
capital and accelerate depreciation used in TELRIC rate
calculations, which may result in an increase in UNE rates. In
addition, the FCC has initiated a separate docket on TELRIC. At
this time, it is estimated that the impact on our business may
be higher rates to obtain UNEs. Our CLEC relies significantly on
network elements supplied by the incumbent local carrier.

Competition.Our
CLEC competes primarily with local incumbent telephone companies
and, to a lesser extent, with other CLECs. Competition for small
to medium sized businesses is intense with knowledgeable
customers that demand low cost, highly dependable service. We
will continue to face competition from potential future market
entrants, including other CLECs, cable television companies,
electric utilities, microwave carriers, wireless
telecommunications providers, Internet service providers,
long distance providers, and private networks built by large
end-users.



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

Our Greenfield business provides comprehensive
wireline telecommunications services to commercial and
residential developments outside of our ILEC serving area. While
most of these developments are located in North Carolina, we
also provide competitive local access in Georgia. At
December 31, 2003, we were providing service to more than
10,000 access lines in select markets in North Carolina and
Georgia.

Our Greenfield business develops relationships
with builders and developers to provide integrated
telecommunications service in their new developments. We enter
into telecommunications provider agreements with those
developers and builders prior to construction to offer local
service, long distance, enhanced voice services, and Internet
and data services to businesses and residents who populate the
development. As of December 31, 2003, we had signed more
than 90 agreements with a potential 48,000 access lines
available upon completion. Our Greenfield business uses the same
billing platform as our ILEC.

In our Greenfield markets, Charlotte and Raleigh,
North Carolina, and northern Georgia, we built a distribution
system that interconnects to our remote switching equipment in
order to become the telecommunications provider for each new
development. We continue to focus on the fastest growing areas
in the Charlotte and Raleigh markets. By clustering several
projects, we expect to gain capital and operating efficiencies
that should contribute to increased profitability.

7



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Regulation.The
Greenfield business is generally regulated in the same manner as
our CLEC business. The Greenfield business establishes its own
rates and charges for local services and is subject to less
extensive regulation as compared to our ILEC. Like the CLEC, our
Greenfield business must comply with various rules of the NCUC
and GPSC governing quality of service, consumer protection and
similar matters. The FCC has jurisdiction over our Greenfield
interstate services, such as access service. In 2001, the FCC
adopted rules that set interstate switched access charges at
declining rates. The next rate reduction is scheduled to be
effective June 20, 2004, at which time the rate will be
reduced from $0.012 to the prevailing ILEC rates.

In 2002, the NCUC determined that exclusive
easement rights (i.e. where a developer is contractually
precluded from granting private easements to other providers)
and exclusive provider arrangements (where one company is
designated as the only company permitted to provide service to
end users within a development) are anti-competitive. While our
agreements with developers do not contain an exclusive provider
provision, some of our agreements did contain an exclusive
easement provision. The Company has notified its developers of
the NCUCs ruling and has formally waived any rights to
enforce these provisions. Further, we have removed any such
references from all new contracts since the NCUCs ruling.
As part of a more comprehensive review, on June 6, 2003,
the NCUC initiated a general inquiry involving all certificated
telecommunications providers regarding preferred provider
contracts. The NCUC is examining all preferred provider
contracts filed by CLECs and ILECs as directed by the NCUC. Our
Greenfield business currently has over 90 such contracts with
developers, and has filed copies as required. Hearings were held
on the matter in late January 2004. At this time, further impact
of this inquiry on our business cannot be determined.

Competition.Our
Greenfield business competes primarily with local incumbent
telephone companies and, to a lesser extent, with other CLECs.
Local telephone companies may increase competition in our
Greenfield areas by overbuilding our network with their own
facilities. Cable telephony could be a direct competitor in the
developments where we provide service since cable companies have
a network within those developments. Wireless and Internet
providers also compete for our wireline customers.



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

We offer digital wireless services in Cabarrus,
Stanly, Rowan and Iredell counties in North Carolina. We sell
digital wireless services and products, including service
packages, long distance, features, handsets, prepaid plans, and
accessories, through seven company owned retail outlets and over
15 indirect retail outlets in North Carolina. We have company
owned retail stores in Concord (2), Kannapolis, Statesville,
Mooresville, Salisbury and Albemarle. Digital wireless products
and services are also sold through our ILEC business offices and
our direct sales force. At December 31, 2003, we served
over 38,000 digital wireless customers. Our digital wireless
business accounted for 18%, 17% and 13% of our operating revenue
in the years 2003, 2002 and 2001, respectively.

In June 2001, we paid approximately
$23 million to Cingular to partition our area of the
Cingular digital network. As a result of the partitioning, we
acquired 47 cell sites, approximately 13,000 additional
subscribers and a license for 30 MHz of spectrum in
Cabarrus, Rowan, and Stanly counties and the southern portion of
Iredell county. As part of the acquisition, we assumed the lease
payments for 28 of the 47 sites acquired. The partitioned area
is approximately twice the size of our ILEC territory. While we
have ownership of the assets and customers within our
partitioned area, we continue to purchase pre-defined services
from Cingular, such as switching, and remain subject to certain
conditions including certain branding and service offering
requirements and requirements to adhere to partnership technical
and customer care standards. Products and services are
co-branded with Cingular. We are not required to pay Cingular
any franchise fees. Under the agreement, we have the ability to
bundle wireless services with wireline products and services and
can customize pricing plans for bundled services based on our
customers needs. Additionally, our agreement with Cingular
allows us to benefit from their nationally recognized brand and
nationwide network, provides us access to favorable
manufacturing discounts for cellsite electronics, handsets and
equipment, and enables us to participate in shared market
advertising.

8



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##### 



Cingular recently announced its plan to merge
with AT&T Wireless, which has cellsites in our partitioned
area. At this time, we are unable to determine how this will
affect the Company.

In 2003, we completed the construction of two
additional cell sites. We expect to add an additional four
locations in 2004. These additional cell sites should increase
coverage and capacity throughout our service area.

We provide customer service utilizing specialized
service representatives trained to handle the specific
requirements of our digital wireless customers. The ordering and
provisioning of digital wireless service can be performed at our
store locations, our ILEC business offices, or by calling our
toll-free number.

Regulation.The
construction, operation, management and transfer of digital
wireless systems in the United States is regulated by the FCC.
Digital wireless carriers are exempt from regulation by the
NCUC. Because of our affiliation with Cingular, Cingular assumes
the responsibility for many of the regulatory issues. The
regulation of wireless services is discussed in more detail
under Legislative and Regulatory Developments in
Item 1 of this Annual Report on Form 10-K. The FCC
required wireless carriers in the top 100 MSAs to implement LNP
beginning on November 24, 2003. A portion of our service
area is within the designated top 100 MSAs. In addition, the FCC
also required wireline companies to begin intermodal porting
(from wireline to wireless) on the same date. In areas of the
country below the top 100 MSAs, wireless to wireless and
wireline to wireless porting is scheduled to begin May 24,
2004. LNP could result in increased customer churn over time,
but has not yet had any significant impact on our business.

Wireless service carriers are required by FCC
rules to provide enhanced 911 emergency service
(E-911) in a two phase approach. Phase one has been
completed and involves delivery of the callers number and
the location of the cell site serving the customer to the Public
Safety Answering Point (PSAP). Phase two will
involve triangulation to allow PSAPs the ability to more
accurately locate a calling party. Because of our affiliation
with Cingular, they have responsibility for directing the
implementation of E-911. We have been working with Cingular as
well as applicable PSAPs in the roll out of E-911. We have
included approximately $2 million in our 2004 capital
budget for this deployment.

Competition.Many
wireless carriers compete in the Charlotte metropolitan area,
including AT&T Wireless, Nextel, Sprint PCS, Alltel Mobile
Communications, Verizon Wireless, Cricket Wireless and Cingular.
This competition has led to intense pressure on the pricing of
wireless services. Several providers have introduced flat
rate pricing, which eliminated roaming and long distance
charges and further reduced unit prices. We intend to compete by
providing extensive geographical coverage, high quality
technology and service, competitive pricing and by capitalizing
on the strength of customers loyalty to us based on
multiple service relationships.



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

In 1995, we began providing dial-up Internet
access to residential and business customers. Since that time,
we have grown our business through internal growth and several
acquisitions, the largest of which were Vnet, a
business-oriented Internet service provider based in Charlotte,
North Carolina and WebServe, Inc. (WebServe), a
Charlotte, North Carolina based provider of web design, hosting,
and programming services. We also acquired several smaller local
Internet service providers. Since late 1999, we have seen a
shift in customers away from the dial-up access service and into
the higher revenue DSL access service. In the third quarter of
2002 we announced the downsizing of our web design services but
continue to offer all other products. At December 31, 2003,
we had over 21,000 Internet customers.

Internet Access
Service.We offer a variety of dial-up
and dedicated solutions that provide access to the Internet. We
also offer a full range of customer premise equipment required
to connect to the Internet. Our access services include:



| |   |                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Dedicated Access.We
    offer 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.

9



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | DSL Access.In late
    1999, we 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. Our DSL services are available at speeds from
    256 Kbps up to 1.54 Mbps. Our 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. Our DSL lines increased
    from 6,664 in 2002 to 10,183 in 2003.
|
| |  | Dial-up Access.Our
    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. Our dial-up customers
    declined 14% in 2003 and 11% in 2002 as customers continue to
    demand higher speed broadband products.                                                                                                                                                                                                                                                                                                                                                              

Web Services.We
offer a variety of value-added services, including web hosting,
collocation, virtual private networks or intranets, remote
access, security solutions, and video conferencing.

Account executives sell Internet and data
services directly to business customers in the Charlotte and
Greensboro, North Carolina metropolitan areas. Our technical
support staff is available 24 hours a day, seven days a
week. Our technicians design, order, configure, install and
maintain all of our equipment to suit the customers needs.
We have a customer care group dedicated to Internet and data
services.

We provide Internet and data services primarily
through our own network in our ILEC and CLEC territories. In
other areas, we use the network of the local telephone company.
We purchase access to the Internet from national Internet
backbone providers, which provide DS-3 access at all major
national access points.

Regulation.Internet
and data services have been determined by the FCC to be
information services and are therefore, not subject
to regulation in the same manner as telecommunications services
are regulated.

Competition.The
Internet and data services market is extremely competitive,
highly fragmented and has grown dramatically in recent years.
The market is characterized by the absence of significant
barriers to entry and the rapid growth in Internet usage among
customers. Sources of competition are:



| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | 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

We began offering long distance services to our
ILEC customers in 1992 and now provide that service to
approximately 84,700 access lines within our ILEC, approximately
15,300 access lines within our CLEC, and more than 4,800 lines
within our Greenfield markets. In our ILEC service area, over
73% of the total lines have selected our own branded long
distance service.

We have agreements with several interexchange
carriers to terminate traffic that originates on our network.
The long distance market has become significantly more
competitive. New competitors have entered the market and prices
have declined, resulting in increased consumer demand and
significant market growth. While this decline in price has
resulted in declining revenue, it has also allowed us to
negotiate more favorable contracts with wholesale long distance
carriers. Increased competition has also led to increased
consolidation among long distance service providers. Major long
distance competitors include AT&T, Sprint, MCI and BellSouth.

10



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##### 



Strong competition in the market forced
significant declines across many of our price plans during 2001,
2002 and 2003 that resulted in lower prices to customers. This
trend is expected to continue as competition increases from
other sources such as Internet telephony.

VoIP is a new competitor for low cost telephone
service that could adversely affect ILEC, CLEC and Greenfield
access revenue, as well as long distance revenues. In addition,
wireless substitution has become a viable threat to our long
distance customer base. Increased competition within the digital
wireless segment will continue to provide customers with more
and lower cost opportunities to replace their long distance
service.



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

Wavetel, L.L.C. (Wavetel) ceased its
wireless broadband commercial trial operations in Fayetteville,
North Carolina effective December 9, 2002. The commercial
trial was initiated in July 2001. The decision to conclude
operations was based on several factors including the limited
coverage area provided by the technology available at the time,
our inability to obtain outside investment, and the downturn in
the telecommunications and financial markets.

Wavetels operations have been reflected as
discontinued operations in the Companys Consolidated
Financial Statements included in Part IV.



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

We have made several strategic investments
designed to contribute to the execution of our business
strategy. The investments are described below.

Palmetto MobileNet.In 1998, we combined our cellular telephone investments with
Palmetto MobileNet, L.P. (Palmetto MobileNet). We
have a 22.4% limited partnership interest in Palmetto MobileNet,
which holds a 50% general partnership interest in 10 rural
service areas covering more than two million people in North
Carolina and South Carolina. Alltel is the managing partner of
the 10 cellular rural service area general partnerships and we
are dependent on their management of the partnerships. During
2000, Alltel signed a roaming agreement with Verizon Wireless
that decreased roaming fees paid to the partnership. During
2003, the partnership purchased the equity interest of one of
the participating partners thereby increasing our partnership
interest from 19.8% to 22.4%. The partnership will continue to
face heavy competition from other digital wireless competitors
in its serving areas and anticipates a reduction in roaming
rates in 2004.

Maxcom.In 1996, we
participated with Grupo Radio Centro in forming Maxcom
Telecomunicaciones, S.A. de C.V. (formerly Amaritel)
(Maxcom), a competitive telecommunications company
offering local, long distance and network telecommunications
services in Mexico. During 1998, we participated in an
additional $49 million private equity financing of Maxcom.
Maxcom began offering commercial services in Mexico City and
Puebla, Mexico in April 1999.

On March 8, 2000, we entered into a Capital
Contribution Agreement with Maxcom and its shareholders. Under
this agreement, the shareholders of Maxcom were obligated to
contribute a total of $35 million to Maxcom in exchange for
capital stock and warrants to purchase additional stock. In
connection with this agreement, we contributed $6.0 million
in August 2000.

In December 2001, we wrote down
$13.4 million of our investment in Maxcom to reflect
managements best estimate of the net realizable value of
our investment. In December 2003, the Company sold its
investment in Maxcom. The sale price was lower than our carrying
value, which resulted in additional losses on the investment
totaling $1.2 million.

Wireless One.In
1995, we participated with Wireless One, Inc. in forming
Wireless One of North Carolina, L.L.C (WONC) to
develop and launch wireless cable systems in North Carolina.
WONC entered into contracts with approximately 45 community
colleges, several private schools in North Carolina and the
University of North Carolina system to provide wireless cable
services and held the majority of the

11



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##### 



Multichannel Multipoint Distribution Service
(MMDS) and Instructional Television Fixed Service
(ITFS) spectrum rights covering North Carolina. In
late 1998, the FCC liberalized the use of these frequencies to
include two-way data and telephone service. WONC continuously
evaluates potential uses of its frequency spectrum, including
digital video, high speed Internet and other traditional
telephony services. The FCC has imposed certain build out
requirements that we achieved through December 31, 2002 to
retain the spectrum licenses. In March 2003 the FCC suspended
those build out requirements pending completion of an
examination of the rules surrounding use of the MMDS and ITFS
spectrum.


In September 2001, we entered into a Limited
Liability Company Interest Purchase Agreement (the
Purchase Agreement) with Wireless One, Inc. and
WorldCom Broadband Solutions, Inc., each of which was a
subsidiary of WorldCom, Inc., and WONC. Under the Purchase
Agreement, WONC purchased the entire fifty percent (50%)
interest of Wireless One, Inc. in WONC. After this
transaction was completed the Company owned, through our
subsidiary CT Wireless Cable, 100% of the interests in WONC. The
total purchase price was approximately $20.7 million,
consisting of $3.0 million in cash at closing and an
interest bearing promissory note of WONC for the remainder. The
promissory note was payable over the 10-year period following
the closing, with a $7.0 million payment due in year one,
which payment could be deferred for up to an additional two
years, and the remainder payable in equal annual installments
beginning after six years. In the event the $7.0 million
payment was not made when due, either we, or Wireless
One, Inc., could cause WONC to transfer certain of its
licensed frequencies to Wireless One, Inc. in payment of
the outstanding principal amount of the promissory note. The
promissory note was secured by a pledge of WONCs channel
rights.

In July 2002, the Company delivered a
Split-Up Notice to Wireless One, Inc. pursuant
to the Purchase Agreement. This notice set into motion a process
under the Purchase Agreement pursuant to which WONC would
transfer to Wireless One, Inc. certain of WONCs
licensed frequencies. On April 22, 2003, WONC executed an
agreement that resulted in the payment of accrued interest due
under the promissory note and the agreement to transfer certain
licensed frequencies to Wireless One, Inc. in exchange for
the cancellation of the $17.7 million promissory note
payable to Wireless One, Inc. At December 31, 2003,
WONC, through its ownership of Wavetel NC License Corporation,
held certain MMDS and ITFS spectrum rights. At December 31,
2003, CT Wireless Cable held 100% of the equity interest in WONC.

Passive Investments.During 2003, our passive investments consisted of equity
interests in several private and public companies. These
investments primarily consisted of the following: ITC Holding
Company, Inc. (ITC Holding), Magnolia Holding
Company (Magnolia), and ITC Financial Services, LLC
(ITC Financial).

At December 31, 2002 we held a 4.4% equity
ownership interest in ITC Holding. The primary assets of ITC
Holding included InterCall, a company that provided conference
calling services and certain other smaller holdings. During May
2003, ITC Holding was acquired by West Corporation for the
purpose of merging InterCall into West Corporations
existing operations. Prior to the West Corporation purchase,
other assets of ITC Holding were sold to Magnolia. We received
total proceeds of $17.1 million during 2003 from the sale
of ITC Holding and invested approximately $3.0 million to
acquire a 4.6% ownership interest in Magnolia. The primary asset
of Magnolia is Knology, a public company that provides data and
Internet connectivity to small and mid-size businesses.

In December 2003 we acquired a 4.0% interest in
ITC Financial Services, LLC, a company formed to provide prepaid
debit card services.

From time to time we may invest in other public
and private securities of companies. We continually evaluate the
investments in our portfolio and may make changes as we deem
appropriate.

12



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##### 



Legislative and Regulatory
Developments

The telecommunications industry is subject to
federal, state and local regulation. The application of these
regulations to our business segments is discussed above. A more
general description is set forth below.

Legislative.Various
pieces of state and federal legislation may, from time to time,
have potential consequences on our operations. In North
Carolina, legislation was enacted in 2003 that deregulated
intraLATA long distance service, interLATA long distance service
and long distance operator services as well as providing other
regulatory flexibility. This legislation has provided our ILEC
greater flexibility in offering service bundles and promotions.
On January 2, 2004, the NCUC released an order detailing
its findings regarding the legislation and adopting
implementation requirements. The Company is now in the process
of analyzing and implementing the requirements of the NCUC order.

Federal Regulations.The FCC regulates interstate and international
telecommunications services, which includes using local
telephone facilities to originate and terminate interstate and
international calls. The Telecommunications Act of 1996 (the
Telecommunications Act) was intended to promote
competitive development of new service offerings, to expand
public availability of telecommunications services and to
streamline regulation of the industry. Implementation of its
legislative objectives was the task of the FCC, state public
utilities commissions and federal-state joint boards. The
Telecommunications Act made all state and local barriers to
competitive entry unlawful, whether they were direct or
indirect. The Telecommunications Act directed the FCC to hold
notice and comment proceedings and to preempt all inconsistent
state and local laws and regulations. Among the numerous and
often changing FCC proceedings are its Implementation of the
Local Competition Provisions of the Telecommunications Act of
1996 proceeding (CC Docket No.96-98), its deployment of Wireline
Services Offering Advanced Telecommunications Capability
proceeding (CC Docket No. 98-147), and at least four
proceedings relating to universal service and access charge
reform (CC Docket Nos. 94-1, 96-45, 96-262, 99-249).

In addition to opening up local exchange markets,
the Telecommunications Act contained provisions for:



| |   |                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | updating and expanding telecommunications service
    guarantees,                                                                                                                                      
|
| |  | removing certain restrictions relating to former
    AT&T operating companies (the Regional Bell Operating
    Companies) resulting from the federal court antitrust consent
    decree issued in 1984,
|
| |  | reform of universal service,                                                                                                                                                                           
|
| |  | the entry of telephone companies into video
    services,                                                                                                                                              
|
| |  | the entry of cable television operators into
    other telecommunications industries,                                                                                                                  
|
| |  | changes in the rules for ownership of
    broadcasting and cable television operations and                                                                                                             
|
| |  | changes in the regulations governing cable
    television.                                                                                                                                             

Each state retains the power to impose
competitively neutral requirements that are both
consistent with the Telecommunications Acts universal
service provision and necessary for universal service, public
safety and welfare, continued service quality and consumer
rights. Although a state may not impose requirements that
effectively function as barriers to entry or create a
competitive disadvantage, the scope of state authority to
maintain existing or adopt new requirements under this section
is not clear. In addition, before it preempts a state or local
requirement as violating the entry barrier prohibition, the FCC
must hold a notice and comment proceeding.

The FCC may forbear from applying any statutory
or regulatory provision that is not necessary to keep
telecommunications rates and terms reasonable or to protect
consumers. A state may not apply a statutory or regulatory
provision that the FCC decides to forbear from applying. In
addition, the FCC must review its telecommunications regulations
every three years and repeal or modify any that it deems to be
no longer in the public interest.

13



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##### 



Although certain interpretive issues under the
Telecommunications Act have not yet been resolved, it is
apparent that the requirements of the Telecommunications Act
have led to increased competition among providers of local
telecommunications services and have simplified the process of
switching from incumbent local exchange carrier services to
those offered by competitive access providers and competitive
local exchange carriers.

The FCC has the task of reforming universal
service to ensure funding is adequate and disbursements are
proper. Our ILEC currently receives long-term support and
interstate common line support from the universal service fund.

One unresolved area in terms of regulation that
has received significant attention recently is the treatment of
VoIP services. The FCC has announced several high profile
inquiries into VoIP services being offered. Certain VoIP
providers are seeking to avoid payment of access charges to
ILECs and CLECs through the use of such technology. At least
three companies, AT&T, Pulver.com, and Level 3, have
filed petitions with the FCC seeking a ruling allowing them to
avoid payment of access charges for VoIP traffic. On
February 12, 2004, the FCC, in ruling on Pulver.coms
petition, held that strictly computer-to-computer VoIP service
that does not utilize the public switched telephone network is
not a regulated telecommunications service. On the same date,
the FCC also announced a rulemaking to examine whether certain
regulatory requirements, such as 911 services, universal
service, disability access and access charges, should be
applicable to VoIP services. It is unclear what impact any
ruling will have on the Company.

The FCC regulates wireless services through its
Wireless Telecommunications Bureau. Providers of wireless mobile
radio services are considered common carriers and
are subject to the obligations of such carriers, except where
specifically exempted by the FCC. As a result, our wireless
operations and business plans may be impacted by FCC regulatory
activity. For example, the FCC has concluded that commercial
mobile radio service providers are entitled to enter into
reciprocal compensation arrangements with local exchange
carriers. The FCC has declined at this time to classify
commercial mobile radio service providers themselves as local
exchange carriers subject to the obligations of the
Telecommunications Act, but could do so at some point in the
future. Other regulatory issues currently facing wireless
carriers include issues relating to telephone number
administration. Because they are common carriers, wireless
carriers are subject to FCC and state actions regarding
exhaustion, conservation or expansion of telephone numbers and
area codes. Programs to conserve or expand telephone number and
area code resources may possibly have a disproportionate impact
on wireless carriers because such carriers may not have a large
reserve of spare numbers, as wireline carriers may have, and
so-called area code overlay programs are sometimes
imposed on wireless carriers alone, which forces their customers
to dial more digits for most local calls than wireline callers
in the same area. The FCC has issued an order asserting
jurisdiction over nearly all telephone numbering issues.

A cellular licensee must apply for FCC authority
to use additional frequencies, to modify the technical
parameters of existing licenses, to expand its service territory
and to provide new services. In addition to regulation by the
FCC, cellular systems are subject to certain Federal Aviation
Administration tower height regulations with respect to the
siting and construction of cellular transmitter towers and
antennas. The FCC also has a rulemaking proceeding pending to
update the guidelines and methods it uses for evaluating
acceptable levels of radio frequency emissions from radio
equipment, including cellular telephones, which could result in
more restrictive standards for such devices.

The FCC has decided to re-examine their spectrum
allocation policies. This includes potential reallocations of
existing spectrum and unused spectrum.

State and Local
Regulation.We are regulated by the
NCUC and the GPSC because we provide intrastate telephone
services within North Carolina and Georgia. As a result, we must
comply with North Carolina and Georgia pricing regulations, file
periodic reports, pay various fees and comply with rules
governing quality of service, consumer protection and similar
matters. The rules and regulations are designed primarily to
promote the publics interest in receiving quality
telephone service at reasonable

14



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##### 



prices. Our networks are subject to numerous
local regulations such as requirements for franchises, building
codes and licensing. Such regulations vary on a city-by-city and
county-by-county basis.


Risk Factors

In connection with the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995, set forth
below are cautionary statements identifying important factors
that could cause actual events or results to differ materially
from any forward-looking statements made by or on behalf of us,
whether oral or written. We wish to ensure that any
forward-looking statements are accompanied by meaningful
cautionary statements in order to maximize to the fullest extent
possible the protections of the safe harbor provisions
established in the Private Securities Litigation Reform Act of
1995. Accordingly, any such statements are qualified in their
entirety by reference to, and are accompanied by, the following
important factors that could cause actual events or results to
differ materially from our forward-looking statements. For
additional information regarding forward-looking statements,
please read the Cautionary Note Regarding Forward-Looking
Statements section included elsewhere in this report.



| |                                                               
| | --------------------------------------------------------------
| | Our success depends upon our ability to manage
    our growth.

Our ability to continue to grow and develop our
business will depend on whether we can successfully do the
following in a timely manner, at reasonable costs and on
satisfactory terms and conditions:



| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | acquire necessary equipment, software, and
    facilities, and integrate them into our 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 our
    business plan,                            
|
| |  | enhance operating and accounting systems, and                                                  
|
| |  | obtain any required government authorizations.                                                 

We are making significant operating and capital
investments and will have to address numerous operating
challenges. We are currently developing new processes and
operating support systems. We will need to continue developing
new marketing initiatives and hiring and training sales people
responsible for selling our services. We will also need to
continue developing the billing and collection systems necessary
to integrate these services. We cannot assure you that we can
design, install, and implement these products and systems in a
timely manner to permit us to offer our new services as planned.

In order to establish new operations, we may be
required to spend considerable amounts of capital before we
generate related revenue. If these services fail to be
profitable or if we fail in any of these respects, this failure
may have a material adverse effect on our business and the price
of our Common Stock.



| |                                                                              
| | -----------------------------------------------------------------------------
| | Our success depends upon our ability to
    attract and retain key personnel.

The efforts of a small number of key management
and operating personnel will largely determine our success. Our
success also depends in part upon our ability to hire and retain
highly skilled and qualified operating, marketing, sales,
financial and technical personnel. If we lose the services of
key personnel or if we are unable to attract additional
qualified personnel, our business and the price of our Common
Stock could be materially and adversely affected.

15



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##### 



We expect to continue to face significant
competition in the telecommunications industry.

We operate in an increasingly competitive
environment. Our current competitors include:



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

Cable operators are entering the local exchange
and high speed Internet markets. Time Warner currently offers
cable television and high-speed Internet service and is expected
to offer cable telephony to customers in our ILEC, CLEC and
Greenfield service areas. Other sources of competition include
wireless service providers and VoIP service providers.

The trend toward business combinations and
strategic alliances within the telecommunications industry could
further increase competition. In addition, the development of
new technologies could increase competition. One of the primary
purposes of the Telecommunications Act is to promote
competition, particularly in the local telephone market. Since
the enactment of the Telecommunications Act, several
telecommunications companies have indicated their intention to
aggressively expand their ability to compete in many segments of
the telecommunications industry, including segments in which we
participate and expect to participate. This expansion may
eventually result in more participants than can ultimately be
successful in a given market.

We expect that increased competition will result
in more competitive pricing. Some of the companies with whom we
compete are, or are affiliated with, major telecommunications
companies. Companies that have the resources to sustain losses
for some time have an advantage over those companies without
access to these resources. We cannot assure you that we will be
able to achieve or maintain adequate market share or compete
effectively in any of our markets. Any of these factors could
materially adversely affect our business and the price of our
Common Stock.



| |                                               
| | ----------------------------------------------
| | We must secure unbundled network
    elements.

In connection with our CLEC and Greenfield
operations, we interconnect with and use incumbent telephone
companies networks to access our customers. Accordingly,
we depend upon the technology and capabilities of incumbent
telephone companies to meet the telecommunications needs of our
CLEC customers and to maintain our service standards. Our CLEC
and Greenfield operations depend on the quality and availability
of the incumbent telephone companies copper lines and the
incumbent telephone companies maintenance of these lines.
We must also maintain efficient procedures for ordering,
provisioning, maintaining and repairing lines from the incumbent
telephone companies. We may not be able to obtain the copper
lines and services we require from the incumbent telephone
companies at satisfactory quality levels, rates, terms and
conditions. Our inability to do so could delay the expansion of
our networks and degrade service quality to our customers. If
these events occur, we may experience a material adverse effect
on our CLEC and Greenfield businesses and the price of our
Common Stock.



| |                                                       
| | ------------------------------------------------------
| | We are dependent on our operating support
    systems.

Sophisticated information and processing systems
are vital to our growth and our ability to monitor costs, bill
customers, process customer orders and achieve operating
efficiencies. Billing and information systems have historically
been produced by outside vendors. These systems have generally
met our needs.

16



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##### 



As we continue providing more services, we will
need more sophisticated billing and information systems. Our
failure, or the failure of vendors, to adequately identify all
of our information and processing needs or to upgrade systems as
necessary could have a material adverse effect on our business
and the price of our Common Stock.




| |                                                 
| | ------------------------------------------------
| | We must adapt to rapid technological
    change.

The telecommunications industry is subject to
rapid and significant changes in technology, and we rely on
third parties for the development of and access to new
technology. The effect of technological changes on our business
cannot be predicted. We believe our future success will depend,
in part, on our ability to anticipate or react appropriately to
such changes and to offer, on a timely basis, services that meet
customer demands. We cannot assure you that we will obtain
access to new technology on a timely basis or on satisfactory
terms. Our failure to obtain access to or properly utilize this
new technology could have a material adverse effect on our
business and the price of our Common Stock.



| |                                                                      
| | ---------------------------------------------------------------------
| | We are subject to a complex and uncertain
    regulatory environment.

The telecommunications industry is regulated by
the FCC, state regulatory commissions and municipalities.
Federal and state regulations and regulatory trends in the
direction of reduced regulation have had, and are likely to
have, both positive and negative effects on us and our ability
to compete. Federal or state regulatory changes and any
resulting increase in competition may have a material adverse
effect on our businesses and on the price of our Common Stock.



| |                                                                               
| | ------------------------------------------------------------------------------
| | We are dependent on interconnection
    agreements, permits and rights-of-way.

Our success will depend, in part, on our ability
to implement existing interconnection agreements and enter into
and implement new interconnection agreements as we expand into
new markets. Interconnection agreements are subject to
negotiation and interpretation by the parties to the agreements
and are subject to state regulatory commission, FCC and judicial
oversight. We cannot assure you that we will be able to enter
into interconnection agreements in a timely manner on terms
favorable to us. We must also maintain existing and obtain new
local permits, including rights to utilize underground conduit
and pole space and other rights-of-way. We cannot assure you
that we will be able to maintain our existing permits and rights
or to obtain and maintain other permits and rights needed to
implement our business plan on acceptable terms. Cancellation or
non-renewal of our interconnection agreements, permits,
rights-of-way or other arrangements could materially adversely
affect our business and the price of our Common Stock. In
addition, the failure to enter into and maintain any required
arrangements for a new market may affect our ability to develop
that market.



| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | Our long distance services are affected by our
    ability to establish effective termination agreements.

We offer long distance services as part of the
integrated package of telecommunications services that we
provide our customers. We have relied on and will continue to
rely on other carriers to provide transport and termination
services for portions of our long distance traffic. These
agreements typically provide for the termination of long
distance services on a per-minute basis and may contain minimum
volume commitments. Negotiation of these agreements involves
estimates of future supply and demand for transport capacity, as
well as estimates of the calling patterns and traffic levels of
our future customers. If we fail to meet our minimum volume
commitments, we may be obligated to pay underutilization
charges. If we underestimate our need for transport capacity, we
may be required to obtain capacity through more expensive means.
These failures may result in a material adverse effect on our
business and the price of our Common Stock.

17



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##### 





| |                                                                       
| | ----------------------------------------------------------------------
| | The market price of our Common Stock has been
    and may be volatile.

Our Common Stock has traded on The Nasdaq
National Market since January 29, 1999. Since that time,
the trading market for our Common Stock has been characterized
by limited liquidity, low volume and price volatility.

In addition, the following factors, among others,
may cause the price of our Common Stock to fluctuate:



| |   |                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------
| |  | sales by our current shareholders of large
    amounts of our Common Stock,                                  
|
| |  | new legislation or regulation,                                                                               
|
| |  | variations in our revenue, net income and cash
    flows,                                                    
|
| |  | the difference between our 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 us or our competitors,    
|
| |  | technological innovations and                                                                                
|
| |  | mergers, acquisitions or strategic alliances.                                                                

During the last several years stock markets have
experienced price declines. General market conditions, poor
financial performance, and bankruptcy announcements by other
telecommunications companies have resulted in fluctuations in
the market prices of the stocks of many companies in our sector
that may not have been directly related to the operating
performance of those companies. These market fluctuations may
materially adversely affect the price of our Common Stock.



| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | Our investments in marketable securities and
    unconsolidated companies may not be successful.

We purchase investments in marketable securities,
which may have significant price fluctuations from period to
period that may have a material adverse impact on our financial
results.

We also purchase investments in companies, which
are not publicly traded. We generally carry these investments at
their cost of investment. The success or failure of these
companies and the resultant effect on our carrying value for
these investments in unconsolidated companies may have a
material adverse impact on our financial results.



| |                                                                                    
| | -----------------------------------------------------------------------------------
| | Our acquisitions, joint ventures and strategic
    alliances may not be successful.

We may acquire other companies as a means of
expanding into new markets, developing new services or
supplementing existing businesses. We cannot predict whether or
when any acquisitions may occur or the likelihood of a material
transaction being completed on favorable terms. These types of
transactions involve risks, including:



| |   |                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------
| |  | difficulties assimilating acquired operations and
    personnel,                                       
|
| |  | disruptions of our 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,                                                                          

18



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##### 





| |   |                                                                      
| | - | ---------------------------------------------------------------------
| |  | new markets in which we may have limited or no
    experience and    
|
| |  | possible impairment of relationships with
    employees or customers.

Also, we cannot assure you that we could obtain
financing for an acquisition on satisfactory terms or that the
acquired business would perform as expected.

We have formed and may in the future form various
strategic alliances, joint ventures and other similar
arrangements. The other parties to these existing or future
arrangements, however, may at times have economic, business or
legal interests or goals that are inconsistent with our goals or
those of the strategic alliance, joint venture or similar
arrangement. In addition, a joint venture partner may be unable
to meet its economic or other obligations to the venture. A
disagreement with our strategic allies or joint venture partners
over certain business actions or the failure of a partner to
meet its obligations to the venture could adversely affect our
business and the price of our Common Stock.



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

Our Articles of Incorporation and Bylaws contain
provisions for staggered terms of directors, removal of
directors for cause only, supermajority voting for certain
business combinations and the availability of authorized but
unissued shares of Common Stock. Also, we have adopted a
shareholders rights plan in which each shareholder is
entitled to purchase additional shares of Common Stock at a
specified purchase price upon the occurrence of certain events
related to a potential change in our control. These provisions
may have the effect of deterring transactions involving a change
in our control or management, including transactions in which
shareholders might receive a premium for their shares.

Employees

At December 31, 2003, we had approximately
630 employees. None of our employees is represented by a labor
union, and we consider relations with our employees to be good.

Available Information

The Companys Internet address is
www.ctc.net. The Company makes available free of charge
through our website our Annual Report on Form 10-K,
quarterly reports on Form 10-Q, current reports on
Form 8-K, and all amendments to those reports, filed with
or furnished to the Securities and Exchange Commission
(SEC), as soon as reasonably practicable after such
materials are electronically filed with or furnished to the SEC.
The information on the Companys website is not
incorporated by reference into this report.

Executive Officers of the Registrant

The following is a list of our executive officers
who serve at the pleasure of the board of directors, including
such persons name, age, positions and offices held with
CT Communications, the period served in such positions or
offices and, if such person served in such position or office
for less than five years, the prior employment of such person.

Michael R. Coltrane,age 57, has been President, Chief Executive Officer and a
director since 1988. During 2001, he succeeded L.D.
Coltrane, III as Chairman of the Board. Prior to joining us
in 1988, Mr. Coltrane served as Executive Vice President of
First Charter National Bank (now, First Charter Bank) for more
than six years and as Vice President of a large regional bank
for more than 10 years. Mr. Coltrane is a director of
the general partner of Palmetto MobileNet, L.P., a director of
Northeast Medical Center, a director of First Charter Bank and
Vice Chairman of its parent company, First Charter Corporation.
Mr. Coltrane has been a director of the United States
Telecom Association since 1991 and served as its Chairman from
October 2000 to October 2001.

19



---



##### 



Matthew J. Dowd,age 41, has been a Senior Vice President since May 2002 and
has primary responsibility for sales and marketing and customer
service. From May 2001 until December 2003, Mr. Dowd served
as Chief Executive Officer of Wavetel. From 1997 to 2000, he was
a General Manager of Omnipoint Communications, Inc., a
wireless telecommunications provider.

James E. Hausman,age 47, has been Senior Vice President, Chief Financial
Officer and Treasurer since May 2002. From 2000 to 2002, he
served as Chief Financial Officer for three emerging
telecommunications companies: American Lightwave
Communications, Inc., Crescent Communications, Inc.
and Prepaid Telecom Corporation. From 1988 to 1999, he was Chief
Financial Officer of Houston Cellular Telephone Company.

Michael R. Nash,age 52, has been a Senior Vice President since January 1999
and has primary responsibility for our network technology and
network operations. He is Chairman of the board of directors of
the Cabarrus Economic Development Corporation and serves on the
boards of the Alliance for Telecommunications Industry Solutions
and Access/ On Multimedia.

Ronald A. Marino,age 40, has been Vice President of Finance and Chief
Accounting Officer since November 2002. From August 2001 to
November 2002, he was Chief Financial Officer of Wavetel. From
2000 to 2001, he was the Chief Financial Officer, Secretary and
Treasurer of Datatec Systems, Inc., an information
technology services company. From 1997 to 2000, he was the
Senior Director of Finance of Omnipoint
Communications, Inc., a wireless telecommunications
provider.



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

Our properties consist of land, buildings,
central office equipment, exchange and toll switches, data
transmission equipment, underground conduits and cable, aerial
cable, poles, wires, radio transmitting equipment and other
equipment.

We own approximately 16 acres of land on
Copperfield Boulevard in Concord, North Carolina. Our principal
executive offices are in our Corporate Center located on this
property. Construction of this four-story, 118,000 square
foot building began in 2000 and was completed in March 2002. Two
additional buildings totaling approximately 25,000 square
feet were constructed at this site between 1996 and 1998.

We also own a building on Cabarrus Avenue East in
Concord. This facility was built in 1956 and expanded in 1967.
It serves as our business office, switching and computing
center. This building has approximately 53,000 square feet
of floor space.

We own a 12,300 square foot general
warehouse located in Concord and a one-third interest in
22.4 acres of undeveloped property located on Weddington
Road Extension and Speedway Boulevard in the Kings Grant
Development. This property may be used for future development if
needed.

In connection with our wireless operations, we
have entered into seven real property leases to house our retail
outlets in Concord (Concord Parkway and Concord Mills Mall),
Kannapolis, Mooresville, Statesville, Albemarle and Salisbury,
North Carolina. In addition to our Cabarrus Avenue facility, we
maintain business offices and switching equipment in Kannapolis,
China Grove, and Albemarle, North Carolina. We also lease office
space on University Executive Drive in Charlotte, North
Carolina. Our CLEC operations lease space in Greensboro, Hickory
and Raleigh, North Carolina. These leases are not material to
our operations or financial condition.

We utilize approximately 150 motor vehicles in
our operations, all but two of which we own.



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

CT Communications is not currently party to
any lawsuits or legal proceedings that would have a material
effect on the Company.

20



---



##### 





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

No matters were submitted to a vote of security
holders during the fourth quarter of 2003.



PART II




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

The Companys Common Stock began trading on
The Nasdaq National Market under the symbol CTCI on
January 29, 1999.

The following table shows the high and low
closing sales prices per share of our Common Stock as reported
on The Nasdaq National Market for the periods indicated:

|                             |                |      |   |       |  |           |   |       |  |  |   |       | 
|---------------------------- | -------------- | ---- | - | ----- |  | --------- | - | ----- |  |  | - | ----- | 
|                             |                |      |   |       |  | Per Share
|                             |                |      |   |       |  | Dividend 
|                             |                | High |   | Low   |  | Declared 
|                             |                |      |   |       |  |          
|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 | 
|Year ended December 31, 2002 |                |      |   |       |  |           |   |       |  |  |   |      
|                             | First quarter  |      | $ | 17.50 |  |           | $ | 13.93 |  |  | $ | 0.065 | 
|                             | Second quarter |      |   | 16.20 |  |           |   | 13.12 |  |  |   | 0.065 | 
|                             | Third quarter  |      |   | 17.15 |  |           |   | 13.00 |  |  |   | 0.065 | 
|                             | Fourth quarter |      |   | 15.04 |  |           |   | 11.30 |  |  |   | 0.065 | 

Dividends are paid only as and when declared by
our board of directors, in its sole discretion, based on our
financial condition, results of operations, market conditions
and such other factors as it may deem appropriate. We may not
pay dividends on our Common Stock if any dividends on our
Preferred Stock are in arrears.

The number of shareholders of record of our
Common Stock as of February 27, 2004, was 2,247. This
number does not include beneficial owners of Common Stock whose
shares are held in the name of various dealers, depositories,
banks, brokers or other fiduciaries.

21



---



##### 



Item 6.     Selected
Financial Data

The following selected financial data should be
read in conjunction with our audited consolidated financial
statements and related notes, and Managements
Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this report. The
following information is in thousands, except per share amounts:

|                                                       |                                                               |                              |        |         |    |      |        |         |    |      |        |         |    |  |        |         |    |  |        |         |    | 
|------------------------------------------------------ | ------------------------------------------------------------- | ---------------------------- | ------ | ------- | -- | ---- | ------ | ------- | -- | ---- | ------ | ------- | -- |  | ------ | ------- | -- |  | ------ | ------- | -- | 
|                                                       |                                                               |                             
|                                                       |                                                               | Years Ended December 31,    
|                                                       |                                                               |                             
|                                                       |                                                               | 2003                         |        | 2002    |    | 2001 |        | 2000    |    | 1999
|                                                       |                                                               |                              |        |         |    |      |        |         |    |     
|Income Statement Data:                                 |                                                               |                              |        |         |    |      |        |         |    |      |        |         |    |  |        |         |    |  |        |        
|                                                       | Operating revenue                                             |                              | $      | 160,908 |    |      | $      | 148,056 |    |      | $      | 135,803 |    |  | $      | 115,945 |    |  | $      | 105,602 |   
|                                                       | Operating expense                                             |                              |        | 141,357 |    |      |        | 129,655 |    |      |        | 121,222 |    |  |        | 100,521 |    |  |        | 82,776  |   
|                                                       |                                                               |                              |        |         |    |      |        |         |    |      |        |         |    |  |        |         |    |  |        |        
|                                                       | Operating income                                              |                              |        | 19,551  |    |      |        | 18,401  |    |      |        | 14,581  |    |  |        | 15,424  |    |  |        | 22,826  |   
|                                                       | Other income (expense) (1)                                    |                              |        | 13,312  |    |      |        | 3,774   |    |      |        | (3,242  | )  |  |        | 54,354  |    |  |        | 16,397  |   
|                                                       | Income taxes                                                  |                              |        | 12,620  |    |      |        | 8,696   |    |      |        | 4,993   |    |  |        | 27,843  |    |  |        | 15,885  |   
|                                                       |                                                               |                              |        |         |    |      |        |         |    |      |        |         |    |  |        |         |    |  |        |        
|                                                       | Income from continuing operations                             |                              |        | 20,243  |    |      |        | 13,479  |    |      |        | 6,346   |    |  |        | 41,935  |    |  |        | 23,338  |   
|                                                       | Discontinued operations (2)                                   |                              |        | (424    | )  |      |        | (5,657  | )  |      |        | (5,880  | )  |  |        | (1,205  | )  |  |        |        |   
|                                                       |                                                               |                              |        |         |    |      |        |         |    |      |        |         |    |  |        |         |    |  |        |        
|                                                       | Net income                                                    |                              |        | 19,819  |    |      |        | 7,822   |    |      |        | 466     |    |  |        | 40,730  |    |  |        | 23,338  |   
|                                                       |                                                               | Dividends on preferred stock |        |         | 20 |      |        |         | 20 |      |        |         | 25 |  |        |         | 26 |  |        |         | 26 | 
|                                                       |                                                               |                              |        |         |    |      |        |         |    |      |        |         |    |  |        |         |    |  |        |        
|                                                       | Earnings for common stock                                     |                              | $      | 19,799  |    |      | $      | 7,802   |    |      | $      | 441     |    |  | $      | 40,704  |    |  | $      | 23,312  |   
|                                                       |                                                               |                              |        |         |    |      |        |         |    |      |        |         |    |  |        |         |    |  |        |        
|Basic weighted average common shares
    outstanding   |                                                               |                              | 18,747 |         |    |      | 18,710 |         |    |      | 18,816 |         |    |  | 18,834 |         |    |  | 18,706 |        
|Diluted weighted average common shares
    outstanding |                                                               |                              | 18,808 |         |    |      | 18,746 |         |    |      | 18,860 |         |    |  | 18,931 |         |    |  | 18,858 |        
|Per share data (3):                                    |                                                               |                              |        |         |    |      |        |         |    |      |        |         |    |  |        |         |    |  |        |        
|                                                       | Basic earnings per share                                      |                              | $      | 1.06    |    |      | $      | 0.42    |    |      | $      | 0.02    |    |  | $      | 2.16    |    |  | $      | 1.25    |   
|                                                       | Diluted earnings per share                                    |                              |        | 1.05    |    |      |        | 0.42    |    |      |        | 0.02    |    |  |        | 2.15    |    |  |        | 1.24    |   
|                                                       | Dividends per share (3)                                       |                              |        | 0.26    |    |      |        | 0.26    |    |      |        | 0.26    |    |  |        | 0.26    |    |  |        | 0.26    |   
|Balance Sheet Data:                                    |                                                               |                              |        |         |    |      |        |         |    |      |        |         |    |  |        |         |    |  |        |        
|                                                       | Book value per share                                          |                              | $      | 9.46    |    |      | $      | 8.56    |    |      | $      | 8.71    |    |  | $      | 9.27    |    |  | $      | 9.30    |   
|                                                       | Total assets                                                  |                              |        | 321,668 |    |      |        | 338,764 |    |      |        | 310,048 |    |  |        | 261,882 |    |  |        | 258,844 |   
|                                                       | Long-term debt (excluding current maturities)                 |                              |        | 80,000  |    |      |        | 127,697 |    |      |        | 100,000 |    |  |        | 34,000  |    |  |        | 20,000  |   
|                                                       | Redeemable preferred stock (excluding current
    maturities) |                              |        |        |    |      |        |        |    |      |        | 88      |    |  |        | 100     |    |  |        | 113     |   
|                                                       | Shareholders equity                                          |                              |        | 177,530 |    |      |        | 160,201 |    |      |        | 163,575 |    |  |        | 175,091 |    |  |        | 174,939 |   



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Other income in 2003 includes a
    $15.2 million gain related to the sale of the
    Companys investment in ITC Holding. Other expense in 2001
    includes $14.9 million in impairment charges related to the
    write-down of Maxcom and other investment securities to their
    estimated net realizable value. Other income in 2000 includes a
    $39.2 million gain related to the sale of the
    Companys DCS Partnership to BellSouth and other income in
    1999 includes gains on sales of various investment securities.                                                                                                                                                                                      
|   
|(2) | See Note 2  Discontinued Operations
    included in Item 8.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(3) | Share data is based on the weighted average
    number of shares outstanding after giving retroactive effect to
    the recapitalization effective January 28, 1999, pursuant to
    which our Articles of Incorporation were amended to
    (i) provide for one class of common stock, consisting of
    100 million authorized shares and (ii) reclassify each
    issued and outstanding share of voting common stock into 4.4
    shares of common stock and each issued and outstanding share of
    class B non-voting common stock into 4.0 shares of common
    stock, and the 2-for-1 stock dividend effective April 5,
    2000. Dividends declared have been restated to give retroactive
    effect to these events.

22



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##### 





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

The following discussion of our 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.

Introduction

CT Communications, Inc. and its subsidiaries
provide a broad range of telecommunications and related services
to residential and business customers located primarily in North
Carolina. Our primary services include local and long distance
telephone service, Internet and data services and digital
wireless products and services.

The Company has worked to expand its core
businesses through the development of integrated product and
service offerings, investment in growth initiatives that exceed
certain return thresholds and targeted marketing efforts to
efficiently identify and obtain customers. In addition, the
Company has made certain strategic investments that complement
our business units. During 2001, the Company expanded its
wireless business through the partitioning of its area of the
Cingular digital networks.

The Company believes that it is positioning
itself to achieve its strategic objectives by devoting
substantial effort to developing business plans, enhancing our
management team and board of directors, and designing and
developing our business support and operating systems. The
Companys primary focus is to maximize the ILEC business in
its current markets by cross-selling bundled products and
packages and growing its customer base through its CLEC,
Greenfield, Internet and data services, and digital
wireless businesses. The Company will also consider strategic
acquisitions and investments as opportunities arise.

Net income for the Company was $19.8 million
in 2003 compared to $7.8 million in 2002 and
$0.5 million in 2001. Income from continuing operations was
$20.2 million, $13.5 million and $6.3 million in
2003, 2002 and 2001, respectively. Diluted earnings per share
from continuing operations were $1.08, $0.72 and $0.34 in 2003,
2002 and 2001 respectively.

Overall, 2003 was a strong year for the Company
as revenue increased across all operating segments and the
Companys competitive businesses showed improved operating
margins. The Companys ILEC experienced a loss of access
lines as its customers can select from several alternative
service providers. The competitive CLEC and Greenfield wireline
businesses continued to experience strong demand for their
products and services in 2003 that resulted in 8.6% and 55.0%
access line growth, respectively. The replacement of higher
margin ILEC lines with lower margin CLEC and Greenfield lines
will continue to pressure operating margins downward. However,
the Company is continuously evaluating opportunities for process
improvements and efficiency gains to offset the transition to
competitive, lower margin accounts. Operating margins in the
CLEC and Greenfield businesses should continue to be positively
impacted as we leverage existing transport infrastructure to
support new customers.

Industry and Operating Trends

The telecommunications industry continues to
evolve into a highly competitive business faced with the
challenge of evolving their organizations, services, processes
and systems that are capable of successfully competing for and
retaining customers. Our ILEC is facing more competitive
pressure than any other time in its 106-year history. Wireless
providers and CLECs have targeted our customers and will
continue to promote low cost, flexible communications
alternatives. The more recent introduction of cable telephony
and VoIP services will become more significant threats to our
voice business in the coming years. These technologies are
capable of delivering a quality, competitive voice service to
our ILEC customers at a lower cost. These voice providers are
not subject to certain regulatory constraints that have shaped
our business model and that will become more significant
impediments to our ability to successfully compete in the coming
years.

In particular, our ILEC must provide certain
basic services to all customers in our regulated service area,
regardless of the cost to provide that service. We are the
beneficiaries of certain cost reimbursements

23



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##### 



that are intended to offset certain costs to
provide service. These reimbursements are increasingly at risk
and being reduced, yet our service obligations remain unchanged.
The future risk and uncertainty of regulatory service
requirements and the recovery of expense subsidies will impact
our ability to maintain existing margins and profitability.


As discussed above, VoIP and cable telephony are
becoming more available to customers and could result in lower
revenues throughout our businesses. Time Warner currently offers
cable television and high-speed Internet service and is expected
to offer cable telephony in our ILEC service area, which could
result in a loss of access lines, a reduction in ILEC revenue
including long distance revenue, and a reduction in Internet
revenue. In addition, wireless substitution is also a trend that
is impacting our ILEC business as well as our long distance
revenue. Some customers are choosing to substitute their
landline service with wireless service. We believe this has
contributed to the access line decrease in the ILEC over the
past several years.

Also impacting access line losses over the past
several years is the adoption of DSL and high-speed Internet
services by customers that had traditionally subscribed to
dial-up Internet service. As customers switch to DSL or
high-speed Internet service, they no longer need a second
landline for use with their dial-up Internet service.

During 2003 we experienced a decline in the
recovery of wireless interconnection access fee revenue. We
expect continued pressure from other telecommunications
providers to lower and ultimately eliminate our recovery of fees
for terminating their traffic into our network.

In our Wireless business, increasing competition,
market saturation and an uncertain economy have caused and will
likely continue to cause the wireless industrys subscriber
growth rate to moderate in comparison to historical growth
rates. While the wireless telecommunications industry does
continue to grow, a high degree of competition exists among
carriers. This competition will continue to put pressure upon
pricing and margins as carriers compete for potential customers.
Future carrier revenue growth is highly dependent upon the
number of net customer additions a carrier can achieve and the
average revenue per user derived from its customers.

Regulatory requirements have grown in certain
areas of our business and have added complexity and expense to
our business model. In November 2003, we were required to
provide number portability to wireless carriers. This service
allows greater customer choice in their telecommunications
provider, without the need to change established end user
contact numbers. While this service certainly enhances customer
choice, it negatively impacts our cost to provide basic service.
As federal and state agencies continue their pursuit of opening
all telecommunications services to competition, additional
expenses are likely to be incurred by the established local
exchange carriers to facilitate more open networks.

Critical Accounting Policies and
Estimates

CT Communications discussion and analysis
of its financial condition and results of operations are based
upon its consolidated financial statements, which have been
prepared in accordance with generally accepted accounting
principles (GAAP). The preparation of these
financial statements requires the Company to make estimates and
judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. The Company continuously
evaluates its estimates, including those related to revenue
recognition, restructuring charges, long-lived assets,
investments, income taxes, pensions and post-retirement
benefits, and allowance for doubtful accounts. The Company bases
its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions. Note 1 to the Consolidated Financial Statements
included herein describes our significant accounting policies.

24



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##### 





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

Revenues are recognized when services are
provided regardless of the period in which they are billed.
Revenues from sales of telephone equipment are recognized upon
delivery to the customer for direct-sale leases while revenues
from sales-type leases are recognized upon delivery to the
customer in an amount equal to the present value of the minimum
rental payments under the fixed non-cancelable lease term. The
deferred finance charges applicable to these leases are
recognized over the terms of the leases using the effective
interest method.

Installation fees are deferred and the related
costs are capitalized and amortized over the estimated life of
the customer in accordance with Staff Accounting Bulletin
No. 101 (SAB 101).

Certain interstate rates charged by the Company
are regulated by the FCC and may be subject to potential
over-earnings claims if the Companys interstate rates
result in earnings over the FCCs prescribed rate of
return. The Company maintains a reserve related to over-earnings
based on managements estimate of potential liability for
the Company. Management periodically assesses the Companys
potential liability and makes adjustments as applicable. Changes
in managements estimate could result from changes in
current and future legislation, regulatory filings and FCC
rulings, as well as any other factors that may impact
managements estimate.

The Company also participates in a revenue
pooling arrangement with other local exchange carriers
administered by NECA. Revenue earned through this pooling
arrangement is initially recorded based on the Companys
estimates and revised as settlements are finalized.

The Company periodically makes claims for
recovery of certain amounts related to access charges on certain
minutes of use terminated by the Company on behalf of other
carriers. Management believes these claims that have not been
accepted by other carriers have merit and there will be a
resolution in the future regarding these claims. However,
management is unable to estimate the recovery and is not
reasonably assured of collection. As a result of this
uncertainty, the Company has not recorded revenue for these
items. Upon assurance of collectability, the Company will
recognize revenue in the period that assurance or collection
occurs.

Wireless revenues are recognized in accordance
with Emerging Issues Task Force (EITF) 00-21,
Accounting for Revenue Arrangements with Multiple
Deliverables. Based on EITF 00-21, the Company has
determined that the sale of wireless services through its direct
sales channel with an accompanying handset constitutes a revenue
arrangement with multiple deliverables. Wireless activation fees
are recognized as revenue at the time of activation.



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

We periodically record charges resulting from
restructuring operations, including consolidations and/or
relocations of operations, changes in our strategic plan, or
managerial responses to declines in demand, increasing costs, or
other environmental factors. The Company announced its intent to
discontinue its wireless broadband trial and recognized a loss
of approximately $4.4 million in 2002 to write-down the
related carrying amounts of assets to their fair values less
cost to sell and recorded related liabilities for estimated
severance costs, lease termination costs, and other exit costs
in accordance with EITF Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in
Restructuring). The determination of restructuring charges
requires managements judgment and may include costs
related to employee benefits, such as costs of severance and
termination benefits, and costs for future lease commitments of
excess facilities, net of estimated future sublease income. In
determining the amount of the facilities charge, we are required
to estimate such factors as future vacancy rates, the time
required to sublet properties and sublease rates. These
estimates will be reviewed and potentially revised on a
quarterly basis based on known real estate market conditions and
the credit worthiness of subtenants, resulting in revisions to
established facility reserves.

25



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##### 





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

We continually evaluate the estimated useful
lives of our property and equipment in computing depreciation
expense. Consideration is given to technological advances and
utilization of our existing facilities.

We adopted SFAS No. 142, Goodwill
and Other Intangible Assets, effective January 1,
2002 and accordingly, we no longer amortize goodwill and other
intangible assets. We assess the impairment of identifiable
intangibles, long-lived assets and related goodwill whenever
events or changes in circumstances indicate carrying value may
not be recoverable. Factors we consider important which could
trigger an impairment review include significant
underperformance relative to historical or projected future
operating results, significant changes in the manner of our use
of the acquired assets or the strategy for our overall business,
significant negative industry or economic trends, changes in
technology, a significant decline in our stock price for a
sustained period or a reduction of our market capitalization
relative to net book value. Our net goodwill and other
intangible assets totaled $45.1 million and
$63.0 million as of December 31, 2003 and 2002,
respectively. We performed an initial review of goodwill and
other intangible assets upon adoption of SFAS No. 142
and will perform reviews annually thereafter as of
December 31. No impairment charges were required at
December 31, 2002 and 2003.



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

We hold certain investments and investment
securities that we evaluate to determine whether unrealized
losses are other than temporary. We perform this evaluation
quarterly by comparing market price of the investments and
securities to the current recorded value. Based on this
evaluation and consideration of other factors, we determine the
classification of unrealized losses and record charges to adjust
the carrying value of these investments. We also hold certain
other investments and investments in unconsolidated companies
that we evaluate to determine if the investment is impaired. The
determination of fair market value is based on historical and
projected information regarding the investment and on
managements estimates. If it is determined that the fair
market value of the investment is less than the current recorded
value then we record charges to adjust the carrying value of
these investments.



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

As part of the process of preparing our
consolidated financial statements, we are required to estimate
our income taxes in each of the jurisdictions in which we
operate. This process involves estimating our actual current tax
liability together with assessing temporary differences
resulting from differing treatment of items, such as deferred
revenue, for tax and accounting purposes. These differences
result in deferred tax assets and liabilities, which are
included within our consolidated balance sheet. We must then
assess the likelihood that our deferred tax assets will be
recovered from future taxable income and, to the extent we
believe that it is more likely than not that all or a portion of
deferred tax assets will not be realized, we must establish a
valuation allowance. To the extent we establish a valuation
allowance or increase this allowance in a period, we must
include an expense within the tax provision in the statement of
operations.

Significant management judgment is required in
determining our provision for income taxes, our deferred tax
assets and liabilities and any valuation allowance recorded
against our net deferred tax assets. Net deferred tax
liabilities at December 31, 2003 and 2002 were
$22.3 million and $11.9 million, respectively. The
Company records a valuation allowance to reduce its deferred tax
assets to the amount that is more likely than not to be
realized. While the Company has considered future taxable income
and ongoing prudent and feasible tax planning strategies in
assessing the need for the valuation allowance, in the event the
Company were to determine that it would be able to realize its
deferred tax assets in the future in excess of its net recorded
amount, an adjustment to the deferred tax asset would increase
income in the period such determination was made. Likewise,
should the Company determine that it would not be able to
realize all or part of its net deferred tax asset in the future,
an adjustment to the deferred tax asset would be charged to
income in the period such determination was made. The Company
has recognized a valuation allowance of $3.3 million and
$2.9 million at December 31, 2003 and 2002,
respectively.

26



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

The decline in equity markets in recent years
coupled with record low interest rates have negatively impacted
companies with defined benefit pension plans. These factors have
decreased plan assets that are available to pay plan benefits at
the same time the cost of providing benefits has increased.

We used a discount rate of 6.25% in valuing our
December 31, 2003 pension and post-retirement benefit
obligations. In addition, we have assumed a 7.5% long-term
expected return on assets. The pension benefit obligation
increased to approximately $43.0 million with plan assets
at December 31, 2003 valued at $43.2 million. This
compares with a benefit obligation of $37.0 million at
December 31, 2002, with plan assets valued at
$35.8 million. Although difficult to predict because of the
relation to market performance, we do not anticipate making a
cash contribution to meet minimum required funding thresholds in
2004.

The post-retirement benefit obligation related to
the Companys health care plan that provides
post-retirement medical benefits and life insurance coverage to
certain employees was $11.2 million at December 31,
2003 and is not funded by the Company. The Company has adopted
SFAS No. 106, Employers Accounting for Post
Retirement Benefits Other Than Pensions, and is amortizing
the estimated transition liability over 15 years.



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

Management judgment is required in assessing the
collectability of customer accounts and other receivables. We
accordingly maintain allowances for doubtful accounts for
estimated losses resulting from the inability of our customers
to make required payments. Management specifically analyzes
individual accounts receivable, historical bad debts, customer
concentrations, customer credit-worthiness, current economic
trends and changes in our customer payment terms when evaluating
the adequacy of the allowance for doubtful accounts.



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

We have no off-balance sheet transactions,
arrangements, obligations, guarantees or other relationships
with unconsolidated entities or other persons that have, or are
reasonably likely to have a material effect on our financial
condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources.

Results of Operations

We have identified reportable segments based on
the common characteristics of products and services and/or the
customers served. The identified reportable segments are: ILEC,
CLEC, Greenfield, Digital Wireless, Internet and Data
Services (IDS) and Palmetto MobileNet. All other
businesses that do not meet reporting guidelines and thresholds
are reported under Other Business Units. We have a
22.4% limited partnership interest in Palmetto MobileNet that is
accounted for as an equity investment. Palmetto MobileNets
financial statements are included on pages F-37 through F-46 of
this report.

27



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The following discussion reviews the results of
our consolidated operations and specific results within each
reportable segment.



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

|                              |  |      |         |      |  |      |         |  |  |   |         | 
|----------------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                              |  | 2003 |         | 2002 |  | 2001
|                              |  |      |         |      |  |     
|Total operating revenue       |  | $    | 160,908 |      |  | $    | 148,056 |  |  | $ | 135,803 | 
|Total operating expense       |  |      | 141,357 |      |  |      | 129,655 |  |  |   | 121,222 | 
|                              |  |      |         |      |  |      |         |  |  |   |         | 
|Operating income              |  | $    | 19,551  |      |  | $    | 18,401  |  |  | $ | 14,581  | 
|                              |  |      |         |      |  |      |         |  |  |   |         | 
|Depreciation and amortization |  | $    | 30,848  |      |  | $    | 26,821  |  |  | $ | 23,276  | 
|Capital expenditures          |  |      | 23,762  |      |  |      | 44,283  |  |  |   | 59,110  | 
|Total assets                  |  |      | 321,668 |      |  |      | 338,764 |  |  |   | 310,048 | 
|                             
|Ending wired access lines     |  |      | 155,123 |      |  |      | 153,414 |  |  |   | 145,154 | 
|Ending wireless subscribers   |  |      | 38,458  |      |  |      | 33,293  |  |  |   | 31,120  | 



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

Operating revenue increased $12.9 million or
8.7% for the year ended December 31, 2003 when compared to
2002. The increase is attributable to a $4.2 million
increase in CLEC revenue driven primarily by an 8.6% increase in
access lines, a $4.0 million increase in wireless revenue
driven by a 15.5% increase in customers and an increase in
network traffic, a $2.1 million increase in Greenfield
revenue driven by a 55.0% increase in Greenfield access lines, a
$1.8 million increase in ILEC revenue and a
$0.8 million increase in IDS revenue. Overall, total
operating revenue increased in all operating segments in 2003
compared to 2002.

In 2003, the Companys ILEC recognized
$1.8 million in additional interstate revenue from NECA
related to ICLS support and a common line revenue pooling
arrangement. These sources of revenue may or may not be received
in the future.

In addition, during 2003, the Company recorded
adjustments to its reserves for over-earnings claims. Certain
interstate rates charged by the Company are regulated by the FCC
and may be subject to potential over-earnings claims if the
Companys interstate rates result in earnings over the
FCCs prescribed rate of return. The Company maintains a
reserve related to over-earnings based on managements
estimate of potential liability for the Company. During 2003,
the Company recorded a net adjustment to these reserves that
increased operating revenue by approximately $0.6 million.
In 2002, the Company recorded a net adjustment that decreased
operating revenue by $0.8 million. As of December 31,
2003, the Companys total over-earnings reserve is
approximately $0.7 million. Management periodically
assesses the Companys potential liability and makes
adjustments as applicable. Changes in managements estimate
could result from changes in current and future legislation,
regulatory filings and FCC rulings, as well as any other factors
that may impact managements estimate.

We have diversified operating revenue in the
Company significantly over the past two years due to the growth
in our competitive businesses. For 2003, ILEC revenue
represented 59.7% of total revenue compared to 63.7% in 2002,
while Digital Wireless has grown to 17.7% of total revenue, up
from 16.5% in 2002, the combined CLEC and Greenfield businesses
have grown to 16.1% of total revenue up from 13.2% in 2002 and
Internet revenue represented 6.5% of total revenue in both 2003
and 2002.

In 2003, operating expense increased
$11.7 million or 9.0% as compared to 2002. This increase is
primarily the result of increases in depreciation expense of
$4.0 million, increases in compensation and benefit
expenses, and increases in expenses related to customer growth
(including minutes-of-use) in our CLEC, Greenfield and Wireless
businesses.

28



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Our operating margin decreased slightly to 12.2%
in 2003 from 12.4% in 2002. This reduction in operating margin
is primarily due to the expansion of operations in our lower
margin competitive businesses that have replaced higher margin
ILEC revenue.



| |                      
| | ---------------------
| | 2002 compared to 2001

Operating revenue increased $12.3 million or
9.0% for the year ended December 31, 2002 when compared to
2001. This increase in operating revenue is related primarily to
two main factors: a full year of digital wireless services after
the partitioning of our wireless territory from Cingular in June
2001 as compared to six months in 2001 and the continued
significant growth of our customer base in our CLEC and
Greenfield businesses.

As a result of this growth in our competitive
businesses we have diversified operating revenue in our Company
significantly over the past two years. In 2001, our ILEC
business represented 70.4% of total operating revenue while our
Digital Wireless represented 13.5%, the combined CLEC and
Greenfield business represented 9.2% and our Internet business
represented 6.9% of total operating revenue. In 2002, the ILEC
represented 63.7% of revenue while Wireless had grown to 16.5%
of revenue, the combined CLEC and Greenfield businesses had
grown to 13.2% of revenue and Internet represented 6.5% of
revenue.

In 2002, operating expense increased
$8.4 million or 7.0% as compared to 2001. Depreciation and
amortization expense accounted for $3.5 million of this
increase due to several years of increased capital expenditures
which included projects such as the partitioning of our wireless
territory from Cingular and the building of our new corporate
headquarters facility. The remaining $4.9 million of the
increase is related to the operation of our partitioned wireless
business for a full year and the costs associated with the
greater customer numbers in our CLEC and Greenfield businesses,
partially offset by internal efficiencies and cost control
efforts.

As a result of the 9.0% revenue growth and 7.0%
expense growth, operating margins improved to 12.4% in 2002
after having fallen to 10.7% in 2001.



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

|                                |  |      |         |      |  |      |         |  |  |   |         | 
|------------------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                                |  | 2003 |         | 2002 |  | 2001
|                                |  |      |         |      |  |     
|Total operating revenue         |  | $    | 96,075  |      |  | $    | 94,308  |  |  | $ | 95,560  | 
|Total operating expense         |  |      | 66,999  |      |  |      | 64,046  |  |  |   | 66,485  | 
|                                |  |      |         |      |  |      |         |  |  |   |         | 
|Operating income                |  | $    | 29,076  |      |  | $    | 30,262  |  |  | $ | 29,075  | 
|                                |  |      |         |      |  |      |         |  |  |   |         | 
|Depreciation expense            |  | $    | 20,527  |      |  | $    | 19,068  |  |  | $ | 17,313  | 
|Capital expenditures            |  |      | 12,294  |      |  |      | 16,558  |  |  |   | 20,937  | 
|Total assets                    |  |      | 171,594 |      |  |      | 163,139 |  |  |   | 163,136 | 
|                               
|Ending business access lines    |  |      | 29,137  |      |  |      | 31,085  |  |  |   | 31,530  | 
|Ending residential access lines |  |      | 86,401  |      |  |      | 88,660  |  |  |   | 90,137  | 
|Ending total access lines       |  |      | 115,538 |      |  |      | 119,745 |  |  |   | 121,667 | 
|Ending long distance lines      |  |      | 84,714  |      |  |      | 84,591  |  |  |   | 83,820  | 



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

Operating revenue for the ILEC increased
$1.8 million or 1.9% for 2003 compared to 2002. The
increase in revenue consists of a $4.0 million increase in
settlement revenue partially offset by a $0.8 million
decrease in cellular interconnection revenue, a
$0.8 million decrease in long distance revenue and a
decrease in local revenue due to the decrease in access lines.
The primary reason for the increase in settlement revenue in
2003 is $1.8 million in federal support received through
NECA and a $1.4 million change in the Companys
over-earnings reserves. The decrease in access lines is partly
due to an increase in DSL Internet adoption by some of our
customers which has lead the customers to cancel second lines

29



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##### 



previously used for dial-up Internet service as
well as increased competition from wireless providers. At
December 31, 2003, approximately 5,600 second lines remain
in service.


Wireless interconnection revenue is likely to
decline going forward as the Company has been required to
develop direct billing relationships with wireless carriers for
termination of wireless traffic in our network. This decline is
due to migration of this traffic to direct billing arrangements
subject to negotiated interconnection rates that are lower than
rates previously realized for termination of this traffic. The
Company believes that ILEC revenue may decline up to
$2.5 million in 2004 due to this rate decline. However,
this rate decline will be somewhat offset as wireless traffic
terminated on our network increases.

Operating expense in the ILEC increased
$3.0 million or 4.6% for 2003 compared to 2002. The primary
drivers of this increase were increases in compensation and
benefits expense and increased depreciation expense, partially
offset by a decrease in cellular interconnection expense.
Operating expense continues to increase at a faster rate than
operating revenue in 2003 resulting in a decline in operating
margin from 32.1% in 2002 to 30.3% in 2003. The Company will
continue to focus on gaining operational efficiencies to offset
lower revenue due to access lines losses.

Capital expenditures in 2003 were 12.8% of ILEC
operating revenue compared to 17.6% of revenue in 2002.

ILEC access lines subscribing to our long
distance service increased slightly in 2003 despite a 3.5%
access line loss. At the end of 2003, 73.3% of ILEC access lines
subscribed to our long distance service, up from 70.6% at
year-end 2002. Despite the increase in ILEC customers
subscribing to our long distance service, long distance revenue
has declined. Long distance minutes-of-use increased
significantly in 2003 compared to 2002. However, increased
competition has forced rates per minute down and as a result,
long distance revenue has declined despite an increase in
minutes-of-use and this trend is expected to continue.



| |                      
| | ---------------------
| | 2002 compared to 2001

Operating revenue for the ILEC declined from
$95.6 million in 2001 to $94.3 million in 2002. This
1.4% decrease in revenue was mainly due to a corresponding 1.6%
decrease in access lines. We attribute much of the line loss to
the nearly 5% penetration of our access line base with our DSL
Internet product, causing some of our access line customers to
cancel second lines previously used for dial-up Internet
service. It is also believed that similar pressure on second
lines is occurring from wireless carriers and cable modem
Internet service offered in our incumbent area by Time Warner.
The penetration of our incumbent base by our DSL product more
than doubled in 2002.

Operating expense in the ILEC declined at a
slightly faster rate than operating revenue in 2002 boosting
operating margin from 30.4% in 2001 to 32.1% in 2002.
Contributing to this margin increase was a $4.6 million
reduction in expense related to operational efficiencies offset
by a $1.8 million increase in depreciation costs related to
capital spending on several significant projects. An example of
our focus on internal operating efficiencies is the decision,
announced in the fourth quarter, to outsource operator services
to a reliable industry specialist, a move that we estimate will
save us over $400,000 per year beginning in 2003.

Capital expenditures declined in 2002 to 17.5% of
ILEC operating revenue compared to 21.9% in 2001, due in part to
the slowing new customer growth in our territory.

ILEC access lines subscribing to our long
distance service increased 0.9% in 2002 despite the 1.6% access
line loss. At the end of 2002 over 70.6% of ILEC access lines
subscribed to our long distance service, up from 68.9% at
year-end 2001.

30



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

|                           |  |      |        |      |  |      |        |   |  |   |        |  
|-------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                           |  | 2003 |        | 2002 |  | 2001
|                           |  |      |        |      |  |     
|Total operating revenue    |  | $    | 19,681 |      |  | $    | 15,503 |   |  | $ | 10,628 |  
|Total operating expense    |  |      | 21,231 |      |  |      | 21,370 |   |  |   | 19,435 |  
|                           |  |      |        |      |  |      |        |   |  |   |        |  
|Operating income (loss)    |  | $    | (1,550 | )    |  | $    | (5,867 | ) |  | $ | (8,807 | )
|                           |  |      |        |      |  |      |        |   |  |   |        |  
|Depreciation expense       |  | $    | 2,356  |      |  | $    | 2,202  |   |  | $ | 1,987  |  
|Capital expenditures       |  |      | 1,004  |      |  |      | 2,705  |   |  |   | 3,378  |  
|Total assets               |  |      | 12,962 |      |  |      | 14,492 |   |  |   | 15,640 |  
|                          
|Ending access lines        |  |      | 29,490 |      |  |      | 27,157 |   |  |   | 20,234 |  
|Ending long distance lines |  |      | 15,288 |      |  |      | 14,052 |   |  |   | 10,923 |  



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

CLEC operating revenue was $19.7 million in
2003, representing a $4.2 million or 26.9% increase over
2002. The $4.2 million increase consists of a
$2.0 million increase in recurring line revenue and a
$2.1 million increase in access revenue. The increase in
recurring line revenue is primarily attributable to an 8.6%
increase in access lines during 2003. The $2.1 million
increase in access revenue was due primarily to the collection
of approximately $1.3 million in previously disputed access
fees in 2003 and an increase in minutes of use. We have placed
significant resources around revenue assurance activities to
identify and collect access fees. Although revenue assurance
efforts will continue at current levels, we are not likely to
identify future opportunities consistent with our success in
2003.

Effective June 20, 2003, the FCC directed
that switched access rates charged by CLECs to long distance
companies for interstate traffic be reduced from $0.018 per
minute to $0.012 per minute. The effect of this reduction
lowered access revenue approximately $0.4 million in 2003.

CLEC operating expense was $21.2 million and
$21.4 million in 2003 and 2002, respectively. Our operating
expense decreased slightly despite revenue growth of 26.9%. As a
result, our operating margin increased to (7.9%) in 2003
compared to (37.8%) in 2002. The improvement in operating
margins was due primarily to the increase in access lines and
the collection of $1.3 million of previously disputed
access fee revenue. We expect margins to continue to be
positively impacted as we leverage existing transport
infrastructure with new customers.

We did not enter any new markets in 2003 or 2002,
electing instead to focus on market penetration in our current
markets and leverage existing transport infrastructure where
possible. Our CLEC focuses on the metropolitan areas and
communities immediately surrounding our ILEC territory.



| |                      
| | ---------------------
| | 2002 compared to 2001

CLEC operating revenue was $15.5 million in
2002, representing a $4.9 million or 45.9% increase over
2001. This increase is due to a 34.3% increase in access lines
during 2002 as well as a 28.6% increase in CLEC long distance
customers. CLEC continued its steady growth within the Charlotte
and Greensboro, North Carolina markets, becoming a more
significant carrier in the areas it serves.

CLEC operating expense was $21.4 million in
2002 compared with $19.4 million during 2001. Our operating
expense increased 10.0% in 2002, significantly less than the
45.9% revenue growth resulting in an increase in operating
margins from (82.9%) in 2001 to (37.8%) in 2002. Operating
expense increases in 2002 were principally related to the 34%
increase in our customer base, which impacted customer service,
billing, transport and network costs.

31



---



##### 





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

|                                 |  |      |        |      |  |      |        |   |  |   |        |  
|-------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                 |  | 2003 |        | 2002 |  | 2001
|                                 |  |      |        |      |  |     
|Total operating revenue          |  | $    | 6,223  |      |  | $    | 4,107  |   |  | $ | 1,874  |  
|Total operating expense          |  |      | 11,165 |      |  |      | 9,294  |   |  |   | 6,087  |  
|                                 |  |      |        |      |  |      |        |   |  |   |        |  
|Operating income (loss)          |  | $    | (4,942 | )    |  | $    | (5,187 | ) |  | $ | (4,213 | )
|                                 |  |      |        |      |  |      |        |   |  |   |        |  
|Depreciation expense             |  | $    | 2,761  |      |  | $    | 2,000  |   |  | $ | 1,018  |  
|Capital expenditures             |  |      | 4,680  |      |  |      | 10,099 |   |  |   | 9,995  |  
|Total assets                     |  |      | 24,478 |      |  |      | 22,419 |   |  |   | 14,357 |  
|                                
|Ending access lines              |  |      | 10,095 |      |  |      | 6,512  |   |  |   | 3,253  |  
|Ending long distance lines       |  |      | 4,806  |      |  |      | 2,577  |   |  |   | 981    |  
|Total signed provider agreements |  |      | 94     |      |  |      | 73     |   |  |   | 49     |  



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

Greenfield revenue increased $2.1 million in
2003 to $6.2 million compared to $4.1 million for
2002. This revenue increase is primarily attributable to a 55.0%
increase in access lines in 2003 related to the continued, but
slower than expected, filling of 94 developments covered by
signed telecommunications provider agreements. In addition,
access revenue increased approximately $0.6 million in 2003
as the minutes-of-use on our network increases with customer
growth. Our Greenfield business signed 21 provider agreements in
2003, bringing the total number of signed agreements to 94.
These agreements represent a potential 48,000 access lines once
these developments have been completely built out. The expected
residential/ business line mix of these 94 projects is expected
to be 90% residential and 10% business.

Operating expense increased 20.1% in 2003 to
$11.2 million, related primarily to the 55.0% increase in
access lines and a $0.8 million increase in depreciation
expense. The increase in access lines and related minutes-of-use
on the Companys network has resulted in $0.5 million
increase in combined access and transport expenses. The increase
in depreciation expense is associated with the up-front capital
expenditures required in most of the developments. Capital
expenditures in 2003 decreased $5.4 million for 2003
compared to 2002, as the Company continues its strategy of
targeting new developments with the most efficient capital
deployments.

At the end of 2003, 47.6% of Greenfield access
lines also subscribed to our long distance service, up from
39.6% in 2002. This increase is mainly due to the fact that many
of the early Greenfield access lines were business lines located
in mall projects. Business customers in malls historically do
not elect our long distance service as frequently as residential
customers since many retail businesses have national long
distance contracts. As the residential percentage of Greenfield
access lines increases we have seen our long distance
penetration rates increase.

In June 2003, the NCUC initiated a general
inquiry involving all certificated telecommunications providers
regarding provider contracts. The NCUC is examining all
telecommunications provider contracts filed by CLECs and ILECs
with the NCUC and hearings were held in late January 2004. The
Company has telecommunications provider contracts through its
Greenfield operations. At this time, the impact of this inquiry
on our business cannot be determined.

The Greenfield segment is also subject to the
switched access rates reduction affecting the Companys
CLEC. The impact on Greenfield is expected to be minimal and
should be offset by increased levels of traffic as the Company
continues to build out its projects.



| |                      
| | ---------------------
| | 2002 compared to 2001

Greenfield revenue more than doubled in 2002 to
$4.1 million compared to $1.9 million for 2001. This
revenue increase is primarily attributable to a doubling in
access lines in 2002 related to the continued, but slower than
expected, build-out of 73 developments covered by signed
telecommunications provider

32



---



##### 



agreements. Included in this access line increase
was the opening of the Triangle Town Center Mall in Raleigh, the
third destination mall served by our Greenfield business. Our
Greenfield business signed 24 provider agreements in 2002,
bringing the total number of signed agreements to 73. These
agreements represent a potential 40,800 access lines once these
developments have been completely built out.


Operating expense increased 52.7% in 2002 to
$9.3 million, related to the 100% increase in access lines
and a $1.0 million increase in depreciation expense
associated with the significant initial capital expenditures
required in most of the developments. Most of the increase in
expense in 2002 related to the increasing customer base. Capital
expenditures in 2002 were essentially flat with 2001 levels as
projects representing 13,000 to 14,000 potential access lines
were started each year.

At the end of 2002, 39.6% of Greenfield access
lines also subscribed to our long distance service, up from
30.2% in 2001. This increase is mainly due to the fact that many
of the early Greenfield access lines were business lines located
in mall projects. Business customers in malls historically do
not elect our long distance service as frequently as residential
customers since many retail businesses have national long
distance contracts.



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

|                              |  |      |        |      |  |      |        |  |  |   |        | 
|----------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                              |  | 2003 |        | 2002 |  | 2001
|                              |  |      |        |      |  |     
|Total operating revenue       |  | $    | 28,468 |      |  | $    | 24,443 |  |  | $ | 18,315 | 
|Total operating expense       |  |      | 26,332 |      |  |      | 21,155 |  |  |   | 16,139 | 
|                              |  |      |        |      |  |      |        |  |  |   |        | 
|Operating income              |  | $    | 2,136  |      |  | $    | 3,288  |  |  | $ | 2,176  | 
|                              |  |      |        |      |  |      |        |  |  |   |        | 
|Depreciation and amortization |  | $    | 1,721  |      |  | $    | 1,174  |  |  | $ | 668    | 
|Capital expenditures          |  |      | 1,107  |      |  |      | 4,289  |  |  |   | 812    | 
|Total assets                  |  |      | 30,790 |      |  |      | 30,500 |  |  |   | 28,316 | 
|                             
|Ending post-pay subscribers   |  |      | 38,458 |      |  |      | 33,293 |  |  |   | 31,120 | 



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

Our Digital Wireless business saw operating
revenue grow 16.5% in 2003 compared to 2002. We continued our
post-pay wireless subscriber growth in 2003 by adding
5,165 net subscribers, an increase of 15.5% compared to a
7.0% growth rate in 2002. This acceleration of customer growth
in 2003 led to an increase in recurring revenue of
$1.9 million in 2003 compared to 2002. Also contributing to
our increase in revenue during 2003 was increased settlement
revenue of $1.2 million related to a 29.8% increase in the
minutes of use on our wireless network from the end of 2002 to
the end of 2003 and increased revenue from the sale of handsets
and accessories of $0.5 million.

Operating expense increased 24.5% in 2003 to
$26.3 million. The primary drivers of the increase in
operating expenses are increases in indirect commissions of
$0.8 million, handset and accessory costs of
$0.5 million and settlement expenses of $0.3 million.
These expenses increased primarily due to the increase in
post-pay customers and the related increase in minutes-of-use on
our network. In addition, salary, benefits and bonus expenses
increased approximately $1.1 million, depreciation expense
increased $0.5 million and tower lease expenses increased
$0.3 million.

Operating margins decreased to 7.5% in 2003
compared to 13.5% in 2002. This decrease is primarily due to an
increase in selling and administrative expenses and an increase
in depreciation expense.

Capital expenditures were $1.1 million in
2003, primarily related to the addition of two new cell sites in
our territory and the addition of capacity on selected other
cell sites. New cell site construction was down significantly
from the 21 sites constructed in 2002. Our network is
substantially built out and we anticipate that capital
expenditures in future years associated with new sites to be
reduced from historical levels.

33



---



##### 



In November 2003, the FCC mandated that wireless
carriers implement LNP. There are several operational issues
that were recently addressed by the FCC. It is expected that
wireless LNP could result in increased rates of customer churn.



| |                      
| | ---------------------
| | 2002 compared to 2001

Our Digital Wireless business saw operating
revenue grow 33.5% in 2002 as it completed its first full year
after partitioning our portion of the Cingular digital network
in the summer of 2001. In 2001, as part of the partitioning, the
Company acquired over 13,000 post-pay subscribers and ended 2001
with over 31,000 post-pay subscribers. We continued our post-pay
wireless subscriber growth in 2002 by adding over 2,100 net
subscribers, an increase of 7.0%. Also contributing to our
increase in revenue during 2002 was increased settlement revenue
related to a 35% increase in the minutes of use on our wireless
network from the end of 2001 to the end of 2002. Contributing to
this increase in minutes of use was the addition of 21 wireless
cell sites in 2002, as we significantly improved the coverage in
our service territory.

Operating expense increased 31.1% in 2002 to
$21.2 million. The addition of customers, the increase in
minutes on our network, the opening of two new retail outlets
and the signing of 22 new indirect distributor agreements
contributed to the increase in operating expense over 2001.

Capital expenditures were $4.3 million in
2002, primarily related to the addition of 21 new cell
sites in our territory and the addition of capacity on selected
other cell sites. These projects were largely one-time projects
related to the filling out of our service territory after the
partitioning event.

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

|                              |  |      |        |      |  |      |        |   |  |   |        |  
|----------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                              |  | 2003 |        | 2002 |  | 2001
|                              |  |      |        |      |  |     
|Total operating revenue       |  | $    | 10,461 |      |  | $    | 9,695  |   |  | $ | 9,426  |  
|Total operating expense       |  |      | 11,934 |      |  |      | 11,411 |   |  |   | 12,155 |  
|                              |  |      |        |      |  |      |        |   |  |   |        |  
|Operating income (loss)       |  | $    | (1,473 | )    |  | $    | (1,716 | ) |  | $ | (2,729 | )
|                              |  |      |        |      |  |      |        |   |  |   |        |  
|Depreciation and amortization |  | $    | 2,078  |      |  | $    | 1,684  |   |  | $ | 2,269  |  
|Capital expenditures          |  |      | 2,434  |      |  |      | 1,908  |   |  |   | 2,420  |  
|Total assets                  |  |      | 15,105 |      |  |      | 14,622 |   |  |   | 15,573 |  
|                             
|Ending DSL lines              |  |      | 10,183 |      |  |      | 6,664  |   |  |   | 3,200  |  
|Ending dial-up accounts       |  |      | 10,838 |      |  |      | 12,554 |   |  |   | 14,148 |  
|Ending high-speed accounts    |  |      | 545    |      |  |      | 586    |   |  |   | 545    |  



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

IDS operating revenue grew 7.9% in 2003 to
$10.5 million. During 2003, the total number of DSL lines
increased 52.8%, which resulted in revenue from DSL service
increasing $1.7 million. This increase is partially offset
by decreases in dial-up and high-speed revenue of
$0.4 million and $0.2 million, respectively. In
addition, the Company announced in 2002 its intent to eliminate
its web development activities, which resulted in a decrease in
revenue of approximately $0.3 million in 2003.

IDS operating expense was $11.9 million in
2003, a 4.6% increase compared to 2002. This increase relates
primarily to costs associated with an increasing DSL customer
base, increased depreciation expense and increased salary,
benefits and bonus expenses, offset somewhat by a decrease in
web development expense.

Operating margins increased to (14.1%) in 2003
compared to (17.7%) in 2002. This increase is primarily due to
the growth in DSL accounts.

DSL customers increased 52.8% in 2003 to a total
of 10,183. This represents a penetration rate of 8.1% of
combined Greenfield and ILEC access lines.

34



---



##### 





| |                      
| | ---------------------
| | 2002 compared to 2001

IDS operating revenue grew 2.9% in 2002 to
$9.7 million. During 2002, we significantly decreased our
web development activities and continued to convert many dial-up
Internet customers to our DSL service. The resulting decrease in
web development and dial-up revenue in 2002 was more than offset
by increases in DSL and high-speed revenue.

IDS operating expense was $11.4 million in
2002, a 6.1% decrease compared to 2001. This decrease relates to
the reduction in our web development services, the increased
focus on product margins, somewhat offset by costs associated
with an increasing DSL customer base.

DSL customers more than doubled in each of 2001
and 2002 bringing total DSL lines in service to 6,664 at
December 31, 2002. This represented a penetration rate of
5.3% of combined Greenfield and ILEC access lines.

Other
Business Units(in thousands)

|                              |  |      |        |      |  |      |        |   |  |   |        |  
|----------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                              |  | 2003 |        | 2002 |  | 2001
|                              |  |      |        |      |  |     
|Total operating revenue       |  | $    |       |      |  | $    |       |   |  | $ |       |  
|Total operating expense       |  |      | 3,696  |      |  |      | 2,379  |   |  |   | 921    |  
|                              |  |      |        |      |  |      |        |   |  |   |        |  
|Operating income (loss)       |  | $    | (3,696 | )    |  | $    | (2,379 | ) |  | $ | (921   | )
|                              |  |      |        |      |  |      |        |   |  |   |        |  
|Depreciation and amortization |  | $    | 1,405  |      |  | $    | 693    |   |  | $ | 21     |  
|Capital expenditures          |  |      | 2,243  |      |  |      | 8,724  |   |  |   | 21,568 |  
|Total assets                  |  |      | 53,087 |      |  |      | 80,012 |   |  |   | 50,719 |  



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

Operating expense for the Companys other
business units increased $1.3 million in 2003 to
$3.7 million. This $1.3 million increase was related
primarily to a $0.7 million increase in depreciation due to
the completion of our corporate headquarters, a
$0.3 million increase in property and franchise taxes and a
$0.4 million increase in compensation and benefit expenses.
The expenses of the other business units consist primarily of
certain expenses that are not allocated to the operating
segments.

Capital expenditures in 2002 primarily include
the building of our new corporate center.



| |                      
| | ---------------------
| | 2002 compared to 2001

Operating expense for the other units increased
$1.5 million in 2002 to $2.4 million. This increase
was related primarily to a $0.7 million increase in
depreciation due to the completion of our corporate headquarters
and $0.6 million related to the inclusion of WONC in our
consolidated results after our purchase of majority ownership in
the spring of 2002.

Capital expenditures include the building of our
new corporate center (2000-2002), information systems and
software, property and other corporate capital expenditures. The
increase in total assets from 2001 to 2002 of $30.3 million
relates primarily to the consolidation of WONC.

Other
Income



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

Other income (expense) increased
$9.5 million in 2003 when compared to 2002. This increase
relates to an increase of $10.2 million in gains on sale of
investments and an increase of $0.8 million in equity in
income of unconsolidated companies, partially offset by a
$0.7 million increase in impairment on investments and a
$0.8 million increase in other expenses. The increase in
gains on sale of investments was primarily attributable to the
sale of the Companys investment in ITC Holding, which
resulted in a gain of

35



---



##### 



$15.2 million. The increase in equity in income
of unconsolidated companies is due to an increase in earnings of
Palmetto MobileNet.




| |                      
| | ---------------------
| | 2002 compared to 2001

Other income (expense) increased
$7.0 million in 2002 when compared to 2001. This increase
relates to a decrease of $13.8 million in investment
impairments and a $5.9 million reduction in gains on sales
of investments from 2001. Interest expense increased
$1.6 million in 2002 compared to 2001 due to higher debt
levels.

In the fourth quarter of 2001 we recognized a
$13.4 million pre-tax loss due to the write-down of Maxcom
bringing total investment impairment charges to
$14.9 million in 2001. In 2002, this number dropped
dramatically as we experienced only $1.1 million in total
investment impairment charges, related to several marketable
securities and other investments.

Our debt increased through the end of 2002 due
primarily to the investments we have made in our growth
businesses. As a result, interest expense has also increased. In
2002, other expenses, principally interest, were
$6.4 million, a $1.6 million increase over 2001.

Liquidity and Capital Resources

Net
cash provided by operating activities

Cash provided by operating activities increased
$14.2 million to $49.6 million for the year ended
December 31, 2003, and increased $12.1 million during
2002. The increase in 2003 was primarily driven by positive
working capital changes, recovery of certain prior year tax
refunds and greater cash generated from operations.

Net
cash used in investing activities

Cash used in investing activities decreased
$33.5 million in 2003 from $38.3 million invested in
2002. Net capital additions declined $20.5 million due
primarily to the completion of the Companys corporate
headquarters center in 2002. In addition, proceeds from the sale
of investments in unconsolidated companies increased
$15.0 million related to the sale of the Companys
investment in ITC Holding in 2003, offset somewhat by a
$5.0 million reduction in proceeds from sales of investment
securities.

Net
cash provided by financing activities

Cash used in financing activities totaled
$34.5 million in 2003 compared to cash provided by
financing activities of $3.3 million in 2002 and $53.9
million in 2001. In 2003, we repaid $30.0 million of
long-term debt using cash provided by operations and sales of
investments. Proceeds, net of repayments, from credit facilities
declined to $10.0 million in 2002 compared to $61.0 million
in 2001.

We have an unsecured revolving credit facility
for $90.0 million, of which $30.0 million was
outstanding on December 31, 2003. The interest rate on the
credit facility is variable based on LIBOR plus a spread based
on financial ratios including debt to operating earnings less
depreciation and amortization. The LIBOR interest rate on
December 31, 2003, was approximately 1.19% and the
applicable spread was 1.25%. The credit facility provides for
quarterly payments of interest until maturity on March 31,
2006. We have entered into interest rate swap transactions to
fix $20.0 million of the outstanding principal at rates of
5.9%, 4.53% and 3.81%. The swaps mature on March 31, 2004,
November 3, 2006 and November 3, 2004, respectively.
In addition, we have a $10.0 million revolving credit
facility that bears interest at the 30 day LIBOR plus
1.25%. As of December 31, 2003, we have no amounts
outstanding under this $10.0 million credit facility.

We also have a $50.0 million senior
unsecured 14-year term loan. The term loan requires quarterly
payments of interest at a fixed rate of 7.32% until maturity on
December 13, 2014. Payments of principal

36



---



##### 



are due beginning March 31, 2005 and quarterly
thereafter through December 31, 2014 in equal quarterly
amounts of $1.25 million.


Anticipated
sources and uses of funds

Cash flows from ILEC operations provide our
primary source of funding for existing operations, capital
expenditures, investment opportunities, dividends and debt
repayment. We have available $60.0 million under our
$90.0 million unsecured revolving credit facility,
$10.0 million under our $10.0 million revolving line
of credit, and assets including investment securities that can
be monetized. We believe our existing sources of liquidity, cash
provided by operations, new or existing credit facilities and
the sale of investment securities will satisfy our anticipated
working capital and capital expenditure requirements for the
foreseeable future.

Our capital expenditures in 2004 are expected to
be approximately $25.0 million, as follows:

|                                          |  |   |      | 
|----------------------------------------- |  | - | ---- | 
|ILEC network facilities and plant         |  | $ | 9.3  | 
|CLEC network expansion                    |  |   | 1.4  | 
|Greenfield projects                       |  |   | 5.3  | 
|Internet infrastructure                   |  |   | 1.8  | 
|Wireless coverage and capacity cell sites |  |   | 3.4  | 
|Other                                     |  |   | 3.8  | 
|                                          |  |   |      | 
|                                          |  | $ | 25.0 | 
|                                          |  |   |      | 

Other uses of cash in 2004 may include
investments in unconsolidated companies and marketable
securities. We expect to fund these outlays through cash from
operations and sales of investment securities.

|                         |                  |                      |        |           |  |           |       |           |  |               |        |        |  |   |        |        |  |   |        |        | 
|------------------------ | ---------------- | -------------------- | ------ | --------- |  | --------- | ----- | --------- |  | ------------- | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                         |                  |                     
|                         |                  | Payments Due by Year
|                         |                  |                     
|                         |                  |                      |        | Less than |  |          
|                         |                  | Total                |        | one Year  |  | 1-3 Years |       | 4-5 Years |  | After 5 Years
|(in thousands)           |                  |                      |        |           |  |           |       |           |  |              
|Contractual obligations: |                  |                      |        |           |  |           |       |           |  |               |        |        |  |   |        |        |  |   |        |       
|                         | Long-term debt   |                      | $      | 80,000    |  |           | $     |          |  |               | $      | 40,000 |  |   | $      | 10,000 |  |   | $      | 30,000 | 
|                         | Operating leases |                      |        | 9,141     |  |           |       | 3,216     |  |               |        | 4,920  |  |   |        | 726    |  |   |        | 279    | 
|                         | Capital leases   |                      |        | 1,406     |  |           |       | 423       |  |               |        | 983    |  |   |        |       |  |   |        |       | 
|                         |                  |                      |        |           |  |           |       |           |  |               |        |        |  |   |        |        |  |   |        |       
|                         |                  | $                    | 90,547 |           |  | $         | 3,639 |           |  | $             | 45,903 |        |  | $ | 10,726 |        |  | $ | 30,279 |       
|                         |                  |                      |        |           |  |           |       |           |  |               |        |        |  |   |        |        |  |   |        |       

Accounting Considerations

There are several recently issued accounting
pronouncements that the Company has or will adopt. See Note 1 of
the Notes to Consolidated Financial Statements for a
discussion of those pronouncements and estimated impact on our
reported results from operations and financial position.

Cautionary Note Regarding Forward-Looking
Statements

This report contains certain
forward-looking statements, as defined in
Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, that
are based on the beliefs of management, as well as assumptions
made by, and information currently available to, management.
Management has based these forward-looking statements on its
current expectations and projections about future events and
trends affecting the financial condition and operation of our
business. These forward-looking statements are subject to
certain risks, uncertainties and assumptions about us that could
cause

37



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##### 



actual results to differ materially from those
reflected in the forward-looking statements. Factors that may
cause actual results to differ materially from these
forward-looking statements are:




| |   |                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our 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,                               
|
| |  | our ability to recover the substantial costs
    incurred over the past few years in connection with our
    expansion into new businesses,                                                                 
|
| |  | our ability to attract and retain key personnel,                                                                                                                                                            
|
| |  | our ability to retain our 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,
|
| |  | our ability to control pricing and product
    offerings in a highly competitive industry,                                                                                                                  
|
| |  | the performance of our investments,                                                                                                                                                                         
|
| |  | our 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.                                                                

These forward-looking statements are principally
contained in the following sections of this report:



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

In some cases, in those and other portions of
this report, these forward-looking statements can be identified
by the use of words such as may, will,
should, expect, intend,
plan, anticipate, believe,
estimate, predict, project,
or potential or the negative of these words or other
comparable words.

In making forward-looking statements, we claim
the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of
1995. We undertake 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

We have an unsecured revolving credit facility
with a syndicate of banks for $90.0 million, of which
$30.0 million was outstanding on December 31, 2003 and
an unsecured term loan of $50.0 million, all of which was
outstanding at December 31, 2003. The interest rate of the
term loan is fixed at 7.32%. The interest rate on the revolving
credit facility is variable based on LIBOR plus a spread based
on our ratio of debt to operating earnings less depreciation and
amortization expense. The interest rate was approximately 2.4%
with the spread on December 31, 2003. We have three
interest rate swap agreements that establish a fixed rate of
interest on $20.0 million of the outstanding principal as
of December 31, 2003. The interest rate swaps will protect
us, to the extent of $20.0 million of outstanding principal
amount, against an upward movement in interest rates, but
subject us to above market interest costs if interest rates
decline. We believe that reasonably foreseeable movements in
interest rates will not have a material adverse effect on our
financial condition or operations. While the Company may be
exposed to credit losses due to non-performance of the
counterparties, the Company considers the risk remote and does
not expect the settlement of these transactions to have a
material effect on its results of operations or financial
condition.

38



---



##### 



Additional information regarding the interest
rate swap agreements is contained in Note 8 Debt
Instruments and Note 10 Derivative Financial
Instruments of the Consolidated Financial Statements
included in Part IV Item 15(a)(1) of this Annual
Report on Form 10-K.



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

Our consolidated financial statements, the
financial statement schedules required to be filed with this
report and the report of independent public accountants are set
forth on pages F-1 through F-36 of this report. The
selected quarterly financial data required by this Item is
included in Note 19 of our consolidated financial
statements.



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

None.



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

The Company maintains disclosure controls and
procedures that are designed to ensure that information required
to be disclosed by the Company in the reports it files under the
Securities Exchange Act of 1934 (Exchange Act) is
recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the SEC. These
disclosure controls and procedures are designed to ensure that
appropriate information is accumulated and communicated to the
Companys management, including its chief executive officer
and chief financial officer, as appropriate to allow for timely
decisions regarding disclosure.

As required by the SEC rules, the Companys
management, under the supervision and with the participation of
the Companys chief executive officer and chief financial
officer, has evaluated the effectiveness of the Companys
disclosure controls and procedures as of December 31, 2003.
In designing and evaluating the disclosure controls and
procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired
control objectives and management necessarily was required to
apply its judgment in evaluating the cost-benefit relationship
of possible controls and procedures. Also, the Company has
investments in certain unconsolidated entities, including
Palmetto MobileNet. As the Company neither controls nor manages
these entities, its disclosure controls and procedures with
respect to these entities are necessarily substantially more
limited than those it maintains with respect to its consolidated
subsidiaries.

Based upon that evaluation, the Companys
chief executive officer and chief financial officer have
concluded that the Companys disclosure controls and
procedures are effective in timely alerting them to material
information relating to the Company, including its consolidated
subsidiaries, required to be included in the Companys
Exchange Act reports.

During the fiscal quarter ended December 31,
2003, there have been no changes in the Companys internal
controls over financial reporting that have materially affected,
or that are reasonably likely to materially affect, the
Companys internal control over financial reporting.

PART III



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

The information called for by Item 10 with
respect to directors and Section 16 matters, including the
identification of an audit committee financial expert, is set
forth in the Proxy Statement for our 2004 Annual Meeting of
Shareholders under the captions Election of
Directors, and Section 16(a) Beneficial
Ownership Reporting Compliance, respectively, and is
hereby incorporated by reference. The information called for by
Item 10 with respect to executive officers is set forth in
Part I, Business  Executive Officers of
the Registrant of this report.

39



---



##### 



The Company has adopted a code of ethics, the
Code of Business Conduct and Ethics, which applies to all
directors, officers (including its chief executive officer,
chief financial officer, chief accounting officer, controller
and any person performing similar functions) and employees. The
Code of Business Conduct and Ethics is available to the public
in the Investor Relations section of the
Companys web site at www.ctc.net.



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

The information called for by Item 11 is set
forth in the Proxy Statement for our 2004 Annual Meeting of
Shareholders under the captions Election of
Directors  Compensation of Directors and
Executive Compensation, respectively, and is hereby
incorporated by reference.



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

Security
Ownership of Certain Beneficial Owners and Management

Information relating to security ownership of
certain beneficial owners and management called for by
Item 12 is set forth in the Proxy Statement for our 2004
Annual Meeting of Shareholders under the captions
Principal Shareholders and Management
Ownership of Common Stock, respectively, and is hereby
incorporated by reference.

Equity Compensation Plan Information

The following table sets forth certain
information regarding the Companys equity compensation
plans as of December 31, 2003:

|                                                               |  |                   |           |                  |  |                 |       |  |  |  |           |  
|-------------------------------------------------------------- |  | ----------------- | --------- | ---------------- |  | --------------- | ----- |  |  |  | --------- | -
|                                                               |  |                   |           |                  |  | 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     |  |                   | 841,870(1 | )                |  | $               | 16.27 |  |  |  | 994,532(2 | )
|Equity compensation plans not approved by
    security holders |  |                   |          |                  |  |                 |      |  |  |  |          |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes 350,826 options to purchase shares of
    common stock under the Omnibus Stock Compensation Plan, 434,508
    options to purchase shares of common stock under the 2001 Stock
    Incentive Plan and 56,536 options to purchase shares of common
    stock under the Comprehensive Stock Option plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(2) | Includes 375,904 shares originally authorized for
    issuance under the Omnibus Stock Compensation Plan that were
    transferred to the 2001 Stock Incentive Plan in accordance with
    that plan. Also includes an additional 597,090 shares authorized
    under the 2001 Stock Incentive Plan, 480 shares authorized under
    the Comprehensive Stock Option Plan and 21,058 shares authorized
    under the 1996 Director Compensation Plan. Available shares
    shown above for the Omnibus Stock Compensation Plan and the 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

The information called for by Item 13 is set
forth in the Proxy Statement for our 2004 Annual Meeting of
Shareholders under the caption Certain Relationships and
Related Transactions and is hereby incorporated by
reference.

40



---



##### 





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

The information called for by Item 14 is set
forth in the Proxy Statement for our 2004 Annual Meeting of
Shareholders under the caption Auditor Fee
Information and is hereby incorporated by reference.



PART IV


Item 15.     Exhibits,
Financial Statement Schedules and Reports on
Form 8-K

(a) Documents filed as part of this report



| |                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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 Public Accountants,                                                                   
|
| |  | Consolidated balance sheets as of
    December 31, 2003 and 2002,                                           
|
| |  | Consolidated statements of income for the years
    ended December 31, 2003, 2002 and 2001,                 
|
| |  | Consolidated statements of cash flows for the
    years ended December 31, 2003, 2002 and 2001,             
|
| |  | Consolidated statements of shareholders
    equity for the years ended December 31, 2003, 2002 and 2001,   
|
| |  | Consolidated statements of comprehensive income
    for the years ended December 31, 2003, 2002 and 2001 and
|
| |  | Notes to consolidated financial statements for
    the years ended December 31, 2003, 2002 and 2001.        



| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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-37 through F-46 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.

(b) Reports on Form 8-K



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On October 21, 2003, the Company filed a
    Current Report on Form 8-K announcing the Companys
    consolidated financial results for the third quarter of 2003.                                                                                                                                                                                                                                                                                                                                                                                   
|
| | On October 23, 2003, the Company filed a
    Current Report on Form 8-K announcing that the Company made
    certain adjustments, which we believe are not material, to
    information previously reported in Note 19  Summary of
    Income Statement Information (Unaudited) contained in the Notes
    to Consolidated Financial Statements in our Annual Report on
    Form 10-K for the year ended December 31, 2002. These
    adjustments have no effect on the consolidated results of
    operations for the year ended December 31, 2002.
|
| | On November 17, 2003, the Company filed a
    Current Report on Form 8-K announcing that on
    November 17, 2003 the Company declared a quarterly cash
    dividend on its common stock of $0.065 per share to all
    shareholders of record at the close of business on
    December 1, 2003.                                                                                                                                                                                                                                                     

(c) Exhibits

See (a)(4), above.

(d) Financial statement schedules

See (a)(2), above.

41



---



##### 



SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



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



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

| |                                      
| | -------------------------------------
| |                                      
| | Michael R. Coltrane                  
| | Chairman of the Board of Directors,  
| | President and Chief Executive Officer
|
| | Date: March 12, 2004                 

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities indicated as of March 12, 2004.



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

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



| |     |                       
| | --- | ----------------------
| | By: | /s/ JOHN R. BOGER, JR.

| |                   
| | ------------------
| |                   
| | John R. Boger, Jr.
| | Director          



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

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



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

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



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

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



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

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

42



---



##### 





| |     |                        
| | --- | -----------------------
| | 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)

43



---



##### 



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 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.)                                                                                                                                             



---



##### 



|            |       |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|----------- | ----- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |       | Description
|            |       |            
|            | 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.)                                                                                                            
|            | 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. 2001 Stock Incentive Plan
    dated April 26, 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 15, 2001)                                                                                                                                                      
|            | 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)



---



##### 



|            |       |             |  |                                                                                                                                                                                                                                                                                                 
|----------- | ----- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |       | Description
|            |       |            
|            | 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.)                                       
|            | 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.)     
|            | 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  |             |  | Notice Regarding Lack of Consent of Arthur
    Andersen LLP.                                                                                                                                                                                                                                    
|            | 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.                                                                                                                           



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS
INDEX

December 31, 2003, 2002 and
2001


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, 2003 and 2002                                                                 |  | F-3        
|    |  |  Consolidated statements of income for
    the years ended December 31, 2003, 2002 and 2001                                       |  | F-4        
|    |  |  Consolidated statements of
    comprehensive income (loss) for the years ended
    December 31, 2003, 2002 and 2001              |  | F-5        
|    |  |  Consolidated statements of
    stockholders equity for the years ended December 31,
    2003, 2002 and 2001                     |  | F-6 and F-7
|    |  |  Consolidated statements of cash flows
    for the years ended December 31, 2003, 2002 and 2001                                   |  | F-8        
|    |  |  Notes to consolidated financial
    statements for the years ended December 31, 2003, 2002 and
    2001                          |  | F-9 to F-35
|   
|(2) |  | Consolidated Financial Statement Schedule                                                                                          |  |            
|    |  | The following financial statement schedule is
    included:                                                                        |  |            
|    |  |  Schedule II 
    Valuation and Qualifying Accounts                                                                              |  | F-36       
|    |  | Other schedules are omitted because the required
    information is included in the financial statements or is not
    applicable.

F-1



---



##### 



INDEPENDENT AUDITORS REPORT

The Board of Directors and Stockholders

CT Communications, Inc.:


We have audited the consolidated financial
statements of CT Communications, Inc. and subsidiaries as listed
in the accompanying index. In connection with our audits of
these consolidated financial statements, we also have audited
the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial
statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement
schedule based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of CT Communications, Inc. and
subsidiaries as of December 31, 2003 and 2002, and the
results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2003, in
conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the related
financial statement schedule, when considered in relation to the
consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth
therein.

As discussed in Note 1(i) to the consolidated
financial statements, the Company changed its method of
accounting for goodwill and other intangible assets in 2002.



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

Charlotte, North Carolina

February 13, 2004


F-2



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2003 and 2002


(in thousands, except share data)

|                                         |                                                                                                                             |                                                                          |                                                |                                              |     |         |         |         |     |         |         | 
|---------------------------------------- | --------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | ---------------------------------------------- | -------------------------------------------- | --- | ------- | ------- | ------- | --- | ------- | ------- | 
|                                         |                                                                                                                             | 2003                                                                     |                                                | 2002                                        
|                                         |                                                                                                                             |                                                                          |                                                |                                             
|ASSETS                                  
|Current assets:                          |                                                                                                                             |                                                                          |                                                |                                              |     |         |         |        
|                                         | Cash and cash equivalents                                                                                                   |                                                                          | $                                              | 16,957                                       |     |         | $       | 7,652   |    
|                                         | Accounts receivable and unbilled revenue, net of
    allowance for doubtful accounts of $971 at 2003 and $1,174 at
    2002 |                                                                          |                                                | 22,301                                       |     |         |         | 22,289  |    
|                                         | Other accounts receivable                                                                                                   |                                                                          |                                                | 1,512                                        |     |         |         | 2,025   |    
|                                         | Income taxes receivable                                                                                                     |                                                                          |                                                |                                             |     |         |         | 3,007   |    
|                                         | Materials and supplies                                                                                                      |                                                                          |                                                | 1,569                                        |     |         |         | 1,265   |    
|                                         | Deferred income taxes                                                                                                       |                                                                          |                                                | 279                                          |     |         |         | 513     |    
|                                         | Other                                                                                                                       |                                                                          |                                                | 2,012                                        |     |         |         | 1,894   |    
|                                         |                                                                                                                             |                                                                          |                                                |                                              |     |         |         |        
|                                         |                                                                                                                             |                                                                          | Total current assets                           |                                              |     | 44,630  |         |         |     | 38,645  |        
|                                         |                                                                                                                             |                                                                          |                                                |                                              |     |         |         |        
|Investment securities                    |                                                                                                                             |                                                                          | 7,120                                          |                                              |     |         | 5,529   |        
|Other investments                        |                                                                                                                             |                                                                          | 1,353                                          |                                              |     |         | 797     |        
|Investments in unconsolidated companies  |                                                                                                                             |                                                                          | 13,652                                         |                                              |     |         | 13,578  |        
|Property and equipment, net              |                                                                                                                             |                                                                          | 208,370                                        |                                              |     |         | 214,421 |        
|Goodwill                                 |                                                                                                                             |                                                                          | 9,906                                          |                                              |     |         | 9,906   |        
|Other intangibles, net                   |                                                                                                                             |                                                                          | 35,201                                         |                                              |     |         | 53,070  |        
|Other assets                             |                                                                                                                             |                                                                          | 1,436                                          |                                              |     |         | 1,612   |        
|Assets of discontinued operations        |                                                                                                                             |                                                                          |                                               |                                              |     |         | 1,206   |        
|                                         |                                                                                                                             |                                                                          |                                                |                                              |     |         |         |        
|                                         |                                                                                                                             |                                                                          | Total assets                                   |                                              | $   | 321,668 |         |         | $   | 338,764 |        
|                                         |                                                                                                                             |                                                                          |                                                |                                              |     |         |         |        
|LIABILITIES AND STOCKHOLDERS
    EQUITY
|Current Liabilities:                     |                                                                                                                             |                                                                          |                                                |                                              |     |         |         |        
|                                         | Accounts payable                                                                                                            |                                                                          | $                                              | 6,414                                        |     |         | $       | 8,632   |    
|                                         | Customer deposits and advance billings                                                                                      |                                                                          |                                                | 2,665                                        |     |         |         | 2,593   |    
|                                         | Accrued payroll                                                                                                             |                                                                          |                                                | 6,505                                        |     |         |         | 3,012   |    
|                                         | Income taxes payable                                                                                                        |                                                                          |                                                | 2,821                                        |     |         |         |        |    
|                                         | Accrued pension cost                                                                                                        |                                                                          |                                                | 3,542                                        |     |         |         | 2,856   |    
|                                         | Other accrued liabilities                                                                                                   |                                                                          |                                                | 4,446                                        |     |         |         | 6,495   |    
|                                         | Liabilities of discontinued operations                                                                                      |                                                                          |                                                | 1,072                                        |     |         |         | 1,645   |    
|                                         |                                                                                                                             |                                                                          |                                                |                                              |     |         |         |        
|                                         |                                                                                                                             |                                                                          |                                                | Total current liabilities                    |     |         | 27,465  |         |     |         | 25,233  | 
|                                         |                                                                                                                             |                                                                          |                                                |                                              |     |         |         |        
|Long-term debt                           |                                                                                                                             |                                                                          | 80,000                                         |                                              |     |         | 127,697 |        
|Deferred credits and other liabilities:  |                                                                                                                             |                                                                          |                                                |                                              |     |         |         |        
|                                         | Deferred income taxes                                                                                                       |                                                                          |                                                | 22,618                                       |     |         |         | 12,433  |    
|                                         | Investment tax credits                                                                                                      |                                                                          |                                                | 230                                          |     |         |         | 345     |    
|                                         | Post-retirement benefits other than pension                                                                                 |                                                                          |                                                | 11,246                                       |     |         |         | 11,099  |    
|                                         | Other                                                                                                                       |                                                                          |                                                | 2,579                                        |     |         |         | 1,756   |    
|                                         |                                                                                                                             |                                                                          |                                                |                                              |     |         |         |        
|                                         |                                                                                                                             |                                                                          |                                                | Total deferred credits and other liabilities |     |         | 36,673  |         |     |         | 25,633  | 
|                                         |                                                                                                                             |                                                                          |                                                |                                              |     |         |         |        
|                                         |                                                                                                                             |                                                                          |                                                | Total liabilities                            |     |         | 144,138 |         |     |         | 178,563 | 
|                                         |                                                                                                                             |                                                                          |                                                |                                              |     |         |         |        
|Stockholders equity:                    |                                                                                                                             |                                                                          |                                                |                                              |     |         |         |        
|                                         | Preferred stock not subject to mandatory
    redemption:                                                                    |                                                                          |                                                |                                              |     |         |         |         |    
|                                         |                                                                                                                             | 5% series, $100 par value; 3,356 shares
    outstanding at 2003 and 2002 |                                                |                                              | 336 |         |         |         | 336 |        
|                                         |                                                                                                                             | 4.5% series, $100 par value; 614 shares
    outstanding at 2003 and 2002 |                                                |                                              | 61  |         |         |         | 61  |        
|                                         | Common stock, 18,769,187 at 2003 and 18,686,740
    at 2002 shares outstanding                                              |                                                                          |                                                | 40,800                                       |     |         |         | 39,962  |    
|                                         | Other capital                                                                                                               |                                                                          |                                                | 298                                          |     |         |         | 298     |    
|                                         | Unearned compensation                                                                                                       |                                                                          |                                                | (264                                         | )   |         |         | (470    | )  
|                                         | Other accumulated comprehensive income (loss)                                                                               |                                                                          |                                                | 558                                          |     |         |         | (817    | )  
|                                         | Retained earnings                                                                                                           |                                                                          |                                                | 135,741                                      |     |         |         | 120,831 |    
|                                         |                                                                                                                             |                                                                          |                                                |                                              |     |         |         |        
|                                         |                                                                                                                             |                                                                          | Total stockholders equity                     |                                              |     | 177,530 |         |         |     | 160,201 |        
|                                         |                                                                                                                             |                                                                          |                                                |                                              |     |         |         |        
|                                         |                                                                                                                             |                                                                          | Total liabilities and stockholders
    equity |                                              | $   | 321,668 |         |         | $   | 338,764 |        
|                                         |                                                                                                                             |                                                                          |                                                |                                              |     |         |         |        

See accompanying notes to consolidated financial
statements.

F-3



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Years ended December 31, 2003, 2002 and
2001


(in thousands, except per share
data)

|                                            |                                                                                                                                                                                      |                                                           |        |         |         |      |        |         |         |  |        |         |         |  
|------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------- | ------ | ------- | ------- | ---- | ------ | ------- | ------- |  | ------ | ------- | ------- | -
|                                            |                                                                                                                                                                                      | 2003                                                      |        | 2002    |         | 2001
|                                            |                                                                                                                                                                                      |                                                           |        |         |         |     
|Operating revenue:                          |                                                                                                                                                                                      |                                                           |        |         |         |      |        |         |         |  |        |        
|                                            | Telephone                                                                                                                                                                            |                                                           | $      | 121,979 |         |      | $      | 113,918 |         |  | $      | 108,062 |        
|                                            | Wireless and internet                                                                                                                                                                |                                                           |        | 38,929  |         |      |        | 34,138  |         |  |        | 27,741  |        
|                                            |                                                                                                                                                                                      |                                                           |        |         |         |      |        |         |         |  |        |        
|                                            |                                                                                                                                                                                      | Total operating revenue                                   |        |         | 160,908 |      |        |         | 148,056 |  |        |         | 135,803 |  
|                                            |                                                                                                                                                                                      |                                                           |        |         |         |      |        |         |         |  |        |        
|Operating expense:                          |                                                                                                                                                                                      |                                                           |        |         |         |      |        |         |         |  |        |        
|                                            | Operations and support                                                                                                                                                               |                                                           |        | 54,334  |         |      |        | 51,858  |         |  |        | 48,821  |        
|                                            | Selling, general and administrative                                                                                                                                                  |                                                           |        | 56,175  |         |      |        | 50,976  |         |  |        | 47,183  |        
|                                            | Restructuring costs                                                                                                                                                                  |                                                           |        |        |         |      |        |        |         |  |        | 1,942   |        
|                                            | Depreciation                                                                                                                                                                         |                                                           |        | 30,848  |         |      |        | 26,821  |         |  |        | 23,276  |        
|                                            |                                                                                                                                                                                      |                                                           |        |         |         |      |        |         |         |  |        |        
|                                            |                                                                                                                                                                                      | Total operating expense                                   |        |         | 141,357 |      |        |         | 129,655 |  |        |         | 121,222 |  
|                                            |                                                                                                                                                                                      |                                                           |        |         |         |      |        |         |         |  |        |        
|                                            |                                                                                                                                                                                      | Operating income                                          |        |         | 19,551  |      |        |         | 18,401  |  |        |         | 14,581  |  
|                                            |                                                                                                                                                                                      |                                                           |        |         |         |      |        |         |         |  |        |        
|Other income (expense):                     |                                                                                                                                                                                      |                                                           |        |         |         |      |        |         |         |  |        |        
|                                            | Equity in income of unconsolidated companies, net                                                                                                                                    |                                                           |        | 5,664   |         |      |        | 4,862   |         |  |        | 4,204   |        
|                                            | Interest, dividend income and gain on sale of
    investments                                                                                                                        |                                                           |        | 16,513  |         |      |        | 6,328   |         |  |        | 12,266  |        
|                                            | Impairment of investments                                                                                                                                                            |                                                           |        | (1,744  | )       |      |        | (1,058  | )       |  |        | (14,918 | )      
|                                            | Other expense, principally interest                                                                                                                                                  |                                                           |        | (7,121  | )       |      |        | (6,358  | )       |  |        | (4,794  | )      
|                                            |                                                                                                                                                                                      |                                                           |        |         |         |      |        |         |         |  |        |        
|                                            |                                                                                                                                                                                      | Total other income (expense)                              |        |         | 13,312  |      |        |         | 3,774   |  |        |         | (3,242  | )
|                                            |                                                                                                                                                                                      |                                                           |        |         |         |      |        |         |         |  |        |        
|                                            |                                                                                                                                                                                      | Income from continuing operations before
    income taxes |        |         | 32,863  |      |        |         | 22,175  |  |        |         | 11,339  |  
|Income taxes                                |                                                                                                                                                                                      |                                                           | 12,620 |         |         |      | 8,696  |         |         |  | 4,993  |        
|                                            |                                                                                                                                                                                      |                                                           |        |         |         |      |        |         |         |  |        |        
|                                            |                                                                                                                                                                                      | Income from continuing operations                         |        |         | 20,243  |      |        |         | 13,479  |  |        |         | 6,346   |  
|Discontinued operations:                    |                                                                                                                                                                                      |                                                           |        |         |         |      |        |         |         |  |        |        
|                                            | Loss from operations of discontinued business,
    net of income tax benefits of $276 in 2003, $3,278 in 2002 and
    $3,029 in 2001, including a loss on disposal of $4,378 in 2002 |                                                           |        | (424    | )       |      |        | (5,657  | )       |  |        | (5,880  | )      
|                                            |                                                                                                                                                                                      |                                                           |        |         |         |      |        |         |         |  |        |        
|                                            |                                                                                                                                                                                      | Net income                                                |        |         | 19,819  |      |        |         | 7,822   |  |        |         | 466     |  
|Dividends on preferred stock                |                                                                                                                                                                                      |                                                           | 20     |         |         |      | 20     |         |         |  | 25     |        
|                                            |                                                                                                                                                                                      |                                                           |        |         |         |      |        |         |         |  |        |        
|                                            |                                                                                                                                                                                      | Earnings for common stock                                 |        | $       | 19,799  |      |        | $       | 7,802   |  |        | $       | 441     |  
|                                            |                                                                                                                                                                                      |                                                           |        |         |         |      |        |         |         |  |        |        
|Basic earnings (loss) per
    share:        |                                                                                                                                                                                      |                                                           |        |         |         |      |        |         |         |  |        |        
|                                            | Continuing operations                                                                                                                                                                |                                                           | $      | 1.08    |         |      | $      | 0.72    |         |  | $      | 0.34    |        
|                                            | Discontinued operations                                                                                                                                                              |                                                           |        | (0.02   | )       |      |        | (0.30   | )       |  |        | (0.31   | )      
|                                            | Net income                                                                                                                                                                           |                                                           |        | 1.06    |         |      |        | 0.42    |         |  |        | 0.02    |        
|Diluted earnings (loss) per
    share:      |                                                                                                                                                                                      |                                                           |        |         |         |      |        |         |         |  |        |        
|                                            | Continuing operations                                                                                                                                                                |                                                           | $      | 1.08    |         |      | $      | 0.72    |         |  | $      | 0.34    |        
|                                            | Discontinued operations                                                                                                                                                              |                                                           |        | (0.02   | )       |      |        | (0.30   | )       |  |        | (0.31   | )      
|                                            | Net income                                                                                                                                                                           |                                                           |        | 1.05    |         |      |        | 0.42    |         |  |        | 0.02    |        
|Basic weighted average shares outstanding   |                                                                                                                                                                                      |                                                           | 18,747 |         |         |      | 18,710 |         |         |  | 18,816 |        
|Diluted weighted average shares outstanding |                                                                                                                                                                                      |                                                           | 18,808 |         |         |      | 18,746 |         |         |  | 18,860 |        

See accompanying notes to the consolidated
financial statements.

F-4



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (LOSS)

Years ended December 31, 2003, 2002 and
2001


(in thousands)

|                            |                                                                                                                                                                                                                  |      |        |       |   |      |       |        |   |   |        |        |  
|--------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | ------ | ----- | - | ---- | ----- | ------ | - | - | ------ | ------ | -
|                            |                                                                                                                                                                                                                  | 2003 |        | 2002  |   | 2001
|                            |                                                                                                                                                                                                                  |      |        |       |   |     
|Net income                  |                                                                                                                                                                                                                  | $    | 19,819 |       |   | $    | 7,822 |        |   | $ | 466    |       
|Other comprehensive income: |                                                                                                                                                                                                                  |      |        |       |   |      |       |        |   |   |        |       
|                            | Unrealized holding gains (losses) on
    available-for-sale securities, net of tax expense
    (benefit) of $598, ($1,616), and $1,030 in 2003, 2002 and
    2001, respectively                                  |      |        | 1,069 |   |      |       | (2,891 | ) |   |        | 1,842  |  
|                            | Net realized holding gains (losses) on
    interest rate swaps accounted as derivative hedging instruments,
    net of tax expense (benefit) of $226, ($274) and ($168) in
    2003, 2002 and 2001, respectively |      |        | 347   |   |      |       | (420   | ) |   |        | (257   | )
|                            | Reclassification adjustment for gains realized in
    net income, net of tax benefit of ($23), ($1,281) and ($3,969)
    in 2003, 2002 and 2001, respectively                                                    |      |        | (41   | ) |      |       | (2,292 | ) |   |        | (7,098 | )
|                            |                                                                                                                                                                                                                  |      |        |       |   |      |       |        |   |   |        |       
|Comprehensive income (loss) |                                                                                                                                                                                                                  | $    | 21,194 |       |   | $    | 2,219 |        |   | $ | (5,047 | )     
|                            |                                                                                                                                                                                                                  |      |        |       |   |      |       |        |   |   |        |       

See accompanying notes to consolidated financial
statements.

F-5



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

Years ended December 31, 2003, 2002 and
2001


(in thousands, except share data)

|                                                                        |                |           |     |             |  |        |    |         |  |              |        |               |  |          |     |               |  |   |      |   |  |   |        |   |  |   |         |        |   |   |         |        |  
|----------------------------------------------------------------------- | -------------- | --------- | --- | ----------- |  | ------ | -- | ------- |  | ------------ | ------ | ------------- |  | -------- | --- | ------------- |  | - | ---- | - |  | - | ------ | - |  | - | ------- | ------ | - | - | ------- | ------ | -
|                                                                        |                | 5% Series |     | 4.5% Series |  |        |    |         |  |              |        | Other         |  |          |     | Total        
|                                                                        |                | Preferred |     | Preferred   |  | Common |    | Other   |  | Unearned     |        | Comprehensive |  | Retained |     | Stockholders
|                                                                        |                | Stock     |     | Stock       |  | Stock  |    | Capital |  | Compensation |        | Income (Loss) |  | Earnings |     | Equity       
|                                                                        |                |           |     |             |  |        |    |         |  |              |        |               |  |          |     |              
|Balances at December 31, 2000                                           |                | $         | 336 |             |  | $      | 61 |         |  | $            | 42,575 |               |  | $        | 298 |               |  | $ | (836 | ) |  | $ | 10,299 |   |  | $ | 122,358 |        |   | $ | 175,091 |       
|Net income                                                              |                |           |    |             |  |        |   |         |  |              |       |               |  |          |    |               |  |   |     |   |  |   |       |   |  |   | 466     |        |   |   | 466     |       
|Issuance of 57,915 shares of common stock                               |                |           |    |             |  |        |   |         |  |              | 881    |               |  |          |    |               |  |   |     |   |  |   |       |   |  |   |        |        |   |   | 881     |       
|Issuance of 7,544 shares for exercise of stock
    options              |                |           |    |             |  |        |   |         |  |              | 67     |               |  |          |    |               |  |   |     |   |  |   |       |   |  |   |        |        |   |   | 67      |       
|Repurchase of 178,873 shares of common, including
    cancellations     |                |           |    |             |  |        |   |         |  |              | (2,676 | )             |  |          |    |               |  |   |     |   |  |   |       |   |  |   |        |        |   |   | (2,676  | )     
|Dividends declared:                                                     |                |           |     |             |  |        |    |         |  |              |        |               |  |          |     |               |  |   |      |   |  |   |        |   |  |   |         |        |   |   |         |       
|                                                                        | 5% preferred   |           |     |            |  |        |    |        |  |              |        |              |  |          |     |              |  |   |      |  |  |   |        |  |  |   |         | (17    | ) |   |         | (17    | )
|                                                                        | 4.8% preferred |           |     |            |  |        |    |        |  |              |        |              |  |          |     |              |  |   |      |  |  |   |        |  |  |   |         | (5     | ) |   |         | (5     | )
|                                                                        | 4.5% preferred |           |     |            |  |        |    |        |  |              |        |              |  |          |     |              |  |   |      |  |  |   |        |  |  |   |         | (3     | ) |   |         | (3     | )
|                                                                        | Common stock   |           |     |            |  |        |    |        |  |              |        |              |  |          |     |              |  |   |      |  |  |   |        |  |  |   |         | (4,898 | ) |   |         | (4,898 | )
|Other comprehensive loss                                                |                |           |    |             |  |        |   |         |  |              |       |               |  |          |    |               |  |   |     |   |  |   | (5,513 | ) |  |   |        |        |   |   | (5,513  | )     
|Restricted stock compensation, net of $682 earned
    during the year   |                |           |    |             |  |        |   |         |  |              |       |               |  |          |    |               |  |   | 182  |   |  |   |       |   |  |   |        |        |   |   | 182     |       
|                                                                        |                |           |     |             |  |        |    |         |  |              |        |               |  |          |     |               |  |   |      |   |  |   |        |   |  |   |         |        |   |   |         |       
|Balances at December 31, 2001                                           |                | $         | 336 |             |  | $      | 61 |         |  | $            | 40,847 |               |  | $        | 298 |               |  | $ | (654 | ) |  | $ | 4,786  |   |  | $ | 117,901 |        |   | $ | 163,575 |       
|                                                                        |                |           |     |             |  |        |    |         |  |              |        |               |  |          |     |               |  |   |      |   |  |   |        |   |  |   |         |        |   |   |         |       
|Net income                                                              |                |           |    |             |  |        |   |         |  |              |       |               |  |          |    |               |  |   |     |   |  |   |       |   |  |   | 7,822   |        |   |   | 7,822   |       
|Issuance of 118,823 shares of common 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                                                |                |           |    |             |  |        |   |         |  |              |       |               |  |          |    |               |  |   |     |   |  |   | (5,603 | ) |  |   |        |        |   |   | (5,603  | )     
|Restricted stock compensation, net of $1,129
    earned during the year |                |           |    |             |  |        |   |         |  |              |       |               |  |          |    |               |  |   | 184  |   |  |   |       |   |  |   |        |        |   |   | 184     |       
|                                                                        |                |           |     |             |  |        |    |         |  |              |        |               |  |          |     |               |  |   |      |   |  |   |        |   |  |   |         |        |   |   |         |       
|Balances at December 31, 2002                                           |                | $         | 336 |             |  | $      | 61 |         |  | $            | 39,962 |               |  | $        | 298 |               |  | $ | (470 | ) |  | $ | (817   | ) |  | $ | 120,831 |        |   | $ | 160,201 |       
|                                                                        |                |           |     |             |  |        |    |         |  |              |        |               |  |          |     |               |  |   |      |   |  |   |        |   |  |   |         |        |   |   |         |       

See accompanying notes to consolidated financial
statements.

F-6



---



##### 



|                                                                      |                |           |     |             |  |        |    |         |  |              |        |               |  |          |     |               |  |   |      |   |  |   |       |   |  |   |         |        |   |   |         |        |  
|--------------------------------------------------------------------- | -------------- | --------- | --- | ----------- |  | ------ | -- | ------- |  | ------------ | ------ | ------------- |  | -------- | --- | ------------- |  | - | ---- | - |  | - | ----- | - |  | - | ------- | ------ | - | - | ------- | ------ | -
|                                                                      |                | 5% Series |     | 4.5% Series |  |        |    |         |  |              |        | Other         |  |          |     | Total        
|                                                                      |                | Preferred |     | Preferred   |  | Common |    | Other   |  | Unearned     |        | Comprehensive |  | Retained |     | Stockholders
|                                                                      |                | Stock     |     | Stock       |  | Stock  |    | Capital |  | Compensation |        | Income (Loss) |  | Earnings |     | Equity       
|                                                                      |                |           |     |             |  |        |    |         |  |              |        |               |  |          |     |              
|Balances at December 31, 2002                                         |                | $         | 336 |             |  | $      | 61 |         |  | $            | 39,962 |               |  | $        | 298 |               |  | $ | (470 | ) |  | $ | (817  | ) |  | $ | 120,831 |        |   | $ | 160,201 |       
|                                                                      |                |           |     |             |  |        |    |         |  |              |        |               |  |          |     |               |  |   |      |   |  |   |       |   |  |   |         |        |   |   |         |       
|Net income                                                            |                |           |    |             |  |        |   |         |  |              |       |               |  |          |    |               |  |   |     |   |  |   |      |   |  |   | 19,819  |        |   |   | 19,819  |       
|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   |           |     |            |  |        |    |        |  |              |        |              |  |          |     |              |  |   |      |  |  |   |       |  |  |   |         | (4,889 | ) |   |         | (4,889 | )
|Other comprehensive income                                            |                |           |    |             |  |        |   |         |  |              |       |               |  |          |    |               |  |   |     |   |  |   | 1,375 |   |  |   |        |        |   |   | 1,375   |       
|Restricted stock compensation, net of $774 earned
    during the year |                |           |    |             |  |        |   |         |  |              |       |               |  |          |    |               |  |   | 206  |   |  |   |      |   |  |   |        |        |   |   | 206     |       
|                                                                      |                |           |     |             |  |        |    |         |  |              |        |               |  |          |     |               |  |   |      |   |  |   |       |   |  |   |         |        |   |   |         |       
|Balances at December 31, 2003                                         |                | $         | 336 |             |  | $      | 61 |         |  | $            | 40,800 |               |  | $        | 298 |               |  | $ | (264 | ) |  | $ | 558   |   |  | $ | 135,741 |        |   | $ | 177,530 |       
|                                                                      |                |           |     |             |  |        |    |         |  |              |        |               |  |          |     |               |  |   |      |   |  |   |       |   |  |   |         |        |   |   |         |       

See accompanying notes to consolidated financial
statements.

F-7



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

Years ended December 31, 2003, 2002 and
2001


(in thousands)

|                                                                            |                                                                                                                             |                                                             |                                        |                                                         |         |        |         |         |        |        |         |         |         |        |         |  
|--------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------- | -------------------------------------- | ------------------------------------------------------- | ------- | ------ | ------- | ------- | ------ | ------ | ------- | ------- | ------- | ------ | ------- | -
|                                                                            |                                                                                                                             | 2003                                                        |                                        | 2002                                                    |         | 2001  
|                                                                            |                                                                                                                             |                                                             |                                        |                                                         |         |       
|Cash flows from operating
    activities:                                   |                                                                                                                             |                                                             |                                        |                                                         |         |        |         |         |        |        |         |        
|                                                                            | Net income                                                                                                                  |                                                             | $                                      | 19,819                                                  |         |        | $       | 7,822   |        |        | $       | 466     |        
|                                                                            | Adjustments to reconcile net income to net cash
    provided by operating activities:                                       |                                                             |                                        |                                                         |         |        |         |         |        |        |         |         |        
|                                                                            |                                                                                                                             | Loss from discontinued operations                           |                                        |                                                         | 424     |        |         |         | 5,657  |        |         |         | 5,880   |       
|                                                                            |                                                                                                                             | Depreciation                                                |                                        |                                                         | 30,848  |        |         |         | 26,821 |        |         |         | 23,276  |       
|                                                                            |                                                                                                                             | Post-retirement benefits                                    |                                        |                                                         | 146     |        |         |         | 282    |        |         |         | 206     |       
|                                                                            |                                                                                                                             | Gain on sale of investment securities                       |                                        |                                                         | (64     | )      |         |         | (3,573 | )      |         |         | (11,067 | )     
|                                                                            |                                                                                                                             | Impairment of investments                                   |                                        |                                                         | 1,744   |        |         |         | 1,058  |        |         |         | 14,918  |       
|                                                                            |                                                                                                                             | Amortization of restricted stock                            |                                        |                                                         | 774     |        |         |         | 1,129  |        |         |         | 682     |       
|                                                                            |                                                                                                                             | Gain on sale of investments in unconsolidated
    companies |                                        |                                                         | (15,063 | )      |         |         | (1,704 | )      |         |         |        |       
|                                                                            |                                                                                                                             | Undistributed income of unconsolidated companies            |                                        |                                                         | (5,664  | )      |         |         | (4,862 | )      |         |         | (4,204  | )     
|                                                                            |                                                                                                                             | Undistributed patronage dividends                           |                                        |                                                         | (565    | )      |         |         | (513   | )      |         |         |        |       
|                                                                            |                                                                                                                             | Provision for loss on accounts receivable                   |                                        |                                                         | 1,439   |        |         |         | 1,685  |        |         |         | 967     |       
|                                                                            |                                                                                                                             | Deferred income taxes and tax credits                       |                                        |                                                         | 9,504   |        |         |         | 2,513  |        |         |         | 466     |       
|                                                                            |                                                                                                                             | Changes in operating assets and liabilities:                |                                        |                                                         |         |        |         |         |        |        |         |         |         |       
|                                                                            |                                                                                                                             |                                                             | Accounts receivable                    |                                                         |         | (1,135 | )       |         |        | (1,729 | )       |         |         | (4,848 | )      
|                                                                            |                                                                                                                             |                                                             | Materials and supplies                 |                                                         |         | (304   | )       |         |        | 731    |         |         |         | (1,044 | )      
|                                                                            |                                                                                                                             |                                                             | Other assets                           |                                                         |         | 279    |         |         |        | (203   | )       |         |         | (1,581 | )      
|                                                                            |                                                                                                                             |                                                             | Accounts payable                       |                                                         |         | (2,246 | )       |         |        | (1,732 | )       |         |         | (1,492 | )      
|                                                                            |                                                                                                                             |                                                             | Customer deposits and advance billings |                                                         |         | 72     |         |         |        | 407    |         |         |         | (109   | )      
|                                                                            |                                                                                                                             |                                                             | Accrued liabilities                    |                                                         |         | 3,534  |         |         |        | 1,275  |         |         |         | 2,309  |        
|                                                                            |                                                                                                                             |                                                             | Income taxes                           |                                                         |         | 6,105  |         |         |        | 432    |         |         |         | (1,465 | )      
|                                                                            |                                                                                                                             |                                                             |                                        |                                                         |         |        |         |         |        |        |         |        
|                                                                            |                                                                                                                             |                                                             |                                        | Net cash provided by operating
    activities           |         |        | 49,647  |         |        |        | 35,496  |         |         |        | 23,360  |  
|                                                                            |                                                                                                                             |                                                             |                                        |                                                         |         |        |         |         |        |        |         |        
|Cash flows from investing
    activities:                                   |                                                                                                                             |                                                             |                                        |                                                         |         |        |         |         |        |        |         |        
|                                                                            | Capital expenditures, net                                                                                                   |                                                             |                                        | (23,762                                                 | )       |        |         | (44,283 | )      |        |         | (59,110 | )      
|                                                                            | Purchases of investments in unconsolidated
    companies                                                                    |                                                             |                                        | (3,849                                                  | )       |        |         | (750    | )      |        |         | (96     | )      
|                                                                            | Purchases of investment securities                                                                                          |                                                             |                                        | (396                                                    | )       |        |         | (3,240  | )      |        |         | (2,490  | )      
|                                                                            | Proceeds from sale of investment in
    unconsolidated companies                                                            |                                                             |                                        | 17,052                                                  |         |        |         | 2,011   |        |        |         |        |        
|                                                                            | Purchase of wireless spectrum                                                                                               |                                                             |                                        |                                                        |         |        |         | (238    | )      |        |         | (3,193  | )      
|                                                                            | Proceeds from sale of investment securities                                                                                 |                                                             |                                        | 458                                                     |         |        |         | 5,442   |        |        |         | 13,897  |        
|                                                                            | Partnership capital distribution                                                                                            |                                                             |                                        | 5,679                                                   |         |        |         | 5,959   |        |        |         | 7,003   |        
|                                                                            | Acquisitions, net of cash                                                                                                   |                                                             |                                        |                                                        |         |        |         | (3,212  | )      |        |         | (23,248 | )      
|                                                                            |                                                                                                                             |                                                             |                                        |                                                         |         |        |         |         |        |        |         |        
|                                                                            |                                                                                                                             |                                                             |                                        | Net cash used in investing
    activities               |         |        | (4,818  | )       |        |        | (38,311 | )       |         |        | (67,237 | )
|                                                                            |                                                                                                                             |                                                             |                                        |                                                         |         |        |         |         |        |        |         |        
|Cash flows from financing
    activities:                                   |                                                                                                                             |                                                             |                                        |                                                         |         |        |         |         |        |        |         |        
|                                                                            | Repayment of long-term debt                                                                                                 |                                                             |                                        | (30,000                                                 | )       |        |         |        |        |        |         | (34,000 | )      
|                                                                            | Proceeds from credit facility, net of repayments                                                                            |                                                             |                                        |                                                        |         |        |         | 10,000  |        |        |         | 95,000  |        
|                                                                            | Redemption of preferred stock                                                                                               |                                                             |                                        |                                                        |         |        |         | (95     | )      |        |         | (12     | )      
|                                                                            | Dividends paid                                                                                                              |                                                             |                                        | (4,909                                                  | )       |        |         | (4,892  | )      |        |         | (4,863  | )      
|                                                                            | Repurchases of common stock                                                                                                 |                                                             |                                        |                                                        |         |        |         | (2,371  | )      |        |         | (2,385  | )      
|                                                                            | Proceeds from common stock issuances                                                                                        |                                                             |                                        | 428                                                     |         |        |         | 610     |        |        |         | 114     |        
|                                                                            |                                                                                                                             |                                                             |                                        |                                                         |         |        |         |         |        |        |         |        
|                                                                            |                                                                                                                             |                                                             |                                        | Net cash (used in) provided by financing
    activities |         |        | (34,481 | )       |        |        | 3,252   |         |         |        | 53,854  |  
|                                                                            |                                                                                                                             |                                                             |                                        |                                                         |         |        |         |         |        |        |         |        
|Net cash used in discontinued operations                                    |                                                                                                                             |                                                             | (1,043                                 | )                                                       |         |        | (1,182  | )       |        |        | (9,640  | )      
|Net increase (decrease) in cash and cash
    equivalents                    |                                                                                                                             |                                                             | 9,305                                  |                                                         |         |        | (745    | )       |        |        | 337     |        
|Cash and cash equivalents at beginning of year                              |                                                                                                                             |                                                             | 7,652                                  |                                                         |         |        | 8,397   |         |        |        | 8,060   |        
|                                                                            |                                                                                                                             |                                                             |                                        |                                                         |         |        |         |         |        |        |         |        
|Cash and cash equivalents at end of
    year                                |                                                                                                                             | $                                                           | 16,957                                 |                                                         |         | $      | 7,652   |         |        | $      | 8,397   |        
|                                                                            |                                                                                                                             |                                                             |                                        |                                                         |         |        |         |         |        |        |         |        
|Supplemental cash flow information:                                         |                                                                                                                             |                                                             |                                        |                                                         |         |        |         |         |        |        |         |        
|                                                                            | Cash paid for income taxes                                                                                                  |                                                             | $                                      | 2,271                                                   |         |        | $       | 3,579   |        |        | $       | 2,855   |        
|                                                                            | Cash paid for interest                                                                                                      |                                                             |                                        | 8,137                                                   |         |        |         | 6,474   |        |        |         | 4,462   |        
|Supplemental disclosure of non-cash investing and
    financing activities: |                                                                                                                             |                                                             |                                        |                                                         |         |        |         |         |        |        |         |        
|                                                                            | Cancellation of note payable and reduction in
    other intangibles in connection with disposition of wireless
    spectrum |                                                             | $                                      | (17,697                                                 | )       |        | $       |        |        |        | $       |        |        
|                                                                            | Issuance of note payable in connection with
    acquisition of wireless spectrum                                            |                                                             |                                        |                                                        |         |        |         | 17,697  |        |        |         |        |        

See accompanying notes to consolidated financial
statements.

F-8



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



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



| |                                                     
| | ----------------------------------------------------
| | (a) Principles of Consolidation and
    Organization

These consolidated financial statements include
the accounts of CT Communications, Inc., a holding
company, and its wholly-owned subsidiaries, The Concord
Telephone Company (Concord Telephone),
CT Wireless Cable, Inc. (CT Wireless
Cable), Wavetel, L.L.C. (Wavetel),
WebServe, Inc. (WebServe), Wireless One of
North Carolina, L.L.C. (WONC), CTC Long Distance
Services, LLC (CTLD), CT Cellular, Inc.
(CT Cellular), CTC Exchange Services, Inc.
(Exchange Services), CT Internet
Services, Inc. (Internet Services), CTC Video
Services, LLC, CT Communications Northeast Wireless Trust
(liquidated in December 2003), CT Communications Northeast
Trust (NE Trust) (liquidated in December 2003),
CT Communications Northeast, Inc. (NECO),
CT Services, Inc., CTC Employment Services, LLC,
Wavetel NC License Corporation, Progress Place Realty Holding
Company, LLC (Progress Place), CT Global, LLC
(CT Global), WaveTel TN, L.L.C., Carolina
Personal Communications, Inc. (CTC Wireless).

CT Communications, Inc. and
subsidiaries (the Company) operate entirely in the
communications industry. Concord Telephone, the Companys
principal subsidiary, provides local telephone service as well
as telephone and equipment rental to customers who are primarily
residents of Cabarrus, Stanly and Rowan counties in North
Carolina. The Company also provides long distance service via
CTLD. CT Cellular owns and accounts for investments in a
limited partnership, which provides cellular mobile telephone
services to various counties in North and South Carolina.
CTC Wireless provides wireless telephone service to
customers in the Companys service area and accounts for
the retail operations and services provided in relation to
personal communications services, a wireless telecommunications
system which includes voice, data interface and paging.
CT Wireless Cable accounts for the investment in WONC. WONC
accounts for the investment in Wavetel NC License Corporation,
which holds the ownership of certain Instructional Television
Fixed Services (ITFS) and Multichannel Multipoint
Distribution Services (MMDS) wireless spectrum
primarily in North Carolina. CT Wireless Cable held 100% of
the ownership in WONC at December 31, 2003. Exchange
Services provides competitive local telephone service in North
Carolina. CT Global was formed to build telecommunications
networks outside of the United States. NECO holds the
Companys investment securities and investments in
unconsolidated companies. NE Trust was liquidated in 2003.
Internet Services provides Internet services to customers in
North Carolina and Georgia. WebServe provides web hosting,
electronic commerce, collocation, virtual private network or
intranets, remote access and security solutions to customers
primarily in North Carolina. Wavetel provided broadband wireless
data and voice services in Fayetteville, North Carolina until
December 9, 2002.



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

In certain instances, amounts previously reported
in the 2002 and 2001 consolidated financial statements have been
reclassified to conform to the 2003 consolidated financial
statement presentation. Such reclassifications have no effect on
net income or retained earnings as previously reported.

In 2003, the Company re-defined the
classification of certain expenses in the income statement to
more clearly reflect the Companys operating expenses. As a
result, the presentation of certain operating expense
classifications in the Consolidated Statements of Income for
2002 and 2001 were reclassified to conform to the 2003
presentation. These changes had no effect on total operating
expenses. In addition, in 2003, the Company reclassified certain
assets that were previously included in materials and supplies
on the Consolidated Balance Sheets to property and equipment.
These balances were reclassified on the 2002 balance sheet to
conform with the 2003 presentation.

F-9



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

Telephone plant in service is stated at original
cost and includes certain indirect costs consisting of payroll
taxes, pension and other fringe benefits.

Maintenance, repairs, and minor renewals are
primarily charged to maintenance expense accounts. Additions,
renewals, and betterments of property and equipment are
capitalized. Within Concord Telephone, the original cost of
depreciable property retired is removed from telephone plant
accounts and charged to accumulated depreciation, which is
credited with the salvage less removal cost. Under this method,
no gain or loss is calculated on ordinary retirements of
depreciable property. For all other companies, the original cost
and accumulated depreciation are removed from the accounts and
any gain or loss is included in the results of operations.

Depreciation is calculated using the
straight-line method over the estimated useful lives of the
respective assets as follows:

|                                 |  |  |                 | 
|-------------------------------- |  |  | --------------- | 
|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

Investment securities at December 31, 2003
and 2002 consist of debt securities and corporate equity
securities. The Company classifies its debt and equity
securities as available-for-sale. Unrealized holding gains and
losses, net of the related tax effect, are excluded from
earnings and are reported as a separate component of other
comprehensive income until realized. Realized gains and losses
from the sale of securities are determined on a specific
identification basis.

A decline in the market value of a security below
cost that is deemed to be other than temporary results in a
reduction in carrying amount to fair value. The impairment is
charged to earnings and a new cost basis for the security is
established. Dividend and interest income are recognized when
earned.



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

The Company has interests in several partnerships
and corporations that operate in the communications industry.
Investments in unconsolidated companies over which the Company
has the ability to exercise significant influence are accounted
for by the equity method.

The Company receives patronage dividends from its
investment in CoBank, ACB (CoBank) which is
organized as a cooperative for federal income tax purposes.
Patronage dividends represent cash distributions of
CoBanks earnings and notices of allocations of
CoBanks earnings to the Company. Non-cash allocations of
earnings are included in the Companys carrying value of
the investment and are recognized as other income in the period
earned.



| |                           
| | --------------------------
| | (f) Materials and Supplies

Materials and supplies are determined principally
at the lower of average cost or market. Cost of sales are
charged at average cost.

F-10



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                 
| | ----------------
| | (g) Income Taxes

Income taxes are accounted for under the asset
and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date.

Investment tax credits related to telephone plant
have been deferred and amortized as a reduction of federal
income tax expense over the estimated useful lives of the assets
giving rise to the credits. Unamortized deferred investment tax
credits are recognized as temporary differences.



| |                        
| | -----------------------
| | (h) Revenue Recognition

Revenue is recognized when services are provided
regardless of the period in which they are billed. Revenue from
sales of telephone equipment is recognized upon delivery to the
customer for direct-sale leases while revenue from sales-type
leases is recognized upon delivery to the customer in an amount
equal to the present value of the minimum rental payments under
the fixed non-cancelable lease term. The deferred finance
charges applicable to these leases are recognized over the terms
of the leases using the effective interest method.

Installation fees are deferred and the related
costs are capitalized and amortized over the estimated life of
the customer.

Certain of the Companys interstate network
access revenue is based on tariffed access charges prescribed by
the Federal Communications Commission (FCC).
Generally, such revenue is recognized when the service is
provided. However, if the actual rate of return exceeds the
authorized rate of return prescribed by the FCC, the excess
(over-earnings) may be subject to refund to other
telecommunications carriers and customers. The Company reserves
a portion of the over-earnings based upon estimates.

The Company also participates in revenue pooling
arrangements with other local exchange carriers administered by
the National Exchange Carrier Association (NECA), a
quasi-governmental non-profit organization. Revenue earned
through these pooling arrangements is initially recorded based
on the Companys estimates and revised as settlements are
finalized.

The Company periodically makes claims for
recovery of certain amounts related to access charges on certain
minutes of use terminated by the Company on behalf of other
carriers. Management believes these claims that have not been
accepted by other carriers have merit and there will be a
resolution in the future regarding these claims. However,
management is unable to estimate the recovery and is not
reasonably assured of collection. As a result of this
uncertainty, the Company has not recorded revenue for these
items. Upon assurance of collectability, the Company will
recognize revenue in the period that assurance or collection
occurs.

Wireless revenue is recognized in accordance with
EITF 00-21, Accounting for Revenue Arrangements with
Multiple Deliverables. Based on EITF 00-21, the
Company has determined that the sale of wireless services
through its direct sales channel with an accompanying handset
constitutes a revenue arrangement with multiple deliverables.
Wireless activation fees are recognized as revenue at the time
of activation.

F-11



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                             
| | ----------------------------
| | (i) Goodwill and Intangibles

On January 1, 2002, the Company adopted
Statement of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets.
In accordance with SFAS No. 142, the Company
discontinued amortization of goodwill and began utilizing the
fair-value based impairment approach. Upon adoption of
SFAS No. 142, the Company completed an impairment
test, as of January 1, 2002, that determined recognition of
an impairment loss was not necessary. The Company will continue
to test goodwill for impairment on an annual basis.
Additionally, goodwill will be tested for impairment between
annual tests if an event occurs or circumstances change that
would more likely than not reduce the fair value of an entity
below its carrying value.

In adopting SFAS No. 142, the Company
was also required to reassess the useful lives of other
intangible assets. Other intangibles consist primarily of
wireless licenses. Wireless licenses have terms of
10 years, but are renewable through a routine process
involving a nominal fee. The Company has determined that no
legal, regulatory, contractual, competitive, economic or other
factors currently exist that limit the useful life of its
wireless licenses. Therefore, upon adoption of
SFAS No. 142, the Company is no longer amortizing
wireless licenses based on the determination that these assets
have indefinite lives. In accordance with SFAS No. 142, the
Company will periodically review its determination of an
indefinite useful life for wireless licenses.
SFAS No. 142 requires that indefinite lived intangible
assets be tested for impairment by comparing the fair value of
the assets to their carrying amount. Upon adoption of
SFAS No. 142 on January 1, 2002, the Company
completed an impairment test for wireless licenses that
determined recognition of an impairment loss was not necessary.

As of December 31, 2003 and
December 31, 2002, the Company completed its annual
impairment test that resulted in no impairment charge to
goodwill or wireless licenses as the determined fair value
exceeded carrying value. Prior to January 1, 2002, the
Companys goodwill was amortized over 10 to 15 years
and the wireless licenses were amortized over 40 years.

The following table presents net income on a
comparable basis, after adjustment for goodwill and other
intangibles amortization (in thousands, except per share data):

|                          |                             |                          |   |        |  |      |   |       |  |  |   |       | 
|------------------------- | --------------------------- | ------------------------ | - | ------ |  | ---- | - | ----- |  |  | - | ----- | 
|                          |                             |                         
|                          |                             | Years Ended December 31,
|                          |                             |                         
|                          |                             | 2003                     |   | 2002   |  | 2001
|                          |                             |                          |   |        |  |     
|Net income                |                             |                          |   |        |  |      |   |       |  |  |   |      
|                          | As reported                 |                          | $ | 19,819 |  |      | $ | 7,822 |  |  | $ | 466   | 
|                          | Amortization (net of taxes) |                          |   |       |  |      |   |      |  |  |   | 1,153 | 
|                          |                             |                          |   |        |  |      |   |       |  |  |   |      
|                          | Adjusted net income         |                          | $ | 19,819 |  |      | $ | 7,822 |  |  | $ | 1,619 | 
|                          |                             |                          |   |        |  |      |   |       |  |  |   |      
|Basic earnings per share  |                             |                          |   |        |  |      |   |       |  |  |   |      
|                          | As reported                 |                          | $ | 1.06   |  |      | $ | 0.42  |  |  | $ | 0.02  | 
|                          | As adjusted                 |                          |   | 1.06   |  |      |   | 0.42  |  |  |   | 0.09  | 
|Diluted earning per share |                             |                          |   |        |  |      |   |       |  |  |   |      
|                          | As reported                 |                          | $ | 1.05   |  |      | $ | 0.42  |  |  | $ | 0.02  | 
|                          | As adjusted                 |                          |   | 1.05   |  |      |   | 0.42  |  |  |   | 0.09  | 

F-12



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The components of other intangible assets at
December 31, 2003 and December 31, 2002 are as follows
(in thousands):

|                  |  |      |        |      |  |   |        | 
|----------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                  |  | 2003 |        | 2002
|                  |  |      |        |     
|Wireless licenses |  | $    | 35,201 |      |  | $ | 52,982 | 
|Other intangibles |  |      |       |      |  |   | 88     | 
|                  |  |      |        |      |  |   |        | 
|                  |  | $    | 35,201 |      |  | $ | 53,070 | 
|                  |  |      |        |      |  |   |        | 



| |                     
| | --------------------
| | (j) Cash Equivalents

For purposes of the statement of cash flows, the
Company considers all short-term investments with original
maturities at the date of purchase of three months or less to be
cash equivalents.



| |                     
| | --------------------
| | (k) Use of Estimates

The preparation of the consolidated financial
statements in conformity with generally accepted accounting
principles (GAAP) requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Significant items subject to such estimates and
assumptions include the carrying value of property and equipment
and long-lived assets; valuation allowances for receivables and
deferred income tax assets; and obligations related to employee
benefits. Actual results could differ from those estimates.



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

The Company adopted SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets effective January 1, 2002, which requires
impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the
undiscounted cash flow estimated to be generated by those assets
are less than the assets carrying amount. The
Companys policy is to review the carrying value of
property and equipment for impairment whenever events and
circumstances indicate that the carrying value of an asset may
not be recoverable from the estimated future cash flows expected
to result from its use and eventual disposition. In cases where
undiscounted expected future cash flows are less than the
carrying value, an impairment loss is recognized equal to an
amount by which the carrying value exceeds the fair value of
assets.

Prior to the adoption of SFAS No. 144,
the Company accounted for long-lived assets in accordance with
SFAS No. 121, Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed
Of.



| |                       
| | ----------------------
| | (m) Stock Option Plans

The Company applies the intrinsic value-based
method of accounting prescribed by Accounting Principles Board
(APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations
including FASB Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation, an
Interpretation of APB Opinion No. 25 issued in March
2000 to account for its fixed-plan stock options. Under this
method, compensation expense is recorded on the date of grant
only if the current market price of the underlying stock
exceeded the exercise price.

SFAS No. 123, Accounting for
Stock-Based Compensation, established accounting and
disclosure requirements using a fair value-based method of
accounting for stock-based employee compensation plans. As
allowed by SFAS No. 123, the Company has elected to
continue to apply the intrinsic value-based

F-13



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

method of accounting described above, and has
adopted the disclosure requirements of SFAS No. 123
and SFAS No. 148.

At December 31, 2003, the Company had five
stock-based compensation plans, which are described in
Note 12 herein. The Company applies APB Opinion No. 25
and related Interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for its
fixed stock option plans and its stock purchase plan. Had
compensation cost for the Companys stock-based
compensation plans been determined consistent with
SFAS No. 123, the Companys net income and
earnings per share would have been reduced to the pro forma
amounts indicated below (in thousands, except per share data):

|                                                                                                                                                            |                                         |      |        |         |  |      |       |         |  |   |       |         | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------- | ---- | ------ | ------- |  | ---- | ----- | ------- |  | - | ----- | ------- | 
|                                                                                                                                                            |                                         | 2003 |        | 2002    |  | 2001
|                                                                                                                                                            |                                         |      |        |         |  |     
|Assumptions used in Black Scholes pricing
    model:                                                                                                        |                                         |      |        |         |  |      |       |         |  |   |       |        
|                                                                                                                                                            | Expected dividend yield                 |      |        | 3.1%    |  |      |       | 1.5%    |  |   |       | 2.0%    | 
|                                                                                                                                                            | Risk-free interest rate                 |      |        | 3.5%    |  |      |       | 4.5%    |  |   |       | 5.0%    | 
|                                                                                                                                                            | Weighted average expected life          |      |        | 6 years |  |      |       | 6 years |  |   |       | 6 years | 
|                                                                                                                                                            | Expected volatility                     |      |        | 52%     |  |      |       | 53%     |  |   |       | 33%     | 
|                                                                                                                                                            | Fair value per share of options granted |      | $      | 4.74    |  |      | $     | 8.22    |  |   | $     | 3.42    | 
|                                                                                                                                                           
|Net income as reported                                                                                                                                      |                                         | $    | 19,819 |         |  | $    | 7,822 |         |  | $ | 466   |        
|Earnings per share as reported  basic                                                                                                                      |                                         |      | 1.06   |         |  |      | 0.42  |         |  |   | 0.02  |        
|Earnings per share as reported  diluted                                                                                                                    |                                         |      | 1.05   |         |  |      | 0.42  |         |  |   | 0.02  |        
|Stock based compensation costs, net of income
    tax, included in net income as reported                                                                   |                                         |      | 774    |         |  |      | 1,129 |         |  |   | 682   |        
|                                                                                                                                                           
|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 |                                         |      | 807    |         |  |      | 1,075 |         |  |   | 676   |        
|Pro-forma net income                                                                                                                                        |                                         |      | 19,012 |         |  |      | 6,747 |         |  |   | (210  | )      
|Pro-forma earnings (loss) per share 
    basic                                                                                                             |                                         |      | 1.01   |         |  |      | 0.36  |         |  |   | (0.01 | )      
|Pro-forma earnings (loss) per share 
    diluted                                                                                                           |                                         |      | 1.01   |         |  |      | 0.36  |         |  |   | (0.01 | )      



| |                       
| | ----------------------
| | (n) Earnings Per Share

Basic earnings per share are computed by dividing
earnings for common stock by the weighted average number of
common shares outstanding during the period.

Diluted earnings per share are calculated by
including all dilutive common shares such as stock options.
Dilutive potential shares were 61,000 in 2003, 36,000 in 2002
and 44,000 in 2001. Anti-dilutive shares totaling 572,000 in
2003, 645,000 in 2002 and 436,000 in 2001 were not included in
the computation of diluted earnings per share and diluted
weighted average shares outstanding because the exercise price
of these options was greater than the average market price of
the common stock during the respective periods. No adjustment to
earnings for common stock is required when computing diluted
earnings per share.



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

The Company is exposed to certain interest rate
risks as part of its ongoing business operations and may use
derivative financial instruments, where appropriate, to manage
these risks. The derivative instruments must be effective at
reducing the risk associated with the exposure being hedged and
must be designated as a hedge at the inception of the contract.
The Company does not use derivatives for trading or speculative
purposes.

F-14



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Effective January 1, 2001, the Company
adopted SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended. This
statement establishes a new standard for accounting for
derivatives and hedging activities. Under
SFAS No. 133, all derivatives must be recognized as
assets and liabilities and measured at fair value. The effect of
the adoption did not have a material impact on the
Companys results of operations or consolidated financial
position in 2001.

The Company recognizes all derivative financial
instruments as assets and liabilities and measures them at fair
value. For derivative financial instruments that are designated
and qualify as a cash flow hedge, the effective portions of
changes in fair value of the derivative are recorded in other
comprehensive income, net of tax, and are recognized in the
income statement when the hedged item affects earnings.
Ineffective portions of changes in the fair value of cash flow
hedges are recognized currently in earnings. Changes in the fair
value of derivatives that do not qualify for hedge treatment are
recognized currently in earnings.

For the year ended December 31, 2000, prior
to the adoption of SFAS No. 133, the Company entered
into an interest swap agreement to reduce its exposure to market
risks from changing interest rates. The difference to be paid or
received by the Company was accrued and recognized in interest
expense and may change as market interest rates change.



| |                                         
| | ----------------------------------------
| | (p) Recent Accounting
    Pronouncements

In November 2002, the Emerging Issues Task Force
(EITF) of the FASB reached a consensus on
EITF 00-21, Accounting for Revenue Arrangements with
Multiple Deliverables. The consensus addresses how to
account for arrangements that may involve the delivery or
performance of multiple products, services and/or rights to use
assets. Revenue arrangements with multiple deliverables are
required to be divided into separate units of accounting if the
deliverables in the arrangement meet certain criteria.
Arrangement consideration should be allocated among the separate
units of accounting based on their relative fair values. The
consensus also supersedes certain guidance set forth in SEC
Staff Accounting Bulletin No. 101
(SAB 101), Revenue Recognition in
Financial Statements. The final consensus is applicable to
agreements entered into in quarters beginning after
June 15, 2003. The Company adopted this new pronouncement
effective July 1, 2003 and is applying the provisions of
this statement on a prospective basis subsequent to that date.
The impact to the Companys overall financial position or
results of operations was not material.

In December 2003, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 104
(SAB 104). SAB 104 updates the guidance in
SAB 101, integrates the related set of Frequently Asked
Questions and recognizes the role of the EITF Consensus on
EITF 00-21. The Company has considered SAB 104 in
conjunction with EITF 00-21 and determined that the impact
to the Companys overall financial position or results of
operations was not material.



|    |                        
|--- | -----------------------
|(2) | Discontinued Operations

On December 9, 2002 the Company discontinued
its wireless broadband commercial trial operations in
Fayetteville, North Carolina. These operations were provided by
Wavetel. The Company ceased operations due to significant
operating losses, the limited coverage area provided by the
technology available at the time and the inability to obtain
outside investment. Complete disposal of the business through
sale and disposal of assets was completed by June 30, 2003.
As a result, Wavetels operations have been reflected as
discontinued operations and as assets and liabilities held for
sale in accordance with SFAS No. 144. Wavetels
revenues, reported in discontinued operations, for the years
ended December 31, 2002 and 2001 were $164,286 and $23,031,
respectively. Wavetels loss before income taxes, reported
in discontinued operations, for the years ended
December 31, 2002 and 2001 was $8.9 million in each
year. During 2003, the Company re-evaluated the potential future
liabilities related to the discontinued Wavetel

F-15



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

operations and determined the potential
liabilities exceeded the remaining restructuring reserve.
Therefore, the Company recorded an additional loss from
discontinued operations, before income taxes, of
$0.7 million. The additional loss relates to the
Companys inability to sublease certain facilities
previously used in Wavetels operations. The adjustment is
an estimate based on current market conditions and could be
revised on a quarterly basis as new information becomes
available. As of December 31, 2003, the Company believes
the reserve is adequate. The Company had no outstanding
indebtedness directly related to the Wavetel operations;
therefore, no interest expense was allocated to discontinued
operations.

In connection with the discontinuance of
operations, the Company recognized a pre-tax loss of
$4.4 million in 2002 to write-down the related carrying
amounts of assets to their fair values less cost to sell in
accordance with SFAS No. 144 and record related
liabilities for estimated severance costs, lease termination
costs, and other exit costs in accordance with EITF Issue
No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in Restructuring). The
assets and liabilities of the discontinued operations are
presented separately under the captions Assets of
discontinued operations and Liabilities of
discontinued operations, respectively, in the accompanying
balance sheets at December 31, 2003 and 2002, and consist
of the following (in thousands):

|                                        |                                                |      |   |       |  |  |   |       | 
|--------------------------------------- | ---------------------------------------------- | ---- | - | ----- |  |  | - | ----- | 
|                                        |                                                | 2003 |   | 2002 
|                                        |                                                |      |   |      
|Assets of discontinued operations:      |                                                |      |   |       |  |  |   |      
|                                        | Other current assets                           |      | $ |      |  |  | $ | 13    | 
|                                        | Property and equipment, net                    |      |   |      |  |  |   | 1,206 | 
|                                        |                                                |      |   |       |  |  |   |      
|                                        | Total assets                                   |      | $ |      |  |  | $ | 1,219 | 
|                                        |                                                |      |   |       |  |  |   |      
|Liabilities of discontinued operations: |                                                |      |   |       |  |  |   |      
|                                        | Accounts payable                               |      | $ |      |  |  | $ | 276   | 
|                                        | Accrued liabilities                            |      |   |      |  |  |   | 124   | 
|                                        | Other liabilities, primarily lease obligations |      |   | 1,072 |  |  |   | 1,245 | 
|                                        |                                                |      |   |       |  |  |   |      
|                                        | Total liabilities                              |      | $ | 1,072 |  |  | $ | 1,645 | 
|                                        |                                                |      |   |       |  |  |   |      

(3) Property and Equipment

Property and equipment at December 31, 2003
and 2002 is composed of the following (in thousands):

|                                      |  |      |          |      |  |   |          |  
|------------------------------------- |  | ---- | -------- | ---- |  | - | -------- | -
|                                      |  | 2003 |          | 2002
|                                      |  |      |          |     
|Land, buildings and general equipment |  | $    | 89,929   |      |  | $ | 85,716   |  
|Central office equipment              |  |      | 164,452  |      |  |   | 148,484  |  
|Poles, wires, cables and conduit      |  |      | 144,775  |      |  |   | 133,645  |  
|Construction in progress              |  |      | 4,576    |      |  |   | 10,846   |  
|                                      |  |      |          |      |  |   |          |  
|                                      |  |      | 403,732  |      |  |   | 378,691  |  
|Accumulated depreciation              |  |      | (195,362 | )    |  |   | (164,270 | )
|                                      |  |      |          |      |  |   |          |  
|Property and Equipment, net           |  | $    | 208,370  |      |  | $ | 214,421  |  
|                                      |  |      |          |      |  |   |          |  

F-16



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(4) Investment Securities

The Company holds certain investment securities
that have all been classified as available-for-sale equity
securities. The amortized cost, gross unrealized holding gains
and losses and fair value for the Companys investments at
December 31, 2003 and 2002, were as follows (in thousands):

|                     |  |           |       |            |  |            |       |       |  |   |      |   |  |   |       | 
|-------------------- |  | --------- | ----- | ---------- |  | ---------- | ----- | ----- |  | - | ---- | - |  | - | ----- | 
|                     |  |           |       | Gross      |  | Gross      |       |      
|                     |  |           |       | Unrealized |  | Unrealized |       |      
|                     |  | Amortized |       | Holding    |  | Holding    |       | Fair 
|                     |  | Cost      |       | Gains      |  | Losses     |       | Value
|                     |  |           |       |            |  |            |       |      
|At December 31, 2003 |  | $         | 5,739 |            |  | $          | 1,476 |       |  | $ | (95  | ) |  | $ | 7,120 | 
|                     |  |           |       |            |  |            |       |       |  |   |      |   |  |   |       | 
|At December 31, 2002 |  | $         | 5,747 |            |  | $          | 98    |       |  | $ | (316 | ) |  | $ | 5,529 | 
|                     |  |           |       |            |  |            |       |       |  |   |      |   |  |   |       | 

During 2003, the Company revised the
classification of certain investments that were historically
classified as investment securities. These investments will be
accounted for under the cost method as there is no readily
determinable market value. As a result of this change,
$0.9 million of investments were reclassified as
investments in unconsolidated companies on the consolidated
balance sheets as of December 31, 2003 and
December 31, 2002. This change did not affect gross
unrealized holding gains or losses and had no impact on the
consolidated statements of income.

Certain investments of the Company are and have
been in continuous unrealized loss positions. The gross
unrealized losses and fair value and length of time the
securities have been in the continuous unrealized loss position
at December 31, 2003 is as follows (in thousands):

|                                      |  |                     |     |                   |  |       |   |            |  |       |       |            |  |   |    |  |  |   |       |  |  |   |    | 
|------------------------------------- |  | ------------------- | --- | ----------------- |  | ----- | - | ---------- |  | ----- | ----- | ---------- |  | - | -- |  |  | - | ----- |  |  | - | -- | 
|                                      |  |                     |     |                   |  |      
|                                      |  | 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                          |  | $                   | 132 |                   |  | $     | 7 |            |  | $     | 1,676 |            |  | $ | 88 |  |  | $ | 1,808 |  |  | $ | 95 | 
|                                      |  |                     |     |                   |  |       |   |            |  |       |       |            |  |   |    |  |  |   |       |  |  |   |    | 
|Total temporarily impaired securities |  | $                   | 132 |                   |  | $     | 7 |            |  | $     | 1,676 |            |  | $ | 88 |  |  | $ | 1,808 |  |  | $ | 95 | 
|                                      |  |                     |     |                   |  |       |   |            |  |       |       |            |  |   |    |  |  |   |       |  |  |   |    | 

The fair value and unrealized losses noted above
that are greater than 12 months relate to three different
investments, the largest of which is a mutual fund investment
that is expected to recover as the economy improves and is
currently increasing in value. The Company will continue to
evaluate these investments on a quarterly basis to determine if
the unrealized loss is other-than-temporarily impaired at which
time the impairment loss would be realized.

In 2003, 2002 and 2001 proceeds from the sale of
investment securities available for sale were $0.5 million,
$5.4 million, and $13.9 million and included in income
were gross realized gains of $0.1 million,
$4.2 million, and $11.4 million, and gross realized
losses of $0.0 million, $0.6 million, and
$0.4 million, respectively.

F-17



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(5) Investments in Unconsolidated
Companies

Investments in unconsolidated companies consist
of the following (in thousands):

|               |                                                       |            |  |         |   |      |        |       |  |   |        |       | 
|-------------- | ----------------------------------------------------- | ---------- |  | ------- | - | ---- | ------ | ----- |  | - | ------ | ----- | 
|               |                                                       | Ownership  |  |         |   |     
|               |                                                       | Percentage |  |         |   |     
|               |                                                       | 2003       |  | 2003    |   | 2002
|               |                                                       |            |  |         |   |     
|Equity Method: |                                                       |            |  |         |   |      |        |       |  |   |        |      
|               | Palmetto MobileNet, L.P.                              |            |  | 22.4    | % |      | $      | 8,738 |  |   | $      | 8,740 | 
|               | Other                                                 |            |  | Various |   |      |        | 100   |  |   |        | 120   | 
|Cost Method:   |                                                       |            |  |         |   |      |        |       |  |   |        |      
|               | ITC Holding Company                                   |            |  |        |   |      |        |      |  |   |        | 1,980 | 
|               | Maxcom Telecomunicaciones, S.A. de
    C.V.(Maxcom) |            |  |        |   |      |        |      |  |   |        | 1,239 | 
|               | Magnolia Holding Company                              |            |  | 4.6     | % |      |        | 2,958 |  |   |        |      | 
|               | ITC Financial Services, LLC                           |            |  | 4.0     | % |      |        | 840   |  |   |        |      | 
|               | Other                                                 |            |  | Various |   |      |        | 1,016 |  |   |        | 1,499 | 
|               |                                                       |            |  |         |   |      |        |       |  |   |        |      
|Total          |                                                       |            |  |         |   | $    | 13,652 |       |  | $ | 13,578 |      
|               |                                                       |            |  |         |   |      |        |       |  |   |        |      

Palmetto MobileNet, L.P. is a partnership that
holds interests in 10 cellular rural service areas
(RSAs) in North and South Carolina. The
Companys investment in Palmetto MobileNet, L.P. is
accounted for within CT Cellular. Alltel Communications, Inc. is
the managing partner of the 10 RSAs. The Company uses the
equity method to account for its investment because the Company
exercises significant influence over Palmetto MobileNet
L.P.s operating and financial activities through the
Companys ownership interest in the corporate general
partner of Palmetto MobileNet, L.P. During 2003, the partnership
purchased the equity interest of one of the participating
partners. The only impact of this transaction on the Company was
an increase in its partnership interest from 19.8% to 22.4%.

ITC Holding Company has participated in the
formation of several telecommunications companies. During 2000,
ITC Holding Company reorganized and as a result the Company
received 1,600,000 shares of Knology, Inc. During 2003, the
Company sold its 4.4% equity interest in ITC Holding Company
which resulted in a gain to the Company of $15.2 million.
As part of the purchase agreement, certain funds are being held
in escrow until certain contingencies are resolved. The
Companys portion of the escrowed funds is
$1.2 million and will not be recorded in the Companys
financial statements until the contingencies are resolved and
the escrowed funds become issuable. In addition, in a separate
but related transaction, the Company elected to use
$3.0 million of the cash proceeds received from the sale of
its equity interest in ITC Holding Company to purchase stock in
a newly formed company called Magnolia Holding Company
(Magnolia). The Company holds a 4.6% equity interest
in Magnolia.

Maxcom is a competitive telecommunications
company offering local, long distance, and network
telecommunications services in Mexico. In 2001 the Company
determined that its carrying value for the investment in Maxcom
was impaired and the estimated net realizable value was
determined to be approximately $1.2 million. This resulted
in a $13.4 million impairment charge recognized during
2001. In 2003, the Company sold its investment in Maxcom for
$40,000. As a result, the Company recorded an additional
impairment loss of $1.2 million related to the Maxcom
investment during 2003.

In December 2003, the Company committed to
purchase a 4.0% ownership interest in ITC Financial Services,
LLC (ITC Financial) for $2.1 million. ITC
Financial was formed to develop a prepaid debit card business
that uses a nationwide network of automated terminals that
re-charge the debit card for certain transaction fees. As of
December 31, 2003, the Company had funded 40% or
$0.8 million of the

F-18



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

committed amount. The remaining $1.3 million
can be called at any time at the discretion of ITC Financial.

The Company recognized income of
$5.7 million and $4.9 million in 2003 and 2002,
respectively, as its share of earnings from unconsolidated
companies accounted for under the equity method. Substantially
all of the income was attributable to Palmetto MobileNet, L.P.

Summarized financial position information and
combined results of operations for Palmetto MobileNet, L.P. as
of December 31, 2003 and 2002 are as follows:

|                                            |  |      |        |      |  |   |        | 
|------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                            |  | 2003 |        | 2002
|                                            |  |      |        |     
|Current assets                              |  | $    | 6,201  |      |  | $ | 9,739  | 
|Property and other non-current assets       |  |      | 94,811 |      |  |   | 85,173 | 
|Current liabilities                         |  |      | 2,767  |      |  |   | 269    | 
|Long-term debt                              |  |      | 13,436 |      |  |   |       | 
|Partners capital                           |  |      | 84,811 |      |  |   | 94,643 | 
|Equity in earnings of cellular partnerships |  |      | 28,258 |      |  |   | 24,825 | 
|Operating income                            |  |      | 27,788 |      |  |   | 24,424 | 
|Net income                                  |  |      | 27,895 |      |  |   | 24,650 | 

During 2003 and 2002, the Company recognized
impairment losses of $1.7 million and $1.1 million,
respectively, on certain equity security investments, due to a
decline in the fair value of the equity security that, in the
opinion of management, was considered to be other than
temporary. These impairment losses are included in the caption
Impairment of investments in the accompanying
statements of income.

(6) Acquisitions

On September 14, 2001, CT Wireless Cable
entered into a Limited Liability Company Interest Purchase
Agreement (the Purchase Agreement) with Wireless
One, Inc. and WorldCom Broadband Solutions, Inc., each of which
was a subsidiary of WorldCom, Inc., pursuant to which WONC would
purchase from Wireless One, Inc. its entire 50% interest in
WONC. The FCC approved this transaction on March 28, 2002
and the transaction was closed on April 5, 2002. As a
result of this transaction, CT Wireless Cable held 100% of the
equity interest in WONC. This transaction has been accounted for
using the purchase method of accounting. As a result, the
results of WONC have been consolidated with the Companys
results from the beginning of the second quarter 2002. Pro forma
results for WONC are not material to the Companys
consolidated financial statements. The total purchase price for
Wireless One Inc.s interest in WONC was
$20.7 million. Payment consisted of $3.0 million in
cash and a promissory note of $17.7 million. (see
note 8).

The total purchase price of $20.7 million
was allocated as follows (in thousands):

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

On July 19, 2002, the Company delivered a
Split-Up Notice to Wireless One, Inc. pursuant to
the Purchase Agreement. This notice set into motion a process
under the Purchase Agreement pursuant to which WONC would
transfer to Wireless One, Inc. certain of WONCs licensed
frequencies and a payment of all accrued interest in
satisfaction of WONCs $17.7 million promissory note
to Wireless One, Inc.

F-19



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

On April 22, 2003, WONC executed an
agreement that resulted in the cancellation of the
$17.7 million promissory note payable to Wireless One, Inc.
The agreement resulted in the payment of accrued interest due
under the promissory note and the agreement to transfer certain
licensed frequencies to Wireless One, Inc. in exchange for the
cancellation of the $17.7 million promissory note payable
to Wireless One, Inc. At December 31, 2003, CT Wireless
Cable held 100% of the equity interest in WONC.

On June 1, 2001, the Company executed its
right to partition its portion of the Cingular DCS Network. As a
result, the Company acquired 47 cell sites, approximately 13,100
additional subscribers and a spectrum license for Cabarrus,
Rowan, and Stanly Counties in North Carolina and the southern
portion of Iredell County, North Carolina. At the date the
partitioning was completed, the partitioned area contained a
population of approximately 440,000 people. This transaction has
been accounted for under the purchase method of accounting. The
total purchase price of $23.2 million was allocated to
assets and liabilities as follows (in thousands):

|                            |  |   |        |  
|--------------------------- |  | - | ------ | -
|Property and equipment      |  | $ | 4,636  |  
|Intangible and other assets |  |   | 18,762 |  
|Other liabilities           |  |   | (150   | )
|                            |  |   |        |  
|Total purchase price        |  | $ | 23,248 |  
|                            |  |   |        |  

While the Company has ownership of the assets and
customer accounts within its partitioned area, the Company will
continue to purchase pre-defined services from the DCS
Partnership, such as switching, and will remain subject to
certain conditions including certain branding requirements,
offering partnership service plans and adherence to partnership
technical and customer care standards.

Results of operations for the acquired entities
have been included in the accompanying consolidated financial
statements from the date of acquisition. Pro forma results for
these entities are not material to the consolidated financial
statements.

(7) Fair Value of Financial
Instruments

The following methods and assumptions were used
to estimate the fair value of the Companys financial
instruments:



| |                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Cash and Cash Equivalents, 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.                                                                         

Based on the methods and assumptions noted above,
the estimated fair values of the Companys financial
instruments, excluding the fixed-rate term loan, approximate
carrying amounts at December 31, 2003 and 2002 due to the
variability in interest rates of the underlying instruments not
subject to an interest rate swap agreement.

F-20



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The carrying value of the $50,000,000 fixed-rate
term loan approximates the fair value at December 31, 2003
and 2002. The fair value estimate is based on the overall
weighted interest rates and maturity and the rates and terms
currently available in the long term financing markets.

(8) Debt Instruments

Long-term debt at December 31 consists of
the following (in thousands):

|                                                                                  |  |      |        |      |  |   |         | 
|--------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | - | ------- | 
|                                                                                  |  | 2003 |        | 2002
|                                                                                  |  |      |        |     
|Line of credit with interest at LIBOR plus 1.25%
    (2.44% at December 31, 2003) |  | $    | 30,000 |      |  | $ | 60,000  | 
|Term loan with interest at 7.32%                                                  |  |      | 50,000 |      |  |   | 50,000  | 
|Note payable to Wireless One, Inc. with interest
    at 9%                        |  |      |       |      |  |   | 17,697  | 
|                                                                                  |  |      |        |      |  |   |         | 
|Long-term debt                                                                    |  | $    | 80,000 |      |  | $ | 127,697 | 
|                                                                                  |  |      |        |      |  |   |         | 

The Company has a line of credit totaling
$90.0 million, of which $30.0 million was outstanding
at December 31, 2003. The line of credit requires quarterly
payments of interest until its maturity on March 31, 2006.
The term loan requires quarterly payments of interest at a fixed
rate of 7.32% until maturity on December 13, 2014. Payments
of principal are due beginning March 31, 2005 and quarterly
thereafter through December 31, 2014 in equal quarterly
amounts of $1.25 million. The term loan and line of credit
are unsecured and have debt covenants with specific requirements
for leverage and the ratio of indebtedness to total
capitalization. The Company is in compliance with all debt
covenants as of December 31, 2003. The Company has three
interest rate swap agreements as of December 31, 2003 (See
Note 10).

In addition, the Company has a $10.0 million
revolving credit facility. As of December 31, 2003, there
were no amounts outstanding under this facility. This facility
bears interest at 30-day LIBOR plus 1.25% (2.37% at
December 31, 2003).

As discussed in Note 6, WONC executed an
agreement with Wireless One, Inc. that resulted in the
cancellation of the $17.7 million promissory note payable
to Wireless One, Inc.

Interest expense recognized in 2003, 2002 and
2001 was $6.5 million, $6.0 million, and
$4.3 million, respectively. During 2002 and 2001, interest
capitalized was $1.4 million and $0.7 million,
respectively. No interest was capitalized in 2003.

(9) Capital Lease Obligations

The Company leases certain equipment under
long-term lease arrangements. The total obligation under these
agreements at December 31, 2003 is $1.4 million, of
which $0.4 million is classified as short term and is
included in other accrued liabilities on the Consolidated
Balance Sheets. The long-term portion of the capital lease
obligations of $1.0 million is included in other long-term
liabilities on the Consolidated Balance Sheets. The assets under
these capital leases have been classified in property and
equipment and amount to $1.7 million at December 31,
2003. Accumulated depreciation of these assets was
$0.3 million at December 31, 2003. The assets are
depreciated over the life of the equipment. Capital lease
obligations and assets at December 31, 2002 were not
material.

(10) Derivative Financial
Instruments

The Company has three interest rate swap
agreements with a financial institution to manage its exposure
on debt instruments. The variable-to-fixed interest rate swaps
are accounted for as a cash flow hedge, with effectiveness
assessed based on changes in the present value of interest
payments on the

F-21



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

underlying debt. Under the agreements, the
Company pays interest on $20.0 million of the line of
credit at fixed rates of 5.9%, 4.53%, and 3.81% respectively, in
return for receiving interest at LIBOR. These agreements mature
on March 31, 2004, November 3, 2006 and
November 3, 2004, respectively.

The fair values of these three agreements at
December 31, 2003 are ($0.1) million,
($0.3) million, and ($0.1) million, respectively, and
are recorded in other long-term liabilities. At
December 31, 2002, the fair values of these three
agreements were ($0.6) million, ($0.4) million, and
($0.2) million, respectively. During 2003,
$0.7 million of the fair value of these agreements was
reclassified out of other comprehensive income and into
earnings. In addition, the Company expects to reclassify
approximately $0.4 million against earnings during 2004.

As of December 31, 2003, no deferred losses
on the interest rate swap agreements accumulated in other
comprehensive income are expected to be reclassified to earnings
during the next 12 months.

(11) Common Stock and Preferred Stock Not
Subject to Mandatory Redemption

There are 100,000,000 shares of voting common
stock, no par value, authorized.

The Company has a shareholders rights plan
that entitles each shareholder the right to purchase additional
shares of common stock at a specified price upon the occurrence
of certain events related to a potential change in control.

Cash dividends per share of common stock were
$0.26 in each of 2003, 2002 and 2001.

Preferred stock is comprised of cumulative $100
par value 5% and 4.5% series stock. There are 17,000 shares of
the 5% series stock authorized and 2,000 shares of the 4.5%
series stock authorized.

(12) Stock Compensation Plans

At December 31, 2003, the Company had five
stock-based compensation plans, which are described below. The
Company applies APB Opinion No. 25 and related
Interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its fixed stock option
plans and its stock purchase plan.

Comprehensive Stock Option
Plan

The Company has a Comprehensive Stock Option Plan
(the Comprehensive Option Plan) to allow key
employees to increase their holdings of the Companys
common stock. Under the Comprehensive Option Plan, 180,000
shares of common stock have been reserved for issuance. At
December 31, 2003, 480 shares of common stock were
ungranted. The Company does not intend to grant additional
options under this plan. Options were granted at prices
determined by the Board of Directors, generally the most recent
sales price at the date of grant, and must be exercised within
ten years of the date of grant. Options become exercisable over
periods from six months to four years after the grant date.


F-22



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Activity under the Comprehensive Option Plan for
each of the years in the three-year period ended
December 31, 2003 is as follows:

|                                                             |                   |           |        |                  |   |   |   |   | 
|------------------------------------------------------------ | ----------------- | --------- | ------ | ---------------- | - | - | - | - | 
|                                                             |                   | Number of |        | Weighted Average
|                                                             |                   | Options   |        | Exercise Price  
|                                                             |                   |           |        |                 
|Options outstanding and exercisable at
    December 31, 2000 |                   |           | 98,376 |                  |   | $ | 9 |  
|                                                             | Options granted   |           |        |                 |   |   |   |  | 
|                                                             | Options exercised |           |        | (7,544           | ) |   |   | 9 | 
|                                                             | Options forfeited |           |        |                 |   |   |   |  | 
|                                                             |                   |           |        |                  |   |   |   |  
|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 |  
|                                                             |                   |           |        |                  |   |   |   |  

As of December 31, 2003 and 2002, the 56,536
and 84,784 options outstanding have exercise prices between $8
and $9 and a weighted-average remaining contractual life of 2.4
and 3.0 years, respectively.

Restricted Stock Award
Program

The Company has a Restricted Stock Award Program
(the Program) to provide deferred compensation and
additional equity participation to certain executive management
and key employees. The aggregate amount of common stock that may
be awarded to participants under the Program is 180,000 shares.
The Company records deferred compensation in the amount of the
fair market value of the stock granted and amortizes this amount
on a straight-line basis over the restricted period, generally
1 to 10 years. At December 31, 2003, 455 shares
of common stock were authorized but ungranted under the Program.
The Company does not intend to grant additional awards under
this plan.


Director Compensation Plan

In 1996, a Director Compensation Plan (the
Director Plan) was approved to provide each member
of the Board of Directors the right to receive Directors
compensation in shares of common stock or cash, at the
Directors discretion. An aggregate of 90,000 shares have
been reserved for issuance under the Director Plan. All
compensation for a Director who elects to receive shares of
stock in lieu of cash will be converted to shares of stock based
upon the fair market value of the common stock on the grant
date. All subsequent compensation to the Director is converted
to shares of common stock based upon the fair market value of
the common stock on the date such compensation is paid or made
available to the Director. During 2002 and 2001, the Company
granted 13,378 and 10,557 shares, respectively, with an average
fair market value of $14, and $15, respectively. The 12,987
shares related to Directors compensation earned in 2003
were granted in January of 2004.


Omnibus Stock Compensation
Plan

During 1997, the CT Communications, Inc. Omnibus
Stock Compensation Plan (the Stock Plan) was
approved. Under the Stock Plan, 800,000 shares of common stock
have been reserved for issuance. The Stock Plan provides for
awards of stock, stock options and stock appreciation rights.
There are no


F-23



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

stock appreciation rights outstanding. The
Company issued 49,932 stock awards under the plan. Shares of
common stock authorized for issuance under the Stock Plan but
ungranted as of December 31, 2001 were transferred to the
2001 Stock Incentive Plan as authorized by the approval of the
2001 Stock Incentive Plan. The total shares authorized but
ungranted are discussed below under the 2001 Stock Incentive
Plan. Options were granted at prices determined by the Board of
Directors, generally based on the most recent sales price at the
date of grant, and must be exercised within ten years of the
date of grant.

Activity under the Stock Plan for the three years
ended December 31, 2003 is as follows:

|                                                             |                   |           |         |                  |   |   |    |    | 
|------------------------------------------------------------ | ----------------- | --------- | ------- | ---------------- | - | - | -- | -- | 
|                                                             |                   | Number of |         | Weighted Average
|                                                             |                   | Options   |         | Exercise Price  
|                                                             |                   |           |         |                 
|Options outstanding and exercisable at
    December 31, 2000 |                   |           | 347,761 |                  |   | $ | 24 |   
|                                                             | Options granted   |           |         | 139,178          |   |   |    | 17 | 
|                                                             | Options exercised |           |         |                 |   |   |    |   | 
|                                                             | Options forfeited |           |         | (26,814          | ) |   |    | 25 | 
|                                                             |                   |           |         |                  |   |   |    |   
|Options outstanding and exercisable at
    December 31, 2001 |                   |           | 460,125 |                  |   |   | 21 |   
|                                                             | Options granted   |           |         |                 |   |   |    |   | 
|                                                             | Options exercised |           |         | (10,440          | ) |   |    | 11 | 
|                                                             | Options forfeited |           |         | (43,452          | ) |   |    | 24 | 
|                                                             |                   |           |         |                  |   |   |    |   
|Options outstanding and exercisable at
    December 31, 2002 |                   |           | 406,233 |                  |   |   | 24 |   
|                                                             | Options granted   |           |         |                 |   |   |    |   | 
|                                                             | Options exercised |           |         |                 |   |   |    |   | 
|                                                             | Options forfeited |           |         | (55,407          | ) |   |    | 22 | 
|                                                             |                   |           |         |                  |   |   |    |   
|Options outstanding and exercisable at
    December 31, 2003 |                   |           | 350,826 |                  |   | $ | 23 |   
|                                                             |                   |           |         |                  |   |   |    |   

As of December 31, 2003 and 2002, the
350,826 and 406,233 options outstanding have exercise prices of
between $10 and $31 and a weighted-average remaining contractual
life of 6.2 and 7.1 years, respectively. Options granted
generally vest over a five year period.

2001 Stock Incentive Plan

During 2001, the 2001 Stock Incentive Plan (the
Stock Incentive Plan) was approved. The Stock
Incentive Plan allows for stock options, stock appreciation
rights, restricted stock, stock units, dividend equivalent
rights and performance and annual incentive awards. Under the
Stock Incentive Plan, 1.2 million shares, plus any shares
remaining available for grant under the Companys Stock
Plan, have been reserved for issuance. At December 31,
2003, the number of shares of common stock authorized for
issuance but ungranted was 972,994 shares. The number of shares
authorized but ungranted includes any shares that have 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 Stock Incentive Plan and the Stock Plan.
There have been no stock appreciation rights or dividend
equivalent rights granted by the Company. The Company has issued
26,768 stock units under the plan, all of which are outstanding
as of December 31, 2003.


In 2003, 2002 and 2001, respectively, the Company
granted 70,711, 77,099, and 34,399 restricted shares, under the
Stock Incentive Plan, to participants with a weighted-average
fair value of $11, $15, and $14. Of the 182,209 restricted
shares that have been issued under the Stock Incentive Plan,
134,445 shares remain outstanding as of December 31, 2003.

F-24



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In addition, the Company has granted stock
options under the Stock Incentive Plan. These options are
granted at prices determined by the Board of Directors,
generally the closing price on the date of grant, and must be
exercised within ten years of the date of grant.

Stock option activity under the Stock Incentive
Plan for the year ended December 31, 2003 is as follows:

|                                                             |                   |           |         |                  |   |   |    |    | 
|------------------------------------------------------------ | ----------------- | --------- | ------- | ---------------- | - | - | -- | -- | 
|                                                             |                   | Number of |         | Weighted Average
|                                                             |                   | Options   |         | Exercise Price  
|                                                             |                   |           |         |                 
|Options outstanding and exercisable at
    December 31, 2001 |                   |           |        |                  |   | $ |   |   
|                                                             | Options granted   |           |         | 269,203          |   |   |    | 15 | 
|                                                             | Options exercised |           |         |                 |   |   |    |   | 
|                                                             | Options forfeited |           |         | (21,322          | ) |   |    | 15 | 
|                                                             |                   |           |         |                  |   |   |    |   
|Options outstanding and exercisable at
    December 31, 2002 |                   |           | 247,881 |                  |   |   | 15 |   
|                                                             | Options granted   |           |         | 210,134          |   |   |    | 9  | 
|                                                             | Options exercised |           |         |                 |   |   |    |   | 
|                                                             | Options forfeited |           |         | (23,507          | ) |   |    | 12 | 
|                                                             |                   |           |         |                  |   |   |    |   
|Options outstanding and exercisable at
    December 31, 2003 |                   |           | 434,508 |                  |   | $ | 12 |   
|                                                             |                   |           |         |                  |   |   |    |   

As of December 31, 2003 and 2002, the
434,508 and 247,881 options outstanding have exercise prices of
between $9 and $16 and a weighted-average remaining contractual
life of 8.6 and 9.7 years, respectively.

(13) Restructuring Costs

In February 2001, the Company recorded
restructuring charges of $1.9 million in connection with an
early retirement plan and the closing of CLEC operations in
Raleigh, North Carolina. The related liabilities are included in
other accrued liabilities and accrued pension cost in the
accompanying consolidated balance sheets and were established to
accrue for estimated retirement and severance costs related to
17 employees primarily within the network department, lease
termination costs, Raleigh transport costs, and other costs
associated with the restructuring action. A summary of
restructuring charges recorded in 2001 is as follows (in
thousands):

|                                     |  |   |       | 
|------------------------------------ |  | - | ----- | 
|Early retirement and severance costs |  | $ | 1,178 | 
|Lease termination costs              |  |   | 241   | 
|Raleigh transport costs              |  |   | 307   | 
|Other costs                          |  |   | 216   | 
|                                     |  |   |       | 
|Restructuring charge incurred        |  | $ | 1,942 | 
|                                     |  |   |       | 

Approximately $1.0 million of the
$1.9 million charge was included in the Companys
accrued pension liability to provide for retirement obligations
associated with Raleigh operations. As of December 31,
2003, all costs associated with the restructuring have been
paid, excluding the amounts included in the Companys
accrued pension liability.

(14) Employee Stock Purchase
Plan

The Company approved the 2001 Employee Stock
Purchase Plan (the Employee Plan) which authorized
500,000 shares of Common Stock to be offered to all employees
eligible to purchase shares. The purchase price of shares is
established by the Compensation Committee and may not be less
than 85% of the fair market value of Common Stock on the first
or last day of an offering period. Employees

F-25



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

electing to participate have their contributions
to the Employee Plan made by payroll deduction. Under the
Employee Plan, 11,321 and 11,402 shares were issued at a
weighted average purchase price of $10 and $13 per share in 2003
and 2002, respectively.

(15) Employee Benefit Plans



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

The Company has a trusteed, defined benefit,
noncontributory pension plan covering substantially all of its
employees. The benefits are based on years of service and the
employees highest five consecutive plan years of
compensation. Contributions to the plan are based upon the Entry
Age Normal Method with Frozen Initial Liability and comply with
the funding requirements of the Employee Retirement Income
Security Act of 1974. During 2003, the Company made a
$1.0 million cash contribution to the plan. Plan assets are
invested primarily in common stocks, long-term bonds and U.S.
treasury notes.

The measurement date is December 31 and the
following table sets forth the funded status of the
Companys pension plan and amounts recognized in the
Companys financial statements at December 31, 2003
and 2002 (in thousands):

|                                 |                                                |      |   |         |   |  |   |         |  
|-------------------------------- | ---------------------------------------------- | ---- | - | ------- | - |  | - | ------- | -
|                                 |                                                | 2003 |   | 2002   
|                                 |                                                |      |   |        
|Change in Benefit Obligation:    |                                                |      |   |         |   |  |   |        
|                                 | Benefit obligation at end of prior plan year   |      | $ | (37,038 | ) |  | $ | (35,887 | )
|                                 | Service cost                                   |      |   | (1,852  | ) |  |   | (1,533  | )
|                                 | Interest cost                                  |      |   | (2,503  | ) |  |   | (2,354  | )
|                                 | Actuarial gain/(loss)                          |      |   | (3,823  | ) |  |   | 466     |  
|                                 | Early retirement                               |      |   |        |   |  |   |        |  
|                                 | Actual distributions                           |      |   | 2,208   |   |  |   | 2,270   |  
|                                 |                                                |      |   |         |   |  |   |        
|                                 | Benefit obligation at end of year              |      | $ | (43,008 | ) |  | $ | (37,038 | )
|                                 |                                                |      |   |         |   |  |   |        
|Change in Plan Assets:           |                                                |      |   |         |   |  |   |        
|                                 | Plan assets at fair value at beginning of year |      | $ | 35,781  |   |  | $ | 41,372  |  
|                                 | Actual return on plan assets                   |      |   | 8,595   |   |  |   | (3,320  | )
|                                 | Actual employer contributions                  |      |   | 1,037   |   |  |   |         |  
|                                 | Actual distributions                           |      |   | (2,208  | ) |  |   | (2,271  | )
|                                 |                                                |      |   |         |   |  |   |        
|                                 | Plan assets at fair value at end of year       |      | $ | 43,205  |   |  | $ | 35,781  |  
|                                 |                                                |      |   |         |   |  |   |        
|(Accrued)/ Prepaid Pension Cost: |                                                |      |   |         |   |  |   |        
|                                 | Funded status                                  |      | $ | 197     |   |  | $ | (1,257  | )
|                                 | Unrecognized net actuarial gain                |      |   | (3,263  | ) |  |   | (1,143  | )
|                                 | Unrecognized prior service                     |      |   | 59      |   |  |   | 61      |  
|                                 | Unrecognized transition asset                  |      |   |        |   |  |   |        |  
|                                 |                                                |      |   |         |   |  |   |        
|                                 | Net amount recognized                          |      | $ | (3,007  | ) |  | $ | (2,339  | )
|                                 |                                                |      |   |         |   |  |   |        

F-26



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                        |                    |               |  |       |  |  |  |       | 
|----------------------- | ------------------ | ------------- |  | ----- |  |  |  | ----- | 
|                        |                    |              
|                        |                    | Percentage of
|                        |                    | total assets 
|                        |                    |              
|                        |                    | 2003          |  | 2002 
|                        |                    |               |  |      
|Summary of Plan Assets: |                    |               |  |       |  |  |  |      
|                        | Company stock      |               |  | 4.0%  |  |  |  | 4.0%  | 
|                        | Equity funds       |               |  | 71.6% |  |  |  | 61.5% | 
|                        | Fixed income funds |               |  | 24.4% |  |  |  | 34.5% | 

Net pension cost for 2003, 2002 and 2001 included
the following (in thousands):

|                                                |  |      |        |      |  |      |        |   |  |   |        |  
|----------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                |  | 2003 |        | 2002 |  | 2001
|                                                |  |      |        |      |  |     
|Service cost, benefits earned during the period |  | $    | 1,852  |      |  | $    | 1,533  |   |  | $ | 1,305  |  
|Interest cost on projected benefit obligation   |  |      | 2,503  |      |  |      | 2,354  |   |  |   | 2,405  |  
|Expected return on plan assets                  |  |      | (2,653 | )    |  |      | (2,950 | ) |  |   | (3,124 | )
|Net amortization and deferral                   |  |      | 2      |      |  |      | (345   | ) |  |   | (448   | )
|                                                |  |      |        |      |  |      |        |   |  |   |        |  
|Net periodic pension expense                    |  | $    | 1,704  |      |  | $    | 592    |   |  | $ | 138    |  
|                                                |  |      |        |      |  |      |        |   |  |   |        |  

|                      |                                       |      |              |      |            |      |  |       | 
|--------------------- | ------------------------------------- | ---- | ------------ | ---- | ---------- | ---- |  | ----- | 
|                      |                                       | 2003 |              | 2002 |            | 2001
|                      |                                       |      |              |      |            |     
|Key assumptions used: |                                       |      |              |      |            |      |  |      
|                      |                                       |      |              |      |            |      |  |      
|                      | Weighted average discount rate        |      | 6.25%        |      | 6.75%      |      |  | 7.25% | 
|                      | Average rate of compensation increase |      | 3.5% to 6.5% |      | 3% to 9.5% |      |  | 5.00% | 
|                      | Expected long-term rates of return    |      | 7.50%        |      | 7.50%      |      |  | 7.50% | 

The Company estimates that it will be not be
required to contribute to the Companys pension plan in
2004.

The Company also has a non-qualified defined
benefit Supplemental Executive Retirement Plan. Accrued costs
related to this plan were $0.5 million and
$0.5 million at December 31, 2003 and 2002,
respectively. This plan was frozen on December 31, 2000.
Accounts under the Plan continue to accrue interest at 7.5% per
year.

The Company adopted a defined contribution
Executive Non-qualified Excess Plan (the Deferred
Compensation Plan) during 2001 for certain key executives.
The Deferred Compensation Plan allows participants to defer
compensation, including certain equity-based compensation.



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

The Company has a 401(k) salary savings plan that
allows employees to contribute a portion of their salary to the
plan on a tax deferred basis. The Company contributed
employee-matching funds of $0.8 million, $1.0 million, and
$0.7 million for 2003, 2002 and 2001, respectively.



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

In addition to the Companys defined benefit
pension plan, the Company sponsors a health care plan that
provides post-retirement medical benefits and life insurance
coverage to full-time employees hired prior to January 1,
1993 who meet minimum age and service requirements. The plan is
contributory with respect to coverage for beneficiaries. The
Companys policy is to fund the cost of medical benefits on
a cash basis.

F-27



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company has adopted SFAS No. 106,
Employers Accounting for Post Retirement Benefits
Other Than Pensions, and has elected to amortize the
transition liability over 15 years. SFAS No. 106
requires the accrual, during the years that an employee renders
the necessary service, of the expected cost of providing those
benefits to the employee and employees beneficiaries and
covered dependents.

On January 12, 2004, the FASB issued FASB
Staff Position No. FAS 106-1, Accounting and
Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003 (FSP
106-1). FSP 106-1 permits employers that sponsor
postretirement benefit plans (plan sponsors) that provide
prescription drug benefits to retirees to make a one-time
election to defer the accounting impact, if any, of the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003
(the Act), which was enacted into law on
December 8, 2003. The Company has elected to defer
recognition of the provisions of the Act as permitted by FSP
106-1 due to uncertainties regarding some of the new Medicare
provisions and a lack of authoritative accounting guidance
regarding certain matters.

The following table presents the plans
accumulated post-retirement benefit obligation reconciled with
amounts recognized in the Companys balance sheets at
December 31, 2003 and 2002 (in thousands):

|                                             |                                              |      |   |         |   |  |   |         |  
|-------------------------------------------- | -------------------------------------------- | ---- | - | ------- | - |  | - | ------- | -
|                                             |                                              | 2003 |   | 2002   
|                                             |                                              |      |   |        
|Change in Benefit Obligation:                |                                              |      |   |         |   |  |   |        
|                                             | Benefit obligation at end of prior plan year |      | $ | (11,723 | ) |  | $ | (9,469  | )
|                                             | Service cost                                 |      |   | (51     | ) |  |   | (188    | )
|                                             | Interest cost                                |      |   | (512    | ) |  |   | (673    | )
|                                             | Actuarial gain/(loss)                        |      |   | 3,429   |   |  |   | (2,080  | )
|                                             | Other                                        |      |   | 479     |   |  |   | 687     |  
|                                             |                                              |      |   |         |   |  |   |        
|                                             | Benefit Obligation at end of year            |      | $ | (8,378  | ) |  | $ | (11,723 | )
|                                             |                                              |      |   |         |   |  |   |        
|(Accrued)/ Prepaid Post-retirement
    Cost: |                                              |      |   |         |   |  |   |        
|                                             | Funded status                                |      | $ | (8,378  | ) |  | $ | (11,723 | )
|                                             | Unrecognized net actuarial gain              |      |   | (3,421  | ) |  |   | (205    | )
|                                             | Unrecognized prior service cost              |      |   | (671    | ) |  |   | (1,006  | )
|                                             | Unrecognized transition obligation           |      |   | 1,224   |   |  |   | 1,835   |  
|                                             |                                              |      |   |         |   |  |   |        
|                                             | Net Amount Recognized                        |      | $ | (11,246 | ) |  | $ | (11,099 | )
|                                             |                                              |      |   |         |   |  |   |        

Net periodic post-retirement benefit cost for
2003, 2002 and 2001 includes the following components (in
thousands):

|                                                        |  |      |      |      |  |      |      |   |  |   |      |  
|------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  | - | ---- | -
|                                                        |  | 2003 |      | 2002 |  | 2001
|                                                        |  |      |      |      |  |     
|Service cost                                            |  | $    | 51   |      |  | $    | 188  |   |  | $ | 161  |  
|Interest cost                                           |  |      | 512  |      |  |      | 673  |   |  |   | 663  |  
|Amortization of transition obligation over 15
    years |  |      | 612  |      |  |      | 612  |   |  |   | 612  |  
|Amortization of gain                                    |  |      | (223 | )    |  |      | (98  | ) |  |   | (126 | )
|Amortization of prior service cost                      |  |      | (336 | )    |  |      | (503 | ) |  |   | (503 | )
|                                                        |  |      |      |      |  |      |      |   |  |   |      |  
|Net periodic post-retirement benefit cost               |  | $    | 616  |      |  | $    | 872  |   |  | $ | 807  |  
|                                                        |  |      |      |      |  |      |      |   |  |   |      |  

For measurement purposes, a 15.0% annual rate of
increase in the per capita cost of covered benefits (i.e.,
health care cost trend rate) was assumed for 2003 and the rate
was assumed to decrease annually to 6.0% by the year 2006 and to
remain level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. For
example, increasing the assumed health care cost trend

F-28



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

rates by one percentage point in each year would
increase the accumulated post-retirement benefit obligation as
of December 31, 2003, to approximately $8.5 million
and the aggregate of the service and interest cost components of
net periodic post-retirement benefit cost for the year ended
December 31, 2003 to approximately $0.6 million.
Decreasing the assumed health care cost trend rates by one
percentage point in each year would decrease the accumulated
post-retirement benefit obligation as of December 31, 2003,
to approximately $8.1 million and the aggregate of the
service and interest cost components of net periodic
post-retirement benefit cost for the year ended
December 31, 2003 to approximately $0.5 million.

The weighted-average discount rate used in
determining the accumulated post-retirement benefit obligation
was 6.25% in 2003, 6.75% in 2002 and 7.25% in 2001.

(16) Income Taxes

Total income tax expense (benefit) for the years
ended December 31, 2003, 2002 and 2001 were allocated as
follows (in thousands):

|                                                                                                                                                                                                                       |  |      |        |      |  |      |        |   |  |   |        |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                                                                                                                                                                                       |  | 2003 |        | 2002 |  | 2001
|                                                                                                                                                                                                                       |  |      |        |      |  |     
|Income from continuing operations                                                                                                                                                                                      |  | $    | 12,620 |      |  | $    | 8,696  |   |  | $ | 4,993  |  
|Discontinued operations                                                                                                                                                                                                |  |      | (276   | )    |  |      | (3,278 | ) |  |   | (3,029 | )
|Stockholders equity, for unrealized holding
    gains and losses on debt and equity securities and interest rate
    swaps recognized for financial reporting purposes and benefit
    from exercise of stock options |  |      | 801    |      |  |      | (3,171 | ) |  |   | (3,106 | )

Income tax expense attributable to income from
continuing operations for the years ended December 31,
2003, 2002 and 2001, consists of (in thousands):

|          |                                                    |       |       |       |        |      |       |       |       |  |       |       |       | 
|--------- | -------------------------------------------------- | ----- | ----- | ----- | ------ | ---- | ----- | ----- | ----- |  | ----- | ----- | ----- | 
|          |                                                    | 2003  |       | 2002  |        | 2001
|          |                                                    |       |       |       |        |     
|Current:  |                                                    |       |       |       |        |      |       |       |       |  |       |      
|          | Federal                                            |       | $     | 1,986 |        |      | $     | 1,859 |       |  | $     | 3,560 |      
|          | State                                              |       |       | 1,122 |        |      |       | 1,585 |       |  |       | 1,052 |      
|          | Foreign                                            |       |       | 8     |        |      |       |      |       |  |       | 200   |      
|          |                                                    |       |       |       |        |      |       |       |       |  |       |      
|          |                                                    |       | 3,116 |       |        |      | 3,444 |       |       |  | 4,812 |      
|          |                                                    |       |       |       |        |      |       |       |       |  |       |      
|Deferred: |                                                    |       |       |       |        |      |       |       |       |  |       |      
|          | Federal, net of investment tax credit amortization |       |       | 8,807 |        |      |       | 4,582 |       |  |       | 100   |      
|          | State                                              |       |       | 697   |        |      |       | 670   |       |  |       | 81    |      
|          | Foreign                                            |       |       |      |        |      |       |      |       |  |       |      |      
|          |                                                    |       |       |       |        |      |       |       |       |  |       |      
|          |                                                    |       | 9,504 |       |        |      | 5,252 |       |       |  | 181   |      
|          |                                                    |       |       |       |        |      |       |       |       |  |       |      
|          |                                                    | Total |       | $     | 12,620 |      |       | $     | 8,696 |  |       | $     | 4,993 | 
|          |                                                    |       |       |       |        |      |       |       |       |  |       |      

F-29



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Income tax expense attributable to income from
continuing operations differs from the amounts computed by
applying the U.S. federal income tax rate of 35% in 2003, 2002,
and 2001 to pretax income from continuing operations as a result
of the following (in thousands):

|                                              |  |      |        |      |  |      |       |   |  |   |       |  
|--------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                              |  | 2003 |        | 2002 |  | 2001
|                                              |  |      |        |      |  |     
|Amount computed at statutory rate             |  | $    | 11,502 |      |  | $    | 7,761 |   |  | $ | 3,969 |  
|State income taxes, net of federal income tax |  |      | 789    |      |  |      | 736   |   |  |   | (206  | )
|Increase in valuation allowance               |  |      | 393    |      |  |      | 533   |   |  |   | 941   |  
|Nontaxable interest income                    |  |      |       |      |  |      |      |   |  |   | (21   | )
|Amortization of federal investment tax credit |  |      | (115   | )    |  |      | (115  | ) |  |   | (115  | )
|Research and development credits              |  |      |       |      |  |      | (35   | ) |  |   |      |  
|Goodwill                                      |  |      |       |      |  |      |      |   |  |   | 419   |  
|Other, net                                    |  |      | 51     |      |  |      | (184  | ) |  |   | 6     |  
|                                              |  |      |        |      |  |      |       |   |  |   |       |  
|Income tax expense from continuing operations |  | $    | 12,620 |      |  | $    | 8,696 |   |  | $ | 4,993 |  
|                                              |  |      |        |      |  |      |       |   |  |   |       |  

The tax effects of temporary differences that
give rise to significant portions of deferred tax assets and
deferred tax liabilities as of December 31, 2003 and 2002
were as follows (in thousands):

|                         |                                                                           |      |   |        |   |  |   |        |  
|------------------------ | ------------------------------------------------------------------------- | ---- | - | ------ | - |  | - | ------ | -
|                         |                                                                           | 2003 |   | 2002  
|                         |                                                                           |      |   |       
|Deferred tax assets      |                                                                           |      |   |        |   |  |   |       
|                         | Accrued post-retirement and pension benefits                              |      | $ | 6,106  |   |  | $ | 5,568  |  
|                         | Accrued incentive                                                         |      |   | 1,459  |   |  |   | 426    |  
|                         | State net operating loss carryforwards                                    |      |   | 4,283  |   |  |   | 3,725  |  
|                         | Other accrued expenses and allowances                                     |      |   | 322    |   |  |   | 200    |  
|                         | Investments                                                               |      |   | 441    |   |  |   | 5,343  |  
|                         |                                                                           |      |   |        |   |  |   |       
|                         | Total gross deferred tax assets                                           |      |   | 12,611 |   |  |   | 15,262 |  
|                         | Less valuation allowance                                                  |      |   | (3,299 | ) |  |   | (2,906 | )
|                         |                                                                           |      |   |        |   |  |   |       
|                         | Net deferred tax assets                                                   |      |   | 9,312  |   |  |   | 12,356 |  
|                         |                                                                           |      |   |        |   |  |   |       
|Deferred tax liabilities |                                                                           |      |   |        |   |  |   |       
|                         | Property and equipment, primarily related to
    depreciation differences |      |   | 31,370 |   |  |   | 24,796 |  
|                         | Unrealized gain (loss) on securities and interest
    rate swaps          |      |   | 281    |   |  |   | (520   | )
|                         |                                                                           |      |   |        |   |  |   |       
|                         | Total gross deferred tax liabilities                                      |      |   | 31,651 |   |  |   | 24,276 |  
|                         |                                                                           |      |   |        |   |  |   |       
|                         | Net deferred tax liabilities                                              |      | $ | 22,339 |   |  | $ | 11,920 |  
|                         |                                                                           |      |   |        |   |  |   |       

The net change in the total valuation allowance
for the years ended December 31, 2003, 2002 and 2001 was an
increase of $0.4 million, $0.5 million and
$0.9 million, respectively. In assessing the realizability
of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary
differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this
assessment. Based upon the level of historical taxable income
and projections for future taxable income over the periods in
which the deferred tax assets are deductible, management
believes it is more likely than not the Company will realize the
benefits of these deductible differences, net of the existing
valuation allowances at December 31, 2003.

F-30



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

At December 31, 2003, the Company has net
operating loss carryforwards for state income tax purposes in
certain subsidiaries of approximately $83.0 million that
will expire in the years 2013-2018.

In October 2003, the Company received income tax
assessments from the North Carolina Department of Revenue
related to certain tax returns filed for the years ended
December 31, 1998, 1999 and 2000. The Company intends to
vigorously appeal these assessments. The Company believes that
it has meritorious defenses to the assessments and the ultimate
outcome will not result in a material impact on the
Companys consolidated financial statements.

(17)     Segment
Information

The Company has six reportable segments, each of
which are strategic businesses that are managed separately due
to certain fundamental differences such as regulatory
environment or services offered. The segments and a description
of their businesses are as follows:

ILEC

ILEC provides local telephone services,

Wireless

Digital wireless group provides wireless phone
services,

CLEC

CLEC provides competitive local telephone
services to customers outside the ILECs operating area,

Greenfield

Greenfield services unit provides full
telecommunications services to new mixed-use developments
outside the ILECs operating area,

Internet
and Data Services (IDS)

IDS provides dial-up and high-speed internet
access, web hosting and other data related services,

Palmetto

Palmetto MobileNet, L.P. is a limited partnership
with interests in wireless phone service providers in North and
South Carolina. The Company has an equity interest in Palmetto
MobileNet, L.P. through CT Cellular. Results for Palmetto
MobileNet, L.P. are combined with CT Cellular and presented as
Palmetto.

Other

Other consists of all other business units,
investments and operations of the Company.

Accounting policies of the segments (excluding
Palmetto) are the same as those described in the summary of
significant accounting policies. The Company evaluates
performance based on operating income (loss). Inter-segment
transactions have been eliminated in the following segment
presentation. All segments provide services primarily within
North and South Carolina. Greenfield also provides service in
Georgia.

F-31



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                              |            |       |       |         |         |        |   |         |         |        |   |         |         |        | 
|----------------------------- | ---------- | ----- | ----- | ------- | ------- | ------ | - | ------- | ------- | ------ | - | ------- | ------- | ------ | 
|                              |            | 2003  |       | 2002    |         | 2001  
|                              |            |       |       |         |         |       
|Operating revenue             |            |       |       |         |         |        |   |         |         |        |   |        
|                              | ILEC       |       | $     | 96,075  |         |        | $ | 94,308  |         |        | $ | 95,560  |        
|                              | Wireless   |       |       | 28,468  |         |        |   | 24,443  |         |        |   | 18,315  |        
|                              | CLEC       |       |       | 19,681  |         |        |   | 15,503  |         |        |   | 10,628  |        
|                              | Greenfield |       |       | 6,223   |         |        |   | 4,107   |         |        |   | 1,874   |        
|                              | IDS        |       |       | 10,461  |         |        |   | 9,695   |         |        |   | 9,426   |        
|                              | Palmetto   |       |       | 28,258  |         |        |   | 24,825  |         |        |   | 20,784  |        
|                              | Other      |       |       |        |         |        |   |        |         |        |   |        |        
|                              |            |       |       |         |         |        |   |         |         |        |   |        
|                              |            | Total |       | $       | 189,166 |        |   | $       | 172,881 |        |   | $       | 156,587 |       
|                              |            |       |       |         |         |        |   |         |         |        |   |        
|Operating income (loss)       |            |       |       |         |         |        |   |         |         |        |   |        
|                              | ILEC       |       | $     | 29,076  |         |        | $ | 30,262  |         |        | $ | 29,075  |        
|                              | Wireless   |       |       | 2,136   |         |        |   | 3,288   |         |        |   | 2,176   |        
|                              | CLEC       |       |       | (1,550  | )       |        |   | (5,867  | )       |        |   | (8,807  | )      
|                              | Greenfield |       |       | (4,942  | )       |        |   | (5,187  | )       |        |   | (4,213  | )      
|                              | IDS        |       |       | (1,473  | )       |        |   | (1,716  | )       |        |   | (2,729  | )      
|                              | Palmetto   |       |       | 27,788  |         |        |   | 24,424  |         |        |   | 20,467  |        
|                              | Other      |       |       | (3,696  | )       |        |   | (2,379  | )       |        |   | (921    | )      
|                              |            |       |       |         |         |        |   |         |         |        |   |        
|                              |            | Total |       | $       | 47,339  |        |   | $       | 42,825  |        |   | $       | 35,048  |       
|                              |            |       |       |         |         |        |   |         |         |        |   |        
|Depreciation and amortization |            |       |       |         |         |        |   |         |         |        |   |        
|                              | ILEC       |       | $     | 20,527  |         |        | $ | 19,068  |         |        | $ | 17,313  |        
|                              | Wireless   |       |       | 1,721   |         |        |   | 1,174   |         |        |   | 668     |        
|                              | CLEC       |       |       | 2,356   |         |        |   | 2,202   |         |        |   | 1,987   |        
|                              | Greenfield |       |       | 2,761   |         |        |   | 2,000   |         |        |   | 1,018   |        
|                              | IDS        |       |       | 2,078   |         |        |   | 1,684   |         |        |   | 2,269   |        
|                              | Palmetto   |       |       | 151     |         |        |   | 137     |         |        |   | 3,376   |        
|                              | Other      |       |       | 1,405   |         |        |   | 693     |         |        |   | 21      |        
|                              |            |       |       |         |         |        |   |         |         |        |   |        
|                              |            | Total |       | $       | 30,999  |        |   | $       | 26,958  |        |   | $       | 26,652  |       
|                              |            |       |       |         |         |        |   |         |         |        |   |        
|Assets                        |            |       |       |         |         |        |   |         |         |        |   |        
|                              | ILEC       |       | $     | 171,594 |         |        | $ | 163,139 |         |        | $ | 163,136 |        
|                              | Wireless   |       |       | 30,790  |         |        |   | 30,500  |         |        |   | 28,316  |        
|                              | CLEC       |       |       | 12,962  |         |        |   | 14,492  |         |        |   | 15,640  |        
|                              | Greenfield |       |       | 24,478  |         |        |   | 22,419  |         |        |   | 14,357  |        
|                              | IDS        |       |       | 15,105  |         |        |   | 14,622  |         |        |   | 15,573  |        
|                              | Palmetto   |       |       | 101,012 |         |        |   | 94,914  |         |        |   | 104,812 |        
|                              | Other      |       |       | 53,087  |         |        |   | 80,012  |         |        |   | 50,719  |        
|                              |            |       |       |         |         |        |   |         |         |        |   |        
|                              |            | Total |       | $       | 409,028 |        |   | $       | 420,098 |        |   | $       | 392,553 |       
|                              |            |       |       |         |         |        |   |         |         |        |   |        
|Capital expenditures          |            |       |       |         |         |        |   |         |         |        |   |        
|                              | ILEC       |       | $     | 12,294  |         |        | $ | 16,558  |         |        | $ | 20,937  |        
|                              | Wireless   |       |       | 1,107   |         |        |   | 4,289   |         |        |   | 812     |        
|                              | CLEC       |       |       | 1,004   |         |        |   | 2,705   |         |        |   | 3,378   |        
|                              | Greenfield |       |       | 4,680   |         |        |   | 10,099  |         |        |   | 9,995   |        
|                              | IDS        |       |       | 2,434   |         |        |   | 1,908   |         |        |   | 2,420   |        
|                              | Palmetto   |       |       | 688     |         |        |   | 300     |         |        |   | 68      |        
|                              | Other      |       |       | 2,243   |         |        |   | 8,724   |         |        |   | 21,568  |        
|                              |            |       |       |         |         |        |   |         |         |        |   |        
|                              |            |       | Total |         | $       | 24,450 |   |         | $       | 44,583 |   |         | $       | 59,178 | 
|                              |            |       |       |         |         |        |   |         |         |        |   |        

F-32



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                          |  |      |          |      |  |      |         |   |  |   |          |  
|------------------------------------------------------------------------- |  | ---- | -------- | ---- |  | ---- | ------- | - |  | - | -------- | -
|                                                                          |  | 2003 |          | 2002 |  | 2001
|                                                                          |  |      |          |      |  |     
|Reconciliation to net income before tax:                                  |  |      |          |      |  |      |         |   |  |   |          |  
|Segment operating profit                                                  |  | $    | 47,339   |      |  | $    | 42,825  |   |  | $ | 35,048   |  
|Palmetto MobileNet, L.P.                                                  |  |      | (27,788  | )    |  |      | (24,424 | ) |  |   | (20,467  | )
|Total other income (expense)                                              |  |      | 13,312   |      |  |      | 3,774   |   |  |   | (3,242   | )
|                                                                          |  |      |          |      |  |      |         |   |  |   |          |  
|Income from continuing operations before income
    taxes                 |  | $    | 32,863   |      |  | $    | 22,175  |   |  | $ | 11,339   |  
|                                                                          |  |      |          |      |  |      |         |   |  |   |          |  
|                                                                         
|Reconciliation to total revenues:                                         |  |      |          |      |  |      |         |   |  |   |          |  
|Segment revenues                                                          |  | $    | 189,166  |      |  | $    | 172,881 |   |  | $ | 156,587  |  
|Palmetto MobileNet, L.P.                                                  |  |      | (28,258  | )    |  |      | (24,825 | ) |  |   | (20,784  | )
|                                                                          |  |      |          |      |  |      |         |   |  |   |          |  
|Total revenues                                                            |  | $    | 160,908  |      |  | $    | 148,056 |   |  | $ | 135,803  |  
|                                                                          |  |      |          |      |  |      |         |   |  |   |          |  
|                                                                         
|Reconciliation to total depreciation:                                     |  |      |          |      |  |      |         |   |  |   |          |  
|Segment depreciation                                                      |  | $    | 30,999   |      |  | $    | 26,958  |   |  | $ | 26,652   |  
|Palmetto MobileNet, L.P.                                                  |  |      | (151     | )    |  |      | (137    | ) |  |   | (3,376   | )
|                                                                          |  |      |          |      |  |      |         |   |  |   |          |  
|Total depreciation                                                        |  | $    | 30,848   |      |  | $    | 26,821  |   |  | $ | 23,276   |  
|                                                                          |  |      |          |      |  |      |         |   |  |   |          |  
|                                                                         
|Reconciliation to total equity in income of
    unconsolidated companies: |  |      |          |      |  |      |         |   |  |   |          |  
|Segment equity in income of unconsolidated
    companies                  |  | $    | (13      | )    |  | $    | (29     | ) |  | $ | (87      | )
|Equity in income of Palmetto MobileNet, L.P.                              |  |      | 5,677    |      |  |      | 4,891   |   |  |   | 4,296    |  
|                                                                          |  |      |          |      |  |      |         |   |  |   |          |  
|Total equity in income of unconsolidated companies                        |  | $    | 5,664    |      |  | $    | 4,862   |   |  | $ | 4,209    |  
|                                                                          |  |      |          |      |  |      |         |   |  |   |          |  
|                                                                         
|Reconciliation to total investment in
    unconsolidated companies:       |  |      |          |      |  |      |         |   |  |   |          |  
|Segment investment in unconsolidated companies                            |  | $    | 4,914    |      |  | $    | 4,838   |   |  | $ | 12,499   |  
|Investment in Palmetto MobileNet, L.P.                                    |  |      | 8,738    |      |  |      | 8,740   |   |  |   | 9,809    |  
|                                                                          |  |      |          |      |  |      |         |   |  |   |          |  
|Total investment in unconsolidated companies                              |  | $    | 13,652   |      |  | $    | 13,578  |   |  | $ | 22,308   |  
|                                                                          |  |      |          |      |  |      |         |   |  |   |          |  
|                                                                         
|Reconciliation to total assets:                                           |  |      |          |      |  |      |         |   |  |   |          |  
|Segment assets                                                            |  | $    | 409,028  |      |  | $    | 420,098 |   |  | $ | 392,553  |  
|Investment in unconsolidated companies                                    |  |      | 13,652   |      |  |      | 13,578  |   |  |   | 22,308   |  
|Palmetto MobileNet, L.P.                                                  |  |      | (101,012 | )    |  |      | (94,912 | ) |  |   | (104,813 | )
|                                                                          |  |      |          |      |  |      |         |   |  |   |          |  
|Total assets                                                              |  | $    | 321,668  |      |  | $    | 338,764 |   |  | $ | 310,048  |  
|                                                                          |  |      |          |      |  |      |         |   |  |   |          |  

F-33



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

|                                            |               |      |            |        |  |      |            |        |  |  |            |        | 
|------------------------------------------- | ------------- | ---- | ---------- | ------ |  | ---- | ---------- | ------ |  |  | ---------- | ------ | 
|                                            |               | 2003 |            | 2002   |  | 2001
|                                            |               |      |            |        |  |     
|Basic weighted average shares outstanding   |               |      | 18,747,240 |        |  |      | 18,710,382 |        |  |  | 18,816,047 |       
|Effect of dilutive securities:              |               |      |            |        |  |      |            |        |  |  |            |       
|                                            | Stock options |      |            | 60,922 |  |      |            | 35,260 |  |  |            | 44,233 | 
|                                            |               |      |            |        |  |      |            |        |  |  |            |       
|Diluted weighted average shares outstanding |               |      | 18,808,162 |        |  |      | 18,745,642 |        |  |  | 18,860,280 |       
|                                            |               |      |            |        |  |      |            |        |  |  |            |       



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

A summary of quarterly income statement
information for the years ended December 31, 2003 and 2002,
follows:

|                                   |                                     |                     |        |         |  |          |        |         |   |   |        |      |  |   |        |      | 
|---------------------------------- | ----------------------------------- | ------------------- | ------ | ------- |  | -------- | ------ | ------- | - | - | ------ | ---- |  | - | ------ | ---- | 
|                                   |                                     |                    
|                                   |                                     | 2003 Quarters Ended
|                                   |                                     |                    
|                                   |                                     | March 31            |        | June 30 |  | Sept. 30 |        | Dec. 31
|                                   |                                     |                     |        |         |  |          |        |        
|Operating revenue                  |                                     | $                   | 38,696 |         |  | $        | 39,953 |         |   | $ | 40,603 |      |  | $ | 41,656 |     
|Operating income                   |                                     |                     | 4,332  |         |  |          | 5,146  |         |   |   | 4,381  |      |  |   | 5,692  |     
|Income from continuing operations  |                                     |                     | 2,481  |         |  |          | 10,782 |         |   |   | 3,149  |      |  |   | 3,831  |     
|Loss from discontinued operations  |                                     |                     |       |         |  |          | (424   | )       |   |   |       |      |  |   |       |     
|                                   |                                     |                     |        |         |  |          |        |         |   |   |        |      |  |   |        |     
|Net income                         |                                     | $                   | 2,481  |         |  | $        | 10,358 |         |   | $ | 3,149  |      |  | $ | 3,831  |     
|                                   |                                     |                     |        |         |  |          |        |         |   |   |        |      |  |   |        |     
|Basic earnings per common share:   |                                     |                     |        |         |  |          |        |         |   |   |        |      |  |   |        |     
|                                   | Earnings from continuing operations |                     | $      | 0.13    |  |          | $      | 0.58    |   |   | $      | 0.17 |  |   | $      | 0.20 | 
|                                   | Loss from discontinued operations   |                     |        |        |  |          |        | (0.02   | ) |   |        |     |  |   |        |     | 
|                                   | Net income                          |                     |        | 0.13    |  |          |        | 0.55    |   |   |        | 0.17 |  |   |        | 0.20 | 
|Diluted earnings per common share: |                                     |                     |        |         |  |          |        |         |   |   |        |      |  |   |        |     
|                                   | Earnings from continuing operations |                     | $      | 0.13    |  |          | $      | 0.57    |   |   | $      | 0.17 |  |   | $      | 0.20 | 
|                                   | Loss from discontinued operations   |                     |        |        |  |          |        | (0.02   | ) |   |        |     |  |   |        |     | 
|                                   | Net income                          |                     |        | 0.13    |  |          |        | 0.55    |   |   |        | 0.17 |  |   |        | 0.20 | 

F-34



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As previously reported on Form 8-K filed on
October 22, 2003, the Company made certain adjustments,
which the Company believes are not material, to information
previously reported in Note 19  Summary of
Income Statement Information (Unaudited) contained in the Notes
to Consolidated Financial Statements in the Companys
Annual Report on Form 10-K for the year ended
December 31, 2002. These adjustments have no effect on the
consolidated results of operations for the year ended
December 31, 2002. The following tables present the data as
adjusted and as previously reported:

|                                   |                                     |                     |        |               |   |               |        |         |   |   |        |       |   |   |        |       |  
|---------------------------------- | ----------------------------------- | ------------------- | ------ | ------------- | - | ------------- | ------ | ------- | - | - | ------ | ----- | - | - | ------ | ----- | -
|                                   |                                     |                    
|                                   |                                     | 2002 Quarters Ended
|                                   |                                     |                    
|                                   |                                     |                     |        | (As Adjusted) |   | (As Adjusted)
|                                   |                                     | March 31            |        | June 30       |   | Sept. 30      |        | Dec. 31
|                                   |                                     |                     |        |               |   |               |        |        
|Operating revenue                  |                                     | $                   | 35,655 |               |   | $             | 37,126 |         |   | $ | 36,969 |       |   | $ | 38,306 |      
|Operating income                   |                                     |                     | 4,257  |               |   |               | 4,418  |         |   |   | 4,955  |       |   |   | 4,771  |      
|Income from continuing operations  |                                     |                     | 3,670  |               |   |               | 3,432  |         |   |   | 2,898  |       |   |   | 3,480  |      
|Loss from discontinued operations  |                                     |                     | (932   | )             |   |               | (756   | )       |   |   | (3,416 | )     |   |   | (554   | )    
|                                   |                                     |                     |        |               |   |               |        |         |   |   |        |       |   |   |        |      
|Net income (loss)                  |                                     | $                   | 2,738  |               |   | $             | 2,676  |         |   | $ | (518   | )     |   | $ | 2,926  |      
|                                   |                                     |                     |        |               |   |               |        |         |   |   |        |       |   |   |        |      
|Basic earnings per common share:   |                                     |                     |        |               |   |               |        |         |   |   |        |       |   |   |        |      
|                                   | Earnings from continuing operations |                     | $      | 0.20          |   |               | $      | 0.18    |   |   | $      | 0.16  |   |   | $      | 0.19  |  
|                                   | Loss from discontinued operations   |                     |        | (0.05         | ) |               |        | (0.04   | ) |   |        | (0.18 | ) |   |        | (0.03 | )
|                                   | Net income (loss)                   |                     |        | 0.15          |   |               |        | 0.14    |   |   |        | (0.03 | ) |   |        | 0.16  |  
|Diluted earnings per common share: |                                     |                     |        |               |   |               |        |         |   |   |        |       |   |   |        |      
|                                   | Earnings from continuing operations |                     | $      | 0.20          |   |               | $      | 0.18    |   |   | $      | 0.16  |   |   | $      | 0.19  |  
|                                   | Loss from discontinued operations   |                     |        | (0.05         | ) |               |        | (0.04   | ) |   |        | (0.18 | ) |   |        | (0.03 | )
|                                   | Net income (loss)                   |                     |        | 0.15          |   |               |        | 0.14    |   |   |        | (0.03 | ) |   |        | 0.16  |  

The following table presents data for the quarter
ended December 31, 2002 as previously reported:

|                                             |                                     |               |        |               |   |   |        |       |  
|-------------------------------------------- | ----------------------------------- | ------------- | ------ | ------------- | - | - | ------ | ----- | -
|                                             |                                     | (As Reported) |        | (As Reported)
|                                             |                                     | Sept. 30      |        | Dec. 31      
|                                             |                                     |               |        |              
|Operating revenue                            |                                     | $             | 37,077 |               |   | $ | 38,198 |      
|Operating income                             |                                     |               | 5,355  |               |   |   | 4,371  |      
|Income from continuing operations            |                                     |               | 3,134  |               |   |   | 3,244  |      
|Loss from discontinued operations            |                                     |               | (3,416 | )             |   |   | (554   | )    
|                                             |                                     |               |        |               |   |   |        |      
|Net income (loss)                            |                                     | $             | (282   | )             |   | $ | 2,690  |      
|                                             |                                     |               |        |               |   |   |        |      
|Basic and diluted earnings per common share: |                                     |               |        |               |   |   |        |      
|                                             | Earnings from continuing operations |               | $      | 0.16          |   |   | $      | 0.18  |  
|                                             | Loss from discontinued operations   |               |        | (0.18         | ) |   |        | (0.03 | )
|                                             | Net income                          |               |        | (0.02         | ) |   |        | 0.15  |  

F-35



---



##### 



SCHEDULE II

CT COMMUNICATIONS, INC. AND
SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

Years Ended December 31, 2003, 2002 and
2001


(in thousands)


|                                                                                    |  |           |       |           |  |            |       |             |  |   |       |  |  |   |       | 
|----------------------------------------------------------------------------------- |  | --------- | ----- | --------- |  | ---------- | ----- | ----------- |  | - | ----- |  |  | - | ----- | 
|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, 2003                                                        |  | $         | 1,174 |           |  | $          | 1,439 |             |  | $ | 1,642 |  |  | $ | 971   | 
|Year ended December 31, 2002                                                        |  |           | 745   |           |  |            | 1,685 |             |  |   | 1,256 |  |  |   | 1,174 | 
|Year ended December 31, 2001                                                        |  |           | 430   |           |  |            | 967   |             |  |   | 802   |  |  |   | 745   | 



---

Note: Represents balances written-off as
uncollectible less collections on balances previously written
off of $178, $199 and $191 for 2003, 2002 and 2001,
respectively. Balance at December 31, 2001 includes $150
assumed in the partitioning of the Cingular DCS network in June
2001.

F-36



---



##### 



Consolidated Financial Statements

Palmetto MobileNet, L.P.

Years Ended December 31, 2003, 2002 and
2001

with Report of Independent Auditors


F-37



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##### 



Palmetto MobileNet, L.P.





Contents

|                                                           |  |  |      | 
|---------------------------------------------------------- |  |  | ---- | 
|Report of Independent Auditors                             |  |  | F-39 | 
|                                                          
|Consolidated Financial Statements                          |  |  |      | 
|                                                          
|Consolidated Balance Sheets                                |  |  | F-40 | 
|Consolidated Statements of Income and
    Partners Equity |  |  | F-41 | 
|Consolidated Statements of Cash Flows                      |  |  | F-42 | 
|Notes to Consolidated Financial Statements                 |  |  | F-43 | 

F-38



---



##### 



Report of Independent Auditors

To the Partners of

Palmetto MobileNet, L.P.


We have audited the accompanying consolidated
balance sheets of Palmetto MobileNet, L.P. as of
December 31, 2003 and 2002, and the related consolidated
statements of income and partners equity, and cash flows
for each of the three years ended December 31, 2003, 2002
and 2001. These financial statements are the responsibility of
the Partnerships management. Our responsibility is to
express an opinion on these financial statements based on our
audits. We did not audit the financial statements of certain RSA
partnerships, the investments in which, as discussed in Note 3
to the financial statements, are accounted for by the equity
method of accounting. The investments in these RSA partnerships
were $82,633,982 and $78,709,106 as of December 31, 2003
and 2002, respectively, and the equity in their net income was
$28,258,064, $24,825,098, and $20,784,846 for the years 2003,
2002 and 2001, respectively. The financial statements of the RSA
partnerships were audited by other auditors whose reports were
furnished to us, and our opinion on the consolidated financial
statements of Palmetto MobileNet, L.P., insofar as it relates to
the amounts included for the RSA partnerships, is based solely
on the reports of the other auditors.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits and the
reports of the other auditors, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Palmetto MobileNet, L.P. as
of December 31, 2003 and 2002, and the results of its
operations and its cash flows for the years ended
December 31, 2003, 2002 and 2001 in conformity with
accounting principles generally accepted in the United States.

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

February 19, 2004

Columbia, South Carolina


F-39



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##### 



Palmetto MobileNet, L.P.



|                                       |                                       |              |             |           |  |   |            |           | 
|-------------------------------------- | ------------------------------------- | ------------ | ----------- | --------- |  | - | ---------- | --------- | 
|                                       |                                       |             
|                                       |                                       | December 31,
|                                       |                                       |             
|                                       |                                       | 2003         |             | 2002     
|                                       |                                       |              |             |          
|Assets                                 |                                       |              |             |           |  |   |            |          
|Current assets:                        |                                       |              |             |           |  |   |            |          
|                                       | Cash and cash equivalents             |              | $           | 6,170,772 |  |   | $          | 9,739,173 | 
|                                       | Accounts receivable                   |              |             |          |  |   |            | 69        | 
|                                       | Deposits                              |              |             | 30,350    |  |   |            |          | 
|                                       |                                       |              |             |           |  |   |            |          
|Total current assets                   |                                       |              | 6,201,122   |           |  |   | 9,739,242  |          
|                                      
|Land, building and improvements, net   |                                       |              | 6,612,306   |           |  |   | 6,075,367  |          
|                                      
|Interests in RSA partnerships          |                                       |              | 82,633,982  |           |  |   | 78,709,106 |          
|                                      
|Goodwill                               |                                       |              | 5,334,236   |           |  |   |           |          
|                                      
|Other assets                           |                                       |              | 230,448     |           |  |   | 388,969    |          
|                                       |                                       |              |             |           |  |   |            |          
|                                      
|Total assets                           |                                       | $            | 101,012,094 |           |  | $ | 94,912,684 |          
|                                       |                                       |              |             |           |  |   |            |          
|                                      
|Liabilities and partners
    equity   |                                       |              |             |           |  |   |            |          
|Current liabilities:                   |                                       |              |             |           |  |   |            |          
|                                       | Accounts payable  PMN, Inc.          |              | $           | 136,975   |  |   | $          | 162,302   | 
|                                       | Accounts payable and accrued expenses |              |             | 186,687   |  |   |            | 107,165   | 
|                                       | Current portion of long-term debt     |              |             | 2,442,857 |  |   |            |          | 
|                                       |                                       |              |             |           |  |   |            |          
|Total current liabilities              |                                       |              | 2,766,519   |           |  |   | 269,467    |          
|                                      
|Long-term debt, net of current portion |                                       |              | 13,435,714  |           |  |   |           |          
|                                      
|Partners equity                       |                                       |              | 84,809,861  |           |  |   | 94,643,217 |          
|                                       |                                       |              |             |           |  |   |            |          
|                                      
|Total liabilities and partners equity |                                       | $            | 101,012,094 |           |  | $ | 94,912,684 |          
|                                       |                                       |              |             |           |  |   |            |          

See accompanying notes.

F-40



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##### 



Palmetto MobileNet, L.P.



|                                                |                   |                          |             |          |   |      |             |          |   |   |             |          |  
|----------------------------------------------- | ----------------- | ------------------------ | ----------- | -------- | - | ---- | ----------- | -------- | - | - | ----------- | -------- | -
|                                                |                   |                         
|                                                |                   | Years Ended December 31,
|                                                |                   |                         
|                                                |                   | 2003                     |             | 2002     |   | 2001
|                                                |                   |                          |             |          |   |     
|Equity in earnings of RSA partnership interests |                   | $                        | 28,258,064  |          |   | $    | 24,825,098  |          |   | $ | 20,784,846  |         
|                                               
|Management fee                                  |                   |                          | (470,005    | )        |   |      | (401,235    | )        |   |   | (317,476    | )       
|                                                |                   |                          |             |          |   |      |             |          |   |   |             |         
|Income from operations                          |                   |                          | 27,788,059  |          |   |      | 24,423,863  |          |   |   | 20,467,370  |         
|                                               
|Revenue from real estate rentals                |                   |                          | 1,055,976   |          |   |      | 974,097     |          |   |   | 1,046,156   |         
|Cost of rental revenues                         |                   |                          | (619,787    | )        |   |      | (523,072    | )        |   |   | (507,183    | )       
|                                                |                   |                          |             |          |   |      |             |          |   |   |             |         
|Income from real estate rentals                 |                   |                          | 436,189     |          |   |      | 451,025     |          |   |   | 538,973     |         
|                                               
|Other income (expense):                         |                   |                          |             |          |   |      |             |          |   |   |             |         
|                                                | Interest expense  |                          |             | (234,064 | ) |      |             | (48,486  | ) |   |             | (319,609 | )
|                                                | Investment income |                          |             | 62,885   |   |      |             | 331,645  |   |   |             | 638,005  |  
|                                                | Other             |                          |             | (158,019 | ) |      |             | (507,780 | ) |   |             | (45,969  | )
|                                                |                   |                          |             |          |   |      |             |          |   |   |             |         
|Net income                                      |                   |                          | 27,895,050  |          |   |      | 24,650,267  |          |   |   | 21,278,770  |         
|                                               
|Partners equity, beginning of year             |                   |                          | 94,643,217  |          |   |      | 100,024,510 |          |   |   | 113,782,560 |         
|Repurchase of partners interests               |                   |                          | (11,669,034 | )        |   |      |            |          |   |   |            |         
|Distributions to partners                       |                   |                          | (26,059,372 | )        |   |      | (30,031,560 | )        |   |   | (35,036,820 | )       
|                                                |                   |                          |             |          |   |      |             |          |   |   |             |         
|                                               
|Partners equity, end of year                   |                   | $                        | 84,809,861  |          |   | $    | 94,643,217  |          |   | $ | 100,024,510 |         
|                                                |                   |                          |             |          |   |      |             |          |   |   |             |         

See accompanying notes.

F-41



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##### 



Palmetto MobileNet, L.P.



|                                                                                                |                                                 |                                       |             |             |         |      |             |             |         |   |             |             |        | 
|----------------------------------------------------------------------------------------------- | ----------------------------------------------- | ------------------------------------- | ----------- | ----------- | ------- | ---- | ----------- | ----------- | ------- | - | ----------- | ----------- | ------ | 
|                                                                                                |                                                 |                                      
|                                                                                                |                                                 | Years Ended December 31,             
|                                                                                                |                                                 |                                      
|                                                                                                |                                                 | 2003                                  |             | 2002        |         | 2001
|                                                                                                |                                                 |                                       |             |             |         |     
|Operating activities                                                                            |                                                 |                                       |             |             |         |      |             |             |         |   |             |            
|Net income                                                                                      |                                                 | $                                     | 27,895,050  |             |         | $    | 24,650,267  |             |         | $ | 21,278,770  |            
|Adjustments to reconcile net income to net cash
    provided by (used in) operating activities: |                                                 |                                       |             |             |         |      |             |             |         |   |             |            
|                                                                                                | Equity in earnings of RSA partnership interests |                                       |             | (28,258,064 | )       |      |             | (24,825,098 | )       |   |             | (20,784,846 | )     
|                                                                                                | Depreciation                                    |                                       |             | 150,622     |         |      |             | 136,999     |         |   |             | 135,372     |       
|                                                                                                | Changes in operating assets and liabilities:    |                                       |             |             |         |      |             |             |         |   |             |             |       
|                                                                                                |                                                 | Accounts receivable                   |             |             | 69      |      |             |             | 33,121  |   |             |             | 7,537  | 
|                                                                                                |                                                 | Deposits                              |             |             | (30,350 | )    |             |             |        |   |             |             |       | 
|                                                                                                |                                                 | Accounts payable and accrued expenses |             |             | 54,195  |      |             |             | (83,115 | ) |             |             | 28,310 | 
|                                                                                                |                                                 |                                       |             |             |         |      |             |             |         |   |             |            
|Net cash provided by (used in) operating
    activities                                         |                                                 |                                       | (188,478    | )           |         |      | (87,826     | )           |         |   | 665,143     |            
|                                                                                               
|Investing activities                                                                            |                                                 |                                       |             |             |         |      |             |             |         |   |             |            
|Proceeds from RSA partnership distributions                                                     |                                                 |                                       | 24,333,188  |             |         |      | 23,599,268  |             |         |   | 43,217,653  |            
|Proceeds from other assets                                                                      |                                                 |                                       | 158,521     |             |         |      |            |             |         |   |            |            
|Purchase of land, building and improvements                                                     |                                                 |                                       | (687,561    | )           |         |      | (300,719    | )           |         |   | (67,517     | )          
|                                                                                                |                                                 |                                       |             |             |         |      |             |             |         |   |             |            
|Net cash provided by investing activities                                                       |                                                 |                                       | 23,804,148  |             |         |      | 23,298,549  |             |         |   | 43,150,136  |            
|                                                                                               
|Financing activities                                                                            |                                                 |                                       |             |             |         |      |             |             |         |   |             |            
|Proceeds from long-term debt                                                                    |                                                 |                                       | 17,100,000  |             |         |      |            |             |         |   |            |            
|Repayments of long-term debt                                                                    |                                                 |                                       | (1,221,429  | )           |         |      | (4,413,789  | )           |         |   | (1,226,508  | )          
|Purchase of partners interests                                                                 |                                                 |                                       | (17,003,270 | )           |         |      |            |             |         |   |            |            
|Distributions of partnership capital                                                            |                                                 |                                       | (26,059,372 | )           |         |      | (30,031,560 | )           |         |   | (35,036,820 | )          
|                                                                                                |                                                 |                                       |             |             |         |      |             |             |         |   |             |            
|Net cash used in financing activities                                                           |                                                 |                                       | (27,184,071 | )           |         |      | (34,445,349 | )           |         |   | (36,263,328 | )          
|                                                                                                |                                                 |                                       |             |             |         |      |             |             |         |   |             |            
|                                                                                               
|Net change in cash and cash equivalents                                                         |                                                 |                                       | (3,568,401  | )           |         |      | (11,234,626 | )           |         |   | 7,551,951   |            
|                                                                                               
|Cash and cash equivalents, beginning of year                                                    |                                                 |                                       | 9,739,173   |             |         |      | 20,973,799  |             |         |   | 13,421,848  |            
|                                                                                                |                                                 |                                       |             |             |         |      |             |             |         |   |             |            
|Cash and cash equivalents, end of year                                                          |                                                 | $                                     | 6,170,772   |             |         | $    | 9,739,173   |             |         | $ | 20,973,799  |            
|                                                                                                |                                                 |                                       |             |             |         |      |             |             |         |   |             |            

See accompanying notes.

F-42



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##### 



Palmetto MobileNet, L.P.

Notes to Consolidated Financial Statements



1. Description of Business and Summary of
Significant Accounting Policies

Palmetto MobileNet, L.P. (the
Partnership) is a South Carolina limited partnership
and is a general partner in ten general partnerships formed to
provide cellular telephone service in certain Rural Service
Areas (RSA) in South Carolina and North Carolina.
These partnerships operations are managed by affiliates of
ALLTEL Communications, Inc.

HamptonNet, LLC, a wholly-owned subsidiary, owns
and operates commercial rental real estate located in Columbia,
South Carolina.

Consolidation

The financial statements include the accounts of
the Partnership and its wholly-owned subsidiary. All significant
intercompany accounts and transactions have been eliminated.

Estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

Cash Equivalents

The Partnership considers all highly liquid
investments with a maturity of three months or less when
purchased to be cash equivalents.

The Partnership maintains its cash and cash
equivalent balances in one financial institution located in
Columbia, South Carolina. At December 31, 2003 and 2002,
cash equivalents of approximately $4,631,000 and $9,767,000,
respectively, consisted of investments in repurchase agreements.

Interests in RSA Partnerships

Investments in the RSA general partnerships are
accounted for using the equity method, under which the
Partnerships share of earnings of these partnerships is
reflected in income as earned and distributions are credited
against the interests in the partnerships when received.

Income Taxes

Palmetto MobileNet, L.P. is a South Carolina
limited partnership and, therefore, is not subject to income
taxes. Each partner includes in income its distributive share of
the Partnerships taxable income or loss.

2. Acquisitions

In a prior year, the Partnership acquired 100% of
the equity in two companies and a 51% equity interest in a
general partnership in exchange for Partnership equity valued at
approximately $57,700,000 resulting in the Partnership obtaining
a 50% interest in North Carolina RSA 5 Cellular Partnership and
a 50% interest in North Carolina RSA 15 Cellular Partnership.
Consistent with investments in the other RSA general
partnerships, these interests are accounted for using the equity
method. At the acquisition date, the investments in these
partnerships, which are recorded at cost less accumulated
amortization,

F-43



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##### 





Notes to Consolidated Financial
Statements  (Continued)

exceeded the underlying equity in net assets by
approximately $11,116,000 and $37,512,000, respectively. In
2001, this cost in excess of underlying equity in net assets was
being amortized over a 15 year period.

Effective January 1, 2002, the Partnership
adopted Statement No. 142, Intangible Assets, issued
by the Financial Accounting Standards Board (SFAS
No. 142). Accordingly, the Partnership no longer amortizes
the remaining portion of the cost in excess of underlying
equity in net assets discussed above.

During 2003, the Partnership purchased certain of
its partners interests for $17,003,270. This purchase
resulted in goodwill of $5,334,236. In accordance with SFAS
No. 142, goodwill is not being amortized.

The Partnership performs an annual test for
impairment of its intangible assets. No write-down for
impairment was recorded in 2003 or 2002.

3. Interests in RSA
Partnerships

Interests in RSA partnerships which are all
engaged in providing cellular telephone service to rural areas
of South Carolina and North Carolina, are:

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)


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)


Summarized combined financial information for the
RSA partnerships follows:

At December 31:

|                       |  |      |             |      |  |   |             |  |  |  |  | 
|---------------------- |  | ---- | ----------- | ---- |  | - | ----------- |  |  |  |  | 
|                       |  | 2003 |             | 2002 |  |  
|                       |  |      |             |      |  |  
|Current assets         |  | $    | 20,585,368  |      |  | $ | 22,609,549  |  |  |  |  | 
|Noncurrent assets      |  |      | 119,727,210 |      |  |   | 107,158,873 |  |  |  |  | 
|Current liabilities    |  |      | 19,857,743  |      |  |   | 12,603,347  |  |  |  |  | 
|Noncurrent liabilities |  |      | 26,506,661  |      |  |   | 31,066,661  |  |  |  |  | 
|Partners equity       |  |      | 93,948,174  |      |  |   | 86,098,414  |  |  |  |  | 

For the years ended December 31:

|           |  |      |             |      |  |      |             |  |  |   |             | 
|---------- |  | ---- | ----------- | ---- |  | ---- | ----------- |  |  | - | ----------- | 
|           |  | 2003 |             | 2002 |  | 2001
|           |  |      |             |      |  |     
|Net sales  |  | $    | 239,089,648 |      |  | $    | 228,425,167 |  |  | $ | 206,447,266 | 
|Net income |  |      | 57,055,366  |      |  |      | 49,650,196  |  |  |   | 48,053,296  | 

The Partnerships equity in the combined net
income of the RSA partnerships was $28,258,064, $24,825,098, and
$24,026,648 for the years ended December 31, 2003, 2002 and
2001, respectively.

Market values of these partnership interests are
not readily available.

F-44



---



##### 





Notes to Consolidated Financial
Statements  (Continued)

4. Land, Building and Improvements,
net

Land, building and improvements consisted of the
following:

|                               |  |      |           |      |  |   |           |  
|------------------------------ |  | ---- | --------- | ---- |  | - | --------- | -
|                               |  | 2003 |           | 2002
|                               |  |      |           |     
|Land                           |  | $    | 1,000,000 |      |  | $ | 1,000,000 |  
|Land improvements              |  |      | 50,000    |      |  |   | 50,000    |  
|Building                       |  |      | 4,997,020 |      |  |   | 4,997,020 |  
|Building improvements          |  |      | 1,048,868 |      |  |   | 67,518    |  
|Construction in progress       |  |      | 6,930     |      |  |   | 300,719   |  
|                               |  |      |           |      |  |   |           |  
|                               |  |      | 7,102,818 |      |  |   | 6,415,257 |  
|Less, accumulated depreciation |  |      | (490,512  | )    |  |   | (339,890  | )
|                               |  |      |           |      |  |   |           |  
|                               |  | $    | 6,612,306 |      |  | $ | 6,075,367 |  
|                               |  |      |           |      |  |   |           |  

The building and improvements are depreciated on
a straight-line basis over the estimated useful lives of the
assets.

The Partnership has entered into operating leases
with a related party and other third parties for substantially
all of the space available in the building. Lease terms range
from 5 to 10 years plus various renewal options. Most
leases contain fixed monthly rental amounts plus provisions for
reimbursement of certain costs of operating the property.

Total minimum annual rentals under the terms of
executed leases are as follows:

|           |  |         |           |        |  |       |           |  |  |   |           | 
|---------- |  | ------- | --------- | ------ |  | ----- | --------- |  |  | - | --------- | 
|           |  | Related |           |        |  |      
|           |  | Party   |           | Others |  | Total
|           |  |         |           |        |  |      
|2004       |  | $       | 726,961   |        |  | $     | 424,516   |  |  | $ | 1,151,477 | 
|2005       |  |         | 718,201   |        |  |       | 203,830   |  |  |   | 922,031   | 
|2006       |  |         | 656,189   |        |  |       | 203,830   |  |  |   | 860,019   | 
|2007       |  |         | 648,438   |        |  |       | 203,830   |  |  |   | 852,268   | 
|2008       |  |         | 648,438   |        |  |       | 203,830   |  |  |   | 852,268   | 
|Thereafter |  |         | 2,332,725 |        |  |       | 322,734   |  |  |   | 2,655,459 | 
|           |  |         |           |        |  |       |           |  |  |   |           | 
|           |  | $       | 5,730,951 |        |  | $     | 1,562,570 |  |  | $ | 7,293,522 | 
|           |  |         |           |        |  |       |           |  |  |   |           | 

5. Long-Term Debt

The Partnership has a $17.1 million term
loan with a bank. The term loan requires 28 quarterly principal
installments of $610,714 plus interest at the 30-day LIBOR rate
(1.12% at December 31, 2003) plus 1.60%. The term note
matures in May, 2010 and is collateralized by an assignment of
RSA partnership distributions.

The terms of the note require that certain
covenants be met during the year. As of December 31, 2003,
the Company was in compliance with these covenants.

The Company has an unused $3 million working
capital line of credit agreement with the Rural Telephone
Finance Cooperative (the RTFC). The terms of the
agreement requires the Partnership maintain a specified amount
of RTFC Subordinated Capital Certificates
(SCCs). The Partnership had $155,230 and
$377,024 of SCCs at December 31, 2003 and 2002.

F-45



---



##### 





Notes to Consolidated Financial
Statements  (Continued)

The RTFC debt is collateralized by a first lien
on the assets of the Partnership other than the
Partnerships equity interests in the ten RSA partnership
investments. The line of credit agreement provides for interest
to be paid quarterly at the RTFCs published interest rate.

Cash paid for interest totaled $159,384,
$137,702, and $322,069 for the years ended December 31,
2003, 2002 and 2001, respectively.

6. Related Party Transactions

The business affairs of Palmetto MobileNet, L.P.
are managed by its 0.9% general partner, PMN, Inc. For the years
ended December 31, 2003, 2002 and 2001, approximately
$470,000, $401,000, and $317,000 were paid to the general
partner to perform this function.

7. Commitments and
Contingencies

Pursuant to each RSA general partnership
agreement, Palmetto MobileNet, L.P. is subject to requests for
additional capital.

The Internal Revenue Service (IRS) is
performing examinations of the records of a significant number
of the RSA partnerships in which the Partnership has ownership
interests, for the years ended December 31, 1991 to 1996.

For certain RSAs, agreements were reached
with the IRS in 2001 and 2000 as to certain adjustments which
have been allocated to each partner to be included in their
taxable income.

For certain other RSAs, the IRS has
completed its audits and has indicated adjustments they plan to
make to the RSA tax returns. The RSA partnerships are vigorously
contesting the IRS audit findings and, as a result, the amount
of final adjustment, if any, cannot be determined at this time.
The final adjustments, if any, from the IRS examinations will
ultimately be allocated to each partner to be included in their
taxable income.

8. Subsequent Event

In February 2004, the Company entered into an
agreement to purchase land and a building in Columbia, South
Carolina for a total purchase price of $1,039,625.

F-46



---



##### 



REPORT OF INDEPENDENT AUDITORS

To the Partners of North Carolina RSA 15
Cellular Partnership:

In our opinion, the balance sheets and the
related statements of operations, of cash flows, and of changes
in partners capital of North Carolina RSA 15 Cellular
Partnership: (the Partnership) (not presented
separately herein) present fairly, in all material respects, the
financial position of the Partnership at December 31, 2003
and 2002, and the results of its operations and its cash flows
for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
These financial statements are the responsibility of the
Partnerships management; our responsibility is to express
an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.



| |                               
| | ------------------------------
| | /s/ PRICEWATERHOUSECOOPERS LLP

Little Rock, Arkansas

February 13, 2004, except for Note 8,
as to which the date is March 3, 2004.


F-47



---



##### 



REPORT OF INDEPENDENT AUDITORS

To the Partners of South Carolina RSA No. 8
Cellular General Partnership:

In our opinion, the balance sheets and the
related statements of operations, of cash flows, and of changes
in partners capital of South Carolina RSA No. 8
Cellular General Partnership: (the Partnership) (not
presented separately herein) present fairly, in all material
respects, the financial position of the Partnership at
December 31, 2003 and 2002, and the results of its
operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Partnerships management; our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally
accepted in the United States of America, which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

As discussed in Note 3, the Partnership has
restated its December 31, 2002 financial statements.



| |                               
| | ------------------------------
| | /s/ PRICEWATERHOUSECOOPERS LLP

Little Rock, Arkansas

February 13, 2004, except for Note 9,
as to which the date is March 3, 2004.


F-48



---



##### 



REPORT OF INDEPENDENT AUDITORS

To the Partners of South Carolina RSA No. 7
Cellular General Partnership:

In our opinion, the balance sheets and the
related statements of operations, of cash flows, and of changes
in partners capital of South Carolina RSA No. 7
Cellular General Partnership: (the Partnership) (not
presented separately herein) present fairly, in all material
respects, the financial position of the Partnership at
December 31, 2003 and 2002, and the results of its
operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Partnerships management; our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally
accepted in the United States of America, which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.



| |                               
| | ------------------------------
| | /s/ PRICEWATERHOUSECOOPERS LLP

Little Rock, Arkansas

February 13, 2004, except for Note 8,
as to which the date is March 3, 2004.


F-49



---



##### 



REPORT OF INDEPENDENT AUDITORS

To the Partners of South Carolina RSA No. 6
Cellular General Partnership:

In our opinion, the balance sheets and the
related statements of operations, of cash flows, and of changes
in partners capital of South Carolina RSA No. 6
Cellular General Partnership: (the Partnership) (not
presented separately herein) present fairly, in all material
respects, the financial position of the Partnership at
December 31, 2003 and 2002, and the results of its
operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Partnerships management; our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally
accepted in the United States of America, which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.



| |                               
| | ------------------------------
| | /s/ PRICEWATERHOUSECOOPERS LLP

Little Rock, Arkansas

February 13, 2004, except for Note 8,
as to which the date is March 3, 2004.


F-50



---



##### 



REPORT OF INDEPENDENT AUDITORS

To the Partners of South Carolina RSA No. 5
Cellular General Partnership:

In our opinion, the balance sheets and the
related statements of operations, of cash flows, and of changes
in partners capital of South Carolina RSA No. 5
Cellular General Partnership: (the Partnership) (not
presented separately herein) present fairly, in all material
respects, the financial position of the Partnership at
December 31, 2003 and 2002, and the results of its
operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Partnerships management; our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally
accepted in the United States of America, which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.



| |                               
| | ------------------------------
| | /s/ PRICEWATERHOUSECOOPERS LLP

Little Rock, Arkansas

February 13, 2004, except for Note 8,
as to which the date is March 3, 2004.


F-51



---



##### 



REPORT OF INDEPENDENT AUDITORS

To the Partners of South Carolina RSA No. 4
Cellular General Partnership:

In our opinion, the balance sheets and the
related statements of operations, of cash flows, and of changes
in partners capital of South Carolina RSA No. 4
Cellular General Partnership: (the Partnership) (not
presented separately herein) present fairly, in all material
respects, the financial position of the Partnership at
December 31, 2003 and 2002, and the results of its
operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Partnerships management; our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally
accepted in the United States of America, which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.



| |                               
| | ------------------------------
| | /s/ PRICEWATERHOUSECOOPERS LLP

Little Rock, Arkansas

February 13, 2004, except for Note 8,
as to which the date is March 3, 2004.


F-52



---



##### 



REPORT OF INDEPENDENT AUDITORS

To the Partners of South Carolina RSA No. 3
Cellular General Partnership:

In our opinion, the balance sheets and the
related statements of operations, of cash flows, and of changes
in partners capital of South Carolina RSA No. 3
Cellular General Partnership: (the Partnership) (not
presented separately herein) present fairly, in all material
respects, the financial position of the Partnership at
December 31, 2003 and 2002, and the results of its
operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Partnerships management; our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally
accepted in the United States of America, which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.



| |                               
| | ------------------------------
| | /s/ PRICEWATERHOUSECOOPERS LLP

Little Rock, Arkansas

February 13, 2004, except for Note 8,
as to which the date is March 3, 2004.


F-53



---



##### 



REPORT OF INDEPENDENT AUDITORS

To the Partners of South Carolina RSA No. 2
Cellular General Partnership:

In our opinion, the balance sheets and the
related statements of operations, of cash flows, and of changes
in partners capital of South Carolina RSA No. 2
Cellular General Partnership: (the Partnership) (not
presented separately herein) present fairly, in all material
respects, the financial position of the Partnership at
December 31, 2003 and 2002, and the results of its
operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Partnerships management; our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally
accepted in the United States of America, which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

As discussed in Note 3, the Partnership has
restated its December 31, 2002 financial statements.



| |                               
| | ------------------------------
| | /s/ PRICEWATERHOUSECOOPERS LLP

Little Rock, Arkansas

February 13, 2004, except for Note 9,
as to which the date is March 3, 2004.


F-54



---



##### 



REPORT OF INDEPENDENT AUDITORS

To the Partners of North Carolina RSA 5 Cellular
Partnership:

In our opinion, the balance sheets and the
related statements of operations, of cash flows, and of changes
in partners capital of North Carolina RSA 5 Cellular
Partnership: (the Partnership) (not presented
separately herein) present fairly, in all material respects, the
financial position of the Partnership at December 31, 2003
and 2002, and results of its operations and its cash flows for
the years then ended in conformity with accounting principles
generally accepted in the United States of America. These
financial statements are the responsibility of the
Partnerships management; our responsibility is to express
an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.



| |                               
| | ------------------------------
| | /s/ PRICEWATERHOUSECOOPERS LLP

Little Rock, Arkansas

February 13, 2004, except for Note 8,
as to which the date is March 3, 2004.


F-55



---



##### 



REPORT OF INDEPENDENT AUDITORS

To the Partners of South Carolina RSA No. 9
Cellular General Partnership:

In our opinion, the balance sheets and the
related statements of operations, of cash flows, and of changes
in partners capital of South Carolina RSA No. 9
Cellular General Partnership: (the Partnership) (not
presented separately herein) present fairly, in all material
respects, the financial position of the Partnership at
December 31, 2003 and 2002, and the results of its
operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Partnerships management; our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally
accepted in the United States of America, which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.



| |                               
| | ------------------------------
| | /s/ PRICEWATERHOUSECOOPERS LLP

Little Rock, Arkansas

February 13, 2004, except for Note 8,
as to which the date is March 3, 2004.


F-56



---



##### 



The following is a copy of a report
previously issued by Arthur Andersen LLP (Andersen).
This report has not been reissued by Andersen and Andersen did
not consent to the incorporation by reference of this report (as
included in this Form 10-K) into any of the Companys
registration statements.

REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS

To the Partners of South Carolina RSA No. 4
Cellular General Partnership:

We have audited the accompanying balance sheets
of South Carolina RSA No. 4 Cellular General Partnership (a
South Carolina general partnership) as of December 31, 2001
and 2000, and the related statements of operations, changes in
partners capital and cash flows for the years then ended.
These financial statements are the responsibility of the
Partnerships management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial
position of South Carolina RSA No. 4 Cellular General
Partnership as of December 31, 2001 and 2000, and the
results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally
accepted in the United States.

As explained in Note 2 to the financial
statements, effective January 1, 2000, the Partnership
changed its method of accounting for certain revenues.



| |                        
| | -----------------------
| | /s/ ARTHUR ANDERSEN LLP

Little Rock, Arkansas,

February 6, 2002.


F-57



---



##### 



The following is a copy of a report
previously issued by Arthur Andersen LLP (Andersen).
This report has not been reissued by Andersen and Andersen did
not consent to the incorporation by reference of this report (as
included in this Form 10-K) into any of the Companys
registration statements.

REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS

To the Partners of South Carolina RSA No. 5
Cellular General Partnership:

We have audited the accompanying balance sheets
of South Carolina RSA No. 5 Cellular General Partnership (a
South Carolina general partnership) as of December 31, 2001
and 2000, and the related statements of operations, changes in
partners capital and cash flows for the years then ended.
These financial statements are the responsibility of the
Partnerships management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial
position of South Carolina RSA No. 5 Cellular General
Partnership as of December 31, 2001 and 2000, and the
results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally
accepted in the United States.

As explained in Note 2 to the financial
statements, effective January 1, 2000, the Partnership
changed its method of accounting for certain revenues.



| |                        
| | -----------------------
| | /s/ ARTHUR ANDERSEN LLP

Little Rock, Arkansas,

February 6, 2002.


F-58



---



##### 



The following is a copy of a report
previously issued by Arthur Andersen LLP (Andersen).
This report has not been reissued by Andersen and Andersen did
not consent to the incorporation by reference of this report (as
included in this Form 10-K) into any of the Companys
registration statements.

REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS

To the Partners of South Carolina RSA No. 6
Cellular General Partnership:

We have audited the accompanying balance sheets
of South Carolina RSA No. 6 Cellular General Partnership (a
South Carolina general partnership) as of December 31, 2001
and 2000, and the related statements of operations, changes in
partners capital and cash flows for the years then ended.
These financial statements are the responsibility of the
Partnerships management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial
position of South Carolina RSA No. 6 Cellular General
Partnership as of December 31, 2001 and 2000, and the
results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally
accepted in the United States.

As explained in Note 2 to the financial
statements, effective January 1, 2000, the Partnership
changed its method of accounting for certain revenues.



| |                        
| | -----------------------
| | /s/ ARTHUR ANDERSEN LLP

Little Rock, Arkansas,

February 6, 2002.


F-59



---



##### 



The following is a copy of a report
previously issued by Arthur Andersen LLP (Andersen).
This report has not been reissued by Andersen and Andersen did
not consent to the incorporation by reference of this report (as
included in this Form 10-K) into any of the Companys
registration statements.

REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS

To the Partners of North Carolina RSA 15 Cellular
Partnership:

We have audited the accompanying balance sheets
of North Carolina RSA 15 Cellular Partnership (a North Carolina
general partnership) as of December 31, 2001 and 2000, and
the related statements of operations, changes in partners
capital and cash flows for the years then ended. These financial
statements are the responsibility of the Partnerships
management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial
position of North Carolina RSA 15 Cellular Partnership as of
December 31, 2001 and 2000, and the results of its
operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the
United States.

As explained in Note 2 to the financial
statements, effective January 1, 2000, the Partnership
changed its method of accounting for certain revenues.



| |                        
| | -----------------------
| | /s/ ARTHUR ANDERSEN LLP

Little Rock, Arkansas,

February 6, 2002.


F-60



---



##### 



The following is a copy of a report
previously issued by Arthur Andersen LLP (Andersen).
This report has not been reissued by Andersen and Andersen did
not consent to the incorporation by reference of this report (as
included in this Form 10-K) into any of the Companys
registration statements.

REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS

To the Partners of North Carolina RSA 5 Cellular
Partnership:

We have audited the accompanying balance sheets
of North Carolina RSA 5 Cellular Partnership (a North Carolina
general partnership) as of December 31, 2001 and 2000, and
the related statements of operations, changes in partners
capital and cash flows for the years then ended. These financial
statements are the responsibility of the Partnerships
management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial
position of North Carolina RSA 5 Cellular Partnership as of
December 31, 2001 and 2000, and the results of its
operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the
United States.

As explained in Note 2 to the financial
statements, effective January 1, 2000, the Partnership
changed its method of accounting for certain revenues.



| |                        
| | -----------------------
| | /s/ ARTHUR ANDERSEN LLP

Little Rock, Arkansas,

February 6, 2002.


F-61



---



##### 



The following is a copy of a report
previously issued by Arthur Andersen LLP (Andersen).
This report has not been reissued by Andersen and Andersen did
not consent to the incorporation by reference of this report (as
included in this Form 10-K) into any of the Companys
registration statements.

REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS

To the Partners of South Carolina RSA No. 3
Cellular General Partnership:

We have audited the accompanying balance sheets
of South Carolina RSA No. 3 Cellular General Partnership (a
South Carolina general partnership) as of December 31, 2001
and 2000, and the related statements of operations, changes in
partners capital and cash flows for the years then ended.
These financial statements are the responsibility of the
Partnerships management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial
position of South Carolina RSA No. 3 Cellular General
Partnership as of December 31, 2001 and 2000, and the
results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally
accepted in the United States.

As explained in Note 2 to the financial
statements, effective January 1, 2000, the Partnership
changed its method of accounting for certain revenues.



| |                        
| | -----------------------
| | /s/ ARTHUR ANDERSEN LLP

Little Rock, Arkansas,

February 6, 2002.


F-62



---



##### 



The following is a copy of a report
previously issued by Arthur Andersen LLP (Andersen).
This report has not been reissued by Andersen and Andersen did
not consent to the incorporation by reference of this report (as
included in this Form 10-K) into any of the Companys
registration statements.

REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS

To the Partners of South Carolina RSA No. 7
Cellular General Partnership:

We have audited the accompanying balance sheets
of South Carolina RSA No. 7 Cellular General Partnership (a
South Carolina general partnership) as of December 31, 2001
and 2000, and the related statements of operations, changes in
partners capital and cash flows for the years then ended.
These financial statements are the responsibility of the
Partnerships management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial
position of South Carolina RSA No. 7 Cellular General
Partnership as of December 31, 2001 and 2000, and the
results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally
accepted in the United States.

As explained in Note 2 to the financial
statements, effective January 1, 2000, the Partnership
changed its method of accounting for certain revenues.



| |                        
| | -----------------------
| | /s/ ARTHUR ANDERSEN LLP

Little Rock, Arkansas,

February 6, 2002.


F-63



---



##### 



The following is a copy of a report
previously issued by Arthur Andersen LLP (Andersen).
This report has not been reissued by Andersen and Andersen did
not consent to the incorporation by reference of this report (as
included in this Form 10-K) into any of the Companys
registration statements.

REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS

To the Partners of South Carolina RSA No. 9
Cellular General Partnership:

We have audited the accompanying balance sheets
of South Carolina RSA No. 9 Cellular General Partnership (a
South Carolina general partnership) as of December 31, 2001
and 2000, and the related statements of operations, changes in
partners capital and cash flows for the years then ended.
These financial statements are the responsibility of the
Partnerships management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial
position of South Carolina RSA No. 9 Cellular General
Partnership as of December 31, 2001 and 2000, and the
results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally
accepted in the United States.

As explained in Note 2 to the financial
statements, effective January 1, 2000, the Partnership
changed its method of accounting for certain revenues.



| |                        
| | -----------------------
| | /s/ ARTHUR ANDERSEN LLP

Little Rock, Arkansas,

February 6, 2002.


F-64



---



##### 



The following is a copy of a report
previously issued by Arthur Andersen LLP (Andersen).
This report has not been reissued by Andersen and Andersen did
not consent to the incorporation by reference of this report (as
included in this Form 10-K) into any of the Companys
registration statements.

REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS

To the Partners of South Carolina RSA No. 2
Cellular General Partnership:

We have audited the accompanying balance sheets
of South Carolina RSA No. 2 Cellular General Partnership (a
South Carolina general partnership) as of December 31, 2001
and 2000, and the related statements of operations, changes in
partners capital and cash flows for the years then ended.
These financial statements are the responsibility of the
Partnerships management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial
position of South Carolina RSA No. 2 Cellular General
Partnership as of December 31, 2001 and 2000, and the
results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally
accepted in the United States.

As explained in Note 2 to the financial
statements, effective January 1, 2000, the Partnership
changed its method of accounting for certain revenues.



| |                        
| | -----------------------
| | /s/ ARTHUR ANDERSEN LLP

Little Rock, Arkansas,

February 6, 2002.


F-65



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##### 



The following is a copy of a report
previously issued by Arthur Andersen LLP (Andersen).
This report has not been reissued by Andersen and Andersen did
not consent to the incorporation by reference of this report (as
included in this Form 10-K) into any of the Companys
registration statements.

REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS

To the Partners of South Carolina RSA No. 8
Cellular General Partnership:

We have audited the accompanying balance sheets
of South Carolina RSA No. 8 Cellular General Partnership (a
South Carolina general partnership) as of December 31, 2001
and 2000, and the related statements of operations, changes in
partners capital and cash flows for the years then ended.
These financial statements are the responsibility of the
Partnerships management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial
position of South Carolina RSA No. 8 Cellular General
Partnership as of December 31, 2001 and 2000, and the
results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally
accepted in the United States.

As explained in Note 2 to the financial
statements, effective January 1, 2000, the Partnership
changed its method of accounting for certain revenues.



| |                        
| | -----------------------
| | /s/ ARTHUR ANDERSEN LLP

Little Rock, Arkansas,

February 6, 2002.


F-66